Weekly Economic Trends and Indicators

There were two important data points on manufacturing released recently. The U.S. Census Bureau reported that new orders for manufactured goods in April increased by $4.3 billion or 0.7% to $588.2 billion. Shipments increased by $5.9 billion or 1.0% to $590.2 billion.

In a separate release, the Federal Reserve reported that industrial production increased by 0.9% in May with manufacturing output increasing at the same rate. Industrial production increased by 0.4% from May 2023 to May 2024, and capacity utilization stood at 78.7% in May which is 0.9 percentage points below the 1972-2023 average.

The Details:

In the first four months of this year, manufacturers’ new orders were up 1.1% compared to the same period last year. Computers and other electrical and electronic equipment were up the most while transportation equipment was down 2.7%.

Industrial production increased at the highest rate in utilities (1.6%) and consumer goods (1.3%). Over the course of the last year, capacity utilization increased the most in utilities (3.5%) and finished goods (2.2%).

The Context:

Overall, these are respectable numbers. However, the fact that the current rates of increase are mostly lower than the 12-month rates of increase is a sign that the pace of growth is slowing. Multiple indicators are now showing either a slowing of growth rates or outright contraction in manufacturing as well as other sectors. While the overall U.S. labor market continues to post solid gains, manufacturing has been relatively flat.

In the press conference following the June 12 Federal Open Market Committee Meeting, Chair Jerome Powell reported on the Summary of Economic Projections, stating that the median projection for GDP growth this year is 2.1%, which is below last year’s growth.

In that press conference, Powell was asked about the labor market and how an unexpected weakening in the labor market would cause the Fed to change its course on interest rate policy. Powell acknowledged that labor markets can change quickly and that they would monitor “all the labor market data” and that they are “watching… the balance of risks.”

The bottom line is that the labor market of the immediate post-pandemic period was abnormally hot, and the tight monetary policy of the last two years was designed to cool down that hot market. Hence, growth will be slower, but for now growth is still positive. The best environment for long-run growth is one with low and predicable inflation. As a result, the Fed will continue to press toward the goal of 2% inflation while watching for signs of weakness.

Next week: Mid-year review