Real GDP in the manufacturing sector jumped 9.2% in Q3, extending the gain of 6.5% in Q2, with durable and nondurable goods rising 4.0% and 15.9% for the quarter, respectively. As a result, manufacturing added 0.92 percentage points to headline real GDP growth in Q3 (which expanded by 4.9%). Encouragingly, manufacturing value-added output increased from $2.751 trillion at the annual rate in Q2 to $2.853 trillion in Q3, an all-time high. Value-added output also rose to new record levels in Q3 for both durable goods (up from $1.514 trillion to $1.547 trillion) and nondurable goods (up from $1.237 trillion to $1.306 trillion).

Labor productivity thread:

Manufacturing labor productivity rose 0.7% in the first quarter of 2022, bouncing back somewhat after declining in each of the prior two quarters. Output in the sector soared 5.7%. The output data continue to reflect solid growth in demand for goods despite ongoing challenges with supply chain and workforce issues. The number of hours worked rose 5.1% in the first quarter, with unit labor costs up 2.1%.

#FOMC statement thread:

The Federal Open Market Committee voted to increase the federal funds rate by 50 basis points at the conclusion of their May 3–4 meeting, consistent with expectations, with the current range being 0.75 to 1.00 percent. “Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.” The Fed also notes that Russian invasion in Ukraine and COVID-19-related closures in China exacerbate pricing, supply chain problems.

Trade deficit thread:

The U.S. trade deficit soared from $89.80 billion in February to $109.80 billion in March, an all-time high. February’s trade deficit was the previous record. These data continued to be skewed by supply chain disruptions, higher petroleum prices and stronger economic growth in the U.S. relative to other markets. The goods trade deficit also jumped to new heights, up from $107.78 billion to $128.14 billion.

Factory orders thread (very resilient!):

New orders for manufactured goods rose 2.2% from $545.5 billion in February to a record $557.3 billion in March. Durable and nondurable goods orders increased 1.1% and 3.2% in March, respectively. Defense and nondefense aircraft and parts sales, which can be highly volatile from month to month, were both sharply lower in March, but motor vehicles and parts orders rebounded with a 3.0% gain for the month.

JOLTS thread:

There were 860,000 manufacturing job openings in March, with increased postings for both durable and nondurable goods firms. Over the past 12 months, job openings in the sector have averaged nearly 865,000, including the record 943,000 in July. The number of job postings continued to be well above pre-pandemic levels, as companies ramped up activity and looked for more workers to meet the additional capacity.

Construction spending thread:

Private manufacturing construction spending declined 1.6% from a record $95.64 billion at the annual rate in February to $94.11 billion in March. Despite some easing in the latest date, private construction activity in the sector has trended strongly higher since bottoming out at $65.92 billion in December 2020.

FOMC thread:

Considering “elevated levels of inflation, “the Federal Open Market Committee accelerated the pace that it plans to taper its asset purchases, as expected. Since the beginning of the pandemic, the Federal Reserve had bought at least $80 billion each month in Treasury securities and up to $40 billion per month in agency mortgage-backed securities.

Retail sales were up 0.3% in November, slowing from 1.8% gain seen in October but rising for the fourth straight month. The increase in the latest data were disappointing relative to the consensus estimate, which was for a gain of 0.8% in November. Yet, the data continue to reflect an American consumer that has opened their wallets over the past year as the economy has rebounded. Indeed, retail spending has soared 18.2% over the past 12 months, or 15.8% with gasoline stations and motor vehicle and parts sales excluded.

Manufacturing activity continued to expand solidly in December, according to the Empire State Manufacturing Survey, with the composite index edging up from 30.9 in November to 31.9 in December. Growth in new orders, shipments, hiring and the average workweek softened slightly but at still healthy paces. Delivery times eased somewhat but remained highly elevated. Even with a slight deceleration in December, input costs expanded just shy of the record pace seen in May.

The National Federation of Independent Business reported that the Small Business Optimism Index edged up from 98.2 in October to 98.4 in November. Yet, the headline index has generally drifted lower since June (102.5). #SmallBusiness #Economy Small business owners remain challenged by supply chain disruptions, workforce shortages, inflation and COVID-19. The net percentage expecting better business conditions 6 months from now has plummeted from -33% in Sept. to -38% in Nov., the lowest level since November 2012.

PPI thread:

Producer prices for final demand goods & services rose 0.8% in Nov., the strongest monthly gain since July and continuing to increase very solidly YTD. Producer prices for final demand goods grew 1.2% in Nov., rising by at least 1% for the 8th time so far this year. Food and energy costs increased 1.2% and 2.5%, respectively, for the month. Excluding food and energy, producer prices for final demand goods increased 0.8% in November, up from 0.6% in October and also the fastest since July.

Manufacturing labor productivity eked out a 0.2% gain at the annual rate in the first quarter, according to revised data. With the U.S. economy grappling with the economic impacts of COVID-19, output fell sharply at rates not seen since the second quarter of 2010, dropping 6.3%. The number of hours worked decreased 6.6%, with unit labor costs up 6.9%. Labor productivity for durable goods manufacturers declined 3.5% in the first quarter, with output off 10.2%.