Economic Indicators For Manufacturing Executives
Valuable Data for a Complex WorldPresented by:Cliff WaldmanChief Economist, MAPI [email protected]
• The Value of Economic Data for Manufacturers• Sources of Economic Data• Data Construction • Issues• Gross Domestic Product and Components• Labor Market • Industrial Production• Institute for Supply Management Manufacturing Report• Housing Starts/Permits/Other Housing Indicators• Foreign Economies• Constructing a Picture
Today’s Presentation
• Economic Picture Matters to Capital Goods Demand
• Drawing a Picture; Strengths and Weaknesses
• Price and Supply Issues: What is the Pricing and Sales Climate for My Output?
The Value of Economic Data for Manufacturers
• Government Agencies
• Trade Associations
• Economic Forecasting Groups
• Markets
• Anecdotes, Yes: But Take Them With a Grain of Salt!
• Business Media: But Not as a Primary Source
Sources of Economic Data
• Definitions are at the Root of the Indicator System: What is a House? What is a Job? What is a Business?
• Surveys are the Essential Tool
• These are Statistical Estimates With Strengths and Weaknesses
• Some Indicators are Constructed Artifacts and Derivatives of Other Indicators
The Construction of Economic Data
• Data are Never Contemporaneous
• Revisions
• Volatility
• Seasonal Adjustment
• Some Data Series are Adjusted for Price Changes, Some are Not
Issues With All Indicators: Lag, Revision, Volatility, Adjustment
• Total Output of Goods and Services (Valued at Market Prices) Produced by Labor, Capital, and Land Within A Country’s Borders
• Measure of Current Production, Not Sales; Measure of Output for “Final” Users
• In the U.S., GDP Data is Produced by the Bureau of Economic Analysis (BEA), a Branch of the U.S. Department of Commerce
• Go To: www.bea.gov/national/index.htm#gdp to Find This Report
• Quarterly Release, First One at the End of the Month Following the Quarter, Subsequent Revisions
• Seasonal Adjustment
• Price Adjustment: Nominal and Real GDP
• Interpretation Issues: Actual Versus Potential
• Potential GDP: Stable, Non-Inflationary Growth; A Function of Labor Force Growth and Labor Productivity Growth
Gross Domestic Product (GDP)
Component/Annualized Growth
2016 Q3
2016 Q4
2017 Q1
2016 Q3
2016 Q4
2017 Q1
GDP 3.5 2.1 1.2 Net Exports of Goods & Services
Personal Consumption Expenditures 3.0 3.5 0.6 Exports 10.0 -4.5 5.8
Goods 3.5 6.0 0.3 Goods 14.4 -6.7 8.4
Durable Goods 11.6 11.4 -1.4 Services 2.0 -0.1 1.2
Nondurable Goods -0.5 3.3 1.2 Imports 2.2 9.0 3.8
Services 2.7 2.4 0.8 Goods 0.5 10.9 4.2
Gross Private Domestic Investment* 3.0 9.4 4.8 Services 9.8 0.7 1.9
Fixed Investment 0.1 2.9 11.9 Government Consumption Expenditures and Investment 0.8 0.2 -1.1
Nonresidential 1.4 0.9 11.4 Federal 2.4 -1.2 -2.0
Structures 12.0 -1.9 28.4 National Defense 2.0 -3.6 -3.9
Equipment -4.5 1.9 7.2 Nondefense 3.0 2.3 0.7
Intellectual Property Products 3.2 1.3 6.7 State and Local -0.2 1.0 -0.6
Residential -4.1 9.6 13.8
NIPA: A System of Accounting for the Sources of Growth
Source(s): U.S. Bureau of Economic Analysis
Component/PercentagePoints of Growth to GDP
2016 Q3
2016 Q4
2017 Q1
2016Q3
2016 Q4
2017 Q1
Gross Domestic Product (%) 3.5 2.1 1.2 Net Exports of Goods & Services
Personal Consumption Expenditures 2.03 2.40 0.44 Exports 1.16 -0.55 0.69
Goods 0.77 1.29 0.07 Goods 1.08 -0.55 0.64
Durable Goods 0.84 0.82 -0.11 Services 0.08 0.00 0.05
Nondurable Goods -0.07 0.47 0.18 Imports -0.31 -1.27 -0.55
Services 1.26 1.11 0.37 Goods -0.06 -1.25 -0.50
Gross Private Domestic Investment* 0.50 1.47 0.78 Services -0.26 -0.02 -0.05
Fixed Investment 0.02 0.46 1.85 Government Consumption Expenditures and Investment 0.14 0.03 -0.20
Nonresidential 0.18 0.11 1.34 Federal 0.16 -0.08 -0.14
Structures 0.30 -0.05 0.69 National Defense 0.08 -0.14 -0.16
Equipment -0.26 0.11 0.39 Nondefense 0.08 0.06 0.02
Intellectual Property Products 0.13 0.05 0.27 State and Local -0.02 0.11 -0.06
Residential -0.16 0.35 0.50
How Much Are Each of the Sources Contributing?
Source(s): U.S. Bureau of Economic Analysis
• The Monthly Report on Labor Market Activity, Released on the First Friday of Each Month by the Bureau of Labor Statistics (BLS)
• Go To: www.bls.gov/news.release/pdf/empsit.pdf to Get This Report
• Indicators that Receive the Most Attention Include:o Civilian Unemployment Rateo Measures of Net Job Creationo Average Weekly and Hourly Earningso Labor Force Participation Rate---A Big Deal in This Cycle!
• Many Others of Great Value: Duration of Unemployment and Part-Time Employment-To Name a Few
• Economy-Wide Data But Also for Sectors, Industries, and Demographic Groups
Labor Market
• Two monthly surveys: Current Population Survey (CPS) and Current Employment Statistics Survey (CES). In both, Respondents are Queried for Either the Calendar Week or the Pay Period that Includes the 12th of the Month.
• The CPS is a Household Survey of about 60,000 households.
• The Most Notable Output of the CPS Survey Program is the Unemployment Rate
• CPS Uses a Broad Definition of Employment. o Employed: Individual Has Done Any Work At All, for Pay or Profit, During
the Survey Weeko Unemployed: Individual Does Not Have a Job, Has Actively Looked for
Work During the Prior 4 Weeks, and Currently Available for Work
• One Exception: Workers Expected to be Recalled from a Temporary Layoff are Counted as Unemployed Whether or Not They Have Engaged in Specific, Job-Seeking Activity
Labor Market
• The CES Survey is a Survey of about 147,000 Establishments (634,000 individual worksites). It is the Basis for Monthly Estimates of Employment, Hours, and Earnings for the Nation, States, and Major Metropolitan Areas.
• Employment is Total Number of Persons on Establishment Payrolls Who Received Compensation for any Part of the Pay Period that Includes the 12th of the Month o Part-time Workers are Included o Temporary and Intermittent Employees Includedo Employees Who are on Paid Sick Leave or Paid Holiday Includedo Multiple Job Holders are Counted Once for Each Jobo If A Striking Employee Works a Small Portion of the Survey Period and is
Paid, That Employee is Included
• Revisions
• A Key Challenge: Employment Generated By New Firms
Labor Market
Unemployment Rate
0
2
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12
May
-48
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-14
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-16
Une
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ate
Source(s): Bureau of Labor Statistics
The Unemployment Rate is a Tricky Indicator: It Can Move for Good and Bad Reasons
Total U.S. Nonfarm Job Creation, Thousands
Source(s): U.S. Bureau of Labor Statistics
-900
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-100
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500
700
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-08
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-10
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-12
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May
-13
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May
-14
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May
-15
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May
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Sep-
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May
-17
One
Mon
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eJob Growth is Volatile But Within a Range
U.S. Labor Force Participation Rate, 16 Years and Older
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Perc
ent
Source(s): U.S. Bureau of Labor Statistics
Labor Supply is a Big Issue in This Cycle of U.S. Recovery
• Industrial Production (IP) is Output of Manufacturing, Mining, and Electric and Gas Utilities
• Manufacturing is the Largest Component • Monthly Report (Mid-Month), Seasonally Adjusted, Price Adjusted• Constructed as an Index• Go to www.federalreserve.gov/releases/g17/Current/g17.pdf• Report Contains Data on Total IP As Well as Major Sectors, Major
Markets, and Major Industries• Five Revisions for Each Monthly Number!
o About 85 Percent of the Time, the Direction of Change in Output Indicated by the First Estimate is the Same as for the Fourth
• Annual Revisions Provided Most Years and Announced in the Release• Report Also Contains Capacity Utilization - A Measure of Slack• Capacity Utilization is Output as a Percent of Sustainable Maximum
Output (Output Index/Capacity Index)
Manufacturing: Industrial Production
-4
-2
0
2
4
6
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12
2009
Q3
2009
Q4
2010
Q1
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Q2
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Perc
ent
Quarterly Data Make the Most Sense With the Industrial Production Series
U.S. Manufacturing Production Growth, Seasonally Adjusted at Annual Rate
Source(s): Federal Reserve Board
• Widely Followed Survey by Institute for Supply Management (ISM) on Short-Term Business Cycle Status of Manufacturing Sector
• Released on the First Business Day of the Month.• Go to: www.ism.ws/ISMReport/MfgROB.cfm?navItemNumber=12492• Indicators Include: New Orders, Production, Backlog of Orders, New
Export Orders, Imports, Supplier Deliveries, Inventories, Customer Inventories, Employment, and Prices
• A Diffusion Index is Calculated for Each Indicator: Percent Reporting a Positive Change Plus Half Reporting “Same”
• The Total Purchasing Managers Index is a Composite of New Orders, Production, Employment, Supplier Deliveries, and Inventories.
• Fifty (50) Percent is the Dividing Line Between Growth and Contraction. • ISM has Similar Survey for Non-Manufacturing:
www.ism.ws/ISMReport/NonMfgROB.cfm?navItemNumber=12943
Institute for Supply Management Manufacturing Report
Purchasing Managers’ Index for U.S., Manufacturing
20
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60Ju
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6
Aug
-16
Sep-
16
Oct
-16
Nov
-16
Dec
-16
Jan-
17
Feb-
17
Mar
-17
Apr
-17
May
-17
Perc
ent
Source(s): Institute for Supply Management
The Purchasing Managers’ Index Points to Acceleration in U.S. Manufacturing Growth
• Report on New Residential Construction Generated by Census Bureau in Conjunction with Department of Housing and Urban Development
• Released Around the 20th of Each Month• Go To: www.census.gov/construction/nrc/pdf/newresconst.pdf• Two Key Data Series: Housing Starts and Building Permits.
o “Housing Unit”: An Apartment, a Group of Rooms, or a Single Room Intended for Occupancy as a Separate Living Quarters.
o Building Permits: Good Leading Indicator of the Market• New Home Sales: www.census.gov/construction/nrs/pdf/newressales.pdf• Existing Home Sales: www.realtor.org/topics/existing-home-sales• Pending Home Sales, A Measure of Housing Contract Activity:
www.realtor.org/topics/pending-home-sales
Housing: Starts, Permits, and Other Indicators
U.S. New Building Permits, Seasonally Adjusted Annual Rate
The Residential Construction Rebound Has Been Choppy
0
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400
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1,400
1,600M
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Aug
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Nov
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Feb-
17M
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7
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Source(s): U.S. Bureau of the Census
Total New Single Family Homes Sold, U.S., Seasonally Adjusted at Annual Rate
250350450550650750850950
1,0501,1501,2501,3501,450
Apr
-73
Apr
-75
Apr
-77
Apr
-79
Apr
-81
Apr
-83
Apr
-85
Apr
-87
Apr
-89
Apr
-91
Apr
-93
Apr
-95
Apr
-97
Apr
-99
Apr
-01
Apr
-03
Apr
-05
Apr
-07
Apr
-09
Apr
-11
Apr
-13
Apr
-15
Apr
-17
Thou
sand
s
Source(s): U.S. Bureau of the Census
A Permanent Empirical Record of the Housing Collapse
• Central Bank Websites• Central Data Collection Organizations• World Bank, Other Development Banks, International Monetary Fund• Seasonal Adjustment is Often Weak Outside of the U.S. • Longer Reporting Lags than in the U.S.• Often More Revision than in the U.S.• Be Careful With International Comparisons-Many Issues!
Non-U.S. Data
• Graph Your Data• Calculate Moving Averages• Ask Questions and Find Contradictions• Use Data Experts; Get to Know the Experts in Key U.S. Statistical
Agencies• Use Economic Experts
Constructing a Picture