Manufacturer Shipments

In a positive sign for the economy, last week’s data revealed shipments of U.S. manufacturers rose to $503 billion for the month of March. Although only 0.4% over the previous month, it is a robust 6.8% above the same month of last year. In fact, shipments have increased steadily since early 2016, when they were $448 billion, generating a 12% two-year increase.

In contrast, over the last two years, employment in U.S. manufacturing businesses has increased only by 2%, much less than the 12% increase in shipments. There are currently 12.6 million people employed in manufacturing, 300,000 more than two years ago. This means that while productivity of manufacturers continues to improve, this does not necessarily translate into employment gains at the same growth rate.

In fact, manufacturing employment was as its highest level ever in mid-1979, when there were nearly 19.6 million workers. The loss over the last 39 yeas was almost 7 million workers, but at the same time, manufacturing shipments continued to increase.

The chart below illustrates this phenomenon for the last quarter century. Shipments have doubled (i.e., increased by 100%) since 1992, but employment has fallen by 25%.

Recessions accelerated this process, as can be seen in the chart above; both the mild 2001 recession, as well as the more severe Great Recession of 2007-2009, resulted in declines in manufacturing employment. But, unlike shipments — which increased as soon as the post-recession recovery began — employment remained relatively flat after both recessions.

Nonetheless, we can see in the graph that employment, represented by the red line, has shown a modest uptick in the last few years. In fact, employment since 2010 has increased by 8%. However, manufacturing has risen by 14% during the same period, reflecting gap between the two that continues to widen.

Trade Deficit

On a less-positive note, after several months of slow deterioration, the foreign trade deficit improved by 15% to $49 billion in March. Despite this improvement, the first-quarter deficit of $163 billion still remains 18.4% — worse than it was in the first quarter of last year.

There are two major components of trade. One is imports and exports of goods, such as automobiles, agricultural products, etc., where the U.S. is chronically in a state of deficit. The other is imports and exports of services, like travel, financial services, etc., where the U.S. normally has a favorable balance. In other words, the overall U.S. trade deficit is the result of a deficit in goods that is partly compensated by a surplus in services. This important fact is usually ignored by the press when discussing foreign trade.

The chart below displays these two components and their contribution to the deficit in the balance of trade over the last year. While the balance of goods is always negative, i.e. in deficit, services is always positive. But the goods deficit, shown by the red bars, is always much larger than the U.S.’s surplus in services, resulting in the overall deficit situation to which we’ve become accustomed.

Now the other side of the trade deficit, one that is talked about much less frequently, is the balance in the financial account. That is, the statement of funds that are used to pay for that trade deficit. A superficial view reveals that, on a net basis, foreigners are either holding on the dollars they receive as payment for their exports to the U.S., use some of those dollars to invest in the U.S., or simply lend funds to the U.S. A portion of that lending goes in the form of foreigners, or foreign governments, purchasing U.S. Treasury securities. Approximately 30% of U.S. government debt of $21 trillion is held by foreign governments.

Mortgage Rates Bring a Brief Respite

The fixed mortgage rate remained unchanged at 4.55% last week, a welcome respite from the gains seen over the previous weeks.

But given the expectations of increases in the next few months, the question remains as to whether rising rates will impede further improvements in housing construction and remodeling.

Consumers are more optimistic about home purchases. The index of Home Purchase Sentiment issued by Fannie Mae jumped to 91.7 in April, 3.8% higher than the previous month.

However, it should be noted that the two major components of the index — consumers who say it is a good time to buy and those who say it’s a good time to sell — did not move in the same direction.

Those who believe it’s a good time to buy fell to 29% net, a drop from 32% the prior month. At the same time, the percentage who said it’s a good time to sell jumped by six points to 45%.


Manuel Gutierrez, Consulting Economist to NKBA

Explanation of NKBA’s Economic Indicators Dashboard

The dashboard displays the latest value of each economic indicator with a colored triangle that highlights visually the recent trend for each of the drivers. “Green” is a positive signal, indicating that the latest value is improving; “Yellow,” as it’s commonly understood, denotes caution because the variable may be changing direction; “Red” indicates that the variable in question is declining, both in its current value and in relation to the recent past.

Note that all the data, except for “mortgage rate” and “appliance-store sales” are seasonally adjusted and are represented at annual rates.

Remodeling Expenditures. This is the amount of money spent on home improvement projects during the month in question. It covers all work done for privately owned homes (excludes rentals, etc.). The data are in billions of dollars and are issued monthly by the U.S. Department of Commerce.

Single-Family Starts.  This is the number of single-family houses for which construction was started in the given month. The data are in thousands of houses and are issued monthly by the U.S. Department of Commerce.

Existing-Home Sales. These data are issued monthly by the National Association of Realtors and capture the number of existing homes that were sold in the previous month.

High-End Home Sales. This series are sales of new homes priced at $750,000 and higher. The data are released quarterly by the U.S. Department of Commerce and are not seasonally adjusted. Thus, a valid comparison is made to the same quarter of prior year.

Mortgage Rate. We have chosen the rate on 30-year conventional loans that is issued by the Federal Home Loan Mortgage Corporation (known popularly as Freddie Mac.) Although there are a large number of mortgage instruments available to consumers, this one is still the most commonly used.

Employees in Residential Remodeling. This indicator denotes the number of individuals employed in construction firms that do mostly residential remodeling work.

Building-Materials Sales. These data, released monthly by the Department of Commerce, capture total sales of building materials, regardless of whether consumers or contractors purchased them. However, we should caution that the data also includes sales to projects other than residential houses.

Appliance-Store Sales. This driver captures the monthly sales of stores that sell mostly household appliances; the data are stated at an annual rate. We should not confuse this driver with total appliance sales, since they are sold by other types of stores such as home centers, for instance.

We hope you find this dashboard useful as a general guide to the state of our industry. Please contact us if you would like to see further detail.