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Last updateFri, 22 Jun 2018 2pm

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Optimism an All-Time High in NAM Survey

In the latest Manufacturers’ Outlook Survey from the National Association of Manufacturers (NAM), it’s clear that businesses continue to experience highly elevated levels of activity as a result of policies like tax reform, with optimism once again breaking records—95.1% of respondents were either somewhat or very positive about their own company’s outlook, the highest rate since the 20- year-old survey was introduced in the fourth quarter of 1997. In general, those completing this survey have been upbeat since the end of 2016, averaging 92.6% positive over the past six quarters. Additionally, the Manufacturing Outlook Index also rose to an all-time high in this report, the seventh straight quarter where the outlook exceeded the survey’s historical average. 


Texas Economy Continues to Expand at “Solid Pace”

The Texas economy is expanding at a solid pace. Employment has grown at a 3.6% annualized rate through May, driven by job gains in the goods-producing sector. Unemployment remains near its historical low, and labor markets are tight. The Dallas Fed’s Texas Business Outlook Surveys (TBOS) suggest economic activity accelerated in May. Texas’ rig count is on the rise as oil prices continue to recover.

The three-month moving averages of the headline indexes for the manufacturing and service sector surveys continue to trend upward. All TBOS employment indexes increased and were well above their post-recession averages. The Texas Leading Index and TBOS outlook indexes point to continued expansion in the state. 

Consumer Sentiment Climbs to Three-Month High

Consumer sentiment rose slightly in early June due to consumers' more favorable assessments of their current financial situation and more favorable views of current buying conditions for household durables. The Expectations Index declined to its lowest level since the start of the year due to less favorable prospects for the overall economy. The sharpest divide was between the record number of households who mentioned recent income gains and the highest expected year-ahead inflation rate since 2015.

At some point in every economic expansion, the University of Michigan reports, favorable income and job prospects act to offset higher inflation and interest rate expectations. Only when inflation and interest rates are expected to persistently exceed income and job prospects will consumers begin to curtail their discretionary spending. 

U.S. Manufacturing Output Fell in May

Industrial production edged down 0.1% in May after rising 0.9% in April. Excluding motor vehicles and parts, factory output moved down 0.2%. The index for mining rose 1.8%, its fourth consecutive month of growth; the output of utilities moved up 1.1%. At 107.3% of its 2012 average, total industrial production was 3.5% higher in May than it was a year earlier. Capacity utilization for the industrial sector decreased 0.2% in May to 77.9%, a rate that is 1.9% below its long-run average.

Manufacturing output moved down 0.7% in May but was 1.7% higher than its year-earlier level. The indexes for durables and for other manufacturing industries (publishing and logging) each fell more than 1%. 

Mid-Year 2018 GDP Outlook Strengthens

SIFMA unveiled the results of its twice annual survey of chief U.S. economists. They predict that the U.S. economy will strengthen to 2.9% for the remainder of 2018, up from 2.5% in the previous forecast. The median mid-year forecast calls for 2018 GDP to grow by 2.9% on both a year-over-year basis and on a fourth-quarter-to-fourth-quarter basis, stronger than the 2.5% year-over-year and the 2.3% fourth-quarter-to-fourth-quarter predicted in the 2017 year-end survey. For 2019, the mid-year forecast calls for GDP to grow by 2.6% year-over-year.

Employment is expected to continue improving, and on a slightly stronger basis than expected at end-2017. Survey respondents predict the unemployment rate to average 3.9% in 2018 (compared to 4.0% in the end-year 2017 survey), falling to 3.6% in 2019. Expectations for job growth were also stronger, with employers expected to add 2.2 million workers to payrolls in 2018 (from 2.1 million expected in the end-year 2017 survey) and 1.8 million in 2019. 

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