U.S. Economy Surges on Higher Incomes, Manufacturing Data

Both incomes and manufacturing activity are growing in America, leading to hopes that the economic recovery is finally here.  Wage growth surged in March as 215,000 new jobs were created in the month, according to the Bureau of Labor Statistics. While the unemployment rate unexpectedly rose to 5%, jobs were gained “in retail trade, construction, and health care.”

The increase in total jobs and a shift towards job growth in higher paid industries helped wages, which were up 2.3% on a year-over-year basis in March.

Both incomes and manufacturing activity are growing in America, leading to hopes that the economic recovery is finally here.  Wage growth surged in March as 215,000 new jobs were created in the month, according to the Bureau of Labor Statistics. While the unemployment rate unexpectedly rose to 5%, jobs were gained “in retail trade, construction, and health care.”

The increase in total jobs and a shift towards job growth in higher paid industries helped wages, which were up 2.3% on a year-over-year basis in March.

Improved Manufacturing

Manufacturing data showed some renewed strength as business volumes rose, leading the Markit Manufacturing PMI to rise to 51.5 in March, and a slight increase from February.

Despite the improvement, Markit Senior Economist Tim Moore was cautious about the data, noting that some temporary improvement in the business volumes does not offset the more sustained headwinds from an expensive dollar and weak demand abroad.

“March’s survey highlights sustained weakness across the US manufacturing sector, meaning that overall growth through the first quarter slowed to its lowest since late 2012. Subdued client spending patterns within the energy sector, ongoing pressure from the strong dollar, and general uncertainty about the business outlook were cited as factors weighing on new order flows in March,” he said.

Additionally, the lack of demand growth has also caused profitability to remain elusive for many firms. “Meanwhile, price discounting strategies resulted in the first back-to-back drop in factory gate charges for around three-and-a-half years, suggesting another squeeze on margins despite lower materials costs across the manufacturing sector,” Moore added.

A parallel report on manufacturing also saw renewed growth, as the Institute for Supply Management saw the manufacturing sector expand for the first time in the last six months. In total, the ISM’s Purchasing Managers Index rose to 51.8%, indicating expansion, with 12 of 18 sectors reporting growth. Apparel, leather, textile mills, electrical equipment, transportation equipment, and petroleum/coal products all saw contraction.

The implications for the labor market are not entirely healthy. One respondent of the ISM survey noted difficulties in finding employees and the need to pay higher wages: “Unemployment rate is low in our county, making it hard to find workers. We are understaffed and running lots of overtime,” he said.

Meanwhile, the Employment portion of the PMI actually fell to 48.1. Employment was the only part of the PMI to decline, and remains the weakest portion of the indicator except for inventories.

An increase in commodity prices could also help inflation rise, as more commodities rose in price than fell. An increase in inflation could encourage the Federal Reserve to increase borrowing costs by raising the Federal funds rate target, which is expected to occur twice later this year.