Manufacturing Output Rose to an All-Time High in Q3 2018

• Manufacturers produced $2.35 trillion in value-added output in the third quarter, an all-time high, with the sector accounting for 11.4% of real GDP. Adjusting for inflation (in chained 2012 dollars), real value-added output in manufacturing also set a new record, and overall, manufacturing contributed 0.31 percentage points to real GDP growth in the quarter.

• Many of the economic indicators out last week continued to reflect softness in the manufacturing sector, both in the United States and globally. The IHS Markit Flash U.S. Manufacturing PMI grew at the weakest pace since September 2017, with slower—but still modestly expanding—increases in new orders and output, but improvements in hiring and exports.

• At the same time, manufacturing activity in the Philadelphia Federal Reserve Bank’s district shrank in February for the first time since May 2016, pulled lower by decreasing new orders and shipments, even as respondents remained optimistic about the next six months.

• Separately, the IHS Markit Flash Eurozone Manufacturing PMI contracted for the first time since June 2013, pulled lower by declining growth in Germany for the second straight month, falling at the fastest pace since December 2012. More positively, French manufacturers reported modest growth for the second straight month, rebounding from weakness in December.

• The latest data on durable goods orders and shipments provided mixed results. On the positive side, new durable goods orders rose 1.2% in December, buoyed by strength in motor vehicles and parts and nondefense aircraft and parts sales. However, excluding transportation, new durable goods orders edged up just 0.1%, and core capital goods spending declined for the fourth time in the past five months. The longer-term trend remained more encouraging, with durable goods orders up a modest 3.5% over the past 12 months.

• The housing market data also provided both reassuring and discouraging news. Existing home sales in January dropped to the lowest level since November 2015, with affordability hurting demand, according to the National Association of Realtors. However, Freddie Mac reported that the average rate for a 30-year fixed mortgage fell to 4.35% last week, the lowest rate in more than one year. That should help sales moving forward.

• Indeed, reduced mortgage rates helped to boost homebuilder confidence in February for the second straight month, with respondents upbeat about expected single-family sales over the next six months.

Economic update provided by the National Association of Manufacturers.