Economic Data Roundup (06/06/2019)

6/6/19 8:00 AM

Yesterday we learned that goods-producing companies, particularly smaller firms, were responsible for the bulk of the weakness in ADP’s latest private-sector payrolls report. This agrees with recent data on overall U.S. business activity from the Institute for Supply Management (ISM). Specifically, the ISM manufacturing index fell to 52.1 in May, a 31-month low, while the ISM non-manufacturing index rose to 56.9, the best reading since February. The apparent underperformance of manufacturing businesses is in part due to the ongoing trade war because existing tariffs have primarily targeted goods rather than services. Fortunately, after May’s decline the ISM manufacturing gauge is still above 50, implying a net expansion in activity.


Later this summer the index could wind up dipping into contractionary territory (sub-50), but there have been similar occurrences in the past where this has not prevented the broader economy from continuing to grow because services account for a much larger share of consumer spending. Further, just 7 percent of all U.S. exports head to China and in total account for less than 1 percent of America’s gross domestic product. Even the entire manufacturing arena accounts for only 11.4 percent of economic value add in America and just 8.5 percent of employment, according to Wells Fargo. Although reassuring, none of this means that a prolonged, and especially escalating, trade dispute will not eventually spillover into the rest of the economy. Moreover, year-over-year growth in ISM’s non-manufacturing index has already turned sharply lower, and more business managers across a variety of industries are now citing concerns about tariffs and trade:

  • Non-Manufacturing
    • “Waiting to see [the] impact of Chinese import tariff affect.” (Utilities)
    • “We reported very strong Q1 results and raised our FY guidance. However, our stock has traded down due to the continued uncertainty in healthcare/Rx. There is a concern that tariffs on pharmaceuticals could be on the horizon.” (Retail Trade)
    • “Our business level is connected to metal commodity future outlook, but current trade war does not let investors have a clear sight. In this sense, [it] has been very difficult to plan in a long term ahead.” (Mining)
  • Manufacturing
    • “Ongoing tariffs [issue is] impacting costs and influencing supplier realignment on country of origin. Border issue is causing delays in imports from Mexico.” (Computer & Electronic Products)
    • “The threat of additional tariffs has forced a change in our supply chain strategy; we are shifting business from China to Mexico, which will not increase the number of U.S. jobs.” (Chemical Products)
    • "Sales remain strong. Labor remains tight. Tariffs are having a significant impact on cost of goods. No impact on where we buy our goods." (Food, Beverage & Tobacco Products)
    • “The threat of a 15-percent increase on Section 301 tariffs is a concern.” (Petroleum & Coal Products)
    • “Newly increased tariffs on Chinese imports pose an issue on a number of chemicals and materials that are solely produced in China. We are expecting increases in raw materials starting June 1.” (Plastics & Rubber Products)



Sources: Econoday, ISM, Wells Fargo, FRBSL

Post author: Charles Couch