Beyond Q2 GDP and Tariffs: Manufacturing & Goods Already Mixed for Rest of 2018

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With second-quarter gross domestic product (GDP) reading coming out this Friday, there have been several economic reports that already point to July’s manufacturing activity. It so far has been the physical goods markets, particularly manufactured goods from around the world, that are the most at-risk under tariffs and trade wars.

24/7 Wall St. has compiled the most recent Federal Reserve data and other relevant data covering the manufacturing sector for July and their outlooks ahead to see how businesses are starting to react given tariff and trade war fears.

The good news is that economic growth is expected to remain positive. Still, the devil is in the details. Regional and national trends are only just starting to see a tug-of-war between a tighter job market and higher prices for inputs and finished products. Many businesses already have had orders in place as well, and that would imply that some of the broader impacts of the tariffs and the actual fallout from any trade wars have yet to work their way into the economy. This is why it is so important to look forward rather than only looking at past economic and corporate reports.

Economists, investors, business owners and workers already have had some negative news to digest from companies that manufacture goods and that rely on raw materials. Some negative post-earnings reactions for the second-quarter reports have been seen from the likes of Alcoa in metals, Halliburton in oil and gas extraction, General Electric in manufacturing, and Illinois Tool Works in machinery. Harley-Davidson shares rose after earnings, but the company had previously guided its numbers lower.

It is the live data, as well as the slew of earnings reports with guidance ahead, that are likely to offer a real view of conditions for July. It’s one thing to have (or not have) a strong second-quarter GDP report this Friday (Wall Street Journal currently sees 4.4% and Thomson Reuters is calling for 4.1%). It’s another thing entirely to ignore that the second-quarter GDP reading has virtually nothing to do with how the economic readings and earnings reports will look in the coming weeks and months.

The PMI Composite Flash reading showed its total index (including services) down at 55.9 in July from 56.0 in June, but the manufacturing reading rose to 55.5 in July from 54.6 in June. Manufacturing orders were described as “robust,” with the production and employment in this sample posting solid gains. The strength in manufacturing orders also was centered in the domestic economy, and the Purchasing Managers’ Index reading showed that export sales posted their largest drop in two years. Delivery times were shown to be the slowest in 11 years as manufacturers build up inventories due to scarcities. The PMI flash report also showed rising costs coming from higher energy prices, rising salaries and rising raw materials prices (especially for metals).

Last week’s Empire State Manufacturing Survey, released by the Federal Reserve Bank of New York, may have been called strong, with a 22.6 reading for July, but that was lower than the 25.0 reading in June. The New York Fed signaled that manufacturing business activity continued to grow at a fairly brisk pace in July at levels that still suggested a continuation of robust growth. That said, there was a calming of expectations, and this was the breakdown of data offered by the New York Fed report:

The new orders index dipped three points to 18.2, while the shipments index fell nine points to 14.6, pointing to a modest pullback in growth of orders and shipments. Delivery times continued to rise, and inventories fell marginally. Labor market indicators pointed to continued sturdy growth in employment and a modest increase in the workweek. The prices paid index slipped ten points to 42.7—still a fairly high level indicative of widespread ongoing input price pressures; the prices received index was little changed at 22.2, signaling continued moderate increases in selling prices. Looking ahead, firms were slightly less optimistic about the six-month outlook than they were last month.


Last week’s reading of the Philadelphia Manufacturing Business Outlook Survey for July 2018 was a positive one. All the broader indicators remained positive for this month, with the general activity and new orders indexes improving. The survey did indicate widespread price increases for purchased inputs, and more firms also were reporting price increases for their own manufactured goods. Expectations for the next six months continued to moderate but remain positive overall. The mix of gains to losses was high as well, with over 44% of regional manufacturers reporting increases in overall activity and just 19% reporting decreases this month. The Philly Fed report added: