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.

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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:

The new orders index rebounded 14 points after falling 23 points in June. Nearly 46 percent of the firms reported an increase in orders, and 14 percent reported declines. The current shipments index, however, decreased 4 points. The firms reported, on balance, increases in unfilled orders and longer delivery times this month. … The firms continued to report overall higher employment, but increases were not as widespread this month. Over 24 percent of the responding firms reported increases in employment this month, down from 34 percent last month. The current employment index fell 14 points to 16.8. The current average workweek index declined 11 points.

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Tuesday’s manufacturing reading from the Federal Reserve Bank of Richmond indicated slower growth in July. This report almost never moves the financial markets, but it does signal that not every region has stronger growth. The composite manufacturing index remains expansionary but it fell from 21 in June to 20 in July. This decrease in the growth rate was from a decline in the employment and shipments indexes. Firms remained optimistic in July, and they are expecting to see robust growth across most indicators in the coming months. The Richmond Fed said:

Manufacturing employment growth slowed in July, as the employment index fell from 23 in June to 22 in July. Firms continued to struggle to find workers with the skills they needed and expect this struggle to continue in the next six months. … Manufacturing firms reported that the gap between growth in prices paid and prices received narrowed in July, although both increased. Respondents expect growth in prices received to continue to accelerate in coming months but anticipate a slowing in growth of prices paid.

The Chicago Fed’s National Activity Index was released this week as well, but it is a June reading that looks backward rather than the live regional reports that are issued ahead of the supply management and purchasing managers readings will be released in the coming days. The Chicago Fed data for June showed production up, with half of the indicators being positive and half being red. Its synopsis said:

Led by improvements in production-related indicators, the Chicago Fed National Activity Index (CFNAI) rebounded to +0.43 in June from –0.45 in May. Two of the four broad categories of indicators that make up the index increased from May, and three of the four categories made positive contributions to the index in June. The index’s three-month moving average, CFNAI-MA3, edged up to +0.16 in June from +0.10 in May.

The Kansas City Fed Manufacturing Index, another index that never moves the markets, is due on Thursday, July 26. That reading was 28 in June.

There are literally about one-third of the S&P 500 companies reporting earnings this week alone. Those reports cover the second quarter of 2018, and guidance has so far shown many mixed results, with winners and losers seen from various companies. Friday’s GDP report will be the biggest report we have seen in a couple of weeks, but investors and economists need to keep in mind that the real impact on any GDP reports from tariffs, trade wars and other near-term growth pressures will not be seen for weeks or months ahead.

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