Two closely-watched indicators were released this morning which show some improvements in the overall economy, but both of them also suggest that future growth is far from assured.
The Conference Board announced that its Leading Economic Index increased 0.2 percent in September, marking the fifth straight monthly increase but slightly below last month’s 0.3 percent gain. Lower interest rates and a larger money supply helped to propel this indicator. Manufacturing provided a mixed contribution, with greater new orders for consumer goods and materials for the month being offset by fewer new orders for nondefense capital goods. In addition, the average workweek for production workers was unchanged. Employment and housing remained drags on economic growth, while higher consumer confidence was a positive.
The Coincident Economic Index, which tracks the current environment, rose 0.1 percent in September, reversing the 0.1 percent decline in August. In this instance, manufacturing provided the lift, albeit a modest one. Higher industrial production and manufacturing and trade sales were marginally higher. The other two components, nonfarm payrolls and personal income were up slightly, as well.
Overall, this report provides some comfort and it highlights some improvements in various segments of the economy, including in the manufacturing sector. Yet, the leading economic index would have fallen slightly without the positive contributions from the financial components of the money supply and lower interest rates. This suggests that our growth trend in the months ahead is a cautious at best.
Of course, manufacturers are closely watching production figures, and one of the more closely watched sentiment surveys of late is the one from the Philadelphia Federal Reserve Bank. The Philadelphia Business Outlook Survey for October suggests that conditions have improved considerably from the doldrums of the past two months. The current activity index fell to -30.7 in August and then rose to -17.5 last month; both suggesting a strong contraction in manufacturing activity in the region.
The new figure for October is 8.7, reflecting modest growth. Improvements were seen in new orders, shipments and unfilled orders. Inventories contracted from last month, and the rate of growth of new employment slowed, although it was still higher. In a series of special questions, nearly 46 percent of respondents said that they had hired more workers over the last year, with 24 percent saying that they had decreased employment. At the same time, more manufacturers suggested that they were using temporary workers than before, as well.
Manufacturers in the Philly region were positive about the next six months, with the forward-looking index of general business activity rising from 21.4 in September to 27.2 in October. Overall measures of production were higher across-the-board looking ahead, with pricing pressures continuing to persist.
Chad Moutray is chief economist, National Association of Manufacturers.
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