The National Activity Index from the Chicago Federal Reserve Bank rose from -0.59 in August to -0.22 in September. While this still shows economic growth trending below its historical trend, it is a significant step in the right direction.
Manufacturing production made a positive contribution of 0.02 to the index, revering last month’s negative contribution of 0.06. Growth in industrial production and capacity utilization contributed to manufacturers’ positive impact for the month.
The three-month moving average edged higher from -0.28 to -0.21. Values under -0.70 suggest that the economy might be in a recession. While this figure is not within the threshold for a recession, it is the sixth consecutive month that the three-month moving average has been below trend. Housing and consumption indicators continue to be a drag on economic growth.
Meanwhile, the National Association for Business Economics (NABE) released its October Industry Survey this morning, with respondents expecting sluggish growth for the remainder of this year. Overall expectations for real GDP growth decelerated from the previous survey in July, with 85 percent of business economists forecasting growth in 2011 of 2 percent or less; in the previous survey, 65 percent of respondents had suggested growth of 2.1 to 3 percent for the year.
Indeed, a number of factors have contributed to the downbeat forecast changes, with Europe being the most recent challenge. In the goods-producing sector, which includes manufacturing, 55 percent of the economists surveyed suggested that a European debt crisis would decrease their sales by 10 percent or less.
Overall, it is important to note that business economists are suggesting growth in the months ahead, with an outside chance of a recession. Goods-producing sectors are faring better than others. For instance, fewer respondents cited rising sales in this survey versus the past one; however, in the goods-producing sector, 64 percent of them reported higher sales (compared to 50 percent in July), a significant improvement. The same story could be made for profits, as 92 percent of goods-producing respondents said that profits were either rising or remained the same.
Pricing pressures have eased somewhat, but continue to rise. In the goods-producing sector, 46 percent of respondents cited rising raw material costs. In terms of jobs, employment growth slowed across the board, but remained a net positive. For the October survey, 36 percent of goods-producing firms said that employment had increased, which was down from 50 percent three months ago. The majority of firms also reported greater capital spending and international sales levels for the coming months.
Chad Moutray is chief economist, National Association of Manufacturers.
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