Below is today’s Monday Economic Report.
In the Beige Book released last week, the Federal Reserve Board observed “modest to moderate” growth in economic activity over the past month. That trend extends to all facets of the domestic economy, with notable improvements in confidence and manufacturing activity in a number of indicators and regions of the country. Respondents to the Manufacturers Alliance for Productivity and Innovation’s (MAPI) outlook survey were strongly positive about production, new orders, employment and capital spending (even as there was some easing in MAPI’s findings from the past survey). The sector is expected to experience moderate growth this year.
Perhaps because of these measures, businesses and consumers have become more positive, as well. The University of Michigan’s Survey of Consumer Sentiment indicated a rebound in confidence to levels seen earlier in the year, with Americans more optimistic about both the current and future outlook. Likewise, the National Federation of Independent Business noted much-improved sentiment among small business owners, and more of these individuals said that the next three months might be a “good time to expand.” While these sentiment surveys still have sub-par readings, the improvements of late show a trend that is headed in the right direction.
With that said, not all of the economic news released last week was good. Retail sales in December were disappointing, up just 0.1 percent. Despite much of the hype over larger Christmas sales – particularly around Black Friday and just before the holiday – overall sales growth was weak, and excluding auto sales, retail sales were negative for the month. In addition, the trade deficit widened in November. Global economic weaknesses, particularly in Europe, are having an impact on growth prospects. On Friday, Standard & Poor’s downgraded several European countries’ debt ratings, with France and Austria losing their AAA rating. Such moves help to reinforce economic anxieties, but they also highlight the reality that Europe’s problems are having a real impact. Forty-five percent of the MAPI respondents said that their exports to Europe have been negatively affected by Europe’s weaknesses.
When discussing the latest economic trends, there is a split between the U.S. domestic economy and the rest of the world. While U.S. economic activity has seen noticeable improvements recently, weaknesses abound elsewhere. This is particularly true in manufacturing, as seen in this table of world-wide factory activity. The worry – at least among those who closely follow the European crisis – is that those problems will spill over into domestic concerns.
This week, we will gain further insights into the U.S. market, with new industrial production numbers out tomorrow. Some regional production figures from the New York and Philadelphia Federal Reserve Banks and Chapman University (regarding California) also will be released this week. In addition to manufacturing activity, other data highlights for the week include consumer and producer price indices and new housing starts.
Chad Moutray is Chief Economist, National Association of Manufacturers.