Below is my analysis from my weekly Monday Economic Report. Starting today we will be posting my analysis here on Shopfloor.org.
Monday Economic Report - January 9, 2012
Manufacturers brought in the new year much as we ended the last one. There are definite improvements in the domestic economy, yet worries about Europe and other headwinds continue to weigh heavily on the minds of many politicians and economists. Concern about sovereign debt levels, for instance, brought the value of the euro down to $1.27, its lowest exchange rate since autumn 2010. (As recently as August 2011, one euro traded for $1.45.) Debt challenges are not unique to Europe; U.S. debt levels have now exceeded 100 percent of our annual GDP – putting an exclamation mark on the budget-cutting debates that will continue into 2012.
Despite these challenges, the U.S. macroeconomy is showing signs of strength. The unemployment rate fell to 8.5 percent in December, its lowest level since February 2009. In addition, 200,000 net new workers were added in the month, with 23,000 of those stemming from manufacturers. It appears that the manufacturing sector has started to rebound from weaknesses observed in the middle of 2011. This is especially the case for the durable goods sectors, which accounted for all of the net job gains in December. Since December 2009, manufacturers have added 334,000 new employees, with the largest increases coming in the transportation, metals, machinery and electronics sectors.
Last week, two indicators were released supporting the view that manufacturing activity has picked up. First, the Census Bureau noted a 1.8 percent rise in new orders for manufactured goods in November. While this is largely the result of a large aerospace order, other sectors also had significant increases. One downside: spending on core capital goods orders fell 1.2 percent, suggesting a deceleration in business investment. However, year-over-year core capital goods orders provide a stronger picture.
Second, the Institute for Supply Management’s Purchasing Managers Index rose from 52.7 in November to 53.9 in December. Measures for new orders, production, employment, exports and imports were all higher for the month, suggesting that manufacturing activity has picked up some steam. Sample comments from many of the respondents had an upbeat but cautious tone. At least one survey respondents expressed a conservative approach to hiring and investing over the coming months due to uncertainties and frustrations with European and U.S. fiscal policy.
We will learn more about regional strengths and weaknesses in the economy from the Federal Reserve’s Beige Book, which will be released on Wednesday. Other highlights include new data on consumer indebtedness, individual and small business confidence and wholesale and retail sales. In addition, the Commerce Department will report international trade figures on Friday, providing additional insights into a major source of growth for manufacturers – exports.