Below is my commentary from the NAM Monday Economic Report.
The U.S. economy continues to grow at a “modest to moderate pace,” according to the Federal Reserve Board’s latest Beige Book, which was released last week. Manufacturers have played a significant role in this growth, with manufacturing production and employment one of the bright spots across most of the Fed’s districts. In light of the increased activity, though, many manufacturers have concerns about their inability to attract highly-qualified talent. The NAM has noted this for some time – especially with the Manufacturing Institute’s focus on the skills gap and certification programs – and it is a topic that continues to garner much attention in policy circles.
Manufacturers also cited higher energy costs in the Beige Book. While energy costs remain elevated, the price of a barrel of oil has fallen recently. (The price of West Texas crude is currently around $103 a barrel, compared to near $110 just a few weeks ago.) This easing is reflected in the latest inflation data from the Bureau of Labor Statistics (BLS). Producer prices for finished goods were unchanged in March, with lower energy costs offsetting higher raw material prices elsewhere. Consumer prices, while up 0.3 percent for the month, reflect a slower pace of growth for gasoline prices. Overall, though, inflationary pressures remain modest, with core consumer inflation at 2.3 percent.
The sentiment surveys released last week tend to show the cautiousness of both consumers and businesses as they react to higher gas prices and slower job market growth. The University of Michigan’s Survey of Consumers found that consumer confidence dropped a little largely on these factors. While consumers remain more positive than they were last autumn, uncertainties about the current environment led to a slight decline. Small business owners reacted similarly, with the National Federation of Independent Business (NFIB) Small Business Optimism Index dropping nearly 2 points.
On the positive side, the Manufacturers Alliance for Productivity and Innovation (MAPI) survey found that there were clear reasons for optimism regarding future production, new orders, capital spending and research and development (R&D) in the sector. Manufacturers remain strongly positive about expected activity, even with a slight decline in the first-quarter survey’s index. This is especially true from the international perspective. Exports continue to be a growth area for U.S. manufacturers, and as such, it was encouraging to see the Commerce Department’s release of the latest international trade data. Goods exports from manufacturers were up nearly 15 percent on a year-over-year basis in February.
This week, we will gain further insights on manufacturing activity. The Federal Reserve will release the latest industrial production numbers tomorrow, with regional surveys from New York and Philadelphia this week helping to add to the overall picture. In addition, new housing starts data will also come out tomorrow, with continued improvements in this still-depressed market anticipated. Finally, retail sales figures will be announced this morning, and we will get a sense of whether or not higher gasoline prices are impacting consumer purchases. Up to this point, their impact has been minimal.
Chad Moutray is chief economist, National Association of Manufacturers.