Below is my Monday Economic Report for the Week of May 21.
Most reports on manufacturing activity last week echoed a familiar theme. The sector remains a bright spot in the U.S. economy. Higher production and new orders helped to lift the Conference Board’s measures of the current and forward-looking indices. While the overall Leading Economic Index (LEI) fell by 0.1 percent, this was primarily due to lower housing permits and other factors. Industrial production rose 1.1 percent in April—its fastest pace since December 2010—with motor vehicle activity up significantly. On a year-over-year basis, manufacturing production has risen 6 percent. Mining and utility industries also experienced strong gains for the month, and overall capacity utilization now stands at its highest point since spring 2008. This is encouraging news.
Other data reflected similar sentiments. The Federal Reserve Bank of New York observed manufacturing activity in its region bouncing back in May after a disappointing April, especially among shipments. The housing market appears to be back on track to have a slow but steady improvement in this still-depressed sector. Seasonal variations can explain at least part of the previous month’s decline, with the latest data consistent with the positive numbers seen earlier in the year. These same seasonal adjustments—brought about because of the warmer-than-normal winter—also affected retail sales figures. Building materials sales dropped 1.8 percent, reversing March’s 2.7 percent gain. Overall, though, retail sales continue to grow modestly, with Americans continuing to spend.
Not all of the news last week was good, however. The Philadelphia Federal Reserve Bank’s survey on manufacturing activity reflected a surprisingly downbeat assessment. Several key indicators showed contractions, including new orders and employment, and respondents were less positive about future production. It remains to be seen if the Philly survey represents an outlier or not; its next survey will be closely watched (much as it was after a similarly disappointing report last August). In other news, it’s looking increasingly likely that Greece might exit the euro, which could have profound consequences on the global economy and increase everyone’s anxiety levels.
This week, the Federal Reserve Banks of Kansas City and Richmond will release manufacturing sentiment surveys for their regions. Hopefully, their assessments reflect higher production and new orders, similar to the industrial production and Empire State survey out last week. In addition, new data on durable goods orders will hopefully also show increased activity.
Chad Moutray is chief economist, National Association of Manufacturers.