Below is this week’s Monday Economic Report:
It would be easy to get confused by last week’s economic reports, as they appear to be moving in different directions. Equity markets around the world continue to react to developments in Europe, with a possible Greek exit from the euro and signs of slow growth across the continent. The impacts on the global economy are obvious, with manufacturers in the United States experiencing dampened demand for their goods. Adding to this uncertainty are worries about Washington’s inaction on end-of-year tax policies. The Congressional Budget Office added fuel to this discussion when it announced that the country risks a recession in early 2013 if the “fiscal cliff” is not dealt with.
It is against this backdrop that manufacturing activity appears to be improving in some areas, even as other areas show weakness. New durable goods orders rose 0.2 percent in April, primarily due to strong sales for non-defense aircraft and motor vehicles. On the surface, this is good news. Yet, most of the major industries suffered losses in new orders and shipments in April, reflecting a slowdown in growth. The Richmond Federal Reserve Bank’s Manufacturing Survey seemed to reach a similar conclusion, with various production measures essentially unchanged from the prior month.
The Kansas City Fed, however, observed the opposite. After manufacturing activity slowed in March and April, respondents noted definite improvements in May. New orders and production were higher, and most importantly, predictions about growth in the second half of 2012 remain upbeat. Manufacturers in Richmond were also more optimistic about the future than their current assessments. The most recent Consumer Confidence Survey from the University of Michigan and Thomson Reuters showed increased confidence, and economists from the National Association for Business Economists (NABE) increased their forecasts for industrial production and employment growth for the rest of this year. Both are positive signs.
This week’s data releases should add more clarity to the overall economic outlook. On Friday, we will have two closely watched data points. The Bureau of Labor Statistics (BLS) will release May employment numbers, which are expected to show modest improvements over March and April. Manufacturing has played an important role in net job creation, with 167,000 additional workers added since November. In addition, the Institute for Supply Management (ISM) will announce new Purchasing Managers Index data. Given recent weaknesses, both of these figures might reflect some easing for manufacturing employment and production.
Chad Moutray is chief economist, National Association of Manufacturers.