Below is the commentary from this week’s Monday Economic Report:
The Federal Reserve Board released its Beige Book last week, characterizing economic growth as moderate. The manufacturing sector continues to expand overall, particularly for motor vehicles and steel. Most regions of the country are reporting higher capital spending levels, with a generally favorable—if not cautiously optimistic—assessment of future activity. The degree of net job creation varied by industry and region. One common thread is the desire to have more qualified applicants.
The Bureau of Labor Statistics revised its estimates of first-quarter labor productivity for manufacturing, showing 5.3 percent gains in output per worker. Such gains in labor productivity help to make manufacturers in the United States more competitive globally. Meanwhile, labor productivity for the larger economy fell, as growth in hours worked exceeded the gains in output for the non-farm business sector.
Federal Reserve Board Chairman Ben Bernanke reiterated some of the strengths in the current economic environment in his testimony to the Joint Economic Committee, but he also discussed a number of factors that have dampened the recovery. These include concerns about Europe and global growth, uncertainties surrounding fiscal policy and persistent weaknesses in housing and labor markets (despite recent improvements).
Indeed, much of the data published last week tended to support a slowing of manufacturing activity, both domestically and around the world. The trade deficit narrowed in April, largely due to a reduced level of both exports and imports. Goods exports to Europe, for instance, have dropped considerably as the continent grapples with its challenges. Decreases were also seen elsewhere as well. The longer-term trend for manufactured goods exports remains a positive one, but it is clear that weaker global growth has impacted our international sales.
Meanwhile, new orders for manufactured goods also fell in April, down 0.6 percent. These declines were largest among defense and nondurable goods industries, with durable goods orders flat overall. The slowdown in consumer credit growth showed another sign of potential weakness. The level of revolving loans, which includes credit cards and other lines of credit, dropped in April, suggesting a slight pullback in consumers’ willingness to take on debt. At the same time, revolving credit lines, such as those for auto and student loans, continue to grow.
This week, we will continue to learn about the health of the manufacturing sector. On Friday, we will get updates on both industrial production and the first of several regional surveys on production activity—in this case from the New York Federal Reserve Bank. In addition, consumer and small business sentiment will be gauged to see if recent improvements in optimism can hold, or if recent anxieties start to impact their degree of positivity. One thing that has swayed these surveys in past months has been the rise and subsequent fall in energy costs. We will also learn more about consumer and producer prices, both of which has seen easing of late as petroleum prices have fallen.
Chad Moutray is chief economist, National Association of Manufacturers.