Below is the summary from this week’s Monday Economic Report:
Anxieties about Europe reached a fever pitch last week in anticipation of yesterday’s Greek election. This concern has pushed up borrowing costs in Spain and elsewhere, prompting new fears of contagion in the persistent financial crisis. The European Central Bank, in conjunction with other central banks around the world, already said that it will work to ensure that there is enough liquidity in the marketplace this week to prevent the crisis from worsening. The Federal Reserve’s Federal Open Market Committee (FOMC) also meets this week, and they will decide whether or not to take further action(s) to stimulate a weakening U.S. economic growth picture.
Slower global growth and continued uncertainties are weighing heavily on manufacturers’ minds. The Fed reported that manufacturing production fell 0.4 percent, with overall industrial production declining 0.1 percent. The New York Fed’s Empire State Manufacturing Survey reached a similar conclusion, with new orders and shipments expanding at a much slower rate. Employment and capital spending figures in the New York survey were more upbeat, and manufacturers remain cautiously optimistic about future activity. Longer-term trends show production and capacity levels that remain positive as well.
Other data points also indicate some economic slowdown of late. The National Federation of Independent Business (NFIB) found that overall optimism among small business owners was mostly unchanged, falling just slightly on expectations of slower sales, earnings and capital spending. These owners’ top concern is now taxes, followed by sales and the regulatory environment. Meanwhile, retail sales numbers were lower in April, suggesting that consumers pulled back their spending somewhat. However, motor vehicles saw an increase of 0.8 percent for the month. The University of Michigan’s Consumer Sentiment Index also reflected some doubts in current and future economic growth, with the index falling in June.
Lower energy costs have helped to reduce inflationary pressures in the economy for both businesses and consumers. The Consumer Price Index and the Producer Price Index fell 0.3 percent and 1 percent, respectively, in May. “Core” inflation—which excludes food and energy prices—has risen 2.3 percent over the past year. While this is slightly higher than the Federal Reserve’s stated goal of 2 percent, it is clear that policymakers are more concerned with economic growth than with inflation at this point.
Much of this week’s focus will be on monetary policy and the fallout from the Greek elections, with all eyes on what the Fed will do on Wednesday after its FOMC meeting. Housing will dominate much of the other data releases. New housing starts numbers will be out tomorrow, hopefully showing slow but positive improvements. Other indicators include measures of manufacturing activity in the Philadelphia region, job openings and labor turnover, and the Conference Board’s Leading Indicators Index.
Chad Moutray is chief economist, National Association of Manufacturers.