Below is the summary for this week’s Monday Economic Report:
The Federal Reserve continues to see modest growth ahead, but its most recent economic forecast revises its estimates lower. Fed economists now expect for real GDP to grow between 1.9 and 2.4 percent this year, which is 0.5 percent below the range predicted just three months ago. Unemployment will also be slightly more elevated than previously stated, with the Fed now seeing the rate between 8.0 and 8.2 percent by year’s end.
Keeping this in mind, the Federal Open Market Committee (FOMC) voted to extend “Operation Twist” through the end of the year. This program has helped to keep interest rates exceptionally low by rebalancing the Fed’s portfolio toward longer-term securities, particularly those that are mortgage-based. The Fed will also continue its strategy of maintaining low federal fund rates through late 2014.
Much of the economic data released last week observed recent slowness in the economy. The number of job openings in manufacturing increased significantly in March giving us some hope for additional hiring in the months ahead, but these figures came back to earth in April. While net hiring remains positive, overall employment gains have slowed somewhat. Meanwhile, manufacturing surveys from the Philadelphia Federal Reserve Bank and Markit found reduced activity, with the Pennsylvania region indicating a contraction in new orders, production and job creation.
Housing continues to be a headwind in the economy, but the market has seen slow but steady improvements over the past year or so. However, May’s housing numbers were mixed. New residential construction was down from 744,000 in April to 708,000 in May, with declines in both single-family and multifamily units. At the same time, however, housing permits were up significantly, from 723,000 to 780,000. This suggests additional construction later this year, which is definitely a good sign. In fact, the Conference Board cited higher permits as one of the main reasons for its leading economic indicators being up 0.3 percent this month.
This week, several indicators will highlight manufacturing activity in their respective regions. Recent surveys have shown weaknesses, as described above, so we will see if newer data from the Dallas, Kansas City and Richmond Federal Reserve Banks continue this trend. In addition, the Census Bureau will release advanced estimates on durable goods orders for May, and consumer sentiment surveys will ascertain whether optimism has picked up in June, after falling somewhat in May.
Chad Moutray is chief economist, National Association of Manufacturers.