Below is the summary from this week’s Monday Economic Report:
Weak economic numbers trickling out over the past few weeks have led to more anxiety about the future direction of the economy. Consumers and businesses have become more anxious in the most recent surveys, as uncertainties about slowing global growth and concerns about the U.S. fiscal situation continue to dominate conversations. Last week, the University of Michigan’s Consumer Confidence Index fell to its lowest level since December, with more Americans worrying about where the economy will be by year’s end. This mirrors the drop in confidence observed by the Conference Board’s Consumer Confidence Index released in late June.
Meanwhile, the National Federation of Independent Business’s (NFIB) Small Business Optimism Index dropped sharply last month, with reduced sales and lower earnings expectations helping to drive sentiment lower. This morning, the Industry Survey from the National Association of Business Economics (NABE) observes diminished expectations for growth. (I am on the NABE committee responsible for the survey and will participate in a teleconference discussing its findings.) The panel respondents were less positive about growth than they were just three months ago, reporting reduced activity on a number of fronts. The Manufacturers Alliance for Productivity and Innovation’s (MAPI) Business Outlook Index also echoed this view, with decelerating new orders helping to slow the pace of growth for the sector.
On the other hand, some of the indicators released last week were more hopeful. First, the U.S. trade deficit narrowed in May for the second month in a row, with slightly higher exports and falling imports. The lower price of petroleum contributed to much of the decline in imports. In addition to helping our trade balance, cheaper energy costs have also helped to reduce pricing pressures for businesses. The Producer Price Index for manufactured finished goods was down 0.7 percent in May, even as the overall index rose 0.1 percent. Finally, the number of job openings in the manufacturing sector jumped significantly in May. While overall hiring did not change much, the increase in new postings could suggest additional job creation in the months ahead, assuming these openings translate into hirings at some point.
This week is a busy one on the data front. June industrial production figures for manufacturers will hopefully show a turnaround from May’s decline. The expectation, however, is for modest growth, if any, for the month. We will also be on the lookout for other clues on manufacturing activity from the Beige Book and regional surveys from the New York and Philadelphia Federal Reserve Banks. The other big data point out this week will be on the June housing numbers. Housing permits were up significantly in May—an encouraging sign of additional housing starts in the months ahead. Housing starts numbers are forecast to show continuing-but-gradual improvements for this still-depressed sector.
Chad Moutray is chief economist, National Association of Manufacturers.