The Federal Reserve’s Beige Book said that the U.S. economy continues to experience modest growth across many of its regions. With that said, the picture on manufacturing remains mixed, with half of the Districts citing increased demand while the other half experienced contracting activity. We have noted similar findings in many of the regional surveys from the various Federal Reserve Banks, particularly when it comes to assessing increasing or decreasing new order rates.
Two factors were mentioned that are helping manufacturers. First, the “revolution in natural gas production” is seen as a “driver of demand” for many firms. For those who are familiar with our study last year on the positive impacts of shale gas exploration, this is certainly a true statement. However, this has also impacted the demand for coal, which has softened. Second, the improving housing market has improved sales for various construction products, helping manufacturers of “lumber, PVC, cement, and home goods.”
Global factors were mentioned as drags to economic growth. In addition to slowing exports to Europe, “several Districts also mentioned weakness in demand in Asia as an issue.” Supporting this view, data from Markit released in the past week tend to back of the sense that the global economy has slowed significantly in recent months.
As a result of slower global demand and other uncertainties in the marketplace, job creation and investment plans appear to have stalled. The Fed writes:
On the employment front, there was little movement. Across all Districts, few manufacturing firms reported any major hiring or layoffs, and the ones that did usually attributed it to idiosyncratic factors like new products or restructuring related to a merger. The Cleveland District reported that firms continued to have trouble finding skilled workers. Capital spending also showed little change; in addition, several Districts reported that contacted manufacturers had not revised their investment plans.
Later in the report, there is a reference to defense sequestration and its impacts, suggesting “upcoming layoffs … by a defense contractor in the Boston District.” This is something that the NAM has reported on as well in a recent report. Indeed, while the Beige Book does not explicitly discuss the fiscal cliff or budget sequestration, this is an issue that is at the top of manufacturers’ minds right now, creating anxieties and – at least in my view – hampering growth.
Chad Moutray is chief economist, National Association of Manufacturers.
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