Below is the summary for this week’s Monday Economic Report:
If you are a glass-half-full person, last week was your week. With businesses and consumers generally more downbeat recently, it was nice to get some decent economic news for a change, especially on international trade. Despite slowing global growth, manufacturers exported more and imported less in July, narrowing the trade deficit. Goods exports rose to an all-time high, lifted by strong gains in the automotive, capital goods, consumer goods and industrial supplies sectors. Even with these increases, though, it is clear that year-to-date export growth is much slower in 2012 than for the first six months of 2011.
The number of job openings in the manufacturing sector rose to 312,000 in July, their highest level since before the recession. This news followed the prior week’s better-than-expected report of 25,000 net new jobs being added in the month. Even amid the uncertainty, manufacturers have hired an additional 210,000 since the beginning of December. With that said, the number of hirings in July was mostly unchanged from June. Increased job postings are potentially a good sign, but the challenge will be for those openings to translate in to actual job gains. That has not occurred in a big way yet, especially as we continue to hear that businesses might be holding back on their hiring plans in light of concerns about the future direction of the economy.
Last week also brought reminders that significant headwinds persist in the market. The Bureau of Labor Statistics released figures for the second quarter showing weaker gains in labor productivity for manufacturers. The primary culprit was slower output growth, especially in the nondurable goods sectors, which saw unit labor costs rise after a steep decline in output. Durable goods industries fared better, albeit at a much slower pace than in the first quarter. These results mirrored similar findings regarding wholesale trade sales and inventories.
Businesses are reacting to reduced activity by pulling back somewhat. The latest Senior Loan Officers Survey from the Federal Reserve Board found that lending standards have eased for businesses of all sizes, and yet, net demand for borrowing has either not grown as much (for larger firms) or stalled (for smaller ones). The factors cited as contributors to slower lending demand included fewer requests for customer inventory financing, investments in plants and equipment and merger and acquisition needs. At the same time, consumers are also cutting back on their spending and debt. While consumer credit rose in June, its level has not changed much in 2012 when excluding auto and student loans. This is consistent with recent data showing consumer spending was flat in June.
This week will be a busy one on the economic front. We will learn about the health of the manufacturing sector with new data on industrial production and regional surveys from New York and Philadelphia. In addition, consumer and producer price indices will probably reflect continued easing in inflationary pressures, and the housing starts statistics are expected to show a modest gain in new residential construction. Beyond those figures, other highlights will include the latest assessments of consumer and small business optimism, retail sales, the leading economic indicators and state-level employment information.
Chad Moutray is chief economist, National Association of Manufacturers.