Below is my summary from this week’ Monday Economic Report:
The U.S. economy continues to plod along, and doubts about its future direction are evident in a number of economic indicators. The unemployment rate has increased to 8.3 percent, and while the increase of 163,000 net new nonfarm workers was larger than expected, it still remains a disappointment. The Federal Reserve said that economic growth has “decelerated” since its last meeting in June and it is keeping its existing accommodative policies in place. The Fed also suggested that it is ready to act – potentially at its next meeting in September – with additional action if necessary.
Manufacturers continue to report slower levels of activity in a number of surveys. The Institute for Supply Management’s Purchasing Managers’ Index (PMI) showed contraction for the second consecutive month, with the PMI at 49.8 in July. More troubling, new domestic and export orders are shrinking on average. In addition, 30 percent of the respondents to the Dallas Federal Reserve Bank’s manufacturing survey felt that the business climate was worsening, with slower growth in new orders, inventories and capital expenditures. Meanwhile, excluding aircraft sales from the analysis, the latest factory orders data show lower levels of sales across the board, with just a few exceptions.
At the consumer level, Americans remain equally anxious. While the Conference Board’s Consumer Confidence Index increased this month, it was also clear that individual perceptions about jobs and income did not change from last month. They remain a concern. Moreover, the Census Bureau reported that overall consumer spending was flat in June for the second month in a row, with durable and nondurable goods purchases both lower. This is despite the fact that personal income rose 0.5 percent for the month. Consumers have pulled back their spending in light of recent weaknesses and uncertainties in the marketplace.
Despite these challenges, manufacturers continue to invest in their businesses. The Dallas Fed survey continues to reflect a guarded level of optimism about future activity over the next six months. Construction among manufacturers is up 19 percent since June 2011 and is consistently one of the stronger components of private, nonresidential construction spending. (Residential construction has also improved significantly over the past year.) Moreover, manufacturers continue to hire, adding 210,000 net new workers over the past eight months. One could easily argue that hiring levels would have been higher had it not been for the uncertainty in the current economy.
This week, the focus will be twofold. On Wednesday, we will learn about labor productivity growth. Among manufacturers, productivity increased substantially to over 5 percent in the first quarter. This has made the sector more competitive globally on labor costs. Trade is also an important component for manufacturing growth, and on Thursday, new export numbers will be released. Markit reported that Europe’s manufacturing sector has contracted sharply. Slowing global growth is not a positive sign for export growth. It will be interesting to see how the trade balance fares in the latest figures for June.
Chad Moutray is chief economist, National Association of Manufacturers.