Below is the summary from this week’s Monday Economic Report:
The latest data on the U.S. economy suggest modest improvements in the past few weeks, and yet, it is also clear that true progress—particularly in the manufacturing sector—is still on hold. Surveys from the New York and Philadelphia Federal Reserve Banks show that manufacturing activity continues to contract, with slowing new orders being the largest challenge. Nationally, declining manufacturing production and employment were instrumental in lowering the Conference Board’s Leading Economic Index, which fell by 0.1 percent in August.
In the Philly Fed manufacturing survey, almost 47 percent of respondents said production in the current quarter would be lower than the second quarter. The prospects for the fourth quarter were equally downbeat. Manufacturer optimism for the next six months has lessened significantly, slowing the expected growth rates for sales, shipments and employment. Interestingly, however, capital spending plans remain more positive, as manufacturers continue to invest in the future.
Meanwhile, the Markit Flash Purchasing Managers’ Index (PMI) for the United States remained unchanged in September, reflecting modest manufacturing growth. This finding differs from a similar figure released by the Institute for Supply Management, which has noted contracting activity for three consecutive months. Nonetheless, the Markit data do show that new export orders are falling. Global growth rates continue to weaken. Markit reports show that Europe’s recession is deepening, especially in manufacturing sectors, and manufacturing output in China continues to contract (even with some modest gains during the past month). With global growth weaker, manufacturers in the United States have struggled to increase their sales abroad.
On the positive side, the housing picture continues to show slow-but-steady gains, with increasing optimism in a sector that continues to have large hurdles. Housing starts rose 2.3 percent in August, with an annualized 750,000 new residential units being built. This continues an upward trajectory, particularly for single-family homes. Housing permits, while down somewhat for the month, remained more than 800,000, indicating that the housing market should continue to expand moving forward. Existing home sales were also higher, and homebuilder confidence rose to its highest level in more than six years. Of course, all of this good news comes as average mortgage rates have fallen to 3.49 percent for a 30-year fixed rate loan, according to Freddie Mac. The annual average for 2011 was 4.45 percent. (The lower rates come after the Federal Reserve’s decision to pursue another round of quantitative easing.)
This week, we will learn more about the health of the manufacturing sector, with durable goods sales data and regional surveys from the Chicago, Dallas, Kansas City and Richmond Federal Reserve Banks. In addition, the Bureau of Economic Analysis will provide us with another revision to the second quarter gross domestic product (GDP) figure, which is expected to be around the most recent estimate of 1.7 percent. Finally, consumer optimism will come into focus with two confidence surveys and the latest data on personal income and spending.
Chad Moutray is chief economist, National Association of Manufacturers.