Below is the summary from this week’s Monday Economic Report:
The Federal Reserve Board’s most recent Beige Book noted some modest improvement during the past month. However, it is hard to deny that the current economic environment remains weak, particularly for manufacturers. While production activity has either picked up or at least stabilized in some regions of the country, there continues to be increasing uncertainty regarding a slowing global economy and the looming fiscal abyss.
Surveys released last week echoed this sentiment. Surveys from Chapman University in California and the Manufacturers Alliance for Productivity and Innovation (MAPI) found that manufacturing activity eased from the previous quarter, led by slower sales, especially for exports. The exception was high-tech manufacturers, which continue to show strong growth. Survey respondents mentioned the fiscal abyss as a challenge, with more than 40 percent of those taking the MAPI survey pessimistic that Congress will avert a crisis. Meanwhile, the National Federation of Independent Business (NFIB) reported that its Small Business Optimism Index remained virtually unchanged, even as owners experienced weaker sales and earnings growth.
Other data points were more mixed. The University of Michigan’s Consumer Sentiment Index rose from 78.3 in September to 83.1 in October, its highest point in five years. This index was buoyed by improved expectations of the future, possibly a counterintuitive measure given the looming fiscal abyss. Yet, it is consistent with other consumer surveys. It might also seem at odds with the latest jobs data, particularly for manufacturers. The latest Job Openings and Labor Turnover Survey findings indicate that the number of job openings in the sector fell for the third straight month, and net hiring turned negative.
Meanwhile, the U.S. trade deficit widened in August, with lower export and import activity overall. Much of the change in the trade balance, however, could be attributed to the increased trade deficit in petroleum markets. Higher per barrel petroleum costs contributed to this shift. For their part, manufactured goods exports were higher in August and on a year-over-year basis, despite significant easing in the demand for our goods.
This week, several data points will add further detail to this analysis. Tomorrow, we will get the latest statistics on industrial production and consumer prices. Producer prices were higher on Friday mainly due to higher energy costs, even as overall inflation remains modest. Expect the same on the consumer front. Regarding production, we saw declining manufacturing activity in August, and the consensus estimates for September are for little, if any, growth. The other key number comes out on Wednesday. Housing starts have been promising this year, and they are expected to increase from the 750,000 annualized units found in August’s figures.
Chad Moutray is chief economist, National Association of Manufacturers.