Below is the summary from this week’s Monday Economic Report:
The U.S. economy grew modestly in the third quarter of 2012, up 2 percent according to the latest data from the Bureau of Economic Analysis. The federal government, housing, and stronger spending on consumer goods helped to boost growth, with durable and nondurable goods contributing half of the increase in real GDP. However, business spending stalled somewhat in the third quarter—in contrast to the second quarter—with building levels off and investment in equipment and software unchanged. In addition, weaker global economic growth has dampened goods exports, providing a drag on the nation’s output. In essence, the GDP data provide mixed news for manufacturers as a whole.
Regarding international trade, export volumes are challenged. Flash Purchasing Managers’ Index (PMI) data from Markit indicate that Europe’s problems continue to deepen. The Eurozone PMI fell from 46.1 in September to 45.3 in October largely on falling sales. Manufacturing employment is also declining, with the largest declines coming outside of France and Germany. Meanwhile, the Chinese economy continues to be weak. Its PMI data, however, are moving in the right direction, up from 47.9 to 49.1. Improvements in new orders, exports and output helped to lift the index, which remains nonetheless in contraction territory. Look for additional details on the international front in the next edition of the NAM’s Global Manufacturing Economic Update, which will be released on Friday.
In contrast to Europe and China, U.S. manufacturing has seen some signs of improvement despite continued headwinds. The Markit Flash PMI for the United States increased slightly from 51.1 to 51.3 on some gains in output, employment and inventories. However, new orders eased slightly, and exports continued to fall.
Durable goods orders rose a whopping 9.9 percent in September largely on improved sales in the aerospace sector, but this was mainly a recovery from August’s 13.1 percent decline. Volumes are still lower than they were in July. Similarly, the Chicago Federal Reserve Bank’s National Activity Index (NAI) improved from -1.17 in August to 0 in September, with manufacturing production providing the largest lift. However, looking at the three-month average, this same index still shows a macroeconomy that is operating below its historical trend.
In short, the U.S. manufacturing sector continues to be weak. On Friday, October 26, the NAM released a study, titled Fiscal Shock: America’s Economic Crisis. The report found that the fiscal abyss is already impacting the economy, cutting 0.6 percentage points from GDP in 2012. The impacts in 2013 and 2014 will be even more severe, and it could take most of the decade for economic activity and employment levels to recover.
This week, the key highlight will be the employment numbers out on Friday—the last that will be released before the election. I would expect the trend of disappointing non-farm and manufacturing job growth to continue. Aside from hiring reports, we will be looking closely at the Institute for Supply Management’s (ISM) PMI on Thursday. Last month, the ISM data surprisingly showed slight growth. Look for the October data to not move too far from its September readings. In addition, this will be a data-rich week, with new data on construction, personal spending, productivity and factory orders.
Chad Moutray is the chief economist at the National Association of Manufacturers.