Below is the summary from this week’s Monday Economic Report:
Last week’s news continued to report weaknesses in the domestic and global economy. In the United States, manufacturing production fell 0.9 percent, and it has fallen 1.7 percent since July. Hurricane Sandy could explain part of this, but the larger challenges remain slowing global economic growth and uncertainties related to the fiscal abyss. Surveys from the New York and Philadelphia Federal Reserve Banks noted negative perceptions about the current business climate in their regions. The Empire State survey was slightly more positive in reporting improvements in sales and shipments, but both suggest that hiring has stalled, and optimism about future growth has eased significantly. Retail sales data were also lackluster.
Manufacturing activity contracted in September in a number of European countries, with overall Eurozone industrial production down 2.5 percent. Moreover, real GDP declined for the fourth consecutive quarter in the Eurozone, off 0.1 percent in the third quarter. Year-over-year growth in the Eurozone has declined 0.6 percent. France and Germany had modest output gains, but much of the continent struggled. For manufacturers in the United States, slowing growth in Europe—as well as other global regions—hurts our ability to grow exports, but it also provides challenges for those who have a large business presence outside of our shores.
New consumer and producer price indices indicate that growth in core prices—which exclude energy and food—is in line with the Federal Reserve Board’s stated target of 2 percent. This suggests that inflation appears to be modest and in an acceptable range for now. In October, lower energy costs offset higher prices elsewhere, including for food and other items. In the manufacturing sector, raw material prices decreased 0.2 percent for the month, benefiting largely from reduced petroleum costs. Sentiment surveys tend to suggest that manufacturers expect pricing pressures to pick up over the coming months and remain elevated overall.
This will be a truncated week due to the Thanksgiving holiday. The largest headlines will stem from new housing data due out tomorrow. Last month, we saw tremendous gains in both housing starts and permits, with both figures approaching 900,000 units on an annualized basis. I would expect for those gains to pull back somewhat, while continuing the longer-term trend upward. Other highlights for the week include data on leading economic indicators and state employment levels.
Chad Moutray is chief economist, National Association of Manufacturers.