Below is the summary from this week’s Monday Economic Report:
The Federal Reserve noted the U.S. economy has seen some modest improvements during the past month, with a number of indicators highlighting this progress. Hurricane Sandy had an impact, both in slowing down activity in October and increasing it in November in its aftermath. Industrial production rose 1.1 percent in November, recovering from October’s 0.7 percent decline, with repairs from the storm possibly explaining at least some of these gains. Similarly, retail sales also rebounded for the month, led by strong auto sales and spending on appliances, building materials, furnishings and clothing. Lower petroleum costs also helped to ease Americans’ pocketbooks, with gasoline station sales down 4 percent in November on lower prices.
Despite the optimistic news on production and sales, major headwinds confront businesses and consumers. Manufacturing production remains 0.6 percent below July’s levels, a reflection of the weaker economic environment during the past few months. These headwinds mostly stem from uncertainties related to the fiscal cliff and the impact of a slowing global economy on international orders. The trade balance widened in October on reduced exports and imports. While year-to-date manufactured goods exports are higher than last year, they reflect significant easing in trade volumes, resulting from a weakened economic environment among our major trading partners. Meanwhile, in the United States, small business owner confidence plummeted last month on worries about the political environment and diminished expectations for sales, earnings, inventories and capital spending.
High unemployment rates and challenges to the U.S. and global economies are persistent worries for the Federal Reserve Board. The Federal Open Market Committee (FOMC) voted to purchase $85 billion in mortgage-backed and long-term securities each month in an effort to push down long-term interest rates and stimulate economic growth. Moreover, it will continue to do so until the unemployment rate hits 6.5 percent or forecasted inflation exceeds 2.5 percent. These economic indicator targets replace earlier language about maintaining these policies through mid-2015. Still, in practicality, the Fed does not expect the unemployment rate to reach 6.5 percent until 2015, according to its forecasts, suggesting that it will continue to pursue these policies for the foreseeable future.
The fact that inflation remains in-check, at least for now, facilitates the Fed’s willingness and ability to stimulate growth. Consumer and producer pricing data released last week back this up, with lower energy costs helping to ease cost pressures. Core consumer prices have risen 1.8 percent over the past 12 months, and manufacturing raw material costs—down 1.2 percent in November—have risen just 1.0 percent year-over-year. These rates are significantly lower than earlier in the year.
This week, we will learn more about regional manufacturing activity and housing. Surveys from the Kansas City, New York and Philadelphia Federal Reserve Banks—which all indicated a contraction last month—will likely show the sector continuing to struggle. Housing starts data, on the other hand, should continue to illustrate strength in the residential construction sector. Other highlights for the week include data on leading indicators, a second revision to GDP and personal spending.
Note: Due to the holidays, the next report will be released on Wednesday, December 26. There will be no report issued during the week of December 31. The schedule will resume on Monday, January 7, 2013.
Chad Moutray is the chief economist, National Association of Manufacturers.
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