Below is the summary from this week’s Monday Economic Report:
We end the year with mixed news on the economy and ever-present uncertainty about the U.S. fiscal situation. The Bureau of Economic Analysis upwardly revised its figure for third-quarter real GDP to 3.1 percent—a healthy increase from its original estimate of 2 percent. However, slowing global sales and anxieties about the fiscal cliff have caused consumers and businesses to pull back. Both the Manufacturing Alliance for Productivity and Innovation (MAPI) and the National Association for Business Economics (NABE) suggest that industrial production will grow more slowly in 2013. Overall employment is also not anticipated to change much from this year.
Several other data points suggest continued sluggishness, even as some point to modest improvements during the past month. The Conference Board’s Leading Economic Index declined in November and has been flat over the course of the past six months. The Chicago Federal Reserve Bank’s National Activity Index finds that the U.S. economy continues to operate below its historical average. Meanwhile, manufacturing surveys from the Kansas City and New York Federal Reserve Banks observe contracting activity levels, with uncertainties about the fiscal cliff negatively impacting hiring and sales. However, the Philadelphia Fed Manufacturing Survey noted improvements among manufacturers in its region, with the recovery from Hurricane Sandy explaining part of the progress.
The latest personal income and spending numbers also show the bounce back from the storm. Both had fallen in October but recovered somewhat in November. New durable goods orders also improved, with healthy gains across-the-board except for the aerospace sector. To be fair, durable goods activity remains below its peak in July, but the recent data are still a sign of progress. The key will be whether this can be sustained given the uncertainties noted elsewhere. Manufacturers appear to be cautiously optimistic about future activity despite their concerns about the fiscal cliff.
Housing continues to be a bright spot in the economy, much as it has throughout 2012. Permits rose to 899,000 in November, the fastest pace in more than four years. This is an important proxy of future residential construction. Overall housing starts remain on a slow-but-steady upward trajectory, even as they dipped slightly in November to 861,000. The sector is experiencing greater confidence, and while hurdles still hold back even stronger growth, the prospects are for housing starts to grow to at least 950,000 by the end of 2013.
This will be a shortened week due to Christmas, but there are some key economic indicators that will be released. Regional manufacturing activity in Chicago and Richmond is expected to show continued weaknesses. The other highlight will be the latest consumer confidence figures from the Conference Board. We will see if consumer sentiment declines in the Conference Board’s index, much as it did in the University of Michigan’s survey.
Chad Moutray is the chief economist, National Association of Manufacturers. Note that there will not be a report next week, with the scheduling resuming on Monday, January 7, 2013.