Below is the summary from this week’s Monday Economic Report:
The U.S. economy grew 2.7 percent during the third quarter, faster than originally thought. This news was mixed for manufacturers. On the one hand, consumer spending, improvements in residential construction and net exports boosted overall growth. In addition, end-of-fiscal-year government spending (particularly from defense) contributed roughly one-quarter of the increase in real GDP for the quarter—something unlikely to be repeated anytime soon. With lower discretionary spending and the possibility of budget sequestration, the government will be a drag on growth. Fixed investment fell, with slowing sales and uncertainties about the looming fiscal cliff weighing heavily on business leaders’ minds. This should indicate real GDP growth closer to 2 percent in the fourth quarter.
The other economic highlights from last week supported this contrasted assessment, with increased consumer confidence and holiday spending somewhat offset by manufacturing weaknesses. The Beige Book reported that the economy was growing at a moderate pace while also citing softness among many manufacturers. The Chicago, Dallas and Kansas City Federal Reserve Banks reported declines in manufacturing activity, with the latest Institute for Supply Management (ISM)-Chicago survey showing contracting new orders. The Richmond Fed bucked this trend with improving sales, production and shipments and a more positive outlook. Yet, hiring expectations remain sluggish.
Advanced durable goods orders were unchanged in October; however, aircraft and auto sales declined. Outside of transportation, new orders would have risen 1.5 percent, indicating sales figures that were positive than at first glance. Consumer spending fell in October, but there are signs of progress since then. According to the National Retail Federation, the first reports of holiday spending have had modest growth over last year. The Conference Board reported that consumer confidence rose to its highest point since early 2008.
Today, the ISM will release Purchasing Managers’ Index data for the U.S. manufacturing sector. It is expected to show a slight uptick in activity, continuing the slow growth that we have seen in the past two surveys. The big news, however, will come on Friday with the announcement of November’s employment numbers. The consensus estimate is for roughly 100,000 net new non-farm payroll jobs, with weak growth in manufacturing employment. Other data highlights for the week include updates on consumer credit, construction spending, labor productivity and vehicle sales.
Chad Moutray is the chief economist, National Association of Manufacturers.