Here is a summary of this week’s Monday Economic Report:
Several economic variables pertaining to manufacturing continue to show weaknesses in the marketplace, despite the fiscal cliff compromise reached earlier this month. In December, our NAM/IndustryWeek survey showed that uncertainty due to the fiscal cliff had forced firms on average to pull back on hiring and capital spending, and this trend appears to be continuing—at least for now. Over the course of the past two weeks, there have been four regional Federal Reserve Bank manufacturing surveys (Kansas City, New York, Philadelphia and Richmond), each showing contraction in their January reports. The nation’s fiscal challenges—and the concern over how Washington will deal with them—remain on business leaders’ minds.
However, manufacturers continue to be mostly positive about improved activity in 2013, even if their optimism has diminished somewhat over the past few months. For instance, the four regional Fed surveys anticipate higher sales and production over the next six months, with employment and investment also increasing, albeit more slowly. Other data points also indicate possible gains in the months ahead. Markit’s Flash Manufacturing Purchasing Managers’ Index (PMI) bucked the other surveys by rising from 54.2 in December to 56.1 in January. Strong gains in new orders and output fueled the increase. Meanwhile, the Conference Board’s Leading Economic Index rose 0.5 percent in December (although this forward-looking measure’s gains benefitted mostly from non-manufacturing variables).
Increased building permits contributed positively to the Leading Economic Index. Housing, in general, continues to be a bright spot, despite some of December’s numbers being weaker than November’s. Both existing and new home sales data declined in December. In each case, however, the longer-term trend reflects a significant turnaround in the sector. Existing home sales rose 12.8 percent in 2012, and new single-family home sales were up 8.8 percent for the year.
This week, we will be closely following a number of economic releases. On the employment front, I anticipate non-farm payrolls will rise at roughly the same rate as last month, up around 150,000 or so, with manufacturing hiring increasing more modestly. We will also get our first glimpse of real GDP growth for the last quarter of 2012, with my estimate being around 1.8 percent. The other big news of the week will be the Federal Open Market Committee (FOMC) meeting. While it will have new voting members this year, it is widely expected to continue its accommodative policies in an attempt to stimulate growth. Other data highlights for the week include regional manufacturing surveys from the Chicago and Dallas Federal Reserve Banks and new data on durable goods orders, consumer confidence, personal spending and construction activity.
Chad Moutray is the chief economist, National Association of Manufacturers.