Here is the summary for this week’s Monday Economic Report:
With a last-minute deal to avert the fiscal cliff, manufacturers have fewer uncertainties to worry about at the start of the new year. The threat of an economic downturn appears to have largely dissipated, with modest growth in real GDP of 2 percent or so expected this year. However, while the agreement ensures that tax rates for most individuals will remain the same, marginal tax rates will rise for some manufacturing companies that are organized as pass-through entities.
The agreement delays budget sequestration for two months, but that only extends the uncertainty over how this matter will be resolved. In addition, policymakers did not even begin to address the long-term fiscal challenges that confront us by ensuring meaningful tax and entitlement reforms. However, because of the structure of the agreement, they will have additional opportunities to do so over the next few months when they must address the debt ceiling limit, sequestration and the soon-to-expire continuing resolution that funds the government.
The data released last week tended to reflect an economy that was strengthening, even as it continues to show signs of persistent weaknesses. On the employment front, manufacturers added 25,000 net new workers. This is a healthy figure to end the year on, with 180,000 additional jobs in 2012 and 522,000 since the end of 2009. Still, the pace during the second half of the year was much slower than the first half, and it would be encouraging to see the sector producing outsized output and employment growth again. Sentiment surveys have tended to show some manufacturers pulling back on hiring. This might change if business leaders see an economy on more solid footing.
There are some signs that the U.S. and global economic environments have stabilized. As noted in the Global Manufacturing Economic Outlook released on Friday, January 4, seven of our top 10 markets for manufactured goods are growing—an improvement from just three months ago when much of the world outside of North America was experiencing declines. Looking specifically at the U.S. market, the Institute for Supply Management’s (ISM) Purchasing Managers’ Index (PMI) shifted from contraction to a slight expansion last month, with export orders and hiring helping to lift the measure. While there is still much progress to be made on this front, the positive PMI number is good news. Similarly, the Dallas Federal Reserve Bank reported higher activity levels and increased manufacturing business confidence in its region.
This week, the key highlight will come on Friday with the release of new international trade data for November. The October data reflected reduced exports and imports as a result of slowing global growth. With improvements in some countries, we will see if manufactured goods exports begin to pick up. Other numbers to watch include data on consumer credit, job postings and small business optimism.
Chad Moutray is the chief economist, National Association of Manufacturers.
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