Here is the summary for this week’s economic report:
After some improvements in late 2012, industrial production declined in January. Manufacturing activity fell 0.4 percent, according to the Federal Reserve Board, with reduced production in motor vehicles pushing the index lower. Year-over-year, manufacturing production was up just 1.7 percent, well below the 6.3 percent pace of January 2011 or the 5.2 percent pace of January 2012. As noted by NAM President and CEO Jay Timmons in his speech before the Detroit Economic Club, the United States can do better. One of our goals should be to strive for 4.5 percent growth in industrial production annually on average between now and 2020—part of what he calls a “20/20 vision.” With faster industrial activity, manufacturers can once again provide return to an outsized role for output and employment growth, reminiscent of what we saw coming out of the Great Recession.
Many other economic data released last week were mixed. In contrast to the industrial production figures, the Empire State Manufacturing Survey showed improvements in activity in January. This was the first non-contracting month for the New York Federal Reserve Bank’s District since July, led by improved sales and increased expectations. Even with these gains, progress in the composite index stemmed mostly from people shifting their views from negative to neutral, hinting that many respondents remain tentative. This is true even though manufacturers are more cautiously optimistic for higher levels of orders, shipments, employment and capital investment over the next six months. Meanwhile, retail sales figures, while increasing 0.1 percent in January, were at their slowest pace since October. Once again, reduced auto sales helped to drag the figure lower, with higher payroll taxes also contributing.
Consumers and small businesses were slightly more upbeat in the most recent sentiment surveys, and yet, they continue to highlight persistent concerns. The National Federation of Independent Business’s (NFIB) Small Business Optimism Index, for instance, found that owners remain worried about the economy and frustrated with the political environment. The index, while edging higher in January, has not recovered from November’s steep decline, and small business owners continue to cite sluggish levels of sales, earnings, hiring and capital investment. Consumers, meanwhile, were more confident in the latest University of Michigan survey, which has fallen of late on fiscal cliff worries and higher payroll taxes. Even with this month’s improvements, consumer sentiment remains subpar.
This week, the economic focus will turn to housing and inflation. New residential construction soared to 954,000 in December, capping a year that saw tremendous gains in housing activity and showing that the still-struggling sector has begun to move in the right direction. The January housing starts figures are expected to show a slight pullback, but the longer-term trend should be for residential starts and permits to move upward. In addition to housing, we will also get new data on consumer and producer prices, both of which have eased over the course of the past year, mainly on lower energy costs. While there has been a pickup in some prices in January, I would expect for the trend of modest inflationary pressures to continue. Core inflation was 2 percent in December, which was in-line with Federal Reserve Board targets.
Chad Moutray is the chief economist, National Association of Manufacturers.
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