Here is the summary for this week’s Monday Economic Report:
The Philadelphia Federal Reserve Bank’s Business Outlook Survey continued to show significant weaknesses in the manufacturing sector in its district. There were some areas of progress, including shipments and employment, and respondents were mostly positive about higher activity this year. Yet, the composite index was sharply lower on reduced new orders, dragging the overall sentiment lower. The New York Federal Reserve Bank’s Empire State Manufacturing Survey showed similarly worrisome figures. Meanwhile, although the Conference Board’s Leading Economic Index—which foreshadows future U.S. economic activity—was higher, sluggish hiring and sales growth continued.
Despite these troubling indicators, at least one source reports that manufacturing production is on the upswing. Although the Markit Flash Manufacturing Purchasing Managers’ Index (PMI) for the United States edged slightly lower from 55.8 in January to 55.2 in February, the output measure rose to its highest point since March 2011. Even in this survey, however, the pace of growth for new orders, employment and raw materials prices slowed down somewhat. Nonetheless, the Markit data tend to find that the U.S. economy is growing moderately, despite a number of persistent headwinds. In contrast, Flash PMI data for the Eurozone suggest that its problems are far from over. On the positive side, European exports to the United States and Asia have improved.
Other data points mainly focused on housing and inflation. The residential sector has been one of the faster-growing segments of the U.S. economy over the past year. This has been welcome news for many manufacturers that have been eager for this still-struggling sector to recover. While the headline number for housing starts was lower in January, this was mainly due to decreases of multifamily starts, which have risen significantly year-over-year even with last month’s decline. New single-family residential construction rose to its highest point since July 2008, and we have seen single-family starts rise 20 percent over the past 12 months. Permits have also been on a long-term upward trend.
Regarding prices, consumers and manufacturers have benefited from an easing in inflationary pressures over the course of the past year, mainly due to falling energy costs. Price increases have been modest overall, with core inflation at both the consumer and producer level below the Federal Reserve Board’s goal of 2 percent. In January, consumer food prices were higher, particularly for fruits and vegetables, but gasoline prices were lower. However, the recent rise in crude petroleum prices could lead to higher prices for finished energy and other goods in coming months if these are sustained. But, the forecast continues to be for moderate inflation.
This week, there will be several reports released on the current state of manufacturing. On Friday, the Institute for Supply Management will release its PMI report, and it is expected to show the sector growing slowing, with data not much different than the month before and possibly reflecting some pullbacks in activity. This would be in contrast to the Markit data, but it would be consistent with some of the regional studies. There will be regional sentiment surveys released from the Chicago, Dallas, Kansas City and Richmond Federal Reserve Banks this week. Other highlights include new releases on construction spending, consumer confidence, durable goods orders, personal income and a revision to fourth-quarter 2012 real GDP. Given recent data that have come out, look for real GDP to be revised higher, up from the earlier estimate of -0.1 percent to around 0.5 percent, according to consensus forecasts.
Chad Moutray is the chief economist, National Association of Manufacturers.
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