Here is the summary from this week’s Monday Economic Report:
According to the latest economic data, U.S. manufacturers are seeing slow-to-decent progress in their businesses. While there continue to be challenges, many of the regional Federal Reserve Bank surveys reported continued expansion, even if the pace of growth might have slowed. The Dallas Fed survey has grown for four straight months on higher sales and production data, and businesses in the region were overwhelmingly positive about future activity over the coming months. At the other end of the spectrum, the Kansas City Fed’s composite index has contracted for six consecutive months. Both new orders and shipments were unchanged in February after falling sharply in January, and respondents tended to echo some of the frustrations of businesses in the area. Frequent concerns ranged from uncertainties about the economy to concerns about healthcare costs. Even in the Kansas City report, though, manufacturers expressed cautious optimism about the next six months – a constant sentiment across all the surveys.
This morning, we will get the latest read on the manufacturing sector from the Institute for Supply Management (ISM). The ISM purchasing managers’ index is expected to show a very modest gain in activity in March, following the survey’s uptick from 53.1 in January to 54.2 in February. Sales should drive the index higher, but other data show that these gains have been somewhat spotty lately. The Census Bureau’s advance estimates for new durable goods orders rose a very strong 3.6 percent in February, but this followed a 3.8 percent loss in January. Much of the volatility in that indicator has been due to the ups and downs in aircraft orders. Removing the transportation sector from of the analysis would have yielded a decline in new orders.
Motor vehicle demand appears in several of the indicators released last week. The durable goods report indicates that auto sales increased by a very robust 3.8 percent in February, and a rebounding motor vehicle sector helped to lift the Chicago Fed’s Midwest Manufacturing Index. Year-over-year production in the auto industry in the Chicago Fed District was up 15.2 percent, a strong figure that helps explain why the Midwest has fared so well since the end of the recession. These indicators were also consistent with analysis from a couple weeks ago that showed retail sales gains largely due to increased auto purchases and higher gasoline prices.
On the consumer front, personal incomes were up 1.1 percent in February. Spending increased 0.7 percent. The nondurable goods sector benefited the most from the increased spending. The sector was up 1.9 for the month. Manufacturing employees, meanwhile, benefitted from the pickup in activity through higher total wages and salaries. At the same time, the two consumer sentiment surveys out last week moved in opposite directions. The Conference Board’s report dropped significantly over jobs and income concerns. Respondents also cited across-the-board federal spending cuts as a factor. The University of Michigan’s consumer confidence figure reversed an earlier estimate and found the public more positive than the month before, with its index rising for four straight months. The update from the initial report suggests that some of the concerns about the economy in many of the earlier responses might have dissipated as the month progressed.
Aside from the ISM report, other economic highlights due out this week include the latest figures on employment and international trade. Nonfarm payrolls are expected to increase by around 200,000 in March, indicating reasonable job growth last month just shy of the 236,000 net new workers added in February. Manufacturing hiring growth should also closely mirror the previous month’s report. On the trade front, we will be looking to see whether recent improvements in many of our largest markets – with the notable exception of Europe – will lead to increases in exports of manufactured goods.
Chad Moutray is the chief economist, National Association of Manufacturers.