Common themes emerged from several surveys and economic data releases last week: (1) Overall economic activity expanded at a moderate pace in March and early April; (2) the manufacturing sector grew modestly, with the exception of the motor vehicle and parts industry, which experienced robust gains; and (3) residential and commercial real estate activity continued to improve.
The New York Fed’s Empire State Manufacturing Survey indicated conditions for manufacturers in the district improved only slightly in April. The headline general business conditions index fell six points to 3.1 (an index above zero indicates expansion as compared to the prior month). Both new orders and shipments sub-indices weakened, offset slightly by a better employment index. The headline for the Philadelphia Fed Manufacturing Survey slipped from 2.0 to 1.3, with new orders down but the shipments index improved. Expectations over the next six months retreated as well.
The Federal Reserve’s Beige Book conveyed similar messages: overall economic activity expanded at a moderate pace entering the second quarter. Residential construction and automotive sales and production remained strong, but several districts reported uncertainty or weakness in defense-related sectors. Oil and natural gas activity has been robust, while coal production continued to decline. Employment conditions remained largely unchanged, and wage pressures were generally modest.
Industrial production in March rose 0.4 percent from the prior month, or 3.5 percent over March of 2012, largely reflecting a 5.3 percent increase in utility output due to unseasonably cold weather. Manufacturing production was down 0.1 percent from the prior month, with durable goods production declining 0.2 percent and nondurable goods essentially unchanged. The auto sector continues to lead the manufacturing sector, rising nearly 3 percent from February, or up 10 percent from a year ago.
Housing starts rose by 7 percent to 1.036 million units in March at seasonally adjusted annual rates, crossing the 1 million unit mark last seen in June 2008. Although the 82 percent jump (over a year ago) in multi-family unit starts was the major source of this increase, single-family unit construction also increased by nearly 29 percent from a year ago to 619,000 units. Looking ahead, a healthy increase in permit issuance during the first quarter suggests a boost in housing construction momentum; however, the rapid increase in home building material costs, such as lumber, plywood and gypsum materials, is a potential drag.
This week is a busy one for economic releases in the United States. The week begins with existing and new home sales for March; April Markit Flash Manufacturing PMI for the United States, China and Eurozone; and three District Fed surveys. Wednesday’s advanced durable goods orders, particularly non-defense excluding aircraft orders, could shed light for business investment going forward. The advance release of first-quarter U.S. GDP and University of Michigan’s final reading of April consumer sentiment on Friday, no doubt, will be the focus.
Jenny Lin is senior economist, Ford Motor Company.