Here is the summary from this week’s Monday Economic Report:
Manufacturing activity worldwide has slowed noticeably. Flash Purchasing Managers’ Index (PMI) data for China and the Eurozone both reflect contracting levels for new orders, exports and employment. Europe’s problems continue to deepen. Even with some slight easing of declining sales, May’s manufacturing PMI data mark the 22nd consecutive month of declining activity for the continent. Beyond falling activity levels, manufacturers have also reported the need to reduce the selling price for their goods. The news that China had once again slipped into negative territory was a little surprising, suggesting its economic growth has slowed again. Over the course of the next few weeks, international PMI data will come in, allowing us to see the widespread softness in the manufacturing sector. The most recent JPMorgan Global Manufacturing PMI suggested that growth worldwide was modest at best.
The Markit Flash U.S. Manufacturing PMI declined slightly from 52.0 in April to 51.9 in May, falling from 56.1 in January. One of the largest factors in May’s decline was the decrease in new export orders. Output and hiring also slowed, and domestic new orders have decreased since the beginning of the year. At the same time, the Chicago Federal Reserve Bank’s National Activity Index (NAI) declined in April, largely on weaknesses in industrial production in the early months of 2013.
New durable goods orders in April were up 3.3 percent, but with highly volatile data in the first four months of the year (largely due to wide swings in aircraft orders). Even with April’s gain, durable goods orders have fallen 2.6 percent from their December levels. In addition, the Kansas City Fed’s monthly manufacturing survey reflected a very small gain in manufacturing activity in May, its first positive response since September. While measures for production, shipments and new orders were all higher for the month, the data and its supporting comments suggest there are still some areas of caution, including export sales, hiring, the inability to pass along cost increases and concerns about upcoming regulations.
This week, we will learn even more about the current health of the manufacturing sector with regional reports from the Chicago, Dallas and Richmond Federal Reserve Banks. The Chicago Fed’s Midwest Manufacturing Index has reflected stronger growth than many of its regional peers, due mainly to strength in the auto sector. However, in general, the regional surveys have found a high degree of softness, with contracting levels already noted in the New York and Philadelphia Districts. Beyond these surveys, the largest headline of the week will come from the revision of the GDP figure for the first quarter of 2013 on Thursday. It is not expected to change much from the earlier estimate of 2.5 percent growth. Other highlights include data on consumer confidence and personal spending.
Chad Moutray is the chief economist, National Association of Manufacturers.
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