Here is the summary for this week’s Monday Economic Report:
Looking at last week’s reports, there appears to be a split between the economic progress of the larger economy and what we continue to observe in the manufacturing sector. That is not to suggest that the U.S. economy is growing robustly—because it isn’t. Nonetheless, some of the data show signs of upward movement. The Bureau of Labor Statistics reported that 165,000 new nonfarm payroll workers were added in April, with healthy upward revisions for February and March. As a result, the economy created almost 200,000 workers in the first four months of 2013, and the unemployment rate fell to 7.5 percent, its lowest level in more than four years. At the same time, the participation rate remains low, and the “real” unemployment rate is still elevated at 13.9 percent, suggesting challenges continue on the labor front even with the recent progress.
One of those challenges can be seen in the manufacturing sector, with its employment levels unchanged in April and lower on a year-over-year basis. Several indicators show softness in activity nationally for manufacturers, with sales, production and employment growing at a slower pace. The Institute for Supply Management’s (ISM) Purchasing Managers’ Index (PMI) dropped from 51.3 in March to 50.7 in April largely on flat job growth, and factory orders declined 3.1 percent in the first quarter of 2013. Manufacturing construction spending was also lower. Regionally, several surveys tend to indicate an easing in activity, with modest growth at best, in manufacturing. The one exception of note was the Chicago Federal Reserve Bank’s Midwest Manufacturing Index, which noted an increase in production mainly due to higher output in the motor vehicle sector.
Declines in consumer spending and export sales help to explain at least part of the weakness in manufacturing right now. Personal spending only edged up 0.2 percent in March, with goods consumption down. Higher taxes might be eating away at least some of the gain, with personal tax expenditures up 1.1 percent and 0.7 percent in February and March, respectively. On the positive side, the Conference Board and University of Michigan surveys show consumers appear slightly more confident. However, this has not necessarily translated into increased spending. On the international sales front, the U.S. trade deficit narrowed, but this was mainly due to reduced export and import activity. Manufactured goods exports barely moved higher from where they were this time last year, challenging both foreign sales growth and the nation’s ability to meet its goal of doubling exports by 2015.
In other news, the Federal Reserve Board reported that the U.S. economy was expanding at a moderate pace, even as our nation’s fiscal policy has negatively impacted growth. The Federal Reserve Board made these statements as it announced a continuation of its accommodative policy of purchasing $85 billion in long-term and mortgage-backed securities each month for the foreseeable future. The Federal Open Market Committee’s (FOMC) furtherance of that program at its latest meeting was widely expected, even as the debate mounts about when it might choose to slow down such purchases—perhaps by year’s end.
After three weeks of heavy economic data to absorb, this week is a much lighter one for key indicators. Highlights include data on consumer credit, job openings and wholesale trade. In addition, the next iteration of the NAM’s Global Manufacturing Economic Update will come out on Friday.
Chad Moutray is the chief economist, National Association of Manufacturers.