Here is the summary from this week’s Monday Economic Report:
On many levels, last week’s economic indicators confirmed weaknesses in the manufacturing sector. The Institute for Supply Management’s (ISM) Purchasing Managers’ Index (PMI) dropped below 50—the threshold for growth—for the first time since November. New orders and production levels contracted, with hiring stalled. Some respondents cited softness in export sales, while others noted weaker domestic demand stemming from government spending cuts, higher payroll taxes and other uncertainties.
On the trade front, manufactured goods exports have grown very slowly in 2013, up less than 1 percent in the first four months relative to the same time frame in 2012. In April, goods imports outpaced exports, widening the deficit from $37.1 billion to $40.3 billion. Europe’s recession, in particular, has decreased sales overseas for our products, with sluggish growth elsewhere in many of our key markets.
These struggles have lessened businesses’ ability to bring on new workers. Manufacturing employment fell by 8,000 workers in May, the third consecutive monthly decrease. The sector has added 41,000 net new employees over the course of the past 12 months, just 1.9 percent of all nonfarm workers created in the economy. That pace is disappointing and a sign that we need the manufacturing economy to flourish again. While manufacturers were making outsized gains to output and employment as recently as a year ago, that pace has stagnated since then. As NAM President and CEO Jay Timmons noted in February in Detroit, a flourishing sector would yield an average of 20,000 new manufacturing workers each month.
Other data points released last week were mostly mixed. Total nonfarm employment rose 175,000, which was in line with expectations. Nonetheless, greater labor force participation increased the unemployment rate from 7.5 percent to 7.6 percent. The Federal Reserve Board’s Beige Book noted modest to moderate growth in the U.S. economy overall, spurred by gains in consumer spending and housing in particular. Meanwhile, even as total construction spending was higher in April, manufacturers devoted fewer dollars to new projects.
Today, the NAM and IndustryWeek will release the latest Survey of Manufacturers. It will show that 72.3 percent of our members are either somewhat or very positive about their own company’s outlook, up slightly from 70.1 percent three months ago. Many of the findings were not much different from the last survey, with sales expected to increase 2.7 percent on average over the course of the next year. These modest increases are better than what we saw at the end of last year, but they are still not as strong as a year ago. Manufacturers’ top concern is once again rising health insurance costs, cited by 82.2 percent of respondents. Many are worried about significant increases in health insurance premiums in 2014 after implementation of the Affordable Care Act.
The largest headline for manufacturers this week will be the latest industrial production number, which will be released on Friday. Last month, we learned that manufacturing output rose just 1.3 percent year-over-year, with monthly activity down 0.4 percent. The expectation is that production increased very slowly in May, around 0.1 percent. Other highlights this week include new data on business inventories, consumer and small business confidence, producer prices and retail sales.
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