Here is the summary for this week’s Monday Economic Report:
The Bureau of Economic Analysis confirmed that the U.S. economy grew modestly in the first quarter of 2013, revising real GDP growth from the earlier estimate of 2.5 percent to 2.4 percent. Two factors that have had the greatest impact were the American consumer and a rebounding housing market. Business spending, while decelerating somewhat from the fourth quarter of 2012, also made a sizable contribution to growth. In fact, to illustrate the importance of consumer spending and gross private domestic investment to growth in the first quarter, they added 3.6 percentage points to real GDP, with government spending and net exports subtracting from that number. Moving forward, I expect real GDP to grow by 1.8 percent in the current quarter, with 2.3 percent growth overall for 2013.
Two surveys released last week both indicate a sharp rebound in consumer sentiment in May, with both rising to levels not seen in more than five years. The Conference Board and University of Michigan reports both observed improved perceptions about the current and future economic environment, and yet, Americans feel there are persistent challenges. These headwinds include elevated unemployment rates, higher payroll taxes and slow growth in the domestic and global economy. Softness in the economy contributed to flat personal income growth in April, with personal spending declining. In the manufacturing sector, wages and salaries have increased over the course of the past year, even as they were slightly lower in April.
Regional manufacturing surveys mostly reflected declining optimism levels, continuing a trend we have seen in other reports of late. The Chicago Federal Reserve Bank’s Midwest Manufacturing Index declined 0.5 percent in April on reduced auto and steel production. Nonetheless, the Chicago district has been one of the stronger regions nationally over the past year, with output up 3.3 percent over the past 12 months, and the ISM-Chicago data indicate that May’s activity numbers might be better.
Elsewhere, the Richmond Fed’s manufacturing survey has reported contracting activity in three of the past five months, led by declining new orders and employment. However, shipments activity improved, and business leaders remain cautiously optimistic about the second half of 2013. Similarly, the Dallas Fed’s survey reflected some progress in many of its indicators, even as sentiment about the larger economy and company performance remained strained. To summarize all of the recent regional surveys, manufacturing activity is very soft, with only the Kansas City Fed’s survey in positive territory for the composite measures.
This week will be an important one on the economic front with several key releases. This morning, the Institute for Supply Management will release its Purchasing Managers’ Index for May. It is not expected to change much from April’s 50.7 reading, indicating very slow growth for the sector nationally. Tomorrow, we will get the latest data on exports and imports, which have been significantly challenged so far in 2013, with sluggish economic growth worldwide. Net exports as a whole were a drag on real GDP growth in the first quarter. The Fed will release its monthly Beige Book on Wednesday, which should summarize its views of the regional and national economy, including data from the regional manufacturing surveys discussed above.
Much of the rest of the focus will be on employment growth, with new jobs numbers out on Friday. The consensus is for around 165,000 nonfarm payroll jobs to be added in May, the same pace as April. Look for hiring in the manufacturing sector to also be weak, with some hope for a positive figure. In April, manufacturing employment was flat. Other highlights for the week include reports on construction spending, consumer credit, factory orders and labor productivity.
Chad Moutray is the chief economist, National Association of Manufacturers.
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