Monday Economic Report – July 15, 2013

By July 15, 2013Economy

Here is a summary of this week’s Monday Economic Report:

Federal Reserve Chairman Ben Bernanke made news last week in a speech before the National Bureau of Economic Research. He said that monetary policy would stay highly accommodative “for the foreseeable future.” Financial markets soared on this news, but long-term interest rates have already moved steadily higher since the last Federal Open Market Committee (FOMC) meeting, where it was suggested that a “tapering” of asset purchases might be possible later this year. For instance, Freddie Mac reports that 30-year mortgage rates have risen from 3.35 percent at the beginning of May to 3.91 percent at the start of June to 4.51 percent last week. Not surprisingly, this has led to a decline in mortgage applications in June, which could impact housing starts and permits data out this Wednesday.

Meanwhile, the cost of petroleum has skyrocketed over the past few weeks, with political instability in Egypt and reduced supplies in the United States sending prices higher. As recently as June 21, the spot price of West Texas Intermediate crude was $93.81 per barrel, but on Friday, it closed at $106.17 a barrel. This will lead to higher gasoline prices at the pump, which could zap some optimism we have seen recently. The University of Michigan’s July consumer sentiment numbers edged slightly lower than what we saw in June, but the data generally suggest that Americans are more positive now than earlier this year. Higher energy costs could also accelerate inflationary pressures, which have been mostly in check for much of the year. Even before the recent run-up in crude oil costs, the Producer Price Index rose 0.8 percent in June, largely on increased energy prices. Producer prices have been modest over the past year, up just 1.4 percent. If the current oil prices are sustained, look for pricing pressures to accelerate.

Two manufacturing surveys released last week echoed other studies, which have found some recent progress in the sector regarding new orders and production. Yet, both the California Manufacturing Survey from Chapman University and the Business Outlook Survey from the Manufacturers Alliance for Productivity and Innovation (MAPI) also noted some persistent weaknesses. Respondents in California still had a high degree of caution moving forward, and hiring plans were less positive than other indicators. At the same time, MAPI’s analysis noted shrinking export sales, with weaker global demand dampening enthusiasm for foreign investment as well. Worldwide manufacturing activity has grown very slowly in the past month, according to the most recent Global Manufacturing Economic Update, with Europe’s recession and a deceleration of growth in China hurting exports.

This week, we will see if recent improvements in manufacturing activity—modest as they might be—continue, or if the slowing global environment hurts sales and production figures. The New York and Philadelphia Federal Reserve Banks will release their latest surveys. Both had shifted from a slight contraction to modest growth in last month’s reports. In addition, the Federal Reserve Board is expected to show a slight gain in industrial production in June, after being unchanged in May. Overall, manufacturing production has grown just 1.7 percent over the course of the past 12 months, a figure that is subpar and that we hope picks up in the coming months. Other key data releases out this week include the Consumer Price Index, leading economic indicators, new residential construction, retail sales and state employment.

Chad Moutray is the chief economist, National Association of Manufacturers.

Chad Moutray

Chad Moutray

Chad Moutray is chief economist for the National Association of Manufacturers (NAM), where he serves as the NAM’s economic forecaster and spokesperson on economic issues. He frequently comments on current economic conditions for manufacturers through professional presentations and media interviews. He has appeared on Bloomberg, CNBC, C-SPAN, Fox Business and Fox News, among other news outlets.
Chad Moutray

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