Here is the summary for this week’s Monday Economic Report:
For the most part, manufacturing activity continues to improve from weaknesses during the spring. The Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) increased from 51.9 in June to 53.2 in July, suggesting modest growth overall and increases in new orders, output and employment. This included export sales, which contracted in June and have been slow so far in 2013. Meanwhile, the Kansas City Federal Reserve Bank’s composite index was up from -5 to 6, echoing similar improvements in the New York and Philadelphia districts. Of the regional Fed manufacturing surveys for July released so far, only the Richmond Fed’s respondents noted weaknesses, with surprisingly sharp declines in sales for that district. All of the surveys, however, reflect cautious optimism for the second half of the year. Similarly, the latest consumer confidence figures from the University of Michigan suggest sentiment has reached a six-year high.
The Census Bureau’s advance estimates of new durable goods orders provided mixed comfort on the current state of that sector’s sales environment. Strong demand for aircraft orders lifted the volume of new orders to an all-time high. Yet, when you exclude transportation from the analysis (which would also include higher auto sales), weaknesses persist in the broader industry. Without transportation, new orders would have been unchanged, and they have edged up just 1.0 percent since January. The latest National Association for Business Economics (NABE) Industry Survey gives further credence to this, with respondents noting slower sales and earnings in the goods-producing sectors (which include manufacturing) in the second quarter. Nonetheless, business economists anticipate a pickup in activity over the next year, with 70 percent of respondents expecting real GDP growth of between 2.1 and 3.0 across the next 12 months.
In international markets, exports have been slow in the early months of 2013, with particular weaknesses in Europe. The good news last week was the surprisingly positive Markit Flash Eurozone Manufacturing PMI report, with its composite index for July measuring 50.1. This was its first reading above 50—the threshold for expansion—since June 2011. While Europe still has significant issues to work through, the increase in demand and uptick in output were welcome developments and perhaps indicate some stabilization. The PMI data gave markets a huge psychological boost, with many analysts suggesting that Europe might have turned the corner. In contrast, China’s economy continues to decelerate. The HSBC Flash China Manufacturing PMI declined to 47.7 in July and has now contracted for three straight months.
This week will be a big one on the economic front. The key headline to watch will come on Wednesday with the release of second-quarter real GDP, with economists revising their estimates lower in the past few weeks to 1 percent or less. If the Bureau of Economic Analysis confirms this, it would suggest extremely sluggish growth in the first half of 2013, with first-quarter growth recently revised down to 1.8 percent. In addition to output, we will also get the latest PMI data from the Institute for Supply Management (ISM) and employment numbers for July. Hopefully, the ISM data will mirror the progress seen in the Markit data discussed above. The jobs figures will be watched closely to see if the manufacturing sector can reverse its recent declines in hiring.
Chad Moutray is the chief economist, National Association of Manufacturers.
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