Here is the summary for this week’s Monday Economic Report:
The U.S. trade deficit plummeted to its lowest level since October 2009, down from $44.1 billion in May to $34.2 billion in June. Goods exports recorded an all-time high, providing some encouragement that global demand might be picking up. If so, this would be welcome news for manufacturers, with many experiencing disappointingly slow growth in exports so far this year. Manufactured goods exports have been up just 1.7 percent in the first six months of 2013 relative to the same time period in 2012. This suggests a deceleration from the 15.8 percent and 5.7 percent growth rates for the past two years, respectively. (For more on this topic, see the latest Global Manufacturing Economic Update.)
Trade data, in essence, were more mixed than the headline figures suggested, and this is true of many other economic releases as well. Even with recent progress, some weaknesses continue to persist in manufacturing. For instance, wholesale inventories declined for the third straight month, with particular softness among nondurable goods businesses. At the same time, manufacturers remain hesitant to bring on new employees—a finding the most recent jobs report confirmed. Had it not been for gains in the automotive sector, manufacturing employment in July would have fallen for the fifth straight month. Likewise, the latest Job Openings and Labor Turnover Survey (JOLTS) data suggest that manufacturing job openings continue to decline. Job postings have decreased from 310,000 in June 2012 to 215,000 in June 2013.
On the credit front, senior loan officers report increased demand for commercial and industrial loans, and they also note lending standards continue to ease. This is true for business borrowers of all size classes. In the aftermath of the financial crisis, lending standards tightened, and commercial and industrial demand was very weak. The data suggest improvements in credit conditions since then, particularly over the past year or so. Meanwhile, the Federal Reserve Board continues to show large increases in consumer credit outstanding, up 5.8 percent over the past 12 months. Student loans saw much of these gains, but nonrevolving credit overall has seen sizable increases over the past few years. Revolving loans, including credit cards and other credit lines, have grown more slowly, perhaps reflecting some deleveraging on the part of consumers. Revolving credit declined by 3.8 percent in June.
This week, there will be several economic reports for us to assess the health of the manufacturing sector. On Thursday, industrial production is expected to show modest gains in activity in July, building on June’s 0.3 percent increase. In addition, sentiment surveys from the New York and Philadelphia Federal Reserve Banks are anticipated to document continued progress in those regions, with August’s surveys extending July’s improved production and sales data. The other key indicator will come on Friday, with the announcement of new residential construction activity for July. Housing starts and permits declined in June, mostly among multifamily units. It will be interesting to see how higher borrowing costs will impact residential activity moving forward, with an average 30-year mortgage rate last week of 4.40 percent, according to Freddie Mac.
Other data of note out this week include the latest information on consumer and small business confidence, consumer and producer prices, productivity and retail sales.
Chad Moutray is the chief economist, National Association of Manufacturers.
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