Here is the summary for this week’s Monday Economic Report:
Manufacturers were slightly more upbeat in the September National Association of Manufacturers (NAM)/IndustryWeek (NAM/IW) survey. Over the course of the next 12 months, respondents expect their sales to grow 3.3 percent on average, up from 2.7 percent in June. Capital spending, exports, and employment expectations also edged higher. However, hiring still lags behind, with roughly 60 percent of businesses not planning to add to their workforce. Overall, 76.1 percent of those taking the survey were either somewhat or very positive about their own company’s outlook. This increased from 72.3 percent three months ago but still fell well below the 88.7 percent experienced in March 2012.
In a series of special questions, manufacturers made clear that they continue to worry about the long-term health of the nation. Nearly 85 percent want policymakers to permanently address our deficit and debt challenges over the next 12 to 18 months. They also want the President and Congress to slow the growth of entitlements (74.5 percent) and pass comprehensive tax reform (66.2 percent). At the same time, respondents cited the rising cost of health care as their top primary business challenge right now. With continuing uncertainties related to implementation of the Affordable Care Act, health care has been the top concern for three straight quarters.
This week, the Federal Open Market Committee meets, and everyone will be watching to see what the Federal Reserve does about its asset purchases. The Fed currently has more than $3.6 trillion in assets on its balance sheet and is buying $85 billion in long-term and mortgage-backed securities each month. Some expect the Fed to “taper” its purchase amounts at its meeting this week, with all asset purchases ending by mid-2014. The NAM/IW survey respondents expressed a moderate degree of concern about the Fed’s exit strategy from its holdings, rating it a 6.0 on average on a scale from 1 to 10 (where 1 is not worried and 10 is extremely worried). Regardless, in the short term, the markets have already priced in some sort of taper this fall, with the yield on 10-year Treasury bills up from 1.66 percent on May 1 to 2.89 percent on Friday.
Other economic data released last week suggested a bit of softness in August. Sentiment was somewhat lower for both small businesses and consumers, and retail sales rose just 0.2 percent. While auto sales rebounded in August from weaknesses in July, the broader retail picture was more mixed. Higher gasoline prices and borrowing costs, combined with increased geopolitical risks, have perhaps had some impacts. On a positive note, manufacturers posted more jobs in July, but the figures still remained subpar, and net hiring for the month was zero.
In addition to the Fed’s monetary policy decision, another big highlight will come this morning with the latest news on manufacturing production. Industrial production is expected to have increased modestly in August on the recent pickup in activity. Still, manufacturing output has been weak over the past 12 months, up just 1.3 percent year over year. We will also get regional data from the New York and Philadelphia Federal Reserve Banks. The other headline will come on Wednesday, with higher mortgage rates more than likely slowing the growth of housing starts. In addition, new data on consumer prices, leading economic indicators, and state employment are forthcoming.
Chad Moutray is the chief economist, National Association of Manufacturers.