Here is a summary of this week’s Monday Economic Report:
Increases in consumer spending and business investment in the second quarter boosted the economy, with the government announcing real GDP growth of 2.5 percent last week in its latest revision. This did not change from its previous estimate. Nonetheless, even with modest gains in the second quarter, the United States has grown too slowly in the first half of 2013, up just 1.8 percent. There have been some indications that manufacturing activity and other data have accelerated recently. Surveys show that manufacturers are generally positive about higher orders and production moving forward. Yet, it is also clear that persistent headwinds have prevented even faster economic growth. I anticipate real GDP growth of 2.0 percent for the third quarter.
While manufacturing activity has accelerated of late from weaknesses seen in the spring and early summer, data released last week showed some easing in new orders and the overall pace of growth. The Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) declined slightly from 53.1 in August to 52.8 in September. The lower figure stemmed largely from an easing in sales growth, with new export orders down somewhat. Hiring continues to be positive, but sluggish. Along those lines, manufacturing surveys from the Kansas City and Richmond Federal Reserve Banks also noted some disappointing results for September, pulling back from increases observed in August. In addition, durable goods sales edged higher in August, but new orders data generally disappointed, particularly when you look at the broader market.
Overseas data suggest that the economies in China and Europe continue to stabilize, with PMI readings showing expansion for three straight months in the Eurozone and two consecutive months in China. Hopefully, improvements in the global marketplace will result in increased exports ahead; although, that continues to be a challenge so far this year.
Meanwhile, consumer confidence has ebbed lower, with political gamesmanship and labor market concerns dampening sentiment. Americans responded less positively in surveys from both the Conference Board and the University of Michigan. In each case, the longer-term trend reflects upward movement from earlier in the year or relative to past years, but the recent declines have still been notable. At least for now, however, the reduction in consumer perceptions about the economy has not impacted overall spending behavior, at least not too much. Personal spending rose modestly in August, with year-over-year growth at 3.2 percent. This indicates a faster annual pace than in previous months, suggesting a bit of a rebound.
Looking at the housing market, new home sales rose 7.9 percent in August, recovering somewhat from the sharp drop in July. Higher borrowing costs have reduced residential sales activity, but with the Fed deciding not to taper at its last meeting, mortgage rates have begun to fall, which should be beneficial in the short term. Freddie Mac reported the average 30-year mortgage rate at 4.32 percent last week, down from 4.50 percent the week before. Still, this remains a full percentage point higher than that from the first week of May.
This week, the largest headlines will come on Friday with the release of September’s jobs numbers. Nonfarm payrolls are anticipated to show an increase of around 170,000, or roughly the same as in August. Manufacturing hiring should be positive, but only barely so. The other big news will come tomorrow with the September PMI figures from the Institute for Supply Management. Similar to other sentiment surveys, the consensus expects a modest pullback in the index, with growth easing from the strong rebound noted in both July and August, particularly for new orders. We will also get the latest reports on manufacturing activity from the Chicago and Dallas Federal Reserve Banks and new data on construction spending and factory orders.
Chad Moutray is the chief economist, National Association of Manufacturers.
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