Here is the summary of this week’s Monday Economic Report:
Due to the federal government shutdown, several key data points were not released last week. This included the latest reports on international trade, job openings, producer prices, retail trade and wholesale trade. The vacuum in public data makes it more difficult to ascertain whether or not gains in many aspects of the domestic economy were continuing. This leaves us looking elsewhere for clues about current trends. Our perceptions about the present and future U.S. economic environment remain somewhat frozen as to where they were on September 30. For instance, the Manufacturers Alliance for Productivity and Innovation (MAPI) survey tended to echo the more upbeat tone from other similar surveys, with an accelerated pace for new orders, exports, utilization and domestic investment.
Yet, the budgetary impasse has reduced perceptions about the economy and heightened frustrations with the political process as a whole. Surveys released last week observed lower consumer and small business confidence levels, with each falling from higher levels during the summer. In the case of the University of Michigan’s consumer sentiment figure, the decline brought the index back to levels not seen since January, when we were still in the aftermath of the fiscal cliff deal. This shows that the fiscal crisis has zapped confidence and increased uncertainty. However, the National Federation of Independent Business (NFIB) survey, while edging slightly lower, still points to an upward trend for the year.
Interestingly, small business owners responding to the NFIB survey labeled government regulations as their most important problem. This was the second month in a row that “red tape” has topped the list, with taxes and poor sales following closely behind in second and third place.
Last week, President Obama nominated Janet Yellen to be the next Federal Reserve Board chair. This ends months of speculation about who would replace outgoing Chairman Ben Bernanke, whose term expires January 31, 2014. Notably, the President made his announcement on the day that the Federal Reserve released the minutes of the September 17–18 Federal Open Market Committee (FOMC) meeting. These minutes highlight the intense debate within the committee over when to start tapering its purchases of $85 billion in long-term and mortgage-backed securities. Financial markets expected this to begin at that meeting, but most FOMC participants wanted to see more data showing a rebound in the economy before acting. The impending budget battles were also a factor.
There continues to be speculation that the Federal Reserve will start to decelerate its quantitative easing program by year’s end, but in my view, the earliest that any taper would occur at this point would be at the FOMC’s December 17–18 meeting.
With the federal government shutdown now going into its third week, we are not expected to get consumer price index and housing starts data. In addition, the Federal Reserve has announced that it will be unable to produce industrial production data until the government reopens. It is also an open question about when the backlog of postponed data sources might be released after the budget issues are resolved, as the calendar could suddenly become quite busy in the coming weeks. Meanwhile, survey data from the New York and Philadelphia Federal Reserve Banks are still expected to be released this week, with the data more than likely reflecting the pickup that we saw prior to the shutdown. Other highlights include the Federal Reserve’s Beige Book and new data on homebuilder optimism, leading indicators and production sentiment in California.
Chad Moutray is the chief economist, National Association of Manufacturers.
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