Here is the summary for this week’s Monday Economic Report:
According to the latest data, manufacturers contributed $2.03 trillion to the economy in 2012, or 12.5 percent of GDP. This was up from $1.56 trillion in 2000 and $1.92 trillion in 2011. As such, it suggests that manufacturing remains quite strong in the United States, with output continuing to expand and recovering from the falloff during the recession. In fact, manufacturing in the United States would be the eighth-largest country in the world if you were to compare manufacturing’s contribution with worldwide GDP values. Nations with GDP greater than U.S. manufacturing’s contribution were the United States, China, Japan, Germany, France, the United Kingdom and Brazil.
Looking at more current data, there were two manufacturing developments of note in the data released last week. First, Chinese manufacturing activity contracted slightly for the first time since July, spooking financial markets. This reduction in the preliminary Purchasing Managers’ Index (PMI) data stemmed largely from fewer new orders and exports, and it provided fodder for those worried about deceleration in China’s economy. (This also fed anxieties about growth in the emerging markets in general.) Yet, Chinese manufacturing output remained expansionary, albeit at a slower pace than the month before, and production has been positive for six straight months.
The second notable trend was the negative impact of colder weather on U.S. production in January. Both the Kansas City Federal Reserve’s survey and the Markit Flash U.S. Manufacturing PMI data indicated weaker output for the month, with winter shutdowns cited as one of the causes. We would expect such changes due to poor weather conditions to be temporary, and for the most part, manufacturers in the United States remain mostly upbeat about new orders, shipments, employment and capital spending moving forward. These sentiment surveys, as well as other similar ones, continue to show improvements in manufacturing sales and output since the beginning of the third quarter, with cautiously optimistic expectations for 2014.
Two indicators released last week support this more upbeat assessment of the U.S. economy’s health. The Conference Board’s Leading Economic Index (LEI) continued to expand in December, rising 3.4 percent in the second half of 2013. One of the stronger elements in this index was the new orders component, particularly as measured by the Institute for Supply Management’s (ISM) PMI reports. Similarly, manufacturing was a significant positive contributor to the Chicago Federal Reserve Bank’s National Activity Index (NAI). This measure has shown strong improvement in the past few months, with overall growth now above its historical trend.
This week will be a much busier one on the economic front. However, much of the focus will be on two separate developments. The first of these will come on Wednesday with the Federal Open Market Committee’s (FOMC) release of its monetary policy statement. This will be the last meeting with Ben Bernanke as the Federal Reserve Board chair, and it is widely expected that the FOMC will continue to taper its purchases of long-term assets, probably down from $75 billion each month to $65 billion. Then, on Thursday, we will get our first glimpse of fourth-quarter real GDP growth numbers. The consensus expectation is for growth of at least 2.5 percent in the final quarter of 2013, down from 4.1 percent in the third quarter.
Other highlights for the week include new manufacturing surveys from the Dallas and Richmond Federal Reserve Banks and consumer confidence data from both the Conference Board and the University of Michigan. In addition, we will get the latest updates for new durable goods orders, personal income and spending and state employment.
Chad Moutray is the chief economist, National Association of Manufacturers.
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