Here is the summary for this week’s Monday Economic Report:
The incoming data show that manufacturers ended 2013 on a high note. Despite a slight decline in December, the Institute for Supply Management’s (ISM) Purchasing Managers’ Index (PMI) has reflected expanding manufacturing activity for seven consecutive months. Moreover, the manufacturing PMI data averaged 56.3 in the second half of 2013, a nice improvement from the 51.5 average during the first half of the year. As such, it appears that manufacturing activity has rebounded in the past few months from notable weaknesses in the spring, helping to buoy the prospects for continued growth in 2014. For instance, the real strength in the ISM report has been the new orders and production indices, both of which have exceeded 60.0—signifying healthy gains—for at least five straight months.
In a report released after Christmas, the Census Bureau reported that new durable goods orders increased 3.5 percent in November (or 1.2 percent, if you exclude the highly volatile transportation sector). From November 2012 to November 2013, sales of durable goods products rose at a strong 10.9 percent pace, and they are at their second-highest level since the end of 2007. Such findings are encouraging. At the same time, manufacturers in the Dallas and Richmond Federal Reserve Bank districts remain mostly upbeat about future activity for the sector. This was true even with some easing in new orders in both regions. More than half of the respondents to the Texas Manufacturing Outlook Survey expect increased new orders in the next six months.
Manufacturing construction spending rose 1.2 percent from $53.93 billion in October at the annual rate to $54.58 billion in November. This was the fifth straight month that construction spending has risen for the sector, increasing from $43.34 billion in June, the lowest point of the year. Over a longer time horizon, manufacturers have steadily upped their construction investment dollars after bottoming out in January 2011 at an annualized $28.84 billion pace. Overall construction activity increased 5.9 percent on a year-over-year basis, boosted significantly by the rebounding housing market. Private, residential construction activity has grown 16.6 percent since November 2012. Private, nonresidential construction spending has been stable, rising a more modest 1.0 percent year-over-year. However, nonresidential construction in the private sector has risen five months in a row, up 8.5 percent in that time frame.
Similarly, we have seen consumer confidence rebound in the latest data after falling during the federal government shutdown. Reports from both the Conference Board and the University of Michigan observed rising sentiment in December. The Conference Board’s Consumer Confidence Index increased from 72.0 in November to 78.1 in December. While this remains below the recent peak of 82.1 in June (its highest point since January 2008), it is clear that Americans have become more optimistic over the course of 2013, with the index measuring 58.4 in January. Even with these gains, consumers remain somewhat anxious about the economy, particularly with their income and job potential. The Conference Board’s key measure has not exceeded 100 since August 2007.
The Conference Board report does suggest an increased willingness to purchase homes and appliances, with automobile buying intentions improved from the summer. Similarly, personal spending growth has also made gains in the past few months, up 0.4 percent in October and 0.5 percent in November. Much of that growth stemmed from an increase in durable goods expenditures. Consumer spending has increased 3.5 percent over the past 12 months, its fastest pace of 2013 and an improvement from the 2.9 percent year-over-year rate in September.
This week, the primary focus will be the employment report due out on Friday. The consensus estimate is for roughly 200,000 nonfarm payroll jobs added in December, which would be in line with the 204,000 average per month from August to November. Likewise, manufacturers added an average of 16,500 net new workers each month over the same time frame, and they are expected to have continued to make modest hiring gains in December. The other key highlight this week will be new international trade data, which will be released tomorrow. Recent data have suggested a narrowing of the overall trade deficit, and yet, growth in manufactured goods exports has been quite slow. We hope improvements in the global economy will help to increase manufacturers’ overseas sales moving forward.
Chad Moutray is the chief economist, National Association of Manufacturers.