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The U.S. Economy Grew 3.5 Percent in the Third Quarter

The Bureau of Economic Analysis said that real GDP grew an annualized 3.5 percent in the third quarter, slightly higher than my forecast of 3.25 percent. This followed a decline of 2.1 percent in real GDP in the first quarter and a gain of 4.6 percent in the second quarter. As such, the U.S. economy grew a frustratingly slow 1.2 percent at the annual rate in the first half of 2014, which was a major disappointment. Still, consumer and business spending strengthened in the second quarter, and we continued to see gains in these areas in the third quarter, albeit with some easing in the pace of growth. In addition, after seeing net exports serve as a drag toward growth in the first half of the year, they were a positive contributor this time around, which was encouraging. (continue reading…)

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The Federal Reserve Ends Its Latest Quantitative Easing Program

The Federal Open Market Committee (FOMC) has decided to end its quantitative easing (QE) program, which means that it will cease its purchases of long-term and mortgage backed securities. This move was expected, as it was largely telegraphed over the summer, and the Fed has continued slowing its purchases since tapering began in December 2013. It also noted its intentions to end QE when outlining its framework towards normalizing monetary policies last month. (continue reading…)

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Richmond Fed: Manufacturing Activity Continued to Expand at Fastest Pace in Nearly 4 Years

The Richmond Federal Reserve Bank said that manufacturing activity continued to expand at its fastest pace since December 2010. The composite index of general business conditions rose from 14 in September to 20 in October. It was the seventh consecutive monthly expansion since the winter-related contractions in both February and March. Indeed, much like other regional surveys, these data show an uptick in demand and production for manufacturers recently, with a mostly upbeat assessment for the coming months.

Looking specifically at current activity, manufacturing leaders in the Richmond Fed district noted sharply higher paces for new orders (up from 14 to 22) and shipments (up from 11 to 23). (continue reading…)

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Conference Board: After Ebbing in September, Consumer Confidence Rebounded in October

The Conference Board said that consumer sentiment rebounded in October after ebbing in September. The Consumer Confidence Index rose from 89.0 in September to 94.5 in October. This was higher than the 93.4 reading observed in August, and both figures were the highest since October 2007, seven years ago and pre-dating the recession. Overall, Americans have become more confident over the course of the past year. In October 2013, the index stood at 72.0, and the public was worried about economic growth in light of the budget deadlock and the government shutdown. (continue reading…)

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New Orders for Durable Goods Were Surprisingly Soft in September

The Census Bureau reported that new durable goods orders were surprisingly soft in September, decreasing 1.3 percent. To be fair, much of that decline stemmed from lower defense and nondefense aircraft sales—a highly volatile segment of the market where orders are often quite choppy. Excluding transportation, new durable goods orders were off 0.2 percent, which, while somewhat more favorable, continued to reflect weakness. Retail sales were also lower in September, with consumer spending quite cautious overall. Therefore, this latest report would be somewhat consistent with that finding.

(continue reading…)

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Dallas Fed: Manufacturing Outlook Picked Up Somewhat in October

The Dallas Federal Reserve Bank said that manufacturers continued to expand in October, with the pace of growth in production easing ever-so-slightly. The composite index of general business conditions edged slightly lower, down from 10.8 in September to 10.5 in October. It has averaged 10.3 over the past seven months, which was progress from the 0.3 index reading in February. (continue reading…)

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Monday Economic Report – October 27, 2014

Here is the summary for this week’s Monday Economic Report:

What a difference a week makes. After a volatile week in financial markets amid worldwide economic worries, things calmed down last week. While the Dow Jones Industrial Average remains 2.7 percent below its all-time high on September 19, it gained 425 points last week, or 2.6percent. Attitudes shifted to a more positive stance on decent earnings reports and on news that firms remain mostly upbeat in their outlook. (continue reading…)

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Somewhat Better Manufacturing Data in China and Europe for October, But Weaknesses Persist

The HSBC Flash China PMI rose to its highest level in three months, up from 50.2 in September to 50.4 in October. It was the fifth consecutive monthly expansion in manufacturing activity in China, an improvement from the contracting activity levels experienced in the first five months of 2014. Yet, despite the better headline figure, many of the underlying data points reflect some easing in growth rates for the month, including new orders (down from 51.5 to 51.4), exports (down from 54.5 to 52.8) and output (down from 51.3 to 50.7). Hiring continued to decline but at a slower rate (up from 47.5 to 48.6).

As such, Chinese manufacturers are expanding but not by as much as we might prefer. This finding is consistent with the deceleration in other Chinese data, including real GDP, which slowed from 7.5 percent year-over-year growth in the second quarter to 7.3 percent in the third quarter. Fixed real investment (down from 16.5 percent year-over-year in August to 16.1 percent in September) and retail sales (down from 11.9 percent year-over-year to 11.6 percent) also declined. On the positive side, industrial production picked up, increasing from the year-over-year rate of 6.9 percent in August to 8.0 percent in September; yet, that remained lower than July’s 9.0 percent pace.

Meanwhile, the Markit Flash Eurozone Manufacturing PMI increased from 50.3 to 50.7. That is good news, as the September figure had been the lowest level since July 2013, when Europe first emerged from its recession. October’s reading was higher largely due to a pickup in output (up from 51.0 to 51.9) and employment (up from 50.1 to 50.6). Still, new orders (unchanged at 49.3) contracted for the second straight month, with exports (down from 51.6 to 50.5) easing. The Eurozone continues to face challenges in manufacturing, especially in terms of falling sales. The results also vary by country, with Germany (up from 49.9 to 51.8) improving somewhat, while French manufacturers  (down 48.4 to 47.6) continue to report weakness.

Closer to home, the Markit Flash U.S. Manufacturing PMI dropped slightly, down from 57.5 to 56.2. The pace of activity was down across-the-board, including new orders (down from 59.8 to 57.1), output (down from 59.6 to 58.0), hiring (down from 56.4 to 56.2) and exports (down from 54.1 to 51.9). While the index for new orders was at its lowest level since January’s 53.9 reading, it is hard to get too worked up over October’s decline for these indicators. After all, demand, production and employment continue to grow at decent rates, and manufacturers are reporting higher activity levels than earlier in the year.

Still, we would like to see better results to begin the fourth quarter, particularly for exports. Given the softness in worldwide markets, however, this weakness should not be a surprise.

Chad Moutray is the chief economist, National Association of Manufacturers. 

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Monday Economic Report – October 20, 2014

Here is the summary for this week’s Monday Economic Report:

Global financial markets were highly volatile last week, with investors concerned about slower growth in Europe and an Ebola outbreak in the United States, among other factors. Indeed, industrial production in the Eurozone fell 1.8 percent in August, and activity was down largely across-the-board, most notably in Germany (down 4.3 percent), the Eurozone’s largest economy. Sluggish income and labor market growth in Europe has also pushed inflationary pressures lower, with year-over-year pricing changes of just 0.3 percent in September. Despite such worries, equity markets began to rebound on Friday, with the Dow Jones Industrial Average (DJIA) closing at 16380.41. Nonetheless, the DJIA remains 5.2 percent below its all-time high of 17279.74 on September 19.

Still, the U.S. economy has shown signs of resilience. Despite a softer August, manufacturing production increased 0.5 percent in September. Over the past 12 months, output in the sector has risen 3.7 percent. While this was slower than its July year-over-year pace, it reflects a nice improvement from the more sluggish 1.5 percent rate in January.

Moreover, surveys from the Manufacturers Alliance for Productivity and Innovation (MAPI) and the New York and Philadelphia Federal Reserve Banks observed expanding activity levels in their latest reports. Each measure eased somewhat in October, but they were expansionary nonetheless. The weakest of these reports was the Empire State Manufacturing Survey, which observed a slight contraction in new orders. Yet, even there, respondents remained mostly optimistic about demand and output over the next six months. Along those lines, MAPI has a generally upbeat outlook, predicting that manufacturing production will increase by 3.4 percent in 2014 and 4.0 percent in 2015.

Housing starts exceeded 1 million again, increasing from an annualized 957,000 units in August to 1,017,000 in September. This continues a slow-but-steady trend upward, with an average of 978,111 so far in 2014 relative to an average of 930,000 for all of 2013. Still, there was relatively weak housing activity throughout much of the second half of last year and the first half of this year, and the latest data suggest that the sector has begun to stabilize somewhat. I continue to predict housing starts solidly in the 1.1 million unit range by the beginning of 2015. Homebuilder confidence has also reflected a positive outlook despite slipping a bit in October. Lower mortgage rates might spur more residential construction activity. According to Freddie Mac, average 30-year fixed mortgage rates fell to 3.97 percent this past week, their lowest level since June 2013.

Meanwhile, there was mixed news on the consumer front. On the positive side, consumer confidence reached a pre-recessionary high, according to the University of Michigan and Thomson Reuters. This is a sign that improvements in the economy and lower gasoline prices have helped to lift Americans’ spirits. Yet, there are also lingering worries about income and labor market growth, and consumers remain somewhat cautious overall. Retail spending declined 0.3 percent in September, suggesting softness as we begin autumn. At the same time, year-over-year growth in retail sales was up 4.3 percent, a fairly decent rate, and the holiday season retail outlook looks pretty strong. We hope we will see better consumer spending data in the coming months.

This week, we will get additional insights regarding the health of the global economy. Markit will release Flash Purchasing Managers’ Index (PMI) data for China, Japan, the Eurozone and the United States. The European data are expected to show continued weakness, but we will be watching for signs of progress in the Chinese manufacturing sector, which has decelerated in recent months. The Kansas City Federal Reserve Bank will also unveil its latest manufacturing survey, and it is expected to show continued expansion in its district. Beyond these surveys, we will learn about growth in consumer prices, and if they are similar to the producer price index data released last week, they will reflect easing in both food and energy costs. Other highlights this week include reports on existing and new home sales, leading indicators and state employment.

Chad Moutray is the chief economist, National Association of Manufacturers. 

DJIA - oct2014

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University of Michigan: Consumer Confidence Rose to a Pre-Recessionary High in October

The University of Michigan and Thomson Reuters said that preliminary data on consumer confidence reflects a pre-recessionary high in October. The Consumer Sentiment Index increased from 84.6 in September to 86.4 in October, its highest level since July 2007. This mirrors similar data from the Conference Board, which has also reached pre-recessionary levels of late (although that measure unexpectedly declined in September, reflecting a public that remains on edge).

Even with the increase in October, the University of Michigan report also shows these anxieties. The index for the current economic environment was unchanged at 98.9, and it remains below its recent peak of 99.8 in August. Geopolitical events, slowing global growth, stock market volatility and worries about Ebola might help to explain this hesitance. Moreover, Americans remain concerned about labor market and income growth, despite better data of late on the hiring front.

At the same time, the future-oriented index rose from 75.4 to 78.4, its highest level in two years. Lower gasoline prices likely lifted people’s spirits, helping to increase disposable income, at least for now. Overall, this survey suggests that consumers’ views about the economy are quite nuanced, and at least for this month, optimism about the future outweighed the concerns.

We will get final data on October consumer sentiment from the University of Michigan on October 31. The Conference Board will also release its survey data on consumer confidence on October 28.

Chad Moutray is the chief economist, National Association of Manufacturers. 

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