The National Federation of Independent Business (NFIB) reported that small business owner sentiment moved higher last month. The Small Business Optimism Index rose from 89.5 in March to 92.1 in April, its highest level in six months. As you might expect, an improved sales outlook helped to lift these figures, with the net percentage of respondents expecting higher sales increasing from -4 percent to +4 percent. In addition, small businesses appear to be more willing to increase hiring, as well, with the net percentage planning to hire in the next three months rising from zero in March to 6 percent in April.

This does not mean, however, that small businesses have moved beyond their challenges. Keep in mind that small businesses are said to be growing strongly when the Optimism Index exceeds 100, so we are still quite a way from that. Indeed, the net percentage of business owners saying that the next three months were a “good time to expand” was unchanged at four percent. As with past reports, the top reasons cited for it not being a good time to expand were economic uncertainties and the political climate. (continue reading…)

The Census Bureau reported that retail sales rose 0.1 percent in April. The consensus estimate had been for a decline of 0.3 percent. With that said, much of the increase could be explained by more spending on autos, with motor vehicle and parts purchases up 1.0 percent. This continues strong growth in the auto sector, with retail sales up 8.8 percent year-over-year.

Outside of autos, retail sales dropped 0.1 percent. The largest drag on purchasing growth stemmed from gasoline station sales, which dropped 4.7 percent in April. This extends the 3.2 percent loss in March, and year-over-year spending was down 4.6 percent. Lower gasoline prices were the primary factor in reducing the amount. The average price of West Texas intermediate crude oil was $92.02 per barrel in April, down from $95.31 in February and $92.94 in March.

The good news is that when you exclude auto and gasoline station sales, retail purchases rose 0.6 percent, suggesting that there were some broader strengths to report beyond the headlines. Businesses with increased sales in April included building materials (up 1.5 percent), nonstore retailers (up 1.4 percent), clothing and accessories (up 1.2 percent), and general merchandise stores (up 1.0 percent). At the same time, there were declines among food and beverage (down 0.8 percent) and health and personal care (down 0.1 percent) stores.

Chad Moutray is chief economist, National Association of Manufacturers.

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

In a slow economic news week, the stock market’s ascent became one of the top headlines. The Dow Jones Industrial Average (DJIA) passed 15,000 for the first time, a feat that was even more impressive after the depths of the decline during the financial crisis. The DJIA had previously peaked at 14,164.53 on October 11, 2007, before plummeting to a low of 6,547.05 on March 9, 2009. It has slowly moved higher since then, closing last week at 15,118.49. As impressive as the DJIA records might be, there is also a debate about whether the stock market’s all-time highs are warranted given some of the current economy’s weaknesses. Historically low interest rates have helped to push equity values higher, with Americans looking for more attractive yields for their dollars. Regardless of the debate, rising equity values should help to generate more wealth and consumer optimism, and manufacturers hope this means greater spending.

Retail sales data for April will be released this morning, and the consensus estimate is for spending to be flat. This would be consistent with slower growth in personal spending and the reduction in wholesale sales in March. Moreover, while consumer credit rose 3.4 percent in March, much of the higher figure stemmed from increased student loan borrowing. Auto loans were also higher, but revolving credit lines—which include credit cards—declined for the month and were essentially flat over the past year. This suggests some reluctance to take on more debt to support increased consumer spending, which, to the extent that it means smarter personal finance habits, is perhaps a good thing. (continue reading…)

Here is the summary for this month’s Global Manufacturing Economic Update:

Last week, we learned that the U.S. trade deficit narrowed in March. While the headline number might seem positive at first glance, the trade gap shrunk on declining levels of both exports and imports. This report was one of the more disappointing ones of late. After slowing to 5.5 percent growth in 2012, manufactured goods exports have eked out only a 1 percent gain in the first three months of 2013 so far. The data suggest that export sales have essentially stalled. The largest weakness is in the European market, but exports to Canada—our largest trading partner—also declined. Asia and South America saw the largest gains, with manufactured goods exports to China up 9.3 percent during the first three months of this year relative to the same time period last year.

There has been considerable weakness in U.S. manufacturing data during the past few months, with the Institute for Supply Management’s Purchasing Managers’ Index (PMI) decelerating and manufacturing employment unchanged in April. Regional sentiment surveys have also suggested softness in the sector, with slower sales dragging optimism lower. Domestic policies are fueling weakness in the sector, including higher taxes, tighter government spending and regulatory uncertainties. Nonetheless, our largest trading partners continue to see slower sales, with discouraging export numbers highlighting the slowdown. (continue reading…)

The Federal Reserve Board said that U.S. consumer credit rose by $8.0 billion, or 3.4 percent, in March. This was slower than anticipated, with the consensus estimate expected to show a $15.0 billion increase. Total debt outstanding was $2.8075 trillion, with $846.2 billion in revolving credit and $1.9613 trillion in nonrevolving loans outstanding.

The other big headline in this data was the decline in revolving loans for the month, which includes credit cards and other lines of credit. The value of revolving credit decreased by 2.4 percent for the month, and in the first quarter of 2013, it eked out just a 0.2 percent gain. In general, we have seen some deleveraging in revolving credit since the end of the recession, with these lines up just 0.2 percent and 0.4 percent in 2011 and 2012, respectively.

Regarding the decline in the March data, this is consistent with analysis showing an easing of both personal income and personal spending. This suggests that the pullback in purchases also meant a decline in credit card borrowing for the month.

Meanwhile, nonrevolving lines of credit increased 5.9 percent in March, or 8.1 percent in the first three months of the year. This category, which includes auto and student loans, has seen tremendous growth over the past couple years. These loans have helped to finance greater motor vehicle sales – one of the larger drivers of economic growth of late. But, growth in student lending, which is administered now by the federal government, has been tremendous, up 23.9 year-over-year. When you exclude the federal government from the analysis, nonrevolving loans were 3.3 percent higher than they were one year ago.

This suggests that consumer debt is consumer indebtedness has moved only modestly over the past 12 months. While overall credit outstanding is 5.7 percent year-over-year, the bulk of that growth was in auto and student loans, particularly the latter.

Chad Moutray is chief economist, National Association of Manufacturers.

The Bureau of Labor Statistics said that manufacturing job openings declined from 274,000 in February to 260,000 in March, according to the latest Job Openings and Labor Turnover Survey (JOLTS) report. The number of job postings has stayed by 300,000 since July 2012, staying within a narrow range of 240,000 to 275,000 since then. If there is a longer-term trend, it is that the number of job openings in manufacturing appears to have stalled after topping out at 324,000 in March 2012.

This is also consistent with what we are seeing in the net hiring data, which turned negative again in March for manufacturers for the first time since September 2012. Manufacturers hired 200,000 workers in March, the slowest pace in almost 4 years. This is down from 231,000 in February. Meanwhile, total separations – which include layoffs, quits, and retirements – declined from 225,000 to 205,000 for the month. On the positive side, the separations rate is at an all-time low in the JOLTS data’s 13-year history. Nonetheless, net hiring (or hiring minus separations) was -5,000 in March, down from +6,000 in February, reflecting significant weaknesses in the manufacturing sector.

Looking at the larger macroeconomy, there was some easing for job openings and hiring between February and March, but net hiring was still positive. The number of job postings declined from 3,899,000 to 3,844,000, with both figures representing 2.8 percent of total employment. Net hiring was 46,000, down from 271,000 the month before. The greatest monthly gains in hiring in March occurred primarily in the service sector, primarily from professional and business services (up 24,000) and education and health services (up 16,000).

Chad Moutray is chief economist, National Association of Manufacturers.

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

Looking at last week’s reports, there appears to be a split between the economic progress of the larger economy and what we continue to observe in the manufacturing sector. That is not to suggest that the U.S. economy is growing robustly—because it isn’t. Nonetheless, some of the data show signs of upward movement. The Bureau of Labor Statistics reported that 165,000 new nonfarm payroll workers were added in April, with healthy upward revisions for February and March. As a result, the economy created almost 200,000 workers in the first four months of 2013, and the unemployment rate fell to 7.5 percent, its lowest level in more than four years. At the same time, the participation rate remains low, and the “real” unemployment rate is still elevated at 13.9 percent, suggesting challenges continue on the labor front even with the recent progress.

One of those challenges can be seen in the manufacturing sector, with its employment levels unchanged in April and lower on a year-over-year basis. Several indicators show softness in activity nationally for manufacturers, with sales, production and employment growing at a slower pace. The Institute for Supply Management’s (ISM) Purchasing Managers’ Index (PMI) dropped from 51.3 in March to 50.7 in April largely on flat job growth, and factory orders declined 3.1 percent in the first quarter of 2013. Manufacturing construction spending was also lower. Regionally, several surveys tend to indicate an easing in activity, with modest growth at best, in manufacturing. The one exception of note was the Chicago Federal Reserve Bank’s Midwest Manufacturing Index, which noted an increase in production mainly due to higher output in the motor vehicle sector. (continue reading…)

The Census Bureau said that new orders for manufactured goods fell 4.0 percent in March, more than offsetting the 1.9 percent gain seen in February. Illustrating the current weaknesses in the manufacturing sector in the first quarter of 2013, new orders in March were 3.1 percent lower than in December 2012. Swings in transportation sector sales have explained some of the volatility in the past few months, and this continued in March. Transportation orders were down 15.1 percent for the month. Yet, the decreases were more broad-based than that. Even if the transportation sector was excluded, new orders would have fallen by 2.0 percent.

New orders for durable goods were off 5.8 percent, more than outpacing the 2.4 percent decline in nondurable goods sales. As noted, decreasing new orders were observed across-the-board, with the largest decreases seen in the primary metals (down 3.2 percent), electrical equipment and appliances (down 2.8 percent), fabricated metal products (down 2.4 percent), and machinery (down 0.8 percent) sectors. With that said, new orders for core capital goods (or nondefense capital goods excluding aircraft) rose 0.9 percent, suggesting that there were some pockets of strength outside of the major categories.

Meanwhile, shipments of manufactured goods were off 1.0 percent, its first decline since August. This decrease was primarily in the nondurable goods industries, with shipments down 2.4 percent in that sector. Durable goods shipments increased 0.5 percent.

The sector-by-sector analysis of the shipments was mixed. The largest shipment gains occurred in the beverage and tobacco products (up 3.0 percent), computer and electronic products (up 2.8 percent), and transportation (up 2.3 percent) sectors. Whereas, sectors with the greatest shipment declines in March were petroleum and coal products (down 7.1 percent), primary metals (down 2.0 percent), apparel (down 2.0 percent), nonmetallic mineral products (down 1.9 percent), and plastics and rubber products (down 1.8 percent). The steep decline in petroleum shipments was largely due to lower per barrel costs.

The U.S. economy added 165,000 nonfarm payroll jobs in April, and there were upward revisions of 114,000 additional nonfarm workers in the months of February and March. The higher February number suggests that job growth in that month was now the highest in almost 3 years. Indeed, for the larger economy, the employment data including the revisions could be perceived as somewhat positive. Yes, we would like to see even greater job gains on a month-by-month basis, but the economy added almost 196,000 workers on average in the first four months of 2013. This is higher than the nearly 183,000 average of 2012.

The unemployment rate fell to 7.5 percent. This is the lowest level since December 2008. At that time, the rate was on its way up, topping off at 10 percent in October 2009. The unemployment rate was 9 percent in April 2011, illustrating its descent in the past two years. Its decline can be explained by two factors: an improving jobs picture and a falling participation rate. In April, the participation rate was unchanged at 63.3 percent. As noted last month, this rate is the lowest since May 1979.

For manufacturers, the news has been less positive. Manufacturing employment was unchanged in April, only slightly lower than the gain of 2,000 workers experienced in March. The revisions to February and March data added 9,000 workers to those two months. Still, over the past 12 months, the sector has actually shed 10,000 workers, illustrating significant weaknesses for manufacturers, especially after July 2012. As we have noted since then, some of the challenges have been slowing domestic and global sales and fiscal and regulatory uncertainties. Recent surveys indicate that this softness persists in March and April data of manufacturing activity on weaker new orders, with hiring continuing to be skittish as long as policies out of Washington continue to provide uncertainty and undue burdens.

Looking specifically at manufacturing sectors, durable goods industries added a net 1,000 workers in April, which was counteracted by a net decline of 1,000 workers from nondurable goods businesses. Manufacturing sectors with employment gains for the month included machinery (up 3,600), transportation equipment (up 3,000, with 2,400 from motor vehicles), fabricated metal products (up 2,500), and food manufacturing (up 2,300). On the negative side, sectors with losses in April were printing and related support activities (down 3,100), apparel (down 2,900), computer and electronic products (down 2,000), wood products (down 1,700), and nonmetallic mineral products (down 1,300).

Reflecting the flat nature of the employment data, overall compensation in the manufacturing sector was also essentially stalled, declining marginally. Average weekly earnings in the sector decreased from $985.73 in March to $982.91 in April. In addition, there were slightly fewer hours worked on average. The average weekly hours in manufacturing in April were 40.7 hours, down from 40.8 hours the month before. Moreover, average overtime hours dropped from 3.4 hours to 3.3 hours.

In short, the manufacturing sector has not performed as well as the larger economy when it comes to jobs gains. This is not to suggest that nonfarm payroll growth is stellar – because it is not – but at least we have seen upward movement in overall hiring. Nonfarm payroll growth is approaching 200,000 on average each month, which is decent and higher than what was seen last year.

Yet, hiring in the manufacturing sector leaves a lot to be desired, going beyond the stalled growth of April. Over the course of the past 12 months, manufacturers have added just over 6,000 workers on net each month. That is well shy of what we like to see coming from the sector, and it is a sign of just how soft new orders and other activity have been for the industry of late. As noted in February in a speech by NAM President and CEO Jay Timmons, we would like to see average monthly job gains of around 20,000. To achieve this “20/20 Vision” – as it has been dubbed – manufacturers will need pro-growth policies stemming from Washington, and it will require stronger economic growth overseas, which will help to drive greater exports.

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

The Society for Human Resource Management (SHRM) reported that the pace of hiring for manufacturers should increase slightly in May. The monthly Leading Indicators of National Employment (LINE) report from SHRM says that 52.3 percent of manufacturers plan to increase their hiring in May, up from 50.3 percent in April and 46.6 percent one year ago. With that said, there were also more manufacturers who plan to reduce their employment, 9.4 percent now versus 6.1 percent last year.

The net percentage of new hiring in the manufacturing sector has risen from 37.8 percent in April to 42.9 percent in May, suggesting a slight pickup in activity this month. That figure is also 2.4 percentage points higher than one year ago.

One factor which is challenging employment is the difficulty to attract qualified workers, something that continues to confront manufacturing businesses. In this survey, 15.1 percent of manufacturing respondents said that it was more difficult to recruit new employees, with 3.2 percent saying that it was less difficult. At the same time, 8.7 percent of manufacturers were increasing their compensation for new workers, essentially the same pace as last year.

The SHRM survey is one of the few that forecast employment one month ahead. In the meantime, the Bureau of Labor Statistics will report national employment data tomorrow. The consensus estimate is for an increase roughly 150,000 nonfarm payroll workers in April, with manufacturing employment growing very slowly.

Chad Moutray is chief economist, National Association of Manufacturers.