Consumer prices were flat in April  according to the Bureau of Labor Statistics. Energy costs fell 1.7 percent in April, partially offsetting the run-up in the first three months of the year. Food costs were 0.2 percent higher for the second month in a row, with 3.1 percent inflation for food over the past twelve months.

Core inflation, which excludes food and energy costs, rose 0.2 percent in April. On an annual basis, overall and core prices have both risen by 2.3 percent. Core inflation has stayed around that range for the past few months. While this exceeds the Federal Reserve’s stated goal of not having core inflation exceeding 2 percent, consumer price growth remains modest overall.

Outside of food and energy, a number of categories saw prices increases, helping to lift core inflation. These include new and used motor vehicles and apparel. But, there were also some areas where prices fell for the month, including appliances, household furnishings and computers.

Overall, these numbers confirm what many Americans have perhaps already noticed. U.S. consumer pricing pressures have eased considerably in the past month. A similar finding was observed last Friday with the release of producer price data. Even with core inflation exceeding 2 percent, pricing pressures are not sufficient enough to warrant tighter monetary policy, at least not yet.   

Chad Moutray is chief economist, National Association of Manufacturers.

Below is this week’s Monday Economic Report:

Much of the economic focus last week dealt with the aftermath of French and Greek elections. While European sovereign debt issues have been in the forefront the past few years, it seems there are always new developments that add to our collective anxieties about the euro’s stability and member nations’ ability to grapple with their finances. The Greek situation is the more precarious of the two, with new elections scheduled possibly for as early  as June and their future in the Eurozone being openly questioned. The European economy—already in a recession—hangs in the balance, particularly if the situation unravels, threatening global growth.

Manufacturers in the United States need the global economy to pick up, especially given the importance of international markets to manufacturing businesses. U.S. goods exports hit a record level in March, with increases across-the-board, including in Europe, due to strong sales of industrial supplies and capital goods. Yet, the growth of goods imports also rose to a record high, outpacing export growth and widening the overall trade deficit. The U.S. economy is growing modestly, but still fast enough to drive up our imports; meanwhile, economic growth elsewhere lagged.

Manufacturing job openings jumped significantly in March, as durable and nondurable goods sectors looked for more workers. Strong gains in manufacturing, along with  increased consumer spending, drove  demand for more workers. However, overall hiring did not pick up as rapidly as job postings. Manufacturers continue to struggle to find qualified workers, which suggests many jobs remain unfilled.  

Small businesses and consumers are more upbeat. While small business owners are still anxious about the economy and political environment, the National Federation of Independent Business’s (NFIB) Small Business Optimism Index rose two points in April, its highest point since the beginning of the recession. The University of Michigan and Thomson Reuters reported a stronger-than-expected gain in consumer confidence in May, with their index rising to 77.8, its highest point since the end of 2007. The NFIB survey noted that more firms, including small and medium-sized manufacturers, are more positive about hiring and expanding their operations in the next three months. The top concern, which had been “poor sales” for the past three and a half years, is now the regulatory environment.

This week will be a busy one on the data front. New industrial production figures and regional surveys from the New York and Philadelphia Federal Reserve Banks will provide the latest manufacturing activity information. This will be closely watched, especially after weaknesses last month. In addition, the latest housing starts data should report continued gradual improvements in the still-depressed sector. Seasonal factors, which helped to reduce starts in March (since warm weather pushed some projects to January and February), should start to wane. Finally, consumer inflation information should mirror the producer price data out last week, with energy prices pushing costs lower and keeping inflationary pressures modest.

Chad Moutray is chief economist, National Association of Manufacturers.

The Bureau of Labor Statistics reported that producer prices for finished goods were down 0.2 percent in April. They had been unchanged in March following a run-up in energy prices that lifted them higher in January and February. Reflecting the recent easing of petroleum prices, finished energy goods costs fell 1 percent in March and 1.4 percent in April. Core producer prices, which exclude food and energy, rose 0.2 percent in April, or 2.8 percent over the past year.

Producer prices within manufacturing industry fell 0.1 percent, reversing the larger gains in the first three months of the year (including a 1.5 percent jump in March). Year-over-year producer price increases for manufacturers are modest – especially when compared to the numbers seen last spring – as they are currently up 2.4 percent since August 2011.

Sectors with the greatest producer price gains in April include leather and allied products (up 0.8 percent), plastics and rubber products (up 0.8 percent) and beverage and tobacco products (up 0.7 percent). Not surprisingly, petroleum and coal products manufacturers saw the largest monthly decline in producer prices, down 1.1 percent.

Intermediate and crude goods costs were also lower, down 0.5 percent and 4.4 percent, respectively. Energy costs were the main driver of pushing them lower in each case.

This report shows that producer prices have eased somewhat due to lower petroleum prices. This trend has continued into May, with West Texas crude oil currently hovering around $96 a barrel. Manufacturers still remain very concerned about the high price of energy and still more need to be done to lower the cost of energy.

On Tuesday, the BLS will report data on consumer prices, which should tell a similar story.

Chad Moutray is chief economist, National Association of Manufacturers.

Small business owners were more optimistic in April, according to the National Federation of Independent Business’ monthly survey. The NFIB Small Business Optimism Index rose from 92.5 in March to 94.5 in April, its highest level since December 2007 (the month that the recession officially started). Consistent with this improvement, measures for earnings, sales, and capital expenditure plans were higher. Moreover, more small business owners planned to increase hiring in April compared to February and March, which is welcome news.

Despite the positive news, it is important to note that small business owners remain uncertain about the economy. Of those saying that the next three months are not a “good time to expand,” the economy remains first and foremost in their minds. The net percentage of those wanting to expand in the next three months is still below its pre-recessionary levels.

Interestingly, the top concern is no longer “poor sales,” as a proxy for economic woes. This is the first time since August 2008 that “poor sales” was not on top. It was replaced by “government regulations and red tape” with 20 percent. “Poor sales” was second with 19 percent, and “taxes” was third with “18 percent.”

Chad Moutray is chief economist, National Association of Manufacturers.

The Bureau of Labor Statistics reported a sharp uptick in job openings in manufacturing in March, from 271,000 in February to 326,000 in March. The increased number of job openings occurred among both durable and nondurable goods manufacturers. This trend extends to the economy as a whole, with a net increase of 315,000 job openings overall. This accounts for 2.7 percent of the total workforce, up from 2.5 percent in February.

Despite the positive news on job postings, manufacturing hiring in March actually fell by 3,000 workers from 260,000 to 257,000 for the month. (Part of this decline could be due to seasonal factors, as the level of hiring rose for both durable and nondurable goods industries when non-seasonally adjusted data are used.) Manufacturing separations also fell, from 235,000 to 225,000. As a result, these figures suggest a net hiring increase of 32,000 workers in March, up from 25,000 in February.

These numbers point to additional hiring in the months ahead, especially as hiring has not kept up with job postings. This is consistent with both a rise in manufacturing output as well as continued struggles among manufacturers with attracting the right talent. The Manufacturing Institute estimated last year, for instance, that there were 600,000 unfilled jobs due to the skills gap. This is something echoed by manufacturers across the country.

Hiring levels remain low overall, currently at 2.2 percent of the manufacturing workforce. Even with recent gains in manufacturing employment – 167,000 in just the last five months – we still have a long way to go to make up for past losses.

Chad Moutray is chief economist, National Association of Manufacturers.

The Bureau of Economic Analysis and the Census Bureau reported that the U.S. trade deficit grew from $45.4 billion in February to $51.8 billion in March. While both exports and imports rose in the month, imports were up 5.2 percent, well offsetting the gains in exports. The March figures followed the narrowing of the trade gap in February.

Looking specifically at goods exports, they rose from $127.9 billion to $132.7 billion – a record level. Strength was seen across-the-board, with the largest increases in industrial supplies and materials (up $2.4 billion) and capital goods (up $1.2 billion). The trade deficit for goods widened for the month, with goods imports up from $189.0 billion to $200.3 billion – also a record. The biggest gains among goods imports were capital goods (up $3.5 billion), consumer goods (up $3.3 billion) and industrial supplies (up $2.5 billion).

The trade deficit for petroleum widened, from $27.6 billion to $28.6 billion. The larger contributor to the widening of the overall trade deficit was non-petroleum sources. The non-petroleum goods deficit expanded from $32.8 billion to $38.0 billion.

Unlike last month’s figures, which showed slowing exports and imports on a country-by-country basis, both grew in March. This suggests some renewed – albeit very modest – growth globally, producing a more limited expansion in exports. The result was a widening of the trade deficit in a whole host of countries, particularly in Europe and China. In each case, the increases in exports were offset by faster growth in imports. The trade deficits in China and Europe were $21.7 billion and $10.0 billion, respectively.

The good news in this report is that exports experienced strong growth for the month. Manufactured goods exports rose from $81.6 billion in February to $93.7 billion in March (not seasonally adjusted). Part of this rise reflects the weaker figures in February, but it also shows that manufactured goods exports remain a bright spot. Recent survey data, from the Institute for Supply Management and others, show an uptick in new export orders moving forward – a good sign.

It also shows that import growth has been expanding at a faster rate, pushing the trade deficit wider. Recent developments in Europe will serve to exacerbate this, slowing our international sales to this important market and helping to dampen global GDP growth. Manufacturers need a stronger global marketplace to propel growth and expand their businesses, especially with exports becoming increasingly more important to the bottom line.

Chad Moutray is chief economist, National Association of Manufacturers.

The Federal Reserve Board found that U.S. consumer credit was up 10.2 percent (at the annual rate) in March. Overall debt levels equal $2.54 trillion, up 7.7 percent in the first quarter. Both revolving and nonrevolving debt increased significantly, up 7.8 percent and 11.3 percent, respectively. Revolving credit accounts now total $803.6 billion, which is where it stood at the end of 2011 after declining in January and February.

Nonrevolving loans, on the other hand, continue to grow steadily and now total $1.74 trillion. The largest increases of late have come from student loan balances, with $460.2 billion outstanding. This figure averaged $355.2 billion in the first quarter of 2011, illustrating how quickly it has grown. The largest holder of nonrevolving loans, however, continues to be commercial banks, with $499.4 billion in loans outstanding.

These numbers reinforce the notion that consumers continue to spend, even if that means that they are going further in debt to do so. Yes, personal spending slowed somewhat in March, as we noted last week. But, Americans continued to grow their purchases, even as sentiment surveys show increased anxieties to higher energy costs and other challenges.

Consumer spending has risen 4 percent in the past year, and the U.S. savings rate has dipped to 3.8 percent. The fact that revolving debt lines rose – after declining earlier this year – shows that they are less cautious and more willing to use their credit cards to finance their purchases.

Below is the Monday Economic Report for this week:

Economic indicators released last week were mixed. Manufacturing continues to advance, boosting output and overall job creation. The Institute for Supply Management (ISM) released its latest Purchasing Managers’ Index (PMI), which showed new orders, production and employment growing at a faster pace than previous months. One encouraging sign was the improvement in new export sales, which should help to propel new activity moving forward. Likewise, the Bureau of Labor Statistics (BLS) reported sharply higher labor productivity for manufacturers in the first quarter, up 5.9 percent, led by stronger output.

The productivity figures suggest that manufacturers should continue hiring. Indeed, manufacturing employment continued to expand—albeit at a lower rate—in April, adding 16,000 new jobs. Most of the additional employment came from durable goods sectors, continuing a trend throughout the recovery to date. During the past five months, the sector has added 167,000 new jobs, making it a bright spot in an otherwise disappointing labor report.

Most economic news lately has pointed to a spring slowdown. Factory orders in March fell 1.5 percent. While nondefense aircraft contributed to most of the change, new orders excluding transportation were flat, reflecting larger weaknesses. Data from ISM-Chicago and the Dallas Federal Reserve Bank echoed the easing of manufacturing activity, with new orders and overall perceptions about growth contracting. Yet, future expectations for production are cautiously optimistic, and activity is projected to pick up in the coming months. I anticipate industrial production rising 4 percent this year. Seasonal factors can explain at least part of the slowdown, and these should dissipate as future data are released.

One of the driving factors for economic growth has been the consumer. The most recent GDP figures found that nearly 1.5 percentage points of the 2.2 percent growth in the first quarter stemmed from personal consumption. This has helped lift manufacturing activity. Personal spending rose a more modest 0.3 percent in March, its slowest pace of the year. This is perhaps reflective of anxieties earlier in the year, with higher energy prices dampening consumer sentiment. Even with this easing, though, consumers still spent 4 percent more than a year ago.

Later today, we will get a sense of how consumer spending is being financed with the release of new consumer credit data from the Federal Reserve. Past releases have pointed to rising debt levels, and the Bureau of Economic Analysis now says that the savings rate has fallen to 3.8 percent. Other key data points to watch this week are job openings data tomorrow, international trade figures on Thursday and the latest producer price information on Friday.

Chad Moutray is chief economist, National Association of Manufacturers.

The U.S. economy added just 115,000 net new jobs in April, a fall-off from employment gains seen at the beginning of the year. Nonetheless, today’s employment release from the Bureau of Labor Statistics was mostly in-line or slightly below expectations.

Manufacturers added 16,000 net new workers, which was well below the revised increase of 41,000 seen in March. For the past five months, manufacturing has added 167,000 net new jobs. This is roughly 16 percent of all of the net new nonfarm payrolls added during this time frame. Taking a longer view, manufacturers have created 481,000 additional jobs on net since the beginning of 2010, or over 13 percent of the 3.7 million nonfarm payrolls added in the last 28 months.

Despite the lower payroll gains, the unemployment rate fell from 8.2 percent in March to 8.1 percent in April. This is obviously a movement in the right direction, as the unemployment rate was 9 percent as recently as October. With that said, the labor force participation rate has continued to edge lower, down from 63.8 percent in March to 63.6 percent in April. As such, there are now fewer people in the labor force, which helps the overall unemployment rate calculation. The so-called “real” unemployment rate now stands at 14.5 percent, which was unchanged for the month.

Looking specifically at the March job gains in manufacturing, durable goods sectors added 15,000 net new jobs, with nondurables contributing an additional 1,000. The largest gains came from fabricated metal products (up 5,700), machinery (up 4,900), furniture and related products (up 2,500), transportation equipment (up 2,300) and food manufacturing (up 1,700). Declining sectors included wood products (down 1,300), communications equipment (down 1,100) and paper and related products (down 1,000).

The average workweek for manufacturers rose slightly from 40.7 hours in March to 40.8 in April. The average amount of overtime rose from 3.3 hours to 3.4 hours. Likewise, the average weekly earnings for manufacturing workers rose from $973.54 to $977.57.

Overall, these numbers reflect recent sluggishness in the economy. Manufacturing activity, while still expanding and positive for the rest of this year, has experienced a slowing in recent months. Part of this might be due to seasonal adjustments, with some businesses taking advantage of the warmer winter.

Yet, it is also a reflection of other anxieties that continue to permeate our thinking. Higher energy and raw material costs dampened sentiment for both businesses and consumers, and worries continue to persist about U.S. fiscal policy moving forward and about Europe’s continuing struggles. This should not stop the expansion from continuing, and manufacturers should continue hiring in the coming months. Yesterday’s productivity figures help to back this up. Nonetheless, it is one more reminder of the tenuousness of this recovery, which plods forward modestly but tends to react with each new crop of anxieties.

The Bureau of Labor Statistics reported that manufacturing productivity jumped 5.9 percent in the first quarter, reversing the previous quarter’s slower pace. Output per hour for all workers in the sector rose 10.8 percent. Durable goods figures were more dramatic, with labor productivity up 10.2 percent and output increasing 15.6 percent. Nondurable manufacturing numbers were 1.4 percent and 5.7 percent, respectively.

Manufacturing was a bright spot, as the larger macroeconomic figures reflect slower labor productivity growth. In the nonfarm business sector, output per hour for all workers fell 0.5 percent. The decline was due to growth in the number of hours worked (up 3.2 percent) outpacing the growth in output (up 2.7 percent). Nonfarm unit labor costs rose 2 percent.

Looking at annual averages for 2011, manufacturing labor productivity grew faster than the rest of the economy. Manufacturing productivity was up 2.5 percent for the year, outperforming the 0.4 percent gain for the nonfarm sector. Durable and nondurable manufacturing productivity were up 3.7 percent and 2.1 percent, respectively. Unit labor costs for the sector declined 0.6 percent for the year, helping to keep manufacturers more competitive globally. For durable goods, unit labor costs fell by 2.2 percent.

These numbers suggest that manufacturers continue to experience productivity gains that exceed others in the economy and help them drive growth. Manufacturing output grew 4.8 percent in 2011, with first quarter figures up dramatically. This will allow manufacturers to bring on more workers as the year progresses. Nonfarm job creation should also be positive from this analysis, with hiring helping to keep hours worked and output more in alignment.

Chad Moutray is chief economist, National Association of Manufacturers.