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University of Michigan: Consumer Confidence Has Risen Somewhat in September

The University of Michigan and Thomson Reuters said that preliminary data on consumer confidence reflects a slight increase in September. The Consumer Sentiment Index increased from 82.5 in August to 84.6 in September, its highest level since July 2013. These figures suggest that the lull in confidence that we have seen so far this year might finally be starting to dissipate. Prior to the September reading, for instance, the University of Michigan index has averaged just 81.9, and it was little changed since recovering from the budget showdown last fall. In contrast, the Conference Board’s confidence measure has reached pre-recessionary highs in its most recent report.

The subcomponents in the University of Michigan data continue to reflect some anxieties on the part of the consumer. For instance, the index for the current economic environment slipped a bit this month, down from 99.8 to 98.5, even as it represents an improvement from earlier in the year. Americans remain concerned about labor market and income growth, and this is likely responsible for the decline in the present figure. Geopolitical events might also play into this. Still, the future-oriented index rose strongly, up from 71.3 to 75.6, its highest level in over one year, suggesting more optimism moving forward.

We will get final data on September consumer sentiment from the University of Michigan on September 26. The Conference Board will also release its survey data on consumer confidence on September 30.

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

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After Cautiousness in July, Retail Sales Pick Up in August

The Census Bureau said that retail sales rose 0.6 percent in August, rebounding from a revised 0.3 percent increase in July. The July figure was originally reported as being unchanged. As such, this is a sign that consumer spending has picked up in August after cautiousness over much of the summer. Still, the longer-term trend for retail sales has been mostly favorable, particularly after strong growth this spring, with 3.8 percent growth since December and a 5.0 percent increase year-over-year.

Healthy gains in spending on motor vehicles helped to lift August retail sales, with auto sales up 1.5 percent. It was the second straight increase in auto purchasing levels after being stagnant in June. Year-to-date, motor vehicle sales have risen by a healthy 7.7 percent, or 8.9 percent over the past 12 months.

Beyond autos, consumer spending also increased at decent levels, up 0.3 percent in August or 4.1 percent year-to-date. Therefore, we have seen modest gains for retail sales in the broader market. Excluding autos, other segments with strong increases in retail spending in August included miscellaneous store retailers (up 2.5 percent), building materials and garden supplies (up 1.4 percent), sporting goods and hobbies (up 0.9 percent), electronics and appliances (up 0.7 percent) and furniture and home furnishings (up 0.7 percent.

In contrast, gasoline stations (down 0.8 percent) and department stores (down 0.4 percent) were two areas with softer spending levels for the month. For gasoline stations, the decline stemmed from reductions in petroleum costs, with the price of West Texas intermediate crude falling from $106.07 per barrel on the last day of July to $98.23 a barrel on the last day of August. (It has fallen further since then, closing at $92.84 on Thursday.)

Overall, retail sales figures were encouraging. With softer spending levels from May to July, there were worries that cautiousness on the part of the consumer could serve to be a downside risk to the economy moving into the second half of the year. This data suggests that Americans might be loosening up a little in terms of their willingness to spend – a good sign perhaps.

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

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Manufacturing Job Postings Eased Slightly in July, but Remained Improved from Earlier in the Year

The Bureau of Labor Statistics said that manufacturing job openings declined slightly, down from 302,000 in June to 296,000 in July. Still, June’s figure was a two-year high, and job postings remain higher than earlier in the year. In February (six months earlier), for instance, there were 258,000 job openings in the sector.

The Job Openings and Labor Turnover Survey (JOLTS) data also show a disparity between durable and nondurable goods. Durable goods manufacturers increased the number of job openings for the second straight month, up from 194,000 in June to 201,000 in July. In contrast, nondurable goods firms reduced their postings once again, down from 108,000 to 95,000, pulling the headline figure lower. A similar trend was observed in the hiring data.

Manufacturers hired 259,000 additional employees in July, down somewhat from 268,000 in June. The decrease was the result of reduced hiring for nondurable goods manufacturers (down from 113,000 to 102,000), which was enough to offset a small increase in hiring for durable goods businesses (up from 155,000 to 157,000). At the same time, manufacturing separations – including layoffs, quits and retirements – decreased from 241,000 to 226,000. Overall, net hiring (or hires minus separations) in the manufacturing sector increased from 27,000 to 33,000, illustrating the rebound in hiring seen since the winter and spring months.

In the larger economy, the number of job postings were essentially unchanged (down slightly from 4,675,000 in June to 4,673,000 in July). This continues to reflect significant growth from January’s pace of 3,874,000. Note that the June rate was the highest since February 2007, meaning that those gains were mostly sustained. There were more job postings in July for accommodation and food services, health care, professional and business services and retail trade, in addition to durable goods manufacturers.

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

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NFIB: Small Business Optimism Ticked Higher in August

The National Federation of Independent Business (NFIB) said that small business sentiment ticked higher in August, rising to its second-highest level in seven years. The Small Business Optimism Index increased from 95.7 in July to 96.1 in August. After peaking at 96.6 in May, the index eased somewhat in June, and August’s reading suggests that confidence has once again begun to climb back. Over a longer time frame, it is clear that small business owners have become more positive over the past six months, with the index at just 91.4 in February.

With that said, the underlying data were slightly mixed. On the positive side, the percentage of small business owners with job openings right now increased from 24 percent to 26 percent, continuing an upward trend. Along those lines, the percent planning to make capital expenditures over the next 3 to 6 months rose from 23 percent to 27 percent, its fastest pace since November 2007 (the month before the official start of the recession). On the topic of inflation, pricing pressures have decelerated a bit, with the net percentage of those predicting price increases over the next 3 months declining from 22 percent to 19 percent.

Yet, the report also reflected some soft spots. For instance, sales expectations over the next 3 months dipped from a net percentage of 10 percent to 6 percent. In addition, the percentage suggesting that the next 3 months were a “good time to expand” was off slightly from 10 percent to 9 percent. Nonetheless, the outlook data do reflect an upward trend overall, rising from 6 percent in February. For those saying that it is not a good time for expansion, the top reasons cited continue to be economic conditions and the political climate. Taxes were the listed as the “single most important problem” by 24 percent of respondents, followed by government regulations (19 percent), poor sales (13 percent) and labor quality (11 percent).

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

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Monday Economic Report – September 8, 2014

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

The U.S. economy added 142,000 nonfarm payroll workers in August, a disappointing figure given signs of a rebound in many other indicators lately. The consensus expectation had been for nonfarm payroll growth to exceed 200,000 jobs for the seventh consecutive month, as was observed in the estimates provided by ADP the day before. Manufacturing employment was flat for the month, which was also a disappointment. It ended a 12-month streak of job gains for the sector, a period in which manufacturers added 168,000 net new workers. Hopefully, the August jobs report was just a brief pause in what otherwise had been positive news on the labor front.

The Institute for Supply Management’s (ISM) purchasing managers’ index (PMI) data provides much encouragement that manufacturing activity is moving in the right direction heading into the autumn months. The headline PMI figure rose from 57.1 in July to 59.0 in August, its highest level since March 2011, and it reflected a robust recovery from weaknesses earlier in the year. Indeed, new orders and production expanded at healthy paces. These findings mirror the latest NAM/IndustryWeek Survey of Manufacturers, which is being released this morning, showing respondents mostly upbeat about their own company’s outlook, with sales, capital spending and hiring expectations at two-year highs. Indeed, 87.3 percent of those taking the survey were either somewhat or very positive in their outlook, up from 85.9 percent three months ago. The data are largely consistent with 3.1 percent growth in manufacturing production over the next two quarters.

Manufacturers spent 4.4 percent more on construction projects in July, also providing some reassuring news. The sector has devoted 23.9 percent more to construction projects over the past 12 months, an indication that the increase in demand and output observed over that time frame has resulted in a jump in new investments. Meanwhile, new factory orders data provided mixed news. While orders increased by a whopping 10.5 percent in July, much of that stemmed from highly volatile nondefense aircraft sales. Excluding transportation orders, new factory orders declined 0.8 percent for the month, a finding that we had noted in the earlier release of preliminary durable goods data. Still, factory orders excluding transportation have risen 2.7 percent over the past six months (since weather-related declines in January), which mostly mirrors the more positive data in other releases.

Looking at exports, the U.S. trade deficit narrowed ever-so-slightly in July, with an increase in goods exports marginally offsetting an increase in goods imports. Yet, manufactured goods exports have risen only slightly year-to-date, up just 0.8 percent so far in 2014 using non-seasonally adjusted data. On the other hand, these same figures show that exports to our top five exports markets were higher through the first seven months of this year relative to last year. Regardless, manufacturers hope that the pace of export growth accelerates, with sluggish sales frustrating business leaders and net export growth providing a drag on real GDP over the past two quarters.

This week, we will get new data on consumer confidence, job openings, retail sales and small business optimism. Markets will also continue to digest Friday’s employment numbers, trying to decipher if they were an aberration or a sign of larger weaknesses. In particular, this discussion centers on how the Federal Reserve will interpret such things, with a debate already ongoing as to when the Federal Open Market Committee will begin to increase short-term interest rates. Conventional wisdom holds that short-term interest rates will rise sometime in 2015, but whether that occurs earlier or later in the year is up for debate between those who are more hawkish or dovish on inflation. In the Beige Book, which was released last Wednesday, the Fed mostly observed progress in the economy in recent months, including in manufacturing. Yet, as long as the Fed continues to see “slack” in the labor market, it might be less willing to normalize rates.

Chad Moutray is the chief economist, National Association of Manufacturers. 
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Hiring Growth Took a Holiday in August, with Manufacturing Employment Unchanged

The Bureau of Labor Statistics (BLS) said that manufacturing employment was unchanged in August, ending a 12-month streak of job gains in the sector. Over the course of the past year, manufacturers have added 168,000 net new workers, with average job growth of 13,538 per month over that time frame. Still, it is hard not to be disappointed with these results. Other recent indicators have reflected a pickup in activity this summer, with ADP’s estimate yesterday showing 23,000 additional workers hired in August. The expectation had been for strong growth in hiring in August in the BLS numbers, as well. Hopefully, predictions of increased demand and output will lead to more hiring in the coming months, with August’s figures just being a pause in an otherwise upward trend.

On a sector-by-sector basis, the August manufacturing jobs figures were mixed, with a gain of 2,000 workers in durable goods industries offset by a 2,000-employee decline among nondurable goods firms. The largest employment gains were in nonmetallic mineral products (up 2,900), machinery (up 2,500), wood products (up 1,700), food manufacturing (up 1,500) and chemicals (up 1,500). Transportation equipment employment fell substantially, down 9,200, with motor vehicles and parts alone dropping 4,600. Other sectors with declining employment included miscellaneous nondurable goods (down 3,100), plastics and rubber products (down 1,100), paper and paper products (down 900) and apparel (down 500).

Despite the underwhelming job gains, average weekly earnings in the sector were slightly higher, up from $1,017.59 in July to $1,022.13 in August. Over the course of the past 12 months, average weekly earnings have risen 2.3 percent. At the same time, the average number of hours worked was up only marginally, increasing from 40.9 hours to 41.0 hours with overtime unchanged at 3.4 hours.

Meanwhile, nonfarm payroll growth was also disappointing, up just 142,000 in August. Total job gains were expected to exceed 200,000 for the seventh straight month, mirroring the ADP estimates yesterday of an increase of 204,000. Nonetheless, the unemployment rate decreased to 6.1 percent in August, down from 6.2 percent in July but returning to the rate observed in June. The participation rate also returned to its June level of 62.8 percent, keeping it near 30-year lows.

Overall, today’s jobs numbers were frustrating, particularly given the strength seen in a host of other data points. Perhaps hiring activity took a holiday in August. My view is that hiring will pick up in the coming months, with accelerated levels of new orders and production leading to more employment growth. As such, we should revert to an average of 12,500 to 15,000 per month job gains for the rest of this year.

Still, this report could also feed into anxieties among some that the economic growth remains less-than-desired, with the recovery still not gaining the traction that we have long been waiting for. For that reason, manufacturers continue to urge the enactment of pro-growth initiatives to better ensure strength in the economy moving forward.

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

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U.S. Trade Deficit Narrowed Ever-So-Slightly in July

The Bureau of Economic Analysis and the Census Bureau said that the U.S. trade deficit narrowed ever-so-slightly, down from $40.81 billion in June to $40.55 billion in July. This was the smallest trade deficit since January’s $39.18 billion level. The smaller July figure stemmed from higher goods exports (up from $136.82 billion to $138.57 billion) that were enough to offset an increase in goods imports (up from $197.23 billion to $198.77 billion). The service-sector trade surplus also widened marginally (up from $19.60 billion to $19.65 billion).

While the deficit was little changed for the month, the breakouts show that the increases in goods exports and goods imports resulted from both petroleum and non-petroleum trade flows. For instance, petroleum exports increased $1.12 billion in July, with non-petroleum exports up by $937 million. Similarly, petroleum imports rose by $915 million, and non-petroleum imports increased by $714 million.

Digging even deeper into the data, there were increased goods exports observed in the automotive vehicles and parts (up $1.66 billion), industrial products and materials (up $1.26 billion) and non-automotive capital goods (up $427 million) sectors. Most of the gain in industrial products and materials came from petroleum. In contrast, exports were lower for consumer goods (down $650 million) and foods, feeds and beverages (down $632 million).

Goods exports to our top 5 export markets for U.S.-manufactured goods were higher through the first seven months of this year relative to the same time frame last year. This included (using non-seasonally adjusted data):

  • Canada (up from $174.66 billion to $180.62 billion)
  • Mexico (up from $130.31 billion to $139.10 billion)
  • China (up from $63.69 billion to $67.96 billion)
  • Japan (up from $37.41 billion to $38.76 billion)
  • Germany (up from $27.38 billion to $29.41 billion)

That is encouraging news, particularly given recent weaknesses in growing export sales. Overall, manufactured goods exports have increased from $684.84 billion year-to-date in 2013 to $690.41 billion in 2014 (non-seasonally adjusted). This represents an increase of just 0.8 percent from last year, which would be a deceleration from last year’s 2.4 percent pace. Note, however, that seasonally adjusted data on Trade Stats Express show a somewhat better rate for the first half of 2014, with 1.7 percent growth through the first two quarters of the year.

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

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ADP: Manufacturers Added 23,000 Workers in August

Automated Data Processing (ADP) said that manufacturers added 23,000 workers in August, its largest monthly gain since December 2012. It was also the seventh straight increase in net hiring for the manufacturing sector, rebounding from a weather-related decline in January. Over the course of the past 12 months, manufacturers have expanded employment by 115,000, averaging just over 12,000 new employees per month over that time frame. Note that this is somewhat lower than the 15,000-per-month average seen in Bureau of Labor Statistics (BLS) figures since last August.

In the larger economy, nonfarm private businesses added 204,000 employees on net in August, averaging 218,000 since January and 206,000 over the past year. These trends are largely consistent with official government data, which also have reflected healthy gains in employment during that time frame. Tomorrow’s BLS jobs figures are also expected to be strong, with a consensus expectation of 220,000.

In August, the largest job gains were seen in the professional and business services (up 51,000); trade, transportation and utilities (up 28,000); construction (up 15,000); and financial activities (up 5,000). Small and medium-sized businesses (e.g., those with less than 500 employees) contributed three-quarters of the net new jobs.

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

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New Factory Orders Jumped Strongly in July on Aircraft Sales, but Declined Otherwise

The Census Bureau said that new factory orders jumped 10.5 percent in July. With that said, much of that increase stemmed from nondefense aircraft orders (up from $16.8 billion in June to $70.3 billion in July), as noted in the previous release of preliminary durable goods sales figures. Commercial airplane orders are choppy, with sales usually announced in batches. Motor vehicle sales were also stronger in July, up 7.3 percent.

Excluding transportation, new factory orders declined 0.8 percent, suggesting softness in the broader market. Durable goods orders excluding transportation fell 0.7 percent, with nondurable goods sales off 0.9 percent. Despite the decline in July, demand has largely been higher since January’s winter-related decreases, and new manufacturing orders excluding transportation have risen 2.7 percent over the past six months. As such, hopefully, the July numbers are just a pause in an otherwise positive trend year-to-date.

Looking specifically at new durable goods orders in July, the data were mostly lower. This included electrical equipment and appliances (down 4.8 percent), computers and electronic products (down 1.7 percent), furniture and related products (down 1.2 percent), machinery (down 1.2 percent) and primary metals (down 0.3 percent). Outside of transportation, the only other major sector with higher sales in July was fabricated metal products, up 0.1 percent.

Meanwhile, shipments of manufactured goods increased 1.2 percent, rising for the second straight month. Since January, shipments have increased 3.7 percent, illustrating the rebound seen over the past six months after weaknesses earlier in the year. Durable goods shipments rose 3.5 percent (or 1.5 percent excluding transportation); whereas, nondurable goods shipments fell 0.9 percent.

The largest increases were in transportation equipment (up 8.1 percent), machinery (up 3.0 percent), computers and electronic products (up 2.4 percent), nonmetallic mineral products (up 1.6 percent), textile mills (up 1.6 percent) and primary metals (up 1.4 percent). In contrast, shipments of petroleum and coal products (down 3.2 percent), textile products (down 2.1 percent) and chemical products (down 1.0 percent) declined in July.

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

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ISM: Manufacturing Activity Expanded Very Strongly in August

The Institute for Supply Management’s (ISM) manufacturing purchasing managers’ index (PMI) rose very strongly, with the headline figure rising from 57.1 in July to 59.0 in August. This was the highest level since March 2011, and it reflected a robust recovery from weaknesses earlier in the year.  Indeed, new orders (up from 63.4 to 66.7) and production (up from 61.2 to 64.5) appear to be expanding at quite healthy paces, with indices for both exceeding 60 once again. The production measure has been over 60 for three straight months; whereas the new orders index was at its fastest pace since April 2004. Export sales (up from 53.0 to 55.0) were also improved.

The sample comments tend to echo these strong figures. As one electrical equipment manufacturer said, “Overall business is improving. Order backlog is increasing. Quotes are increasing. Much more positive outlook in our sector.” This pretty much summed up the increase in demand seen in many of the other comments, as well. Yet, those taking the ISM survey also noted some challenges, particularly the geopolitical risks and the ability to attract labor. The other concern noted in past surveys was pricing pressures, but they appear to have eased somewhat in August (down from 59.5 to 58.0).

On this latter point, the employment index was marginally lower (down from 58.2 to 58.1), but hiring growth has clearly picked up from recent months. The hiring index averaged 52.7, for instance, through the first six months of the year, further highlighting the July and August acceleration in the data. This should bode well for manufacturing jobs numbers out on Friday, which have averaged 22,000 between May and July and 15,000 each month over the past year.

Overall, this report shows that manufacturers are seeing strong growth more recently in demand and output, which is definitely positive given the disappointing start to the year. Manufacturing leaders are mostly positive about the second half of 2014, even as they are keenly aware of possible risks on the horizon. This includes geopolitical events, a cautious consumer and labor shortages, among other concerns. Still, it is nice to see the sector hitting on all cylinders, and the outlook for strong growth over the coming months remains positive.

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

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