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New Factory Orders Rebounded in February from Softness in December and January

The Census Bureau said that new factory orders increased 1.6 percent in February, recovering somewhat from the sharp declines in both December and January. This was consistent with the advance data provided on durable goods the week before, with the sector rebounding from winter weather slowness. New manufactured goods orders have risen from $482.7 billion in August to $488.8 billion in February, an increase of 1.3 percent.

New durable goods orders rose 2.2 percent for the month, lifted by strong sales growth for motor vehicles and aircraft. Excluding transportation, manufacturing orders were up 0.7 percent, with durable goods edging only marginally higher in February, up just 0.1 percent. At the same time, new nondurable manufactured goods increased by 1.0 percent.

Looking specifically at new durable goods orders in February, the data were largely mixed. Areas of strength included transportation equipment (up 7.0 percent), primary metals (up 1.7 percent), fabricated metal products (up 0.4 percent), computers and electronic products (up 0.2 percent), and furniture and related products (up 0.2 percent). But, these were offset by reduced new orders for electrical equipment and appliances (down 1.3 percent) and machinery (down 1.2 percent).

Meanwhile, manufactured goods shipments were up 0.9 percent, also rebounding after lower data in both December and January. Durable and nondurable goods shipments rose 0.8 percent and 1.0 percent, respectively. On a year-over-year basis, shipments have grown from $489.5 billion in February 2013 to $493.5 billion, up 0.8 percent.

Sectors with the largest increases in monthly shipments included textile products (up 4.9 percent), petroleum and coal products (up 2.0 percent), machinery (up 1.7 percent), nonmetallic mineral products (up 1.7 percent), transportation equipment (up 1.5 percent), apparel (up 1.4 percent), and plastics and rubber products (up 1.0 percent). In contrast, there were declining shipments in the following areas: leather and allied products (down 1.6 percent), computers and electronic products (down 1.4 percent), beverage and tobacco products (down 0.7 percent), electrical equipment and appliances (down 0.5 percent), printing (down 0.3 percent), and wood products (down 0.3 percent).

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

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ADP: Manufacturers Added 5,000 Employees in March for the Second Straight Month

Automatic Data Processing (ADP) said that manufacturing employment increased by 5,000 workers for the second straight month in March. As such, hiring in the sector has rebounded somewhat from the decline in employment observed in January due to winter weather conditions. Still, it is also clear that hiring has not fully recovered, with employment growth below the average of 13,000 per month seen from August to December of last year.

Looking at the overall figures, ADP said that there were 191,000 net new private, nonfarm payroll workers generated in March. This brought monthly job growth back to where it was in December, recovering from the much-softer data seen in both January and February (up 121,000 and 178,000, respectively). To put this in perspective, the average monthly job growth in 2013 was 187,000, with an average of 204,000 in the second half of the year.

In March, the largest job gains were seen in the professional and business services (up 53,000); trade, transportation and utilities (up 36,000); construction (up 20,000); and financial activities (up 5,000) sectors. Small and medium-sized establishments (e.g., those with fewer than 500 employees) contributed almost 65 percent of the net new jobs, adding 124,000 workers for the month.

The Bureau of Labor Statistics will release official jobs numbers on Friday, and the expectation is for employment growth similar to the ADP report. Nonfarm payrolls are anticipated to grow around 200,000, with manufacturing employment between 5,000 and 10,000.

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

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Manufacturing Construction Activity Has Risen 17.3 Percent over the Past 12 Months

The Census Bureau reported that manufacturing construction declined slightly, down from $55.80 billion at the annual rate in January to $55.50 billion in February. Still, the larger story was that manufacturers have put significantly more construction dollars in place today than 12 months ago, up from $48.12 billion in February 2013. As such, manufacturing construction has risen 17.3 percent year-over-year. Even more impressive is the fact that the sector has rebounded strongly after falling to $43.94 billion in June.

Overall construction activity increased only marginally in February, up 0.1 percent. Residential spending was lower (off 0.7 percent for the month), pulling down the headline figure. Meanwhile, private, nonresidential construction had decent increases in February, up 1.2 percent. The strongest gains were seen in the communications (up 6.4 percent), power (up 4.4 percent), lodging (up 3.5 percent), and transportation (up 1.6 percent) sectors. In addition to the slight decline in manufacturing for the month, other sectors with decreased spending in February included religious (down 6.9 percent), amusement and recreation (down 1.5 percent), educational (down 0.7 percent), commercial (down 0.6 percent), and office (down 0.2 percent) institutions.

On a year-over-year basis, private construction has grown a whopping 13.0 percent, with residential and nonresidential activity up 13.5 percent and 12.5 percent, respectively. Beyond the manufacturing data discussed above, other bright spots over the past 12 months were in the communications (up 51.5 percent), lodging (up 40.0 percent), amusement and recreation (up 20.3 percent), office (up 19.0 percent), and transportation (up 10.0 percent) sectors.

At the same time, public, nonresidential construction spending was unchanged for the month, with 12.2 percent declines over the past year. The February data were mostly mixed. Public spending dollars were higher for commercial (up 8.4 percent), conservation and development (up 6.3 percent), power (up 6.1 percent), amusement and recreation (up 4.4 percent), and office (up 2.2 percent) projects. But, these were essentially offset by declines in water supply (down 8.9 percent), public safety (down 6.8 percent), transportation (down 2.3 percent), sewage and water disposal (down 1.8 percent), and educational (down 1.2 percent) projects.

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

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ISM: Manufacturers Have Begun to Move Beyond Winter Storms

The Institute for Supply Management’s manufacturing purchasing managers’ index edged slightly higher, up from 53.2 in February to 53.7 in March. This reflects modest gains in overall manufacturing activity since recent weather-related weaknesses. The good news was that production (up from 48.2 to 55.9) began expanding again. The pace of new orders (up from 54.5 to 55.1) also picked up a little, including export sales (up from 53.5 to 55.5).

The sample comments continue to note the negative impact of weather. A food and beverage leader put it bluntly when they said, “We need spring.” Others have begun to move beyond the winter struggles. For instance, a petroleum and coal products manufacturer said, “Business beginning to heat up, along with the weather.” Others noted their increasing optimism. This included the transportation equipment respondent who answered, “Business is good, and we are optimistic that orders will continue to come in at a decent pace.”

Hiring growth remains soft (down from 52.3 to 51.1), and sentiment continued to be lower than just a few months ago. The average PMI value from July to December of last year, for instance, was 56.3, with new orders and production averaging 61.8 and 62.6 during that time frame, respectively. Another positive was that the manufacturing sector has now expanded for 10 straight months.

Overall, manufacturers are cautiously optimistic about future sales and output, and there is hope that the momentum seen in the second half of 2013 return to produce strong returns for 2014. While growth in manufacturing activity remains below where it was at the end of last year, it appears that the drag from winter storms has begun to fade.

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

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After Slowing in February, Manufacturers in Texas Saw a Pick Up in Activity in March

The Federal Reserve Bank of Dallas said that manufacturing activity picked up in March, rebounding from the easing experienced in February. The index for a company’s own outlook increased from 3.4 in February to 9.1 in March, with the percentage of respondents saying that their outlook improved for the month rising from 17.2 percent to 22.6 percent. In general, manufacturers were somewhat more optimistic in March, and looking at a longer-run trend, businesses have reported expanding levels of activity for 11 straight months.

The underlying data tend to support the acceleration in activity for the month. For instance, the index for new orders rose from 9.5 to 14.7. Just over 31 percent of those taking the survey said that their sales were higher in March, with 16.7 percent reporting declines. Other indicators also reflected stronger growth, including production (up from 10.8 to 17.1), capacity utilization (up from 9.1 to 13.1), shipments (up from 13.3 to 19.5), employment (up from 9.9 to 15.0), and capital expenditures (up from 7.0 to 14.1).

Some of these data points were at levels not seen in a while. This was a sign that some of the weather-related weaknesses that were pervasive in the February report have started to dissipate. For example, the hiring data were at their fastest pace since June 2012, with almost one-quarter of respondents saying that they added workers in this survey. At the same time, the production index was at its highest point in 9 months, with the shipment measure at a four-year peak.

Looking ahead six months, Texas manufacturers remain positive about future levels of activity. For example, over half of the respondents anticipate higher sales over the coming months. Similar findings can be noted for production, capacity utilization, shipments, employment, and capital spending over the next six months. The sample comments mostly tend to support this rather upbeat assessment, with some respondents citing regulatory, pricing pressure, workforce, and foreign competition concerns. As such, it is clear that manufacturers are cautiously optimistic about activity moving forward, even as some anxieties persist.

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

 

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Monday Economic Report – March 31, 2014

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

The U.S. economy grew 2.6 percent in the fourth quarter, according to the most recent revision, and for 2013 as a whole, real GDP growth was a rather lackluster 1.9 percent. Consumer spending, business investment and net exports were bright spots in the fourth quarter, with reduced government spending subtracting nearly one percentage point from growth.

Meanwhile, business economists predict real GDP growth of 2.8 percent on average for 2014, with 1.9 percent growth in the current quarter. (My own forecast is marginally higher for both, up 3.0 percent for the year and 2.1 percent for the first quarter of 2014.) Weather-related slowdowns account for the deceleration in activity, particularly for manufacturers, in the current quarter. However, modest growth is expected to resume once temperatures warm up, and we have already begun to see that. The National Association for Business Economics (NABE) Outlook Survey also suggested that the industry should grow 3.2 percent in 2014 and 3.4 percent in 2015, which would indicate a pickup from the current pace.

The latest manufacturing surveys show a rebound in sentiment after softness from December to February. The Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) slowed a bit, down from 57.1 in February to 55.5 in March. Despite the lower figure, new orders and production growth continued to grow relatively strongly, with overall manufacturing activity improved from January’s winter storms. A similar recovery was seen in regional data from the Kansas City Federal Reserve Bank, mirroring the findings from New York and Philadelphia the week before. Still, not everyone has seen improvements yet. The Richmond Federal Reserve reported lackluster growth in sales and output, with weather continuing to “wreak havoc” for many manufacturers. In addition, while new durable goods orders were up a strong 2.2 percent in February, sales growth increased at the less-than-robust rate of just 0.2 percent when transportation orders were excluded.

On the consumer front, the data were mostly positive, but with some caveats. Personal income and spending both increased 0.3 percent in February, with each rising 3.0 percent over the past 12 months. This was a decent pace, but increased purchases of nondurable goods and services mainly fueled spending growth in February. Durable goods spending declined for the third month in a row. In terms of consumer confidence, the two reports out last week were mixed. The Conference Board’s measure of consumer sentiment reached a six-year high; yet, labor market worries dampened enthusiasm for the current environment. Likewise, the University of Michigan and Thomson Reuters reported that consumer sentiment edged lower in March, with employment and income growth also weighing on respondents’ minds. In both surveys, however, Americans are more confident today than in the fall during the government shutdown.

Looking overseas, Markit released preliminary manufacturing PMI data for China and the Eurozone. Chinese manufacturing activity has now contracted for three consecutive months, with March’s pace being the slowest since July. The data mirror other recent indicators, including industrial production, fixed asset investment and retail sales, which have slowed. As such, they all suggest that real GDP might fall below the 7.7 percent rate in the fourth quarter. (First-quarter real GDP for China will be released on April 15.) Meanwhile, European manufacturers have seen expanding activity levels for nine straight months, even as Eurozone PMI values eased slightly in March. New orders and production remain strong in Germany, and, of note, French manufacturers were positive in their sentiment for the first time since June 2011.

This week, the focus will be on the March jobs numbers, which will come out on Friday. The consensus expectation is for nonfarm payroll growth of around 190,000, with manufacturers hiring somewhere near the 12,000 average experienced in the sector since August. In addition, the Institute for Supply Management (ISM) is expected to show a slight rebound in manufacturing PMI activity in its March data, up from 53.2 in February. Other highlights this week include the latest data on construction spending, factory orders and international trade.

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

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Personal Income and Spending Both Rose Modestly in February

The Bureau of Economic Analysis said that personal income and spending both increased by 0.3 percent in February, extending the modest gains of January. After weather-related softness in December, the data have been more favorable in the first two months of 2014. On a year-over-year basis, each of these measures has risen 3.0 percent. This compares to personal income growth of 2.9 percent in 2013, with a 3.2 percent pace for personal spending last year. (If you were to omit December, which was an outlier month due to the fiscal cliff the year before, personal income growth would have also been 3.2 percent.)

The increase in spending in February stemmed from both nondurable goods and services, both of which increased 0.3 percent for the month. Durable goods purchases fell for the third straight month, down 0.2 percent in February. It is likely that poor weather conditions negatively impacted these figures, with other releases showing weak spending for automobiles and other items from December to February.

Meanwhile, wages and salaries were up 0.2 percent in February, rising 3.1 percent over the past 12 months. For manufacturers, there was some softness on the wage front, likely due to weather-related slowdowns. Indeed, manufacturing wages and salaries have fallen from $758.0 billion in November to $754.2 billion in February. Prior to that, compensation had been rising, particularly as activity had picked up. For instance, wages in the sector averaged $707.1 billion, $735.4 billion, and $747.8 billion in 2011, 2012, and 2013, respectively.

The savings rate edged slightly higher, up from 4.2 percent in January to 4.3 percent in February. Still, we have generally seen this rate decelerate over the past year. The savings rate dropped from an average of 5.3 percent through the first 11 months of 2012 to 4.5 percent in 2013.

Overall inflationary pressures remain minimal, with prices for core personal consumption expenditures (PCE) up just 0.9 percent year-over-year, down from 1.2 percent last month. Energy prices had risen in December and January on increased home-heating costs, but these eased a bit in February, down 0.4 percent.  Inflation remains below the Federal Reserve’s 2 percent target rate, which frees the Fed up to pursue its highly accommodative policies. If anything, there are some who argue that disinflationary pressures might be a concern, but that is less true in the U.S. than it is in Europe.

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

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Kansas City Fed: Manufacturing Activity Picked Up in March

The Kansas City Federal Reserve Bank said that manufacturing activity picked up in March, expanding for the third straight month. The composite index of general business activity rose from 4 in February to 10 in March. This was the highest point since February 2012. The largest increase was in the production index, which increased from 3 to 22. Indeed, the percentage of survey respondents who said that their output had declined in the month fell from 28 percent in February to 11 percent in March. This improvement was likely the result of better weather, which caused a number of delays in production in the previous report.

In terms of other indicators, there was also notable progress for new orders (up from 5 to 13), shipments (up from 10 to 16), and exports (up from -1 to 6). As with the production index above, the shifts were largely due to fewer people saying that there were decreases. For instance, 39 percent of those taking the survey said that their new orders had increased in the month (up from 35 percent last month); whereas, 14 percent noted decreased sales (down from 24 percent).

Hiring was one area where weaknesses remain. The index for the number of employees declined has declined from 11 in January to 3 in February to zero in March. Two-thirds of respondents said that their employment levels were unchanged, with the other answers nearly split equally. Moreover, looking ahead six months, employment growth was also only barely positive on net, unlike in several other regional surveys.

Fortunately, other forward-looking measures are more upbeat. Nearly half of those taking the survey anticipate increased production, shipments, and new orders over the next six months. Roughly one-quarter of survey participants said that they plan to increase capital spending, with 15 percent anticipating declines. One other finding that was surprisingly soft was export growth, with just 11 percent of Kansas City Fed manufacturers saying that they expect increased international sales. Hopefully, this figure improves in coming months.

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

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Fourth Quarter 2013 Real GDP Growth Revised to 2.6 Percent

The Bureau of Economic Analysis (BEA) said that real GDP growth in the fourth quarter of 2013 was an annualized 2.6 percent. This was lower than the original estimate of 3.2 percent, but higher than the first revision of 2.4 percent. Real GDP increased 1.9 percent in 2013 as a whole.

Service sector consumer spending was higher in this revision, adding 1.57 percentage points to real GDP instead of 1.00 percent in the last estimate. Americans spent 3.5 percent more on service sector purchases in the fourth quarter, its fastest pace since the second quarter of 2005. It was also a rebound from the more paltry 0.7 percent rate in the third quarter of 2013. Overall consumer spending rose 3.3 percent, with a 2.9 percent increase in goods purchases.

On the other hand, fixed investments added less to real GDP than previously thought, contributing 0.43 percentage points to growth instead of 0.58 percent. In the fourth quarter, spending on both residential and nonresidential structures were lower, subtracting 0.31 percentage points from real GDP combined. Equipment purchases by businesses added 0.58 percentage points, with spending on computers, transportation and other equipment, and intellectual property products being a positive.

Otherwise, the trends in this release were similar to the past releases. Consumer spending, business investment, and net exports were bright spots, but government spending served on a drag to growth, subtracting 0.99 percentage points from real GDP.

This will not be our last look at the fourth quarter. On April 25, BEA will begin releasing quarterly real GDP data industry. Prior to this, such information was only available annually. As such, it will allow us to be able to more accurately discuss how the manufacturing activity affects changes in quarterly output relative to other sectors.

Meanwhile, the first estimates of first quarter 2014 real GDP data will be released on April 30. I am currently estimating real GDP growth of 2.1 percent for the current quarter.

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

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New Durable Goods Orders Rebound on Increases in Motor Vehicle and Aircraft Sales

The Census Bureau said that new durable goods orders rose a strong 2.2 percent in February, recovering from steep declines in both December and January. Much of the recent decreases were weather-related with severe winter conditions hampering sales and shipments. In February, the largest rebounds came in the transportation sector, with new orders for motor vehicles and parts (up 3.6 percent), nondefense aircraft and parts (up 13.6 percent), and defense aircraft and parts (up 21.1 percent) increasing significantly.

Excluding transportation, new orders were up just 0.2 percent, suggesting some continued softness in the broader manufacturing sector beyond autos and aircraft. The sector-by-sector data are mostly mixed. Increased sales in primary metals (up 1.8 percent), other durable goods (up 1.1 percent), computer and electronic products (up 0.4 percent), and fabricated metal products (up 0.3 percent) were somewhat offset by declines for machinery (down 1.5 percent) and electrical equipment and appliances (down 0.9 percent).

On a year-over-year basis, new durable goods orders excluding transportation have risen 1.5 percent, indicating slow-but-modest growth, up from $155.6 billion in February 2013 to $157.9 billion in February 2014. Ideally, we would like to see a much faster pace for new orders, preferably around 3 percent or so.

Meanwhile, durable goods shipments have risen 3.4 percent from $226.3 billion to $234.0 billion over the past 12 months. In February, shipments increased 0.9 percent, beginning to counterbalance the decreases of 1.7 percent and 0.6 percent observed in December and January, respectively. If we were to exclude transportation, shipments would have fallen by 0.7 percent in February, with reduced aircraft orders lowering the headline figure.

Looking at the shipments data for February, the largest increases were seen in the motor vehicles and parts (up 3.9 percent), machinery (up 1.6 percent), other durable goods (up 1.4 percent), and fabricated metal products (up 1.1 percent) sectors. On the other hand, there were notable declines for defense aircraft and parts (down 6.2 percent), nondefense aircraft and parts (down 5.3 percent), computer and electronic products (down 1.3 percent), electrical equipment and appliances (down 0.6 percent).

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

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