The National Association for Business Economics (NABE) said that sales growth fell to its lowest level in seven years. In the latest Business Conditions Survey, the net rising index for sales dropped sharply from 32 in January to 4 in the latest survey, its smallest reading since April 2009. The percentage of respondents suggesting that their sales had fallen over the past three months rose from 15 percent in the last report to 25 percent this time, with 41 percent of goods-producing firms citing reduced sales. As a result, the net percentage saying that their profits were rising dropped from zero in January to -5 percent in April. With that said, businesses were cautiously optimistic about activity improving over the next three months, with 46 percent anticipating rising sales and 31 percent predicting improved profit margins. Read More
Much of the recent data regarding manufacturing output and demand has reflected improvements, with signs of possible stabilization in the market. This included better data in this morning’s Empire State Manufacturing Survey, mirroring other sentiment reports. That makes the latest data on manufacturing production even more disappointing. The consensus expectation had been for a slight gain of 0.1 percent in March for manufacturing output; instead, production in the sector declined by 0.3 percent. In addition, February’s data were revised lower, down from the prior estimate of an increase of 0.2 percent to a decline of 0.1 percent. (The Federal Reserve conducted a new annual revision to reflect seasonal adjustments, and all of the data were revised with this release.) The bottom line was that manufacturing production grew just 0.4 percent over the past 12 months in March, down from 0.8 percent in February. Manufacturing capacity utilization was also lower, down from 75.4 percent to 75.1 percent, its lowest level in nearly two years. Read More
The Bureau of Labor Statistics said that producer prices for final goods and services decreased by 0.1 percent in March, falling for the second straight month. The March decrease, however, stemmed mainly from services. The producer prices for final demand goods rose by 0.2 percent in March, increasing for the first time since June. Energy costs jumped 1.8 percent for the month on higher crude oil prices, which was enough to offset a decline of 0.9 percent on food prices. The decline for food costs in March for producers came largely from sharp drops in prices for eggs and fresh fruits and vegetables, along with lower prices for coffee, pork, poultry and shortening and cooking oils. Food costs have trended lower over the past 12 months, down 2.5 percent, with energy prices off 13.8 percent year-over-year. Read More
The Census Bureau said that retail sales declined by 0.3 percent in March, declining for the second time in the past three months. As a result, retail spending decreased by 0.6 percent in the first quarter of 2016, down from $449.7 billion in December to $446.9 billion in March. This suggests that consumer spending will not be the boost to real GDP that we saw in the fourth quarter, and it is yet another sign that Americans might be holding back a little in their purchases in light of recent economic anxieties. Along those lines, the year-over-year growth rate for retail sales fell from 3.7 percent in February to 1.7 percent in March. Read More
Total separations (e.g., quits, layoffs, retirements) in manufacturing rose to the highest level since the end of the Great Recession in February. The Job Openings and Labor Turnover Survey (JOLTS) from the Bureau of Labor Statistics said that total separations in the sector increased from 266,000 in January to 302,000 in February. In contrast, manufacturers hired 277,000 workers in February, edging up slightly from 274,000 in January. As a result, net hiring – or hires minus separations – decreased by 25,000 in February, illustrating just how much manufacturers have pulled back on employment in light of slower demand and production growth. Read More
The Census Bureau and the Bureau of Economic Analysis said that the U.S. trade deficit widened to its highest level in six months. The trade deficit rose from $45.88 billion in January to $47.06 billion in February. The increase stemmed primarily from an increase in goods imports (up from $180.64 billion to $183.33 billion) that was enough to offset the gain in goods exports (up from $116.77 billion to $118.59 billion). In addition, the service sector trade surplus narrowed from $17.98 billion to $17.68 billion. Meanwhile, the petroleum trade deficit declined from $4.62 billion in January to $3.55 billion in February. Indeed, imports of crude oil fell to their lowest level in 14 years. Read More
The Institute for Supply Management’s (ISM) Manufacturing Purchasing Managers’ Index (PMI) expanded for the first time since August. The composite index rose surprisingly well in this report, up from 49.5 in February to 51.8 in March. More importantly, new orders (up from 51.5 to 58.3) and production (up from 52.8 to 55.3) were both up sharply in March, with the demand figure at its highest level since November 2014. Exports (up from 46.5 to 52.0) also improved, shifting into positive territory in March for the first time this year. That was encouraging news, and it helps to illustrate the stabilization that we have seen in the manufacturing sector in recent data. To be fair, growth for manufacturers remains weaker-than-desired, with businesses continuing to cite a number of challenges for their firms. Yet, the sample comments tend to highlight the positive, noting activity picking up and sales improving.
It is clear hiring remains weak for manufacturers as they grapple with global headwinds and lingering anxieties about the overall economic outlook. Employment in our sector declined by 29,000 in March. That said, we have begun to see some signs of stabilization for demand and production in other manufacturing data—but that has not translated into jobs just yet, according to today’s release. Meanwhile, nonfarm payrolls continued to make slow-but-steady gains, with growth near consensus estimates.
For the Federal Reserve, this report does not change much, as short-term rates were not likely to be increased at the upcoming meeting in April anyway. Instead, the Federal Open Market Committee will be looking for broader-based improvements in the U.S. economy as it prepares for its June meeting, and for manufacturers, we would hope that such data would include progress in the industrial sector. Manufacturers have been nervous about the Federal Open Market Committee raising rates too quickly, as they reported in the most recent NAM Manufacturers’ Outlook Survey.
Sluggish hiring for manufacturers should also force our political leaders to consider pro-growth policies to improve overall economic conditions and to allow our businesses to better compete in the global marketplace. The NAM has outlined its pro-manufacturing policy agenda in its “Competing to Win” document, which was released earlier this year.
The Bureau of Economic Analysis said that personal spending rose 0.1 percent in February. More importantly, personal consumption expenditures were revised sharply lower for January, up just 0.1 percent instead of the original estimate of a 0.5 percent gain for the month. As such, the rebound seen in the prior report evaporated, suggesting that the public remains hesitant when opening their wallets. Durable goods expenditures increased by 0.3 percent in February, boosted by growth in autos and furniture spending, but have declined in three of the past four months. In contrast, purchases of nondurable goods fell for the second straight month, off 0.3 percent in February.
With slower spending, the savings rate inched up to 5.4 percent, its highest level in 12 months. On a year-over-year basis, personal spending has risen 3.8 percent since February 2015, down from 3.9 percent in the prior release. Therefore, even as Americans are apparently holding back somewhat, consumer spending continues to expand modestly overall. Read More
The Bureau of Economic Analysis said that real GDP growth grew 1.4 percent at the annual rate in the fourth quarter. This was higher than the prior estimates of 0.7 percent and 1.0 percent. This latest revision reflected improvements in spending on services and growth in exports, but inventory spending was slower than in the most recent data release. Here are some trends in the data of note:
- Personal consumption expenditures added 1.66 percentage points to real GDP growth in the fourth quarter, increasing 2.4 percent at the annual rate. The bulk of that contribution came from services, which added 1.30 percent to the headline figure, especially from spending on food services, health care and recreation. In contrast, spending on durable and nondurable goods eased from growth rates seen in the third quarter, suggesting that consumers were holding back in the fourth quarter from making larger purchases.
- Businesses were also holding back on capital spending. Nonresidential fixed investment subtracted 0.27 percentage points from real GDP in the fourth quarter, with decreased spending on equipment, intellectual property products and structures. Slower inventory spending was also a factor, subtracting 0.22 percentage points. In contrast, residential investment rose by an annualized 10.1 percent in the fourth quarter on strength in the housing market, adding 0.33 percentage points. As a whole, gross private domestic investment served as a drag on real GDP growth, reducing the headline figure by 0.16 percentage points.
- Net exports were also a drag on growth, subtracting 0.14 percentage points from real GDP in the quarter. Goods exports declined by 5.4 percent at the annual rate in this report; whereas, goods imports were off by 1.3 percent. These data illustrate the significant headwinds faced by manufacturers from the strong dollar and sluggish economic growth in key markets. Indeed, U.S.-manufactured goods exports fell 6.1 percent last year.
Overall, demand and output remain significantly challenged in the manufacturing sector, and business leaders remain nervous in their economic outlook. The current expectation is for real GDP to increase by 2.1 percent in 2016, with manufacturing production up 1.5 percent.