The National Activity Index from the Chicago Federal Reserve Bank dropped from 0.54 in December to 0.22 in January. Positive numbers suggest that the U.S. economy is growing above its historical trend. Therefore, despite the decline, the real story is the fact that the index has shown above trend growth for two consecutive months. It was positive only three months (January, July and December) in 2011.

Industrial production was one reason that the index dropped, as it was unchanged in January. Of course, as was noted last week, manufacturing production was the exception, with a strong 0.7 percent gain for the month. Positive forces in the economy include employment, sales, orders and inventories. Housing and consumption remain drags on economic growth.

The three-month moving average for the index is 0.14, up from 0.06 last month. Values under -0.70 suggest that the economy might be in a recession. The fact that this measure continues to move away from the recession threshold is obviously a good sign, mirroring other indicators which show recent rebounds in economic activity. While risks still exist, they have lessened significantly over the past few months.

Chad Moutray is chief economist, National Association of Manufacturers.

The U.S. economy continues to expand, with last week’s manufacturing and housing indicators showing progress. While the top-line industrial production figure was unchanged, manufacturing production rose a healthy 0.7 percent in January, led by strong growth in the durable goods sectors. Manufacturers are producing 4.7 percent more than one year ago, and capacity utilization rates also are up significantly. Similar findings were observed in the New York and Philadelphia Federal Reserve Bank regions, which showed expanding activity and mostly positive trends moving forward.

News from the housing market was also more upbeat. Housing starts rose to nearly 699,000 new units in January, and with some revisions, new residential construction topped 700,000 in November – the highest level since October 2008. These figures remain well below the levels of a few years ago, yet it is nice to see the trend line moving higher. Data from the National Association of Home Builders echo these findings, with its Housing Market Index up from 14 in September to 29 in January. Still, significant financial obstacles continue to challenge many would-be homebuyers and hold back growth.

Despite continued anxieties, the American consumer has begun spending again, with retail sales up 0.4 percent in January. This trend can also be seen in the pricing data. Higher traffic in restaurants and hotels, for instance, has helped to increase these costs. Both consumer and producer prices rose in January and were lifted by larger food and energy expenses. Yet, a mild winter has helped to mitigate the run-up in gasoline prices, with home energy costs lower. Inflationary pressures remain modest, despite the fact that core inflation remains above 2 percent.

This week, only a handful of economic reports will be released. In addition to some housing data, we will learn about manufacturing activity in the Kansas City Federal Reserve Bank region, and the Chicago Fed will likely highlight continued progress in the economy with its National Activity Index.

Chad Moutray is chief economist, National Association of Manufacturers.

In a time of high unemployment it seems unfathomable that manufacturers are struggling to fill jobs – but that is exactly what is happening across the country. Manufacturers have reported a significant disparity between the number of skilled workers they need to continue to grow their businnesses and the worker pool available to them.  An article in today’s Washington Post hightlights this unfortunate phenomenon. 

“A recent report by Deloitte for the Manufacturing Institute, based on a survey of manufacturers, found that as many as 600,000 jobs are going unfilled. By comparison, the unemployed in the United States number 12.8 million, according to the Bureau of Labor Statistics.

‘High unemployment is not making it easier to fill positions, particularly in the areas of skilled production and production support.’”

The Manufacturing Institute has been focused upon solving this very problem – working to implement the “Right Skills Now” program to help individuals gain the skills and certification they need to acquire good paying, high quality manufacturing jobs.

The Census Bureau reported higher housing starts figures in January, up to 699,000 from a revised 689,000 in December. This increase stemmed from multi-family home construction, which rose from 176,000 to 191,000. Single-family new starts fell from 513,000 to 508,000 for the month, and the number of completions fell sharply. On the bright side, housing permits for single family residences were up slightly — a sign of progress moving forward.

Note that many of the data points for 2011 were revised upward. Overall starts in November, for instance, topped 700,000 for the first time since October 2008. These figures clearly show an upward trajectory, with total housing starts up nearly 10 percent year-over-year. Regionally, gains in the South and West were somewhat offset by less new residential construction in the Northeast and Midwest. For January, though, only the Midwest had declines.

This news mirrors similar data released yesterday by the National Association of Home Builders (NAHB). Its housing market index rose from 25 to 29. This represents a significant improvement in builder confidence in the past few months as the index was 14 in September. Single-family sales rose, and expectations are higher for the next six months.

NAHB Chief Economist David Crowe trumpets the positive trend, but he also cautions us to keep the numbers in perspective. “… it is important to remember that the HMI is still very low, and several factors continue to constrain the market. Foreclosures are still competing with new home sales, and many builders are seeing appraisals come in at less than the cost of construction. Additionally, prospective home buyers are finding it difficult to qualify for a mortgage.”

In other news today, the Philadelphia Federal Reserve Bank reports continued improvements in manufacturing activity in its region. The index of general business conditions rose from 7.3 in January to 10.2 in February. This is the fifth consecutive month of expanding production, with higher measures for new orders, shipments and the average workweek. The rate of job growth eased, though, and inventories were shrinking. (The latter is a positive sign of the increased activity.) Pricing pressures accelerated.

Looking ahead six months, the respondents remained very positive about future activity, but less so than last month. The expectations index of general activity fell from 49.0 to 33.3. This coincided with lower values for new orders, shipments and capital spending plans. But, employment measures were stronger, suggesting an increased willingness to hire additional workers in the coming months. I would not overplay the news that this figure declined by too much, however, as it mostly reflects a settling in of the overall improving trend. Only 12.9 percent of those taking the survey expect for activity to decline in the next few months.

Overall, the numbers released today and yesterday highlight a recovering economy, with manufacturing leading the way. Improvements in housing are also a welcome sign, even as the sector remains below its historical averages.

Chad Moutray is chief economist, National Association of Manufacturers.

The Federal Reserve Board reported that industrial production was unchanged in January, but manufacturing activity grew 0.7 percent. The growth in manufacturing production stemmed from higher durable goods activity, which was up 1.8 percent. Nondurable production fell 0.2 percent, but that follows the robust 1.5 percent gain of December. Meanwhile, manufacturers’ capacity utilization rate rose from 76.9 percent to 77.4 percent.

Industrial production remains 3.4 percent higher year-over-year. The fact that it was unchanged was due to less activity in the mining (down 1.8 percent) and utilities (down 2.5 percent) sectors.

For the manufacturing sector, production was 4.7 percent higher in January 2012 than in January 2011, with durables (up 8.3 percent) outpacing nondurables (up 1.1 percent). The largest monthly gains were in motor vehicles and parts (up 6.8 percent), machinery (up 2.2 percent), miscellaneous durable goods (up 2 percent) and apparel and leather products (up 1.9 percent). Declining sectors included petroleum and coal products (down 2.3 percent), wood products (down 1.5 percent) and nonmetallic mineral products (down 1.1 percent). 

Overall, these figures show a strong rebound in the manufacturing sector, with large increases in production in the last two months. To help illustrate this, the December figure was revised upward, now showing a gain of 1.5 percent for manufacturing production. With industrial production expected to grow at a moderate pace this year, manufacturers are helping to drive much of that growth.

While a number of significant headwinds might derail these predictions – including the developments in Europe – manufacturers by-and-large remain optimistic about activity over the coming months.

Chad Moutray is chief economist, National Association of Manufacturers.

The New York Federal Reserve Bank’s Empire State Manufacturing Survey noted an acceleration in overall business conditions in February, with its composite index up to 19.5 from 13.5 in January. This continues an upward trend since November; prior to that point, the index indicated contraction for five straight months. With that said, the rate of increase of new orders eased somewhat; the index of new orders dropped from 13.7 to 9.7. Still, growth in new orders has expanded for three straight months.

Other variables were mixed, but remained expansionary overall. Shipments, capital spending and the average workweek improved, with their indices rising in February. Employment growth eased somewhat, though, and inventories contracted. Pricing pressures remained virtually unchanged.

Looking ahead, New York manufacturers remain highly optimistic about future activity. This is true even with the forward-looking business conditions index dropping from 54.9 to 50.8. Only 7.2 percent of respondents felt that business conditions had deteriorated, for instance. Other variables – including new orders, shipments, employment and capital spending – suggest a strong expansion over the next six months in manufacturing activity.

In a series of special questions on capital spending, 45.7 percent of respondents said that they planned to increase investments this year. This compares to roughly one-quarter of those taking the survey who forecast a decline. This mostly mirrors the responses found last year. The median capital spending level for 2012, though, was $375,000 – up from the median figure of $300,000 in 2011. 

Chad Moutray is chief economist, National Association of Manufacturers.

The National Federation of Independent Business said that small business owner confidence was virtually unchanged in January from December. Its Small Business Optimism Index rose from 93.8 to 93.9 for the month. Traditionally, the sector is said to be expanding when the index is 100 or greater. Still, this represents an improvement from its 88.1 reading of August.

The net percentage of respondents saying that the next three months are a “good time to expand” fell from 10 percent to 9 percent. The top concern for those replying that now was not a good time to expand was the economy, followed by the political climate. But, it is important to keep these comments in perspective. As with past surveys, poor sales remains the “single most important problem” facing small business owners, with 22 percent giving this answer. That response, though, is below the 27 percent who said so last year, suggesting some improvement. (The second most important problem is government regulations and red tape, cited by 20 percent of respondents.)

Some of the indicators in the survey point to increased optimism, even if the overall figures remain subpar overall. For instance, the net percentage of those expecting greater sales in the next three months rose to 10 percent, up from -12 percent in August and 9 percent in December. Employment and capital spending plans are also positive, but job growth is expected to be modest.

One of the larger challenges for some small firms has been with access to credit. This survey finds some improvements on credit availability, but is also suggests continued difficulties for some.

Chad Moutray is chief economist, National Association of Manufacturers.

With fewer economic data points released last week, attention turned to the situation in Greece. Even with new austerity measures and debt restructuring plans, worries abound about the possibility of default and, more importantly, the larger implications for the entire Eurozone. Equity markets around the world reflect these anxieties about the European sovereign debt crisis. Manufacturers are closely following these developments, with nearly half of them in a recent survey suggesting that Europe’s challenges have impacted their sales. Indeed, manufactured goods exports have slowed recently in large part because of weakness in the European market.

Economic uncertainty also worries the American public. Despite improvements in recent employment and production numbers, the latest consumer confidence figures from the University of Michigan fell slightly on weakened perceptions about the current economic environment. A similar falloff in sentiment was observed in the most recent consumer survey from the Conference Board. Nonetheless, consumers are clearly more optimistic today than last fall, and they continue to spend, albeit more selectively than some might prefer. The challenge is that much of this spending has been with borrowers’ dollars. This was confirmed last week with the Federal Reserve’s report of a surge in additional indebtedness.

On a more positive note, manufacturers have stepped up hiring in the past couple of months. Job openings in December were up for both the manufacturing sector and the economy as a whole. There were 35,000 net new manufacturing hires in the month of December, an improvement from November’s 19,000. (Note that labor turnover data are reported with a lag, so the strong employment gains of January are not included in this analysis.) While employment levels remain well below where they should be, these numbers are obviously welcome news.

This week, we will learn more about recent manufacturing activity, with new industrial production figures and surveys from the Federal Reserve Banks in New York and Philadelphia. These reports are expected to show continued growth among manufacturers. In addition, the latest housing data are predicted to show additional residential construction in January, building off recent incremental gains. Finally, we will obtain the latest data on retail sales, inflation and small business sentiment.

Chad Moutray is Chief Economist, National Association of Manufacturers.

New Job Openings and Labor Turnover Survey (JOLTS) data from the Bureau of Labor Statistics show that manufacturing hiring was up in December, mirroring other employment data released by the agency. There were 264,000 job openings in the sector in December, up from 242,000 in November. The increase occurred in both the durable and nondurable goods sectors.

In addition, there were 261,000 hires and 226,000 separations in the month. This suggests net hiring of 35,000, an improvement from the 19,000 gain in November. This can be seen in the attached graphic.

For the macroeconomy as a whole, the number of job openings rose from 3,118,000 in November to 3,376,000 in December – an increase of 258,000. The hiring rate is currently 2.5 percent of the labor market, up from 2.3 percent in November. This brings it back to its level in September, right before the falloff in October in labor market activity. Despite the uptick, the hiring rate was little changed in December from November.

Given that these numbers overlap with strong improvements in U.S. employment in December and January, there is little new news here. The manufacturing jobs picture is improving, and yet, overall, hiring remains a challenge. With modest growth in production this year, we will hopefully see increased hiring in the coming months.

Chad Moutray is Chief Economist, National Association of Manufacturers.

U.S. employment numbers jumped significantly higher in January, according to the Bureau of Labor Statistics, with the unemployment rate dropping to 8.3 percent.  Moreover, nonfarm payrolls grew by 243,000, and manufacturers added 50,000 net new workers. These gains were greater than expected, and certainly, much higher than the estimates from ADP released two days ago. Consensus estimates had been for around 150,000 net new jobs with the unemployment rate remaining around 8.5 percent.

These numbers continue to affirm the rebound and importance of manufacturing to our economic recovery. There were 82,000 net new jobs created in the sector in the past two months. This is definitely a sign that manufacturers have picked up their activity of late. Moreover, manufacturers have added 287,000 of the 2,063,000 net new nonfarm payroll jobs generated in the last 13 months (since December 2010); this suggests that nearly 14 percent of all of the jobs generated in that time frame stemmed from manufacturing.

As I noted last month, though, we would be remiss without mentioning the fact that employment remains a significant challenge, even with today’s good news. The “real” unemployment rate – which includes discouraged and underemployed workers – is now 15.1 percent, down from 15.2 percent in December and 16.1 percent last year at this time.

There are currently 2.81 million Americans who are classified as “marginally attached to the labor force,” with 1.06 million being discouraged workers. This is up slightly from last month. (The civilian labor force also grew last month, from 240.58 million to 242.27 million.)

Looking specifically at the January 2012 figures, the bulk of the new jobs in manufacturing came from the durable goods sector, which was up 44,000 for the month. The largest gains came in fabricated metal products (up 10,900), machinery (up 10,500) and transportation equipment (up 10,300). Nondurable goods sector employment rose by 6,000 in January. In that sector, the strongest growth came in the chemicals (up 2,200), printing and related support services (up 1,700) and beverages and tobacco products (up 1,300) sectors.

The average workweek for manufacturers rose from 40.6 hours in December to 40.0 hours in January. The average amount of overtime edged slightly higher from 3.3 to 3.4 hours. Therefore, the average weekly earnings for manufacturing workers rose from $969.93 to $977.51.

Overall, these numbers show renewed strength in the domestic economy, with employment growth in almost every major industrial sector except information, financial services and government. It mirrors other recent economic indicators showing an uptick in activity since October. Moreover, several sentiment surveys suggest that manufacturers are optimistic about future production and employment in 2012, which should bode well for this year’s numbers.

Yet, it is important to remember that significant headwinds exist both in Europe and in the U.S. The labor and housing markets – while improving – still have a long way to go before they are healthy, and consumer and business optimism is mixed with persistent anxieties. Still, we will take good news when we can get it.

Chad Moutray is chief economist, National Association of Manufacturers.