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.

Employers added 170,000 new nonfarm, private payrolls in January, according to Automated Data Processing (ADP). This builds on the solid growth of November and December but represents a fall-off from December’s 292,000 gain. As with last month’s report, most of the increase stemmed from additional service sector employment, which grew by 152,000. Manufacturers hired 10,000 net new workers in January.

Small and medium-sized payrolls (e.g., those with less than 500 employees) accounted for almost all of the net new jobs created in January, continuing a trend seen in past months, as well. In fact, 167,000 net new jobs stemmed from small and medium-sized entities, with larger establishments adding just 3,000. Among goods-producing firms, firms with larger payrolls reduced employment by a net 2,000 workers last month.

These numbers suggest that employment, while lower than the previous two months, continues to grow. The ADP figures were mostly in-line with estimates, with the Bureau of Labor Statistics reporting similar numbers on Friday.

Chad Moutray is chief economist, National Association of Manufacturers

Yesterday, the Congressional Budget Office (CBO) released its annual Budget and Economic Outlook for fiscal years 2012 to 2022. Its baseline budget for FY 2012 is for a deficit of $1.08 trillion, with smaller deficits thereafter (e.g., deficits of $585 billion in FY 2013, $345 billion in FY 2014, $269 billion in FY 2015…). Much of this assumes that current tax policies expire on December 31 of this year. Total budget deficits under this baseline are $3.07 trillion over the next 10 years.

CBO also provides an alternative fiscal scenario where current tax policies are extended, the alternative minimum tax is indexed to inflation, Medicare payments are held constant at current levels and sequestered cuts as part of the Budget Control Act of 2011 are not put into place. Under this scenario, total budget deficits are estimated to add up to $10.98 trillion between FY 2013 and FY 2022.

In making these assumptions, it is important to keep the underlying economic projections in mind. CBO has forecast real GDP growth of 2.0 percent in 2012 and 1.1 percent in 2013. It then assumes an average growth rate of 4.1 percent for the years of 2014 to 2017. Inflation is expected to be modest, at 1.2 percent in 2012 and below 2 percent in all other years. The unemployment rate is assumed to be mostly unchanged from current levels and is estimated to be 8.9 percent in the fourth quarter of 2012. We do not reach “full employment” for several years, with the forecasted unemployment rate being 5.6 percent by 2017.

Overall, CBO’s baseline analysis paints a picture where economic growth will be modest at best and where the nation’s fiscal budgetary challenges will only become more serious with time. Hard choices will need to be made to address these fiscal imbalances, with budget deficits in each of the next 10 years under both the baseline and alternate scenarios.

It is also clear that these budgetary discussions will need to focus on both discretionary and mandatory spending in the years ahead. Limiting the conversation to discretionary cuts only will not achieve the savings needed to get us ahead. For instance, defense spending is expected to fall from 4.7 percent of the GDP in FY 2011 to 3.0 percent by FY 2022. Likewise, nondefense discretionary will go from 4.3 percent to 3.3 percent over the same time period.

Meanwhile, mandatory spending – while essentially remaining around 13.5 percent of GDP over the next 10 years – will become an ever-increasing share of domestic spending. Entitlement spending (not including interest on the debt) will grow from $2 trillion today to $3.5 trillion in FY 2022, and interest payments more than double from $227 billion to $624 billion over the same time period.

Chad Moutray is chief economist, National Association of Manufacturers

The Bureau of Labor Statistics released the latest employment cost index data for the fourth quarter of 2011. Overall, wages and salaries in the private sector rose 0.4 percent in the quarter, matching their growth from the third quarter. Private sector benefit costs were up 0.7 percent in the quarter. On an annual basis, total compensation increased 2.2 percent from the fourth quarter of 2010, with benefits 3.6 percent higher.

Looking specifically at manufacturing, wages and salaries were up 1.8 percent in 2011, with total compensation rising 2.8 percent. The index breaks this data down by manufacturing occupations, and the annual increases in total compensation were as follows:

• Management, professional and related – up  3.1 percent in 2011
• Sales and office – up 2.6 percent
• Natural resources, construction and maintenance – up 3.0 percent
• Production, transportation and material moving – up 2.6 percent

The largest increase in compensation for manufacturers stemmed from benefits, which rose 4.7 percent year-over-year. It is important to note that much of this increase was due to higher health insurance premiums. A Kaiser Family Foundation survey released last year, for instance, estimated that family premiums for health insurance rose 9 percent in 2011 for family coverage, significantly higher than the 3 percent increase in 2010.

Chad Moutray is chief economist, National Association of Manufacturers.

The Bureau of Economic Analysis observed flat consumer spending in December 2011, with personal income up 0.5 percent. The unchanged consumption figures followed five consecutive months of growth, and when adjusted for inflation, real consumption declined by 0.1 percent.

Goods purchases in the month were negative, with spending on both durables and nondurables 0.4 percent lower. Consumers did, however, increase their purchases on services, which rose by 0.2 percent. Still, the longer-term trend for consumption has been positive, as it is up 3.9 percent since December 2010.

Real personal disposable income rose 0.3 percent for the month. The income growth was the fastest pace since February 2011. Manufacturing sector wages increased by $7.4 billion for the month to $707.7 billion, reversing the decline experienced in November.

With strong growth in income and no change in spending, the overall savings rate improved from 3.5 percent in November to 4.0 percent in December. It was 5.2 percent in December 2010, reflecting its general movement downward in the second half of 2011.

There appears to be little inflation in the personal consumption numbers. In fact, while prices rose 0.1 percent for all goods and services, they fell by 0.2 percent for both durable and nondurable goods. Prices have fallen for several months now for nondurables, and this is the third consecutive month of declines for durables.

This suggests a limited ability to pass on any of the higher raw material costs experienced at the producer price level. Year-over-year data, though, suggest greater pricing pass-through for nondurables, with prices up 4.8 percent since December 2010 on nondurable goods compared with a decline of 0.5 percent on durables. The overall inflation rate for all goods and services since last year is 2.4 percent.

Chad Moutray is chief economist, National Association of Manufacturers.

The government reported that the U.S. economy grew by 2.8 percent in the fourth quarter of 2011, with manufacturers playing an integral role. Consumers and businesses replenishing their inventories were the largest contributors of real GDP for the quarter. In many ways, this number was not a surprise: other indicators also suggested an uptick in manufacturing activity in the months of November and December. Manufacturers are cautiously optimistic about future production, and the rebound is welcome news.

Yet, the GDP numbers also bring to mind challenges that might dampen growth in the coming months. It is unlikely, for instance, that we will see the same lift from inventories in the first quarter, and consumers have dipped into their savings to increase their purchases. At some point, this level of spending might ease so that consumers might pay off some of these debts. In addition, it is clear that the government sector will be a drag on growth for the foreseeable future – of which we were reminded when the Department of Defense announced budget cuts last week. Most pressing, though, is the constant reminder of Europe’s ills and the challenges that slowing global growth might have on our exports. Fitch Ratings downgraded several European nations’ credit ratings on Friday, following the lead of Standard & Poor’s from a few weeks ago.

These worries aside, most of the recent domestic economic indicators have been positive. Durable goods orders, for example, rose 3 percent in December, with strength in nondefense capital goods. This mirrors much-improved production, employment and investment data from the Kansas City and Richmond Federal Reserve Banks (and for that matter, in most of the recent regional) surveys. The National Association of Business Economics (NABE), in its latest Industry Survey, observes these improvements, with more economists upgrading their assessments for growth this year. Sixty-five percent of respondents to the NABE survey expect for real GDP to grow at least by 2 percent in 2012. Similarly, the Chicago Federal Reserve Bank’s National Activity Index indicates that the risk of a recession seems to be lessening.

These growth estimates are in line with those from the Federal Reserve Board, which estimates real GDP growing between 2.2 and 2.7 percent this year. The Fed also expects the unemployment rate to remain elevated, improving slowly to a range of 8.2 to 8.5 percent in 2012 and to 6.7 to 7.6 percent by 2014. The Federal Open Market Committee, even as it cites improvements in the domestic economy, remains worried about high unemployment, a still-weak housing market and uncertainties related to European sovereign debt. It stated last week that it now plans to keep interest rates at “exceptionally low” levels through late 2014 – an extension from its earlier intentions of doing so through mid-2013. With these moves, the Fed hopes that lower long-term rates spur more borrowing, both by homeowners and businesses.

This week, we will receive more data about production and employment, which will hopefully show continued growth in manufacturing in January. The Institute for Supply Management’s well-cited index of manufacturing activity will come out on Wednesday, and it is expected to be somewhat higher. On Thursday, new productivity data will be released, with manufacturing output per worker expected to continue to show strong growth. Finally, the Bureau of Labor Statistics will unveil new employment data on Friday, which should show increased hiring among manufacturers in conjunction with recently increased production.

Chad Moutray is chief economist, National Association of Manufacturers.

The Bureau of Economic Analysis announced that real gross domestic product (GDP) rose 2.8 percent in the fourth quarter. This was mostly in line with forecasts of 3 percent for the quarter. For 2011, real GDP increased 1.7 percent, down from the 3 percent growth rate of 2010.

This quarter’s growth was led by strong increases in fixed investment (including residential), with healthy gains in consumption, inventories and exports. Specifically, consumers contributed 1.45 percentage points (or roughly half) to GDP, with 1.07 percent from durable goods consumption and another 0.27 percent from nondurables. Gross private domestic investment contributed 2.35 percentage points to growth, with the bulk of that coming from the replenishment of inventories. Both residential and nonresidential spending made positive contributions, as well.

Contributions from net exports were slightly negative, with higher imports offsetting the rise in exports. The largest drag on growth, though, came from government contributions. With defense and state and local government spending cuts, government reduced GDP by 0.93 percentage points.

Overall, these numbers reflect the stronger rebound in economic growth at the end of 2011 that many other indicators have reported earlier. Manufacturing activity, in particular, appeared much healthier in November and December than in the mid-months. With moderate growth in consumer and business spending, the economy turned in its fastest growth pace since the second quarter of 2010.

Moving ahead, manufacturers are optimistic about production, employment and capital spending for 2012, and yet, a number of significant headwinds (particularly from Europe) persist. Moreover, the government sector – which is already providing a drag – will continue to dampen GDP, especially as more austerity measures (including defense and other nondiscretionary spending cuts) start to have real effects on the manufacturing community.

Despite the concerns, we are seeing some positive news and reports that manufacturing is strengthening as seen in this report from the Financial Times. While growth may be slow, it is on the rise and it is expected to continue.

Chad Moutray is chief economist, National Association of Manufacturers.

The Conference Board announced that its Leading Economic Index rose 0.4 percent in December, the third consecutive month of gains. Manufacturing played an important role in this month’s increases, with increased new orders and a longer average workweek. Improvements in the employment situation, equity markets and the interest rate spread also made positive contributions to this figure, with lower consumer confidence dragging it lower.

The index has changed, effective with this month’s release, by replacing a measure of the money supply (M2) with a newly-created Leading Credit Index. The switch was made so that the indicator would do a better job of predicting the impact of credit crunches on the business cycle, with this new measure an improved predictor of the recent downturn. In this month’s analysis, the index was lower, providing a slight drag to the composite figure.

The Coincident Economic Index, which measures the current environment, increased by 0.3 percent. All of the subcomponents of this index rose. This includes higher levels of industrial production, manufacturing and trade sales, nonfarm employment and personal income.

This positive report mirrors another national index on the economy from the Chicago Federal Reserve Bank. Its National Activity Index rose from -0.46 in November to +0.17 in December. This measure looks to see if the U.S. is expanding at its historical growth rate; therefore, positive numbers reflect above-average growth. This month’s data suggest a significant improvement, with manufacturing output the leading contributor. The production-related variables shifted from -0.28 to +0.24 for the month, led by stronger manufacturing production and capacity utilization.

Other positive contributors included higher employment and sales. Housing, on the other hand, remains a weak spot. Overall, 85 indicators provided a positive contribution, offset by 32 others.

The three-month moving average for the composite index improved from -0.19 to -0.08 in December. This suggests that, while the overall economy remains below its long-term trend, it is moving in the right direction. Moreover, the risk of recession is reduced, as the index has moved further away from the -0.70 threshold which suggests an increased likelihood of recession.

These two measures – one from the Conference Board and the other from the Chicago Fed – are good news as we enter 2012. The economy is improving, with manufacturers playing an important role in its recent rebound.

Chad Moutray is chief economist, National Association of Manufacturers.

In releasing the latest Industry Survey, the National Association for Business Economics (NABE) noted recent improvements in U.S. growth. In fact, Nayantara Hensel, the chair of the survey committee and a professor at National Defense University, said, “The survey results suggest increased optimism concerning real GDP growth, as well as fewer inflationary or deflationary pressures” (Note: I am a member of this committee and contributed to the report write-up).

Sixty-five percent of business economists responding to this survey felt that real GDP growth would exceed 2 percent in 2012. This reflects a significant upward revision from the prior survey, which was released in October, in which 70 percent predicted growth of between 1 and 2 percent this year.

With that said, several of the indicators were mixed from the past survey. For instance, fewer individuals noted rising sales this time overall. In the goods-producing sector (which includes manufacturing), 40 percent of respondents observed rising sales, and 30 percent stated falling sales. The number of firms reporting profits as unchanged or rising (80 percent) remained mostly the same from the past survey.  On the international front, sales have fallen in recent months, reflecting some weaknesses in foreign operations.

The bulk of goods-producing respondents (67 percent) plan no change in capital spending, but none of them suggest lower spending levels. 

While 30 percent of goods-producing firms observed higher material costs, that figure was lower than the 54 percent who said the same three months ago. This reflects some of the easing that we have observed elsewhere with regard to pricing pressures.

There was less positive news on employment. No respondents in the goods-producing sector reported falling employment in October; in this survey, that figure is 20 percent. The outlook numbers are also poor. Interestingly, this conflicts with many of the other sentiment surveys on manufacturing, which are more upbeat in both of these areas.

Overall, this survey reflects the dynamic nature of the current economy. On the one hand, the larger macroeconomic picture is much-improved, helping to lift optimism among the many business economists who filled out the survey. And yet, many of the company-specific indicators remain weak, including slower growth in the goods-producing industries for sales, employment and capital spending. Reduced inflationary pressures is obviously welcome news, though.

Chad Moutray is chief economist, National Association of Manufacturers.