Manufacturers in the state of California have an improved outlook, according to the latest survey from the A. Gary Anderson Center for Economic Research at Chapman University. The overall composite index rose from 54.8 in the fourth quarter of 2011 to 58.9 for the first quarter of 2012. This is the highest level since the first quarter of last year, suggesting that production has picked up from last quarter’s weaknesses. Measures over 50 suggest expansion in the sector, similar to the readings from the Institute for Supply Management.

The industry segment that expanded the most was non-high-tech durable goods, with its index rising from 50.6 (which signifies almost flat growth) last quarter to 61.5 this quarter. This was the first increase since the second quarter of 2011. Non-durables edged slightly higher, with high-tech industries mostly unchanged. The Orange County Manufacturing Survey reflected strong growth, with a minor easing from last quarter, down from 60.6 to 60.3.

Looking at specific components of manufacturing activity, production growth was strong, up from 58.6 to 63.7. New orders were also up sharply, with employment up modestly. Commodity prices have eased off of their highs earlier in the year, but they are expected to continue growing and remain elevated. 

Overall, these figures suggest that production in California is growing as we begin 2012. State manufacturers have a mostly upbeat outlook for the year.

Chad Moutray is chief economist, National Association of Manufacturers.

The Federal Reserve Board reported that industrial production rose 0.4 percent in December, rebounding from the 0.3 percent drop in November. Year-over-year growth in industrial production is up 2.9 percent. Meanwhile, manufacturers’ capacity utilization edged higher from 75.3 percent to 75.9 percent for the month.

For the manufacturing sector, production rose 0.9 percent, led by healthy increases in both durables (up 0.9 percent) and nondurables (up 0.8 percent). Since December 2010, manufacturing production increased by 4 percent, with durable goods production increasing by 7.1 percent for the year. Nondurable goods production rose 0.8 percent year-over-year.

The largest monthly gains were in wood products (up 4.2 percent), primary metals (up 3.2 percent), machinery (up 2.1 percent) and plastics and rubber products (up 1.6 percent). Declining sectors included aerospace and miscellaneous transportation products (down 1.2 percent), paper (down 1 percent), nonmetallic mineral products (down 0.8 percent) and furniture and related products (down 0.8 percent).

These numbers suggest that manufacturing production is rebounding from weaknesses in recent months. The 0.9 percent growth rate in December was the highest level since December 2010 – a sign of strength as we move into 2012. More importantly, the gain was more broad-based than in recent months, with both durable and nondurable goods manufacturing activity picking up.

Domestic industrial production is expected to grow at a moderate pace this year. 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. It will be important for policymakers to adopt pro-growth policies that will enable these optimistic sentiments to come to fruition.

Chad Moutray is Chief Economist, National Association of Manufacturers.

The Bureau of Labor Statistics (BLS) reported that producer prices fell 0.1 percent in December, with lower food and energy prices driving the decline. Both food and energy costs for finished goods dropped 0.8 percent, reflecting the continued easing of both in recent months. When food and energy costs are excluded, the core PPI rate rose 0.3 percent. Year-over-year growth rates currently stand at 4.8 percent for all finished goods and 3.0 percent for core goods.

For manufacturers, producer prices declined 0.4 percent for the month, with costs up 6.0 percent since December 2010. The yearly change, though, represents an improvement from earlier in the year. In December, the sectors experiencing the largest monthly declines were petroleum and coal products (down 2.7 percent), primary metals (down 0.9 percent), textile mills (down 0.8 percent), leather and allied products (down 0.5 percent) and food manufacturing (down 0.4 percent).

The cost of intermediate and crude goods also fell, by 0.5 percent and 1.1 percent respectively. This, too, was led by declines in food and energy prices. 

Overall, this report suggests that inflationary pressures remain modest , with recent easing helping to ease the concerns that many manufacturers have had – particularly in the first half of 2011 – about pricing pressures. Nonetheless, many expect raw material and energy costs to rise in 2012, as seen in yesterday’s Empire State Manufacturing Survey and in other similar analysis. Indeed, the core PPI inflation rate edged higher each month in 2011, from 1.6 percent in January to 3.0 percent in December – a sign that higher costs are moving beyond food and energy, albeit not at an alarming pace.

Tomorrow, the BLS will report data on consumer prices.

Chad Moutray is Chief Economist, National Association of Manufacturers.

The Federal Reserve Bank of New York reported that manufacturing activity gained momentum this month. The Empire State Manufacturing Survey’s general business conditions index jumped to 13.5 in January from 8.2 in December. This is the highest point since April and represents a turnaround from the June to October time frame, which noted contracting activity.

The news was generally positive across-the-board, with higher new orders, shipments, inventories and employment. Most importantly, manufacturers’ confidence in additional activity over the next six months also improved, with strong levels of growth expected overall. This includes more hiring and capital spending. Pricing pressures are also anticipated to accelerate.

In a series of special questions, 51 percent of respondents intend to increase employment in the coming months. This is an increase from the 41 percent who said the same in June. Stronger sales growth was the main reason cited. In terms of wages and benefits, 54 percent of manufacturers responding to the survey said that wages would increase by less than 2.5 percent this year. On the other hand, 71 percent said that benefit costs would rise by more than 2.5 percent.

Overall, this report is consistent with other regional and national indicators which show the domestic manufacturing sector picking up steam as we enter the new year. 

Chad Moutray is Chief Economist, National Association of Manufacturers.

Consumers have become more optimistic over the past few months, according to the Survey of Consumer from the University of Michigan and Thomson Reuters. After bottoming out in August at 55.7, the consumer sentiment index has risen to 69.9 in December and 74.0 in January. As such, it is the highest point since May, when the index stood at 74.3.

The public is becoming more confident about both the current and future economic environment, with both components rising for the month. It had been anxieties about expected growth that led the index lower in past months, so its recovery has been a key to the indices’ rising. The expectations components increased from 47.4 in August to 68.4 in January – a significant improvement. The index for present conditions, meanwhile, rose from 68.7 to 82.6 over the same time period.

Inflationary expectations remain mostly unchanged, with prices expected to rise 3.2 percent in 2012.

The Manufacturers Alliance for Productivity and Innovation (MAPI) announced that its composite index of manufacturing activity edged slightly lower from 67 in the third quarter of 2011 to 66 in the fourth quarter. Similar to the Institute for Supply Management’s surveys, readings over 50 suggest that the sector is expanding. Therefore, the senior financial executives from the manufacturing sector responding to this survey still suggest strong growth overall for the manufacturing industry, with slight easing in some of the numbers only reflecting a slightly lower growth rate. The index has grown now for nine consecutive quarters.

Looking at the various components of the index, each of them suggests strong growth moving forward, even as some of figures were lower than in the previous quarter. Illustrating the mixed nature of these results are shipments, which grew from 81 to 83 for the quarter, and new orders, which fell from 79 to 70. It is hard to get upset over either reading, despite the lower growth rate for new orders. Nonetheless, several indicators did mirror the easing observed in the new orders figure, including the level of exports, capital investments, profit margins and capacity utilization.

The survey asked a series of questions about uncertainties related to the European sovereign debt crisis. Almost all (97 percent) of the respondents felt that Europe would experience a recession in 2012, and 45 percent of them said that their exports to Europe have slowed as a result. Nonetheless, three-quarters of them anticipate no changes in the European strategies moving forward, at least at this time.

Overall, this survey continues to represent much stronger sentiment than many of its industry peers, and yet, other surveys also indicate an improved economic environment for manufacturers. Highlighting this, Donald Norman, a key MAPI economist responsible for this survey, says, “Barring a meltdown in the Eurozone, the U.S. manufacturing sector should continue growing at a moderate pace heading into 2012.”

Chad Moutray is chief economist, National Association of Manufacturers.

The Census Bureau reported that retail sales grew by 0.1 percent in December, their slowest pace since May. This suggests that holiday sales – despite strong Black Friday and Christmas week sales – were weaker than many might have preferred. In fact, if you were to exclude auto sales, retail sales would have fallen 0.2 percent. Nonetheless, retail sales in 2011 were 7.7 percent higher than in 2010.

Areas of strong growth in December included building materials (up 1.6 percent), motor vehicle and parts (up 1.5 percent), furniture and home furnishings (up 1 percent), clothing and accessories (up 0.7 percent) and food service and drinking places (up 0.7 percent). These were offset, though, by declines in electronics and appliances (down 3.9 percent), gasoline stations (down 1.6 percent due to lower petroleum prices) and general merchandisers (down 0.8 percent).

These numbers suggest that Americans continue to be cautious in their spending despite rising confidence and improving labor market conditions. Still, it also shows the public willing to open up its pocketbook selectively on big-ticket items such as automobiles and home improvement. Non-store retailers (up 10.6 percent) experienced the fastest year-over-year growth in retail sales; this was followed by auto dealers (up 9.5 percent), with clothing, building materials and furnishings doing well, too.

Meanwhile, the Census Bureau also released business inventory data for November, with manufacturers experiencing a 0.5 percent increase in inventories for the month. This represents a slower pace than the 0.9 percent growth rate of October. Manufacturers’ sales were unchanged in November, with the inventory-to-sales ratio edging slightly higher to 1.34 from 1.33. Overall, though, businesses have done an excellent job of inventory control of late.

For the larger economy, both sales and inventories were up 0.3 percent in November. The motor vehicle sector had the largest increase in inventories, up 0.6 percent.

Chad Moutray is chief economist, National Association of Manufacturers.

The Bureau of Labor Statistics, in releasing new Job Openings and Labor Turnover Survey (JOLTS) data, found that manufacturing job openings and hires were little changed in November from October. Manufacturers hired 237,000 workers in November, up from 235,000 the previous month. Job openings, on the other hand, were down from 232,000 to 227,000.

Manufacturing separations increased from 216,000 to 220,000 for the month. As a result, net hiring for the sector was positive, with 17,000 net new manufacturing jobs added in November. This is now two consecutive months of net positive hiring; however, the rate of hiring as a percentage of total sector employment has fallen from 2.4 percent in November 2010 to 2.0 percent in November 2011. This suggests that hiring levels are still subpar (last week, we learned that 23,000 net new jobs were added in manufacturing in December, but those figures have not been broken out by labor turnover yet).

The story for the larger economy was similar, with fewer job openings and hires in the private sector and slightly more separations. Net hiring was positive, with 169,000 more workers added than separated. Sectors which were adding the most employees in November included retail trade and leisure and hospitality; you could add the education and health services sector to that list when discussing those industries which posted the most new job openings.

Overall, these latest JOLTS data do not change the larger storyline that hiring remains a challenge. This is true despite improvements in the unemployment rate. While recent indicators suggest that hiring intentions moving into 2012 are positive, it is also clear that businesses are being cautious in bringing on new workers. With clear signs of stronger growth and fewer uncertainties in the marketplace, this could all change.

Chad Moutray is chief economist, National Association of Manufacturers.

The National Federation of Independent Business released is monthly Small Business Economic Trends this morning, with Small Business Optimism rising from 92.0 in November to 93.8 in December. It was the fifth consecutive monthly gain, up from 88.1 in August.

Along with the gain in confidence, the net percentage of respondents saying that the next three months are a “good time to expand” has increased to 10, its highest level since before the recession. Likewise, small business owners are also more optimistic about future sales, employment and capital spending.

Nonetheless, it is important to note that small businesses remain anxious despite these improvements. Traditionally, small businesses are experiencing strong growth once the Optimism Index exceeds 100 – a threshold that it has not surpassed since 2006. Moreover, of those suggesting that now is not a good time for expansion, poor economic conditions and an unsettling political climate are cited. The single most important problem continues to be “poor sales” followed by taxes and government regulations.

Chad Moutray is chief economist, National Association of Manufacturers.

The Federal Reserve Board observed a steep increase in U.S. consumer credit in November, particularly for nonrevolving accounts. There was $14.8 billion in additional borrowing among nonrevolving debt – an annualized increase of 10.7 percent – which now totals $1.68 trillion. Revolving debt, meanwhile, increased 5.6 billion, or 9.5 percent, to $789.3 billion.  Overall debt levels are now just shy of $2.5 trillion and have increased in every month in 2011 except August.

Individual interest rates remain low, with the average rate for a 48-month new car loan being 5.45 percent. This is down from the 5.90 percent average in the third quarter of 2011. For credit cards, the average rate in November was 12.36 percent.

Commercial banks remain the largest holders of consumer credit, with $1.08 trillion in credit outstanding. Finance companies and the federal government follow with $502.5 billion and $416.3 billion, respectively. The largest increase occurred among student loans outstanding (e.g., the federal government), which grew from $409.9 billion to $416.3 billion. 

Chad Moutray is chief economist, National Association of Manufacturers.