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.

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.