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.

The Bureau of Labor Statistics reported that nonfarm business labor productivity increased 0.7 percent in the fourth quarter, with unit labor costs up 1.2 percent. For the year, productivity in the nonfarm sector rose 0.7 percent, well below its pace of 2.3 percent and 4.1 percent in 2009 and 2010, respectively.

Manufacturing productivity fell in the fourth quarter by 0.4 percent, a reality check perhaps from the steep 5.3 percent growth rate experienced in the third quarter. Output per hour for all workers in the durable goods sector dropped 0.4 percent, as well, representing a turnaround from the 8.7 percent increase in the previous quarter.

Note that the third quarter rates were unsustainable, so the falloff should not be a total surprise; in addition, we have seen a pickup in employment – a sign that increased output and productivity has led to new hires. Indeed, one factor in the drop-off in productivity was that the number of hours worked rose 4.2 percent in the quarter, more than offsetting the rise in output of 3.8 percent.

Nondurable goods productivity, which grew more slowly at 1.6 percent in the third quarter, rose an additional 1.3 percent in the fourth quarter.

Despite the downtick in manufacturing productivity in the fourth quarter, the longer-term trend has been positive.  For 2011, manufacturing productivity rose 2.8 percent, or about half of the 6.1 percent pace of 2010. Overall unit labor costs fell by 4.2 percent and 1.3 percent in 2010 and 2011, respectively, helping to keep American manufacturers more competitive.

It is notable, for instance, that much of the productivity gains of the third quarter – which were phenomenally large, particularly for durables – was sustained. Manufacturing output rose 4.9 percent for the year. In the durable and nondurable goods sector, output increased by 8.1 percent and 1.7 percent, respectively. This is consistent with the recent recovery in activity that we have seen in many other statistics.

Chad Moutray is chief economist, National Association of Manufacturers.

Today Vice President Joe Biden was in Grand Rapids, MI talking about manufacturing and following up on the proposals laid out last week by President Obama in the State of the Union.

We are happy to see the President and Vice President are continuing to talk about manufacturing and realize how important it is to the economy and job creation. However, manufacturers need the right policies to grow and create jobs.

Manufacturers are looking for the “All-of-the-Above” energy policy that includes the Keystone XL pipeline. If they Administration wants to create manufacturing jobs, the perfect project was right before them. Keystone XL will create 20,000 construction and manufacturing jobs and more than 118,000 spin-off jobs.

As the discussion continues about manufacturing and how to create jobs we hope that both Congress and the Administration will move forward with policies to let manufacturers lead the economic recovery and create quality, high-paying jobs.

The Institute for Supply Management (ISM) released it purchasing managers index (PMI) this morning, showing a modest uptick in the pace of overall manufacturing activity in January. Note that much of the data for 2011 were revised due to new seasonal adjustment factors. With that revision, the PMI rose from 53.1 in December to 54.1 in January. The index has been above 50 – its threshold for expansion in the sector – for 30 months, or since August 2009.

Looking at the various components the news is more mixed. While all of the key areas are over 50 except for inventories, a couple did reflect some easing in their pace of growth. On the positive side, the new orders variable grew stronger, up from 54.8 to 57.6. Supplier deliveries and new export orders also improved in the month.

However, production, employment and imports rose at a slower rate. Inventories continued to contract, but neared the neutral point.  The pace of price increases for raw materials also gained some steam after contracting in the previous three months.

Most of the sample comments provided by ISM echoed these sentiments. A machinery respondent, for instance, said, “Year starting a little slow, but customers are positive about increased business in 2012.” This sums up the bulk of the comments, with optimism for a stronger year.

Interestingly, one individual in the computer and electronics manufacturing sector added, “Business lost to offshore is coming back.” We continue to hear such anecdotal pieces of evidence about reshoring, and if nothing else, it provides another hint of American competitiveness in light of recent labor productivity gains. The Bureau of Economic Analysis is releasing new productivity data for the fourth quarter tomorrow.

Overall, the ISM data shows the manufacturing sector continues to recover. But, like other data released this week it is clear that growth has been modest at best. January appears to be growing less strongly than in November or December. While the new orders figures in this report bode well for future activity, it would be nice to see that translate into higher production and employment growth in the months ahead.

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

Consumers were slightly less optimistic this month, according to the Conference Board’s Consumer Confidence Index. The overall index fell from 64.8 in December to 61.1 in January. The leading driver of this decline was a diminishment in people’s perception of the current economic environment, with the index for present conditions down from 46.5 to 38.4. This is essentially where the index stood in November, essentially erasing the improvements observed in December. Nonetheless, individual assessments of future conditions remained about the same, down to 76.2 from 77.0.

This index rises and falls with pocketbook issues, and in this survey, Americans felt that jobs were harder to get. Also, fewer of them anticipated increases in their incomes. The result was a decrease in the percent planning to purchase a home, automobile or major appliance.

Lynn Franco, the Director of The Conference Board Consumer Research Center, cites one other factor which might be providing a drag to these numbers. In the press release she says, “Recent increases in gasoline prices may have consumers feeling a little less confident this month.” Indeed, there is a long history of consumer confidence being shifted by the price that Americans pay at the gas pump.

For manufacturers, this is obviously not a positive way to enter the new year. We need the consumer to pick up their spending, helping to drive more demand for our goods. While over sentiment is much-improved from the lows seen in late summer and early fall, there is still much work to do to get the public less anxious about the economy.

Chad Moutray is chief economist, National Association of Manufacturers

The Chicago Business Barometer from ISM-Chicago declined from 62.2 in December to 60.2 in January. While this still represents strong growth, it also reflects a modest easing in manufacturing activity from the November and December readings.  

Production and new orders continue to be healthy, with a slightly lower value this month. Nonetheless, with values of 63.8 and 63.6, respectively, activity remains highly elevated. Capital equipment purchases and supplier deliveries picked up their pace.

Employment also eased a little, with its index declining from 59.2 to 54.7. Job growth is positive, but this represents the slowest pace of hiring since August. The only component of the index that contracted was the measure for order backlogs, which shrunk from 57.3 to 48.3 for the month.

The prices paid for raw materials decreased from 63.8 in December to 62.4 in January. This more-or-less continues some pricing relief seen since November. The larger trend has reflected a downward shift (but still elevated levels) in prices since mid-2011. The index in July, for instance, was 73.4.

Despite some easing in these numbers, manufacturing activity in the Chicago region remains strong, supported by healthy production and new orders overall. It would definitely be nice to regain the momentum seen in early 2011, though, when the Chicago Business Barometer was hovering around 70.

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.