Philly Fed: Manufacturing Activity Continued to Ease, but Growth Remains Strong

The Federal Reserve Bank of Philadelphia said that manufacturing activity continued to ease, but growth remained strong in its district. The Manufacturing Business Outlook Survey’s composite index of general business activity has declined from 28.0 in August to 22.5 in September to 20.7 in October. While this figure has decreased somewhat, sentiment remains mostly positive. For instance, just over one-third of manufacturers in the Philly Fed district felt that business activity had increased in October, with 13.5 percent noting a worsening of conditions.

The pace of new orders (up from 15.5 to 17.3) picked up in October, which bodes well for future activity. This shift occurred largely because the percentage of respondents citing declining sales dropped from 22.1 percent in September to 18.9 percent in October. At the same time, rates of growth for shipments (down from 21.6 to 16.6) and employment (down from 21.2 to 12.1) have both decelerated for the month. Along those lines, the average workweek contracted slightly, down from 4.4 to -1.3, falling for the first time since February.

Manufacturers remained overwhelmingly upbeat in their outlook despite a decrease in the forward-looking composite measure (down from 56.0 to 54.5). In fact, 58.0 percent of respondents anticipate increased new orders in the next 6 months, with 58.5 percent seeing higher shipment levels. Regarding employment, 33.1 percent expect to add new workers in the coming months, with just 5.1 percent indicating possible declines. Capital spending was also expected to increase at decent rates, particularly for equipment, computers and software and energy-saving investments.

Chad Moutray is the chief economist, National Association of Manufacturers. 

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Capitol Hill Goes 3D

Modern manufacturing is not only generating life changing products, but game-changing processes as well.

3D printing, an additive manufacturing technology tool, is changing the way more manufacturers make things – from the largest companies in the world to the smallest shop floors. An industry leader, Stratasys, is driving widespread adoption of 3D printing in the manufacturing enterprise and it has brought a live demonstration to Capitol Hill today to provide a hands on demonstration of this revolutionary technology.

Congressional staff got an up close and personal look at this technology – and it was deeply impressive. In addition to the demonstrations, they received a detailed briefing on 3D printing’s economic benefits. Manufacturing is on rise and technology being put on the shop floor by Stratasys is bringing it to even greater heights.

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Manufacturing Production Rebounded in September from a Soft August

Manufacturing production increased 0.5 percent in September, offsetting the revised 0.5 percent decline observed in August. Over the past 12 months, manufacturing output has risen 3.7 percent. This was slower than the 4.7 percent pace observed in July but a nice improvement from the more-sluggish 1.5 percent rate observed in January. As such, this latest data reflects some a bit of softness in market, most notably for motor vehicles, which had a 1.4 percent decline in production in September. Still, auto sector output has expanded 5.7 percent year-over-year, continuing to make it one of the brighter spots overall.

Capacity utilization in the sector was also higher, up from 77.1 percent to 77.3 percent. On a year-over-year basis, capacity has expanded by a modest 2.1 percent.

Both durable and nondurable goods production rose 0.5 percent in September. Furniture and related products (up 2.4 percent), aerospace and other transportation equipment (up 1.7 percent), miscellaneous durable goods (up 1.6 percent), apparel and leather products (up 1.5 percent) and plastics and rubber products (up 1.2 percent) were among the leaders for production growth in the month. In contrast, sectors with declining output included motor vehicles and parts (down 1.4 percent), wood products (down 0.8 percent), nonmetallic mineral products (down 0.2 percent) and machinery (down 0.1 percent).

Meanwhile, overall industrial production jumped 1.0 percent in September, a nice gain after declining by 0.2 percent in August. Mining (up 1.8 percent) and utilities (up 3.9 percent) were up strongly for the month. Mining production, in particular, has increased significantly over the past 12 months, up 9.1 percent, largely due to the pickup in energy exploration. Total capacity utilization rose from 78.7 percent to 79.3 percent, its highest level since May 2007.

In conclusion, manufacturers have continued to be mostly upbeat about the economy. These production figures suggest that manufacturing output growth remains relatively healthy, with durable and nondurable goods production up 5.4 percent and 2.7 percent year-over-year, respectively. Each represents progress from earlier in the year (even if the durable goods figure has fallen since July).

Nonetheless, volatility in global markets and a still-cautious consumer pose downward risks moving forward, and it will be interesting to see how events play out in the coming days and weeks to see if they derail what had been a relatively positive outlook for manufacturers.

Chad Moutray is the chief economist, National Association of Manufacturers. 

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Recent approvals signal “new normal” for LNG exports

Last week, the Federal Energy Regulatory Commission (FERC) quietly issued a final environmental impact statement for Cheniere Energy’s Corpus Christi liquefied natural gas (LNG) export facility in Texas. It required Cheniere to agree to 104 special conditions to ensure that the environment is protected, and it allowed the project to move forward. Ten days prior, FERC issued a similar approval for Dominion’s Cove Point LNG export facility in Maryland. Like the Cheniere approval, FERC required Dominion to adhere to 79 special conditions to protect the environment. It will do that, and the project is moving forward.

No drama. No congressional hearings or presidential proclamations. It was all so…normal.

Kind of nice, isn’t it?

A couple things happened to get us to this point. The meritless arguments from “not in my back yard” opponents and law firms masquerading as environmental groups didn’t hold water with FERC. The protests petered out.  (Which, for what it’s worth is what happens when you protest FERC on a Sunday, when it is closed.) The Department of Energy finally figured how to get itself out of the way and stop causing unnecessary delays. Freed from these regulatory constraints, the environmental permitting process was allowed to work properly. And so it did.

So with an election just a few weeks away, and with it the hope that the 114th Congress can actually work together on energy policy, it’s reassuring to see that on LNG exports at least we have reached a “new normal” whereby companies wanting to take on these projects actually get a yes or no answer in a reasonable amount of time.  However, it’s worth reminding everyone that Keystone XL has been waiting on a final permit decision for six years, coal exports in the Pacific Northwest are fighting uphill to just get their permits heard, and countless other projects are caught in permit limbo. Getting infrastructure projects moving and getting shovels in the ground is a bipartisan priority. Let’s use this “new normal” on LNG as a stepping stone to even better things.

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NY Fed: Growth in Manufacturing Activity Slowed Considerably in October

The Empire State Manufacturing Survey from the New York Federal Reserve Bank showed growth in manufacturing activity slowing considerably in October. The composite index of general business conditions declined from 27.5 in September to 6.2 in October, its lowest level in six months. Indeed, one –quarter of those taking the survey said that conditions had improved in October, down from 46.0 percent who said the same thing in September.  As such, manufacturers in the New York Fed’s district were clearly more anxious this month, a disappointment after signs of relative strength in the sector from May to September.

A decrease in new orders (down from 16.9 to -1.7) helped to explain the change in sentiment. The percentage of respondents suggesting that sales had increased in the month dropped from 40.1 percent in September to 21.9 percent in October, a shift that produced the change in direction for the new orders index. Growth in shipments (down from 27.1 to 1.1) followed the same pattern, but with the percentage of firms saying that shipments had declined in the month jumping from 16.7 percent to 25.0 percent.

On the positive side, manufacturing activity has now expanded for 21 months, and businesses have reported rebounding levels of activity overall since earlier in the year. In addition, employment (up from 3.3 to 10.2) picked up somewhat in October. Pricing pressures (down from 23.9 to 11.4) have also eased.

Looking ahead six months, manufacturers in the New York Fed region remain mostly optimistic. While many of the forward-looking measures pulled back slightly in October, they still indicate expected strength in the outlook. For instance, 52.9 percent of respondents anticipate higher levels of new orders over the coming months, down from 57.1 percent in the prior survey. Nearly 24 percent expect to add more workers over the next six months, with 34.1 percent planning additional capital expenditures. These figures tend to indicate a brighter future for manufacturers, even if the current sales and shipments data are soft.

Chad Moutray is the chief economist, National Association of Manufacturers. 

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More Confusion Rather than Safer Workplaces

Today, the NAM filed supplemental comments to OSHA’s proposed rule publicizing injury and illness data of private employers. In January, the NAM’s Labor and Employment Policy team participated in a public hearing on this rule and from the outset, the NAM has opposed this rule for a few very simple reasons: 1) OSHA has the tools they need to improve workplace safety at their disposal already; 2) This data would be presented without context and could result in a serious misrepresentation of a particular company or industry; 3) This rule gets us no closer to the shared goal of a safer workplace. Nothing has changed to mitigate these concerns – improbably, the rule is getting worse

In August, OSHA reopened the rule posing several questions, without any actual regulatory text. What OSHA appears to be doing is adding new provisions to the rule as well as additional burdens and confusion to employers.

For example, if an employer has a stellar record for being injury and illness free for several months, the employer, to boost morale and to show the company’s safety record, may prominently post this for employees and customers to see.  Defying logic, however, supplements to the rule would a classify this type of posting as discouraging employees from reporting injuries and illnesses in the workplace. OSHA could therefore cite an employer for this.  Despite a reality devoid of data, scientific studies or research to back up OSHA’s assertion, they are moving forward in this misguided thinking.

OSHA should take time now to apply the fundamental question to its rule making process – does it make the workplace safer? Unfortunately, in this case it misses the mark.

Amanda Wood is Director of Employment Policy for the National Association of Manufacturers

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Lower Energy and Food Costs Push Producer Prices Down in September

The Bureau of Labor Statistics said that producer prices for final demand goods and services were down 0.1 percent in September. It was the third straight month with inflationary pressures easing, a positive development that helps both businesses and consumers. On a year-over-year basis, final demand producer prices have risen 1.6 percent over the past 12 months, decelerating from 2.1 percent in May. Producer prices for final demand goods were off 0.2 percent, extending the 0.3 percent decline observed in August, with both food and energy costs lower.

Energy prices have fallen in four of the past five months, declining by 0.7 percent in September. One of the key drivers of this decrease was the fall in gasoline prices, down 2.6 percent for the month. Indeed, the price of West Texas intermediate crude was $97.86 per barrel on August 29, but by September 30, that figure had fallen to $91.17 a barrel. (It has declined further since then, closing at $81.84 per barrel yesterday. This could indicate further deceleration in energy and producer prices in October.)

Meanwhile, food prices also decreased 0.7 percent in September. After rising 5.4 percent from December to April, producer prices for final demand food products have eased by 1.5 percent. As such, the cost of food remained 3.8 percent higher in September than at the start of the year. This has largely stemmed from higher prices for meats, eggs, dairy and produce. The largest price declines in August were seen in beef and veal, chicken, cooking oils, eggs, grains, milled rice, pork, oilseeds and turkey products.

Beyond food and energy, core prices for final demand goods were up 0.2 percent. There were higher monthly costs for commercial products, floor coverings, industrial chemicals, pumps and compressors and women’s apparel. At the same time, producer prices for footwear, household appliances and furniture, jewelry, lawn and garden equipment, passenger cars, toys and games and truck trailers were lower.

Core inflation for final demand goods and services was 1.6 percent in September, down from 1.8 percent in August and 2.1 percent in May. As such, the reduction in inflation seen in the past few months should take some pressure off of the Federal Reserve Board as it prepares to normalize its monetary policies.

Chad Moutray is the chief economist, National Association of Manufacturers. 

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Retail Sales Were Weaker in September

The Census Bureau said that retail sales declined 0.3 percent in September, suggesting softness in consumer spending as we begin the autumn months. Indeed, spending was down mostly across-the-board, which was disappointing. It was the first decline in retail sales since the weather-induced weakness observed in January. On the positive side, year-over-year growth in retail spending continues to be at fairly decent rates, up 4.3 percent over the past 12 months. This was down from a 5.0 percent pace, however, in August.

Clothing and accessories (down 1.2 percent), building materials (down 1.1 percent), nonstore retailers (down 1.1 percent), gasoline stations (down 0.8 percent) and motor vehicles and parts (down 0.8 percent) were among the sectors with the largest declines in retail spending. A fair share of the decrease for gasoline stations stemmed from lower gasoline prices, with the average price per gallon of regular gasoline dropping from $3.410 for the week of September 1 to $3.304 for the week of September 29. (The average has fallen further to $3.147 a gallon this week.) In addition, motor vehicle sales have continued to be a strength (up 9.5 percent year-over-year) despite the decline in September.

In contrast, electronics and appliances (up 3.4 percent), food services and drinking places (up 0.6 percent), health and personal care (up 0.3 percent) and general merchandise (up 0.2 percent) stores notched retail sales gains in September. The increase in electronics spending was likely spurred by the introduction of new iPhones from Apple.

Overall, retail sales figures suggest that Americans remain quite cautious. Lower gasoline prices should help fuel additional spending in the coming months, with the National Retail Federation forecasting holiday sales growth of 4.1 percent this year. Yet, the fact that we are starting fall with weaker data suggests that consumer sentiment remains anxious. Hopefully, retail spending will pick up in the coming months.

Chad Moutray is the chief economist, National Association of Manufacturers. 

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NFIB: Small Business Optimism Edged a Little Lower in September

The National Federation of Independent Business (NFIB) said that small business sentiment edged lower in September. The Small Business Optimism Index dropped from 96.1 in August to 95.3 in September. Still, small business owners’ sentiment has largely improved after waning in the first quarter of 2014, when the index bottomed out at 91.4 in February. Nonetheless, after peaking at 96.6 in May (its highest level since September 2007), the index has eased somewhat. This suggests that small firms continue to have anxieties about economic growth despite recent progress. Moreover, the index remains below 100 – a level that would indicate health in the small business sector.

Indeed, many of the underlying data points were softer in September. For instance, the net percentage of respondents expecting sales to be higher in the next three months has fallen from 15 percent in May to 5 percent in September. Along those lines, the net percentage planning to hire more workers in the next three months has declined from 13 percent in July (a seven-year high) to 9 percent in September. In addition, capital spending plans over the next three to six months also dropped slightly, down from 27 percent in August to 22 percent in September.

Interestingly, the percentage of small business owners saying that the next three months were a “good time to expand” improved, up from 9 percent in August to 13 percent in September (its highest level since December 2007, the first month of the recession). As such, these data definitely have a nuanced perspective, showing both improvements in the economy and persistent challenges. Economic worries and the political climate were the main reasons noted for those suggesting that it was not a good time for expansion. Regulations were the “single most important problem,” cited by 22 percent of respondents. This was followed by taxes (21 percent) and poor sales (14 percent).

Chad Moutray is the chief economist, National Association of Manufacturers. 

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Monday Economic Report – October 14, 2014

Here is the summary for this week’s Monday Economic Report: 

Financial markets have been rocked by worries about slowing economic growth, particularly in Europe. The Dow Jones Industrial Average has fallen 4.2 percent so far this month, declining to 16,321.07 yesterday on Columbus Day. The concern started after the Federal Open Market Committee (FOMC) released the minutes from its September 16–17 meeting last Wednesday. Indeed, the participants discussed how softer economic activity and geopolitical events could risk U.S. economic progress.

Then, on Thursday, the International Monetary Fund (IMF) slightly downgraded its global outlook, with Asia, Europe and South America growing slower than expected three months ago. The IMF now expects world output to expand 3.3 percent and 3.8 percent in 2014 and 2015, respectively, down from 3.4 percent and 4.0 percent as estimated in its July report.

Interestingly, the IMF raised its forecast for the United States, with the estimate of real GDP growth for 2014 up from 1.7 percent to 2.2 percent. This reflects recent strength in the U.S. economy, particularly when compared to other nations. To be fair, the IMF had more optimistic expectations for growth coming into this year, projecting 2.8 percent growth in 2014 in its January report. After disappointing growth in the first quarter, however, it lowered its outlook projections, much like everyone else.

Otherwise, last week was light on economic indicators. Of the ones that were released, the data were mostly mixed. California manufacturers reported a slight easing in the pace of new orders and output, particularly for durable and high-tech industries. Nonetheless, the data still reflect relatively health gains in activity, and hiring in California ticked higher.

In contrast, net hiring in the sector slowed in August nationally. On the positive side, manufacturing job openings have risen steadily this year after bottoming out in February, rising to 297,000 postings in August. These gains were part of a larger upward trend, with total nonfarm job openings increasing to their highest level since January 2001.

Beyond those measures, we learned that wholesale sales were somewhat soft in August—not unlike a number of other indicators. In addition, consumers were less willing to take on credit card debt. At the same time, wholesale spending has increased 5.9 percent over the past 12 months, indicating decent growth, with consumer indebtedness rising 6.8 percent. As such, it is clear that Americans have continued to spend, even if the pace lessened somewhat in August.

After some unexpectedly soft data in August, we will be looking for better housing starts and industrial production figures for September, both of which come toward the end of this week. Industrial production is expected to increase around 0.3 percent, and housing starts should once again exceed an annualized 1 million units. There will also be manufacturing surveys from MAPI and the New York and Philadelphia Federal Reserve banks. Beyond those indicators, other highlights include the latest data on consumer and producer prices, consumer sentiment, retail sales and small business optimism.

Chad Moutray is the chief economist, National Association of Manufacturers. 

job openings - oct2014

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