Tag: business investment

Real GDP Growth in the Second Quarter Revised Higher to 4.2 Percent

The Bureau of Economic Analysis revised its real GDP growth figures for the second quarter, up from an estimated 4.0 percent at the annual rate to 4.2 percent. This reflects slightly better fixed investment and net export figures. With that said, the underlying story remains the same. The U.S. economy grew frustratingly slow in the first half of 2014, with the strong rebound in the second quarter coming after a decline of 2.1 percent. Averaging these first two quarters together, real GDP expanded just 1.0 percent at the annual rate.

Consumer and business spending were positives. Goods spending rose an annualized 5.8 percent, adding 1.3 percentage points to real GDP in the second quarter. This was led by strong growth in motor vehicles, household furnishings and appliances and recreational goods. In terms of fixed investment, there were healthy rebounds in business spending on structures and equipment, with the restocking of inventories alone adding 1.4 percentage points to growth. Personal consumption expenditures and gross private domestic investment accounted for 4.3 percentage points of real GDP growth.

The other two components of real GDP were mixed. Government spending added 0.3 percentage points, but reduced defense spending served as a slight drag on growth. The biggest disappointment continues to be the trade figures. Goods exports rebounded strongly in the second quarter, up 13.8 percent, but that followed an 11.9 percent decline in the first quarter. Meanwhile, goods imports rose 2.5 percent and 12.3 percent, respectively, in the first and second quarters. Overall, net exports subtracted 0.4 percentage points from real GDP in the second quarter. To be fair, this was better than 0.6 percent rate observed in the first estimate.

Moving forward, manufacturers are mostly upbeat, I estimate real GDP growth of 2.8 percent for the current quarter or 3.0 for the second half of this year. Still, a number of risks abound, and business leaders and consumers remain cautious. Regarding trade, policymakers should do what they can to increase sales opportunities abroad, including reauthorizing the Export-Import Bank and pursuing new trade agreements. The need forgo-growth policies extends to other areas, as well, as this year has taught us that even an optimistic recovery can still be fragile.

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

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Monday Economic Report – March 3, 2014

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

The U.S. economy grew 2.4 percent in the fourth quarter, down from the earlier estimate of 3.2 percent. Given some of the recent weaker manufacturing, retail and housing data, the downward revision was largely expected. Still, there are some positives in the report, with strength in consumer spending, business investment and net exports. Fixed investment was higher in this revision, which was welcome news. Federal government spending accounted for the biggest drag on growth during the fourth quarter, subtracting one percentage point from the total figure.

The bottom line is that real GDP increased 3.3 percent in the second half of 2013, providing some momentum for growth moving into this year. While weather and other factors have dampened the economy recently (and will also reduce real GDP in the current quarter), we still expect 3.0 percent growth for 2014. Manufacturers continue to be mostly upbeat about demand and production over the coming months.

Despite such optimism in the outlook for the year, the current environment for manufacturers clearly has its challenges. Weather has negatively impacted production and shipments in a number of regions around the country, and surveys from the Dallas, Kansas City and Richmond Federal Reserve Banks all observed some easing in activity in February. This followed similar reports from the New York and Philadelphia Federal Reserve Banks the week before. Meanwhile, the Census Bureau has reported lower new durable goods orders for two straight months, with poor weather conditions likely a factor, particularly for auto sales. At the same time, new durable goods orders excluding transportation were higher, suggesting that the broader manufacturing market was slightly better than the headline figure indicated.

Some of the other data remain mixed. New home sales were up sharply in January to their highest level since July 2008, but year-over-year growth was more modest, and inventories of new homes have fallen over the past few months. Nonetheless, the positive report on new home sales stands in contrast to much weaker residential construction figures of late, including housing starts and existing home sales, which have seen negative impacts from the weather. Similarly, the two major reports about consumer confidence moved in opposite directions, with the Conference Board’s measure lower in February and the University of Michigan’s figure edging slightly higher. Doubts about income and labor growth have possibly fed some anxieties in sentiment in both surveys, but the two reports differ in their findings about the economic outlook.

This week, the focus will be on manufacturing activity, employment growth and international trade. We will get February Purchasing Managers’ Index (PMI) data from the Institute for Supply Management (ISM) later this morning. After falling from 56.5 in December to 51.3 in January, the ISM PMI is expected to increase modestly, still indicating weaknesses in new orders and production for the month. On the trade front, we will be looking for better manufactured goods exports in 2014, improving on the modest 2.4 percent growth rate seen in 2013. Still, manufactured goods exports hit an all-time high last year, providing a positive for economic growth.

The biggest news of the week will come on Friday with the release of new jobs numbers. Nonfarm payroll growth has been soft over the past two months, with just 75,000 and 113,000 net new workers added in December and January, respectively. The consensus expectation is for roughly 165,000 nonfarm workers added in February. In contrast, manufacturing job gains have been fairly decent over the past six months, averaging 15,500 since August, and we should get modest gains again in February. One of the bigger conversation pieces will be whether the unemployment rate falls to 6.5 percent in February, which is the rate specified in the Federal Reserve Board’s forward guidance. (Either way, look for the Federal Open Market Committee to change its guidance at its next meeting.) Other highlights this week include the latest data on construction spending, factory orders, personal income and spending and productivity.

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

personal consumption - mar2014

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Monday Economic Report – November 12, 2013

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

The U.S. economy has been increasing a bit faster than expected, with real GDP up a surprisingly strong 2.8 percent in the third quarter. This was higher than consensus estimates of around 2.0 percent. In general, the data observed that many of the second-quarter trends extended into the third quarter, particularly with modest growth in consumer and business spending. In fact, goods spending grew an annualized 4.3 percent in the third quarter, contributing 0.99 percentage points to overall real GDP. Fixed investment was a positive contributor overall, but the largest component was inventory replenishment. Without inventory spending, real GDP would have been closer to the forecasted 2.0 percent. Other positives included stronger growth in exports and improved local and state government performance. While the data pre-dated the government shutdown, reduced federal government spending was once again a drag on growth, something that will continue moving into the fourth quarter.

October’s jobs numbers were also surprisingly strong. It was widely expected that the employment data from the Bureau of Labor Statistics were going to be closer to what ADP had estimated the week before, with roughly 130,000 additional workers added in the month. Instead, nonfarm payrolls increased by 204,000 in October, and when combined with significant revisions to August and September data, the average over the past three months is 201,667. This suggests hiring has picked up more recently in the larger economy, mirroring improvements in other data. However, the unemployment rate edged up slightly from 7.2 percent to 7.3 percent. This corresponded with the participation rate moving up a bit from 63.2 percent to 63.8 percent, suggesting that some workers might be returning to the market.

Manufacturers hired an additional 19,000 workers on net in October, its fastest pace since February. Both durable and nondurable goods firms brought on additional employees, up 12,000 and 7,000, respectively, for the month, and the largest increase occurred in the motor vehicle sector, which added another 5,700 workers. While this was better than recent figures, hiring growth for the sector has been disappointing. On a year-over-year basis, manufacturers have added 55,000 additional workers, or 2.4 percent of the 2.3 million nonfarm payroll workers added over the past 12 months.

Other data released last week also highlighted the recent acceleration in manufacturing activity. The JPMorgan Global Manufacturing Purchasing Managers’ Index (PMI) increased from 51.8 in September to 52.1 in October, its fastest pace since May 2011. Stabilization in Asia and Europe has helped to raise the level of new orders and output in many of our key trading partners, with modest growth in October. (For more information on these trends, see the latest Global Manufacturing Economic Update, which was released on Friday.) Increases in manufacturing sales helped lift the Conference Board’s Leading Economic Index (LEI) higher as well. For instance, new manufactured goods orders jumped 1.7 percent in September. Nonetheless, aircraft orders were the main driver of new factory orders, with weaknesses in the broader market.

Meanwhile, consumer confidence continued to fall in preliminary survey data from the University of Michigan and Thomson Reuters. Since reaching a six-year high in July, the confidence measure has fallen from 85.1 to 72.0. The government shutdown dampened overall sentiment, but attitudes were already waning before that. To some extent, the diminished enthusiasm about the current and future economic environment might have impacted Americans’ purchasing decisions. The latest personal spending report suggests individuals might be more hesitant about opening their pocketbooks, with only modest growth in purchases in recent months. Consumer spending fell in the third quarter, down from a year-over-year pace of 3.3 percent in June to 2.7 percent in September. Durable goods spending declined 1.3 percent in September, bringing down the total figure. Interestingly, this slowdown in spending has corresponded with relatively strong personal income growth, up an annualized 4.45 percent in the third quarter. As a result, the savings rate increased to 4.9 percent, its highest level so far in 2013.

This week, the focus will be on price, production and trade data. Prices have been increasing minimally, with core inflation running below 2 percent. That should continue to be true with the release of October consumer and producer pricing data on Thursday and Friday. Improvements in the global economy should lead to better export figures, and manufacturing production should also be up modestly, building on recent gains. Other highlights will be the latest regional manufacturing survey from the New York Federal Reserve Board and new reports on labor productivity and small business optimism.

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

real GDP forecast - nov2013

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The U.S. Economy Grew a Stronger-than-Expected 2.8 Percent in the Third Quarter

The Bureau of Economic Analysis reported a stronger-than-expected growth rate for the U.S. economy in the third quarter, with real GDP up 2.8 percent. This was higher than the consensus estimate for real GDP growth of 2.0 percent. As such, it was the third consecutive acceleration in output, with real GDP up 0.1 percent, 1.1 percent, and 2.5 percent in the past three quarters (fourth quarter 2012 to second quarter 2013), respectively. With that said, this data pre-dates the government shutdown, which is expected to have a negative impact in the fourth quarter data of 0.25 to 0.50 percentage points.

As was noted in the second quarter, consumer and business spending were once again the strongest elements of growth in the third quarter data. The good news was that net exports and government spending also made positive contributions this time around, with the latter stemming from better numbers at the state and local level. Federal government spending subtracted 0.13 percentage points from real GDP, but this was offset by a 0.17 percentage point positive contribution from state and local government outlays.

Americans purchased more items in the third quarter than in the second, with goods spending up an annualized 4.3 percent for the quarter. Total goods spending added 0.99 percentage points to growth, with 0.57 percentage points stemming from durable goods items and another 0.42 percentage points coming from nondurable goods. Among the items that were strengths were food and beverages, furnishings and durable household equipment, motor vehicles, and recreational goods and vehicles. In contrast to goods spending, consumer spending on services was almost flat for the quarter, up 0.1 percent at the annual rate.

Increased inventory replenishment and spending on both residential and nonresidential structures helped push business investment higher. In fact, gross private domestic investment increased at an annualized 9.5 percent in the third quarter, extending the 4.7 percent and 9.2 percent gains experienced in the first and second quarters, respectively. Business investment added 1.45 percentage points to growth, making it the largest contributor to real GDP in the third quarter. Given that 0.83 percentage points of that was from inventories, you might expect the fourth quarter figure to be slightly less robust as inventory spending might not need to be as strong.

On the trade front, exports were a net positive for the first time since the fourth quarter of 2012, adding 0.31 percentage points to real GDP. This was the result of goods export growth of 6.4 percent at the annual rate, outpacing goods import growth of 1.8 percent. Given the slow growth of manufactured goods exports so far this year, news that goods exports have begun to accelerate again is definitely an encouraging sign.

Overall, this data suggests that the U.S. economy continues to grow at a modest pace, led by consumer and business spending. It also indicates that growth could pick up even more with healthier trade figures, much as we saw in the third quarter. While fourth quarter growth will be somewhat depressed by the government shutdown and continuing fiscal uncertainties, real GDP should increase just above 2 percent for 2013 as a whole.

Next year, the economy is poised for better economic growth, approaching 3 percent for the first time since 2005, assuming government stops creating economic risks and the global growth continues to improve. In general, manufacturers are cautiously optimistic about next year, but they also recognize that there continue to be downward risks to growth in the economy. As such, policymakers should look for ways to expand opportunities for manufacturers, providing them with the keys to expand and flourish and helping to alleviate barriers (e.g., tax reform, reducing regulatory burdens, expanding trade, etc.).

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

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Second Quarter Real GDP Grew 2.5 Percent, Unchanged from the Previous Estimate

The Bureau of Economic Analysis said that real GDP grew 2.5 percent in the second quarter. This was unchanged from the last revision to this data. The positive news was that growth was higher than the first quarter rate of 1.1 percent. Yet, U.S. output grew only at the 1.8 percent pace in the first half of the year, which was disappointingly slow.

Revisions in this report were minor, with slightly lower figures for inventories and exports but higher numbers for state and local spending. In general, these data show that consumer and business spending continue to prop up the economy, with the combination of the two contributing 2.62 percentage points to real GDP. Consumer purchases of goods alone added 0.71 percentage points, with goods spending up a decent 3.1 percent in the second quarter.

Weaknesses stemmed from net exports and government spending. Both exports and imports were up significantly in the second quarter, but these changes largely offset one another. Net exports subtracted 0.07 percentage points from real GDP.

Coincidently, government spending also reduced real GDP by 0.07 percentage points, with reductions in federal spending continuing to dampen growth. With that said, these subtractions have decelerated over the course of this year. The drag was 1.19 percentage points in the fourth quarter of 2012, followed by a negative contribution of 0.68 percentage points in the first quarter. Still, we would expect government to continue to be a negative on growth moving forward, particularly given budget austerity measures at the federal level.

Overall, the U.S. economy is growing, but not robustly. There are some indications that manufacturing activity and some other economic indicators have accelerated moving into the third quarter, and yet, persistent headwinds will prevent even faster growth. I anticipate real GDP growth of 2.0 percent for the third quarter.

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

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Improved Export Picture Lifts Second Quarter Real GDP Revision Higher

The Bureau of Economic Analysis said that the U.S. economy grew 2.5 percent in the second quarter. This was faster than the 1.7 percent reported originally, but only slightly higher than consensus estimates. Still, even with the faster growth rate, real GDP rose just 1.8 percent in the first half of the year, which remains disappointly slow. The one consolation might be the fact that growth has accelerated over the past three months, from 0.1 percent in the fourth quarter of 2012 to 1.1 percent in the first quarter to 2.5 percent in the last one.

The largest change in this revision came from a better-than-originally-predicted export picture. This was largely expected after the strong trade numbers for June. Goods exports, in particular, were up 10.1 percent in the second quarter, with goods imports rising 7.1 percent. Whereas net exports were originally subtracting 0.81 percentage points from real GDP, the newer data now suggest a neutral contribution. This alone was enough to boost output significantly from its 1.7 percent estimate to closer to the latest revision figure.

The strongest elements in the U.S. economy continue to be consumer spending and business investment. These two factors added 2.69 percentage points to real GDP, up from 2.56 percent earlier. Goods consumption alone contributed 0.73 percent, helping manufacturers. On the investment side, there were strong contributions from housing and nonresidential structures and some equipment spending. Nonfarm inventories were also higher than originally predicted.

Meanwhile, government spending provided more of a drag than previously estimated, subtracting 0.18 percentage points instead of 0.08 percent. Reduced defense spending and tighter state and local government budgets were largely to blame. While the subtraction from real GDP was less than prior quarters, government’s contribution to real GDP has been negative now for 12 of the past 15 quarters. With further budget cuts expected moving forward, that is not expected to change.

Overall, these numbers provide some comfort that growth in the U.S. economy was faster in the second quarter than originally thought, and the fact that exports led the revision is certainly good news for manufacturers, particularly heading into the third quarter. Yet, 1.8 percent growth in the first half of the year is hardly robust, and policymakers would be wise to pursue actions that would lift growth moving forward. While manufacturers are cautiously optimistic about growth in the second half of the year, there continue to be headwinds that make that less than assured.

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

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Monday Economic Report – June 3, 2013

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

The Bureau of Economic Analysis confirmed that the U.S. economy grew modestly in the first quarter of 2013, revising real GDP growth from the earlier estimate of 2.5 percent to 2.4 percent. Two factors that have had the greatest impact were the American consumer and a rebounding housing market. Business spending, while decelerating somewhat from the fourth quarter of 2012, also made a sizable contribution to growth. In fact, to illustrate the importance of consumer spending and gross private domestic investment to growth in the first quarter, they added 3.6 percentage points to real GDP, with government spending and net exports subtracting from that number. Moving forward, I expect real GDP to grow by 1.8 percent in the current quarter, with 2.3 percent growth overall for 2013.

Two surveys released last week both indicate a sharp rebound in consumer sentiment in May, with both rising to levels not seen in more than five years. The Conference Board and University of Michigan reports both observed improved perceptions about the current and future economic environment, and yet, Americans feel there are persistent challenges. These headwinds include elevated unemployment rates, higher payroll taxes and slow growth in the domestic and global economy. Softness in the economy contributed to flat personal income growth in April, with personal spending declining. In the manufacturing sector, wages and salaries have increased over the course of the past year, even as they were slightly lower in April. (continue reading…)

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Monday Economic Report – December 10, 2012

Below is the summary from this week’s Monday Economic Report:

Economic indicators released last week show that manufacturers are increasingly nervous. The latest NAM/IndustryWeek Survey of Manufacturers found that the percentage of respondents reporting their company’s outlook was positive has dropped from almost 89 percent in March to roughly 52 percent today. Business leaders are frustrated with the political process, and more than 84 percent cited the prospects of the fiscal cliff as their top concern. These worries are fueling manufacturers’ uncertainties, with about 42 percent saying that they have reduced or slowed down capital spending and 36 percent noting reduced or no hiring. In fact, the expected hiring and investment rates for the next 12 months have turned negative for the first time since 2009.

Nonresidential fixed business investment was a drag on growth in the recent revision to real GDP for the third quarter—a trend that is not likely to change in the fourth quarter. Moreover, the Institute for Supply Management’s (ISM) Purchasing Managers’ Index (PMI) reflected a contraction in November for the fourth time in the past six months. To be fair, Hurricane Sandy played an important role in reducing activity for the month, but it was not the only factor producing weakness. We have seen a more sluggish manufacturing sector since the summer, with slowing global sales and economic uncertainty weighing heavily on everyone’s minds. Similarly, employment growth has also been weak over this time frame, with manufacturers shedding 26,000 workers since July, according to the Bureau of Labor Statistics (BLS).

Up until now, these impacts have mostly been seen at the business level. While manufacturing optimism has diminished, consumer confidence rose throughout the fall months, which helped push up spending. Consumers accounted for 37 percent of the real GDP growth in the third quarter, and recent holiday sales figures have reflected decent growth. November’s vehicle sales numbers also showed strong gains (although they were boosted by auto replacements stemming from Hurricane Sandy). However, the University of Michigan’s Consumer Sentiment Survey showed a large decline in confidence, with its index down from 82.7 in November to 74.5 in December. It appears that consumers are finally starting to ponder the prospects of the fiscal cliff and its implications for the larger economy. As the media has increased its coverage of the fiscal cliff over the past month, the drop should not be surprising.

This week, we will get more clues about the current state of the manufacturing sector and the larger economy. The Federal Open Market Committee will likely stick with its current stimulative monetary policies at its December meeting. On the data front, the Fed will release industrial production numbers on Friday, which are expected to show modest growth at best, especially given current weaknesses. Tomorrow, the Commerce Department will announce export figures, and we will see if recent improvements overseas have yielded gains in worldwide sales. (For more on international trends, see the latest Global Manufacturing Economic Update.) Other highlights for the week include indicators on consumer and producer prices, job openings, retail sales and small business sentiment.

Chad Moutray is chief economist, National Association of Manufacturers.

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Durable Goods: Up, Up and Away! At Least for Aircraft

While today’s report from the Commerce Department shows that orders to U.S. factories for big-ticket manufactured goods rose a brisk 2.9 percent in April, this increase was fueled largely by commercial aircraft orders, which soared 228 percent last month and are extremely volatile from month to month due to the large dollar volume of transactions. Outside of non-defense aircraft, new orders actually fell by 1 percent in April, the second decline in the past three months. This decline was driven by either outright declines in orders in areas such as machinery, primary metals and electrical equipment or more moderate increases in areas such as computers and electronics and fabricated metals.

Outside of aircraft, the bulk (88 percent) of the decline in new durable orders last month was caused by a 5.9 percent drop in machinery, which in turn is a major purchaser of both primary and fabricated metal products. Given the fact that 41 percent of machinery manufactured in the United States is exported — and more than a fifth of that is sent to Europe –we will be watching to see if today’s report could be the first spillover effect of the European debt crisis into the U.S. economy.

With the positive effects from the recently expired homebuyer tax credit likely to diminish in the months ahead, more economic growth will have to come from other areas including business investment, consumer spending and exports if the manufacturing recovery is to maintain its current trajectory. And while today’s report is not alarmingly negative, it does suggest that the manufacturing recovery may be slowing from the brisk pace of the past three quarters. However, due to the monthly volatility of most durable goods orders, several more months of data will be required to ascertain if a sustained slowdown is in the making.

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