The Bureau of Economic Analysis said that the U.S. economy grew just 0.5 percent in the first quarter of 2016, signifying a sluggish start to the year. This was slightly below the consensus estimate of real GDP growth of 0.7 percent, and it was down from 1.4 percent growth in the fourth quarter of 2015. In many ways, the data for the first quarter mirrored the trends seen in the prior report, with drags on growth coming from fixed business investment and net exports. Consumer spending on goods was the difference-maker in this release. While personal consumption continued to be one of the brighter spots, adding 1.27 percentage points to headline GDP growth, that increase stemmed almost entirely from spending on services. The gain from goods spending was negligible – adding just 0.03 percentage points. This finding is consistent with the disappointing retail sales numbers observed year-to-date, particularly for durable goods, and it was another sign that Americans have pulled back on their purchases as a result of anxieties in the economic outlook. Read More
The Bureau of Economic Analysis said that real GDP growth grew 1.4 percent at the annual rate in the fourth quarter. This was higher than the prior estimates of 0.7 percent and 1.0 percent. This latest revision reflected improvements in spending on services and growth in exports, but inventory spending was slower than in the most recent data release. Here are some trends in the data of note:
- Personal consumption expenditures added 1.66 percentage points to real GDP growth in the fourth quarter, increasing 2.4 percent at the annual rate. The bulk of that contribution came from services, which added 1.30 percent to the headline figure, especially from spending on food services, health care and recreation. In contrast, spending on durable and nondurable goods eased from growth rates seen in the third quarter, suggesting that consumers were holding back in the fourth quarter from making larger purchases.
- Businesses were also holding back on capital spending. Nonresidential fixed investment subtracted 0.27 percentage points from real GDP in the fourth quarter, with decreased spending on equipment, intellectual property products and structures. Slower inventory spending was also a factor, subtracting 0.22 percentage points. In contrast, residential investment rose by an annualized 10.1 percent in the fourth quarter on strength in the housing market, adding 0.33 percentage points. As a whole, gross private domestic investment served as a drag on real GDP growth, reducing the headline figure by 0.16 percentage points.
- Net exports were also a drag on growth, subtracting 0.14 percentage points from real GDP in the quarter. Goods exports declined by 5.4 percent at the annual rate in this report; whereas, goods imports were off by 1.3 percent. These data illustrate the significant headwinds faced by manufacturers from the strong dollar and sluggish economic growth in key markets. Indeed, U.S.-manufactured goods exports fell 6.1 percent last year.
Overall, demand and output remain significantly challenged in the manufacturing sector, and business leaders remain nervous in their economic outlook. The current expectation is for real GDP to increase by 2.1 percent in 2016, with manufacturing production up 1.5 percent.
The Bureau of Economic Analysis said that the U.S. economy grew just 0.7 percent in the fourth quarter at the annual rate, decelerating from 3.9 percent and 2.0 percent growth in the prior two quarters, respectively. For the year as a whole, real GDP increased 2.4 percent in 2015, the same pace as observed in 2014. The preliminary data were pulled lower by weak business investment, inventory spending and net export figures, with consumer spending being one of the larger bright spots in the report. With that said, personal consumption expenditures rose an annualized 2.2 percent in the fourth quarter, easing from 3.0 percent growth in the third quarter. Consumer spending added 2.1 percent to real GDP in 2015, and in the fourth quarter, it added nearly 1.5 percentage points to the headline figure. This finding mostly mirrors decent but softer-than-desired retail spending activity seen at the end of the year, as Americans remain somewhat anxious about the economic outlook. Read More
The Bureau of Economic Analysis said that the U.S. economy grew 2.0 percent in the third quarter. That is higher than the original estimate of 1.5 percent, but slightly lower than the 2.1 percent figure released last month. The largest variable in these three estimates was the impact of inventory spending, with businesses replenishing their stockpiles at a slower pace in this report than in the last one (but not as severe as originally thought). In the end, spending on private inventories subtracted 0.71 percentage points from real GDP growth in the third quarter. One upside to this, of course, is that a pickup in demand would necessitate additional production because of depleted inventory stockpiles. That could yield somewhat better growth moving forward.
For now, however, the current forecast is for real GDP to increase by 2.0 percent once again in the fourth quarter. The outlook for 2016 is for the economy to grow by 2.4 percent. Read More
The Bureau of Economic Analysis said that the U.S. economy shrank by 0.2 percent in the first quarter. This second revision was an improvement upon the 0.7 percent decline seen in the previous estimate. Looking at the newer data, the improvement came from slightly better figures for personal consumption, nonresidential fixed investments, inventory replenishment, and state and local government spending. Yet, the underlying trends were not altered much, including the following:
- The largest drag on growth in the first quarter was from net exports, subtracting 1.9 percentage points from the headline number. In this revision, the decline in goods exports was slower than in the prior release (down 7.5 percent instead of 14.0 percent), but this was offset by a bigger increase in goods imports (up 7.2 percent instead of 5.1 percent). International demand for manufactured goods exports has been dampened by the strong dollar and continued softness in economic markets abroad. Read More
The Bureau of Economic Analysis said that real GDP grew 2.2 percent in the fourth quarter. As such, headline growth did not change in this second revision from its earlier estimate, released one month ago. The U.S. economy expanded 2.4 percent in 2014, only slightly better than the 2.3 percent and 2.2 percent rates seen in 2012 and 2013, respectively. Of course, that somewhat understates the strength of the economy mid-year, when real GDP growth averaged a rather robust 4.8 percent in the second and third quarters. Read More
The Bureau of Economic Analysis said that the U.S. economy grew 2.6 percent in the fourth quarter, somewhat slower than the consensus estimate of around 3 percent. This was down from the 4.6 percent and 5.0 percent growth rates experienced in the second and third quarters, respectively, and for 2014 as a whole, real gross domestic product (GDP) rose 2.4 percent. The annual figure was not too far from the 2.2 percent pace observed in 2013, but that somewhat understates the strength of the economy since the weather-related weaknesses of the first quarter. Indeed, real GDP grew an annualized 4.1 percent over the last three quarters of 2014. Read More
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, and I estimate real GDP growth of 2.8 percent for the current quarter and 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 to pursue other 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.
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.
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.