Chicago Fed Archives - Shopfloor

Monday Economic Report – April 27, 2015

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

Durable goods orders jumped 4.0 percent in March, which should be a sign that the sector was growing strongly and rebounding from recent softness. Instead, strong aircraft and motor vehicle sales in the month masked broader weaknesses behind the surface. Excluding transportation equipment orders, durable goods sales dropped 0.2 percent for the month and have edged lower across the past six months. Durable goods shipments were somewhat more encouraging on a year-over-year basis, up 3.7 percent, but they have been essentially flat since September. Read More

Leading Economic Indicators Rose for the Third Straight Month

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The Conference Board said that the Leading Economic Index (LEI) rose 0.4 percent in April, increasing for the third straight month. The April figure extended the 1.0 percent growth experienced in the March, which had been the fastest pace of growth since last September. Over the past six months, the LEI grew 2.9 percent, which bodes well for future activity.

With that said, the increase in April stemmed primarily from improvements in building permits, favorable credit conditions, and the interest rate spread. Manufacturing activity provided a bit of a drag to the LEI for the month, with an unchanged pace for new orders and a reduced average workweek for production employees. Consumer confidence and the stock market provided only a negligible contribution to the index this time.

The Coincident Economic Index (CEI), which assesses current conditions, increased 0.1 percent in April, slower than the 0.3 percent paces seen in both February and March. Nonetheless, it also shows a rebound from weather-related softness in December and January. Industrial production, which decreased 0.6 percent in April, subtracted 0.08 percentage points from the CEI. The other contributors to the index were all positive, including nonfarm payrolls, personal income, and manufacturing and trade sales.

Meanwhile, the Chicago Federal Reserve Bank also said that economic activity slowed last month, with its National Activity Index (NAI) declining from 0.34 in March to -0.32 in April. The reduction in manufacturing production was a large factor in decrease for the month. The housing data improved but remain a drag on the NAI because the market remains below its historical averages. Employment was also a bright spot, with improvements in nonfarm hiring and a drop in the unemployment rate.

On the positive side, the three-month moving average for the NAI rose from 0.04 in March to 0.19 in April. This was a statistical shift resulting from dropping the very weak January data (due to winter storms) from the three-month average. Nonetheless, it indicates that the U.S. economy is growing above its historical average overall, even as the pace remains below what was measured in November of last year when the moving average was 0.34. It also tends to support the view that we have largely rebounded from weather-related softness.

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

Monday Economic Report – January 27, 2014

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

According to the latest data, manufacturers contributed $2.03 trillion to the economy in 2012, or 12.5 percent of GDP. This was up from $1.56 trillion in 2000 and $1.92 trillion in 2011. As such, it suggests that manufacturing remains quite strong in the United States, with output continuing to expand and recovering from the falloff during the recession. In fact, manufacturing in the United States would be the eighth-largest country in the world if you were to compare manufacturing’s contribution with worldwide GDP values. Nations with GDP greater than U.S. manufacturing’s contribution were the United States, China, Japan, Germany, France, the United Kingdom and Brazil.

Looking at more current data, there were two manufacturing developments of note in the data released last week. First, Chinese manufacturing activity contracted slightly for the first time since July, spooking financial markets. This reduction in the preliminary Purchasing Managers’ Index (PMI) data stemmed largely from fewer new orders and exports, and it provided fodder for those worried about deceleration in China’s economy. (This also fed anxieties about growth in the emerging markets in general.) Yet, Chinese manufacturing output remained expansionary, albeit at a slower pace than the month before, and production has been positive for six straight months.

The second notable trend was the negative impact of colder weather on U.S. production in January. Both the Kansas City Federal Reserve’s survey and the Markit Flash U.S. Manufacturing PMI data indicated weaker output for the month, with winter shutdowns cited as one of the causes. We would expect such changes due to poor weather conditions to be temporary, and for the most part, manufacturers in the United States remain mostly upbeat about new orders, shipments, employment and capital spending moving forward. These sentiment surveys, as well as other similar ones, continue to show improvements in manufacturing sales and output since the beginning of the third quarter, with cautiously optimistic expectations for 2014.

Two indicators released last week support this more upbeat assessment of the U.S. economy’s health. The Conference Board’s Leading Economic Index (LEI) continued to expand in December, rising 3.4 percent in the second half of 2013. One of the stronger elements in this index was the new orders component, particularly as measured by the Institute for Supply Management’s (ISM) PMI reports. Similarly, manufacturing was a significant positive contributor to the Chicago Federal Reserve Bank’s National Activity Index (NAI). This measure has shown strong improvement in the past few months, with overall growth now above its historical trend.

This week will be a much busier one on the economic front. However, much of the focus will be on two separate developments. The first of these will come on Wednesday with the Federal Open Market Committee’s (FOMC) release of its monetary policy statement. This will be the last meeting with Ben Bernanke as the Federal Reserve Board chair, and it is widely expected that the FOMC will continue to taper its purchases of long-term assets, probably down from $75 billion each month to $65 billion. Then, on Thursday, we will get our first glimpse of fourth-quarter real GDP growth numbers. The consensus expectation is for growth of at least 2.5 percent in the final quarter of 2013, down from 4.1 percent in the third quarter.

Other highlights for the week include new manufacturing surveys from the Dallas and Richmond Federal Reserve Banks and consumer confidence data from both the Conference Board and the University of Michigan. In addition, we will get the latest updates for new durable goods orders, personal income and spending and state employment.

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

manufacturing value-added - jan2014

Monday Economic Report – December 2, 2013

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

The data released last week were mostly positive regarding improvements in the economy. For instance, manufacturing activity has largely picked up since the summer, an acceleration that is welcome after softness over the past year or so. Reports from the Chicago, Dallas and Richmond Federal Reserve Banks support this, with stronger paces for new orders and production in each region. This is especially true when you look at the mostly positive assessments of future sales and output, with large percentages of survey respondents anticipating rising activity levels. The good news extends to better—although still modest at best—hiring plans. The pickup in the manufacturing sector has also been one of the positive factors helping the Conference Board’s Leading Economic Index (LEI) expand for four straight months, an encouraging sign for the economy for the coming months.

Yet, even among these promising reports, there were signs of continuing softness for the sector. In the Dallas Federal Reserve survey, respondents were more upbeat about their own company’s outlook than they were about the larger macroeconomy. In fact, the index for perceptions about the economy as a whole declined from 3.6 to 1.9, with 65.0 percent of respondents not expecting macroeconomic conditions to improve over the next six months. In addition, the data on new durable goods orders found broad-based softness in the sector in contrast to the various sentiment surveys. Declines in October sales went beyond the decrease in aircraft orders. Moreover, while new durable goods orders have risen 5.3 percent since October 2012, year-to-date growth in durable goods orders—excluding the highly volatile transportation sector—has increased just 0.9 percent.

Similarly, the latest housing market data were also somewhat mixed. New housing permits in October soared to more than 1 million annualized units for the first time since April. To the extent that permits serve as a proxy for future residential construction activity, this was an encouraging development. Yet, the ascent in the permitting data came entirely from multifamily units, with single-family home permits essentially stalled. Higher mortgage rates have been a factor in dampening current demand for new construction; however, the average 30-year mortgage rate of 4.29 percent last week was better than early September’s 4.57 percent. Meanwhile, new housing starts data were delayed until the December 18 release due to the government shutdown, somewhat hampering our ability to analyze the housing market beyond permits.

By now, the holiday shopping season is in high gear. We will need to wait for final numbers on whether retail spending increased over last year, although the National Retail Federation reported mixed results despite deep discounting over the Thanksgiving holiday weekend. We also need to closely look at consumer confidence, particularly in determining how willing Americans will be to open their wallets. The two measures of consumer sentiment released last week moved in opposite directions, providing a bit of confusion regarding current attitudes. The Conference Board’s consumer confidence data fell again in November, with respondents suggesting reduced buying intentions. October’s budget impasse was not helpful, but overall sentiment has been lower since June. In contrast, the University of Michigan and Thomson Reuters surprised many with a better-than-expected final reading of its consumer sentiment index, improving from the preliminary report released just two weeks prior. Despite the recent gain, however, this report remains below the six-year high achieved in the summer.

This week will be a very busy one on the economic front. Later this morning, we will learn more about the strength of the pickup in manufacturing activity in the Institute for Supply Management’s Purchasing Managers’ Index, and on Wednesday, new international trade figures will show whether improving economies in many of our major trading partners will increase our exports. In addition, the bigger headlines will come on Thursday and Friday with a revision to third-quarter real GDP and the jobs report for November. Other highlights will be the Federal Reserve’s Beige Book and new releases on construction spending, factory orders, personal income and vehicle sales.

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

midwest manufacturing index - dec2013

Midwest Manufacturing Activity Continues to Improve

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The Chicago Federal Reserve Bank said that manufacturing activity in its District continued to improve, expanding for the third straight month. The Midwest Manufacturing Index (MMI) increased from 96.7 in August to 97.0 in September to 97.4 in October. The September and October data were new in this report, which was delayed one month due to the government shutdown. After a brief pullback in July, the MMI has risen 2.1 percent over the past three months.

Taking a longer view, manufacturing output in the Midwest has risen 5.7 percent year-over-year. This suggests that production growth in the Chicago Fed region has increased much stronger that what we see nationally, with manufacturing production up 3.3 percent over the past 12 months in Federal Reserve data.

The healthier output growth stems largely from strength in the auto sector, which has expanded by a whopping 8.7 percent at the annual rate. After slowing down in July due to retooling for the new model year, production has mostly expanded since then. There was a slight decline in October (down 0.2 percent), but output has increased 1.6 percent over the past four months.  (I went back to June for this comparison to take the large swings in July and August out of the calculation.)

Meanwhile, other components of the manufacturing sector has also grown strongly, with steel output up 5.9 percent and machinery production up 4.5 percent over the past 12 months. The “resource” sector was up 1.7 percent year-over-year. Components of the resource sector, according to the Chicago Fed, include food, wood products, paper, chemicals, and nonmetallic mineral products. Over the past three months, the steel and machinery sectors’ production rose 2.2 percent and 2.3 percent, respectively. However, resource sector output declined 1.2 percent.

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

Monday Economic Report – October 7, 2013

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

Policymakers’ ability to solve the country’s fiscal problems has once again come into focus with the government shutdown and the looming debt ceiling deadline. Manufacturers are eager for our leaders to solve these short-term differences and move on to address the nation’s long-term challenges. In the most recent NAM/IndustryWeek Survey of Manufacturers, nearly 85 percent of respondents said that they want the President and Congress to come to a long-term budget deal that effectively tackles the deficit and debt. In addition, three-fourths expressed the need to slow the growth of entitlement spending. Once these structural issues are solved, the country can begin to adopt pro-growth measures like those laid out in the NAM’s Growth Agenda that will allow the manufacturing sector and other businesses to expand and flourish. Instead, we are stuck in a budgetary impasse that creates more uncertainty and harbors increased frustrations with the political process.

With the government closed, statistical agencies will not be able to release new data. Last week, that meant that we did not get the latest jobs numbers as well as updates on construction spending and factory orders. There was some consternation about this, including stories in the USA Today and The Hill. Assuming the shutdown lasts through this week, we will not receive new data for international trade, job postings, producer prices, retail sales and wholesale trade. Private sources will only partially fill the vacuum left by the absence of government data. For instance, last week, Automatic Data Processing (ADP) announced its job estimates, with the Institute for Supply Management (ISM) releasing its closely watched Purchasing Managers’ Index (PMI) data. This week, the Federal Reserve will provide consumer credit data, and the Manufacturers Alliance for Productivity and Innovation (MAPI) will release its latest survey.

In terms of the numbers that were out last week, they tended to confirm the trends across the past few weeks. The ISM data show a clear uptick in manufacturing activity during the third quarter, with an average PMI of 55.8 in July, August and September. That is a significant improvement from a sector that essentially stalled during the second quarter, with the sharp acceleration in sales being a major factor. The third-quarter average for the new orders index was a surprisingly strong 60.7, up from 51.0 in the second quarter. Many regional surveys backed up this analysis, with rebounds in the latest reports from ISM-Chicago and the Chicago and Dallas Federal Reserve Banks.

One area that continues to lag behind is hiring. In many sentiment surveys, employment growth has been up only modestly. For the most part, manufacturers were positive about sales and output over the next 6 to 12 months, with some pickup predicted in hiring. The NAM/IndustryWeek survey predicted 1.1 percent growth on average in hiring in the manufacturing sector over the next year; yet, roughly 60 percent of respondents did not plan to change their employment levels at all. With that as context, it was perhaps not surprising that the ADP employment report continued to reflect disappointing jobs growth for manufacturing, up by just 1,000 in September and down by 12,000 year to date. Nonfarm payrolls also grew by a less-than-stellar 166,000 workers, suggesting a persistent hesitance to bring on new workers in the economy extending beyond the manufacturing sector.

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

adp employment - oct2013

Chicago Fed: Manufacturing Activity Rebounded in August from Slower Conditions in July

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The Chicago Federal Reserve Bank said that manufacturing activity rebounded in August, after slowing in July. The Midwest Manufacturing Index (MMI) increased 1.5 percent from 95.4 in July in 96.7 in August. This index is heavily influenced by the auto sector, and as we seen in recent national jobs and production data, motor vehicle production picked up in August after retooling in July for the new model year. Indeed, auto output in the MMI declined 2.8 percent in July, but was up 4.1 percent in August. On a year-over-year basis, motor vehicle production in the district has risen 8.4 percent.

The recovery in the auto sector has helped to make the Chicago Fed district one of the stronger regions in the country. Over the past 12 months, the MMI has increased 4.0 percent, better than the 2.8 percent pace observed nationally for the manufacturing sector (NAICS). Moreover, the MMI has grown 14.0 percent and 21.8 percent over the past 2 and 3 years, respectively. This compares to 6.6 percent and 9.4 percent growth over the same time period for U.S. manufacturing production.

Outside of motor vehicles, output in the machinery (up 0.8 percent) and resource (up 0.4 percent) sectors were both higher. Components of the resource sector, according to the Chicago Fed, include food, wood products, paper, chemicals, and nonmetallic mineral products. Machinery recovered from softness in July; whereas, resource sector activity grew at the same pace, which was accelerated from June’s 0.1 percent growth rate. The two sectors have grown a modest 1.5 percent and 1.9 percent, respectively, over the past year.

The steel sector was the lone holdout in the MMI for August, down 0.1 percent. Yet, it had been the bright spot in July, having increased 1.3 percent while the other three components were down. Year-over-year growth for steel was 2.2 percent, with metals benefitting from higher auto and machinery sector activity.

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

Midwest Manufacturing Index Down Slightly in July

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The Chicago Federal Reserve Bank said that manufacturing activity in its district declined 0.1 percent in July. The Midwest Manufacturing Index decreased from a revised 95.9 in June to 95.8 in July. Overall, these data suggest that output in the Midwest peaked in March and has declined 0.5 percent since then. This suggests continued weaknesses in the manufacturing sector – a take that is somewhat different from some of the other regional surveys showing a rebound in July.

Taking the longer view, manufacturing output in the Midwest has risen 1.6 percent year-over-year. As we see in the national data, the sector has grown over the past 12 months, but not at a robust pace by any means.

The Midwest Manufacturing Index is heavily influenced by activity in the automotive sector. In July, output declined 0.4 percent, helping to drag the overall index lower. In general, this was a pause in an otherwise strong rally in motor vehicle output growth. Year-to-date, automotive production in the Chicago Fed’s district has increased 0.6 percent, with growth of 1.9 percent and 29.4 percent over the past year and two years, respectively.

Steel production had the strongest gains in output in July, up 1.5 percent, a figure not much different from its year-over-year pace of 1.6 percent. Machinery output was off 0.3 percent for the month, but it has risen 0.8 percent year-to-date. Meanwhile, the “resource” sector’s output was unchanged in July and up 1.3 percent over the past 12 months. Components of the resources sector, according to the Chicago Fed, include food, wood products, paper, chemicals, and nonmetallic mineral products.

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

Chicago Fed: Despite Recent Improvements, U.S. Economy Growing Below its Potential

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The Chicago Federal Reserve Bank said that its National Activity Index (NAI) increased from -0.23 in June to -0.15 in July. Despite the marginal improvement, this was the fifth consecutive month with an index reading below zero. Negative numbers indicate that the U.S. economy is growing below its historical trend, and when the 3-month moving average falls below -0.70, the risk of recession is increased. The 3-month moving average improved has risen from -0.30 in May to -0.24 in June to -0.15 in July.

For its part, manufacturing provided a slight drag to growth in July, subtracting 0.10 points from the NAI. Manufacturing production declined 0.1 percent in July, continuing a sluggish trend in output that also lowered capacity utilization. At the same time, housing continued to reduce the index, even as the sector has rebounded over the past couple years, primarily because residential activity remains below its potential. In July, both housing starts and permits were higher than the month before, but higher mortgage rates have dampened growth rates somewhat.

In contrast to these factors, some positives in the economy include employment (adding 0.06 points) and sales (adding 0.04 points), among others. Nonfarm payrolls rose by 162,000, and the unemployment rate fell to 7.4 percent. Nonetheless, hiring growth continues to be weak, with the increase in payrolls less than expected and manufacturing employment soft. While manufacturers added 6,000 additional workers, the sector would have experienced its fifth consecutive decline in employment had it not been for gains in the auto sector.

Meanwhile, the new orders component was heavily influenced by the sharp jump in the Institute for Supply Management’s purchasing managers’ index, up from 50.9 in June to 55.4 in July. This suggested that some of the weaknesses in activity that we saw in the spring months might have dissipated by the summer. Most notably, the index for production skyrocketed from 53.4 to a whopping 65.0, and the new orders index increased from 51.9 to 58.3. This obviously bodes well for growth moving forward, and in general, manufacturers have tended to be cautiously optimistic about sales in the second half of the year.

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