Here is the draft summary for this week’s Monday Economic Report:
The U.S. economy grew an annualized 4.6 percent in the second quarter of this year, its fastest pace since the fourth quarter of 2011. Consumer and business spending were the big bright spots in the real GDP report, with strong rebounds after softness in the first quarter. This latest revision reflected improved nonresidential fixed investment and goods exports data relative to prior estimates. At the same time, it is hard to forget that real GDP fell by 2.1 percent in the first quarter, with growth in the first half of 2014 expanding by a frustratingly slow 1.2 percent. Moving forward, manufacturers remain mostly upbeat. For instance, the Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) held firm at 57.9, its fastest pace since May 2010.
I estimate real GDP growth of 3.3 percent for the third quarter, which ends this week. Nonetheless, there are a number of downside risks, and business leaders and the public remain tentative in their optimism.
Along those lines, regional surveys from the Kansas City and Richmond Federal Reserve Banks continued to show expanding activity levels in their districts. The Richmond release found that activity has now grown for six straight months since winter-related contractions earlier in the year. It also reflected an uptick in production and demand, with the pace of hiring accelerating to its highest level since December 2010. All of this was encouraging. In the Kansas City district, manufacturers remained mostly positive, with more than half of respondents expecting increased production and shipments in the next six months. Among the issues cited in the Kansas City survey, manufacturers noted persistent challenges in attracting and retaining skilled workers. Other sample comments mentioned rising pricing pressures, both for wages and raw materials.
Turning to the global economy, the HSBC Flash China Manufacturing PMI edged slightly higher, up from 50.2 in August to 50.5 in September. This marked the fourth consecutive month with expanding manufacturing activity, improving from contractions in the first five months of the year. Yet, even with some signs of stabilization in China in recent data, the country is expected to continue to decelerate in its growth rates moving forward, something that it continues to grapple with. Similarly, the European Central Bank has struggled to cope with slow economic and income growth in the Eurozone, with persistent worries about deflation. Indeed, the Markit Flash Eurozone Manufacturing PMI eased yet again, down from 50.7 to 50.5. This was the lowest level of growth since July 2013, the first month that the Eurozone emerged from its deep two-year recession.
Meanwhile, housing data released last week were mixed. New home sales rose sharply, up from an annualized 427,000 in July to 504,000 in August. This was the highest level in more than six years, and the pace of sales in August starkly contrasts with what we have seen so far in 2014. This makes it likely that September figures will pull back a little, but the trend line remains promising. In contrast, existing home sales decreased 1.8 percent in August, which was disappointing given recent improvements. It is likely that August’s decline was the result of a strong July reading, with some easing probably inevitable. Moving forward, the expectation is that existing home sales should move higher, continuing a longer-run trend in the data since March.
This week, the focus will be on jobs. After a disappointing employment report in August, we anticipate better news in September. I would not be surprised if the zero jobs figure in August for manufacturing was revised higher, and I continue to expect manufacturing jobs gains to revert to an average of 12,500 to 15,000 per month for the rest of the year. Nonfarm payrolls should once again exceed 200,000 in September, an improvement from the 142,000 figure in August (which is also likely to get revised upward). Other highlights this week include the latest data on construction spending, factory orders, international trade, personal income and manufacturing activity in the Dallas Federal Reserve district.
Chad Moutray is the chief economist, National Association of Manufacturers.