Tag: China

Continued Progress in China and the U.S., with Europe and Japan Growing More Modestly

The HSBC Flash China Manufacturing Purchasing Managers’ Index (PMI) expanded for the second straight month in July, rebounding from softness from January through May. The headline index rose from 50.7 in June to 52.0 in July, its highest level since March 2011. The underlying data were mostly higher, including new orders (up from 51.8 to 53.7), output (up from 51.8 to 52.8) and exports (up from 50.6 to 52.7). The sales pace was the fastest since January 2011, and each of these measures are a sign that recent stimulative actions taken by the Chinese government have had a positive impact. Some downsides in the PMI survey contracting hiring rates for the 16th consecutive month (up from 48.7 to 49.5) and slightly accelerated raw material prices (up from 50.8 to 52.9).

Meanwhile, Japanese manufacturing activity also expanded for the second straight month, but it eased slightly in July. The Markit/JMMA Flash Japan Manufacturing PMI declined from 51.5 to 50.8. The recent uptick in activity has materialized as the Japanese economy has recovered from an increased in taxes that went into effect on April 1st. Still, manufacturers in the country cannot cheer yet, as output growth came to a halt in July (down from 51.8 to 50.0, or neutral). Other indicators were mixed. Export sales (up from 49.0 to 51.6) and employment (up from 49.8 to 50.8) both shifted to positive growth, but the pace of new orders decelerated somewhat (down from 52.0 to 51.1).

In other news, the Markit Flash Eurozone Manufacturing PMI edged marginally higher, up from 51.8 to 51.9. The Flash Eurozone PMI Composite PMI was up more strongly, increasing from 52.8 to 54.0, suggesting healthier growth in the service sector. For manufacturers, the data suggest slightly faster growth in production (up from 52.8 to 53.0) and exports (up from 52.4 to 52.7), but the pace of growth for new orders (51.9) and employment (50.3) were unchanged.

Overall, these figures provide a limited degree of encouragement for the manufacturing sector in Europe, which has worried of late about slow economic and income growth. It is also still clear that the data vary on country-by-country basis, with German manufacturing activity (up from 52.0 to 52.9) accelerating in July but with French manufacturers noting yet another deterioration in sales and output. Indeed, the French economy remains in a rut, with manufacturing activity positive in just three months since January 2013.

Closer to home, the Markit Flash U.S. Manufacturing PMI decreased from 57.3 to 56.3. Despite the slight easing in July, manufacturing activity continues to grow at relatively decent rates. Through the first seven months of 2014, the top-line index has averaged 55.9, stronger than the 53.5 average noted for 2013 as a whole. The July data show both new orders (down from 61.7 to 59.8) and output (down from 61.0 to 60.4) growing at a healthy paces, albeit with some deceleration for the month. Yet, hiring growth remains more modest (down from 53.8 to 52.1) and export sales (down from 50.9 to 50.6) were just barely growing, suggesting that there remains room for improvement.

Flash data give us an advance estimate of manufacturing activity incorporating “approximately 85% of the usual monthly survey replies,” with the final PMI data for the month released on August 1.

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

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Global Manufacturing Economic Update – July 11, 2014

Here is the summary for this month’s Global Manufacturing Economic Update: 

The global economy improved slightly in June, showing some signs of stabilization from weaknesses in prior months. The J.P. Morgan Global Manufacturing Purchasing Managers’ Index (PMI) increased from 52.1 in May to 52.7 in June, its fastest pace since February. Various measures of activity were mostly higher, including new orders, production and employment. Behind this figure, the data also reflected economic progress in countries such as China, Hong Kong and Japan, each of which shifted from a contraction in May to slight growth in June. As a result, just 2 of the top 10 markets for U.S.-manufactured goods had PMI values below 50 in June, an improvement from the five that registered contracting levels in May. Our largest trading partner’s values, the RBC Canadian Manufacturing PMI, increased from 52.2 to 53.5, reaching its highest point since December.

Europe dominated economic headlines on July 10, with worries about a large Portuguese bank and falling industrial production figures for France (down 1.7 percent), Germany (down 1.8 percent) and Italy (down 1.2 percent). Indeed, European growth has continued to ease, with the Markit European Manufacturing PMI down from 52.2 to 51.8. On the positive side, manufacturing activity has now expanded for 12 straight months, but the economy in the Eurozone remains subpar overall. Real GDP was up just 0.2 percent in the first quarter and is expected to increase around 1 percent in 2014 as a whole. Still, growth varied widely from country to country. France sits on one end of the spectrum, with manufacturing sentiment worsening and falling to a six-month low. Meanwhile, Ireland and Spain experienced multiyear highs for sales growth, and new orders in the United Kingdom expanded rather robustly (up from 59.5 to 61.0).

In the emerging markets, manufacturers in Brazil, Russia, South Korea and Turkey reported contracting levels of activity in June, although Russian production grew for the first time in six months and South Korean exports began to stabilize. Overall, however, manufacturing activity in the emerging markets expanded for the second straight month, spurred higher by better news in some Asian economies. Stronger sales and output resulted in increased manufacturing PMI data for China, India, Indonesia and Taiwan. India also benefited from greater export growth. Next week, we will get new data on Chinese GDP, industrial production, fixed-asset investment and retail sales. Real GDP is expected to pick up slightly, from the 7.4 percent annualized growth rate experienced in the first quarter, with a consensus estimate of around 7.5 percent. While this is a marginal improvement, it also continues to reflect decelerating rates of growth from what was experienced in the past.

Looking at U.S. trade flows, petroleum helped to narrow the U.S. trade deficit in May, with more exports and fewer imports improving the headline figure. This continues a trend seen over the past few years whereby improved energy production in the United States has slightly helped balance the trade picture. Outside of petroleum, the numbers were less favorable. The average monthly deficit so far in 2014 reached $43.65 billion, higher than the $39.70 billion average for all of 2013. In addition, U.S.-manufactured goods exports continue to grow at a disappointing rate, up just 0.5 percent year-to-date versus this time last year using non-seasonally adjusted data. Nonetheless, exports of manufactured goods increased to all five of our largest trading partners through the first five months of this year: Canada, Mexico, China, Japan and Germany. That is an encouraging sign, even if we would like to see faster growth in our international sales overall.

On the policy front, the congressional debate on reauthorization of the Export-Import (Ex-Im) Bank continues to move forward, while action on other trade legislation is currently stalled. The World Trade Organization (WTO) officially began environmental goods negotiations, while both the Trans-Pacific Partnership (TPP) and Transatlantic Trade and Investment Partnership (T-TIP) continue. The U.S. trading relationship with key partners, including India, China and Russia, continues to be a focus.

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

china pmi - jul2014

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Monday Economic Report – June 30, 2014

Here are the files for this week’s Monday Economic Report: 

The U.S. economy contracted in the first quarter more than we previously thought, with real GDP down 2.9 percent at the annual rate. The sharply lower revision was much worse than the previous estimate of a 1.0 percent drop. Decreased inventory spending and weaker goods exports accounted for much of the decline in output, but consumer spending on services also increased at a slower pace than earlier reports suggested, contributing to the latest revision. Fixed investment and government spending were also drags on growth. Overall, the data confirm that economic activity started 2014 on a disappointing note, but they also suggest that this softness went beyond weather-related slowdowns.

However, the real GDP data also point to a possible strong rebound in the current quarter. For instance, inventory spending is likely to pick up as more firms restock their shelves. In addition, other data point to recoveries in manufacturing activity and retail sales in the second quarter, which should help boost consumer and business spending figures. Real GDP should exceed 3 percent in the second quarter, bouncing back from the weak data in the first quarter. Moreover, manufacturers remain mostly positive about the second half of this year. Perhaps that is why financial markets seemed to mostly shrug off the bad news on real GDP last week.

Indeed, many of the measures of health for the manufacturing sector remain encouraging. The Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) increased from 56.4 in May to 57.5 in June. This was its fastest pace in more than four years, led by strong gains in both new orders and output. Manufacturer sentiment in both China and Japan also stabilized after contractions in previous months. At the same time, manufacturing activity in the Kansas City and Richmond Federal Reserve Bank districts continued to expand, albeit with both at slower paces than the month before. These two releases were largely consistent with other regional surveys, including those from New York and Philadelphia, showing rebounds since the winter months.

Still, not all of the manufacturing news out last week was positive. Durable goods orders fell 1.0 percent in May, reflecting weaker-than-anticipated growth for the sector. Much of that decline stemmed from reduced nondefense aircraft and parts sales, although the broader data were also mixed. Meanwhile, European manufacturing activity continued to decelerate. The Markit Flash Eurozone Manufacturing PMI declined from 52.5 to 51.9, falling for the second straight month. Slower growth on the continent has weakened many of the key activity measures, including new orders, output, exports and employment. Of course, it is also worth noting that Europe’s expansion remains uneven, with Germany seeing a marginal gain in activity in June while France fell back into a contraction.

In other news, personal spending improved in May after remaining flat in April, assisted by a decent rebound in durable goods purchases. Personal income also showed a slight uptick, with manufacturing wages and salaries continuing to move higher. Such reports have helped to lift consumer confidence, with data from the Conference Board’s index increasing to its highest level in more than six years. The consumer sentiment measure from the University of Michigan and Thomson Reuters also edged higher, but with persistent anxieties about future economic and income growth. Finally, there were encouraging headlines on the housing market last week, with strong gains in both existing and new home sales in May.

This week, we will get new jobs numbers on Thursday—one day earlier due to the Independence Day holiday on Friday. I would expect employment growth similar to what we saw in May, with a consensus estimate of 210,000 additional nonfarm payroll workers and around 10,000 or so net new manufacturing employees. There will also be new PMI data from the Institute for Supply Management and international trade figures. Each will be closely watched, with manufacturing activity expected to pick up and we hope better news for exports. Other highlights include news releases for construction spending, factory orders and manufacturing activity in the Dallas Federal Reserve district.

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

contributions to change in real GDP - jun2014

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Chinese Manufacturers Report Positive Growth in Activity for the First Time in 2014

The HSBC Flash China Manufacturing Purchasing Managers’ Index (PMI) expanded for the first time in 2014, with the index increasing from 49.4 in May to 50.8 in June. The May report had shown some signs of stabilization; therefore, the June data extended upon those improvements. For instance, new orders (up from 50.2 to 51.8) and output (up from 50.3 to 51.8) grew stronger for the month, with both measures at their fastest paces since December. Still, the Chinese economy continues to have its challenges with decelerated activity. Export sales (down from 52.7 to 50.6) were slower, and hiring (up from 47.3 to 48.7) remained negative despite some progress in June. Overall, though, these findings support the view that China’s stimulus measures have helped to support a rebound.

Several of the other reports out today were also encouraging for manufacturers. For example, the Markit/JMMA Flash Japan Manufacturing PMI also returned to expansion in June, up from 49.9 to 51.1. This was the first positive reading for manufacturing activity in three months, and it was a sign that sentiment has begun to recover from an increase in taxes that went into effect on April 1st. The survey results reflected positive growth for new orders (up from 49.4 to 52.0) and production (up from 49.2 to 51.8). Yet, much like China, exports (up from 48.2 to 49.0) and employment (down from 51.0 to 49.8) were weak spots, with both contracting for the month. In addition, activity levels remain well below where they were just a few months ago, suggesting that there remains more room for improvement.

Meanwhile, closer to home, the Markit Flash U.S. Manufacturing PMI increased from 56.4 to 57.5, its fastest pace in over four years. Healthy gains in new orders (up from 58.2 to 61.7) and output (up from 59.6 to 61.0) helped to fuel this strength, with each figure at their highest level since the PMI report began in October 2009. Employment (up from 53.5 to 53.8) also picked up for the month, indicating modest hiring growth. On the other hand, exports (down from 51.5 to 50.9) slowed slightly. These data suggest that U.S. manufacturing activity has rebounded in the second quarter from winter-related softness in the first quarter, much as we have seen in other indicators, as well.

In other news, the Markit Flash Eurozone Manufacturing PMI declined from 52.5 to 51.9, falling for the second straight month. Slower growth on the continent has weakened each of the key measures in this report, including new orders (down from 52.9 to 52.0), output (down from 54.7 to 52.8), exports (down from 52.8 to 52.7), and employment (down from 50.8 to 50.4). The good news is that each of these indicators continues to expand, but just more slowly than we might prefer. This, of course, is why the European Central Bank has taken actions in recent weeks to help stimulate the European economy, and why further actions might be forthcoming down the line.

The Markit Flash Germany PMI increased very slightly from 52.3 to 52.4, reflecting a modest expansion in manufacturing activity in the country. Yet, output (down from 55.3 to 52.9) fell to its lowest level since September. On a positive note, the German economy is still growing, unlike France’s. The Markit Flash France PMI declined from 50.3 to 47.1, with activity down across-the-board.

Flash data give us an advance estimate of manufacturing activity incorporating “approximately 85% of the usual monthly survey replies,” with the final PMI data for the month released in early June. This month marks the premier of preliminary data for Japan.

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

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Global Manufacturing Economic Update – June 13, 2014

Here is the summary for this month’s Global Manufacturing Economic Update: 

Global growth has been slower than desired in the early months of 2014, and as a result, we have seen many analysts—including me—downgrade their forecasts for this year. Indeed, the latest World Bank’s Global Economic Prospects now predicts global GDP growth of 2.8 percent for the year, down from the 3.2 percent forecast in January. Much of that stems from softer growth in the first half of this year in the United States and decelerated activity in the emerging markets. Brazil, Russia and China experienced contracting manufacturing activity levels in May, with only India experiencing modest growth.

The good news is that the global economy is anticipated to pick up in the second half of this year, continuing into next year. The World Bank estimates real GDP growth of 3.4 percent in 2015, with the U.S. economy expanding by 3.0 percent. This would be consistent with the relatively upbeat outlook seen in the most recent National Association of Manufacturers (NAM)/IndustryWeek Survey of Manufacturers. Still, there continue to be threats to growth that could dampen these predictions, including deflationary risks in Europe, tighter monetary policies in the United States and a number of geopolitical struggles. For example, crude oil prices have risen sharply in the past few days to around $107 a barrel this morning because of confrontations in Iraq and worries about energy supplies.

In general, manufacturing activity worldwide continues to expand modestly, but at varying paces across a number of nations. The JPMorgan Global Manufacturing Purchasing Managers’ Index (PMI) increased slightly, up from 51.9 in April to 52.2 in May. Yet, 5 of the top 10 markets for U.S.-manufactured goods had declining levels of activity for the month, up from two in March and zero in December. China tops this list, having experienced its fifth consecutive monthly contraction despite some easing in the pace of the monthly decline. Three of the other four countries with contractions were also in Asia, including Hong Kong, Japan and South Korea. Meanwhile, Brazil has now contracted for two straight months, which is perhaps not the way it wanted to kick off the World Cup. At the other end of the spectrum, we continue to see strong growth in the United Kingdom and the United States, both of which saw heavy production gains in May.

Meanwhile, European economies continue to experience slight expansions, but growth eased in May. The Markit Eurozone Manufacturing PMI decreased from 53.4 to 52.2, its slowest pace since November but the 11th straight month for expanding levels of activity. This resulted from a deceleration in new orders, output, exports and hiring. Nonetheless, growth in the Eurozone remains subpar, with real GDP up just 0.2 percent in the first quarter and expected to increase around 1 percent in 2014 as a whole. Still, retail sales have increased in each of the first four months of 2014, and industrial production increased at its fastest pace since November.

Yet, the big worry in Europe continues to be deflation. Producer prices fell 0.1 percent in the Eurozone in April, with declines of 1.2 percent year-over-year. At the same time, annual inflation has fallen to 0.5 percent. Fears about deflation and slow growth have prompted the European Central Bank (ECB) to take actions to further stimulate the Eurozone economy at its June 5 meeting, cutting its main interest rate to 0.15 percent. In essence, the ECB will charge negative interest rates on bank deposits in an effort to spur institutions to lend more, and there is some speculation that it might pursue a more aggressive asset purchasing program in the future, if needed.

On the policy front, there is an increased focus from both a business and policy perspective on India, with its election of a new prime minister, and Europe, which also elected a new parliament and is constituting a new commission. Trade negotiations in the Asia-Pacific and Europe continue, but work needs to be done on both. Domestically, there is a heavy U.S. focus on the reauthorization of the Export-Import Bank before its expiration on September 30 and passage of a new Miscellaneous Tariff Bill, which has lagged more than 17 months, as well as new legislation on trade secrets.

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

brazilian GDP - jun2014

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Monday Economic Report – May 27, 2014

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

The Federal Reserve made little news at its April 29–30 Federal Open Market Committee (FOMC) meeting, mostly mirroring the observations and policy actions taken at its March meeting. Yet, the latest minutes do give us a glimpse of how the Federal Reserve sees the economy as well as its thinking about future policy actions. For instance, participants spent much time discussing “monetary policy normalization,” or the exit strategy from recent stimulative actions. With quantitative easing winding down by the fall and with short-term interest rates expected to rise sometime in 2015, the Federal Reserve has begun to contemplate “the combination of policy tools that might be used to accomplish those objectives.” Moreover, it stressed the need to communicate its plans effectively to the markets and the public well before taking any actions. In essence, including a discussion of normalization in the minutes was a first step in such communications.

Regarding economic trends, the Federal Reserve noted recent improvements in activity since winter storms wreaked havoc earlier in the year. It observed that “business contacts in many parts of the country were generally optimistic about economic prospects,” and there were signs of increased capital spending and hiring as well as stronger demand for loans. Indeed, the manufacturing surveys released last week tend to echo these sentiments. For instance, the Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) rose from 55.4 in April to 56.2 in May. The increase stemmed largely from higher production growth, with the output index up from 58.2 to 59.6, the fastest pace since February 2011. Likewise, the Kansas City Federal Reserve Bank reported that manufacturing new orders and production have been much stronger since March, leading to a renewed desire to add more workers.

However, not all of the news out last week was positive. The Chicago Federal Reserve Bank’s National Activity Index (NAI) found that the U.S. economy grew below its historical average in April. The reduction in manufacturing production was a large factor in the NAI’s decrease for the month. Weaker industrial production numbers were also a drag on the Conference Board’s Leading Economic Index (LEI) in April. Despite this, the long-term trend for both of these measures is a relatively optimistic one. For instance, the overall headline figure for the LEI expanded in each of the past three months, with 2.9 percent growth in the past six months. This should bode well for future activity.

Housing was a positive contributor in April in each of the above reports; however, the residential market remains a challenge. Improvements in housing starts and permits boosted sentiment, and there were increases in both existing and new home sales in April. Still, the housing market remains weaker today than it was several months ago. Existing home sales, for example, have dropped 13.6 percent since peaking in November, and new single-family sales have declined 3.9 percent since January. Even with these challenges, we remain cautiously optimistic about the housing market for the coming months, but will watch it closely in light of higher mortgage rates on the horizon.

On the international front, the HSBC Flash China Manufacturing PMI has shown contracting activity levels for five straight months, with economic growth decelerating of late. The good news, however, was that there were signs of this beginning to stabilize in the May data, with new orders, exports and production shifting to slight gains for the month. The overall PMI figure remains just shy of being neutral, and even though downside risks to growth remain, perhaps we will begin to see some expansion again in the June data. Likewise, Japan’s economy appears to be stabilizing after the imposition of higher taxes in April, but manufacturing activity has now contracted for two straight months. Meanwhile, manufacturers in Europe continue to reflect improvements in demand and output relative to this time last year, but the Markit Flash Eurozone Manufacturing PMI declined from 53.4 in March to 52.5 in April, reflecting some easing in the most recent data.

This week, much of the focus will be on revisions to real GDP growth for the first quarter. The original estimate was for just 0.1 percent growth, with weather and weaker activity bringing the economy to a crawl. Forecasts for this revision reflect newer data produced since then and hinge on whether activity rebounded enough in March to warrant an increase. Other highlights include the latest data on consumer confidence, durable goods orders, personal income and spending and manufacturing surveys from the Dallas and Richmond Federal Reserve Banks.

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

new and existing home sales - may2014

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Chinese Manufacturing Sales and Output Turned Slightly Positive in May

The HSBC Flash China Manufacturing Purchasing Managers’ Index (PMI) reported some degree of progress in May, particularly for sales demand and production. The headline PMI figure moved slightly higher, up from 48.1 in April to 49.7 in May. On the one hand, it suggests that overall manufacturing sentiment continues to contract, with PMI values below 50 for five straight months. Yet, the pace of the decline appears to be slowing, which could be a sign of stabilization for the market. Indeed, new orders (up from 47.7 to 50.2), export sales (up from 49.3 to 52.7), and output (up from 48.0 to 50.3) all turned positive for the month, which is good news. Still, hiring continued to decelerate (down from 48.6 to 47.3), and as the press release states, “downside risks to growth remain.”

Meanwhile, the Markit/JMMA Flash Japan Manufacturing PMI rose from 49.4 to 49.9, indicating that the Japanese economy has now contracted for the second straight month. Much of this stems from a tax increase that went into effect on April 1st, with the soft export market also a factor. New orders (up from 47.4 to 49.4), production (up from 46.2 to 49.2), and exports (down from 49.1 to 48.2) continued to shrink in May, even as there was some progress. Still, it is noteworthy that May’s PMI figure was nearly at the neutral rate, suggesting that there might be some stabilization occurring, much like we saw in the Chinese data.

In other news, the Markit Flash Eurozone Manufacturing PMI declined from 53.4 to 52.5. New orders (down from 53.9 to 52.9), output (down from 56.5 to 54.7), and exports (down from 53.6 to 52.8) have all decelerated somewhat in May, with the pace of production growth at its lowest level since December. Hiring (down from 51.3 to 50.8) remains positive, with small net increases for the fifth straight month.

Even with the slight easing, Europe’s PMI values for the sector have averaged modest growth with 53.2 so far in 2014, a welcome improvement from the contractionary environment pervasive during the deep two-year recession. One of the more closely watched variables is input prices, particularly with recent deflationary worries as stated by the European Central Bank. Raw material costs did continue to fall for the third straight month, but the rate of decline slowed (up from 45.2 to 48.6).

The Flash data for both France and Germany were also somewhat softer in May. Germany’s PMI for manufacturers dropped from 54.1 to 52.9. It is down from its recent peak (a 2½-year high) of 56.3 in January. At the same time, France’s manufacturing sentiment moved back into a slight contraction (down from 51.2 to 49.3), ending two months in positive territory, with activity down mostly across-the-board.

Flash data give us an advance estimate of manufacturing activity incorporating “approximately 85% of the usual monthly survey replies,” with the final PMI data for the month released in early June. This month marks the premier of preliminary data for Japan.

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

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Monday Economic Report – May 19, 2014

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

There are numerous signs that global economic growth is lower than expected in 2014, with some disappointing data coming in last week. For instance, industrial production numbers were weaker in a number of countries, including slower industrial growth in China in April relative to just a few months ago and falling output in March in the Eurozone. Europe also learned that real GDP rose at the very slow pace of 0.2 percent in the first quarter, prompting new worries about sluggish income and labor market growth on the continent. Meanwhile, in the United States, the Federal Reserve reported that manufacturing production fell 0.4 percent in April. This followed relatively strong rebounds in February and March from winter-related softness in December and January. Still, output continues to reflect modest gains year-over-year, particularly for durable goods.

Despite April’s decline in industrial production, other data suggest that manufacturing activity in the United States appears to be recovering from earlier weaknesses. Manufacturing surveys from the New York and Philadelphia Federal Reserve Banks both show relatively strong expansions in their regions, even as the Philly Fed report eased a bit in May from April. New orders, shipments and employment reflected continuing expansion from the previous survey. More importantly, manufacturers in each district remained mostly upbeat about the next six months, with more than half of the respondents in both surveys anticipating new orders to increase moving forward. For their part, small business owners were also more optimistic, with the National Federation of Independent Business’s (NFIB) key index rising to its highest level since October 2007.

At first glance, the housing data released last week were also quite positive. Housing starts exceeded 1 million again for the first time this year, up from an annualized 947,000 units in March to 1,072,000 in April. New residential permitting was also higher. Yet, the bulk of April’s increases in both measures were primarily due to the more volatile multifamily housing segment. Single-family starts and permits were only marginally higher, but remain below the recent peaks last November. As such, there is perhaps more softness in the market than the headline figure indicated. (We will get existing and new home sales figures this week.) Indeed, homebuilder confidence fell to its lowest point in 12 months, with consumer anxieties cited as a concern. On the positive side, builders were somewhat more hopeful about future activity.

Consumer data were mixed. Retail sales increased 0.1 percent in April, extending the strong gains from February and March. Auto sales comprised much of April’s gains, with retail spending outside of motor vehicles unchanged from March. As such, consumers appeared to be somewhat cautious in April. This showed up in the latest consumer confidence data as well. The University of Michigan and Thomson Reuters reported that consumer sentiment edged slightly lower in May in its preliminary data, with Americans more concerned about current economic conditions. In terms of prices, consumer inflation has started to pick up slightly, led by higher food costs, but core pricing pressures remain below 2 percent at the annual rate, at least for now. A similar pattern was observed for producer prices.

This week, we will get more news on the health of the manufacturing sector worldwide, with flash Purchasing Managers’ Index (PMI) data from Markit for the United States, Europe, China and Japan. The Kansas City Federal Reserve will also release its latest sentiment survey. Finally, the Federal Open Market Committee (FOMC) minutes from its April 29–30 meeting will be released, providing some insights about current Federal Reserve debates. However, that meeting hardly produced any surprises, with the FOMC continuing to taper its asset purchases and the Federal Reserve’s forward guidance still pointing to short-term rate increases sometime next year.

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

yoy industrial production growth - may2014

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Monday Economic Report – April 28, 2014

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

Manufacturers contributed $2.14 trillion in value-added output in the fourth quarter of 2013, according to new real GDP data by industry from the Bureau of Economic Analysis. For the first time, the government is releasing this information on a quarterly basis, allowing us to get a better sense of which sectors have had the largest impacts to real GDP in any given quarter. After bottoming out at $1.69 trillion in the second quarter of 2009, manufacturers’ value-added output has bounced back. Overall, the manufacturing sector makes up 12.5 percent of real GDP and has made outsized contributions to output since the end of the recession. For instance, in 2013, manufacturers added 0.40 percentage points to the 1.9 percent growth rate in real GDP, or just more than 21 percent.

This week, we will get our first glimpse of real GDP growth for the first quarter of 2014. Winter storms and weak export sales are expected to take a toll, with consensus expectations around 1.5 percent. With weather-related softness abating as temperatures have started to warm up, we have seen a rebound in activity in many key manufacturing indicators in March, potentially boosting economic growth in the first quarter. I estimate real GDP growth of around 1.8 percent.

Several figures released last week support the notion that manufacturing has begun to recover from softness earlier in the year. For instance, the Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) reported that production in April was at its highest level since March 2011, with relatively strong growth in new orders. This was true despite some slight easing in the overall PMI figure. Likewise, manufacturing surveys from the Kansas City and Richmond Federal Reserve Banks also found rebounds in activity, and respondents remain mostly optimistic about the next six months. In the Kansas City Federal Reserve report, nearly half of respondents anticipate increased orders, shipments and production in the coming months, and more than one-third plan to bring on new workers and to invest in more capital spending. New durable goods orders for March were also quite positive across the board, rising 2.6 percent for the month and a healthy 9.1 percent year-over-year.

Such news has helped to lift spirits. The Conference Board’s Leading Economic Index (LEI) increased 0.8 percent in March, extending February’s 0.5 percent gain. This was the fastest pace since November, with better production data boosting the increase. In general, the index’s findings were supportive of a growing economy over the coming months. Americans, by and large, have also become more confident. The University of Michigan and Thomson Reuters reported that consumer sentiment rose to its highest point since July 2013, with its headline index rising from 80.0 in March to 84.1 in April. As such, it indicates that Americans’ attitudes have recovered slowly after falling during the government shutdown.

Still, it has not been all good news on the economic front. One area of concern was growth in manufacturing activity in China, which has now contracted for four straight months. Yet, the pace of the decline slowed, with the HSBC Flash China Manufacturing PMI up from 48.0 in March to 48.3 in April. The data largely mirrored the recent deceleration in other economic indicators, including China’s real GDP falling from an annualized 7.7 percent in the fourth quarter of 2013 to 7.4 percent in the first quarter of 2014. Despite the weaknesses, one could put a positive spin on the slightly better—but still contracting—levels of new orders and output. On the other hand, exports have now contracted in four of the past six months, negatively impacting overall manufacturing sentiment.

The other worry was sluggish housing growth. New single-family home sales plummeted, down 14.5 percent in March and off 13.3 percent year-over-year. Higher interest rates are likely a factor. The Mortgage Bankers Association reported significant declines in mortgage applications over the past year, largely for refinancings. At the same time, the number of new mortgages has also stalled. With new home sales down, the supply of new homes for sale has soared from 4.8 months in January to 6.0 months in March. Meanwhile, existing home sales have been soft all year.

In addition to real GDP, other economic highlights this week include new manufacturing surveys from the Institute for Supply Management and the Dallas Federal Reserve Bank and the latest data on construction spending, factory orders and personal income and spending. The Federal Reserve is expected to continue tapering, reducing its monthly purchases of long-term and mortgage-backed securities from $55 billion to $45 billion. On Friday, we will get new jobs numbers for April, with modest gains in manufacturing employment expected and nonfarm payrolls expanding around 200,000.

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

contributions to real GDP - apr2014

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China’s Manufacturing Sector Contracted for the 4th Straight Month; U.S. and Europe Strengthened

Chinese manufacturing activity contracted for the fourth straight month. Yet, the pace of the decline slowed, with the HSBC Flash Manufacturing Purchasing Managers’ Index (PMI) up from 48.0 in March to 48.3 in April. The data largely mirrored the recent deceleration seen in other economic indicators, including China’s real GDP falling from an annualized 7.7 percent in the fourth quarter of 2013 to 7.4 percent in the first quarter of 2014.

Despite the weaknesses, one could put a positive spin on the slightly better – but still contracting – levels of new orders (up from 46.9 to 47.7) and output (up from 47.3 to 48.0). On the other hand, employment (down from 49.3 to 48.6) and export sales (down from 51.4 to 49.3). Exports have now contracted in four of the past six months, which have no doubt negatively impacted overall manufacturing sentiment.

Meanwhile, the latest reports reflect renewed strengths in both Europe and the United States. While the Markit Flash U.S. Manufacturing PMI edged marginally lower (down from 55.5 to 55.4), production growth (up from 57.5 to 58.2) was at its highest level since March 2011. This was a sign that the sector has begun to move beyond the weather-related slowdowns observed earlier in the year. New orders (up from 58.1 to 58.9) and exports (up from 51.0 to 51.9) have also rebounded. Hiring eased a bit (down from 53.9 to 53.8), but still reflected modest growth.

At the same time, the Markit Flash Eurozone PMI increased from 53.0 to 53.3. This was the tenth consecutive monthly expansion on the continent for manufacturing activity. The higher figure in April was largely the result of the jump in output (up from 55.4 to 56.5), which was only barely below the three-year peak of 56.7 seen in January. Likewise, hiring also strengthened (up from 50.3 to 51.3), its highest point since September 2011.

Nonetheless, sales growth moderated slightly (down from 54.4 to 53.9), with exports unchanged (53.6). The good news was that both still reflected modest gains, and the recent gains in demand and production in Europe have helped to lift spirits, particularly given the severity of the two-year recession.

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

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