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Monday Economic Report – September 2, 2014

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

Manufacturers continue to report improved activity in August. Last week, the Dallas, Kansas City and Richmond Federal Reserve Banks all noted expanding levels of new orders and production for the month, mirroring releases from the New York and Philadelphia Federal Reserve Banks in the prior weeks. These surveys reflect rebounds from earlier in the year, and perhaps more importantly, they suggest a mostly upbeat assessment in demand, output, hiring and capital spending over the next six months. At the same time, the Dallas and Kansas City studies showed some easing in growth rates in August, with the latter indicating that hiring had turned negative for the month. Exports also contracted in the Kansas City district, showing persistent international sales weaknesses in that region. The data illustrate that, even where we have seen progress, there are often some nagging challenges beneath the surface.

This same observation could be made about much of the other data released last week, too. For instance, new durable goods orders soared in July, up a whopping 22.6 percent. This represented an all-time high for the data series, but it was also largely the result of a jump in nondefense aircraft sales. Commercial airplane orders are choppy, with sales usually announced in batches. New durable goods orders have improved from earlier in the year. Outside of transportation, the manufacturing sector was weak in July. New durable goods orders excluding transportation fell 0.8 percent for the month. This suggests that the broader market for manufacturers was soft in July despite the sky-high headline figure.

Along those lines, the Conference Board reported that consumer confidence rose to its highest point since October 2007. This increase stemmed from improvements in views about the current economic environment. Yet, the Conference Board’s figures also suggested some lingering worries about employment and income growth. The University of Michigan and Thomson Reuters’ report on consumer sentiment seems to focus even more on these anxieties. Even with a marginal increase in the August confidence measure, the University of Michigan data have not changed much this year, and respondents have had a diminished view of future growth over the past few months, not unlike what was seen in the Conference Board data. Geopolitical worries might be playing into these doubts. Either way, the confidence reports mirror other indicators, which show that consumers are cautious right now. Personal spending in July declined for the first time since January, consistent with other data showing flat retail sales.

Despite some softness in July, personal spending has increased at an annualized 4.1 percent over the past six months. Indeed, consumer and business spending were strengths during the second quarter, according to the latest revision of real GDP growth. The U.S. economy grew 4.2 percent at the annual rate during the second quarter, slightly better than the 4.0 percent original estimate and reflecting a rebound from the 2.1 percent decline in the first quarter. The biggest disappointment in the second quarter continued to be international trade figures, with net exports serving as a drag on growth. Moving forward, I estimate real GDP growth of roughly 3.0 percent during the second half of 2014. A number of risks abound, and business leaders and consumers remain tentative. If the first half of this year has taught us anything, it is an optimistic recovery can still be a fragile one.

This week, we will get additional insights regarding the health of the manufacturing sector. This morning, the Institute for Supply Management will release its August Purchasing Managers’ Index data for the sector. The ISM report found strong gains in demand, output and employment in July, and the August survey is expected to show another pickup in activity. Moreover, the Bureau of Labor Statistics will publish new jobs numbers on Friday. Manufacturers have added 15,000 workers on average each month since August 2013, with a 22,000 average from May to July of this year. Look for continued hiring growth for the sector in the August numbers that are at least consistent with the average of the past year. Other highlights this week include the latest data on construction spending, factory orders, international trade and productivity.

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

personal spending - sept2014

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Conference Board: Consumer Confidence Rose in May

Consumer confidence was higher in May, according to the Conference Board. The Consumer Confidence Index rose from 81.7 in April to 83.0 in May. This was just shy of March’s 83.9 reading, which was the highest point since January 2008. Perceptions about current (up from 78.5 to 80.4) and future (up from 83.9 to 84.8) conditions were both higher for the month.

Indeed, views about labor and income growth improved. The percentage of survey respondents saying that jobs were “plentiful” increased from 13.0 percent to 14.1 percent, and those expecting income to rise increased from 16.8 percent to 18.3 percent. Still, over 32 percent say that jobs were “hard to get,” suggesting continuing anxieties on the hiring front.

Buying intentions were mixed. More consumers plan to purchase a car (up from 10.6 percent to 11.3 percent), but fewer anticipate buying a home (down from 5.6 percent to 4.9 percent) or appliance (down from 45.9 percent to 45.1 percent).

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

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Leading Economic Indicators Rose for the Third Straight Month

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. 

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Conference Board: Consumer Confidence Somewhat Disappoints in April

The Conference Board said that consumer confidence edged slightly lower, down from 83.9 in March to 82.3 in April. While this was disappointing, it is important to note that March’s figure had been the highest level since January 2008, and value was largely sustained. Indeed, the Consumer Confidence Index has generally moved higher since bottoming out in October 2013 at 73.2 in the midst of federal budget wrangling and the government shutdown. On this longer-term trend, the Conference Board’s analysis mirrors similar data from the University of Michigan and Thomson Reuters.

The lower index reading in April in the Conference Board’s report reflected reduced perceptions about the current economic environment. The index for present conditions declined from 82.5 to 78.3, with concerns about the labor market paramount. The percentage of respondents saying that jobs were “plentiful” fell from 13.8 percent to 12.9 percent, with those feeling that they were “hard to get” rising from 31.4 percent to 32.5 percent.

Still, opinions about the future were more upbeat. The expectations component was marginally higher, up from 84.8 to 84.9. Behind that figure, however, the data were mixed. The percentage of those taking the survey anticipating their income to rise in the next six month increased from 15.3 percent to 17.1 percent. Yet, those predicting a decrease in income also rose, up from 11.5 percent to 12.9 percent. In addition, buying intentions for autos (down from 13.0 percent to 10.6 percent) and appliances (down from 50.5 to 46.3 percent) were lower. On the positive side, more Americans plan to buy a home (up from 5.3 percent to 5.6 percent), even as those intentions remain lower than a few months ago.

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

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Leading Economic Indicators Increased at Fastest Pace in Four Months

The Conference Board said that the Leading Economic Index (LEI) rose 0.8 percent in March, extending the 0.5 percent gain observed in February. It was the fastest pace since November, and more than anything, it suggests that the U.S. economy has begun to move beyond the weather-related softness of December and January. This rebound was most notable in the variable for the average workweek of production workers, which added 0.26 percentage points to headline figure and offset declines from December to February. Yet, new manufacturing data were somewhat mixed, but a small positive on net.

Other positive contributors to the LEI included favorable credit conditions, initial jobless claims, the stock market, and the interest rate spread. At the same time, building permits and consumer confidence provided small drags to the LEI.

Meanwhile, the Coincident Economic Index (CEI), which assesses current conditions, was up 0.2 percent in March. It was the second straight monthly increase, down from 0.4 percent in February. All four components were higher for the month. This included industrial production, which rose 0.7 percent in March and added 0.11 percentage points to the CEI. Other contributors which added to the CEI were nonfarm payrolls, personal income, and manufacturing and trade sales.

In general, the Conference Board’s report is good news for the economy over the coming months, with the rebound a sign of strength moving forward.

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

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Conference Board: Consumer Confidence Rose in March to a Six-Year High, but with Continued Anxieties

The Conference Board said that consumer sentiment rose to a six-year high. The Consumer Confidence Index increased from 78.3 in February to 82.3 in March, its highest point since January 2008. To be fair, it was not far from the 82.1 registered in June of last year before slowing in the autumn months, bottoming out at 72.0 in November in the aftermath of the government shutdown debate.

Despite the higher overall figure, the underlying data were mixed. The increase in the Consumer Confidence Index stemmed entirely from the bump-up in individuals’ outlook for the future. The expectations component increased from 76.5 to 83.5 for the month, suggesting that Americans were becoming more upbeat about the future economy. Still, this measure was below the stronger levels of optimism seen last summer, with this figure down from 89.0 in August.

In terms of the current economic climate, the index for present conditions ebbed slightly, down from 81.0 to 80.4. The longer-term trend, however, remains positive, with the index up from 70.9 in August.

Continued anxieties about the labor market were behind the reduced data for the current economy. The percentage of respondents saying that jobs were “plentiful” decreased from 13.4 percent to 13.1 percent, and at the same time, those suggesting that jobs were “hard to get” also increased from 32.4 percent to 33.0 percent. These worries carried through to income concerns, with those anticipating higher incomes in the months ahead falling from 15.8 percent to 14.9 percent. Fortunately, fewer people also predicted reductions in income, down from 13.4 percent to 12.1 percent.

Therefore, even as the headline figure reached an all-time high, it remains clear that Americans continue to be uncertain about the economy. Buying intentions were also lower for automobiles (down from 13.8 percent to 12.6 percent) and homes (down from 5.7 percent to 5.4 percent). The percentage planning to purchase new appliances, on the other hand, rose from 47.9 percent to 49.7 percent.

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

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Conference Board: Consumer Confidence Was Higher in January

The Conference Board said that consumer confidence has returned to where it was before the partial government shutdown. The Consumer Confidence Index increased for the second straight month, up from a revised 77.5 in December to 80.7 in January. This was the highest sentiment since August (81.8), and it mirrored a similar rebound in the preliminary data from the University of Michigan and Thomson Reuters (which will release final data for January on Friday).

Over the course of 2013, the public generally became more confident. For instance, in the aftermath of the fiscal cliff debate, the Conference Board’s measure was 58.4, suggesting an increase of 22.3 points in the past 12 months.

The increase in perceptions in January resulted from improved views about current and future economic conditions. Yet, Americans still have concerns about the labor market, with nearly one-third of survey respondents saying that jobs were “hard to get.” At the same time, more of those taking the survey anticipated higher incomes than in the last report.

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

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Monday Economic Report – December 2, 2013

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

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Leading Economic Indicators Rose in October for the Fourth Straight Month

The Conference Board said that the Leading Economic Index (LEI) rose 0.2 percent in October, the fourth straight month of gains. The main drivers of the increase in October were increased building permits, a rising stock market, favorable credit conditions, and the interest rate spread. Manufacturing activity provided a modest contribution to the monthly increase with continuing strength in new orders. There were also factors that weakened the LEI in October, including reduced consumer confidence and increases in average weekly unemployment claims.

Putting this data in perspective, Ken Goldstein, an economist with the Conference Board, said, “Overall, the data reflect strengthening conditions in the underlying economy. However, headwinds still persist from the labor market, accompanied by business caution and concern about federal budget battles. The biggest challenge to date has been relatively weak consumer demand, which continues to be restrained by weak wage growth and slumping confidence.”

Meanwhile, the Coincident Economic Index (CEI), which assesses current economic conditions, also rose by 0.2 percent in October. It was the third consecutive monthly increase, building on the 0.3 percent gain of September. The CEI had positive contributions from growth in nonfarm payrolls, personal income, and manufacturing and trade sales. With that said, industrial production, which was off 0.1 percent in October, subtracted a little from the CEI. Note that decreased output stemmed largely from weaknesses in the mining and utilities sectors, with manufacturing production up 0.3 percent.

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

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Conference Board: Consumer Confidence Was Off Again in November

The Conference Board said that consumer confidence was off again in November, down from 72.4 in October to 70.4 in November. Sentiment had increased earlier in the year, rising from 58.4 in January to 82.1 in June. The June reading had been the highest level observed since January 2008. Since then, however, Americans have become less confident in the economy, with the government shutdown exacerbating that. We have seen a similar decline in optimism in the similar report from the University of Michigan and Thomson Reuters.

The largest decrease in sentiment in the Conference Board report came from weakened perceptions about the future economy. The expectations component has dropped from 91.1 in June to 69.3 in November, explaining much of the decline in the overall index.

At the same time, the index for current economic conditions has mostly languished over the past six months, ranging from 68.7 in June to 73.5 in September. The November reading for current conditions was 72.0, indicating a slight dropout in views about the present economy since September.

As usual, these data tend to move on expected income and labor market issues. In this case, the percentage of respondents saying that business conditions were “bad” rose from 23.0 percent to 25.2 percent, somewhat offsetting the improvement in those saying conditions were “good” (up from 19.5 percent to 19.9 percent). Likewise, over one-third of those taking the survey continue to suggest that jobs are hard to get, and the percentage expecting higher incomes in the coming months dropped from 15.7 percent to 14.9 percent.

The reduction in consumer confidence also weighed heavily on buying intentions. The percentage of respondents planning to purchase a home (down from 5.5 percent to 5.0 percent), automobile (down from 11.9 percent to 11.5 percent), or appliance (down from 50.5 percent to 45.4 percent) were all lower. As such, this survey responses stand in contrast to the more-positive retail sales numbers released last week for October.

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

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