Tag: construction spending

Monday Economic Report – October 6, 2014

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

Several recent indicators have shown marked improvements in the U.S. economy and for manufacturing activity, particularly when compared to earlier in the year. These range from the NAM/IndustryWeek Survey of Manufacturers to increased levels of demand and output. Last week, for instance, the Institute for Supply Management (ISM) reported that the pace of production (up from 64.5 to 64.6) was marginally higher in September, with the index exceeding 60—indicating strong growth—for four consecutive months. Likewise, the new orders index has measured 60 or higher for three straight months, even though it eased somewhat in September (down from 66.7 to 60.0). That was an encouraging sign, and it was consistent with a relatively upbeat outlook as noted by the National Association for Business Economics (NABE).

Yet, the headline ISM Purchasing Managers’ Index (PMI) for manufacturing unexpectedly dropped from 59.0 to 56.6. The prior month’s reading had been a three-year high, making the deceleration in sentiment a bit of a disappointment. The drop stemmed from slower paces of growth for domestic sales, exports (down from 55.0 to 53.5) and employment (down from 58.1 to 54.6). Along those lines, manufacturers added just 4,000 net new workers in September, with August’s employment number revised lower to reflect a decline of 4,000 employees for the sector. As such, we have had two straight months of disappointing manufacturing jobs numbers, which stand in stark contrast to the stronger hiring rates seen prior to August. We can hope for healthier job gains in the coming months, which would be more consistent with the mostly optimistic tone seen in other measures.

Indeed, the Dallas Federal Reserve Bank’s manufacturing survey noted robust pickups in production, capacity utilization and shipments in September, and respondents continue to expect stronger activity levels over the next six months. In addition, factory shipments have risen 2.1 percent year-to-date through August, or 3.1 percent over the past 12 months. The corresponding data on new factory orders reflected a sharp decline in August, but that was the result of very strong nondefense aircraft sales in July. While new manufactured goods sales remained soft when excluding transportation orders, the underlying data also reflect gains made since the winter months. Moreover, manufacturers have been confident enough in their outlook to increase construction spending, which rose 1.5 percent in August, increasing for the fifth straight month. Year-over-year growth in manufacturing construction spending was an impressive 14.9 percent.

At the consumer level, personal spending rebounded in August after holding steading in July. Since winter-related declines in January, personal spending has risen 2.7 percent, with 4.1 percent growth year-over-year. Strength in durable goods purchases boosted the August consumption figure. Still, Americans remain anxious, particularly about labor and income growth. The Conference Board’s Consumer Confidence Index declined from 93.4 in August to 86.0 in September, a notable and sizable decrease especially after the index had been at its highest point since October 2007 in August. It is possible that geopolitical events have put the public on edge, dampening enthusiasm. (The same could probably be said of the ISM report discussed above.) We have similar concerns in comparable data from the University of Michigan and Thomson Reuters, and the two releases support the notion that the consumer remains cautious despite recent improvements in sentiment.

Meanwhile, the U.S. trade deficit narrowed from $40.32 billion in July to $40.11 billion in August, its lowest level since January. In general, we have seen the trade deficit decline after peaking at $45.98 billion in April. Since then, goods exports have increased by $3.79 billion, and goods imports have declined by $1.99 billion, helping to explain the bulk of the shift over that four-month period. Much of that improvement can be explained by increased energy exports and reduced energy imports.

After a busy economic data release calendar last week, this week will be much lighter. The minutes of the September 16–17 Federal Open Market Committee meeting will be released on Wednesday, with market watchers looking for clues for when the Federal Reserve will start raising short-term rates. Other highlights include the latest data on consumer credit, job openings and wholesale trade.

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

manufacturing construction - oct2014

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Monday Economic Report – September 8, 2014

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

The U.S. economy added 142,000 nonfarm payroll workers in August, a disappointing figure given signs of a rebound in many other indicators lately. The consensus expectation had been for nonfarm payroll growth to exceed 200,000 jobs for the seventh consecutive month, as was observed in the estimates provided by ADP the day before. Manufacturing employment was flat for the month, which was also a disappointment. It ended a 12-month streak of job gains for the sector, a period in which manufacturers added 168,000 net new workers. Hopefully, the August jobs report was just a brief pause in what otherwise had been positive news on the labor front.

The Institute for Supply Management’s (ISM) purchasing managers’ index (PMI) data provides much encouragement that manufacturing activity is moving in the right direction heading into the autumn months. The headline PMI figure rose from 57.1 in July to 59.0 in August, its highest level since March 2011, and it reflected a robust recovery from weaknesses earlier in the year. Indeed, new orders and production expanded at healthy paces. These findings mirror the latest NAM/IndustryWeek Survey of Manufacturers, which is being released this morning, showing respondents mostly upbeat about their own company’s outlook, with sales, capital spending and hiring expectations at two-year highs. Indeed, 87.3 percent of those taking the survey were either somewhat or very positive in their outlook, up from 85.9 percent three months ago. The data are largely consistent with 3.1 percent growth in manufacturing production over the next two quarters.

Manufacturers spent 4.4 percent more on construction projects in July, also providing some reassuring news. The sector has devoted 23.9 percent more to construction projects over the past 12 months, an indication that the increase in demand and output observed over that time frame has resulted in a jump in new investments. Meanwhile, new factory orders data provided mixed news. While orders increased by a whopping 10.5 percent in July, much of that stemmed from highly volatile nondefense aircraft sales. Excluding transportation orders, new factory orders declined 0.8 percent for the month, a finding that we had noted in the earlier release of preliminary durable goods data. Still, factory orders excluding transportation have risen 2.7 percent over the past six months (since weather-related declines in January), which mostly mirrors the more positive data in other releases.

Looking at exports, the U.S. trade deficit narrowed ever-so-slightly in July, with an increase in goods exports marginally offsetting an increase in goods imports. Yet, manufactured goods exports have risen only slightly year-to-date, up just 0.8 percent so far in 2014 using non-seasonally adjusted data. On the other hand, these same figures show that exports to our top five exports markets were higher through the first seven months of this year relative to last year. Regardless, manufacturers hope that the pace of export growth accelerates, with sluggish sales frustrating business leaders and net export growth providing a drag on real GDP over the past two quarters.

This week, we will get new data on consumer confidence, job openings, retail sales and small business optimism. Markets will also continue to digest Friday’s employment numbers, trying to decipher if they were an aberration or a sign of larger weaknesses. In particular, this discussion centers on how the Federal Reserve will interpret such things, with a debate already ongoing as to when the Federal Open Market Committee will begin to increase short-term interest rates. Conventional wisdom holds that short-term interest rates will rise sometime in 2015, but whether that occurs earlier or later in the year is up for debate between those who are more hawkish or dovish on inflation. In the Beige Book, which was released last Wednesday, the Fed mostly observed progress in the economy in recent months, including in manufacturing. Yet, as long as the Fed continues to see “slack” in the labor market, it might be less willing to normalize rates.

Chad Moutray is the chief economist, National Association of Manufacturers. 
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Manufacturing Construction Declined Slightly in April

The Census Bureau reported that manufacturing construction declined 1.1 percent at the annual rate, down from $50.66 billion in March to $50.10 billion in April. The longer-term trend has been mixed. In the early months of 2014, total private construction activity in the sector has been stagnant, down from $51.07 billion in December. Still, manufacturers have put significantly more construction dollars in place today than 12 months ago, up from $46.68 billion in April 2013. As such, manufacturing construction has risen 7.3 percent year-over-year.

Total construction spending increased 0.2 percent in April, extending the 0.4 percent and 0.6 percent gains seen in February and March, respectively. The increase mostly stemmed from higher public sector construction spending (up 0.8 percent). The largest public sector construction gains were for commercial (up 14.7 percent), sewage and waste disposal (up 4.7 percent), transportation (up 3.6 percent), and conservation and development (up 2.6 percent) projects.

Yet, private sector spending data were weak, unchanged from March. A slight increase in residential spending (up 0.1 percent) was offset by nonresidential activity (down 0.1 percent). Nonetheless, private construction has risen a healthy 11.7 percent year-over-year, lifted by a 17.2 percent jump in housing spending. Moreover, private, nonresidential construction has grown 5.6 percent over the past year, which has also been a decent figure.

In terms of private, nonresidential construction spending for April, the declines were primarily in the communications (down 11.7 percent), manufacturing (down 1.1 percent), and power (down 0.6 percent) sectors. Other major segments were higher for the month, with the biggest increases seen in amusement and recreation (up 9.8 percent), office (up 3.1 percent), transportation (up 2.8 percent), religious (up 1.9 percent), and lodging (up 1.8 percent). Since April 2013, the fastest growth in nonresidential spending has occurred in the office (up 25.6 percent), communication (up 21.4 percent), and lodging (up 17.2 percent) sectors.

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

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Monday Report – May 5, 2014

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

With the U.S. economy growing just 0.1 percent in the first quarter of 2014, analysts need to ask themselves whether this was just an aberration—a function largely of winter-related slowness—or a sign of larger weaknesses. The preliminary real GDP data showed drags from business investment, net exports and the government. Consumer spending on services was the biggest positive, and durable and nondurable goods purchases were up marginally for the quarter. My view is that real GDP probably will be revised higher in future updates, particularly with other data showing rebounding activity in March.

Fortunately, other recent economic reports show the economy recovering from difficulties earlier in the year. Consumer spending picked up strongly in March, with pent-up demand for durable goods, such as automobiles, pushing up overall purchases. Along those lines, manufacturing construction spending and new factory orders were also higher in March, with the Dallas Federal Reserve Bank’s monthly survey mirroring other regional reports showing an increase in respondents’ outlook.

Nationally, manufacturing confidence appears to be rising, with the Institute for Supply Management’s (ISM) Purchasing Managers’ Index (PMI) rising from 53.7 in March to 54.9 in April, its highest point so far in 2014. Still, activity remains below the torrid pace at the end of last year. The ISM’s PMI values averaged 56.3 in the second half of 2013, with new orders and output averaging 61.8 and 62.6, respectively. As such, there is still room for improvement. One of the brighter spots in the ISM release was the increased pace of hiring, with the employment index jumping from 51.1 to 54.7. This suggested that more manufacturers were adding workers, which was progress from the slower rate the month before.

In fact, the sector has hired more than 13,000 additional employees on average each month since August, when manufacturing demand and output began gaining momentum last year. Since the end of 2009, manufacturers have created 623,000 new jobs, with 12.1 million workers total in April. In the larger economy, nonfarm payrolls increased by 288,000 for the month—well above the consensus estimate of around 220,000—and the unemployment rate fell sharply from 6.7 percent in March to 6.3 percent in April. Despite this progress, the unemployment rate’s decline was largely due to a significant drop in the labor force size. The participation rate returned to where it was in December, matching its lowest point since February 1978.

From its perspective, the Federal Reserve felt that the economy was getting better; yet, it continues to worry about elevated unemployment rates, reduced business investment and fiscal restraints. For that reason, the Federal Open Market Committee (FOMC) reported that it would keep its highly accommodative stance for the foreseeable future, with short-term rates effectively zero until likely sometime in 2015. Meanwhile, the Federal Reserve continued to taper its long-term and mortgage-backed securities purchases from $55 billion per month to $45 billion, as expected. On the positive side, inflationary pressures remain minimal, with the personal consumption expenditure deflator up just 1.1 percent year-over-year and below the FOMC’s stated target of 2 percent.

This week, the highlight will come tomorrow with the release of new international trade numbers. In the first two months of 2014, manufactured goods exports were below their pace of 2013. It will be important to see if the picture improves in the March data. Beyond trade, other highlights to watch include the latest reports on consumer credit, job openings, productivity and wholesale trade.

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

monthly employment changes - may2014

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Manufacturing Construction Rose 3.8 Percent in January

The Census Bureau reported a 3.8 percent increase in manufacturing construction in January, more than offsetting the 3.4 percent decline of December. Manufacturing construction activity increased from $49.2 billion in December to $51.1 billion in January, its highest level since September. The sector has made significant gains over the past 12 months, particularly in the second half of 2013, with 7.9 percent year-over-year growth in construction spending. In January 2013, manufacturers put $47.3 billion of construction in place, but that fell to $43.3 by June before rebounding again starting in July.

Overall construction activity was only marginally higher in January, up 0.1 percent. It would have been higher if it were not for a sharp 0.8 percent decline in public construction spending for the month. The strongest element in this report was private sector residential construction, with a 1.1 percent increase in January and 14.6 percent year-over-year growth. In a sign of just how much the housing market has improved recently, private residential spending rose from $314.0 billion in January 2013 to $359.9 billion in January 2014, the highest level since May 2008.

Looking at private, nonresidential construction, manufacturing’s increase was the exception for the month, with spending down 0.2 percent. The other sector to experience an increase in construction in January was communications (up 18.2 percent). Organizations with the largest monthly declines were power (down 5.0 percent), religious (down 2.6 percent), commercial (down 2.2 percent), healthcare (down 1.6 percent), educational (down 1.3 percent), transportation (down 1.0 percent), and amusement and recreation (down 0.9 percent). On a year-over-year basis, the story was better, with a 9.7 percent increase over the past 12 months.

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

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Monday Economic Report – February 10, 2014

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

Hiring in the manufacturing sector continued to expand in January, averaging 15,500 per month since August. This uptick in employment for manufacturers has corresponded to the acceleration in product demand and production in the second half of 2013, with cautious optimism for 2014. However, the overall jobs numbers were disappointing for the second straight month. Nonfarm payrolls grew by just 75,000 and 113,000 in December and January, respectively, which was well below the consensus expectation of 175,000 and the 2013 average monthly gain of 193,500.

Some of the releases out last week show the negative impact that weather has had on activity. For instance, new factory orders declined 1.5 percent in December, with broad-based weaknesses in the durable goods sector pulling the data lower. Shipments were also down. Likewise, manufacturing construction spending fell 5.1 percent in December, which was notable because of a mostly upward trend from June to November. Overall construction activity edged marginally higher in December, boosted by strong residential construction activity, but nonresidential and public spending was down.

The Institute for Supply Management’s Purchasing Managers’ Index (PMI) report showed a considerable decline in manufacturing sentiment, down from 56.5 in December to 51.3 in January. The biggest declines were in new orders, output and employment, but the pace of export orders was off only slightly. The pace of export orders was off only slightly. This indicates that domestic factors were the main contributors of the decline.

Meanwhile, the U.S. trade deficit rose from $34.56 billion in November to $38.70 billion in December, but the deficit narrowed for 2013 as a whole. Petroleum was a major factor in the smaller trade deficit last year, with increased petroleum exports and fewer imports. Unfortunately, manufactured goods exports did not increase as much last year as we would have preferred, up just 2.4 percent in 2013 versus 5.7 percent in 2012. We hope stronger global economic growth will produce improved manufactured goods exports in 2014.

In other news, the Congressional Budget Office released its 10-year budget and economic outlook. The deficit will be $514 billion in fiscal year 2014, an improvement from the more than $1 trillion deficits in fiscal years 2009–2012 and the $680 billion deficit in fiscal year 2013. The report shows the growth of mandatory spending rising from $2.03 trillion in fiscal year 2013 to $3.74 trillion in fiscal year 2024. Because of this, federal deficits will start to rise again beginning in fiscal year 2017, with deficits exceeding $1 trillion in fiscal year 2022. With such facts, it should not be a surprise that 86.3 percent of manufacturers want policymakers to find a long-term federal budget deal that tackles the debt and deficit, including reining in entitlements.

This week, we will get new industrial production data on Friday. The last report showed manufacturing output rising at an annualized 4.2 percent rate in the second half of 2013, but we will see if the data show production easing somewhat in January due to weather or other factors. The consensus expectation is for modest output gains of roughly 0.3 percent. Other highlights will be the latest figures on consumer confidence, job openings, retail sales and small business optimism.

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

cbo entitlement spending - feb2014

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Manufacturing Construction Slowed in December

The Census Bureau reported a 5.1 percent decline in manufacturing construction in December. Manufacturing construction fell from an annualized $51.49 billion in November to $48.85 billion in December, its slowest pace in six months. Indeed, manufacturing activity had rebounded in the second half of 2013, peaking at $52.39 billion in September. Weather probably played a role in December’s decline, much as we have seen it hamper activity in other data for the sector.

Overall construction activity edged marginally higher in December, up 0.1 percent. This followed strong gains from September to November, with 2.9 percent growth over that three-month period. The December data reflect stronger growth in residential construction (up 2.6 percent for the month), but weaker private, nonresidential activity (down 0.7 percent).

Indeed, the softness seen in the manufacturing sector extended to other nonresidential businesses, as well. Other types of entities that experienced reduced construction activity in December included amusement and recreation (down 6.0 percent), religious (down 2.0 percent), transportation (down 1.5 percent), and commercial (down 1.0 percent). Segments with increased activity for the month included power (up 1.9 percent), office (up 1.2 percent), and educational (up 0.9 percent) firms, among others.

Stepping back and looking at 2013 as a whole, some sectors increased their construction spending more than others. The largest year-over-year gains were seen in the lodging (up 32.7 percent), transportation (up 24.3 percent), commercial (up 22.7 percent), amusement and recreation (up 15.5 percent), and office (up 15.4 percent) segments. Unfortunately, manufacturing construction declined 1.3 percent over the past 12 months, with the December decrease dragging the year-over-year pace lower.

Meanwhile, public dollars devoted to construction were down 2.3 percent in December, or off 0.7 percent for the year. The December data were mostly lower across-the-board. There were some notable exceptions, including power (up 7.1 percent), highway and street (up 1.8 percent), transportation (up 1.8 percent), and conservation and development (up 0.7 percent). Over the past 12 months, the largest increases in public construction were in the power (up 25.1 percent), highway and street (up 11.3 percent), transportation (up 5.0 percent), and conservation and development (up 4.1 percent) sectors.

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

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Manufacturing Construction Spending Has Increased for Five Straight Months

The Census Bureau reported that manufacturing construction activity increased an annualized 1.2 percent in November. Manufacturing construction spending rose from $53.93 billion in October at the annual rate to $54.58 billion in November. It has risen for five straight months, increasing from $43.34 billion in June, the lowest point of the year.

Manufacturing construction has averaged $48.97 billion in the first 11 months of 2013. The sector has invested 15.6 percent more on a year-over-year basis, up from $47.23 billion in November 2012. Over a longer time horizon, manufacturers have steadily increased their construction spending dollars after bottoming out in January 2011 at an annualized $28.84 billion pace.

Total construction spending rose by 1.0 percent in November, and it has grown by 5.9 percent year-over-year. The bulk of that growth stemmed from residential construction spending, with the rebound in the housing market helping to propel overall activity higher. Dollars devoted to private, residential construction spending increased 16.6 percent since November 2012, rising 1.9 percent for November 2013 alone.

Private, nonresidential construction has risen more modestly lately, up 2.7 percent in November and just 1.0 percent over the past 12 months. In addition to manufacturing activity, other sectors with higher construction spending for the month included communication (up 11.2 percent), commercial (up 4.7 percent), transportation (up 4.7 percent), office (up 4.6 percent), and power (up 3.3 percent). In contrast, educational institutions (down 3.1 percent) and health care facilities (down 1.2 percent) experienced declines in construction spending.

Meanwhile, public dollars devoted to construction were off 1.8 percent for the month and were down 0.2 percent year-over-year. The November data were mostly lower across-the-board, with the exception of power (up 1.6 percent), educational (up 1.1 percent), and commercial (up 0.2 percent) projects. Over the past 12 months, the largest increase in public construction spending was in the transportation sector (up 5.2 percent), with the greatest declines seen in for commercial (down 27.7 percent) and office (down 12.9 percent) developments.

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

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Manufacturing Construction Spending Rose 1.3 Percent in October

The Census Bureau reported that manufacturing construction activity increased an annualized 1.3 percent in October. Manufacturing construction spending rose from $48.08 billion in September at the annual rate to $48.69 billion in October. Since January, we have seen modest gains in construction spending in the sector, up 2.9 percent, but there has also been a high degree of volatility.

Manufacturing construction dollars have ranged this year from a low of $43.34 billion in June to a high of $50.52 billion in August. Over a longer time horizon, one can easily see the rebound in the sector, with construction spending up 12.3 percent and 37.9 percent over the past 24 and 36 months, respectively.

Total construction spending increased 0.8 percent in October, improving upon the 0.3 percent decline in September. The higher number in October came mainly from the public sector, with construction funding by all levels of government jumping 3.9 percent for the month. It had fallen 1.9 percent in September. On a year-over-year basis, the largest increases in public construction spending have been for power (up 10.8 percent), water supply (up 10.2 percent), highway and street (up 9.2 percent), transportation (up 6.9 percent), and sewage and waste disposal (up 6.2 percent) projects.

In contrast, public dollars devoted to commercial (down 28.6 percent) and office (down 14.1 percent) spending projects have declined sharply over the past 12 months. Nonetheless, those two categories have seen improvements lately, up 3.5 percent and 8.8 percent, respectively, in October.

Private residential construction was off 0.5 percent in October, and it has generally struggled since June. Over the past four months, residential activity declined 2.4 percent. Much of that decline can be attributed to the “sticker shock” of higher mortgage rates, albeit at levels that are still historically low. On the bright side, however, the housing market continues to reflect its recent rebounding, with year-over-year increases in private residential construction of 17.8 percent.

Private nonresidential construction spending was also lower, down 0.5 percent in October. In addition to the increase in manufacturing activity, other sectors with higher construction spending for the month included educational institutions (up 6.6 percent), commercial (up 2.8 percent), and transportation (up 2.2 percent), among others. These were offset, though, by declining spending in the following sectors: communication (down 8.4 percent), power (down 5.7 percent), and amusement and recreation (down 2.3 percent).

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

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Manufacturing Construction Spending Declined in June

The Census Bureau said that overall construction spending fell 0.6 percent in June, with weaknesses in both the residential and nonresidential sectors. Despite a very healthy gain in residential activity of 17.6 percent over the past 12 months, it was 0.1 percent lower in June. This somewhat mirrors earlier findings on lower housing starts and permits — a decrease possibly influenced by higher mortgage rates. That report suggested that the decline in new residential construction activity was primarily in the multi-family units segment.

Meanwhile, the level of manufacturing construction projects decreased from $45.9 billion in May to $45.1 billion in June. This was off from $49.5 billion in December, suggesting a drop of 8.9 percent year-to-date. The December figure was a bit of an outlier, though, and the year-over-year decline was a more modest 1.9 percent. Either way, it is clear that there has been a pulling back in construction investment in the first half of 2013.

For the larger private, nonresidential sector, spending declined 0.9 percent for the month, with year-over-year growth of 1.4 percent. The largest monthly increases were in the power, communications, and transportation sectors. In contrast, religious, educational, amusement and recreation, and lodging entities reduced their construction spending in June.

In terms of public construction projects, there were decreases of 1.1 percent for the month, or 9.3 percent lower year-over-year. There was lower spending found in the conservation and development, water supply, sewage and waste disposal, and public safety. These were somewhat counteracted by increases in power, office, health care, and commercial developments, among others.

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

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