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

In the first five months of 2013, manufacturing production has been virtually unchanged, according to the Federal Reserve Board, and capacity utilization in the sector edged lower from 76.4 percent in December to 75.8 percent in May. Production among manufacturers increased 0.1 percent in May, or up 1.7 percent year-over-year. The latest NAM/IndustryWeek Survey of Manufacturers predicted that the annual pace of production activity should increase to 2.8 percent by the fourth quarter of 2013. Manufacturing production will need to pick up for that to be true. Manufacturing export numbers have been soft, with higher taxes and across-the-board spending cuts dampening demand.

Regarding the NAM/IndustryWeek survey, manufacturers anticipate sales to increase 2.7 percent on average over the course of the next year. While this is higher than the 2.3 percent growth rate observed three months ago, it is below the 4.3 percent pace of 12 months ago. Larger businesses were more optimistic about sales and their company’s outlook than their small and medium-sized counterparts, with all respondents predicting sluggish hiring growth over the next year. The top concern, cited by 82.2 percent of respondents, was the rising cost of health insurance. The average health insurance premium increase in 2013 was 8.6 percent, with a 13.9 percent jump on average anticipated for 2014. The 2014 numbers suggest just how much uncertainty there is regarding insurance rates, with the perception they will go up significantly. I spoke about this survey and the general state of manufacturing on CNBC’s “Squawk Box” last Tuesday. (continue reading…)

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

The Bureau of Economic Analysis confirmed that the U.S. economy grew modestly in the first quarter of 2013, revising real GDP growth from the earlier estimate of 2.5 percent to 2.4 percent. Two factors that have had the greatest impact were the American consumer and a rebounding housing market. Business spending, while decelerating somewhat from the fourth quarter of 2012, also made a sizable contribution to growth. In fact, to illustrate the importance of consumer spending and gross private domestic investment to growth in the first quarter, they added 3.6 percentage points to real GDP, with government spending and net exports subtracting from that number. Moving forward, I expect real GDP to grow by 1.8 percent in the current quarter, with 2.3 percent growth overall for 2013.

Two surveys released last week both indicate a sharp rebound in consumer sentiment in May, with both rising to levels not seen in more than five years. The Conference Board and University of Michigan reports both observed improved perceptions about the current and future economic environment, and yet, Americans feel there are persistent challenges. These headwinds include elevated unemployment rates, higher payroll taxes and slow growth in the domestic and global economy. Softness in the economy contributed to flat personal income growth in April, with personal spending declining. In the manufacturing sector, wages and salaries have increased over the course of the past year, even as they were slightly lower in April. (continue reading…)

The Conference Board said that the Consumer Confidence Index rose to the highest level in five years. The index increased from 69.0 in April to 76.2 in May, and the last time it was at this point was in February 2008. As such, it mirrors a similar result seen in the University of Michigan and Thomson Reuters survey, which was released a couple weeks ago. (A revised University of Michigan number for May will be released on Friday.) These two measures of consumer sentiment tend to indicate that Americans have become more optimistic, ending a lull in confidence seen between December and April.

The Conference Board noted that opinions about the current and future economy were both higher in May, with the largest gains seen in the forward-looking measure. The expectations component of the index rose has risen from 63.7 in March to 74.3 in April to 82.4 in May.

With that said, it is important to keep the rise in confidence in perspective. Ideally, we would like to have consumer confidence values of 100 or greater. (The index for the Conference Board survey is 1985=100.) The last time it was over 100 was August 2007. Even with May’s increase, over one-third of Americans feel that jobs are hard to get, reflecting the persistent headwinds that continue to challenge the U.S. economy.

In the end, we tend to watch consumer confidence surveys because consumer spending accounts for roughly 70 percent of GDP. To the extent that sentiment impacts purchasing patterns (which is not always the case), we need to focus on them. The Conference Board’s survey did note some continued uneasiness in its respondents’ buying plans. The percentage of those planning to purchase autos and homes were down slightly from the month before, with appliance spending intentions marginally higher. Of course, the real evidence will come from official data. Retail sales increased somewhat in April, and we will get new personal spending data for April on Friday.

Chad Moutray is chief economist, National Association of Manufacturers.

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

The manufacturing economy has hit some speed bumps, according to recent data. Industrial production declined 0.5 percent in April—more than expected—with capacity utilization levels back to where we were at the beginning of the year. The slower pace of domestic and global sales has negatively impacted activity, with production down mostly across-the-board. Only four of the 19 major manufacturing sectors experienced an increase in output for the month. Moreover, annual growth in manufacturing production of just 1.3 percent is insufficient, and such low rates of industrial growth are not enough to help boost hiring and output. Ideally, we would like to see annual output growth of 4.5 percent or greater, as outlined in the NAM’s “20/20 Vision” earlier this year.

The national pullback in manufacturing activity extends to two of the regional manufacturing surveys released last week. Sentiment surveys from the New York and Philadelphia Federal Reserve Banks found contracting levels of new orders, shipments and the average workweek. In addition, manufacturers were more negative in their overall views of the current business environment. However, employment was mixed between the two reports, with a pickup in hiring reported in the Empire State survey, and manufacturers in both Fed districts were cautiously optimistic about future growth. As a result, capital investments are expected to increase in the coming months.

The Conference Board’s Leading Economic Index—a forward-looking measure of the U.S. economy—rose a healthy 0.6 percent in April, with strong growth in housing permits. New residential permits exceeded the 1 million mark for the first time since June 2008, even as housing starts fell for the month. The long-term trend for the housing market remains positive, with permits data highlighting growth in future activity. Other good news can be seen in the latest University of Michigan consumer sentiment survey, with Americans reporting optimism levels not seen since mid-2007. Retail sales were also higher, even with declines in gasoline station spending due to lower petroleum costs. (continue reading…)

Consumer confidence rebounded in May, according to the University of Michigan and Thomson Reuters. The Consumer Sentiment Survey’s overall index rose from 76.4 in April to 83.7 in May, its highest level since July 2007. It is also a sign that the lull that we have seen in consumer confidence since November has dissipated, at least in this preliminary figure. (A revised number, with more complete information, will be released on May 31.)

The gain in confidence was more than expected, with a consensus estimate of 78.0. Perceptions about the current and future economic environment improved, with the largest gains regarding present conditions. The index for the current situation increased from 89.9 to 97.5; whereas, the forward-looking component moved from 67.8 to 74.8.

Surveys such as this one tend to rise and fall on pocketbook issues, and manufacturers tend to focus in particular on confidence indices to see if they might impact consumer behavior. The recent declines were in large part due to fiscal uncertainties, higher payroll taxes, and persistent economic worries. These issues have not necessarily gone away, but Americans are more than likely reacting to lower energy costs, decent nonfarm payroll gains, and modest growth in the U.S. economy. Earlier in the week, we did learn that retail sales – particularly when you exclude gasoline station spending – rose, a sign that consumers have picked up their purchases of late.

Moreover, the University of Michigan data tend to mirror similar upticks in confidence from the National Federation of Independent Business on small business sentiment and the most recent consumer survey from the Conference Board.

Chad Moutray is chief economist, National Association of Manufacturers.

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

Looking at last week’s reports, there appears to be a split between the economic progress of the larger economy and what we continue to observe in the manufacturing sector. That is not to suggest that the U.S. economy is growing robustly—because it isn’t. Nonetheless, some of the data show signs of upward movement. The Bureau of Labor Statistics reported that 165,000 new nonfarm payroll workers were added in April, with healthy upward revisions for February and March. As a result, the economy created almost 200,000 workers in the first four months of 2013, and the unemployment rate fell to 7.5 percent, its lowest level in more than four years. At the same time, the participation rate remains low, and the “real” unemployment rate is still elevated at 13.9 percent, suggesting challenges continue on the labor front even with the recent progress.

One of those challenges can be seen in the manufacturing sector, with its employment levels unchanged in April and lower on a year-over-year basis. Several indicators show softness in activity nationally for manufacturers, with sales, production and employment growing at a slower pace. The Institute for Supply Management’s (ISM) Purchasing Managers’ Index (PMI) dropped from 51.3 in March to 50.7 in April largely on flat job growth, and factory orders declined 3.1 percent in the first quarter of 2013. Manufacturing construction spending was also lower. Regionally, several surveys tend to indicate an easing in activity, with modest growth at best, in manufacturing. The one exception of note was the Chicago Federal Reserve Bank’s Midwest Manufacturing Index, which noted an increase in production mainly due to higher output in the motor vehicle sector. (continue reading…)

The Consumer Confidence Index from the Conference Board rose from 61.9 in March to 68.1 in April. This brings the index essentially back to where it was in February, when it stood at 68.0, but it is below the 73.1 reading observed in October. In short, sentiment appears to have improved of late, even as it is not quite where we would like for it to be. This is largely consistent with a similar survey from the University of Michigan and Thomson Reuters, which was released last week.

Noting this month’s improvement, Lynn Franco, the Director of Economic Indicators at the Conference Board, cautioned that “… consumers’ confidence has been challenged several times over the past few months by such events as the fiscal cliff, the payroll tax hike and the sequester. Thus, while expectations appear to have bounced back, it is too soon to tell if confidence is actually on the mend.”

Specifically, the Conference Board noted that opinions about the current and future economy have advanced in April, with the largest gain seen in the forward-looking measure. The expectations component of the index rose from 63.7 to 73.3 for the month, above the level seen in February (72.4). With that said, Americans remain largely frustrated with the labor market, with a net increase in the percentage of those who feel that jobs are hard to get.

The importance of these types of surveys, of course, is how they translate into consumer spending patterns. Yesterday, we learned that retail sales growth eased in March, with higher payroll taxes and persistent anxieties slowing purchases. The Conference Board’s survey found that some of this uneasiness continued into its respondents’ buying plans. The percentage of those planning to purchase autos and appliances were down slightly; whereas, home buying intentions were unchanged.

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

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

According to the latest economic data, U.S. manufacturers are seeing slow-to-decent progress in their businesses. While there continue to be challenges, many of the regional Federal Reserve Bank surveys reported continued expansion, even if the pace of growth might have slowed. The Dallas Fed survey has grown for four straight months on higher sales and production data, and businesses in the region were overwhelmingly positive about future activity over the coming months. At the other end of the spectrum, the Kansas City Fed’s composite index has contracted for six consecutive months. Both new orders and shipments were unchanged in February after falling sharply in January, and respondents tended to echo some of the frustrations of businesses in the area. Frequent concerns ranged from uncertainties about the economy to concerns about healthcare costs. Even in the Kansas City report, though, manufacturers expressed cautious optimism about the next six months – a constant sentiment across all the surveys.

This morning, we will get the latest read on the manufacturing sector from the Institute for Supply Management (ISM). The ISM purchasing managers’ index is expected to show a very modest gain in activity in March, following the survey’s uptick from 53.1 in January to 54.2 in February. Sales should drive the index higher, but other data show that these gains have been somewhat spotty lately. The Census Bureau’s advance estimates for new durable goods orders rose a very strong 3.6 percent in February, but this followed a 3.8 percent loss in January. Much of the volatility in that indicator has been due to the ups and downs in aircraft orders. Removing the transportation sector from of the analysis would have yielded a decline in new orders.

Motor vehicle demand appears in several of the indicators released last week. The durable goods report indicates that auto sales increased by a very robust 3.8 percent in February, and a rebounding motor vehicle sector helped to lift the Chicago Fed’s Midwest Manufacturing Index. Year-over-year production in the auto industry in the Chicago Fed District was up 15.2 percent, a strong figure that helps explain why the Midwest has fared so well since the end of the recession. These indicators were also consistent with analysis from a couple weeks ago that showed retail sales gains largely due to increased auto purchases and higher gasoline prices.

On the consumer front, personal incomes were up 1.1 percent in February. Spending increased 0.7 percent. The nondurable goods sector benefited the most from the increased spending. The sector was up 1.9 for the month. Manufacturing employees, meanwhile, benefitted from the pickup in activity through higher total wages and salaries. At the same time, the two consumer sentiment surveys out last week moved in opposite directions. The Conference Board’s report dropped significantly over jobs and income concerns. Respondents also cited across-the-board federal spending cuts as a factor. The University of Michigan’s consumer confidence figure reversed an earlier estimate and found the public more positive than the month before, with its index rising for four straight months. The update from the initial report suggests that some of the concerns about the economy in many of the earlier responses might have dissipated as the month progressed.

Aside from the ISM report, other economic highlights due out this week include the latest figures on employment and international trade. Nonfarm payrolls are expected to increase by around 200,000 in March, indicating reasonable job growth last month just shy of the 236,000 net new workers added in February. Manufacturing hiring growth should also closely mirror the previous month’s report. On the trade front, we will be looking to see whether recent improvements in many of our largest markets – with the notable exception of Europe – will lead to increases in exports of manufactured goods.

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

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

The Institute for Supply Management’s (ISM) Purchasing Managers’ Index showed a surprisingly strong gain in new orders and production in February. This report suggested that some of the weaknesses experienced in the second half of 2012 were beginning to dissipate, signaling a pickup in manufacturing activity to begin 2013. But across-the-board fiscal budget cuts, persistent challenges overseas (particularly in Europe) and higher energy costs stand in the way. Nonetheless, the ISM index was one of several indicators released last week showing modest improvements in the sector. Some regional data from the Chicago and Richmond Federal Reserve Banks also indicated stronger growth in February.

That does not mean that the U.S. economy has fully turned a corner, as evidenced by several key data points. The reality is more nuanced than that. First and foremost, real gross domestic product (GDP) was revised upward from shrinking by 0.1 percent in the fourth quarter of 2012 to growing by the same amount at the beginning of this year. Sharp reductions in defense and business inventory spending subtracted from growth, outweighing modest gains in business fixed investment and consumer spending. In addition, regional manufacturing data are quite mixed. While some regionals show improvement, as noted above, others continue to struggle. The Kansas City Federal Reserve Bank’s manufacturing survey, for instance, reported a significant contraction in activity in February, with worries about budget sequestration and poor weather top of mind. Similarly, the Dallas Federal Reserve Bank observed slower growth and reduced optimism last month.

Consumer confidence appears to have rebounded from the declines seen in December and January. Higher payroll taxes significantly influenced the decrease in January. In surveys from both the Conference Board and the University of Michigan, sentiment increased in February, with Americans generally more positive about the economic outlook. This is true despite the many headwinds that exist. With that said, it remains to be seen whether this confidence translates into higher purchases. Personal spending fell for durable goods in January and remained flat for nondurables. The larger headline on the personal income front, though, was the massive shift in dividend and other payments in December in advance of the fiscal cliff deal. This led to a large increase in personal income in December, followed by a large decrease in January. Beyond this story, though, weaknesses in the manufacturing sector slowed wage and salary growth in the second half of 2012, continuing into January.

This week, the focus will be on international trade and employment. Several surveys tended to show manufacturing employment growth lagging behind stronger activity in new orders and production. Indeed, many businesses are waiting for a more solid economic footing before making the commitment to begin hiring again, or to pick up the pace of hiring. The consensus is for roughly 150,000 nonfarm payroll workers to be added in February, with slow growth in manufacturing hiring similar to that of the past couple months. On the export front, recently improving economic conditions in many of our largest trading partners could translate into increased sales.

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

The Conference Board reported that its Consumer Confidence Index rose from 58.4 in January to 69.6 in February. This increase stops a three-month skid, and the rebound is consistent with the similar rise in confidence observed in the University of Michigan survey. A large part of the steep decline in January could be explained by the increase in payroll taxes. Even with this month’s gain, though, the Conference Board index remains below the optimism level observed in October (73.1).

Looking specifically at the Conference Board data, the increase occurred because respondents were more positive in their assessments of the current and future economic environments. These types of sentiment surveys tend to respond to pocketbook issues. There were marginal gains in the belief that jobs were more plentiful and in income expectations. Still, it remains true that unemployment and income are challenges, with each measure a net negative overall.

(continue reading…)