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…)

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.

Americans increased their spending for the second month in a row, according to data from the Bureau of Economic Analysis. Personal spending rose 0.5 percent in August, building on the 0.4 percent growth observed in July. On the other hand, spending rose by 0.1 percent when adjusted for inflation. Higher energy costs accounting for the bulk of the increase in consumer prices in August, with energy costs up 5.8 percent. It is important to note, though, that energy cost in August 2012 were the same as they were in August 2011, with a year-over-year rate of zero percent.

Higher energy costs in August were also a significant contributor in the higher consumer spending figure. Nondurable goods consumption – which includes gasoline – rose $42.2 billion at the annual rate, or an increase of 1.7 percent. Durable goods consumption, in contrast, was up just $4 billion, or 0.3 percent. For durables, this was the fastest growth rate in spending since February.

Meanwhile, personal income increased 0.1 percent in August, the same growth rate as in July. Much of the increase came from rental and dividend income. For manufacturers, which continue to experience significant weaknesses, wages and salary compensation was lower, down from $731.8 billion to $726.6 billion. The longer-term trend for manufacturing workers remains positive year-to-date, as wages and salaries in the sector began the year at $716.4 billion.

With spending outstripping income growth, the savings rate fell from 4.1 percent in July to 3.7 percent in August.

In conclusion, the latest personal income and spending data offer mixed news of the economy. Higher durable and nondurable spending is obviously a good thing, even if the increases might have been led by higher gasoline costs. At the same time, it is also clear that manufacturing activity remains weak, as noted in other indicators, as well. Wages and salaries in the manufacturing sector were lower, for instance. Lastly, a declining savings rate might limit future growth in spending, and to the extent that this was related to higher gasoline prices, it could zap consumer sentiment.

Chad Moutray is chief economist, National Association of Manufacturers.

The Bureau of Economic Analysis said that consumer spending was essentially flat in June for the second month in a row. This suggests that Americans have pulled back on their purchases in light of recent weaknesses and uncertainties in the marketplace.

Levels of both durable and nondurable goods purchases declined in June, down 0.1 percent and 0.6 percent, respectively. This was the fourth consecutive monthly decrease for durable goods, and the third for nondurables. Even with these recent declines year-to-date spending on goods is up 1.1 percent, a reflection of stronger gains in January and February.

What is interesting about the current stall in consumer spending is that personal income levels are rising, up 0.5 percent in June. This was the seventh consecutive monthly gain in incomes, which have increased 2.9 percent year-to-date. In manufacturing, wage and salary disbursements rose from $718.6 billion in May to $724.3 billion in June. They were $702.5 billion in December, suggesting a 3.1 percent increase year-to-date for the sector.

With income growth outpacing spending, the savings rate has risen from 3.4 percent in December to 4 percent in May to 4.4 percent in June.

Inflationary pressures have continued to ease as energy costs have fallen. Prices for consumer items are increasing at a 1.5 percent annual rate. This had been 2.4 percent as recently as February. When you exclude food and energy costs the “core” inflation rate is 1.8 percent, which is below the Federal Reserve’s stated 2 percent target. This is welcome news to both  consumers and businesses.

Chad Moutray is chief economist, National Association of Manufacturers.

The Conference Board reported that consumer confidence index declined from 64.4 in May to 62.0 in June. This was the fourth consecutive monthly decrease, as the measure stood at 71.6 in February. This month’s lower figure fell mainly on worries about where the economy was headed, with the expectations component falling from 77.3 to 72.3.

The net percentage of respondents expecting higher income declined this month, for instance. Ironically, Americans were more positive about present conditions, as this measure rose from 44.9 to 46.6.

Despite the decline in this measure since February, it is important to point out that consumer confidence remains higher than it was last fall, when it bottomed out near 40 in October. Still, we would not want the recent weaknesses to be a sign that consumers are pulling back on spending.

Consumers have had to balance the benefits of falling energy prices, which normally would have lifted confidence, with continued anxieties about the global economic outlook, particularly with the European crisis being an almost daily headline. These worries have taken their toll, and the real concern is that pessimism creeps into consumers’ desires to spend. Personal consumption was the main driver of growth in real GDP in the first quarter, and any let-up in this will slow domestic growth.

In this survey buying intentions were mixed. There was a slight increase in the percentage of respondents planning to purchase a home, but appliance spending plans declined. Those intending to buy a new automobile were unchanged from May.

Chad Moutray is chief economist, National Association of Manufacturers.

The Bureau of Economic Analysis observed that personal spending rose 0.3 percent in March, its slowest pace so far in 2012. Personal consumption expenditures had increased 0.5 percent and 0.9 percent in January and February.

In constant 2005 dollars, consumers spent just 0.1 percent more for the month. Much of the growth was attributable to higher nondurable goods purchases, with durable goods spending lower. Even with this month’s slowdown, consumer spending is 4 percent higher today than last year.

While spending lagged somewhat in March, personal income continued to grow moderately, up 0.4 percent. This was above the 0.3 percent growth rate of February.  Disposable income also grew by that rate, with real personal disposable income up 0.2 percent.  Manufacturing wages increased from $730.5 billion to $730.6 billion, a small jump for the month but a continuation of a larger upward trend over the past couple years.

With income growth outpacing spending, the savings rate increased from 3.7 percent to 3.8 percent. Still, it remains low, especially since the savings rate stood at 4.7 percent in December.

Inflation continues to be modest. Prices for consumer items are rising by 2.1 percent at the annual rate, with core inflation, which omits food and energy, up 2 percent. Energy goods and services have moderated since the past report, as they are up 1 percent in March versus being 3.5 percent higher in February. This is obviously welcome relief.

Chad Moutray is chief economist, National Association of Manufacturers

The Bureau of Economic Analysis said that personal and income rose 0.2 percent in February, the same as January. In real terms, using 2005 dollars, disposable personal income fell 0.1 percent in February, suggesting sluggish income growth. Meanwhile, personal consumption jumped by 0.8 percent, or double the 0.4 percent gain in January.

In real terms, personal spending grew 0.5 percent. As a result, the savings rate fell from 4.3 percent to 3.7 percent, its lowest level since August 2009.

Spending on manufactured goods rose 1.2 percent in February, building on strong gains in the prior two months, especially for durables. Durable goods purchases rose 1.6 percent, following 0.8 percent and 1.4 percent increases in December and January. Meanwhile, nondurable spending was up 0.9 percent, but adjusted for inflation, the gain was just 0.1 percent. Over the course of the past year, personal consumption has risen 4.1 percent.

Manufacturing wages increased from $728.9 billion in January to $730.4 billion, continuing an upward trend over the past couple years.

Overall inflation continues to be modest, but higher gasoline prices are having an impact. The implied inflation rate based on personal consumption expenditures is 2.3 percent over the past year, with energy costs 6.6 percent higher.  Prices for nondurable goods increased 4.3 percent year-over-year, reflecting some easing from past months. Whereas, durable goods were 0.6 percent lower than they were this time last year.

Chad Moutray is chief economist, National Association of Manufacturers.

The Bureau of Economic Analysis said that personal income and spending rose modestly in January, up 0.3 percent and 0.2 percent respectively. This is the second consecutive month of gains in personal income; however, real disposable income in January fell by 0.1 percent. Personal spending, which was flat in December, rose on higher goods purchases. The consumption of services was unchanged.

Durable goods purchases increased 0.9 percent, building on December’s 0.5 percent jump. Meanwhile, nondurable spending was up 0.4 percent, a reversal from the declines of November and December. Over the course of the past year, personal consumption has risen 3.8 percent. This is a slower rate than the 4.4 percent growth between January 2010 and January 2011, but still a positive trend.

Manufacturing sector wages increased by $7.9 billion for the month to $730.3 billion, its third consecutive month of gains. The savings rate is currently 4.6 percent, slightly lower than the 4.7 percent rate of December. (Note that some of the data, including the savings rate, were revised upward from previous reports due to the inclusion of additional information. The December savings rate, for instance, was originally reported to be 4.0 percent.)  

Overall inflation appears to be modest, with the personal consumption expenditures deflator up 0.2 percent for January. On an annual basis, this suggests consumer inflation of 2.4 percent, or 1.9 percent if food and energy costs are excluded. Prices were nondurable goods increased 4.5 percent year-over-year, reflecting some easing from past months. Whereas, durable goods were 0.4 percent lower than they were this time last year.

Chad Moutray is chief economist, National Association of Manufacturers.

The Census Bureau reported that retail sales grew by 0.1 percent in December, their slowest pace since May. This suggests that holiday sales – despite strong Black Friday and Christmas week sales – were weaker than many might have preferred. In fact, if you were to exclude auto sales, retail sales would have fallen 0.2 percent. Nonetheless, retail sales in 2011 were 7.7 percent higher than in 2010.

Areas of strong growth in December included building materials (up 1.6 percent), motor vehicle and parts (up 1.5 percent), furniture and home furnishings (up 1 percent), clothing and accessories (up 0.7 percent) and food service and drinking places (up 0.7 percent). These were offset, though, by declines in electronics and appliances (down 3.9 percent), gasoline stations (down 1.6 percent due to lower petroleum prices) and general merchandisers (down 0.8 percent).

These numbers suggest that Americans continue to be cautious in their spending despite rising confidence and improving labor market conditions. Still, it also shows the public willing to open up its pocketbook selectively on big-ticket items such as automobiles and home improvement. Non-store retailers (up 10.6 percent) experienced the fastest year-over-year growth in retail sales; this was followed by auto dealers (up 9.5 percent), with clothing, building materials and furnishings doing well, too.

Meanwhile, the Census Bureau also released business inventory data for November, with manufacturers experiencing a 0.5 percent increase in inventories for the month. This represents a slower pace than the 0.9 percent growth rate of October. Manufacturers’ sales were unchanged in November, with the inventory-to-sales ratio edging slightly higher to 1.34 from 1.33. Overall, though, businesses have done an excellent job of inventory control of late.

For the larger economy, both sales and inventories were up 0.3 percent in November. The motor vehicle sector had the largest increase in inventories, up 0.6 percent.

Chad Moutray is chief economist, National Association of Manufacturers.

The Bureau of Economic Analysis found that personal income rose 0.4 percent in October, its fastest pace since March, with personal consumption up 0.1 percent. Indeed, consumer spending grew 0.8 percent for durable goods items, building on the 2.9 percent increase in September. Spending on nondurable goods, though, dropped 0.2 percent. Consumption is up 4.7 percent since October 2010.

Wages and salaries for manufacturing workers totaled $709 billion in October, up $6.3 billion from September.

Personal disposable income rose 0.3 percent in October, both in nominal and real terms. The inflation rate, as determined by the personal consumption expenditure deflator, is currently 2.7 percent for all items or 1.7 percent when food and energy costs are excluded (with the latter being the “core” inflation rate).

The savings rate is now 3.5 percent, which is slightly higher than the 3.3 percent rate observed last month but still lower than the 5 percent found in June. The downward trend in recent months has been a function of consumer spending growth outstripping the increases in personal income. This month’s stronger growth in personal income has helped to lift the savings rate by 0.2 percentage points.

Mirroring this uptick in spending is renewed consumer confidence. The University of Michigan and Thomson Reuters observed higher consumer sentiment in November, with its index rising from 60.9 in October to 64.1 in November. According to its press release, consumers anticipate “a slowly improving economy, and more importantly, slow gains in employment.”  Measures for present conditions as well as future expectations both increased slightly, but it was the growth in anticipated economic conditions that led the gain. It increased from 51.8 to 55.4.

Still, it is important to keep in mind that these numbers still reflect an anxious American consumer. The index is still relatively low even with this month’s gain. It remains 10 points lower than six months ago, for instance, and well below where it stood pre-recession.