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

Manufacturing activity picked up somewhat in January, according to several reports that came out last week. The Institute for Supply Management’s (ISM) Purchasing Managers’ Index (PMI) rose from 50.2 in December to 53.1 in January. Stronger sales and production data helped to lift this index higher, with export growth still lagging (but no longer declining). The data was mirrored in the latest surveys from ISM-Chicago and the Chicago and Dallas Federal Reserve Banks. New durable goods orders were also higher in December, mainly due to increased aircraft sales.

The sentiment surveys tended to show an uptick in hiring in January, which might be a gauge of future activity. However, for now at least, the data show that employment growth in the sector has been slow at best. The ADP payroll data suggest that manufacturing employment contracted in January, while the government report showed that manufacturers added just 4,000 workers during the month. It is hard to ignore the significant slowdown in hiring that took place among manufacturers during the second half of 2012, with worries about sales and the economic outlook taking a toll on hiring and investing. While the larger economy added roughly 180,000 workers on average each month last year—a figure which is decent, but still not strong enough to bring the unemployment rate down—manufacturers only gained 11,000 additional workers in the last six months of the year.

Much of the economic uncertainty was tied to the fiscal cliff negotiations, with upcoming debates on the budget and deficit still causing uncertainty for many manufacturers. With the debt ceiling conversation postponed until mid-May, all eyes will now focus on the across-the-board federal budget cuts scheduled for March 1 and the possibility of a government shutdown on March 27. The fiscal cliff’s impact can be seen in the economic data as well, with manufacturing activity falling and consumer and business confidence indicators plunging. Dividends rose sharply at the end of the year (up 34.3 percent in December), as companies tried to accelerate these payments in anticipation of higher dividend taxes. The result was a 2.6 percent rise in personal income, pushing the savings rate up to 6.5 percent, its highest level (albeit a temporary one) in nearly four years.

The Federal Reserve Board reported that the economy “paused” at the end of 2012, referencing both Hurricane Sandy and the political wrangling over the fiscal cliff. Beyond that, however, the Federal Open Market Committee (FOMC) made little news. It continued the stimulative policies put in place in December, with new rotating members of the FOMC voting much like the old ones did. Kansas City Federal Reserve Bank President Esther L. George picked up the mantle of her fellow inflation hawks by being the lone dissenter.

This week is a much slower one on the data front. The key data to watch for will come on Thursday with new labor productivity numbers and on Friday with the latest international trade figures. The export data will be closely followed as it will be the first to show activity for all four quarters of 2012.

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

The Census Bureau reported that new orders for durable goods fell 2.1 percent in June, more than offsetting the 1.9 percent rebound in May. The bulk of this decline stemmed from the transportation sector, with new orders for transportation equipment off 8.5 percent. Other sectors with monthly losses include capital goods (down 4.1 percent) and machinery (down 2.3 percent). The largest gains for the month were in the communications equipment (up 15.2 percent) and fabricated metal products (up 2.1 percent) sectors.

In contrast to new orders, shipments of durable goods rose 0.5 percent in June for the second month in a row. The increase was led by gains in shipments from non defense aircraft and parts (up 3.6 percent), primary metals (up 2.8 percent), and machinery (up 2.6 percent). The largest declines in durable goods shipments were found in the computer and electronic equipment (down 1.8 percent), defense capital goods (down 1.6 percent), and motor vehicles and parts (down 1.5 percent) sectors.

Inventories were up for the 18th straight month, with a 0.4 percent increase; meanwhile, unfilled orders increased 0.2 percent.

Overall, this report highlights continued weaknesses in the durable goods sectors, much as we have discussed before. The decline in new orders in June was dominated by decreased sales of civilian aircraft and a decline in auto production. Yet, even without those sectors, growth was flat. This release lends further credence to weak real gross domestic product data for the second quarter of 2011, which will be released on Friday.  I am expecting to see 1.3 percent growth for the quarter.

Moving forward, production in durable goods should pick up in the second half of this year. With that said, we will need to see more impressive growth in new orders in July and August if that is to come to fruition.

Chad Moutray is chief economist, National Association of Manufacturers.

Despite a bigger-than-expected decline of 1.3 percent, today’s Commerce Department’s advanced report on durable goods for November shows that manufacturing continues to lead the economy out of recession.  The overall decline in orders was driven by an 11.9 percent plunge in transportation orders, which are extremely volatile from month-to-month.  The good news in today’s report is that outside of motor vehicles and aircraft, new orders for durable manufactured products rose a strong 2.4 percent – the third increase in the past four months and the fastest monthly rise in eight months. 

 The gains last month were diffuse, taking place in every industry outside of transportation, ranging from metals, to machinery, to electrical equipment, to computers and communications equipment.  And for most of these industries, this was the second increase in the past three months, which signals that the manufacturing recovery is gaining some traction in the fourth quarter after production moderated in the third quarter. 

 After slowing in recent months, new orders for nondefense capital goods excluding aircraft, rebounded in November and grew by a solid 2.6 percent.  Given that these orders are a good proxy for business investment and exports, today’s report is a hopeful sign that manufacturing will continue to lead the economic recovery.