Tag: economic outlook

NFIB: Small Business Optimism Ticked Higher in August

The National Federation of Independent Business (NFIB) said that small business sentiment ticked higher in August, rising to its second-highest level in seven years. The Small Business Optimism Index increased from 95.7 in July to 96.1 in August. After peaking at 96.6 in May, the index eased somewhat in June, and August’s reading suggests that confidence has once again begun to climb back. Over a longer time frame, it is clear that small business owners have become more positive over the past six months, with the index at just 91.4 in February.

With that said, the underlying data were slightly mixed. On the positive side, the percentage of small business owners with job openings right now increased from 24 percent to 26 percent, continuing an upward trend. Along those lines, the percent planning to make capital expenditures over the next 3 to 6 months rose from 23 percent to 27 percent, its fastest pace since November 2007 (the month before the official start of the recession). On the topic of inflation, pricing pressures have decelerated a bit, with the net percentage of those predicting price increases over the next 3 months declining from 22 percent to 19 percent.

Yet, the report also reflected some soft spots. For instance, sales expectations over the next 3 months dipped from a net percentage of 10 percent to 6 percent. In addition, the percentage suggesting that the next 3 months were a “good time to expand” was off slightly from 10 percent to 9 percent. Nonetheless, the outlook data do reflect an upward trend overall, rising from 6 percent in February. For those saying that it is not a good time for expansion, the top reasons cited continue to be economic conditions and the political climate. Taxes were the listed as the “single most important problem” by 24 percent of respondents, followed by government regulations (19 percent), poor sales (13 percent) and labor quality (11 percent).

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

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Real GDP Growth in the Second Quarter Revised Higher to 4.2 Percent

The Bureau of Economic Analysis revised its real GDP growth figures for the second quarter, up from an estimated 4.0 percent at the annual rate to 4.2 percent. This reflects slightly better fixed investment and net export figures. With that said, the underlying story remains the same. The U.S. economy grew frustratingly slow in the first half of 2014, with the strong rebound in the second quarter coming after a decline of 2.1 percent. Averaging these first two quarters together, real GDP expanded just 1.0 percent at the annual rate.

Consumer and business spending were positives. Goods spending rose an annualized 5.8 percent, adding 1.3 percentage points to real GDP in the second quarter. This was led by strong growth in motor vehicles, household furnishings and appliances and recreational goods. In terms of fixed investment, there were healthy rebounds in business spending on structures and equipment, with the restocking of inventories alone adding 1.4 percentage points to growth. Personal consumption expenditures and gross private domestic investment accounted for 4.3 percentage points of real GDP growth.

The other two components of real GDP were mixed. Government spending added 0.3 percentage points, but reduced defense spending served as a slight drag on growth. The biggest disappointment continues to be the trade figures. Goods exports rebounded strongly in the second quarter, up 13.8 percent, but that followed an 11.9 percent decline in the first quarter. Meanwhile, goods imports rose 2.5 percent and 12.3 percent, respectively, in the first and second quarters. Overall, net exports subtracted 0.4 percentage points from real GDP in the second quarter. To be fair, this was better than 0.6 percent rate observed in the first estimate.

Moving forward, manufacturers are mostly upbeat, and I estimate real GDP growth of 2.8 percent for the current quarter and 3.0 for the second half of this year. Still, a number of risks abound, and business leaders and consumers remain cautious. Regarding trade, policymakers should do what they can to increase sales opportunities abroad, including reauthorizing the Export-Import Bank and pursuing new trade agreements. The need to pursue other growth policies extends to other areas as well, as this year has taught us that even an optimistic recovery can still be fragile.

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

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Small Business Confidence Ebbed Somewhat in June after Peaking in May

The National Federation of Independent Business (NFIB) said that small business confidence ebbed somewhat in June after reaching its highest level since September 2007 in May. The Small Business Optimism Index declined from 96.6 in May to 95.0. Despite the decrease, the Optimism Index averaged 95.6 in the second quarter, up from an average of 93.0 in the first quarter. This suggests that small business owner sentiment has mostly improved, even if it waned a bit in June.

Indeed, the underlying data paint a mixed picture of both encouraging news and persistent challenges. On the positive side, the small business labor market appears to be improving. The percentage of job openings that owners have not been able to fill has risen from 24 percent to 26 percent, its highest point in six years. Moreover, the net percentage planning to hire in the next three months increased from 10 percent to 12 percent – a definite improvement from the 5 percent recorded in March.

Nonetheless, the headline figure fell on a weaker outlook. Small business owners expecting the economy to improve six months from now decreased from zero to -10 percent. In addition, the net percentage of respondents anticipating increased sales over the next three months decreased from 15 percent to 11 percent. Capital spending plans also eased slightly, with the percentage expecting to increase their investments over the next three to six months down from 24 percent to 22 percent. Inventory plans also shifted into contraction for the first time since February, down from 1 percent to -1 percent.

The percentage of respondents saying that the next three months would be a “good time to expand” dropped from 10 percent to 7 percent, with continuing doubts about the economy and the political climate.  Taxes (cited by 22 percent) and regulations (20 percent) top the “single most important problem” list, and poor sales (13 percent) and quality of labor (11 percent) rounded out the primary concerns noted by small business owners.

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

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Business Economists Anticipate 2.5 Percent Growth in Real GDP in 2014

Economists with the National Association for Business Economics (NABE) expect the economy to pick up in the second half of this year. Yet, overall estimates for growth for 2014 as a whole have fallen over the course of the past few months, with activity starting off somewhat disappointing in the first quarter. Economists now estimate real GDP growth of 2.5 percent for this year, down from 2.7 percent in the March survey and 2.8 percent in the December survey. This implies growth exceeding 3 percent in each of the remaining three quarters this year. In addition, survey respondents anticipate 3.1 percent growth in 2015.

Looking at the manufacturing sector, business economists expect industrial production to accelerate this year, with current estimates of 3.7 percent for 2014. That would be an improvement from the 3.2 percent growth rate forecasted three months ago. These results are consistent with the mostly upbeat data seen in the latest NAM/IndustryWeek Survey of Manufacturers, which predicted 4.0 percent growth in manufacturing output through the end of this year and sales rising at their fastest pace in two years.

In terms of auto production, light vehicle sales should rise from an average of 15.5 million annualized units in 2013 to 16.1 million and 16.5 million in 2014 and 2015, respectively. Meanwhile, housing starts are anticipated to grow rapidly, particularly next year, up from an expected 1.03 million in 2014 to 1.30 million in 2015. Capital spending should improve, as well, with relatively healthy gains for fixed investments in nonresidential structures, equipment and software, and intellectual property products.

Labor market growth has picked up since the last survey, not unlike the data seen in the most recent jobs report. Those taking the survey predict that nonfarm payrolls will average 209,000 per month in 2014, up from 188,000 each month in the last survey. With that said, business economists still predict a slow decline in the unemployment rate, averaging 6.2 percent this year.

A number of special questions focused on the Federal Reserve Board and monetary policy. Over ninety percent felt that the Fed would end its asset purchase program by year’s end, with the vast majority feeling that it would end in the fourth quarter. Similarly, 86 percent felt that short-term rates would rise in 2015, with over half anticipating the federal funds rate to increase in the second half of next year. In terms of global worries, the majority of respondents feel that the Russia/Ukraine crisis will hurt growth in Europe (84 percent) and that China will face a debt crisis in the next few years (51 percent). At the same time, nearly half suggest that deflationary concerns will hinder the economic recovery in Europe.

Chad Moutray is the chief economist, National Association of Manufacturers. Note that he was one of the panelists for the NABE Outlook Survey. 

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University of Michigan: Consumer Confidence Rose to its Highest Level since July 2013

Consumer confidence jumped in April to its highest level since July 2013, according to the University of Michigan and Thomson Reuters. The Consumer Sentiment Survey’s index rose from 80.0 in March to 84.1 in April. This was an upward revision from the earlier estimate of 82.6 reported two weeks ago.

Looking over a longer-time frame, Americans’ attitudes have slowly rebounded over the past few months after bottoming out in October at 73.2 in the midst of uncertainties surrounding the government shutdown. Moreover, weaker labor market growth at the end of last year and beginning of this year was a factor in dampening confidence somewhat.

Now, it appears that the public has begun to recover from some of those worries. Survey respondents had the best view of the current economy since the beginning of the recovery, up from 95.7 in March to 98.7 in April. Likewise, the measure for the future expectations also increased from 70.0 to 74.7. While the forward-looking index remains subpar and reflects some nagging anxieties about labor and income growth, it is moving in the right direction.

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

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Business Economists Observe a Pickup in Activity in the Third Quarter

The National Association for Business Economics (NABE) said that sales and earnings improved in the third quarter. The latest NABE Industry Survey was slightly more upbeat than the slowdown that was observed in the second quarter report. The net percentage of respondents saying that their sales were rising rose from 20 percent in the second quarter to 30 percent in the third quarter. In the goods-producing sector (which includes manufacturing), 53 percent of those taking the survey noted increasing sales in the third quarter, up from 43 percent who said the same thing in the second quarter. Still, a sizable proportion, 41 percent of goods producers, had no change in their sales.

With the pace of new orders accelerating, the earnings picture was also better. The net rising index improved from -3 to 14, with one-third of respondents saying that their sales were increasing in the third quarter. At the same time, 19 percent reported declining sales, down from 25 percent the quarter before. This progress carried through to the goods-producing sector, but the data continue to reflect larger weaknesses, particularly relative to earlier in the year or to the beginning of 2012. There were 24 percent of goods producers with declining profits in the third quarter, down from 29 percent in the second quarter but up from zero in the first quarter. Meanwhile, just over half said that their profits were unchanged.

On the employment front, the pace of hiring slowed in the third quarter. There were 29 percent of industry economists in the second quarter noting increased hiring, and that rate fell to 27 percent in the second quarter. The bulk of businesses were making no changes to their employment levels, with 62 percent saying that hiring was unchanged. Similarly, almost half of goods producing firms were keeping their employment flat, with 35 percent adding to their workforce and 18 percent noting declines.

The survey also suggested that “a sizable minority” feel that the Affordable Care Act could have a negative impact on employment over the course of the next year. Eighteen percent of respondents said that it has had a negative impact on hiring over the last 3 months, with 22 percent predicting that it will have a negative impact over the next 12 months. Just over three-quarters said that it would have no impact.

In terms of forecasts, business economists tend to be cautiously optimistic about the next 12 months. Of those completing the Industry Survey, 69 percent think that real GDP will grow 2.1 percent to 3.0 percent between the third quarter of 2013 and the third quarter of 2014. That is not much different from the 70 percent who said the same thing three months ago. At the other extremes, 19 percent felt that output would increase by 1.1 percent to 2.0 percent, with 7 percent expecting growth of 3.1 percent to 4.0 percent. As such, the forecasts were just marginally higher than three months ago, particularly on the upside, but with a mostly modest outlook overall.

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

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Beige Book: Economy Growing at a Modest to Moderate Pace, Government Uncertainties Tempering Sentiment

The Federal Reserve Board said that “national economic activity continued to expand at a modest to moderate pace” in its latest Beige Book. With that said, eight Fed Districts noting “similar growth rates” while four others experienced a bit slower growth. Those four Districts were the Chicago, Kansas City, Philadelphia, and Richmond Federal Reserve Bank regions. In terms of manufacturing activity, the data reflected a sector that was expanding overall. Automotive and aerospace were bright spots, with positive stories for high-tech, energy, heavy equipment, and steel. Yet, the demand for fabricated metals and construction materials was mixed.

Government uncertainties were mentioned several times in the Beige Book. Examples included the following comments:

  • “Contacts across Districts generally remained cautiously optimistic in their outlook for future economic activity, although many also noted an increase in uncertainty due largely to the federal government shutdown and debt ceiling debate”
  • “Several Districts reported that contacts were cautious to expand payrolls, citing uncertainty surrounding the implementation of the Affordable Care Act and fiscal policy more generally.”
  • “While there was little immediate disruption from the federal government shutdown, [manufacturing] contacts were worried about the potential impact if the closing became prolonged.”

Hiring was growing modestly overall, with employment growth in the manufacturing sector somewhat spotty. Specifically, the report says the following:

In manufacturing, Boston indicated that hiring primarily was for replacement or to fill key needs, New York noted slower job growth, and Chicago reported that manufacturers were cutting back on overtime. Dallas cited scattered reports of hiring in high-tech, fabricated metals, and food manufacturing.

Overall wage and pricing pressures were somewhat minimal.  However, there were some upward wage pressures for some highly-skilled employees, including those in the manufacturing sector. Meanwhile, at least two Districts noted that manufacturing “capital outlays were primarily for productivity enhancing investments.”

In other analysis, consumer spending continued to grow modestly, with motor vehicle sales being one of the bright spots. Retails were mostly upbeat about the upcoming Christmas season. Construction spending continued to improve, but a “number of Districts reported concerns from homebuilders and realtors over rising mortgage rates.” At the same time, nonresidential construction activity was more varied, but up on balance.

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

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University of Michigan: Consumer Confidence Fell for Third Straight Month

Consumer confidence has declined each month since July, when it hit a six-year high, according to the University of Michigan and Thomson Reuters. The Consumer Sentiment Survey’s index declined from 85.1 in July to 77.5 in September to 75.2 in October. This was the lowest level of confidence since January’s 73.8 reading, when Americans were still in the aftermath of the fiscal cliff deal.

Frustrations with the current federal budgetary impasse, resulting in the ongoing government shutdown and pushing up against the nation’s debt ceiling, have wiped out the gains in sentiment observed earlier in the year. Note that this is a preliminary figure, with a final index number released on Friday, October 25. The October confidence numbers could be influenced one way or the other by how the budget debate evolves in the coming days.

The drop in consumer sentiment since the summer has come mostly from a diminished outlook for the economy. The expectations component’s index peaked at 77.8 in June and has dropped to 63.9 in October. The view of current economic conditions has been lowered somewhat over the past few months, but not by the same proportions as the future-oriented measures. The index for the current conditions decreased from its peak of 98.6 in July to 92.6 in September, but it actually edged slightly higher in October to 92.8.

Looking at the big picture, the drop in consumer confidence, which was also seen in a recent Gallup survey, highlights public frustrations with the political process and worries about economic growth. Previous results also focused on the slow rate of growth in the labor market, and these types of surveys have often hinged on pocketbook issues. The real test will come when we see how consumer anxieties impact spending. Unfortunately, due to the government shutdown, we did not receive retail sales data this morning which might have given us some clues about Americans purchasing patterns.

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

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Monday Economic Report – December 26, 2012

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

We end the year with mixed news on the economy and ever-present uncertainty about the U.S. fiscal situation. The Bureau of Economic Analysis upwardly revised its figure for third-quarter real GDP to 3.1 percent—a healthy increase from its original estimate of 2 percent. However, slowing global sales and anxieties about the fiscal cliff have caused consumers and businesses to pull back. Both the Manufacturing Alliance for Productivity and Innovation (MAPI) and the National Association for Business Economics (NABE) suggest that industrial production will grow more slowly in 2013. Overall employment is also not anticipated to change much from this year.

Several other data points suggest continued sluggishness, even as some point to modest improvements during the past month. The Conference Board’s Leading Economic Index declined in November and has been flat over the course of the past six months. The Chicago Federal Reserve Bank’s National Activity Index finds that the U.S. economy continues to operate below its historical average. Meanwhile, manufacturing surveys from the Kansas City and New York Federal Reserve Banks observe contracting activity levels, with uncertainties about the fiscal cliff negatively impacting hiring and sales. However, the Philadelphia Fed Manufacturing Survey noted improvements among manufacturers in its region, with the recovery from Hurricane Sandy explaining part of the progress.

The latest personal income and spending numbers also show the bounce back from the storm. Both had fallen in October but recovered somewhat in November. New durable goods orders also improved, with healthy gains across-the-board except for the aerospace sector. To be fair, durable goods activity remains below its peak in July, but the recent data are still a sign of progress. The key will be whether this can be sustained given the uncertainties noted elsewhere. Manufacturers appear to be cautiously optimistic about future activity despite their concerns about the fiscal cliff.

Housing continues to be a bright spot in the economy, much as it has throughout 2012. Permits rose to 899,000 in November, the fastest pace in more than four years. This is an important proxy of future residential construction. Overall housing starts remain on a slow-but-steady upward trajectory, even as they dipped slightly in November to 861,000. The sector is experiencing greater confidence, and while hurdles still hold back even stronger growth, the prospects are for housing starts to grow to at least 950,000 by the end of 2013.

This will be a shortened week due to Christmas, but there are some key economic indicators that will be released. Regional manufacturing activity in Chicago and Richmond is expected to show continued weaknesses. The other highlight will be the latest consumer confidence figures from the Conference Board. We will see if consumer sentiment declines in the Conference Board’s index, much as it did in the University of Michigan’s survey.

Chad Moutray is the chief economist, National Association of Manufacturers. Note that there will not be a report next week, with the scheduling resuming on Monday, January 7, 2013.

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