Tag: economic outlook

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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