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economic outlook

Richmond Fed: Manufacturers Continued to Expand Modestly in January

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The Richmond Federal Reserve Bank said that manufacturing activity in its district continued to expand modestly in January. The composite index of general business activity increased from 8 in December to 12 to January. That was the fastest pace of growth since March, representing the third straight monthly expansion in the mid-Atlantic region. Indeed, new orders (up from 11 to 15) and shipments (up from 12 to 13) each accelerated somewhat in the latest survey, with employment (up from -1 to 8) returning to positive growth in January after slipping a little in December. At the same time, capacity utilization (down from 10 to 8) and the average workweek (down from 11 to 5) slowed a bit in the latest report, even experienced decent growth. Read More

Markit: U.S. Manufacturing Activity in January Grew at Strongest Rate since March 2015

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The Markit Flash U.S. Manufacturing PMI grew from 54.3 in December to 55.1 in January, its highest level since March 2015. This mirrored faster pace of expansions for new orders (up from 55.6 to 57.3), output (up from 55.1 to 56.7) and exports (up from 50.3 to 51.1). Demand growth was the strongest since September 2014. On the other hand, employment (down from 54.1 to 53.3) decelerated a bit in January but remained mostly encouraging. Looking ahead 12 months, manufacturers were optimistic about future output (up from 64.3 to 69.4), with that forward-looking index at a nine-month high. Overall, this report provides some encouragement for manufacturers, many of whom have been rather cautious in their economic outlook for much of the past two years.

Meanwhile, it was a similar story to begin the new year in Europe. The Markit Flash Eurozone Manufacturing PMI increased from 54.9 in December to 55.1 in January, a level not seen since April 2011. As such, the continent’s economy continues to move in the right direction, with activity accelerating at a modest rate. The headline PMI has trended higher since bottoming at earlier in the year at 51.2 in February. Nonetheless, the underlying data were mixed – albeit still at decent paces – in the latest survey. New orders (down from 55.9 to 55.7) and output (down from 56.1 to 55.9) both eased a little in January, with the index for exports unchanged at 54.8. On the positive side, hiring (up from 53.5 to 55.2) expanded at its fastest rate since March 2011, helping to buoy the headline number. In addition, respondents were upbeat about future output (up from 63.7 to 66.5), with that measure at its highest point since January 2014.

There was stronger manufacturing performance seen in Germany (up from 55.6 to 56.5) in January, with activity at a three-year high. At the same time, manufacturers in France (down 53.5 to 53.4) edged slightly lower, but the bottom line was that activity in the country remained relatively strong, near its fastest pace in more than five years. As such, this remains an impressive accomplishment given that the French data were in contraction territory as recently as September.

Philly Fed: Manufacturing Activity Continued to Accelerate in January

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The Federal Reserve Bank of Philadelphia said that manufacturing activity expanded at its fastest pace in 26 months, continuing to accelerate as we begin 2017. The composite index of general business activity rose from 19.7 in December to 23.6 in January, its highest level since November 2014. In addition, sentiment has now expanded for six consecutive months, improving from broad-based weaknesses in late 2015 and early 2016. Growth in new orders (up from 14.9 to 26.0) also rose strongly, with 41.4 percent of respondents noting increased sales for the month, up from 31.6 percent in the prior release. At the same time, shipments (down from 21.7 to 20.5) and hiring (up from 3.6 to 12.8) were also encouraging, albeit with a slight easing in the former. Read More

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NFIB: Small Business Optimism Soared in December to its Highest Reading in 12 Years

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The National Federation of Independent Business (NFIB) said that sentiment among small business owners soared in December to its highest reading in 12 years. The Small Business Optimism Index increased from 98.4 in November to 105.8 in December. Respondents have responded quite positively in the aftermath of the election, hoping that the new Administration will bring about needed changes on the tax and regulatory front. Beyond the headline number, there were also significant jumps in the underlying data. For instance, the percentage of respondents suggesting that the next three months would be a “good time to expand” leapt from 11 percent to 23 percent, its fastest pace since the Great Recession. In addition, the percentage expecting sales to increase over the next three months rocketed from 1 percent in October to 31 percent in December, the largest level since October 2005. Read More

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ISM: Manufacturing Activity Accelerated to a Two-Year High in December

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The Institute for Supply Management’s (ISM) Manufacturing Purchasing Managers’ Index (PMI) accelerated to a two-year high in December. The composite index rose from 53.2 in November to 54.7 in December, its highest level since December 2014. It was the second consecutive increase in the headline number, mirroring the jump in business confidence seen in other economic indicators since the election. Indeed, all of the sample comments provided by the ISM echoed the improvement in activity and outlook, with the comments of one plastics of rubber products manufacturer summing up the thoughts of many: “Our business remains strong, and we are seeing continued growth.” Along those lines, respondents also cited a tight labor market and a pickup in inflationary pressures, both of which would also be consistent with stronger demand and output.

Looking more closely at the data, the underlying figures were encouraging in December, including very healthy gains for new orders (up from 53.0 to 60.2) and production (up from 56.0 to 60.3). It was the first time both of these measures have exceeded 60—signifying strong expansions—in 25 months, or since November 2014. Growth in export sales (up from 52.0 to 56.0) and employment (up from 52.3 to 53.1) also improved for the month. Read More

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Home Builder Confidence in December at Highest Level Since July 2005

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The National Association of Home Builders (NAHB) and Wells Fargo reported that the Housing Market Index (HMI) rose strongly, up from 63 in November to 70 in December. It was the highest level of confidence since July 2005, reflecting strong optimism among homebuilders in their economic outlook after the election. Index values greater than 50 indicate builders are more confident in their outlook than not, with numbers greater than 60 suggesting strong expectations for activity. Respondents were more upbeat in every region.

Builders continue to report healthy assessments about single-family home sales over the next six months. The index for expected sales jumped from 69 in November to 78 in December. Still, NAHB Chief Economist Robert Dietz cautioned that “builders remain sensitive to rising mortgage rates and continue to deal with shortages of lots and labor.”

Philly Fed: Post-Election Manufacturing Sentiment at 25-Month High

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The Federal Reserve Bank of Philadelphia reported that manufacturing activity expanded at its fastest pace in 25 months, expressing post-election optimism in its latest survey. The composite index of general business activity soared from 7.6 in November to 21.5 in December, its highest level since November 2014. In addition, sentiment has now expanded for five consecutive months, improving from weaker data earlier in the year. With that said, the underlying data were mixed, but still encouraging. Growth in new orders eased somewhat (down from 18.6 to 13.9), whereas shipments accelerated (up from 19.5 to 22.0), with both variables expressing relatively strong expansions.   Read More

New York Fed: Manufacturing Activity Grew at Fastest Pace in Eight Months in December

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The Empire State Manufacturing Survey said that manufacturing activity grew at its fastest pace in eight months in December, expanding for the second straight month. The composite index of general business conditions increased from 1.5 in November to 9.0 in December. As such, sentiment among manufacturers in the New York Federal Reserve Bank’s district has jumped post-election, expanding modestly and improving from weaknesses seen in the autumn months. This can be seen in some of the underlying data points, as well, especially new orders (up from 3.1 to 11.4). Indeed, the percentage of respondents suggesting that their sales rose in the month increased from 29.4 percent in November to 38.5 percent in December. Shipments (unchanged at 8.5) figures were also encouraging. Read More

For the First Time in 2016, the Federal Reserve Raised Short-Term Rates; Three Increases Seen in 2017

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The Federal Open Market Committee (FOMC) opted to raise short-term rates for the first time so far in 2016 at the conclusion of its December 13–14 meeting. The target of the federal funds rate was increased by 25 basis points, with the range now between 0.50 to 0.75 percent. This move was widely expected, with financial markets having already pricing in this move. Moving into 2017, FOMC participants appear to be more hawkish than they were three months ago, with economic projections appearing to forecast three rate hikes next year. That is up from a median prediction of two rate hikes at their September meeting. Beyond next year, Federal Reserve participants also see three increases in both 2018 and 2019.

To be fair, the Federal Reserve is playing catch-up a little here, with the bond market already sending yields significantly higher since the election. Indeed, yields on 10-year Treasury bonds have already risen more than 60 basis points since early November. Read More

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Manufacturing Production Edged Down Slightly in November Following Two Months of Gains

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The Federal Reserve said that manufacturing production edged down slightly in November, off 0.1 percent, after experiencing gains in both September and October. Manufacturers have struggled to increase demand over the past couple years, with a strong dollar and global headwinds dampening overall activity, but recent sentiment surveys – including the most recent one from the NAM – have reflected a rebound in activity. In that light, the latest production data serve as a disappointment, continuing to highlight ongoing struggles for the sector, even as other segments have seen progress. Along those lines, manufacturing production has risen just 0.1 percent on a year-over-year basis, suggesting essentially stagnant growth over the past 12 months. Manufacturing capacity utilization was also lower for the month, down from 74.9 percent to 74.8 percent. That was off from the 75.3 percent rate observed one year ago.   Read More