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economic outlook Archives - Shopfloor

Manufacturing Production Edged Higher in September but Still Exhibits Hurricane-Related Softness

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The Federal Reserve said that manufacturing production edged up 0.1 percent in September, bouncing back ever-so-slightly from declines in each of the past two months. With that said, the data continue to reflect softness due to the hurricane-related reductions in activity from Hurricanes Harvey and Irma, and the Federal Reserve estimates that this subtracted 0.25 percentage points from growth in the month.

Beyond weather, we have seen a lot of volatility in the output data for the manufacturing sector since the spring—essentially seesawing from month to month since March. This has meant that production has grown been less than we would have desired or expected, especially given the more-robust outlook seen in other data sources. As a result, manufacturing production has risen by 1.0 percent over the past 12 months. While this is better than last year—when the year-over-year rate was -0.1 percent—we would prefer a faster pace of growth. Indeed, the year-over-year pace has drifted lower since April’s 1.8 percent pace.

Manufacturing capacity utilized was unchanged at 75.1 percent in September. Utilization rates have trended down since peaking at 76.0 percent in April, but capacity continues is slightly higher than the 74.9 percent rate seen at this time last year. Read More

New York Fed: Manufacturing Activity Expanded in October at a 3-Year High

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The Empire State Manufacturing Survey expanded strongly in October, growing at a three-year high. The composite index of general business conditions jumped from 24.4 in September to 30.2 in October, a pace not seen since September 2014. Activity in the New York Federal Reserve Bank’s district was buoyed by healthy monthly improvements in shipments (up from 16.2 to 27.5) and employment (up from 10.6 to 15.6), with hiring expanding at its fastest rate in eight years. At the same time, both new orders (down from 24.9 to 18.0) and the average workweek (down from 5.7 to zero) eased. Demand remained relatively robust, however, with 32.2 percent of respondents saying that orders had increased in this report.

Meanwhile, manufacturers in the New York region remained very upbeat about the next six months. The expectations composite index rose from 39.3 to 44.8, and it has averaged 41.2 over the past 12 months. In the 12 months prior to that, the average was 27.2, illustrating the acceleration in optimism seen for much of this year. Along those lines, growth in new orders (up from 43.7 to 44.8), shipments (up from 37.0 to 43.4) and employment (up from 13.8 to 17.2) strengthened in October to decent levels, with 55.4 percent of those completing the survey anticipating more sales in the months ahead. Pricing pressures (down from 42.3 to 41.4), capital expenditures (down from 24.4 to 21.9) and technology spending (down from 17.1 to 16.4) were also expected to grow strongly over the next six months, even with each decelerating slightly in this release.

Kansas City Fed: Manufacturing Activity Expanded at a Six-Month High in September

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The Kansas City Federal Reserve Bank said that manufacturing activity expanded at a six-month high in the latest survey data. The composite index of general business conditions edged up from 16 in August to 17 in September, its highest point since February. With that said, the underlying data were mixed. On the positive side, there was continued strength in production (unchanged at 22), shipments (up from 23 to 25) and employment (up from 14 to 18). Exports (up from 4 to 6) also grew modestly. At the same time, new orders (down from 25 to 10) and the average workweek (down from 9 to 7) slowed somewhat in September, even as the pace of growth for each remained decent overall.

Meanwhile, manufacturers continued to be optimistic about the next six months. The forward-looking composite index increased from 23 to 26. Roughly half of those completing the survey expect sales, production and shipments to be higher moving forward, with 37 percent and 32 percent seeing more hiring and capital spending, respectively. Beyond those issues, 49 percent of business leaders also predict a pickup in raw material costs in the months ahead.

Real GDP Growth in the Second Quarter Upped Slightly to 3.1 Percent

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The second revision to real GDP growth for the second quarter changed slightly from its last estimate. The Bureau of Economic Analysis upped its estimate of growth in the U.S. economy in the second quarter from 3.0 percent to 3.1 percent. While there were small tweaks in a few areas, the higher figure mainly corresponded with slightly better spending on inventories.

I continue to anticipate 2.2 percent growth for 2017 as a whole. However, Hurricanes Harvey, Irma and Maria will impact forecasts for the third and fourth quarters. I expect 2.3 percent growth in the third quarter, with weather reducing overall output by at least 0.5 percent in the current quarter. However, fourth-quarter growth will be better than predicted originally as the tremendous damage is repaired in Florida, Texas and the Caribbean. I estimate 3.0 percent growth in the fourth quarter—at least for now.

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Richmond Fed: Manufacturing Activity Expanded More Strongly in September

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The Richmond Federal Reserve Bank said that manufacturing activity in its district expanded more strongly in September, with activity accelerating at its fastest pace since February. The composite index of general business activity rose from 14 in August to 19 in September. Overall, this report continues to reflect a manufacturing sector that has made significant progress over the past year, and in September, new orders (up from 17 to 20), shipments (up from 8 to 22), capacity utilization (up from 10 to 16) and the average workweek (up from 10 to 16) indicated relatively solid growth. At the same time, employment (down from 17 to 15) in the mid-Atlantic region slowed slightly for the month, even as hiring activity remained quite robust. Read More

Dallas Fed: Manufacturing Activity Strengthened in September

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The Dallas Federal Reserve Bank reported that manufacturing activity strengthened once again. The composite index of general business activity rose from 17.0 in August to 21.3 in September, its fastest pace since February. Overall, the data reflect continued progress in the Texas economy, buoyed by a recovery in the energy sector most importantly. One year ago, the headline index was -2.1, and year-to-date through the first three quarters of 2017, it has averaged 18.6, illustrating significant improvements over the past 12 months. In September, the underlying data were mixed but still encouraging overall. This included new orders (up from 14.3 to 18.6), production (down from 20.3 to 19.5), shipments (up from 18.1 to 27.4), employment (up from 9.9 to 16.3), hours worked (up from 14.5 to 18.4) and capital expenditures (down from 14.5 to 13.6).

Moving forward, manufacturing leaders remained very positive about the next six months, with the forward-looking measure increasing from 29.2 to 34.5. More than 55 percent of those completing the survey felt that production would rise in the coming months, and 45.1 percent and 34.6 percent anticipate more hiring and capital spending, respectively. At the same time, pricing pressures for raw materials (up from 26.0 to 35.9) were also anticipated to accelerate somewhat.

New York Fed: Manufacturing Activity Growth Remained Strong in September

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The Empire State Manufacturing Survey continued to reflect strong growth in the sector in September. The composite index of general business conditions remained highly elevated despite easing from 25.2 in August, its highest level in nearly three years, to 24.4 in September. Encouragingly, there were faster paces of expansions in September for new orders (up from 20.6 to 24.9), shipments (up from 12.4 to 16.2) and employment (up from 6.2 to 10.6). The shift for new orders stemmed mostly from a decline in the percentage of respondents saying that their sales had declined relative to the month before, down from 21.5 percent in August to 13.7 percent in September. In this release, 38.7 percent said that new orders had risen for the month, down from 42.0 percent. Beyond those measures, the average workweek (down from 10.9 to 5.7) increased at a softer rate in September, but pricing pressures (up from 31.0 to 35.8) accelerated.

Meanwhile, manufacturers in the New York Federal Reserve Bank’s district remained upbeat about the next six months despite most of the forward-looking gauge pulling back a little in this report. The expectations composite index decreased from 45.2 to 39.3 but continued to suggest strong growth for the months ahead. More than 55 percent of those completing the survey predict better new orders over the next six months, with 26.0 percent and 32.5 percent anticipating increased hiring and capital spending, respectively. Technology spending (up from 9.3 to 17.1) also picked up.

Manufacturing Production Disappointed in August

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The Federal Reserve said that manufacturing production fell 0.3 percent in August, pulling back from being flat in July and declining for the first time since May. We have seen a lot of volatility in the output data for the manufacturing sector since the spring—essentially seesawing from month to month since March. This has meant that production has grown been less than we would have desired or expected, especially given the more-robust outlook seen in other data sources. In the August data, though, the main culprit was Hurricane Harvey, which the Federal Reserve estimates reduced production by 0.75 percent in August.

Yet, even with that weakness, the longer-term trend for output among manufacturers has been encouraging. Over the course of the past 12 months, manufacturing production has risen 1.5 percent. It was the tenth consecutive positive year-over-year reading for manufacturing output and definite progress from decline of 0.6 percent year-over-year seen in August 2016. Similarly, manufacturing capacity utilization decreased from 75.6 percent in July to 75.3 percent in August. Utilization rates have trended lower since peaking at 75.9 percent in April, but capacity continues to exceed the 74.7 percent rate seen at this time last year.

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