economic outlook


Real GDP Growth in the First Quarter Improved to 0.8 Percent, but Still a Disappointing Start to Year

By | Economy, Shopfloor Economics, Shopfloor Main | No Comments

The Bureau of Economic Analysis said that the U.S. economy grew by 0.8 percent in the first quarter of 2016, up from the prior estimate of 0.5 percent. The revision stemmed from better fixed investment, inventories and net exports data. Nonetheless, it is clear that the economy remained challenged, with the improvements in these categories reducing the pace to which each was a drag on real GDP growth. Overall, U.S. economic growth has been disappointing through the first three months of 2016, extending the sluggishness seen at the end of 2015. Indeed, the underlying story remained the same as noted in the prior release. Consumers and businesses were cautious in the first quarter, dampening real GDP growth, and the strong U.S. dollar and struggling economies abroad meant that net exports subtracted from growth in the quarter.

We have become accustomed to having a bad first quarter following by a strong rebound in the second quarter. In 2015, for instance, first and second quarter real GDP growth was 0.6 percent and 3.9 percent, respectively. I continue to expect a rebound in the current quarter, as well, with my forecast for second quarter 2016 growth currently at 2.5 percent. For 2016 as a whole, I am predicting 2.0 percent growth. Read More

Kansas City Fed: Manufacturing Activity Continued to Decline in May

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The Kansas City Federal Reserve Bank said that manufacturing activity continued to decline in May, contracting for the 15th straight month. The Fed district continued to grapple with weaknesses in the agricultural and energy markets, with the strong dollar also challenging international demand. New orders (down from -2 to -3), production (down from -8 to -11), shipments (unchanged at -6), exports (down from -4 to -8), employment (down from -12 to -13) and the average employee workweek (down from -9 to -15) were all solidly in negative territory once again. Interestingly, respondents to this month’s survey were broken down into equally-divided groups, with one-third experiencing higher sales, one-third seeing reduced sales and the remaining one-third reporting no change in May.

Meanwhile, the forward-looking data suggest that manufacturers in the Kansas City Fed region are marginally positive about the next six months. The future-oriented composite index dropped from 10 to 4 but remained positive for the second straight month. The pace of growth for new orders (down from 20 to 15) and production (down from 25 to 15) remained decent moving forward, albeit with some easing in this release. At least 35 percent of those completing the survey anticipate demand and output to improve in the second half of this year, with no more than 24 percent seeing declines. On the other hand, exports (down from 1 to -3), hiring (down from 8 to -4), capital spending (up from -6 to -3) were each expected to decline over the next six months. This will likely mean that, even with some optimism for better activity ahead, business leaders will remain cautious.


Manufacturing Employment Rose in April after Following Sharp Declines in February and March

By | Economy, Shopfloor Economics, Shopfloor Main | No Comments

The current state of the manufacturing economy continues to be a give-and-take between signs that the sector is beginning to improve versus ongoing challenges related to global headwinds. The latest job numbers represent both of those views. On the one hand, manufacturers added 4,000 workers in April, a positive gain following two months of declines which was led by strength in the motor vehicle segment. Yet, hiring remained soft overall, with 23,000 fewer workers on net through the first four months of 2016. Indeed, manufacturing leaders remain cautious in their outlook, and as such, we continue to see weaker-than-desired job growth. Hopefully, that will improve moving forward, particularly if the manufacturing economy truly is beginning to stabilize. Read More


ISM: Manufacturing Activity Expanded for Second Straight Month, Slowing a Little in April

By | Economy, General, Shopfloor Economics | No Comments

The Institute for Supply Management’s (ISM) Manufacturing Purchasing Managers’ Index (PMI) expanded for the second straight month, albeit at a slower pace in April. The composite index declined from 51.8 in March to 50.8 in April, but even with the decrease, this represented progress in the manufacturing sector after contracting for five consecutive months from October through February. New orders (down from 58.3 to 55.8) and production (down from 55.3 to 54.2) each grew at decent rates for the month despite some easing in this release, and exports (up from 52.0 to 52.5) accelerated, increasing for only the third time in the last 12 months.

Last month’s release helped to fuel the narrative that manufacturing activity was starting to stabilize, and the current data mostly support that view. At the same time, though, manufacturers remain challenged by global headwinds and still-low commodity prices, and a number of economic indicators have been disappointing, highlighting the fact that business’ struggles are still far from over. The sample comments tended to echo this nuanced view of modest improvements, with some respondents noting a pickup in sales while others cited ongoing sluggishness. One’s perspective was likely industry-specific. Read More

regional Fed

Kansas City Fed: Manufacturing Activity Continued to Decline in April, but the Outlook Improved

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The Kansas City Federal Reserve Bank said that manufacturing activity continued to decline in April, contracting for the 14th straight month. Reduced crude oil prices, the strong dollar and weaknesses abroad have pressured the sector’s performance, especially since the district includes energy-intensive Oklahoma. With that said, the pace of decline slowed for production (up from -14 to -8), shipments (up from -15 to -6), exports (up from -10 to -4) and the average workweek (up from -10 to -6). New orders remained slightly negative (unchanged at -2), and hiring continued to lag behind (unchanged at -12). Despite the negative seasonally-adjusted figure, one-third of respondents had increased new orders for the month, with 29 percent citing declines.

Meanwhile, the forward-looking data composite index returned to positive territory, up from -2 in March to 10 in April, its highest level in 14 months. Indeed, manufacturers in the Kansas City Fed’s district appeared to be more upbeat in April, with greatly-improved assessments for future orders (up from zero to 20), production (up from 5 to 25) and shipments (up from 5 to 27). More than 40 percent of those completing the survey expected increases in each of those three activities over the next six months. In addition, more respondents expect increased employment (up from 1 to 8) and a longer average workweek (up from 3 to 8), with modest gains seen in the labor market. Nonetheless, it was not all good news. Exports (up from zero to 1) were anticipated to remain marginally positive over the coming months, and capital expenditures (up from -9 to -6) were expected to continue to contract.


The U.S. Economy Had Sluggish Start to 2016

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The Bureau of Economic Analysis said that the U.S. economy grew just 0.5 percent in the first quarter of 2016, signifying a sluggish start to the year. This was slightly below the consensus estimate of real GDP growth of 0.7 percent, and it was down from 1.4 percent growth in the fourth quarter of 2015. In many ways, the data for the first quarter mirrored the trends seen in the prior report, with drags on growth coming from fixed business investment and net exports. Consumer spending on goods was the difference-maker in this release.  While personal consumption continued to be one of the brighter spots, adding 1.27 percentage points to headline GDP growth, that increase stemmed almost entirely from spending on services. The gain from goods spending was negligible – adding just 0.03 percentage points. This finding is consistent with the disappointing retail sales numbers observed year-to-date, particularly for durable goods, and it was another sign that Americans have pulled back on their purchases as a result of anxieties in the economic outlook. Read More

Federal Reserve Leaves Rates Unchanged, as Expected, Signaling Caution Moving Forward

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The Federal Reserve left short-term interest rates unchanged, as expected, at the conclusion of the Federal Open Market Committee (FOMC) meeting. In its statement, the FOMC acknowledged that “economic activity appears to have slowed” despite progress in some areas, most notably in the labor market. As such, it left the federal funds rate at the ¼ to ½ percent target range that it established at its December meeting. More importantly, participants appear to not be a hurry to raise rate, expressing some caution moving forward. They write, “The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the long run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.”

At their prior meeting, the economic projections signaled two interest rate increases in 2016, each by 25 basis points. By itself, that was an admission that economic conditions no longer warranted four rate increases this year – the stated goal coming into 2016. The consensus among most economist had been for the FOMC to hike interest rates again at its June 14–15 meeting. That could still happen, but that will hinge on better data coming in between now and then. Hopefully, improvements in the broader economy would include manufacturing, which continues to lag other segments. With that said, this press release would seem to indicate that a June rate increase just became less likely.

Kansas City Federal Reserve Bank President Esther L. George dissented in her vote. She has established herself as an inflation hawk, and she would have preferred for the FOMC to have raised the federal funds rate to ½ to ¾ percent at this meeting.

Richmond Fed: Manufacturing Activity Expanded for the Second Straight Month in April

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The Richmond Federal Reserve Bank said that manufacturing activity expanded for the second straight month in April. The composite index of general business activity declined from 22 in March to 14 in April. More importantly, the relatively strong data seen in this report are consistent with some stabilization in activity following significant softness over the course of the past year. For instance, new orders (down from 24 to 18) and shipments (down from 27 to 14) each expanded strongly in April despite some easing in the pace of growth in this latest report. Capacity utilization (up from 17 to 18) accelerated slightly in April, its highest point since December 2010. In addition, the labor market variables continued to grow modestly, with some pullback for the month, including hiring (down from 11 to 8) and the average workweek (down from 16 to 9). Read More

durable goods

New Durable Goods Sales Rebounded Somewhat in March, but Weaker Than Expected

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The Census Bureau said that new durable goods orders increased by 0.8 percent in March, rebounding somewhat after the 3.1 percent decline seen in February. This was weaker-than-expected, with a consensus expecting a gain of 1.8 percent. Sales of new durable goods orders rose from $228.9 billion in February to $230.7 billion in March. Overall, demand remains quite soft, with the sector challenged by global headwinds and lingering anxieties in the economic outlook. Order volumes have been highly volatile from month-to-month over the course of the past year, with sales trending lower since peaking in 2015 at $241.0 billion in July. On a year-over-year basis, new durable goods orders have fallen 2.5 percent, down from $236.7 billion in March 2015. Even with transportation equipment sales excluded, year-over-year growth declined by 1.4 percent, with orders down 0.2 percent for the month, highlighting the broad-based softness of demand for durable goods over the past 12 months. Read More

Dallas Fed: Despite Negative Current Outlook, Texas Manufacturing Activity Picked Up in April

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The Dallas Federal Reserve Bank reported mixed news on Texas manufacturing activity in April. The composite index of general business conditions remained mired in negative territory, down from -13.6 in March to -13.9 in April. It was the 16th straight month with respondents having a negative outlook about the current economic environment. The sample comments mostly echoed these sentiments, highlighting ongoing challenges in the market. Yet, beyond the headline number, the data were more encouraging, suggesting some stabilization in activity in April. Indeed, measures for new orders (up from -4.8 to 6.2), production (up from 3.3 to 5.8), shipments (up from 0.3 to 7.1), capacity utilization (up from 3.3 to 8.2) and capital expenditures (up from -0.9 to 1.6) each accelerated for the month. To illustrate this progress, 30.1 percent of respondents cited increased new orders in April, up from 23.8 percent saying the same thing in March. Read More