The Dallas Federal Reserve Bank reported that manufacturing activity expanded in February at its fastest rate since April 2006. The composite index of general business conditions increased from 22.1 in January to 24.5 in February, expanding for the fifth consecutive month after contracting for much of the past two years. The recent gains in business confidence can largely be attributed to better energy commodity prices and from a post-election boost in optimism, especially as it relates to expectations regarding pro-growth policies. At the same time, the sample comments also suggest a number of anxieties, including a strong U.S. dollar, uncertainties about trade policy moving forward and continuing challenges in attracting qualified labor. Read More
The Kansas City Federal Reserve Bank said that manufacturing activity expanded in February at its fastest rate since June 2011. The composite index of general business conditions rose from 9 in January to 14 in February, expanding for the third straight month. As such, manufacturing conditions have continued to improve after notable challenges over the past two years from global headwinds and reduced commodity prices, especially for crude oil. Outside of the headline number, the underlying indices also suggested relatively healthy gains in new orders (up from 20 to 26), production (down from 20 to 11), shipments (down from 20 to 16), employment (up from 6 to 17) and the average workweek (up from 9 to 15), even with some easing in a couple of these measures. Exports (up from -5 to 9) were also stronger in the month, with positive growth for the first time in 15 months.
At the same time, manufacturers continue to be quite upbeat about the next six months, mirroring sentiment seen in other recent regional reports. The forward-looking composite index edged up from 27 to 29, its highest reading in the survey’s 16-year history. To illustrate the figure, 59 percent of respondents expect production to be higher moving forward, with 18 percent seeing declines in output. More than half also anticipate increased sales and shipments, with one-third predicting more hiring and 39 percent planning more capital spending. The exports data were also encouraging, particularly given that they have been a major drag for the Kansas City Fed region over the past couple years, with that index up from 4 to 13, a level not seen since June 2013.
The Federal Reserve Bank of Philadelphia said that manufacturing activity expanded in February at its strongest rate since November 1983. The composite index of general business activity rose from 23.6 in January to 43.3 in February, with 48.2 percent of survey respondents suggesting that conditions had improved this month. Just 4.8 percent said that conditions had worsened. Other measures were also uplifting, including new orders (up from 26.0 to 38.0), shipments (up from 20.5 to 28.6) and the average employee workweek (up from 6.8 to 13.6). Growth in hiring (down from 12.8 to 11.1) continued to expand modestly despite some easing in the current release. Read More
The Empire State Manufacturing Survey said that manufacturing activity expanded at the fastest pace since September 2014, rising for the fourth straight month in February. The composite index of general business conditions jumped from 6.5 in January to 18.7 in February, with nearly one-third reporting a better environment today than last month. There were also notable improvements in new orders (up from 3.1 to 13.5) and shipments (up from 7.3 to 18.2). Indeed, the percentage of respondents saying that their sales were higher rose from 29.1 percent to 36.3 percent in this survey.
While other measures had made progress in recent months, employment had lagged behind. In this release, however, that started to change. Indices for the number of employees (up from -1.7 to 2.0) and the average workweek (up from -4.2 to 4.1) each shifted into positive territory, with hiring expanding for the first time since May 2016. Hopefully, we will continue seeing stronger labor market data in the coming months, particularly if demand remains strong. Read More
The National Federation of Independent Business (NFIB) said that sentiment among small business owners remained at a 12-year high in January. The Small Business Optimism Index edged up from 105.8 in December to 105.9 in January, with both at levels not seen since December 2004. 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. Along those lines, the percentage of respondents suggesting that the next three months would be a “good time to expand” has risen from 11 percent in November to 23 percent in December to 25 percent in January, its fastest pace since the Great Recession. In addition, the percentage expecting sales to increase over the next three months remained elevated, but eased in this report from 31 percent in December, its largest level since October 2005, to 29 percent in January. Read More
The Institute for Supply Management’s (ISM) Manufacturing PMI continued to grow rather strongly, accelerating to its fastest pace since November 2014. The composite index rose from 54.5 in December to 56.0 in January, and it marked the fifth straight monthly expansion in the headline number. New orders (up from 60.3 to 60.4) and production (up from 59.4 to 61.4) expanded strongly in January. Along those lines, the sample comments all point to healthier conditions and stronger demand in the manufacturing sector, which is very encouraging. In addition, employment also picked up the pace (up from 52.8 to 56.1), suggesting that manufacturers have begun to move past the more cautious approach to hiring seen just a few months ago. Read More
Consumer confidence pulled back a little in January after soaring to a 15-year high in December in the aftermath of the election, but it remained elevated. The Consumer Confidence Index declined from 113.3 in December, its highest level since August 2001, to 111.8 in January. This continued to represent a mostly positive assessment of the economy relative to perceptions just a few months ago. For instance, the index stood at 96.7 just six months ago. Americans’ view of current conditions (up from 123.5 to 129.7) improved in January. Whereas, the easing in the headline number mirrored somewhat reduced opinions about the future (down from 106.4 to 99.8). Note that the future expectations measure has also trended higher despite slipping in January, as it was 82.0 just six months ago. Read More
The Dallas Federal Reserve Bank reported that manufacturing activity expanded in January at its fastest rate since April 2010. The composite index of general business conditions increased from 17.7 in December to 22.1 in January, expanding for the fourth consecutive month after contracting for 21 straight months. The recent gains in business confidence can largely be attributed to better energy commodity prices and from a post-election boost in optimism, especially as it relates to expectations regarding pro-growth policies. Along those lines, key measures of activity were mostly higher in January, including new orders (up from 10.1 to 15.7), shipments (up from 5.8 to 15.8), employment (up from -3.4 to 6.1), hours worked (up from 3.1 to 9.1) and capital expenditures (up from 6.7 to 16.3). In addition, production (down from 14.8 to 11.9) and capacity utilization (down from 15.6 to 9.1) have also notched improvements in recent months despite some easing in the latest data.
Moving forward, manufacturing leaders were very positive about the next six months. The forward-looking measure jumped from 42.5 to 43.7, a level not seen in just over 12 years (December 2004). Indeed, nearly 62 percent of respondents expect increased levels of production and new orders in the months ahead, with 46.4 percent and 35.2 percent predicting higher employment and capital spending, respectively.
The Census Bureau said that new durable goods orders declined 0.4 percent in December. New orders decreased from $228.0 billion in November to $227.0 billion in December. However, these data have been skewed by volatility in the transportation equipment segment. Defense aircraft and parts orders plummeted 63.9 percent in December after soaring by 99.1 percent in November. Excluding transportation, new orders for durable goods were up 0.5 percent, rising from $152.6 billion to $153.4 billion, its fastest pace since October 2014. In general, these data reflect better performance after the sector has struggled mightily over the past two years on global challenges. On a year-over-year basis, new durable goods orders have risen 1.6 percent, with 3.5 percent growth since December 2015 excluding transportation equipment. Read More
The Bureau of Economic Analysis said that the U.S. economy grew 1.9 percent at the annual rate in the fourth quarter in preliminary data. This was slightly less than the consensus estimate for 2.2 percent, and it was slower than the 3.5 percent increase seen in the third quarter. Real GDP growth was buoyed by modest growth in consumer and government spending and by a continuing rebound in business investment, but net exports served as a drag on the headline number. Overall, the U.S. economy expanded 1.6 percent in 2016, down from its 2.2 percent post-recessionary average, and the year was mostly marked by an all-too-cautious approach to spending on the part of consumers and business leaders. Yet, by year’s end, that began to change – with many Americans and firms more willing to open their pocketbooks. Moving forward, I would expect 2.6 percent growth in real GDP in 2017 – a figure that can be assisted by pro-growth policies emanating from Washington including comprehensive tax reform, regulatory balance and investment in infrastructure.
Looking more closely at the underlying data, consumer spending on goods increased 5.2 percent at the annual rate in the fourth quarter, building on the 3.5 percent gain seen in the third quarter. This figure was boosted by strength in durable goods purchases including motor vehicles. Personal consumption expenditures added 1.70 percentage points to real GDP in the fourth quarter, with 0.58 percent coming from services and 1.11 percent stemming from goods spending.
Healthier business spending also served to boost real GDP growth, with gross private domestic investment adding 1.67 percentage points to the top line. It was the largest contribution to the real GDP since the second quarter of 2014. Residential and nonresidential fixed investment rose 10.2 percent and 2.4 percent in the fourth quarter, respectively, with both notching notable improvements from the third quarter. Indeed, residential spending rebounded from a sharp decline in the prior report, and equipment spending rose for the first time in five quarters. Inventories were also up significantly for the second straight quarter, accounting for a full percentage point of the 1.67 percent contribution in this category. Yet, it was not all good news, as nonresidential fixed investment in structures fell 5.0 percent in the fourth quarter.
Finally, manufacturers have been challenged over much of the past two years by a number of global headwinds. This has included a rapid appreciation in the U.S. dollar, as well as economic softness to many key markets. Along those lines, the contribution to GDP from net exports slipped back into negative territory in the fourth quarter for the first time in 2016, subtracting 1.70 percentage points to the headline number. (Put another way, if it had not been for net exports, real GDP growth in the fourth quarter would have been 3.6 percent, not 1.9 percent.) Goods imports jumped 10.9 percent in this release, with goods exports off by 6.9 percent.