Tag: employment

Manufacturing Wages and Salaries Rose at Their Fastest Pace since 2001 in the Second Quarter

The Bureau of Labor Statistics released the latest employer costs data, showing wage pressures picking up in the second quarter. Manufacturing wages and salaries increased 3.4 percent at the annual rate in the second quarter, doubling the 1.7 percent pace observed in the first quarter. This was the fastest pace for manufacturing wage and salary growth since the fourth quarter of 2001, or 12½ years ago.

On a year-over-year basis, manufacturing wages and salaries have increased 2.2 percent, up from 2.0 percent in the prior quarter. As such, it suggests that overall wages in the sector have risen at a mostly modest pace over the past 12 months, but that pace has definitely accelerated of late. Given that inflationary pressures have also picked up, particularly for energy and food costs, the Federal Reserve will likely keep a close eye on what happens with wage growth moving forward.

Total compensation for manufacturers increased 2.0 percent at the annual rate, with 2.1 percent growth year-over-year. Compensation costs for manufacturers has also picked up so far in 2014, rising from a 1.8 percent year-over-year rate in the fourth quarter of 2013.

Still, the second quarter data benefited from a slower pace of growth for benefits, up just 0.3 percent at the annual rate. However, this followed a hefty 3.8 percent annualized jump in the first quarter, which was more than likely influenced by the implementation of the Affordable Care Act and higher health insurance costs. On a year-over-year basis, manufacturing benefit costs were up 1.9 percent, accelerating from 1.3 percent growth in the fourth quarter.

Chad Moutray is the chief economist, National Association of Manufacturers. 

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Richmond Fed: Manufacturing Activity Expanding at a Modest Pace

The Richmond Federal Reserve Bank said that manufacturing activity grew at a modest pace, expanding for the fourth straight month. The composite index of general business conditions edged slightly higher, up from 4 in June to 7 in July. Note that historical data in the Richmond Fed survey were revised in this edition to reflect new seasonal adjustments.

Despite the improved top-line figure, the underlying data were largely mixed. The biggest positive was hiring, with the employment index up from 4 to 13. This was the fastest pace of hiring growth since December, which was encouraging. Wage (up from 12 to 16) and shipments (up from 2 to 3) were also higher. Yet, new orders (5) expanded at the same pace, and both capacity utilization (down from 7 to 4) and the average workweek (down from 5 to 3) decelerated somewhat for the month.

Still, manufacturers in the Richmond Fed’s district were mostly upbeat about the next six months, with forward-looking measures increasing in July for many indicators. For instance, new orders (up from 27 to 34), shipments (up from 24 to 36), capacity utilization (up from 18 to 29), employment (up from 12 to 19) and capital expenditures (up from 18 to 19) were all higher, with each suggesting relatively healthy paces of growth.

Inflationary pressures have picked up a bit for the month, but remain mostly in-check. Manufacturers in the region said that prices paid for raw materials grew 1.99 percent at the annual rate in July, up from 1.47 percent in June. Looking ahead six months, respondents expect input costs to increase an annualized 1.89 percent, up only marginally from 1.84 percent the month before.

Chad Moutray is the chief economist, National Association of Manufacturers. 

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University of Michigan: Consumer Confidence Slipped Somewhat in July

The University of Michigan and Thomson Reuters said that preliminary data on consumer confidence slipped somewhat in July. The Consumer Sentiment Index unexpectedly decreased from 82.5 in June to 81.3 in July. The consensus expectation had been for a slight gain. Over the course of the last eight months (December to July), the index has averaged 81.8. In essence, after consumer attitudes recovered from the government shutdown in December, they have not really moved that much. The April reading of 84.1 is the one outlier in that time frame.

Looking specifically at the July data, it is clear that the drop in consumer sentiment in the month stemmed from weaker expectations about the future economy. The forward-looking component has declined from 74.7 in April to 71.1 in July. In contrast, views about the current economic environment were more mixed, with an improvement in July (up from 96.6 to 97.1) but with slightly weaker perceptions than seen in April (98.7).

This nuanced perception could be influenced by the competing news about the health of the U.S. economy, with disappointing data on real GDP growth in the first quarter perhaps outweighing better labor market headlines of late. Either way, it suggests that consumers continue to remain cautious.

We will get final data on July consumer sentiment from the University of Michigan on August 1. The Conference Board will also release its June survey data on consumer confidence on July 29.

Chad Moutray is the chief economist, National Association of Manufacturers. 

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ISM: Revised Data Point to a Lift in Manufacturing Activity in May

The Institute for Supply Management’s (ISM) manufacturing purchasing managers’ index (PMI) was originally report to have moved lower in May. The headline figure was said to have declined from 54.9 in April to 53.2 in May, rebuffing other sentiment surveys showing a rebound. Yet, later in the day, ISM announced that it had erred in its seasonal adjustment calculation, with May’s PMI value rising to 55.4 instead. As such, manufacturing activity has steadily risen in each month since January’s weather-related softness, with the PMI averaging 53.7 year-to-date. Still, this contrasts with an average of 56.3 from July and December 2013, suggesting that we still do not have the robust growth that we might prefer.

The sample comments note increased demand and “steady” business. Data for new orders (up from 55.1 to 56.9) and production (up from 55.7 to 61.0) were both higher. The output index’s figure marked the first time since December that the production measure exceeded 60. (It had exceeded 60 for five straight months at the end of last year.) On the hiring front, employment growth (down from 54.7 to 52.8) eased somewhat.

The one issue that tends to dominate many of the responses is prices. In fact, the index for prices of raw materials increased from 56.5 in April to 60.0 in May, back to where it was in February. This measure of pricing pressure has averaged 59.2 so far in 2014, up from 53.8 for 2013 as a whole. This information is consistent with other data showing producer prices accelerating of late.

In short, while manufacturing activity remains a mostly positive one, with manufacturers cautiously optimistic in their outlook. Yet, no one can dispute that economic growth has started the year off slower than we would like.

Chad Moutray is the chief economist, National Association of Manufacturers. Note that this post was revised to reflect updated ISM data. 

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Monday Economic Report – June 2, 2014

Here is the summary for this week’s Monday Economic Report:

The U.S. economy contracted for the first time in three years in the first quarter of 2014. Real GDP fell 1.0 percent in the quarter, a fairly substantial revision from the earlier estimate of a gain of 0.1 percent. Much of the storyline behind these figures was the same, with consumer spending on services being the only real bright spot. Purchases of durable and nondurable goods were positive, but weather-related challenges dampened both. Weaknesses in business spending for equipment and structures, residential housing investments and reduced goods exports were all major drags on growth.

The bulk of the downward revision stemmed from lower inventory replenishment. Ironically, that could lead to more inventory spending in the second quarter with stocks running lower. In addition, other figures also point to a rebound in activity during the spring months, with my forecast for second-quarter real GDP at 3.8 percent. Still, U.S. and global growth have started off 2014 much slower than anticipated, particularly when averaging together the first and second quarters. For the year, we now expect growth of 2.3 percent, which would indicate a slight downgrade from the more optimistic outlook predicted coming out of the strong momentum during the second half of last year.

The spring rebound in the manufacturing sector can be seen in other data released last week as well, albeit with some mixed news overall. For instance, new durable goods orders rose 0.8 percent in April, building on strong growth in February and March. Nonetheless, excluding transportation, new durable goods orders were up less robustly, suggesting some broader weaknesses beyond the headline monthly figure. Moreover, new durable goods shipments declined 0.2 percent in April, even as the longer-term trend remains positive.

At the same time, regional Federal Reserve Bank surveys show a similar recovery for manufacturers, but also some easing in the latest data. Manufacturing activity in the Dallas Federal Reserve district has now expanded for 12 straight months, but the pace of growth for new orders, production, capacity and employment eased in May. The Richmond Federal Reserve’s report also observed a deceleration in sales growth; however, it also noted a pickup in shipments and hiring. Perceptions about the current business outlook were unchanged, even as conditions had improved from winter weather earlier in the year. Looking ahead six months, respondents in both Dallas and Richmond remain mostly upbeat, even if this enthusiasm was a bit weaker in May.

The two surveys also indicated a rise in pricing pressure expectations, consistent with other reports showing some higher raw material costs. Indeed, prices for personal consumption expenditures have risen 1.6 percent year-over-year, up from 0.9 percent in February and 1.1 percent in March. April’s increase stemmed largely from higher energy prices, with food costs also up modestly (but at a slower pace than the month before).

Speaking of consumer spending, Americans decreased their purchases by 0.1 percent in April following two months of healthy increases. Year-to-date, personal spending has grown 1.6 percent, with purchases up 4.3 percent over the past 12 months. Meanwhile, the two consumer confidence measures—one from the Conference Board and the other from the University of Michigan and Thomson Reuters—moved in opposite directions in May, even as they continue to reflect rising sentiment over the past few months, particularly since the government shutdown.

This week, the focus will be on jobs and trade. We will get new employment numbers for May on Friday, which we hope will build on April’s strong figures. Manufacturers have averaged just more than 13,000 workers per month since August, and the expectation is for job growth in the sector around 10,000 or so in May. The consensus forecast is for 215,000 additional nonfarm payroll workers for the month, suggesting decent hiring. On the international front, we will learn if manufactured goods exports can improve from the rather disappointing rates so far in 2014, up just 1.1 percent in the first quarter of this year relative to the same three months in 2013. Other highlights include new data on construction, factory orders, productivity and Purchasing Managers’ Index figures from the Institute for Supply Management.

Chad Moutray is the chief economist, National Association of Manufacturers. 

percent change in real GDP - jun2014

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University of Michigan: Consumer Confidence Edged Slightly Lower in May

The University of Michigan and Thomson Reuters said that preliminary data on consumer confidence edged slightly lower, down from 84.1 in April to 81.8 in May. In essence, April’s figure has been outlier so far this year, with an average of 81.7 for the Consumer Sentiment Index for January through May. As such, consumer attitudes have recovered from their decline last fall surrounding the government shutdown, when the headline index bottomed out at 73.2 in October. But, confidence appears to have stagnated since rebounding in December (82.5).

Worries about slower-than-expected economic and labor market growth appear to have had a negative impact. The index for current conditions dropped from 98.7 to 95.1, likely on those concerns. At the same time, the forward-looking measures also decreased, down from 74.7 to 73.2. With all of that said, one might expect confidence to move higher if the economy starts to improve further, with job growth trending higher. The consensus expectation had been for confidence to rise in May, for instance.

We will get final data on May consumer sentiment from the University of Michigan on May 30. The Conference Board will also release its May survey data on consumer confidence on May 27.

Chad Moutray is the chief economist, National Association of Manufacturers. 

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Small Business Confidence Increased to its Highest Level since October 2007

The National Federation of Independent Business (NFIB) said that small business confidence rose to its highest level since October 2007. The Small Business Optimism Index increased for the second straight month, up from 93.4 in March to 95.2 in April. This represents a healthy upturn since February’s weather-deflated optimism level of 91.4. So far this year, the Optimism Index has averaged 93.5, slightly higher than 92.4 average observed in 2013.

With that said, the percentage saying that the next three months would be a “good time to expand” was unchanged at 8 percent, essentially where it has been all year (except for February). The good news was that this was higher than the 6.8 percent average from last year, but it does suggest that small business owners remain anxious about the economy despite recent progress. Taxes (cited by 22 percent) and regulations (20 percent) top the “single most important problem,” with “poor sales” (15 percent) closely following behind.

Regarding sales expectations, the net percentage of respondents saying that they expect sales to be higher in the next three months edged slightly lower from 12 percent to 10 percent. Still, this figure indicates progress on the sales front, averaging 10 percent year-to-date in 2014 versus the more-cautious 3.8 percent rate observed in 2013. Similarly, the net percentage of respondents planning to hire new workers rose from 5 percent to 8 percent, with the year-to-date average of 8 percent exceeding the 6.25 average from last year. Meanwhile, capital spending moved slightly higher, with 25 percent planning increased investments in the next 3 to 6 months, up from 24 percent the month before.

Chad Moutray is the chief economist, National Association of Manufacturers.

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ISM: Manufacturing Sentiment Picked Up Again in April

The Institute for Supply Management’s (ISM) manufacturing purchasing managers’ index (PMI) continued to move higher, recovering from weather-related softness in January. The overall PMI rose from 53.7 in March to 54.9 in April, its highest point so far in 2014. The sector continued to see modest growth in new orders (unchanged at 55.1), production (down slightly from 55.9 to 55.7), and exports (up from 55.5 to 57.0). One real positive was the increased pace of hiring, with the employment index jumping from 51.1 to 54.7.

The sample comments support the view that manufacturing activity has rebounded in the spring months. A fabricated metal products respondent said, “We think there is pent-up demand waiting for weather to break.” Several others focused on improvements in sales, employment, and export growth. Yet, the survey participants also noted some challenges, including difficulties hiring skilled workers, weak demand from Europe, and worries stemming from political turmoil in Russia and the Ukraine.

Overall, manufacturing confidence is rising, building off of uncertainties earlier in the year. Still, it is important to note that activity remains below the torrid pace seen at the end of last year. The ISM PMI values averaged 56.3 in the second half of 2013, with new orders and output averaging 61.8 and 62.6, respectively. As such, there is still room for improvement. Fortunately, manufacturing demand and production appear to be moving back in the right direction.

Chad Moutray is the chief economist, National Association of Manufacturers. 

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Kansas City Manufacturers Noted Continued, but Slower, Expansion in April

Manufacturers in the Kansas City Federal Reserve Bank’s region noted expansion for the fourth straight month in April, albeit more slowly than in March. The composite index of business activity declined from 10 to 7 for the month, with easing observed in other key variables, as well.

For instance, the index for production declined from 22 in March to 12 in April. Still, one should not over-interpret this decline, as March’s figure was a strong rebound from winter-related softness observed from December to February. The positive news was that 38 percent of survey respondents reported increased output in April, with 17 percent noting decreases. Likewise, new orders (down from 13 to 9) and shipments (down from 16 to 14) were still encouraging despite the decelerated figures in April. One downside in the report was exports, which stagnated.

On the employment front, the average workweek extended somewhat (up from 3 to 6) and hiring moved from being flat to small net increases (up from zero to 3). Yet, the sample comments make it clear that manufacturers in the District continue to struggle to recruit new talent. “We are challenged finding good people with the right skill sets,” one individual wrote.

Regarding the longer-term outlook, manufacturing leaders in the Kansas City Fed area continue to be mostly optimistic about the next six months. Nearly half of them anticipate increased orders, shipments, and production in the coming months, and over one-third plan to bring on new workers and to invest in more capital spending.

Chad Moutray is the chief economist, National Association of Manufacturers.

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China’s Manufacturing Sector Contracted for the 4th Straight Month; U.S. and Europe Strengthened

Chinese manufacturing activity contracted for the fourth straight month. Yet, the pace of the decline slowed, with the HSBC Flash Manufacturing Purchasing Managers’ Index (PMI) up from 48.0 in March to 48.3 in April. The data largely mirrored the recent deceleration seen in other economic indicators, including China’s real GDP falling from an annualized 7.7 percent in the fourth quarter of 2013 to 7.4 percent in the first quarter of 2014.

Despite the weaknesses, one could put a positive spin on the slightly better – but still contracting – levels of new orders (up from 46.9 to 47.7) and output (up from 47.3 to 48.0). On the other hand, employment (down from 49.3 to 48.6) and export sales (down from 51.4 to 49.3). Exports have now contracted in four of the past six months, which have no doubt negatively impacted overall manufacturing sentiment.

Meanwhile, the latest reports reflect renewed strengths in both Europe and the United States. While the Markit Flash U.S. Manufacturing PMI edged marginally lower (down from 55.5 to 55.4), production growth (up from 57.5 to 58.2) was at its highest level since March 2011. This was a sign that the sector has begun to move beyond the weather-related slowdowns observed earlier in the year. New orders (up from 58.1 to 58.9) and exports (up from 51.0 to 51.9) have also rebounded. Hiring eased a bit (down from 53.9 to 53.8), but still reflected modest growth.

At the same time, the Markit Flash Eurozone PMI increased from 53.0 to 53.3. This was the tenth consecutive monthly expansion on the continent for manufacturing activity. The higher figure in April was largely the result of the jump in output (up from 55.4 to 56.5), which was only barely below the three-year peak of 56.7 seen in January. Likewise, hiring also strengthened (up from 50.3 to 51.3), its highest point since September 2011.

Nonetheless, sales growth moderated slightly (down from 54.4 to 53.9), with exports unchanged (53.6). The good news was that both still reflected modest gains, and the recent gains in demand and production in Europe have helped to lift spirits, particularly given the severity of the two-year recession.

Chad Moutray is the chief economist, National Association of Manufacturers.

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