Tag: employment

Markit: Chinese Manufacturing Activity Contracted for the First Time Since May

The Chinese economy continues to slow, with the HSBC Flash China Manufacturing Purchasing Managers’ Index (PMI) contracting for the first time since May. The headline index declined from 50.0 in November to 49.5 in December. New orders (down from 51.3 to 49.6), output (up from 49.6 to 49.7) and employment (up from 48.7 to 48.9) were below 50 – the threshold signifying reduced activity – in December, with production declining for the second straight month. On the positive side, new export orders (up from 51.1 to 51.7) were still growing somewhat modestly. As such, this report suggests that the Chinese economy is ending 2014 much as it began it, with softness in the manufacturing sector. (continue reading…)

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ISM: Strong Gains in the Manufacturing Sector in October

The Institute for Supply Management’s (ISM) manufacturing purchasing managers’ index (PMI) grew strongly in October, rebounding after a disappointing headline figure in September. The main index rose from 56.6 in September to 59.0 in October, back to where it had been in August. As such, the August and October readings were both the highest levels since March 2011, suggesting healthy gains in the sector as we move into the fourth quarter. (continue reading…)

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Business Economists Anticipate “Steady” Growth in Second Half of 2014 and for 2015

Economists with the National Association for Business Economics (NABE) expect steady growth for the rest of this year and for next year. Respondents predict real GDP growth of 3.0 percent in the third quarter of 2014, 3.1 percent in the fourth quarter, and 3.0 percent for all of 2015. As such, it suggests that business economists feel that we have made significant progress in growth since weaknesses in the first quarter of this year.

You can see this rebound in the manufacturing figures, with panelists predicting 4.0 percent and 3.6 percent industrial production growth in 2014 and 2015, respectively. Each figure was marginally higher than in the June survey. These results are consistent with the mostly upbeat data seen in the latest NAM/IndustryWeek Survey of Manufacturers, which had sales, capital spending and hiring expectations at two-year highs. In terms of auto production, light vehicle sales should rise from an average of 15.5 million annualized units in 2013 to 16.3 million and 16.7 million in 2014 and 2015, respectively.

Meanwhile, housing starts should continue to move higher, up from an annualized 1.00 million in 2014 to 1.17 million in 2015, according to the panelists. Note that this reflects some easing in growth rates for the housing sector, as the June survey had predicted 1.27 million units by the end of 2015. The inability of business to obtain credit was the biggest factor for recent softness in the housing market, cited by 65 percent of those taking the survey. Yet, the longer-term trend remains positive.

The forecast was also encouraging in other areas. For instance, capital spending should continue to improve, with healthy gains for fixed investments in nonresidential structures, equipment and software, and intellectual property products. In terms of jobs, nonfarm payrolls should average 228,000 per month in 2014 and 211,000 in 2015. Business economists also expect the unemployment rate to drop to 5.7 percent by the end of 2015, down from 6.1 percent right now.

Regarding the Federal Reserve, nearly 70 percent of all respondents felt that the Fed would start raising short-term interest rates in either the second or third quarters of 2015.

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

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Monday Economic Report – September 29, 2014

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

The U.S. economy grew an annualized 4.6 percent in the second quarter of this year, its fastest pace since the fourth quarter of 2011. Consumer and business spending were the big bright spots in the real GDP report, with strong rebounds after softness in the first quarter. This latest revision reflected improved nonresidential fixed investment and goods exports data relative to prior estimates. At the same time, it is hard to forget that real GDP fell by 2.1 percent in the first quarter, with growth in the first half of 2014 expanding by a frustratingly slow 1.2 percent. Moving forward, manufacturers remain mostly upbeat. For instance, the Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) held firm at 57.9, its fastest pace since May 2010.

I estimate real GDP growth of 3.3 percent for the third quarter, which ends this week. Nonetheless, there are a number of downside risks, and business leaders and the public remain tentative in their optimism.

Along those lines, regional surveys from the Kansas City and Richmond Federal Reserve Banks continued to show expanding activity levels in their districts. The Richmond release found that activity has now grown for six straight months since winter-related contractions earlier in the year. It also reflected an uptick in production and demand, with the pace of hiring accelerating to its highest level since December 2010. All of this was encouraging. In the Kansas City district, manufacturers remained mostly positive, with more than half of respondents expecting increased production and shipments in the next six months. Among the issues cited in the Kansas City survey, manufacturers noted persistent challenges in attracting and retaining skilled workers. Other sample comments mentioned rising pricing pressures, both for wages and raw materials.

Turning to the global economy, the HSBC Flash China Manufacturing PMI edged slightly higher, up from 50.2 in August to 50.5 in September. This marked the fourth consecutive month with expanding manufacturing activity, improving from contractions in the first five months of the year. Yet, even with some signs of stabilization in China in recent data, the country is expected to continue to decelerate in its growth rates moving forward, something that it continues to grapple with. Similarly, the European Central Bank has struggled to cope with slow economic and income growth in the Eurozone, with persistent worries about deflation. Indeed, the Markit Flash Eurozone Manufacturing PMI eased yet again, down from 50.7 to 50.5. This was the lowest level of growth since July 2013, the first month that the Eurozone emerged from its deep two-year recession.

Meanwhile, housing data released last week were mixed. New home sales rose sharply, up from an annualized 427,000 in July to 504,000 in August. This was the highest level in more than six years, and the pace of sales in August starkly contrasts with what we have seen so far in 2014. This makes it likely that September figures will pull back a little, but the trend line remains promising. In contrast, existing home sales decreased 1.8 percent in August, which was disappointing given recent improvements. It is likely that August’s decline was the result of a strong July reading, with some easing probably inevitable. Moving forward, the expectation is that existing home sales should move higher, continuing a longer-run trend in the data since March.

This week, the focus will be on jobs. After a disappointing employment report in August, we anticipate better news in September. I would not be surprised if the zero jobs figure in August for manufacturing was revised higher, and I continue to expect manufacturing jobs gains to revert to an average of 12,500 to 15,000 per month for the rest of the year. Nonfarm payrolls should once again exceed 200,000 in September, an improvement from the 142,000 figure in August (which is also likely to get revised upward). Other highlights this week include the latest data on construction spending, factory orders, international trade, personal income and manufacturing activity in the Dallas Federal Reserve district.

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

real GDP forecast - sept2014

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ISM: Manufacturing Activity Expanded Very Strongly in August

The Institute for Supply Management’s (ISM) manufacturing purchasing managers’ index (PMI) rose very strongly, with the headline figure rising from 57.1 in July to 59.0 in August. This was the highest level since March 2011, and it reflected a robust recovery from weaknesses earlier in the year.  Indeed, new orders (up from 63.4 to 66.7) and production (up from 61.2 to 64.5) appear to be expanding at quite healthy paces, with indices for both exceeding 60 once again. The production measure has been over 60 for three straight months; whereas the new orders index was at its fastest pace since April 2004. Export sales (up from 53.0 to 55.0) were also improved.

The sample comments tend to echo these strong figures. As one electrical equipment manufacturer said, “Overall business is improving. Order backlog is increasing. Quotes are increasing. Much more positive outlook in our sector.” This pretty much summed up the increase in demand seen in many of the other comments, as well. Yet, those taking the ISM survey also noted some challenges, particularly the geopolitical risks and the ability to attract labor. The other concern noted in past surveys was pricing pressures, but they appear to have eased somewhat in August (down from 59.5 to 58.0).

On this latter point, the employment index was marginally lower (down from 58.2 to 58.1), but hiring growth has clearly picked up from recent months. The hiring index averaged 52.7, for instance, through the first six months of the year, further highlighting the July and August acceleration in the data. This should bode well for manufacturing jobs numbers out on Friday, which have averaged 22,000 between May and July and 15,000 each month over the past year.

Overall, this report shows that manufacturers are seeing strong growth more recently in demand and output, which is definitely positive given the disappointing start to the year. Manufacturing leaders are mostly positive about the second half of 2014, even as they are keenly aware of possible risks on the horizon. This includes geopolitical events, a cautious consumer and labor shortages, among other concerns. Still, it is nice to see the sector hitting on all cylinders, and the outlook for strong growth over the coming months remains positive.

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


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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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