Tag: employment

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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Manufacturers Cite a Rebound in Activity in Richmond Fed District

The Richmond Federal Reserve Bank said that manufacturing activity in its District rebounded in April after contracting in both February and March. The composite index increased from -7 in March to 7 in April as manufacturers have begun to recover from weather-related weaknesses. The pace of new orders (up from -9 to 10) and shipments (up from -9 to 6) both picked up for the month, helping to lead to the overall index higher. Capacity utilization returned to growth, but just barely (up from -14 to 1), suggesting some stabilization.

With that said, the index for the average workweek was unchanged (2), and employment growth remained weak, but fortunately positive (up from zero to 4).

Looking forward six months, manufacturers in the region remained mostly upbeat about the future, but eased somewhat in April. For instance, the index for expected new orders dropped from 30 to 21. Still, this suggests relatively strong growth in sales over the coming months, with similar optimism for shipments, utilization, hiring, and capital spending. In all, it indicates that manufacturing leaders in the Richmond Fed District are hopeful in their overall outlook despite the slippage in the forward-looking measures in this survey.

Meanwhile, pricing pressures are anticipated to be quite minimal. The prices paid for raw materials edged down from 0.85 percent at the annual rate in March to 0.78 percent in April. Likewise, final goods prices rose just 0.30 percent, down from the 0.32 growth rate the month before. Pricing pressures six months from now also eased, down from 1.81 percent to 1.32 percent.

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

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California’s Manufacturing Sector Expected to Improve in the Second Quarter

Manufacturing activity in California is expected to improve in the second quarter, according to the A. Gary Anderson Center for Economic Research at Chapman University. The composite purchasing managers’ index (PMI) increased from 56.2 in the first quarter (January) to 58.5 in the second quarter (April). Indeed, manufacturers largely anticipate increased paces for production (up from 60.5 to 64.4) and new orders (up from 55.8 to 60.9). Roughly half of the respondents in the survey said that they thought sales and output would be higher in the second quarter.

Employment growth remained soft (down from 55.6 to 53.3). Looking at the specific responses, 24.1 percent felt that their employment levels would increase in the second quarter, with 11.4 percent saying that it would be lower. However, the bulk of responses (64.5 percent) said that their hiring levels would be unchanged for the quarter. One positive, of course, was that net hiring was positive, albeit only modestly so.

The PMI for nondurable goods (up from 56.7 to 58.2) advanced more than the one for durable goods industries (up from 58.1 to 58.3), which increased only marginally. Each was lower than it was one year ago, however, when durable and nondurable goods firms had index values of 60.3 and 60.9, respectively.

Overall, these data show that manufacturers in California see demand and production picking up this quarter. That is a good thing, but it is also worth noting that the pace of growth remains below the pace observed in mid-2013. Moreover, manufacturers in Orange County were less positive this quarter than in the last (down from 64.1 to 58.5) on slower new order and employment growth.

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

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Monday Economic Report – April 7, 2014

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

Manufacturers appear to be recovering from softness in the first two months of the year, mainly due to the number of severe winter storms. The Institute for Supply Management (ISM) reported that its Purchasing Managers’ Index (PMI) edged higher, up from 53.2 in February to 53.7 in March. Production began expanding again, with the pace of new orders and exports picking up slightly. Despite some degree of progress in March, sentiment remains lower than just a few months ago. PMI values averaged 56.3 in the second half of last year, with sales and output measures exceeding 60—indicating strong growth—each month from August to December.

Likewise, new factory orders increased 1.6 percent in February, partially offsetting the sharp declines in December and January. Beyond autos and aircraft, however, durable goods sales were just barely higher, suggesting more needs to be done for broader growth in the sector. Meanwhile, the Dallas Federal Reserve Bank’s manufacturing survey reflected a rebound in activity consistent with other Federal Reserve districts. Texas manufacturers remain positive about sales, output, hiring and capital spending moving forward. For example, more than half of respondents anticipate increased demand over the next six months. Still, some cited regulatory, pricing pressure, workforce and foreign competition concerns.

On the hiring front, Friday’s jobs numbers provided mixed news for manufacturers. The sector lost 1,000 workers in March, mainly due to declines in nondurable goods industries. This was particularly disappointing given consensus expectations that were closer to the ADP’s estimates, which had a gain of 5,000 workers for the month. Yet, revisions to January and February data provided some comfort, adding 15,000 more employees than original estimates. As a result, the longer-term trend for manufacturing did not change much despite March’s lower figure. Manufacturers have added more than 600,000 workers since the end of the recession, and since August, the sector has generated an average of 12,125 net new jobs per month. Another positive in this report was that the average number of hours worked and average compensation both rose, findings that mirror the rebound in overall activity.

Meanwhile, the latest international trade figures were also disappointing. The U.S. trade deficit widened from $39.28 billion in January to $42.30 billion in February. This was the highest deficit since September and the result of a decrease in goods exports and an increase in service-sector imports. Petroleum exports were also marginally lower. The numbers were particularly discouraging given that manufactured goods exports in January and February of this year were 0.6 percent lower than the first two months of last year. Still, outside of softness in our goods exports to Canada, the other top-five export markets for U.S.-manufactured goods registered increases year-to-date in 2014 relative to 2013. In addition, there remains cautious optimism that export sales will improve in the coming months.

This week, the focus will be on the release of the minutes from the March Federal Open Market Committee (FOMC) meeting. The minutes will provide additional insights on the internal debates that led the Federal Reserve Board to continue tapering but to also change its forward guidance for short-term interest rates. On Friday, the release of producer price data should continue to show that overall inflation remains minimal. Other highlights include the latest data on consumer confidence, job openings, small business optimism and wholesale trade.

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

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ISM: Manufacturers Have Begun to Move Beyond Winter Storms

The Institute for Supply Management’s manufacturing purchasing managers’ index edged slightly higher, up from 53.2 in February to 53.7 in March. This reflects modest gains in overall manufacturing activity since recent weather-related weaknesses. The good news was that production (up from 48.2 to 55.9) began expanding again. The pace of new orders (up from 54.5 to 55.1) also picked up a little, including export sales (up from 53.5 to 55.5).

The sample comments continue to note the negative impact of weather. A food and beverage leader put it bluntly when they said, “We need spring.” Others have begun to move beyond the winter struggles. For instance, a petroleum and coal products manufacturer said, “Business beginning to heat up, along with the weather.” Others noted their increasing optimism. This included the transportation equipment respondent who answered, “Business is good, and we are optimistic that orders will continue to come in at a decent pace.”

Hiring growth remains soft (down from 52.3 to 51.1), and sentiment continued to be lower than just a few months ago. The average PMI value from July to December of last year, for instance, was 56.3, with new orders and production averaging 61.8 and 62.6 during that time frame, respectively. Another positive was that the manufacturing sector has now expanded for 10 straight months.

Overall, manufacturers are cautiously optimistic about future sales and output, and there is hope that the momentum seen in the second half of 2013 return to produce strong returns for 2014. While growth in manufacturing activity remains below where it was at the end of last year, it appears that the drag from winter storms has begun to fade.

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

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Richmond Fed: Manufacturing Activity Contracted Once Again in March

The Richmond Federal Reserve Bank said that manufacturing activity in its District has contracted for two consecutive months. The composite index declined slightly from -6 in February to -7 in March, both of which represent a dramatic shift from the expansion noted in January (12). As such, respondents to the Richmond Fed survey did not observe the rebound from weather-related softness that was noted in similar surveys from the New York and Philadelphia Federal Reserve Banks.

Instead, growth continued to be lackluster, with new orders (unchanged at -9), shipments (down from -6 to -9), and capacity utilization (down from -7 to -14) all declining for the second straight month. Employment levels were flat. According to the Richmond Fed’s report, “A participant commented that weather has `wreaked havoc’ on demand for the past two months, but he anticipated that his company will be very busy once the weather improves.”

Indeed, manufacturers in the region remained mostly upbeat about the future despite the current weaknesses. The index for expected new orders six months from now improved from 15 in February to 30 in March, returning to where it was in January. Similar rises were seen in the forward-looking measures for shipments (up from 17 to 31), capacity utilization (up from 12 to 29), employment (up from 12 to 22), and capital expenditures (up from 9 to 18). The employment figure was notable because it suggested that the pace of hiring was now at its fastest pace since December 2010.

The prices paid for raw materials edged slightly lower for the month, down from 1.19 percent at the annual rate in February to 0.85 percent in March. Pricing pressures six months from now also eased, down from 2.25 percent to 1.81 percent.

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

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Business Economists Anticipate 2.8 Percent Growth in Real GDP in 2014

Economists with the National Association for Business Economics (NABE) expect real GDP growth of 2.8 percent in 2014, up from 2.5 percent predicted three months ago. This is true despite weather-related softness in January and February, with economists anticipating 1.9 percent growth in the first (or current) quarter. Respondents to the NABE Outlook Survey also predict 3.2 percent output growth for 2015, suggesting the U.S. economy will continue to accelerate into next year.

This is good news for manufacturers. Industrial production is expected to increase 3.2 percent and 3.4 percent in 2014 and 2015, respectively. This is mostly consistent with the positive outlook noting in the latest NAM/IndustryWeek survey. In terms of auto production, light vehicle sales should rise from an average of 15.5 million annualized units in 2013 to 16.0 million and 16.5 million units in 2014 and 2015, respectively. Meanwhile, housing starts are anticipated to grow to 1.07 million and 1.3 million this year and next.

A number of special questions focused on the Federal Reserve Board and monetary policy. Eighty percent of business economists expect the Fed’s quantitative easing program, with 57 percent anticipating the end of long-term asset purchases in the fourth quarter of 2014. In terms of short-term interest rates, the responses were more scattered, but more than half predict the federal funds rate to start to increase in 2015. Overall inflationary pressures are expected to stay under or at the Fed’s 2-percent goal, with consumer prices up 1.7 percent and 2.0 percent in 2014 and 2015, respectively.

Those taking the survey were asked about the biggest threats to the economic expansion, and the top choice was rising interest rates, cited by 27 percent of responses. This was closely followed by the regulatory environment (14 percent), financial instability in emerging markets (14 percent), and federal fiscal gridlock (11 percent).

Labor market growth has slightly decelerated since the last survey, as we have seen in recent jobs numbers. Nonfarm payroll growth should average 188,000 per month in 2014, down from the average of 197,000 in 2013. In the December survey, respondents had predicted 197,000 for this year. In 2015, business economists predict an average of 205,000 additional nonfarm employees each month.

Chad Moutray is the chief economist, National Association of Manufacturers. Note that he was one of the panelists for the NABE Outlook Survey.

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ISM: Production Contracted for the First Time since May, but Orders Pick Up

The Institute for Supply Management (ISM) provided a mixed view of the current state of the manufacturing sector.  First and foremost, it found that production contracted for the first time since May (down from 54.8 in January to 48.2 in February). This was a sharp contrast to strong growth in output observed from August to December, with the production index averaging 62.7 over that time frame. In addition, stockpiles of inventories also rose (up from 44.0 to 52.5) in February. Poor weather conditions have reduced output and overall activity over the past two months.

A few of the sample comments spoke to the negative impact of weather. A petroleum and coal products respondent said, “Bad weather hampered logistics across the country.” Meanwhile, an apparel manufacturer commented about reduced orders due to winter storms, with “raw material disruptions” and “back-ups at the ports” cited by a business leaders from the chemical industry.

Despite these challenges, the report also suggested that sentiment has begun to bounce back. The purchasing managers’ index (PMI) rose from 51.3 to 53.2. While this remains below the 56.5 seen in December, it was a step in the right direction, giving manufacturers some hope. Indeed, the pace of new orders picked up, increasing from 51.2 to 54.5. This improvement was in domestic sales, with exports easing slightly for the month (down from 54.5 to 53.5).

On the employment front, the pace of hiring was unchanged in February from January’s 52.3. This indicated modest growth in hiring, but below the stronger rate observed from August to December (which averaged 54.6). With new jobs numbers out on Friday for February, this could suggest a slight slowdown from the 15,500 average employment increase for manufacturers observed over the prior six months.

In short, weather has wreaked havoc for manufacturers this winter, negatively impacting sales, production, and shipments. The ISM data confirm this, with output shrinking for the first time in nine months in February. Yet, this report also indicates that new orders have begun to accelerate, an encouraging sign. Leaders in the manufacturing sector continue to be cautiously optimistic about growth in 2014, particularly with the strong momentum seen at the end of 2013. Hopefully, the softness seen of late will prove to be temporary, particularly to the extent that it was weather-related.

At the same time, the recent weakness also reminds us how difficult it is for strong growth to be maintained. Friday’s downgrade in real GDP was another reminder of this. For that reason, the NAM continues to push for pro-growth measures that will lift the economy and help to give additional momentum for manufacturers and the rest of the business community.

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

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Manufacturing Activity Growth Eased in Texas in February, But Continued to Expand

The Federal Reserve Bank of Dallas said that growth in manufacturing activity eased in February. In fact, the index for a company’s own outlook declined from 15.9 in January to 3.4 in February, with the percentage of survey respondents indicating improvements from the previous month dropping from 25.4 percent to 17.2 percent. In essence, manufacturers were less confident in the economic environment in February. Still, the longer-term trend remains positive, with the sector expanding each month since May 2013 and outlook for 2014 continuing to be mostly upbeat.

The February data were mixed, but mostly encouraging. New orders decelerated from 14.4 to 9.5, with the percentage of those saying that sales had risen for the months dropping from 31.7 percent to 28.1 percent. At the same time, other indicators suggested that production (up from 7.1 to 10.8), shipments (up from 9.2 to 13.3), employment (up from 8.6 to 9.9), and hours worked (up from 3.4 to 12.0).

As such, the drop in outlook stemmed mostly from slower sales, which was probably due mostly to weather. The sample comments tend to support that view. But, the data also show that manufacturers continued to increase output, hiring, and capital spending in the Dallas Fed region despite softness in new orders and weather-related effects elsewhere in the country.

Looking ahead six months, Texas manufacturers remain positive about future levels of activity. For example, 48.5 percent of respondents anticipate higher sales over the coming months. To be fair, this was down from 55.8 percent the month before, mirroring the drop in sentiment discussed above. Yet, they still indicate strong growth ahead. Similar findings can be noted for production, capacity utilization, shipments, employment, and capital spending over the next six months.

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

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Manufacturers Report a Sharp Drop in New Orders and Shipments in Philly Fed Region in February

The Federal Reserve Bank of Philadelphia said that manufacturing activity declined sharply in February, the net contraction since May. The Business Outlook Survey’s composite index of general business activity decreased from 9.4 in January to -6.3 in February. The difference-maker in this figure was the percentage of respondents who said that conditions had worsened in the month, up from 17.5 percent in January to 31.4 percent in February.

With that said, the decrease was more than likely due to poor weather conditions, much as we have seen in other data lately. To the extent that weather was the main factor, this pullback in activity should be temporary.

Nonetheless, February’s data reflected significant weakness in the Philly Fed region, with all of the key indicators down. Helping to lend credence to the weather argument, the index for shipments plummeted from 12.1 to -9.9 for the month, with the percentage of manufacturers reporting decreased shipments rising from 20.6 percent to 35.5 percent. Similarly, new orders (down from 5.1 to -5.2) and the average employee workweek (down from -5.3 to -7.0) were both in contraction territory.

On the positive side, overall hiring continued to expand, albeit modestly and with some easing from January (down from 10.0 to 4.8). Yet, even on the employment front, 56.9 percent of respondents made no changes in their workforce for the month.

Fortunately, the manufacturing community in the Philadelphia Fed district remains mostly positive about the coming months. Nearly half of them said that they expect sales and shipments to be higher six months from now, with just over one-quarter expecting to add workers and increase capital spending. Moreover, despite the dismal February numbers, those taking the survey were positive in their assessment of the first quarter of 2014. When asked about production in the first quarter relative to the last quarter of 2013, 54.7 percent said that they anticipated an increase, versus 28.0 percent that thought that output might fall.

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

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