Fed Beige Book Archives - Shopfloor

Monday Economic Report – March 10, 2014

By | Economy | No Comments

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

The Federal Reserve Board’s Beige Book noted recent progress in the economy but also reported the negative impacts of weather in many of its districts. The Federal Reserve wrote, “The weather was cited to have caused utility outages, disrupted supply chains and production schedules and resulted in a slowing of sales to affected customers.” However, the slowdown in activity in these regions is temporary, and manufacturers across the country were generally “optimistic about the future and expect manufacturing activity to rise in the coming months.”

Economists have had to try to parse through the data to determine just how much of the recent softness has been due to the weather. This is not an easy task, but in my view, the various reports suggest the momentum we saw at the end of last year should return with warmer temperatures. The latest NAM/IndustryWeek Survey of Manufacturers, which will be released this morning, echoes this finding, with 86.1 percent of respondents being positive about their company’s outlook for the next 12 months, up from 78.1 percent three months ago. Sales, capital spending and hiring expectations were also higher; however, the smallest manufacturers continue to be less upbeat about the economy and their company’s future plans. The top business challenges were an unfavorable business climate due to taxes, regulations and government uncertainties (79.0 percent) and rising health care and insurance costs (77.1 percent), with the latter serving as a proxy for frustrations with the Affordable Care Act.

Purchasing Managers’ Index (PMI) data released last week suggest that manufacturing sentiment has already begun to rebound from weather-related weaknesses of the month before. The Institute for Supply Management’s (ISM) measure rose from 51.3 in January to 53.2 in February, with a faster pace of new orders. On the negative side, production contracted for the first time since May, and manufacturing activity remains below December’s levels. Yet, the improvement in domestic sales was a step in the right direction. Along these lines, the Markit U.S. Manufacturing PMI reflected an even larger rebound, up from 53.7 to 57.1, on much stronger growth in output and sales. As such, these reports give us hope that the declines in new factory orders in both December and January, particularly in the auto sector, will turn around in the coming months.

On the labor front, nonfarm payrolls increased 175,000 in February, somewhat higher than anticipated and better than the 84,000 and 129,000 observed in December and January, respectively. Still, hiring remains below the 194,250 additional workers created each month in 2013, reflecting the easing that we have seen recently. Manufacturing employment has also grown more slowly over the past three months, with just 6,000 new hires in February. Nonetheless, manufacturers have added new workers on net in each of the past seven months, consistent with the rebound in activity since the beginning of the third quarter of last year. Once weather-related weaknesses go away, we hope to see hiring in the sector pick up once again. Elsewhere in the jobs report, the unemployment rate increased from 6.6 percent to 6.7 percent with a slight increase in the size of the labor force. Still, the participation rate remains at levels not seen since the late 1970s.

In our first look at international trade data for the new year, the U.S. trade deficit widened ever so slightly, up from $38.98 billion to $39.10 billion. There was a significant jump in the petroleum trade deficit for the month, with weather impacts more than likely increasing demand and prices for crude oil rising. Manufactured goods exports increased modestly, up 1.2 percent in January relative to the same month last year. While our goods exports were somewhat lower to Canada for the month, the data suggest slight increases in many of our other major trading partners. We remain hopeful that improvements in the global economic landscape will yield better manufactured goods exports growth than the 2.4 percent growth rate in 2013. At the same time, any expansion would build on last year’s $1.38 trillion in manufactured goods exports, an all-time high.

This week will be a slower one for economic releases. Highlights will be new data on consumer confidence, job openings, producer prices, retail sales and small business optimism.

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

employment situation - mar2014

Monday Economic Report – June 10, 2013

By | Economy, General | No Comments

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

On many levels, last week’s economic indicators confirmed weaknesses in the manufacturing sector. The Institute for Supply Management’s (ISM) Purchasing Managers’ Index (PMI) dropped below 50—the threshold for growth—for the first time since November. New orders and production levels contracted, with hiring stalled. Some respondents cited softness in export sales, while others noted weaker domestic demand stemming from government spending cuts, higher payroll taxes and other uncertainties.

On the trade front, manufactured goods exports have grown very slowly in 2013, up less than 1 percent in the first four months relative to the same time frame in 2012. In April, goods imports outpaced exports, widening the deficit from $37.1 billion to $40.3 billion. Europe’s recession, in particular, has decreased sales overseas for our products, with sluggish growth elsewhere in many of our key markets.

These struggles have lessened businesses’ ability to bring on new workers. Manufacturing employment fell by 8,000 workers in May, the third consecutive monthly decrease. The sector has added 41,000 net new employees over the course of the past 12 months, just 1.9 percent of all nonfarm workers created in the economy. That pace is disappointing and a sign that we need the manufacturing economy to flourish again. While manufacturers were making outsized gains to output and employment as recently as a year ago, that pace has stagnated since then. As NAM President and CEO Jay Timmons noted in February in Detroit, a flourishing sector would yield an average of 20,000 new manufacturing workers each month. Read More

Monday Economic Report – January 22, 2013

By | Economy | No Comments

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

The Federal Reserve Board’s Beige Book, released last week, noted some improvements in the economy since last month. The United States is growing modestly, and inflation appears to be in-check, at least for now. This latter point was also confirmed in the most recent price data from the Bureau of Labor Statistics. Yet, the Beige Book also cited weaknesses in the manufacturing sector in many of its districts, with activity mixed and firms hesitant to hire. In fact, the labor market description showed the softer manufacturing market:

The Boston, Richmond, Atlanta, Chicago, Kansas City and San Francisco Districts all reported delayed hiring, often in defense manufacturing, due to fiscal cliff uncertainties. Companies in the Chicago District with trade or investment exposures to Europe reduced their hiring plans as well. Chicago reported that manufacturers are choosing to cut hours instead of reducing headcount in expectation of production rebounds in 2013. Atlanta and Kansas City cited health-care policy changes and costs as another cause for minimal hiring. On the other hand, the New York, Atlanta, Minneapolis and Dallas Districts saw the labor market firming modestly. Finally, contacts in several districts reported difficulties finding qualified workers in some specialized fields, such as skilled manufacturing, energy and IT.

Many other data points out last week tended to echo these weaknesses. Both the New York and Philadelphia Federal Reserve Banks found contracting sales, inventories and employment levels in their respective districts. The Philly survey cited slower sales growth, the desire to keep costs low and uncertainties related to health care and the U.S. fiscal situation as the top reasons why manufacturers were holding back on hiring. Despite this, manufacturing production increased 0.8 percent in December, building on November’s 0.6 percent gain. Hurricane Sandy might explain part of this increase, but modest consumer spending growth was probably also a factor. Retail sales rose 0.5 percent for the month and 4.7 percent for the year. Still, even with these gains, manufacturing production was much slower in the second half of the year compared to the first half.

The residential construction sector continues to be a bright spot, with housing starts soaring to 954,000 at the annual rate in December. This represents a 36.9 percent increase year-over-year and is a clear indication that housing is recovering. Freddie Mac reported that the average 30-year mortgage rate fell to 3.38 percent—a major contributor to the recent progress in the residential market—and home builder confidence continued to grow throughout the year. I expect for housing starts to exceed 1 million units by year’s end—a major accomplishment, even as it remains well below the 2.1 million homes built in 2005 and 2006. Despite this upward movement, challenges remain, especially regarding tougher lending standards and persistent financial challenges for would-be buyers.

This week, we will learn more about the domestic and global manufacturing situation. Surveys from the Kansas City and Richmond Federal Reserve Banks will build on their mixed findings in December. Last month, the Kansas City District had declining activity for the third straight month, whereas the Richmond area noted positive growth, albeit at a slower pace. Hopefully, both districts report stronger production and sales levels to begin the new year. Meanwhile, Markit will report its “flash” Purchasing Managers’ Index (PMI) for the United States, China and Europe. The most recent PMI data continue to show signs of weakness in the Eurozone, with even Germany experiencing declines. This contrasts with the United States and China, which have shown some signs of progress, despite growing only modestly at best. I would expect those same trends to continue.

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

Beige Book Cites Modest Growth, Concerns about the Fiscal Cliff

By | Economy | One Comment

The latest Federal Reserve Board Beige Book said that the economy “expanded at a measured pace in recent weeks.” With that said, Hurricane Sandy disrupted activity in the Mid-Atlantic regions, and many respondents throughout the country were very concerned about the implications of the fiscal cliff. This is causing many manufacturers, for instance, to worry about the 2013 outlook.

The manufacturing sector was singled out as one industry that continues to be soft. This is not a surprise to those who follow the regional manufacturing surveys from the Federal Reserve Banks, many of which continue have experienced weak or falling new orders and production. In addition to concerns about the fiscal cliff, many manufacturers have also seen their sales – particularly exports – decline. Employment growth, which has seen some modest growth overall, remains more sluggish for manufacturers.  Still, there were also some pockets of strength, namely in the heavy equipment and aerospace industries.

A couple larger strengths of note were rising consumer sales and continuing growth in the housing sector. Consumer spending has increased “at a moderate pace.” The news on the holiday season was positive, with retailers having “mostly upbeat expectations.” In addition, residential construction improved in many regions, along with commercial real estate.

Chad Moutray is chief economist, National Association of Manufacturers.

Fed Beige Book Shows Manufacturing Continuing to Expand

By | Economy | No Comments

The Federal Reserve’s Beige Book said that while manufacturing activity continues to expand, there has also been a notable slowdown in some areas. In particular, several regions have reported reductions in new orders, with the Philadelphia and Richmond Federal Reserve Banks observing contractions in shipments and orders.

One area of continued weakness continues to be the labor market, which the Fed describes as growing “at a tepid pace for most Districts.” Net hiring among manufacturers was also mixed, varying by region and sector. Even with these declines, respondents to these regional surveys remained cautiously upbeat about future production. Interestingly, its description of the weak labor market mostly paints an economic environment that is plagued by uncertainty. It writes:

The Boston, Cleveland, Atlanta, Chicago, and Dallas Districts said employment levels were flat to up slightly, with most contacts citing U.S. fiscal policy uncertainty or weak demand for their conservative approach to hiring. Kansas City said employers were reluctant to increase wages or hire full-time staff until economic uncertainty diminishes.

The Beige Book noted “largely positive” residential construction news, echoing the largest housing starts figures released earlier in the day. Retail sales were said to be higher. The report said, “Districts that saw an increase in [retail] activity mostly noted strength in auto sales.” One other positive has been the easing of pricing pressures, particularly energy costs have declined. Read More

Fed Beige Book: Economic Growth Continues to Expand Modestly

By | Economy | No Comments

Mirroring other economic indicators, the Federal Reserve Board’s Beige Book highlights “modest to moderate” growth in activity in recent months. It says, “Compared with prior summaries, the reports on balance suggest ongoing improvement in economic conditions in recent months, with most Districts highlighting more favorable conditions than identified in reports from the late spring to early fall.”

The report says manufacturing activity has picked up in most districts. According to their analysis, “The strongest reports came from subsectors such as heavy equipment manufacturing and steel, for which demand has been boosted by robust growth in the energy, agricultural, and auto manufacturing sectors.” Another positive for manufacturers has been the increase in consumer spending, which was driven largely by holiday sales. Export growth for manufactured goods has also been largely a positive.

There were exceptions to the trend of higher manufacturing activity, though, including some districts which were “stable” (Cleveland, Richmond and Dallas) or slightly declining (Kansas City). For instance, lower demand continues to be a challenge for manufacturers tied to the housing sector, and supply issues persist for some sectors because of the recent flooding in Thailand.

Pricing pressures, which have been a major challenge for manufacturers over the past year due to elevated energy and raw material costs, have eased somewhat. Price and wage increases have been limited. With that said, higher health benefit costs were cited as one compensation cost that was squeezing many employers.

This report is largely consistent with the last Beige Book release. While economic growth remains sub-par overall, there have been a number of modest improvements lately to say that the domestic environment is getting better. Still, the Fed continues to watch the developments in Europe and domestically very closely, as there continue to be a number of potential risks out there which could derail what progress has been made.

Chad Moutray is chief economist, National Association of Manufacturers.

Fed Beige Book: Economic Growth Increasing at a Moderate Pace

By | Economy | No Comments

The Federal Reserve Board’s Beige Book notes that all of the Federal Reserve districts except for St. Louis have reported a moderate pace of growth in the past month. In St. Louis, it says that there were “more plant closures than plant openings or expansions.” Overall, though, the Fed’s assessment of its regional economies was mostly upbeat. With a number of sectors experiencing improvements in activity, the only holdout mentioned explicitly was the real estate market, which continues to be “lackluster across most of the nation.”

Manufacturers have mostly noted increasing new orders, shipments and production. This finding has been observed in various regional sentiment surveys, as well. Manufacturing employment is also picking up and wages and salaries have remained stable. If anything, the Beige Book noted that some firms were finding it more difficult to find qualified applicants. On this point, the Fed said:

Boston, Philadelphia, Cleveland, Richmond, Atlanta, and Minneapolis noted that some firms looking to fill open positions were having difficulty finding qualified workers, particularly for high-skilled manufacturing and technical positions. Atlanta noted there was growing concern that the skills of the unemployed were deteriorating.

Pricing pressures, which have been a major challenge for manufacturers over the past year due to elevated energy and raw material costs, have eased somewhat.

Of course, this more-optimistic assessment of the U.S. economy stands in contrast to larger concerns about the global one. Earlier in the day, the Fed, along with its counterparts in Canada, the European Union, Japan, Switzerland, and the United Kingdom, agreed to provide more liquidity to the global financial system.  This coordinated action will lower the borrowing costs for U.S. dollar swaps, and in effect, it will help to ease some of the recent strains in European markets. World financial markets have reacted favorably to the move, with equity markets up significantly.

Still, it should be said that this action was more about symbolism than anything, as it was a sign of how serious these various central banks feel the current sovereign debt crisis has become. The solution to the larger issues will be harder to come by.   

Chad Moutray is chief economist, National Association of Manufacturers.

Beige Book Reports Manufacturing Output Grows, But at a Slower Pace

By | Economy | No Comments

The Federal Reserve Board of Governors released its Beige Book this afternoon, finding that the U.S. economy continues to grow, albeit more slowly than in its previous report. The report states that some Federal Reserve districts are experiencing faster growth in manufacturing activity than others. In terms of short-term expectations, “… the manufacturing outlook remained generally optimistic, but capital spending plans were somewhat more cautious.”

Parsing through the regional reports, it is quite instructive as to which sectors are growing or struggling. To the relief of many, auto production is starting to recover from its supply disruptions stemming from the Japanese disaster. Other sectors which are doing well include heavy trucks and equipment, metal fabrication, and high-technology products. Exports are clearly lifting overall demand for manufactured goods.

At the same time, the Boston district gives some clues about manufacturing sectors which are more challenged. The summary says, “Softer growth was reported [in the Boston district] by firms delivering consumer luxury goods and products or services to small business, banking and government sectors.” Moreover, manufacturing output has been much weaker in many of the East Coast districts, including New York, Philadelphia, Richmond, and Atlanta.

Chad Moutray is chief economist, National Association of Manufacturers.