The Federal Reserve Bank of Dallas reported that manufacturing production has picked up, with the production index increasing from 5.5 in May to 15.5 in June. Approximately three out of five respondents said that their overall activity levels did not change, but those suggesting higher production levels rose. Similar findings were observed for capacity utilization, new orders, shipments, and employment. The pace of capital spending also rose slightly. In terms of pricing pressures, these have eased significantly.

The jump in manufacturing activity mirrored attitudes toward the larger macroeconomy. The index of general business activity improved from -5.1 last month (contraction) to 5.8 this month (expansion). Nonetheless, it did not change their views about their own company’s outlook by much, as this index edged marginally higher from 4.7 to 5.5.

Even with improvements in the current economic environment, the forward-looking indices show a degree of cautious optimism moving forward. On the one hand, nearly all of the measures reflect an expectation of higher output and employment six months from now. For instance, the expected production index rose from 31.6 to 33.0, with only 9.2 percent of respondents anticipating a decline in activity moving ahead.

Yet, the composite indices for the company outlook and general business activity declined somewhat, reflecting recent anxieties. Indeed, the sample comments seem to back this up, with discussions about recent “softness” in the market, “hesitation to move forward” on new projects, U.S. fiscal challenges, and the November elections. Perhaps reflecting this, the forward-looking measures for employment and capital spending reflect some easing, even as they continue to show expansion for both.

Meanwhile, other economic indicators tend to highlight why so many manufacturers are concerned about growth. The latest of these comes from the Chicago Federal Reserve Bank, which observed a sharp drop-off in economic activity in May. Its National Activity Index fell from 0.08 in April to -0.45 in May. In this index, zero values suggest that the macroeconomy is growing at its historical rate. Lower manufacturing production, which was down 0.4 percent, last month, was one of the contributing factors to the declining figure. Consumer spending and housing were also drags on the index, with employment measures neutral.

The lower figure for May helped to bring down the three-month moving average to -0.34. Values below -0.70 indicate an increased risk for recession. While a recession is not likely at this point, the pace of growth has certainly slowed considerably in the past three months. This was the third consecutive month of negative index values.

Chad Moutray is chief economist, National Association of Manufacturers.

The Federal Reserve Bank of Dallas reported that manufacturing production continued to expand modestly in May, but new orders slightly contracted. The result was a worsening of manufacturers’ perceptions about the current business environment, with the composite index falling from -3.4 in April to -5.1 in May.

The overall report, though, was not as bad as the headline number suggests. Respondents noted an improvement in their own company’s outlook, and production remained steady, down from 5.6 to 5.5 and suggesting modest growth in activity. Employment and capital expenditures also continued to expand, albeit with a somewhat slower pace for job creation than in April. With that said, there were a number of weaknesses to cite. In addition to contracting new orders, shipments and hours worked also fell.

Manufacturers in the Texas region, though, continue to be upbeat about the second half of this year. While there was increased pessimism about the general business outlook, various measures of their own company’s manufacturing activity remain strong (but with a slower pace of growth than reported last month). These include production, capacity utilization, new orders, shipments, employment and capital expenditures. Only 9 percent of respondents, for instance, expect production to fall six month from now, with over 40 percent suggesting it will be higher. Pricing pressures are expected to remain elevated.

Overall, this report mirrors several other regional surveys showing some production weaknesses in April and May, with more favorable assessments looking forward.

In other news, the Conference Board said that consumer confidence declined in May, building on reduced sentiment experienced in April. The consumer confidence index fell from 68.7 in April to 64.9 in May. This is a decline from its recent peak in February of 71.6. The current reading is essentially where it stood in December.

This survey found Americans more worried about pocketbook issues, particularly employment. Much of the decline, for instance, stemmed from a reduced opinion about the state of the current economic environment. The forward-looking component also fell, but not by as much. On the positive side, though, income expectations rose, and buying intentions for automobiles and appliances edged slightly higher. Home buying plans were mostly unchanged.

Interestingly, the University of Michigan’s similar survey reached a different conclusion on Friday, with lower energy costs and improved housing conditions lifting their confidence measure higher in May. This survey tended to move more on employment worries. The bottom line, though, will be whether consumer sentiment – regardless of whether it is slightly higher or slightly lower – impacts Americans’ willingness to spend. To date, the consumer has been willing to still make modest increase in his or her purchases, and that should continue.

Chad Moutray is chief economist, National Association of Manufacturers.

 Two narratives dominated last week’s economic discussion. First, as the Beige Book from the Federal Reserve Board stated, the economy “continued to increase at a modest to moderate pace in January and early February.” In his congressional testimony, Chairman Ben Bernanke was also quick to cite the important role that manufacturing has played in the recent rebound, with higher levels of activity reported in most areas of the country. Indeed, regional surveys from the Dallas and Richmond Federal Reserve Banks observed greater production activity and increased optimism for the next six months.

This upbeat assessment is shared by business economists at the National Association for Business Economics, who see a stronger outlook. Their consensus estimates for real GDP growth for this year and next are 2.4 percent and 2.8 percent, respectively. Adding to this sentiment, the Bureau of Economic Analysis (BEA) revised its estimates for fourth quarter 2011 growth up from 2.8 percent to 3 percent, led by increased consumer spending and business inventory accumulation. BEA also reported modest growth in personal income and spending for January, with strong gains in durable goods purchasing. Consumers, too, are more confident, according to the Conference Board, with their sentiments about the current and future economy at their highest level since this time last year.

In contrast to the more positive tone of many of these studies, the second narrative of last week focused on a series of indicators that unexpectedly declined. Most of us were anticipating growth for the Institute for Supply Management’s purchasing managers index, but it declined from 54.1 in January to 52.4 in February. This was led by a slower pace of growth for new orders, with production and employment also easing. Likewise, the Census Bureau reported reduced durable goods orders and construction spending in January.

In each of these cases, the longer-term trend remains a positive one and is in line with the first narrative. November and December figures were sharply higher, and so it might be expected to have some easing afterwards. Growth should resume in the coming months, especially as industrial production should grow around 4 percent this year. Even with that said, it is also clear that manufacturers are closely watching the events of Europe, once-again resurgent energy and raw material prices, and policy actions stemming from Washington. They remain cautious that one of these headwinds might derail growth, even with higher optimism overall.

This week, everyone will be focused on Friday’s jobs numbers. With 82,000 net new jobs created in the past two months, I anticipate continued improvements in employment for the sector, but perhaps not as large as were seen in November and December. Other key indicators of note include the release of revised productivity data on Wednesday and international trade findings on Friday.

Chad Moutray is chief economist, National Association of Manufacturers.

The Federal Reserve Bank of Dallas reported that manufacturing activity in Texas improved in February. The composite index of general business conditions rose from 15.3 in January to 17.8 in February. It had declined in December and was generally weaker – with either contracting activity or slow growth – for the second two-thirds of 2011. As such, the uptick in the first two months of 2012 is welcome news.

Behind the top-line figure, though, there was some mixed news. Production, capacity utilization, employment and capital expenditures grew in the month. Some of the manufacturing indicators eased somewhat from January. This would include new orders, shipments and raw material inventories. In each case they expanded, but just at a slower rate. Pricing pressures also rose.

In their forward-looking assessments, respondents remained optimistic about future activity, but these figures also eased a little. For instance, the future composite index fell from 22.3 to 15.9. Still, the level of activity reflected in these numbers remains high. On the production question, 47.6 percent of those answering the survey reported higher activity in the next six months, with 45.6 percent indicating no change from their expectations cited last month.

Therefore, one should not over-interpret the slight decline; it is clear that manufacturers are overwhelming optimistic about this year in these numbers. These findings are also clear when you look at the sample comments. While manufacturers in Texas expect to continue to grow, it is clear that they are closely following a number of headwinds that might derail their prospects.

In other news, economists from the National Association for Business Economists (NABE) see improvements in the underlying economy, according to their latest Outlook Survey. In general, business economists expect for real GDP to grow 2.4 percent in 2012 and 2.8 percent in 2013. Industrial production should increase by 3.5 percent this year.

They also anticipate stronger employment growth, with the unemployment rate falling to 8.1 percent by the end of this year. Nonfarm payrolls are expected to grow by 170,000 on average each month. Other expectations include gradual improvements in the housing sector, slower growth for exports, mainly due to global headwinds, and modest growth in consumer spending. Auto sales should be strong, particularly with high pent-up demand.

Chad Moutray is chief economist, National Association of Manufacturers.