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Weekly Economic Report – March 12

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With consumers and businesses more confident, the U.S. economy continues to expand modestly. An improved – but still weaker-than-desired – jobs picture is part of that. The U.S. added 227,000 net new jobs in February, or 1.2 million in the past six months. Manufacturing has played a significant role in the recent rebound and since the end of the recession. In fact, over the past three months, manufacturers have added 111,000 new workers as overall activity has picked up. The manufacturing sector has contributed over 13 percent of all net new jobs created in the nonfarm economy since December 2010.

To be fair, the recent job gains in manufacturing have not been as broad-based as we might prefer. They have stemmed primarily from durable goods producing industries, with nondurables continuing to lag. This trend has been fairly consistent over the past two years, yet it would be nice to see greater employment gains across-the-board. Of course, this also mirrors industrial production data, with stronger growth tending to concentrate among the motor vehicle, aerospace, fabricated metals, machinery and primary metals sectors.

One of the larger threats to growth is a slower global economy. Mario Draghi, the European Central Bank president, announced a lower forecast for real GDP growth, with output slightly contracting for the continent as a whole this year. Meanwhile, other economies are also slowing. China, for instance, just cut its growth target to 7.5 percent. This slower growth shows up in the international trade figures released on Friday. Goods exports dropped in most regions of the world, including those to China and Europe. Increased imports of petroleum were another factor, with the overall trade deficit widening for the third consecutive month.

This week, we will gain further insights into the strength of the current rebound. New industrial production figures will be released on Friday, following regional survey data from New York and Philadelphia. The Federal Reserve Board will also announce on Tuesday whether or not it intends to pursue any new monetary policies. As always, the Fed will be mindful of inflation, and later in the week, the Bureau of Labor Statistics will issue updates on both consumer and producer prices. In addition to those releases, other highlights for the week include updates on consumer and small business sentiment, job market turnover and retail sales.  

Chad Moutray is chief economist, National Association of Manufacturers.

Monday Economic Report

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The U.S. economy continues to expand, with last week’s manufacturing and housing indicators showing progress. While the top-line industrial production figure was unchanged, manufacturing production rose a healthy 0.7 percent in January, led by strong growth in the durable goods sectors. Manufacturers are producing 4.7 percent more than one year ago, and capacity utilization rates also are up significantly. Similar findings were observed in the New York and Philadelphia Federal Reserve Bank regions, which showed expanding activity and mostly positive trends moving forward.

News from the housing market was also more upbeat. Housing starts rose to nearly 699,000 new units in January, and with some revisions, new residential construction topped 700,000 in November – the highest level since October 2008. These figures remain well below the levels of a few years ago, yet it is nice to see the trend line moving higher. Data from the National Association of Home Builders echo these findings, with its Housing Market Index up from 14 in September to 29 in January. Still, significant financial obstacles continue to challenge many would-be homebuyers and hold back growth.

Despite continued anxieties, the American consumer has begun spending again, with retail sales up 0.4 percent in January. This trend can also be seen in the pricing data. Higher traffic in restaurants and hotels, for instance, has helped to increase these costs. Both consumer and producer prices rose in January and were lifted by larger food and energy expenses. Yet, a mild winter has helped to mitigate the run-up in gasoline prices, with home energy costs lower. Inflationary pressures remain modest, despite the fact that core inflation remains above 2 percent.

This week, only a handful of economic reports will be released. In addition to some housing data, we will learn about manufacturing activity in the Kansas City Federal Reserve Bank region, and the Chicago Fed will likely highlight continued progress in the economy with its National Activity Index.

Chad Moutray is chief economist, National Association of Manufacturers.

New York Manufacturers Remain Upbeat

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The New York Federal Reserve Bank’s Empire State Manufacturing Survey noted an acceleration in overall business conditions in February, with its composite index up to 19.5 from 13.5 in January. This continues an upward trend since November; prior to that point, the index indicated contraction for five straight months. With that said, the rate of increase of new orders eased somewhat; the index of new orders dropped from 13.7 to 9.7. Still, growth in new orders has expanded for three straight months.

Other variables were mixed, but remained expansionary overall. Shipments, capital spending and the average workweek improved, with their indices rising in February. Employment growth eased somewhat, though, and inventories contracted. Pricing pressures remained virtually unchanged.

Looking ahead, New York manufacturers remain highly optimistic about future activity. This is true even with the forward-looking business conditions index dropping from 54.9 to 50.8. Only 7.2 percent of respondents felt that business conditions had deteriorated, for instance. Other variables – including new orders, shipments, employment and capital spending – suggest a strong expansion over the next six months in manufacturing activity.

In a series of special questions on capital spending, 45.7 percent of respondents said that they planned to increase investments this year. This compares to roughly one-quarter of those taking the survey who forecast a decline. This mostly mirrors the responses found last year. The median capital spending level for 2012, though, was $375,000 – up from the median figure of $300,000 in 2011. 

Chad Moutray is chief economist, National Association of Manufacturers.

Monday Economic Report

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With fewer economic data points released last week, attention turned to the situation in Greece. Even with new austerity measures and debt restructuring plans, worries abound about the possibility of default and, more importantly, the larger implications for the entire Eurozone. Equity markets around the world reflect these anxieties about the European sovereign debt crisis. Manufacturers are closely following these developments, with nearly half of them in a recent survey suggesting that Europe’s challenges have impacted their sales. Indeed, manufactured goods exports have slowed recently in large part because of weakness in the European market.

Economic uncertainty also worries the American public. Despite improvements in recent employment and production numbers, the latest consumer confidence figures from the University of Michigan fell slightly on weakened perceptions about the current economic environment. A similar falloff in sentiment was observed in the most recent consumer survey from the Conference Board. Nonetheless, consumers are clearly more optimistic today than last fall, and they continue to spend, albeit more selectively than some might prefer. The challenge is that much of this spending has been with borrowers’ dollars. This was confirmed last week with the Federal Reserve’s report of a surge in additional indebtedness.

On a more positive note, manufacturers have stepped up hiring in the past couple of months. Job openings in December were up for both the manufacturing sector and the economy as a whole. There were 35,000 net new manufacturing hires in the month of December, an improvement from November’s 19,000. (Note that labor turnover data are reported with a lag, so the strong employment gains of January are not included in this analysis.) While employment levels remain well below where they should be, these numbers are obviously welcome news.

This week, we will learn more about recent manufacturing activity, with new industrial production figures and surveys from the Federal Reserve Banks in New York and Philadelphia. These reports are expected to show continued growth among manufacturers. In addition, the latest housing data are predicted to show additional residential construction in January, building off recent incremental gains. Finally, we will obtain the latest data on retail sales, inflation and small business sentiment.

Chad Moutray is Chief Economist, National Association of Manufacturers.

Manufacturing in New York Regions Gains Momentum

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The Federal Reserve Bank of New York reported that manufacturing activity gained momentum this month. The Empire State Manufacturing Survey’s general business conditions index jumped to 13.5 in January from 8.2 in December. This is the highest point since April and represents a turnaround from the June to October time frame, which noted contracting activity.

The news was generally positive across-the-board, with higher new orders, shipments, inventories and employment. Most importantly, manufacturers’ confidence in additional activity over the next six months also improved, with strong levels of growth expected overall. This includes more hiring and capital spending. Pricing pressures are also anticipated to accelerate.

In a series of special questions, 51 percent of respondents intend to increase employment in the coming months. This is an increase from the 41 percent who said the same in June. Stronger sales growth was the main reason cited. In terms of wages and benefits, 54 percent of manufacturers responding to the survey said that wages would increase by less than 2.5 percent this year. On the other hand, 71 percent said that benefit costs would rise by more than 2.5 percent.

Overall, this report is consistent with other regional and national indicators which show the domestic manufacturing sector picking up steam as we enter the new year. 

Chad Moutray is Chief Economist, National Association of Manufacturers.

Manufacturing Output Expands in New York and Philadelphia

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Two East Coast manufacturing surveys released this morning found that manufacturing output has expanded in the past month. This is notable because both of them have witnessed weaknesses in the summer and fall months, and recent improvements are highly welcome.

First, the Empire State Manufacturing Survey from the Federal Reserve Bank of New York observed a much-improved environment in the region. Its general business conditions index increased from 0.6 in November to 9.5 in December. This is two straight months of growth, following five consecutive months of contraction. In essence, manufacturing activity has gone from neutral last month to stronger growth this month.

Most of the key variables experienced growth from November, particularly for new orders, shipments and employment. Inventories, unfilled orders and the average employee workweek contracted. Raw material prices went up again, with the index for prices paid growing from 18.3 last month to 24.4 in December.

Manufacturers in the region are overwhelmingly positive about the new year. The forward-looking indicators were strong across-the-board, especially for new orders and shipments where over 60 percent of respondents said that they anticipated increases. (Given recent weaknesses in manufacturing activity, it is perhaps not surprising that the intensity of those suggesting increases in production should be so strong.) Other variables were also expected to grow over the coming months, including inventories, employment and capital expenditures.

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View from the States: Manufacturing in New York

By | Around the States, General | 2 Comments

Fresh from a trip to the great Empire State I had the opportunity to speak with many family and friends who are employed in manufacturing jobs in New York State. While many were cautiously optimistic about manufacturing’s recovery, all expressed a sense of uncertainty about the current economic outlook. As the Rochester Democrat and Chronicle reports, the Federal Reserve Bank of New York released its monthly manufacturing survey today that describes a tepid manufacturing recovery for the state.

The survey indicated:

…that orders and shipments declined, and that both prices paid and prices received inched down, according to Fed officials. But employment indexes were positive and higher than last July…

States certainly shape their own business environments for better or worse, but New York’s troubles can certainly be found all across the nation. A comprehensive, national strategy is called for, and for ideas on how to enhance New York’s and other states’ manufacturing economies we encourage all policymakers and political candidates to read the NAM’s Manufacturing Strategy for Jobs and a Competitive America.

Hope So

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From The Globe and Mail, Toronto, “Auto sector leads pack as U.S. factories show signs of life“:

The U.S. economy has found an unexpected bright spot: manufacturing.

Aided by a rebound in European and Asian economies, a depreciating U.S. dollar that makes exports more attractive and record low inventories, the country’s factory sector is slowly returning to life, and has become an unlikely, if unreliable, standard bearer for the nascent U.S. recovery – even in the long-blighted Northeast.

Autos are leading the way, with the cash-for-clunkers program sending consumers into showrooms, depleting inventories and prompting renewed activity at plants across the country.

Yes, but even supporters of the soon-to-be-discontinued cash for clunkers program acknowledge that it probably shifted demand forward rather than stimulate new demand.