The Federal Reserve Board said that industrial production rose 0.8 percent in February, recovering from much weaker January data. The overall January production figure was revised to be unchanged. For manufacturers, production increased by 0.8 percent, an improvement from the decline of 0.3 percent the month before. On a year-over-year basis, manufacturing production has risen 2.0 percent, a slight pickup from the 1.7 percent pace observed in January. Manufacturing capacity also increased, rising from 77.8 percent to 78.3 percent.

Durable goods activity grew stronger than that of its nondurable goods sector counterparts, up 1.2 percent and 0.3 percent, respectively. The largest gainer was the motor vehicle sector, with a gain of 3.6 percent. The auto industry has seen its production rise 9.3 percent over the course of the past year, continuing its strong recovery and helping to boost the overall manufacturing and macroeconomic picture.

Other sectors with stronger growth in March included fabricated metal products (up 2.0 percent), furniture and related products (up 1.8 percent), machinery (up 1.7 percent), wood products (up 1.6 percent), nonmetallic mineral products (up 1.6 percent), and petroleum and coal products (up 1.4 percent). Reflecting the broad base of increases only three sectors experienced declines in production in February. These were primary metals (down 2.6 percent), printing and support (down 0.9 percent), and textile and product mills (down 0.4 percent).

Despite the good news of increased manufacturing activity, it is hard not to feel a bit underwhelmed by it all. Two percent growth in industrial production is certainly better than the alternative, but manufacturers really need to see much stronger growth in production in order for hiring and confidence to pick up and for the sector to once again produce outsized impacts on the macroeconomy. Note that this time last year, manufacturing production was growing at the 5.1 percent year-over-year pace.

Indeed, this was the thrust of much of NAM Chairman and CEO Jay Timmons’ keynote speech in Detroit last month. In it, he challenged policymakers to adopt pro-growth economic measures such that industrial production grew at an annual average of 4.5 percent or more, manufacturers added 20,000 net new workers each month on average, and real GDP rose at least by 3.5 percent annually. We can imagine the possibilities for manufacturers if this were to happen, with the sector adding about one million new workers in the next four years.

I say this not to pooh-pooh today’s decent industrial production numbers, which were positive and reflect a nice pickup in activity in February. But, it is important to remind ourselves that there is still much more work to be done for the economy to grow even stronger.

The Federal Reserve Board found that U.S. consumer credit was up 8 percent at the annual rate in May, its fastest pace of the year. Total debt is now $2.58 trillion. Revolving credit lines grew faster than nonrevolving debt this month, up 11.7 percent versus 6.6 percent, respectively.

Revolving credit accounts total $870.2, with nonrevolving loans equaling $1.7 trillion. Revolving accounts balances – including credit cards and other lines of credit – had fallen by 4.9 percent in April, so May’s figure represents a turnaround from the previous month’s decline. This suggests an increased willingness on the part of consumers to take on debt for their purchases.

The nonrevolving loan level is an all-time high. Much of the recent growth has stemmed from auto and student loans. To illustrate this growth, federal government balances from student loans are over $100 billion greater than one year ago.

These numbers reinforce the notion that consumers continue to spend, even if that means that they are going further in debt to do so. This is true, of course, even as overall personal spending in May was essentially flat.

Chad Moutray is chief economist, National Association of Manufacturers.

The Federal Reserve Board’s Federal Open Market Committee (FOMC) maintained its existing monetary policy actions, as announced in its statement released this afternoon.  Much of the wording of this statement was similar to the last two. The only part that changed was the paragraph describing the economy:

Information received since the Federal Open Market Committee met in January suggests that the economy has been expanding moderately. Labor market conditions have improved further; the unemployment rate has declined notably in recent months but remains elevated. Household spending and business fixed investment have continued to advance. The housing sector remains depressed. Inflation has been subdued in recent months, although prices of crude oil and gasoline have increased lately. Longer-term inflation expectations have remained stable.

Aside from the description of an improved economy, much of the rest of the text remained the same. On the topic of inflation, the Fed feels that pricing pressures remain subdued. In particular, the release says the following:

Strains in global financial markets have eased, though they continue to pose significant downside risks to the economic outlook. The recent increase in oil and gasoline prices will push up inflation temporarily, but the Committee anticipates that subsequently inflation will run at or below the rate that it judges most consistent with its dual mandate.

It left intact the policy – enacted at its January meeting – of “exceptionally low” levels of interest rates through late 2014. Because of this action, Jeffrey Lacker, the President of the Richmond Federal Reserve Bank, dissented once again. All of the other FOMC members voted in favor. 

The Fed will also maintain its plan to continue rebalancing its portfolio toward holding more long-term securities (“Operation Twist”) and reinvesting principal payments in mortgage-backed securities. The intent of this policy is to push interest rates – particularly those impacting mortgages – lower.

Overall, it was widely anticipated that the Fed would make no new moves at its March FOMC meeting. Recent improvements in the economy and developments in Europe have tended to lessen the drive for additional stimulus from the Fed, such as another round of quantitative easing. While pricing pressures have begun to accelerate again – led by higher energy and raw material prices – core inflation as a whole remains modest, at least for now.

Chad Moutray is chief economist, National Association of Manufacturers.

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.

The Federal Reserve Board reported that industrial production was unchanged in January, but manufacturing activity grew 0.7 percent. The growth in manufacturing production stemmed from higher durable goods activity, which was up 1.8 percent. Nondurable production fell 0.2 percent, but that follows the robust 1.5 percent gain of December. Meanwhile, manufacturers’ capacity utilization rate rose from 76.9 percent to 77.4 percent.

Industrial production remains 3.4 percent higher year-over-year. The fact that it was unchanged was due to less activity in the mining (down 1.8 percent) and utilities (down 2.5 percent) sectors.

For the manufacturing sector, production was 4.7 percent higher in January 2012 than in January 2011, with durables (up 8.3 percent) outpacing nondurables (up 1.1 percent). The largest monthly gains were in motor vehicles and parts (up 6.8 percent), machinery (up 2.2 percent), miscellaneous durable goods (up 2 percent) and apparel and leather products (up 1.9 percent). Declining sectors included petroleum and coal products (down 2.3 percent), wood products (down 1.5 percent) and nonmetallic mineral products (down 1.1 percent). 

Overall, these figures show a strong rebound in the manufacturing sector, with large increases in production in the last two months. To help illustrate this, the December figure was revised upward, now showing a gain of 1.5 percent for manufacturing production. With industrial production expected to grow at a moderate pace this year, manufacturers are helping to drive much of that growth.

While a number of significant headwinds might derail these predictions – including the developments in Europe – manufacturers by-and-large remain optimistic about activity over the coming months.

Chad Moutray is chief economist, National Association of Manufacturers.

The Federal Reserve Board’s Federal Open Market Committee (FOMC) is extending its policy of “exceptionally low” levels of interest through late 2014. Previous Fed statements – at least since August, when they originally started making this statement – had suggested that the federal funds rate would stay low through mid-2013. Aside from this, much of the statement was identical to its recent releases.

The extension of the time period through 2014 was met with a dissention from Richmond Federal Reserve Bank President Jeffrey Lacker, an inflation hawk and new member of the FOMC in 2012. Other new additions rotating on the FOMC this year include Dennis Lockhart (Atlanta), Sandra Pianalto (Cleveland) and John Williams (San Francisco). Each of them voted with the majority.

Regarding the economy, the Fed writes:

Information received since the Federal Open Market Committee met in December suggests that the economy has been expanding moderately, notwithstanding some slowing in global growth. While indicators point to some further improvement in overall labor market conditions, the unemployment rate remains elevated. Household spending has continued to advance, but growth in business fixed investment has slowed, and the housing sector remains depressed. Inflation has been subdued in recent months, and longer-term inflation expectations have remained stable.

Again, much of this is a repeat of the December statement with some minor tweaks. Despite some improvements in the domestic economy, the Federal Reserve remains worried about Europe and the continuing drags from an elevated unemployment rate and still-depressed (but slowly progressing) housing market.

In addition to extending its time horizon, the Fed plans to continue rebalancing its portfolio toward holding more long-term securities (“Operation Twist”) and reinvesting principal payments in mortgage-backed securities. The intent of this policy is to push interest rates lower – particularly those impacting mortgages.

Chad Moutray is chief economist, National Association of Manufacturers.

Update: As part of the Ben Bernanke’s new communication strategy, the Fed has begun providing a more complete view of its economic assumptions and targets. According to its new release, the FOMC states that its interest rate target is 2 percent. By clearly stating this goal, it will allow the public to “keep longer-term inflation expectations firmly anchored, thereby fostering price stability and moderate long-term interest rates and enhancing the Committee’s ability to promote maximum employment in the face of significant economic disturbances.”

Despite stating its target for interest rates, the Fed does not feel that it is appropriate to set a goal for employment. It determines that the longer-run normal rate of unemployment ranges between 5.2 and 6.0 percent, with the Fed’s ability to maximize employment more limited and constantly changing over time. 

In addition to this statement of targets, the Fed also released its economic projections over the coming years. Real GDP is expected to grow between 2.2 and 2.7 percent this year, which is slightly lower than its forecasts made in November.

The employment picture, though, improved from its earlier assessment, with the unemployment rate ranging from 8.2 to 8.5 percent. The November projection was between 8.5 and 8.7 percent. Note that the unemployment rate is still expected to fall very slowly, with the unemployment rate ranging from 6.7 to 7.6 percent in 2014, depending on the differing projections provided by various Fed officials.

Inflation is expected to range between 1.4 and 1.8 percent this year, an improvement from price increases experienced in 2011 and below the Fed’s key target of 2 percent.

The Federal Reserve Board reported that industrial production rose 0.4 percent in December, rebounding from the 0.3 percent drop in November. Year-over-year growth in industrial production is up 2.9 percent. Meanwhile, manufacturers’ capacity utilization edged higher from 75.3 percent to 75.9 percent for the month.

For the manufacturing sector, production rose 0.9 percent, led by healthy increases in both durables (up 0.9 percent) and nondurables (up 0.8 percent). Since December 2010, manufacturing production increased by 4 percent, with durable goods production increasing by 7.1 percent for the year. Nondurable goods production rose 0.8 percent year-over-year.

The largest monthly gains were in wood products (up 4.2 percent), primary metals (up 3.2 percent), machinery (up 2.1 percent) and plastics and rubber products (up 1.6 percent). Declining sectors included aerospace and miscellaneous transportation products (down 1.2 percent), paper (down 1 percent), nonmetallic mineral products (down 0.8 percent) and furniture and related products (down 0.8 percent).

These numbers suggest that manufacturing production is rebounding from weaknesses in recent months. The 0.9 percent growth rate in December was the highest level since December 2010 – a sign of strength as we move into 2012. More importantly, the gain was more broad-based than in recent months, with both durable and nondurable goods manufacturing activity picking up.

Domestic industrial production is expected to grow at a moderate pace this year. While a number of significant headwinds might derail these predictions – including the developments in Europe – manufacturers by-and-large remain optimistic about activity over the coming months. It will be important for policymakers to adopt pro-growth policies that will enable these optimistic sentiments to come to fruition.

Chad Moutray is Chief Economist, National Association of Manufacturers.

The Federal Reserve Board observed a steep increase in U.S. consumer credit in November, particularly for nonrevolving accounts. There was $14.8 billion in additional borrowing among nonrevolving debt – an annualized increase of 10.7 percent – which now totals $1.68 trillion. Revolving debt, meanwhile, increased 5.6 billion, or 9.5 percent, to $789.3 billion.  Overall debt levels are now just shy of $2.5 trillion and have increased in every month in 2011 except August.

Individual interest rates remain low, with the average rate for a 48-month new car loan being 5.45 percent. This is down from the 5.90 percent average in the third quarter of 2011. For credit cards, the average rate in November was 12.36 percent.

Commercial banks remain the largest holders of consumer credit, with $1.08 trillion in credit outstanding. Finance companies and the federal government follow with $502.5 billion and $416.3 billion, respectively. The largest increase occurred among student loans outstanding (e.g., the federal government), which grew from $409.9 billion to $416.3 billion. 

Chad Moutray is chief economist, National Association of Manufacturers.

The Federal Reserve Board reported that industrial production dropped 0.2 percent in November, weaker than expected and reversing October’s strong 0.7 percent increase. For the manufacturing sector, production fell 0.4 percent, its first decline since April. Year-over-year growth in manufacturing production is up 3.8 percent. Meanwhile, manufacturers’ capacity utilization dropped from 75.6 percent to 75.3 percent for the month.

In terms of manufacturing production, eight sectors experienced gains, with eleven having declines. Both durable and nondurable goods production fell for the month, down 0.1 percent and 0.4 percent, respectively. The largest declines were in motor vehicles and parts (down 3.4 percent), electronic equipment, appliances and components (down 1.8 percent), wood products (down 1.7 percent), printing and support (down 1.3 percent) and apparel and leather (down 1.1 percent).

Despite the overall decline, some sectors experienced increased production in November. The largest gains were in aerospace and miscellaneous transportation (up 2.1 percent), primary metals (up 1.8 percent) and paper (up 1.1 percent). In addition, overall production levels are higher for the year, with durable goods production up 7.1 percent and nondurables up 1.3 percent since November 2010.

There have been improvements in the manufacturing sector and overall domestic economy in recent months, and yet, today’s industrial production numbers show that weaknesses remain. The decrease in motor vehicle production was the biggest story – assisted by supply issues resulting from floods in Thailand and other issues. Nonetheless, even with auto production is excluded, manufacturing output fell by 0.2 percent.

The larger forecast for industrial production moving into 2012 is a positive one, suggesting modest growth for the sector for the new year. Nonetheless, weaknesses persist in the marketplace, and a number of headwinds – including developments in Europe – perpetuate anxieties among businesses and the public. It will be important to adopt pro-growth policies to help boost production and U.S. economic activity so that we can move beyond these weaknesses.

Chad Moutray is chief economist, National Association of Manufacturers.

The latest Senior Loan Officer Opinion Survey on Bank Lending Practices from the Federal Reserve Board mostly finds that conditions have not changed since the last survey, which was conducted in July. For instance, 86.3 percent of senior loan officers say that lending standards for large and middle-market firms (e.g., those with annual sales of $50 million or more) were unchanged, with 89.6 percent saying that there were no changes in standards to small firms.

Yet, aside from those numbers, this survey does point to much weaker demand for loans overall. For large and middle-market firms, 31.4 percent of loan officers said that lending demand was either moderately or substantially weaker than from the previous quarter. That percentage was 27.1 percent for small firms. This is a reversal from July, which found that lending demand was starting to turn around. In the previous survey, for instance, the net demand was positive; it has now shifted to becoming a net negative.

This is mostly a reflection of the weaker economy, since as noted earlier, lending standards were mostly unchanged. (For large and medium-sized firms, 9.8 percent reported eased lending standards, which contrasts with the 3.9 percent who noted tighter standards.) Of those firms which tightened standards, the majority of them said that an uncertain economic outlook was the primary reason.

Chad Moutray is chief economist, National Association of Manufacturers.