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Monday Economic Report – December 14, 2015

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NAM manufacturing outlook index - dec2015The NAM Manufacturing Outlook Index declined from 45.8 in September to 40.5 in the most recent survey, falling below the historical average for the second consecutive quarter. Nearly 60 percent of respondents were either somewhat or very positive about their own company’s outlook, a sharp decline from the 91.2 percent who said the same thing one year ago. Manufacturers continue to wrestle with global headwinds and lower commodity prices, which likely dampened enthusiasm in this report, especially regarding export expectations, with roughly 58 percent suggesting that their firms were negatively impacted by the global slowdown. Capital spending and hiring plans pulled back materially from the prior survey, which we also saw in the latest job openings numbers. On the positive side, manufacturing leaders anticipate 1.4 percent growth in sales and production over the next 12 months. While this pace remained well below the 4.5 percent pace observed in December 2014, it does suggest that activity remains positive, albeit less than desired.

The top business challenge was an unfavorable business climate, cited by 77.3 percent of manufacturing respondents. Indeed, manufacturers continue to be frustrated with the lack of comprehensive tax reform and with a perceived regulatory assault on their businesses. Rising health care and insurance costs were also a major concern, cited by 72.2 percent as a primary challenge. Manufacturers see health insurance costs increasing eight percent over the next 12 months. Small and medium-sized firms anticipate health insurance premiums to jump faster in the next year than large manufacturers do, with rates rising 8.6 percent and 6.5 percent, respectively.
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Nonfarm Payrolls Increased by a Surprisingly Strong 271,000 Workers in October

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The Bureau of Labor Statistics said that nonfarm payrolls increased by a surprisingly strong 271,000 workers in October. This was well above the consensus estimate of around 180,000, and it suggests that hiring has begun to rebound again after a lull in August (153,000) and September (137,000). Even with some progress this month, it is worth noting that nonfarm payroll growth has averaged 206,200 per month year-to-date, down from 280,833 per month in the second half of last year. Meanwhile, the unemployment rate fell to 5.0 percent, which was the lowest level seen since April 2008. Moreover, the so-called “real” unemployment rate – which includes marginally attached workers by those employed part-time for economic reasons – was 9.8 percent, the first time this rate has fallen below 10 percent since May 2008. It peaked at 17.1 percent six years ago.

The overall strength in this report should serve to enhance the chances that the Federal Reserve will begin to raise short-term interest rates at its December meeting, which was already becoming the conventional wisdom. Read More

FOMC Minutes to the September Meeting Highlight the Debate on Timing of Rate Hikes

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The Federal Open Market Committee (FOMC) spent much of its time at the September 16-17 meeting debating the timing of when to begin normalizing short-term rates. Some participants argued that there were still sufficient downside risks in the economy and that inflationary pressures remained minimal – well below the Fed’s stated goal of two percent. Therefore, it did not make sense for the FOMC to wait for better signs of strength in the U.S. economy before starting the process of raising rates. This process was often referred to in the minutes as “policy firming.” In contrast, others said that “a prompt decision to firm policy could provide a signal of confidence in the strength of the U.S. economy that might spur rather than restrain economic activity.” Those same individuals also worried about the long-term pricing consequences of continuing to keep short-term rates near zero for so long. Read More

Manufacturers Lost Workers in September for the Second Straight Month

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The Bureau of Labor Statistics said that manufacturers lost 9,000 workers in September, extending the 18,000 declines seen in August. These numbers are disappointing, as they show just how sluggish growth has become in the manufacturing sector over the past few months, mirroring the stagnant ISM data released yesterday. Since January (or over the past eight months), the manufacturing sector has netted zero net new jobs, with 27,000 workers lost in just the past two months. In the second half of 2014, manufacturers were hiring at the more-robust pace of 20,667 workers per month on average, illustrating a significant pullback in employment growth year-to-date. Indeed, manufacturers have grappled for much of this year with headwinds from abroad, a strong U.S. dollar, gridlock in Washington on critical market-opening policies and lower crude oil prices – each of which have combined to dampen demand, production and hiring. Read More

Manufacturing Production Has Declined in Three of the Past Four Months

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Manufacturing production declined 0.5 percent in August, falling back after rebounding strongly in July. Overall, these data continue to show the sector struggling with a number of economic headwinds, with output down in three of the past four months. Capacity utilization for manufacturers increased from 76.2 percent to 75.8 percent. On a year-over-year basis, manufacturing production increased 1.4 percent in August, down from 1.5 percent in July. This represented a sharp deceleration in output from the 4.3 year-over-year pace observed in January. Read More

Second Quarter Real GDP Revised Sharply Higher, up from 2.3 Percent to 3.7 Percent Growth

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The Bureau of Economic Analysis revised its estimate of growth in the U.S. in the second quarter sharply higher. Real GDP increased 3.7 percent in the second quarter, significantly higher than the 2.3 percent original estimate released last month. This was slightly above the consensus estimate of 3.2 percent, and the improvement in economic growth for the quarter was attributed to upward revisions in many categories, but particularly for inventory spending. Despite the better headline figure, the underlying trends were largely the same, including rebounds in consumer and business spending and with net exports recovering a bit after serving as a drag in the prior two quarters.  Read More

Producer Prices Were Higher in June, Extending the Gains Seen in May

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The Bureau of Labor Statistics said that producer prices for final demand goods and services rose 0.4 percent in June, extending the 0.5 percent increase seen in May. The gains for the goods sector were even stronger. Indeed, producer prices for final demand goods jumped 1.3 percent and 0.7 percent, respectively, in May and June, with each month spurred higher by rising energy and food costs. On the energy front, energy goods were 5.9 percent and 2.4 percent more expensive in those two months, respectively. This was consistent with the rise in West Texas intermediate crude oil prices, up from an average of $54.45 per barrel in April to $59.82 a barrel in June. At the same time, final demand energy goods costs remain 17.9 percent lower today than 12 months ago. Read More

Personal Spending Picked Up Strongly in May

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The Bureau of Economic Analysis said that personal spending rose 0.9 percent in May, rebounding from a more-cautious 0.1 percent growth rate observed in April. It was the fastest monthly growth rate since August 2009. From the manufacturing perspective, this was welcome news, with spending on durable and nondurable goods up 2.2 percent and 1.9 percent, respectively. More importantly, it provides some encouragement that Americans might return to opening their wallets – something that there has been more hesitance to do so far this year. The year-over-year rate of personal spending in May, 3.6 percent, was the highest since December, up from 3.1 percent since in April. Read More

Monday Economic Report – June 22, 2015

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

Last week, one media outlet reported that manufacturing has been in a “technical recession” for the past six months. I am more hesitant to use the R-word to describe the sector’s performance year-to-date, and in my view, this description somewhat overstates the significance of broader market trends, particularly for expectations moving forward. At the same time, manufacturing production has declined since late last year, as illustrated in the graphic below. A number of significant economic headwinds have reduced output in four of the past six months, reducing the year-over-year pace of growth in the sector from 4.5 percent in November to 1.8 percent in May. Capacity utilization has also declined for five consecutive months, down from 78.1 percent in December to 77.0 percent in May. Read More