The Bureau of Economic Analysis announced that real gross domestic product (GDP) rose 2.5 percent in the first quarter of 2013, according to initial estimates. While faster than the 0.4 percent growth rate experienced in the fourth quarter of 2012, this figure was below the consensus estimate of around 3.0 percent or higher that economists were expecting.

First, let’s look at the relative strengths in this report. The consumer continues to spend, albeit with a slight pullback in the first quarter. Goods consumption grew 3.3 percent, building on the 3.6 percent and 4.3 percent growth rates seen in the last two quarters of 2012, respectively. Durable goods spending accounted for the bulk of the increase, adding 0.62 percentage points to real GDP growth. Motor and other vehicles were a large part of this story. Nondurable goods, in contrast, contributed 0.16 percentage points to growth.

In short, the consumption of goods added 0.78 percentage points to real GDP, below the 1.02 percent seen in the quarter before. At least part of this easing could be explained by higher payroll tax rates, but this is still a relatively healthy increase. Meanwhile, service sector spending rose 3.1 percent, adding 1.46 percentage points to growth.

The largest contributing factor in the first quarter report was gross private fixed investment, which increased 12.3 percent and added 1.56 percent to growth. Almost all of that contribution, though, came from the replenishment of inventories (adding 1.03 percent) and spending on housing (adding 0.31 percent). (continue reading…)

The Bureau of Economic Analysis revised its real gross domestic product (GDP) estimates up in its second revision of growth for the fourth quarter of 2012. The latest data show that the U.S. economy grew 0.4 percent in the fourth quarter, which was in-line with consensus expectations. In this analysis, real GDP was an improvement from the original estimate of a 0.1 percent decline, and it also exceeds the 0.1 percent growth rate seen in the first revision. The revised data reflect increased contributions from nonresidential fixed investments and exports.

For the most part, the overriding story line has not changed much from the original release. The primary drags on growth were reduced spending on inventories and sharply lower defense spending figures. Decreased defense spending alone subtracted out 1.28 percentage points from real GDP in the quarter, with private inventories reducing output by another 1.52 percentage points. Hence, if it were not for those two factors, real GDP growth could have exceeded 3 percent.

This suggests that there were areas of strength in the economy to counteract those negatives. This mainly came in the form of higher consumer spending and business investment. Spending on goods and services rose 1.8 percent in the quarter, with the strongest growth coming from durable goods purchases. Goods purchases added 1.0 percentage point to real GDP. At the same time, there were large increases in fixed investment, both residential and nonresidential, which contributed another 1.69 percentage points to real GDP.

Looking ahead, we will closely be looking for the initial estimate of real GDP for the first quarter of 2013. It will be released on Friday, April 26, and we are currently expecting this figure to reflect 2.3 percent growth in output. This is higher than originally expected, as several indicators have come in stronger than the consensus. (continue reading…)

The Bureau of Economic Analysis revised its real gross domestic product (GDP) estimates up from the previously released -0.1 percent to +0.1 percent growth in the fourth quarter of 2012. While this suggests that the U.S. economy eked out some slight growth last quarter, it also means that the economy was essentially flat.

Economists have assumed that real GDP would be revised higher – with consensus estimates of around 0.5 percent – since the higher-than-anticipated export numbers were released earlier in the month. Both exports and imports declined between the third and fourth quarters, with exports down at a faster pace. The contribution from net exports shifted from subtracting 0.25 percentage points to adding 0.24 percentage points between the first and second estimates. This was obviously helpful in lifting the GDP estimate.

Much of the rest of the story did not change much from the first GDP estimate, which was released at the end of January. The largest declines came from lower spending on inventories and from sharply reduced defense spending. The latter was the result of two things: (1) higher-than-normal end-of-fiscal-year spending on defense in the third quarter which was unlikely to be repeated, and (2) the threat of across-the-board federal spending cuts (or “sequestration”). As a result, defense spending fell 22.0 percent in the fourth quarter, more than offsetting the 12.9 percent increase in the third quarter. Total government spending – including at the federal and state and local levels – subtracted 1.38 percentage points from real GDP. This was larger than the original estimate of 1.25 percentage points.

At the same time, businesses spent less on inventory replenishment in the fourth quarter. Part of this was expected, as firms had already spent large amounts on inventories in the third quarter, helping to boost real GDP in that quarter. In the fourth quarter, though, the decline in inventory spending reduced real GDP by 1.55 percentage points, larger than the original estimate of 1.27 percentage points. (continue reading…)

The Bureau of Economic Analysis announced that real gross domestic product (GDP) declined 0.1 percent in the fourth quarter of 2012. This was well below the consensus estimate of just over one percent, and it was the first quarterly decline in real GDP since the second quarter of 2009.

In short, these figures illustrate the significant weaknesses in the U.S. economy as we ended last year, with slowdowns from Hurricane Sandy and uncertainties related to sales and the fiscal cliff paramount in manufacturers’ minds.

At the same time, consumer spending continued to grow modestly, up 2.2 percent for the quarter and contributing 1.52 percentage points to real GDP. In terms of goods consumption, there was a robust increase in durable goods spending, particularly for motor vehicles, and durable goods consumption alone added 1.02 percent to growth. Nondurable goods spending was up more slowly, adding just 0.06 percent to real GDP. This data is largely supported by other data, including industrial production numbers, which have shown the auto sector recovering from some of its autumn woes, with other sectors more mixed, but largely improving.

The negatives in today’s real GDP report included the data on inventories, government spending, and exports. There was a sharp drop in nonfarm inventories in the fourth quarter, offsetting the gains seen in the previous quarter. Private inventories subtracted 1.27 percentage points from growth. Consistent with surveys (including the NAM/IndustryWeek one) showing businesses pulling back on hiring and capital spending, nonresidential spending on structures declined 1.1 percent in the fourth quarter after being flat in the third quarter. This contrasts with other elements of private domestic investment, including continuing good news on residential construction and higher spending on equipment and software. (continue reading…)

Here is the summary for this month’s Global Manufacturing Economic Update:

While much of the focus of late has been on the fiscal cliff, manufacturers have also been worried about slowing global sales. Business leaders have said that increasing their exports has been a struggle. Yet, despite these headwinds, year-to-date growth in U.S.-manufactured goods has risen almost 5 percent. The good news is that this figure represents positive growth, but it also shows significant easing from the same time period last year. Much of the deceleration in exports corresponded with challenging economic environments in a number of countries, going beyond Europe’s struggles to include Brazil, China, Japan and elsewhere.

The latest data indicate that the global economy appears to be strengthening, which should bode well for improving international trade this year. Europe and Japan are exceptions as both continue to experience significant weaknesses in their respective markets. The purchasing managers’ indices (PMIs) for both remain negative, with new orders, production and employment contracting. Political and economic uncertainties permeate these data, with manufacturers uncertain about what  the future holds. Elsewhere, the trends are more positive. Seven of the top 10 markets for U.S.-manufactured goods have economies that are growing—a definite improvement from three months ago when just four of them did. As a result, we are seeing pickups in manufacturing activity and business confidence. This does not mean that these economies are growing strongly, but it does suggest that global trends have stabilized and are moving in the right direction.

Ironically, the political battles over U.S. fiscal policy had implications beyond our borders, with concerns about a possible economic downturn a top concern among our trading partners. This was especially the case for Canada, our largest trading partner, but other nations fretted about our fiscal situation, as well. With a deal to avert the fiscal cliff, at least some of these anxieties will go away for now. However, there are still larger concerns about the long-term fiscal health of the United States, and possible battles over raising the debt ceiling will keep these issues front and center. Nonetheless, the United States is now poised for modest growth in 2013, with rising exports a major contributor both to our macroeconomic picture and to manufacturers’ business plans.

Next week, we will receive data on November’s U.S. trade balance. The previous month saw a widening of the trade deficit, with both exports and imports lower. Hopefully, a slowly improving global economy will help to turn that around. Globally, we will get the latest industrial production and retail sales data from a number of European countries, with the European Central Bank meeting to discuss its monetary policy plans for the first time in 2013. Trade data will also be released for China, as well as indices for consumer and producer prices. The larger number to watch from the Chinese perspective will be real GDP growth, which will be out on Wednesday, January 16, and is expected to show an increase of 7.7 percent.

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

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

We end the year with mixed news on the economy and ever-present uncertainty about the U.S. fiscal situation. The Bureau of Economic Analysis upwardly revised its figure for third-quarter real GDP to 3.1 percent—a healthy increase from its original estimate of 2 percent. However, slowing global sales and anxieties about the fiscal cliff have caused consumers and businesses to pull back. Both the Manufacturing Alliance for Productivity and Innovation (MAPI) and the National Association for Business Economics (NABE) suggest that industrial production will grow more slowly in 2013. Overall employment is also not anticipated to change much from this year.

Several other data points suggest continued sluggishness, even as some point to modest improvements during the past month. The Conference Board’s Leading Economic Index declined in November and has been flat over the course of the past six months. The Chicago Federal Reserve Bank’s National Activity Index finds that the U.S. economy continues to operate below its historical average. Meanwhile, manufacturing surveys from the Kansas City and New York Federal Reserve Banks observe contracting activity levels, with uncertainties about the fiscal cliff negatively impacting hiring and sales. However, the Philadelphia Fed Manufacturing Survey noted improvements among manufacturers in its region, with the recovery from Hurricane Sandy explaining part of the progress.

The latest personal income and spending numbers also show the bounce back from the storm. Both had fallen in October but recovered somewhat in November. New durable goods orders also improved, with healthy gains across-the-board except for the aerospace sector. To be fair, durable goods activity remains below its peak in July, but the recent data are still a sign of progress. The key will be whether this can be sustained given the uncertainties noted elsewhere. Manufacturers appear to be cautiously optimistic about future activity despite their concerns about the fiscal cliff.

Housing continues to be a bright spot in the economy, much as it has throughout 2012. Permits rose to 899,000 in November, the fastest pace in more than four years. This is an important proxy of future residential construction. Overall housing starts remain on a slow-but-steady upward trajectory, even as they dipped slightly in November to 861,000. The sector is experiencing greater confidence, and while hurdles still hold back even stronger growth, the prospects are for housing starts to grow to at least 950,000 by the end of 2013.

This will be a shortened week due to Christmas, but there are some key economic indicators that will be released. Regional manufacturing activity in Chicago and Richmond is expected to show continued weaknesses. The other highlight will be the latest consumer confidence figures from the Conference Board. We will see if consumer sentiment declines in the Conference Board’s index, much as it did in the University of Michigan’s survey.

Chad Moutray is the chief economist, National Association of Manufacturers. Note that there will not be a report next week, with the scheduling resuming on Monday, January 7, 2013.

The Bureau of Economic Analysis revised its figure for third quarter real gross domestic product (GDP) to 3.1 percent, up from last month’s estimate of 2.7 percent and the original estimate of 2.0 percent. This reflects higher consumer spending on services, increased net exports, and a now-positive contribution from state and local spending.

Overall, the consumer, housing, end-of-fiscal year federal government spending, inventory replenishment, and net exports were the main contributors to the faster pace of growth in the third quarter. The primary drag was nonresidential fixed investment, with manufacturers and other businesses anxious about slowing sales and the fiscal cliff. This uncertainty led to business investment subtracting 0.23 percentage points from real GDP, with reduced spending on equipment and software the primary factor.

This sluggishness has continued in the current (or fourth) quarter, with growth expected to slow to around 2 percent or less.

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

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

The U.S. economy grew 2.7 percent during the third quarter, faster than originally thought. This news was mixed for manufacturers. On the one hand, consumer spending, improvements in residential construction and net exports boosted overall growth. In addition, end-of-fiscal-year government spending (particularly from defense) contributed roughly one-quarter of the increase in real GDP for the quarter—something unlikely to be repeated anytime soon. With lower discretionary spending and the possibility of budget sequestration, the government will be a drag on growth. Fixed investment fell, with slowing sales and uncertainties about the looming fiscal cliff weighing heavily on business leaders’ minds. This should indicate real GDP growth closer to 2 percent in the fourth quarter.

The other economic highlights from last week supported this contrasted assessment, with increased consumer confidence and holiday spending somewhat offset by manufacturing weaknesses. The Beige Book reported that the economy was growing at a moderate pace while also citing softness among many manufacturers. The Chicago, Dallas and Kansas City Federal Reserve Banks reported declines in manufacturing activity, with the latest Institute for Supply Management (ISM)-Chicago survey showing contracting new orders. The Richmond Fed bucked this trend with improving sales, production and shipments and a more positive outlook. Yet, hiring expectations remain sluggish.

Advanced durable goods orders were unchanged in October; however, aircraft and auto sales declined. Outside of transportation, new orders would have risen 1.5 percent, indicating sales figures that were positive than at first glance. Consumer spending fell in October, but there are signs of progress since then. According to the National Retail Federation, the first reports of holiday spending have had modest growth over last year. The Conference Board reported that consumer confidence rose to its highest point since early 2008.

Today, the ISM will release Purchasing Managers’ Index data for the U.S. manufacturing sector. It is expected to show a slight uptick in activity, continuing the slow growth that we have seen in the past two surveys. The big news, however, will come on Friday with the announcement of November’s employment numbers. The consensus estimate is for roughly 100,000 net new non-farm payroll jobs, with weak growth in manufacturing employment.  Other data highlights for the week include updates on consumer credit, construction spending, labor productivity and vehicle sales.

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

The Bureau of Economic Analysis announced that real GDP for the third quarter was revised from its earlier estimate of 2 percent to 2.7 percent. This is a nice improvement from the 1.3 percent growth experienced in the second quarter, and it suggests that the U.S. economy is growing modestly.

The revisions were mainly tied to higher inventories and export levels than earlier announced. These changed were larger than the downward revisions to consumer spending and fixed investment.

As I noted when the first estimate was released business capital spending slowed considerably between the second and third quarters. Nonresidential fixed investment subtracted 0.23 percentage points from GDP, with reduced spending on structures, equipment, and software. This is consistent with sentiment surveys showing rising anxieties about U.S. fiscal policies and slower sales (mainly abroad). Residential construction continues to be a bright spot.

The consumer picked up their purchases in the third quarter, but not as much as previously estimated. Spending on durable and nondurable goods added 0.64 percent and 0.18 percent to real GDP, with the downward revision mainly to nondurables. Overall consumer spending, including services, contributed 0.99 percent of the 2.7 percent growth in real output, or roughly 37 percent. (It was half in the previous estimate.)

Net exports made a positive contribution for the third straight quarter, but to be fair, they also reflect a deceleration in sales for goods overseas. Given the challenges seen in the global economy, a slower pace for international orders should be expected.

The other thing of note was the large contribution from the federal government, which added 0.71 percentage points to GDP. This was largely the result of end-of-fiscal-year defense spending. Government had been a drag on GDP — both from the federal and state and local levels — for eight consecutive quarters prior to the third quarter. Given that we are now in a new fiscal year and lower federal spending, not more, is the mantra, we are unlikely to see government adding to GDP in the fourth quarter or in 2013.

Looking ahead to forecasts for the fourth and or current quarter, I would anticipate real GDP growth around 2 percent or slightly higher. Business investment should continue to be weak, but this might be offset by improvements in consumer spending and housing. The most obvious element which could push this estimate lower is the fiscal cliff, and the extent to which the possibility of an economic downturn and higher taxes negatively impact consumer spending.

Chad Moutray is chief economist, National Association of Manufacturers.

The Bureau of Economic Analysis announced that real gross domestic product (GDP) rose 2.0 percent in the third quarter. This was just slightly above the consensus estimate of 1.8 percent growth and higher than the 1.3 percent increase observed in the second quarter.

There are three big differences between the second and third quarters. First, the consumer – which was more skittish in the second quarter – increased spending in the third quarter. We have seen this in other indicators including recent data on retail sales and personal spending.

The contributions from durable and nondurable goods consumption in the second quarter were negligible and disappointing, with just 0.08 percent of the 1.25 percentage points of growth. In the third quarter the contributions were 0.63 percent for durable goods and 0.40 percent for nondurables, or 1.03 percent in total. That means that half of the growth in the third quarter’s GDP number stemmed from goods consumption.

The second difference between the second and third quarters can be seen in service sector consumption and private investment. Both of these were the largest drivers of growth in the second quarter.  Service sector consumption added another 0.39 percentage points to growth, a falloff from the 0.99 percent added in the second quarter.

Fixed investment’s contribution fell from 0.56 to 0.20 percentage points between the quarters. Investment in equipment and software was unchanged, providing no contribution, and construction of new structures fell. Inventories were also lower in the third quarter. One bright spot in this category is residential investment, as we have seen in the latest housing numbers. (continue reading…)