The government reported that the U.S. economy grew by 2.8 percent in the fourth quarter of 2011, with manufacturers playing an integral role. Consumers and businesses replenishing their inventories were the largest contributors of real GDP for the quarter. In many ways, this number was not a surprise: other indicators also suggested an uptick in manufacturing activity in the months of November and December. Manufacturers are cautiously optimistic about future production, and the rebound is welcome news.

Yet, the GDP numbers also bring to mind challenges that might dampen growth in the coming months. It is unlikely, for instance, that we will see the same lift from inventories in the first quarter, and consumers have dipped into their savings to increase their purchases. At some point, this level of spending might ease so that consumers might pay off some of these debts. In addition, it is clear that the government sector will be a drag on growth for the foreseeable future – of which we were reminded when the Department of Defense announced budget cuts last week. Most pressing, though, is the constant reminder of Europe’s ills and the challenges that slowing global growth might have on our exports. Fitch Ratings downgraded several European nations’ credit ratings on Friday, following the lead of Standard & Poor’s from a few weeks ago.

These worries aside, most of the recent domestic economic indicators have been positive. Durable goods orders, for example, rose 3 percent in December, with strength in nondefense capital goods. This mirrors much-improved production, employment and investment data from the Kansas City and Richmond Federal Reserve Banks (and for that matter, in most of the recent regional) surveys. The National Association of Business Economics (NABE), in its latest Industry Survey, observes these improvements, with more economists upgrading their assessments for growth this year. Sixty-five percent of respondents to the NABE survey expect for real GDP to grow at least by 2 percent in 2012. Similarly, the Chicago Federal Reserve Bank’s National Activity Index indicates that the risk of a recession seems to be lessening.

These growth estimates are in line with those from the Federal Reserve Board, which estimates real GDP growing between 2.2 and 2.7 percent this year. The Fed also expects the unemployment rate to remain elevated, improving slowly to a range of 8.2 to 8.5 percent in 2012 and to 6.7 to 7.6 percent by 2014. The Federal Open Market Committee, even as it cites improvements in the domestic economy, remains worried about high unemployment, a still-weak housing market and uncertainties related to European sovereign debt. It stated last week that it now plans to keep interest rates at “exceptionally low” levels through late 2014 – an extension from its earlier intentions of doing so through mid-2013. With these moves, the Fed hopes that lower long-term rates spur more borrowing, both by homeowners and businesses.

This week, we will receive more data about production and employment, which will hopefully show continued growth in manufacturing in January. The Institute for Supply Management’s well-cited index of manufacturing activity will come out on Wednesday, and it is expected to be somewhat higher. On Thursday, new productivity data will be released, with manufacturing output per worker expected to continue to show strong growth. Finally, the Bureau of Labor Statistics will unveil new employment data on Friday, which should show increased hiring among manufacturers in conjunction with recently increased production.

Chad Moutray is chief economist, National Association of Manufacturers.

The Bureau of Economic Analysis announced that real gross domestic product (GDP) rose 2.8 percent in the fourth quarter. This was mostly in line with forecasts of 3 percent for the quarter. For 2011, real GDP increased 1.7 percent, down from the 3 percent growth rate of 2010.

This quarter’s growth was led by strong increases in fixed investment (including residential), with healthy gains in consumption, inventories and exports. Specifically, consumers contributed 1.45 percentage points (or roughly half) to GDP, with 1.07 percent from durable goods consumption and another 0.27 percent from nondurables. Gross private domestic investment contributed 2.35 percentage points to growth, with the bulk of that coming from the replenishment of inventories. Both residential and nonresidential spending made positive contributions, as well.

Contributions from net exports were slightly negative, with higher imports offsetting the rise in exports. The largest drag on growth, though, came from government contributions. With defense and state and local government spending cuts, government reduced GDP by 0.93 percentage points.

Overall, these numbers reflect the stronger rebound in economic growth at the end of 2011 that many other indicators have reported earlier. Manufacturing activity, in particular, appeared much healthier in November and December than in the mid-months. With moderate growth in consumer and business spending, the economy turned in its fastest growth pace since the second quarter of 2010.

Moving ahead, manufacturers are optimistic about production, employment and capital spending for 2012, and yet, a number of significant headwinds (particularly from Europe) persist. Moreover, the government sector – which is already providing a drag – will continue to dampen GDP, especially as more austerity measures (including defense and other nondiscretionary spending cuts) start to have real effects on the manufacturing community.

Despite the concerns, we are seeing some positive news and reports that manufacturing is strengthening as seen in this report from the Financial Times. While growth may be slow, it is on the rise and it is expected to continue.

Chad Moutray is chief economist, National Association of Manufacturers.

In releasing the latest Industry Survey, the National Association for Business Economics (NABE) noted recent improvements in U.S. growth. In fact, Nayantara Hensel, the chair of the survey committee and a professor at National Defense University, said, “The survey results suggest increased optimism concerning real GDP growth, as well as fewer inflationary or deflationary pressures” (Note: I am a member of this committee and contributed to the report write-up).

Sixty-five percent of business economists responding to this survey felt that real GDP growth would exceed 2 percent in 2012. This reflects a significant upward revision from the prior survey, which was released in October, in which 70 percent predicted growth of between 1 and 2 percent this year.

With that said, several of the indicators were mixed from the past survey. For instance, fewer individuals noted rising sales this time overall. In the goods-producing sector (which includes manufacturing), 40 percent of respondents observed rising sales, and 30 percent stated falling sales. The number of firms reporting profits as unchanged or rising (80 percent) remained mostly the same from the past survey.  On the international front, sales have fallen in recent months, reflecting some weaknesses in foreign operations.

The bulk of goods-producing respondents (67 percent) plan no change in capital spending, but none of them suggest lower spending levels. 

While 30 percent of goods-producing firms observed higher material costs, that figure was lower than the 54 percent who said the same three months ago. This reflects some of the easing that we have observed elsewhere with regard to pricing pressures.

There was less positive news on employment. No respondents in the goods-producing sector reported falling employment in October; in this survey, that figure is 20 percent. The outlook numbers are also poor. Interestingly, this conflicts with many of the other sentiment surveys on manufacturing, which are more upbeat in both of these areas.

Overall, this survey reflects the dynamic nature of the current economy. On the one hand, the larger macroeconomic picture is much-improved, helping to lift optimism among the many business economists who filled out the survey. And yet, many of the company-specific indicators remain weak, including slower growth in the goods-producing industries for sales, employment and capital spending. Reduced inflationary pressures is obviously welcome news, though.

Chad Moutray is chief economist, National Association of Manufacturers.

Real economic growth increased by 1.8 percent in the third quarter of 2011, according to the Bureau of Economic Analysis. This is down from earlier estimates of 2.0 and 2.5 percent growth. This most recent revision was mostly due to lower consumer spending than earlier reported.

Consumption contributed 1.24 percentage points to real gross domestic product (GDP), making it the largest contributor to growth in the quarter, and yet, this is down from the 1.63 percentage points from the November estimate.

On the positive side, the change in inventories was less negative than earlier estimates, helping to lift its overall impact to GDP. As reported in the previous releases, the business investment picture was mixed in the third quarter, with large increases in fixed capital spending and residential investment being offset by reductions in nonfarm business inventories. 

Net exports were a positive influence, but government spending – particularly at the state and local level – continues to be a drag on growth.

Overall, the fact that these numbers were lowered is disappointing, but it is important to keep it in perspective. We have seen several indicators in the fourth quarter which suggest much stronger growth more recently. I have predicted 2.4 percent growth in the fourth quarter, but other economists have pegged growth much higher than that, perhaps with real GDP up over 3 percent.

We will be watching for the first estimates of fourth quarter GDP to see if these growth rates materialize. They will be released on January 27.

Chad Moutray is chief economist, National Association of Manufacturers.

The Bureau of Economic Analysis revised its third quarter 2011 estimate for real GDP growth to 2 percent, down from its earlier estimate of 2.5 percent growth. The downward revisions were mainly due to lower inventories, business investment and consumer spending than originally thought.

Still, the largest contributor to real GDP growth in the third quarter was consumption, adding 1.63 percentage points to growth. The consumption of durable goods contributed 0.41 percentage points, rebounding from the negative contribution in the second quarter. Nondurable goods consumption subtracted 0.11 percentage points in the third quarter, with many sectors still showing weaknesses. There is more recent evidence, though, that these weaknesses are beginning to subside.

Net exports were another positive influence on economic growth in the third quarter, adding 0.49 percentage points to the final figure. The export of goods accounted for 0.48 percentage points of that number, with the import of goods subtracting 0.04 percentage points. In essence, the growth of real exports significantly outpaced increases in real imports (up 4.3 percent versus 0.5 percent from the previous quarter).

The business investment picture was mixed, with large increases in fixed capital and residential investment being offset by reductions in nonfarm business inventories. As a whole, these provided a slight drag on real GDP. Similarly, government spending provided a negative contribution to growth, mainly from reduced expenditures in nondefense spending at the federal level and continued declines in state and local spending.

Overall, these numbers suggest that the U.S. economy has grown just 1.5 percent over the past year. I have forecast that the economy will grow by at least one percentage point more than that in 2012, and yet it is clear that the economic recovery has been subpar.  These rates of growth will not be enough to generate sufficient net new employment.

We desperately need pro-growth policies from Washington that will allow manufacturers to grow and help get the rest of the economy growing at a faster rate to create jobs.   

Chad Moutray is chief economist, National Association of Manufacturers.

While yesterday’s 3^rdquarter GDP report was overall positive for manufacturers there is still a great deal of uncertainty that the growth we say this past quarter is sustainable.

NAM Board of Directors Member Rich Gimmel of Atlas Machine & Supply Inc. spoke to the Wall Street Journal about the uncertainty in the economy:

“Nobody is doing this like they did in the early ’80s where you had this groundswell of optimism” about the recovery, Mr. Gimmel said. “It’s more of a begrudging, ‘Demand may come back but I’m not sure how sustainable it’s going to be, so I’m going to spend just enough to keep up.’ “

In order to have a sustained recovery and eliminate much of the uncertainty manufacturers need pro-growth policies from Washington that will enable them to create jobs, invest and grow. Until the uncertainty over regulations, the deficit and tax policy are resolved investors will remain on sidelines.

The U.S. economy picked up the pace in the third quarter, growing 2.5 percent in advance estimates released this morning from the Bureau of Economic Analysis. This represents the fastest pace this year, with the economy only growing 0.4 and 1.3 percent, respectively, in the first two quarters of this year.

Healthy increases in personal consumption, fixed investment and net exports accounted for the bulk of the real GDP rise. In fact, consumption alone contributed 1.72 percent of real GDP’s growth in the quarter; however, all but 0.35 percent of that was from services.

Manufactured goods did provide a positive contribution both from the sale of more durable goods (contributing 0.31 percent to real GDP) and increased goods exports (contributing 0.45 percent). Meanwhile, inventory reductions subtracted a percentage point from real GDP as businesses moved to reduce their supplies.

Looking at the percentage changes in various components of the GDP release, durable goods consumption was up 4.1 percent in the third quarter, compared to an increase of 0.2 percent for nondurables. The contributions from trade were positive, with goods exports (up 4.7 percent) outpacing goods imports (up 1.8 percent).  (continue reading…)

Last month, the Bureau of Economic Analysis estimated that the U.S. economy grew 1.3 percent in the second quarter of this year, while also downgrading first quarter growth to 0.4 percent. The bigger news with that announcement was the steep decline in the growth rates for the first quarter, as earlier estimates had pegged real GDP being up 1.9 percent.

Given the paltry growth of the first half of this year, I was not shocked to learn earlier today that the second quarter growth numbers have been revised down. The BEA now estimates that real GDP rose just 1 percent in the second quarter. The newer figure is the result of downward revisions to inventories and exports; however, there were also upward revisions to consumer spending and business fixed investment.

As much as anything, these numbers reflect weaknesses in the manufacturing sector, with supply chain disruptions and other issues challenging the industry. Manufacturers had contributed 1.9 percent and 1.2 percent of the growth in real GDP in the last quarter of 2010 and first quarter of 2011, making them one of the strongest components in the economy.

However, this changed in the second quarter of 2011, with durable goods consumption dragging growth down by 0.4 percent and nondurable goods spending having a minor positive contribution of 0.07 percent. The export of goods added 0.26 percent to growth, as well.

So far, third quarter growth has been mixed at best, suggesting continued economic weaknesses at least in the short term. I am now estimating that real GDP will grow 1.4 percent in 2011, assuming that production and spending pick up slightly by the later months of this year. Nonetheless, such growth is not enough to help employment or possibly to lift consumer and business sentiment.

Chad Moutray is chief economist, National Association of Manufacturers.

The U.S. economy slowed considerably in the first half of 2011, with the Bureau of Economic Analysis (BEA) revising downward real GDP growth in the first quarter to 0.4 percent (from 1.9 percent, as stated earlier) and reporting advanced estimates for the second quarter of 1.3 percent.  (All percentages are in annualized terms.) BEA did some major revisions to data from 2007 onward using more complete information as part of its annual review.

Consumption, which accounts for approximately 70 percent of real GDP, rose just 0.1 percent in the first quarter, with durable goods sales down 4.4 percent.

For the manufacturing sector, much of this is not new news. The decline in durable goods consumption of 4.4 percent comes after five consecutive quarters of strong growth. Given the supply chain issues that challenged the sector during this time frame, this is not a surprise. The largest contributor to this decline was the motor vehicle sector, which was most impacted by the Japanese disaster. Nondurable goods sales rose 0.1 percent, while services were up 0.8 percent.

Government served as another drag on output, with government’s contribution to real GDP falling for the past three quarters. In the second quarter, government consumption fell 1.1 percent, led by declines in nondefense federal spending (down 7.3 percent) and state and local government spending (down 3.4 percent).

There were two bright spots in the news.  First, real exports outpaced real imports, 6.0 percent versus 1.3 percent, respectively, with healthy increases in goods sold oversees (6.8 percent). While these numbers are lower than the growth rates of the first quarter, they do highlight the important role that international trade plays in our overall economic growth. In fact, real exports accounted for 0.81 percent of the growth in real GDP in the second quarter.

The second bright spot is business investment, with real gross private domestic investment growing 7.1 percent in the second quarter. This was up from 3.8 percent growth in the first quarter, contributing 0.87 percentage points to real GDP. Nonresidential fixed investment was up 6.3 percent in the second quarter, with residential construction rising 5.7 percent and inventory growth increasing 3.8 percent.  This is a reversal from the steep declines in nonresidential structure construction in the first quarter.

Moving forward into the third quarter, we have started to see nascent signs of a rebound, particularly in the durable goods sectors. I say nascent, but there are also signs that this rebound is slow in getting started. While there remain cautiously optimistic perceptions of economic growth for the second half of this year, there are significant headwinds that can put a damper on these plans.

The ability to get this economy growing again in the third and fourth quarters will hinge on removing uncertainty in the marketplace, improved business and consumer confidence, continued growth in our sales overseas, and a stronger domestic economic footing. 

Chad Moutray is chief economist, National Association of Manufacturers.

The Census Bureau reported this morning that durable goods orders rose 1.9 percent in May, rebounding slightly from its 2.7 percent decline in April. The largest mover in this data was the transportation sector, which had been hard hit in previous months due to supply chain disruptions and was up 5.8 percent in May. Excluding transportation, new orders were up 0.6 percent.

Overall, these numbers show that manufacturing is starting to get back on track to where they were before the Japanese disaster, with durables helping to lead the recovery.

In addition to stronger numbers in transportation, other manufacturing sectors also experienced healthy increases in new orders in May. These include capital goods (up 5.6 percent); communications equipment (3.6 percent); electrical equipment, appliances, and components (up 3.2 percent); primary metals (up 1.8 percent); computers and related products (up 1.3 percent); and machinery (up 1.2 percent).

In addition to new orders, shipments, unfilled orders, and inventories were also up (0.3 percent, 0.9 percent, and 1.2 percent, respectively). Computers and related products and machinery were the two sectors that boasted the largest increases in both shipments and unfilled orders for the month.

In related news, the Bureau of Economic Analysis today revised its numbers for first quarter 2011 real gross domestic product. Real GDP is now said that have grown 1.9 percent, up from 1.8 percent as reported earlier.

Output growth was led by healthy increases in personal consumption, fixed investment (excluding nonresidential structures), and exports. Durable goods consumption, for instance, grew 9.3 percent from the previous quarter, and exports increased 7.6 percent.  However, decreases in government spending and strong import growth offset some of these gains.

Chad Moutray is chief economist, National Association of Manufacturers.