housing Archives - Shopfloor

Business Economists Downgrade Their Growth Estimates for 2015

By | Economy | No Comments

The National Association for Business Economics (NABE) said that panelists in its Outlook Survey downgraded their estimates for growth in 2015. Business economists now expect real GDP growth of 2.4 percent this year, down from 3.1 percent in the March survey. This reflects recent headwinds in the U.S. economy, with 80 percent and 72 percent suggesting that a stronger U.S. dollar and slower growth in China, respectively, were having a negative impact on U.S. economic growth. To illustrate this point, the estimates for export growth have declined from 5.4 percent in December to 2.1 percent in the current report.  Read More

Manufacturing Construction Declined Slightly in April

By | Economy | No Comments

The Census Bureau reported that manufacturing construction declined 1.1 percent at the annual rate, down from $50.66 billion in March to $50.10 billion in April. The longer-term trend has been mixed. In the early months of 2014, total private construction activity in the sector has been stagnant, down from $51.07 billion in December. Still, manufacturers have put significantly more construction dollars in place today than 12 months ago, up from $46.68 billion in April 2013. As such, manufacturing construction has risen 7.3 percent year-over-year.

Total construction spending increased 0.2 percent in April, extending the 0.4 percent and 0.6 percent gains seen in February and March, respectively. The increase mostly stemmed from higher public sector construction spending (up 0.8 percent). The largest public sector construction gains were for commercial (up 14.7 percent), sewage and waste disposal (up 4.7 percent), transportation (up 3.6 percent), and conservation and development (up 2.6 percent) projects.

Yet, private sector spending data were weak, unchanged from March. A slight increase in residential spending (up 0.1 percent) was offset by nonresidential activity (down 0.1 percent). Nonetheless, private construction has risen a healthy 11.7 percent year-over-year, lifted by a 17.2 percent jump in housing spending. Moreover, private, nonresidential construction has grown 5.6 percent over the past year, which has also been a decent figure.

In terms of private, nonresidential construction spending for April, the declines were primarily in the communications (down 11.7 percent), manufacturing (down 1.1 percent), and power (down 0.6 percent) sectors. Other major segments were higher for the month, with the biggest increases seen in amusement and recreation (up 9.8 percent), office (up 3.1 percent), transportation (up 2.8 percent), religious (up 1.9 percent), and lodging (up 1.8 percent). Since April 2013, the fastest growth in nonresidential spending has occurred in the office (up 25.6 percent), communication (up 21.4 percent), and lodging (up 17.2 percent) sectors.

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

Beige Book: Economy Growing at a Modest to Moderate Pace, Government Uncertainties Tempering Sentiment

By | Economy, General | No Comments

The Federal Reserve Board said that “national economic activity continued to expand at a modest to moderate pace” in its latest Beige Book. With that said, eight Fed Districts noting “similar growth rates” while four others experienced a bit slower growth. Those four Districts were the Chicago, Kansas City, Philadelphia, and Richmond Federal Reserve Bank regions. In terms of manufacturing activity, the data reflected a sector that was expanding overall. Automotive and aerospace were bright spots, with positive stories for high-tech, energy, heavy equipment, and steel. Yet, the demand for fabricated metals and construction materials was mixed.

Government uncertainties were mentioned several times in the Beige Book. Examples included the following comments:

  • “Contacts across Districts generally remained cautiously optimistic in their outlook for future economic activity, although many also noted an increase in uncertainty due largely to the federal government shutdown and debt ceiling debate”
  • “Several Districts reported that contacts were cautious to expand payrolls, citing uncertainty surrounding the implementation of the Affordable Care Act and fiscal policy more generally.”
  • “While there was little immediate disruption from the federal government shutdown, [manufacturing] contacts were worried about the potential impact if the closing became prolonged.”

Hiring was growing modestly overall, with employment growth in the manufacturing sector somewhat spotty. Specifically, the report says the following:

In manufacturing, Boston indicated that hiring primarily was for replacement or to fill key needs, New York noted slower job growth, and Chicago reported that manufacturers were cutting back on overtime. Dallas cited scattered reports of hiring in high-tech, fabricated metals, and food manufacturing.

Overall wage and pricing pressures were somewhat minimal.  However, there were some upward wage pressures for some highly-skilled employees, including those in the manufacturing sector. Meanwhile, at least two Districts noted that manufacturing “capital outlays were primarily for productivity enhancing investments.”

In other analysis, consumer spending continued to grow modestly, with motor vehicle sales being one of the bright spots. Retails were mostly upbeat about the upcoming Christmas season. Construction spending continued to improve, but a “number of Districts reported concerns from homebuilders and realtors over rising mortgage rates.” At the same time, nonresidential construction activity was more varied, but up on balance.

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

Housing Starts Decline Sharply in June

By | Economy | No Comments

The Census Bureau and the U.S. Department of Housing and Urban Development said that new residential construction declined sharply in June. Housing starts have been much weaker since March, when they briefly surpassed the one million mark. This most recent data found that starts were off from 928,000 in May to 836,000 in June. That was the slowest pace since August 2012.

It would be hard to ignore the role that higher interest rates might have played, particularly in June’s decline. According to Freddie Mac, the average 30-year mortgage rate has risen from 3.35 percent at the beginning of May to 3.91 percent at the beginning of June to 4.46 percent by the last week of June. Such rapid increase in rates has already begun to impact mortgage applications, with the Mortgage Bankers Association reporting a significant decline in June. To be fair, though, mortgage rates remain at historic lows overall, even with the recent rise.

In addition, much of the decline in June’s housing starts numbers stemmed from reduced new multi-family residential activity, down from 332,000 in May to 245,000 in June.  As with the larger figure, the multi-family starts data were at their lowest point since August 2012. As a whole, multi-family starts have been highly volatile over the past year, peaking at 382,000 in March. New single-family residential construction edged only slightly lower for the month, down from 596,000 to 591,000. This was down from its recent peak of 620,000 in February.

At the same time, new housing permits declined from 985,000 in May to 911,000 in June. Similar to the starts data, the lower number was mostly attributable to the multi-family segment, down from 365,000 to 287,000. Single-family permitting actually rose somewhat from 620,000 to 624,000. As such, despite the lower overall numbers, single-family permits increased to their highest level since May 2008. This should provide at least some degree of comfort about future activity, as permits serve as a proxy for upcoming construction activity.

Another more-positive piece of news was yesterday’s National Association of Home Builders (NAHB) Housing Market Index (HMI) report. The index rose to 57 in July, up from 51 in June. More importantly, the last time the HMI was at this level was January 2006, and it suggests that builders have been increasing more confident over the course of the past two years. In June 2011 and June 2012, the index stood at 13 and 29, respectively.  Moreover, values over 50 suggest more builders are positive than negative – a key threshold. Looking forward, the index of single-family sales over the course of the next six months rose from 60 to 67, which should bode well for growth.

Even with this more-optimistic view of the second half of the year, higher mortgage rates could dampen growth in this important sector. We will be closely watching housing starts and permits data for July to see if increased borrowing costs further ease activity.

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

Monday Economic Report – February 25, 2013

By | Economy | No Comments

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

The Philadelphia Federal Reserve Bank’s Business Outlook Survey continued to show significant weaknesses in the manufacturing sector in its district. There were some areas of progress, including shipments and employment, and respondents were mostly positive about higher activity this year. Yet, the composite index was sharply lower on reduced new orders, dragging the overall sentiment lower. The New York Federal Reserve Bank’s Empire State Manufacturing Survey showed similarly worrisome figures. Meanwhile, although the Conference Board’s Leading Economic Index—which foreshadows future U.S. economic activity—was higher, sluggish hiring and sales growth continued.

Despite these troubling indicators, at least one source reports that manufacturing production is on the upswing. Although the Markit Flash Manufacturing Purchasing Managers’ Index (PMI) for the United States edged slightly lower from 55.8 in January to 55.2 in February, the output measure rose to its highest point since March 2011. Even in this survey, however, the pace of growth for new orders, employment and raw materials prices slowed down somewhat. Nonetheless, the Markit data tend to find that the U.S. economy is growing moderately, despite a number of persistent headwinds. In contrast, Flash PMI data for the Eurozone suggest that its problems are far from over. On the positive side, European exports to the United States and Asia have improved.

Other data points mainly focused on housing and inflation. The residential sector has been one of the faster-growing segments of the U.S. economy over the past year. This has been welcome news for many manufacturers that have been eager for this still-struggling sector to recover. While the headline number for housing starts was lower in January, this was mainly due to decreases of multifamily starts, which have risen significantly year-over-year even with last month’s decline. New single-family residential construction rose to its highest point since July 2008, and we have seen single-family starts rise 20 percent over the past 12 months. Permits have also been on a long-term upward trend.

Regarding prices, consumers and manufacturers have benefited from an easing in inflationary pressures over the course of the past year, mainly due to falling energy costs. Price increases have been modest overall, with core inflation at both the consumer and producer level below the Federal Reserve Board’s goal of 2 percent. In January, consumer food prices were higher, particularly for fruits and vegetables, but gasoline prices were lower. However, the recent rise in crude petroleum prices could lead to higher prices for finished energy and other goods in coming months if these are sustained. But, the forecast continues to be for moderate inflation.

This week, there will be several reports released on the current state of manufacturing. On Friday, the Institute for Supply Management will release its PMI report, and it is expected to show the sector growing slowing, with data not much different than the month before and possibly reflecting some pullbacks in activity. This would be in contrast to the Markit data, but it would be consistent with some of the regional studies. There will be regional sentiment surveys released from the Chicago, Dallas, Kansas City and Richmond Federal Reserve Banks this week. Other highlights include new releases on construction spending, consumer confidence, durable goods orders, personal income and a revision to fourth-quarter 2012 real GDP. Given recent data that have come out, look for real GDP to be revised higher, up from the earlier estimate of -0.1 percent to around 0.5 percent, according to consensus forecasts.

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

Monday Economic Report – February 19, 2013

By | Economy | No Comments

Here is the summary for this week’s economic report:

After some improvements in late 2012, industrial production declined in January. Manufacturing activity fell 0.4 percent, according to the Federal Reserve Board, with reduced production in motor vehicles pushing the index lower. Year-over-year, manufacturing production was up just 1.7 percent, well below the 6.3 percent pace of January 2011 or the 5.2 percent pace of January 2012. As noted by NAM President and CEO Jay Timmons in his speech before the Detroit Economic Club, the United States can do better. One of our goals should be to strive for 4.5 percent growth in industrial production annually on average between now and 2020—part of what he calls a “20/20 vision.” With faster industrial activity, manufacturers can once again provide return to an outsized role for output and employment growth, reminiscent of what we saw coming out of the Great Recession.

Many other economic data released last week were mixed. In contrast to the industrial production figures, the Empire State Manufacturing Survey showed improvements in activity in January. This was the first non-contracting month for the New York Federal Reserve Bank’s District since July, led by improved sales and increased expectations. Even with these gains, progress in the composite index stemmed mostly from people shifting their views from negative to neutral, hinting that many respondents remain tentative. This is true even though manufacturers are more cautiously optimistic for higher levels of orders, shipments, employment and capital investment over the next six months. Meanwhile, retail sales figures, while increasing 0.1 percent in January, were at their slowest pace since October. Once again, reduced auto sales helped to drag the figure lower, with higher payroll taxes also contributing.

Consumers and small businesses were slightly more upbeat in the most recent sentiment surveys, and yet, they continue to highlight persistent concerns. The National Federation of Independent Business’s (NFIB) Small Business Optimism Index, for instance, found that owners remain worried about the economy and frustrated with the political environment. The index, while edging higher in January, has not recovered from November’s steep decline, and small business owners continue to cite sluggish levels of sales, earnings, hiring and capital investment. Consumers, meanwhile, were more confident in the latest University of Michigan survey, which has fallen of late on fiscal cliff worries and higher payroll taxes. Even with this month’s improvements, consumer sentiment remains subpar.

This week, the economic focus will turn to housing and inflation. New residential construction soared to 954,000 in December, capping a year that saw tremendous gains in housing activity and showing that the still-struggling sector has begun to move in the right direction. The January housing starts figures are expected to show a slight pullback, but the longer-term trend should be for residential starts and permits to move upward. In addition to housing, we will also get new data on consumer and producer prices, both of which have eased over the course of the past year, mainly on lower energy costs. While there has been a pickup in some prices in January, I would expect for the trend of modest inflationary pressures to continue. Core inflation was 2 percent in December, which was in-line with Federal Reserve Board targets.

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

Monday Economic Report – January 22, 2013

By | Economy | No Comments

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

The Federal Reserve Board’s Beige Book, released last week, noted some improvements in the economy since last month. The United States is growing modestly, and inflation appears to be in-check, at least for now. This latter point was also confirmed in the most recent price data from the Bureau of Labor Statistics. Yet, the Beige Book also cited weaknesses in the manufacturing sector in many of its districts, with activity mixed and firms hesitant to hire. In fact, the labor market description showed the softer manufacturing market:

The Boston, Richmond, Atlanta, Chicago, Kansas City and San Francisco Districts all reported delayed hiring, often in defense manufacturing, due to fiscal cliff uncertainties. Companies in the Chicago District with trade or investment exposures to Europe reduced their hiring plans as well. Chicago reported that manufacturers are choosing to cut hours instead of reducing headcount in expectation of production rebounds in 2013. Atlanta and Kansas City cited health-care policy changes and costs as another cause for minimal hiring. On the other hand, the New York, Atlanta, Minneapolis and Dallas Districts saw the labor market firming modestly. Finally, contacts in several districts reported difficulties finding qualified workers in some specialized fields, such as skilled manufacturing, energy and IT.

Many other data points out last week tended to echo these weaknesses. Both the New York and Philadelphia Federal Reserve Banks found contracting sales, inventories and employment levels in their respective districts. The Philly survey cited slower sales growth, the desire to keep costs low and uncertainties related to health care and the U.S. fiscal situation as the top reasons why manufacturers were holding back on hiring. Despite this, manufacturing production increased 0.8 percent in December, building on November’s 0.6 percent gain. Hurricane Sandy might explain part of this increase, but modest consumer spending growth was probably also a factor. Retail sales rose 0.5 percent for the month and 4.7 percent for the year. Still, even with these gains, manufacturing production was much slower in the second half of the year compared to the first half.

The residential construction sector continues to be a bright spot, with housing starts soaring to 954,000 at the annual rate in December. This represents a 36.9 percent increase year-over-year and is a clear indication that housing is recovering. Freddie Mac reported that the average 30-year mortgage rate fell to 3.38 percent—a major contributor to the recent progress in the residential market—and home builder confidence continued to grow throughout the year. I expect for housing starts to exceed 1 million units by year’s end—a major accomplishment, even as it remains well below the 2.1 million homes built in 2005 and 2006. Despite this upward movement, challenges remain, especially regarding tougher lending standards and persistent financial challenges for would-be buyers.

This week, we will learn more about the domestic and global manufacturing situation. Surveys from the Kansas City and Richmond Federal Reserve Banks will build on their mixed findings in December. Last month, the Kansas City District had declining activity for the third straight month, whereas the Richmond area noted positive growth, albeit at a slower pace. Hopefully, both districts report stronger production and sales levels to begin the new year. Meanwhile, Markit will report its “flash” Purchasing Managers’ Index (PMI) for the United States, China and Europe. The most recent PMI data continue to show signs of weakness in the Eurozone, with even Germany experiencing declines. This contrasts with the United States and China, which have shown some signs of progress, despite growing only modestly at best. I would expect those same trends to continue.

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

Housing Data are Mixed in May

By | Economy | No Comments

Overall housing data released so far this week are mixed. First, the Census Bureau and the U.S. Department of Housing and Urban Development reported lower housing starts in May, down from a revised 744,000 in April to 708,000 in May. Declines were seen in each region except for the West. New construction of multi-family units led the decline, falling from 214,000 to 192,000 for the month. Single-family construction increased from 500,000 to 516,000.

On the positive side, housing permits were up significantly. They rose from 723,000 to 780,000, reaching its highest level since September 2008. Single-family and multi-family units were both higher. This is obviously a good sign, as it could suggest greater activity in the months ahead.

Overall, the longer-term trend remains positive even with the decline in housing starts in May. Illustrating this upward movement, new residential construction has increased gradually over the past few months, where it stood at 630,000 as recently as October.

Other data tend to back this more optimistic interpretation. For instance, the National Association of Home Builders and Wells Fargo announced that its Housing Market Index rose from 28 in April to 29 in May. This was the second consecutive monthly gain. Gains in the Midwest and West were somewhat mitigated by declining activity in the Northeast and South.

This shows a housing market that is continuing to edge marginally higher, with gradual improvements in a still-depressed environment. Measurements under 50 indicate more weakness than strength, putting it into perspective. Yet, the index in May was at a level not seen since 2007, an indicator of slow-but-sure progress.

Chad Moutray is chief economist, National Association of Manufacturers.

Leading Economic Indicators Suggest Modest Growth Ahead

By | Economy, Studies and Reports | No Comments

The Conference Board announced that its Leading Economic Index rose 0.4 percent in December, the third consecutive month of gains. Manufacturing played an important role in this month’s increases, with increased new orders and a longer average workweek. Improvements in the employment situation, equity markets and the interest rate spread also made positive contributions to this figure, with lower consumer confidence dragging it lower.

The index has changed, effective with this month’s release, by replacing a measure of the money supply (M2) with a newly-created Leading Credit Index. The switch was made so that the indicator would do a better job of predicting the impact of credit crunches on the business cycle, with this new measure an improved predictor of the recent downturn. In this month’s analysis, the index was lower, providing a slight drag to the composite figure.

The Coincident Economic Index, which measures the current environment, increased by 0.3 percent. All of the subcomponents of this index rose. This includes higher levels of industrial production, manufacturing and trade sales, nonfarm employment and personal income.

This positive report mirrors another national index on the economy from the Chicago Federal Reserve Bank. Its National Activity Index rose from -0.46 in November to +0.17 in December. This measure looks to see if the U.S. is expanding at its historical growth rate; therefore, positive numbers reflect above-average growth. This month’s data suggest a significant improvement, with manufacturing output the leading contributor. The production-related variables shifted from -0.28 to +0.24 for the month, led by stronger manufacturing production and capacity utilization.

Other positive contributors included higher employment and sales. Housing, on the other hand, remains a weak spot. Overall, 85 indicators provided a positive contribution, offset by 32 others.

The three-month moving average for the composite index improved from -0.19 to -0.08 in December. This suggests that, while the overall economy remains below its long-term trend, it is moving in the right direction. Moreover, the risk of recession is reduced, as the index has moved further away from the -0.70 threshold which suggests an increased likelihood of recession.

These two measures – one from the Conference Board and the other from the Chicago Fed – are good news as we enter 2012. The economy is improving, with manufacturers playing an important role in its recent rebound.

Chad Moutray is chief economist, National Association of Manufacturers.

Housing Starts Fall in August

By | Economy | No Comments

The Census Bureau reported that housing starts fell 30,000 units in August to an annualized 571,000 homes, building on the decline in July. More importantly, it fell below the psychological threshold of 600,000 again, with the market unable to sustain its growth above that point. The decrease was mainly due to a sharp drop-off in multi-family housing starts, which were down from 178,000 in July to 154,000 in August. Single-family housing also fell, but by a smaller amount (from 423,000 to 417,000).

The regional picture was mixed, with fewer starts in the Northeast and South being offset by gains in the Midwest and West. On a year-over-year basis, only the South has seen increases in housing starts.

Building permits, however, were up 3.2 percent in August, reversing last month’s decline. Both single-family and multi-family permitting grew; however, multi-family housing permits rose at a faster clip (up 4.5 percent).

These figures were consistent with new Housing Market Index (HMI) data from the National Association of Home Builders (NAHB) and Wells Fargo. The HMI has been virtually flat for much of the past year within the 13 to 17 range.  In September, it fell from 15 to 14, mostly unchanged from previous months. Regionally, the index fell everywhere except for the Midwest, and both the current and expected sales volume over the next six months remains weak.

NAHB Chief Economist David Crowe said, “The fact that the HMI continues to hover within such a narrow, low range reflects builders’ awareness that many consumers are simply unwilling or unable to move forward with a home purchase in today’s uncertain economic climate. While some bright spots are beginning to emerge in about a dozen select metro areas, the broader picture remains fairly bleak due to the weak economy and job market.”

Overall, these numbers show a housing market that remains depressed. As I noted in this McClatchy News report yesterday, “… housing presents both cyclical and structural problems for manufacturers.” In addition to dampening demand for housing materials and household furnishings from manufacturing companies, the larger macroeconomy is still dealing with a fragile housing situation where upside-down mortgages and foreclosures are hurting people’s “financial stability and preventing some [individuals] from moving to other regions where they might be more prosperous.”

Chad Moutray is chief economist, National Association of Manufacturers.