Tag: industrial production

Manufacturing Production Jumped Higher in November

Manufacturing production was up sharply in November, increasing 1.1 percent after a softer-than-desired autumn. More importantly, production in the sector has risen a relatively healthy 4.8 percent over the past 12 months, suggesting healthy gains over the past year in terms of output. This data tends to mirror other reports, including the latest NAM/IndustryWeek survey, that show manufacturers relatively upbeat about new orders and output as we are about to move into the new year. These stronger gains should bode well for the coming months, we hope, even as business leaders grapple with continuing global economic uncertainties.

Capacity utilization for manufacturers was also higher, up from 77.6 percent in October to 78.4 percent. This was the highest utilization rate since December 2007, the first month of the Great Recession. (continue reading…)

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Monday Economic Report – November 24, 2014

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

Central banks around the world have acted recently in an attempt to lift a sagging global economy. On Friday, for instance, the European Central Bank (ECB) announced that it has begun purchasing asset-backed securities, finally beginning a quantitative easing program that some have long sought. Earlier in the day, ECB President Mario Draghi said that “we will do what we must” to spur economic growth. In addition, the People’s Bank of China surprised markets by cutting interest rates on Friday. These actions followed the Bank of Japan’s announcement on October 31 that it would increase the amount of its monthly asset purchases. (continue reading…)

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Industrial Production Disappoints in October

Manufacturing production rose 0.2 percent in October. At the same time, output in the sector was revised down from an original estimate of 0.5 percent in September to 0.2 percent. As such, manufacturing production has been weaker over the past three months than desired. Capacity utilization among manufacturers has also edged lower over this time frame, down 77.8 percent in July to 77.2 percent in October.

On a year-over-year basis, manufacturing production has risen 3.4 percent since October 2013. That indicates modest growth over the past 12 months, and yet, it also reflects a deceleration in the year-over-year pace since peaking in July at 4.9 percent. (continue reading…)

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Manufacturing Production Rebounded in September from a Soft August

Manufacturing production increased 0.5 percent in September, offsetting the revised 0.5 percent decline observed in August. Over the past 12 months, manufacturing output has risen 3.7 percent. This was slower than the 4.7 percent pace observed in July but a nice improvement from the more-sluggish 1.5 percent rate observed in January. As such, this latest data reflects some a bit of softness in market, most notably for motor vehicles, which had a 1.4 percent decline in production in September. Still, auto sector output has expanded 5.7 percent year-over-year, continuing to make it one of the brighter spots overall.

Capacity utilization in the sector was also higher, up from 77.1 percent to 77.3 percent. On a year-over-year basis, capacity has expanded by a modest 2.1 percent.

Both durable and nondurable goods production rose 0.5 percent in September. Furniture and related products (up 2.4 percent), aerospace and other transportation equipment (up 1.7 percent), miscellaneous durable goods (up 1.6 percent), apparel and leather products (up 1.5 percent) and plastics and rubber products (up 1.2 percent) were among the leaders for production growth in the month. In contrast, sectors with declining output included motor vehicles and parts (down 1.4 percent), wood products (down 0.8 percent), nonmetallic mineral products (down 0.2 percent) and machinery (down 0.1 percent).

Meanwhile, overall industrial production jumped 1.0 percent in September, a nice gain after declining by 0.2 percent in August. Mining (up 1.8 percent) and utilities (up 3.9 percent) were up strongly for the month. Mining production, in particular, has increased significantly over the past 12 months, up 9.1 percent, largely due to the pickup in energy exploration. Total capacity utilization rose from 78.7 percent to 79.3 percent, its highest level since May 2007.

In conclusion, manufacturers have continued to be mostly upbeat about the economy. These production figures suggest that manufacturing output growth remains relatively healthy, with durable and nondurable goods production up 5.4 percent and 2.7 percent year-over-year, respectively. Each represents progress from earlier in the year (even if the durable goods figure has fallen since July).

Nonetheless, volatility in global markets and a still-cautious consumer pose downward risks moving forward, and it will be interesting to see how events play out in the coming days and weeks to see if they derail what had been a relatively positive outlook for manufacturers.

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

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Global Manufacturing Economic Report – October 10, 2014

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

The International Monetary Fund (IMF) slightly downgraded its global outlook earlier this week, with Asia, Europe and South America growing slower than expected three months ago. The IMF now expects world output to expand 3.3 percent and 3.8 percent in 2014 and 2015, respectively, down from 3.4 percent and 4.0 percent as estimated in its July report. One notable exception to this downward trend was the United States, with the IMF raising its 2014 forecast from 1.7 percent to 2.2 percent real GDP growth. This reflects recent strength in the U.S. economy, particularly when compared to other nations. To be fair, the IMF had more optimistic expectations for growth coming into this year, projecting 2.8 percent growth in 2014 in its January report. After disappointing growth in the first quarter, however, it lowered its outlook projections, much like everyone else.

One of the bigger challenges remains Europe. The Markit Eurozone Manufacturing Purchasing Managers’ Index (PMI) continued to decelerate in September, with activity just shy of being stagnant. New orders contracted for the first time since June 2013, when the Eurozone was emerging from its deep two-year recession. Indeed, the fear is that Europe will once again sink back into recession, with contracting levels of activity seen in four nations in September: Austria, France, Germany and Greece. Of particular note on this list was Germany, the largest economy in Europe. Real GDP was unchanged in the second quarter, down from 0.2 percent growth in the first quarter. Meanwhile, both industrial production and retail sales were higher in August. We will get new production data next week, and it is expected to be softer. For its part, the European Central Bank kept its monetary policies unchanged, but there is an expectation of further stimulus in the coming months.

Meanwhile, Brazil, Russia, India and China also continue to experience softness. Brazil shifted into its fifth contraction so far this year, but investors are cautiously optimistic about the upcoming runoff election between incumbent President Dilma Rousseff and Aécio Neves, who is favored by business leaders. Russia, India and China are growing, but just barely. China’s manufacturing sector has shown signs of stabilization, but stronger growth remains elusive. A number of key economic indicators in China have continued to decelerate this year, including industrial production, and it is likely that real GDP will decline from 7.5 percent growth in the second quarter to 7.3 percent in the third quarter. India’s PMI figure in September was at its lowest point this year, and Russian exports continue to fall. Nonetheless, it was not all bad news in the emerging markets. For instance, Indonesia, Turkey and Vietnam had their paces of new orders shift from negative to positive for the month, which bodes well for them.

The U.S. trade deficit narrowed marginally in August, although export growth remains sluggish so far this year. Looking at the top 10 markets for U.S.-manufactured goods, four countries (Brazil, Germany, Hong Kong and South Korea) experienced contracting levels of activity in September, which hampers our ability to sell products there. In addition, Canada, Japan and the United Kingdom also had marginally deteriorated demand and output in September, even as each continues to grow modestly. In contrast, manufacturing activity in Mexico and the Netherlands accelerated slightly in September.

U.S. trade negotiations in the Asia Pacific are moving forward with major meetings in Australia and China later this month and next. United States–European Union negotiations face increased controversy and new leadership at the EU Commission and Parliament. And, with the World Trade Organization’s Trade Facilitation Agreement facing a continued stalemate, there are efforts to move the information technology talks to a conclusion and engage in the detailed environmental goods talks. The U.S. Export-Import Bank was granted a nine-month extension, but manufacturers remain highly concerned that continued uncertainty will put U.S. exporters at a disadvantage in global markets. Efforts continue to move forward on a host of trade legislation, including Trade Promotion Authority, the Miscellaneous Tariff Bill, customs reauthorization and the Generalized System of Preferences.

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

markit pmi for top 10 markets - oct2014

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Business Economists Anticipate “Steady” Growth in Second Half of 2014 and for 2015

Economists with the National Association for Business Economics (NABE) expect steady growth for the rest of this year and for next year. Respondents predict real GDP growth of 3.0 percent in the third quarter of 2014, 3.1 percent in the fourth quarter, and 3.0 percent for all of 2015. As such, it suggests that business economists feel that we have made significant progress in growth since weaknesses in the first quarter of this year.

You can see this rebound in the manufacturing figures, with panelists predicting 4.0 percent and 3.6 percent industrial production growth in 2014 and 2015, respectively. Each figure was marginally higher than in the June survey. These results are consistent with the mostly upbeat data seen in the latest NAM/IndustryWeek Survey of Manufacturers, which had sales, capital spending and hiring expectations at two-year highs. In terms of auto production, light vehicle sales should rise from an average of 15.5 million annualized units in 2013 to 16.3 million and 16.7 million in 2014 and 2015, respectively.

Meanwhile, housing starts should continue to move higher, up from an annualized 1.00 million in 2014 to 1.17 million in 2015, according to the panelists. Note that this reflects some easing in growth rates for the housing sector, as the June survey had predicted 1.27 million units by the end of 2015. The inability of business to obtain credit was the biggest factor for recent softness in the housing market, cited by 65 percent of those taking the survey. Yet, the longer-term trend remains positive.

The forecast was also encouraging in other areas. For instance, capital spending should continue to improve, with healthy gains for fixed investments in nonresidential structures, equipment and software, and intellectual property products. In terms of jobs, nonfarm payrolls should average 228,000 per month in 2014 and 211,000 in 2015. Business economists also expect the unemployment rate to drop to 5.7 percent by the end of 2015, down from 6.1 percent right now.

Regarding the Federal Reserve, nearly 70 percent of all respondents felt that the Fed would start raising short-term interest rates in either the second or third quarters of 2015.

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

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Monday Economic Report – September 22, 2014

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

Manufacturing production declined unexpectedly in August, led lower by reduced motor vehicle output. This drop was likely the result of automakers’ switching over to a new model year and summer vacations. Indeed, auto production has risen 8.1 percent over the past 12 months, continuing to make it one of the bright spots in the economy. Excluding autos, manufacturing output rose 0.1 percent, suggesting slightly better news for the broader sector. Still, the larger story is the accelerated pace of output seen since the winter months, with the year-over-year pace up from 1.6 percent in January to 4.0 percent in August. Durable and nondurable goods production has increased 5.6 percent and 2.2 percent year-over-year, respectively. Hopefully, the August figures reflect a brief pause before picking up again in September.

Regional sentiment surveys tend to suggest that this might be the case. The Empire State Manufacturing Survey from the New York Federal Reserve Bank said that business conditions rose at their fastest pace in nearly five years, with 46 percent of those taking the survey saying that the environment had improved in the month. At the same time, the Philadelphia Federal Reserve Bank’s Manufacturing Business Outlook Survey found healthy rates of growth in September, even as the pace pulled back slightly from very strong gains in August. Each of these two surveys reported higher levels for new orders and shipments, but they were mixed regarding hiring growth. Nonetheless, manufacturers in both districts were overwhelming upbeat about the next six months, with more than half of respondents predicting sales increases. Moreover, the Philly Fed found that a majority of those taking its survey expect production to increase in the third and fourth quarters.

Meanwhile, housing starts fell from an annualized 1,117,000 units in July to 956,000 in August. To be fair, the July figure—the second fastest pace since November 2007—was likely an outlier, and the pendulum—not unexpectedly—swung back somewhat. Yet, the slowdown in August was still disappointing. On the bright side, while single-family and multi-family unit starts and permits were both down, the highly volatile multi-family segment comprised the bulk of the decline. Looking at a longer time horizon, each has continued a slow, but steady upward trajectory. I continue to expect housing starts to be solidly at 1.1 million by year’s end. Indeed, home-builder confidence was equally optimistic about better figures moving forward, with the Housing Market Index at its highest level since November 2005.

The Federal Reserve Board provided the other major headline from last week. The Federal Open Market Committee (FOMC) began laying out its principles for winding down the extraordinary stimulus that it has pursued since the financial crisis at the end of 2008. The Fed will end its purchases of long-term and mortgage-backed securities after its October FOMC meeting, and the expectation is that short-term interest rates will begin to “normalize” at some point in 2015. The federal funds rate, however, will remain near zero for a “considerable time after the asset purchase program ends,” a statement that some suggest means that normalization will not occur until mid-2015 at the earliest. Fortunately, news that consumer and producer pricing pressures eased in August was likely welcomed at the FOMC because it takes some pressure off of the Fed to act sooner, at least for now. (Inflation has accelerated from where it was earlier in the year, but remains below the Fed’s stated 2.0 percent goal.)

In its FOMC statement, the Federal Reserve said that “economic activity is expanding at a moderate pace.” Nonetheless, it continues to worry about slack in the economy, particularly in labor markets. The Fed predicts growth this year of between 2.0 and 2.2 percent, with 2.6 to 3.0 percent real GDP growth next year. The unemployment rate is expected to fall to 5.9 or 6.0 percent by the end of 2014 and 5.4 to 5.6 percent by the end of 2015. In terms of inflation, the Fed forecasts prices growing by less than 2.0 percent over the next few years. If core inflation consistently exceeds 2.0 percent, it will give greater credence to hawks on the FOMC to increase rates sooner rather than later.

This week, we will get a sense of how manufacturing activity is faring globally with preliminary purchasing managers’ index (PMI) data from Markit for China, the Eurozone and the United States. The Chinese economy has begun to stabilize after slowing earlier in the year, but is still not growing by much. European growth has effectively come to a halt. In the United States, however, recent PMI data have reflected healthy gains in both demand and output over the summer months. We will also get new surveys from the Kansas City and Richmond Federal Reserve banks. Beyond those surveys, we will get the second revision to real GDP growth for the second quarter on Friday, with a consensus estimate of 4.3 percent growth, or just slightly higher than the previous 4.2 percent figure.

Other highlights this week include the latest data on consumer confidence, durable goods orders and shipments, and existing and new home sales.

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

housing starts and permits - sept2014

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Manufacturing Production Was Softer than Expected in August on Reduced Auto Output

Manufacturing production fell 0.4 percent in August, declining unexpectedly instead of extending the strong gains of July. Much of this decline stemmed from reduced motor vehicle production (down 7.6 percent in August), but this was likely the result of auto makers’ switching over to a new model year and summertime vacations. Despite the decrease for the month, motor vehicle production has risen 8.1 percent over the past 12 months, the largest increase of any of the major sectors. As such, this month’s figure should not be misinterpreted as a weakness, but instead, it is just a pause in an otherwise upward trend for motor vehicle demand and output.  Excluding autos, manufacturing production would have increased 0.1 percent.

Manufacturing production continues to reflect an accelerated pace from the winter months, with the year-over-year pace up from 1.6 percent in January to 4.0 percent in August. Still, this pace was down from 5.2 percent in July. Durable and nondurable goods output has increased 5.6 percent and 2.2 percent year-over-year, respectively. At the same time, manufacturing capacity utilization also eased, down from 77.6 percent in July to 77.2 percent in August.

Nondurable goods production was up 0.2 percent in August, but that was offset by a decline of 0.9 percent for durable goods manufacturers. Computer and electronic products (up 1.3 percent), food, beverage and tobacco products (up 0.4 percent), nonmetallic mineral products (up 0.4 percent), machinery (up 0.3 percent) and chemicals (up 0.3 percent) were examples of sectors with increased output in August.

In contrast, sectors with declining output included apparel and leather products (down 2.3 percent), fabricated metal products (down 1.3 percent), furniture and related products (down 1.0 percent), textile and product mills (down 0.9 percent) and printing and support (down 0.6 percent).

Meanwhile, overall industrial production decreased 0.1 percent, its first decline since the weather-related slowdowns of January. Mining (up 0.5 percent) and utilities (up 1.0 percent) output were both higher. Total capacity utilization edged lower, down from 79.1 percent to 78.8 percent.

In conclusion, manufacturers continue to be upbeat about activity in the second half of this year, but much like the jobs data out a couple weeks ago, the production figures suggest that there was softness in August. Instead of modest gains in output in August as expected, production in the sector declined 0.4 percent, mainly on slower activity in the auto sector. Nonetheless, the outlook remains mostly optimistic, and there were likely retooling issues related to the declines in motor vehicle production.

Still, manufacturers would like to see stronger economic activity moving forward, and for that reason, policymakers should focus on pro-growth initiatives that will allow them to expand and flourish.

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

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Monday Economic Report – August 18, 2014

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

While geopolitical events continue to provide significant downside risks to the economy, recent data suggest that manufacturers in the United States are faring better this summer. Manufacturing production increased 1.0 percent in July, helping to lift the year-over-year pace of manufacturing output to 4.9 percent, its fastest annual pace since June 2012. Last month’s gain stemmed largely from increased motor vehicle production, with all but three of the major manufacturing sectors notching higher output levels for the month. At the same time, the utilization rate for manufacturers increased to 77.8 percent, nearly reaching pre-recessionary capacity levels.

Similarly, the Empire State Manufacturing Survey reflected strong growth in August, albeit less so than the robust levels observed in July. More importantly, respondents to the New York Fed’s survey were significantly more upbeat, with roughly 60 percent anticipating higher sales and output over the next six months. This study also reported that approximately 30 percent of manufacturers in its district planned to hire more workers and invest in additional capital expenditures in the coming months. This is welcome news, and it was largely consistent with the recent pickup in the labor market. Manufacturing job openings increased in June to their highest level in two years, with net hiring also accelerating. Of course, we already knew that to some extent. The most recent employment data found that manufacturers hired an additional 22,000 workers on average from May to July.

Meanwhile, the European economy has shown signs of backtracking, with real GDP in the Eurozone remaining unchanged in the second quarter. Germany’s economy contracted by 0.2 percent, helping to push the continent’s growth figure lower, but Italy (also down 0.2 percent) and France (flat for the second straight quarter) were also weak. In addition, industrial production has decreased in three of the past four months, with output unchanged year-over-year. We will get our first look at August purchasing managers’ index (PMI) data this week. The Markit Eurozone Manufacturing PMI report in July provided mixed news, with activity expanding for 13 straight months but growth continuing to ease over the course of this year. The latest data suggest that Europe’s economic challenges are still not behind them.

To some extent, that is true in the United States as well. We have seen improvements in a number of economic indicators, and yet, there are also persistent worries about future growth. Some of this could stem from global anxieties, but it could also be a function of disappointment with the lack of growth in the first half of the year. Preliminary consumer sentiment data from the University of Michigan and Thomson Reuters appears to pick up on this nuance, with Americans less confident once again in their forward-looking expectations. Indeed, retail sales data also reflect cautiousness on the part of the consumer, with spending unchanged in June.

This week, we will get additional insights about the health of the manufacturing sector worldwide. In addition to new PMI data for Europe, Markit will also release flash reports for China, Japan and the United States. While China’s economy had begun to stabilize in July, last week we learned that Japan’s real GDP contracted by 1.7 percent in the second quarter, or 6.8 percent year-over-year. Closer to home, the Federal Reserve will release the minutes of its July 29–30 Federal Open Market Committee meeting. Analysts will be looking for clues about when the Fed plans to start normalizing short-term rates. The Fed received good news last week with an easing in producer prices in July from recent highs, and this should help to alleviate some of the immediate pressure from inflation hawks, at least for now. Other highlights this week include the latest data on consumer prices, housing starts and permits, leading indicators and Philadelphia Fed manufacturing sentiment.

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

manufacturing production - aug2014

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Manufacturing Production Rose One Percent in July, with Capacity Reaching a Six-Year High

Manufacturing production increased 1.0 percent in July, its fastest pace since February’s post-weather rebound earlier in the year. The jump in output helped to lift the year-over-year pace of manufacturing production to 4.9 percent, its fastest annual rate since June 2012. As such, it illustrates the recover in output in the sector since the winter months, with the year-over-year pace up from 1.5 percent in January.

Meanwhile, manufacturing capacity utilization increased from 77.2 percent in June (and just 75.5 percent in January) to 77.8 percent in July. This suggests that utilization rates for manufacturers have nearly reached their pre-recessionary levels, with July’s rate the highest level since February 2008.

Looking at sectoral performance, durable and nondurable goods output were both higher, up 1.7 percent and 0.3 percent, respectively. The largest increase stemmed from motor vehicle production, which increased by a whopping 10.1 percent in July, recovering from being flat in June. On a year-over-year basis, motor vehicles and parts output has risen 21.9 percent. This reflected the sizable gain in 2014, but it was also a function of softness in 2013 due to the sector gearing up for a new model year.

Other sectors with notable increases in July included apparel and leather (up 1.8 percent), textile and product mills (up 1.7 percent), furniture and related products (up 1.4 percent), petroleum and coal products (up 1.3 percent), nonmetallic mineral products (up 1.0 percent), primary metals (up 1.0 percent), machinery (up 0.9 percent) and computer and electronic products (up 0.8 percent). In contrast, just 3 of the 19 major sectors had declining production for the month, and these were: miscellaneous durable goods (down 0.8 percent); food, beverage and tobacco products (down 0.3 percent); and plastics and rubber products (down 0.3 percent).

On a year-over-year basis, durable goods production has risen by a healthy 8.2 percent since July 2013, with nondurable goods output up 2.1 percent. The five sectors with the fastest growth over the past 12 months include: motor vehicles and parts (up 21.9 percent), furniture and related products (up 9.2 percent), machinery (up 8.3 percent), plastics and rubber products (up 7.4 percent) and nonmetallic mineral products (up 7.3 percent).

Meanwhile, overall industrial production rose 0.4 percent in July, equaling the increase seen in June. It was the sixth straight monthly gain in production, following January’s weather-induced decline. Since January, industrial output has risen 3.0 percent, with 5.0 percent growth year-over-year. Mining production increased 0.3 percent, but utility output continues to soften, down 3.4 percent for the month. Total capacity utilization increased from 79.1 percent in June to 79.2 percent in July, its highest rate since June 2008.

In conclusion, manufacturers continue to expand strongly in July, recovering from weaknesses earlier in the year. Moreover, surveys suggest optimism for the months ahead, including respondents from the Empire State Manufacturing Survey released this morning. Yet, manufacturing leaders have also been disappointed with the slow pace of growth in the first half of this year, and their upbeat sentiment about the second half remains is filled with caution. For that reason, policymakers should focus on those initiatives which will keep the economy growing moving forward.

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

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