Tag: industrial production

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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Europe’s Economy Slowed to a Halt in the Second Quarter

Eurostat reported flat real GDP growth in the second quarter for the Eurozone, the slowest pace since the first quarter of 2013. Since emerging from a deep recession in mid-2013, Europe has grown slowly, prompting deflationary worries and dampening what would otherwise have been a psychological boost. In the 18-member Eurozone, real GDP has expanded 0.7 percent over the past 12 months. Germany (down 0.2 percent) and Italy (down 0.2 percent) were among the countries in the second quarter with declining economic growth, with French growth unchanged for the second consecutive quarter. In contrast, the United Kingdom has been of the bright spots, with 0.8 percent growth in the second quarter and 3.1 percent growth year-over-year.

Given the sluggishness of recent income and economic activity growth in the Eurozone, we have also seen prices increase very slowly, up just 0.4 percent in July and down from 0.5 percent in June. This has prompted the European Central Bank to be more aggressive, and the latest data suggest even more monetary stimulus in the months ahead.

In the manufacturing sector, industrial production declined by 0.3 percent in the Eurozone in June. It has decreased in three of the past four months. On a year-over-year basis, industrial output was unchanged since June 2013 in the 18-member Eurozone. This represents a significant deceleration in the past two months, down from 1.8 percent in April. We will get our first look at August purchasing managers’ index (PMI) data on August 21, but this data suggest weaknesses for the month. The Markit Eurozone Manufacturing PMI report in July provided mixed news, with activity expanding for 13 straight months but with growth in activity continuing to ease over the course of this year.

Overall, these data show that Europe’s economic challenges are still not behind them, with activity slowing over much of this year. For manufacturers, this has meant cautious consumption and slowing production for both durable and nondurable goods. Energy production has declined by the largest amount year-over-year (down 3.4 percent), and tensions with Russia could present even-greater downside risks for the continent as temperatures start to fall in the fall and winter months.

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

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Monday Economic Report – July 21, 2014

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

With more and more data starting to trickle in for June, we are seeing some definite trends taking shape. One positive is that the manufacturing sector continues to expand, suggesting that the rebound from winter-related softness earlier in the year has mostly continued. Manufacturers also tend to be mostly upbeat about the second half of this year—a sign of optimism that is encouraging. Yet, there were also indicators suggesting that the pace of activity slowed somewhat in June, most notably in the industrial production, housing starts and retail sales numbers that were released last week.

Indeed, manufacturing output in June increased at its slowest rate since January, with relatively mixed news overall. Nondurable goods production edged higher, up 0.1 percent, but output from nondurable goods manufacturers declined by 0.3 percent. Monthly declines in production in such sectors as apparel, machinery and motor vehicles nearly offset output gains for aircraft, furniture, metals and plastics, and rubber products. Longer-term trends remain reassuring, even if they still leave room for improvement. Over the past 12 months, manufacturing production has increased 3.5 percent, a decent figure overall and progress from the much slower pace of just 1.5 percent in January. Durable goods output has risen by a healthy 5.5 percent year-over-year, whereas nondurable goods activity was a less robust 1.5 percent in the past year.

Housing starts in June were also weaker than expected, down from an annualized 985,000 in May to 893,000 in June. Starts were lower for both single-family and multifamily units. There have been suggestions that rain might have attributed to the weaker construction activity, with storms preventing some units from breaking ground. Yet, single-family starts have struggled for some time, down 4.3 percent over the past 12 months. On the positive side, single-family housing permits rose for the second straight month, up from 615,000 to 631,000 at the annual rate for the month. This could suggest stronger growth in the housing market in the coming months for single-family homes. Along those lines, homebuilder confidence increased to its highest point since January, with better expectations for sales over the next six months.

Meanwhile, surveys out last week reported multiyear highs in the pace of manufacturing activity. New orders and shipments were up sharply in surveys from the New York and Philadelphia Federal Reserve Banks. Hiring also picked up in both regions, and raw material costs remained elevated relative to prior months. More importantly, manufacturers in each survey said they were optimistic that sales, output, employment and capital spending would increase over the next six months. In fact, the Philadelphia Federal Reserve report found that 56.1 percent of its respondents anticipated higher new orders, with 60.4 percent predicting increased shipment levels. In addition, the Manufacturers Alliance for Productivity and Innovation (MAPI) reported that the business outlook rose for the sixth consecutive quarter on accelerated sales domestically and abroad. Shipments and capital spending were also anticipated to grow strongly moving forward.

On the consumer front, Americans continue to be cautious in their purchase decisions. Retail spending increased 0.2 percent in June. This was the slowest pace since January, and it was below expectations. Reduced auto sales contributed to this lower figure. Despite the slower activity levels in June, the year-over-year pace continues to grow at decent levels, up 4.3 percent over the past 12 months. Preliminary consumer confidence data also indicate some nagging anxieties in the economy, according to the University of Michigan and Thomson Reuters. The Consumer Sentiment Index unexpectedly decreased from 82.5 in June to 81.3 in July, and consumer attitudes have not changed much since December. Much of July’s decrease stemmed from weaker expectations about the future economy. However, higher gasoline prices might have also been a factor. Indeed, the producer price index increased in June largely on higher energy costs.

This week, we will get additional insights on the health of manufacturing worldwide. Markit will release preliminary purchasing managers’ index reports for China, Japan, the Eurozone and the United States for July. We will be looking for continued progress in Asia and the United States and we hope a reversing of the easing in activity in Europe. The Kansas City and Richmond Federal Reserve Banks will also report on their latest manufacturing surveys. Beyond these releases, the Bureau of Economic Analysis will publish real GDP data by industry for the first quarter; given the 2.9 percent drop in real GDP during the first quarter, we would anticipate minimal contributions to growth from the manufacturing sector. Other highlights include the latest data on consumer prices, durable goods orders and existing and new home sales.

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

manufacturing production growth - jul2014

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Manufacturing Production Expanded More Slowly in June

Manufacturing production increased 0.1 percent in June, its slowest pace since January’s weather-induced decline. In general, manufacturers continue to expand upon the softness earlier in the year, with year-over-year growth of 3.5 percent in June, up from 1.5 percent in January. However, the year-over-year rate was slightly lower than the 3.7 percent pace experienced the month before. Similar trends were seen with manufacturing capacity utilization, which declined from 77.2 percent in May to 77.1 percent in June. While lower for the month, it still represented progress from the 75.5 percent rate seen in January.

In June, the sector-by-sector data were largely mixed, with durable goods output up 0.1 percent but nondurable goods production off by 0.3 percent. Sectors with the greatest monthly growth included furniture and related products (up 1.4 percent), fabricated metal products (up 1.2 percent), primary metals (up 1.2 percent), plastics and rubber products (up 1.2 percent), aerospace and miscellaneous transportation equipment (up 1.1 percent) and nonmetallic mineral products (up 1.0 percent).

In contrast, food, petroleum and coal products (down 2.7 percent); apparel and leather products (down 1.3 percent); beverage and tobacco products (down 0.6 percent); machinery (down 0.5 percent); and motor vehicles and parts (down 0.3 percent) had lower production in June.

On a year-over-year basis, durable goods production has risen by a healthy 5.5 percent in June, an increase from 5.4 percent observed in May. Nondurable goods activity was up a less robust 1.5 percent over the past 12 months, down from 2.1 percent the month before. The largest gains in production over the past year were seen in the following sectors: plastics and rubber products (up 7.5 percent), motor vehicles and parts (up 6.8 percent), fabricated metal products (up 6.2 percent), machinery (up 6.1 percent), furniture and related products (up 5.9 percent), primary metals (up 5.9 percent) and nonmetallic mineral products (up 5.8 percent).

Meanwhile, overall industrial production rose 0.2 percent in June, slower than the 0.5 percent increase in May. On a year-over-year basis, industrial production has grown 4.3 percent. Mining accounted for the largest jump in output, up 0.8 percent for the month and 9.7 percent year-over-year. Utility output declined for the fifth straight month, down 0.3 percent in June but up 1.8 percent year-over-year. Total capacity utilization was unchanged at 79.1 percent.

In conclusion, manufacturers continued to expand output, with the sector recovering from softness earlier in the year. Yet, growth slowed in June, and we would like to see improvements coming from a broader base of the manufacturing sector. In general, manufacturers are cautiously upbeat about production in the second half of this year, but for those projections to materialize, we need to see stronger growth in the U.S. and globally. 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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Monday Economic Report – June 23, 2014

Here are the files for this week’s Monday Economic Report:

The Federal Reserve Bank downgraded its estimates of growth for 2014, with real GDP growth of 2.1 percent to 2.3 percent. This was down from its March projection of 2.8 percent to 3.0 percent, largely due to weaknesses in the first quarter. Nonetheless, the Federal Reserve still projects a pickup in activity during the second half of the year that will continue into 2015, with an unchanged outlook of 3.0 percent to 3.2 percent growth next year. The unemployment rate is anticipated to fall to 6.0 percent by year’s end and as low as 5.4 percent in 2015.

With that in mind, the Federal Open Market Committee (FOMC) observed that “growth in economic activity has rebounded in recent months,” even as it cited continued slack in the labor market. The FOMC continued to taper its asset purchases, down from $45 billion per month to $35 billion, and it mostly reiterated its intent to keep a highly accommodative monetary policy stance for the foreseeable future. Short-term interest rates are expected to start rising at some point next year. Yet, there is renewed chatter among “inflation hawks” about increased pricing pressures of late. Core consumer prices, which exclude food and energy costs, rose 1.95 percent over the past 12 months, its fastest year-over-year pace in 19 months. While inflation still appears to be in check, the recent run-up in costs has fueled a debate about whether short-term rates might need to increase sooner than conventional wisdom might suggest.

For manufacturers, activity continues to recover from winter-related softness at the beginning of the year. Manufacturing production has risen 2.8 percent since January’s decline, with 3.6 percent growth over the past 12 months. Capacity utilization for the sector increased to 77.0 percent in May, its highest level since March 2008. Similarly, manufacturers in the New York and Philadelphia Federal Reserve districts reported strong growth in their respective June surveys. More importantly, respondents were mostly optimistic about future activity. More than half of those taking each survey said they anticipate increased new orders over the next six months. The Philadelphia Federal Reserve report also noted that 73.9 percent of its manufacturers predicted increased production in the second half of this year, with nearly 48 percent forecasting output growth of more than 4 percent.

Meanwhile, the housing market has provided mixed progress so far this year, even as we remain cautiously optimistic about future months. New housing starts decreased from an annualized 1,071,000 units in May to 1,001,000 in June. Despite the decline, it was the second straight month that starts have exceeded 1 million units, and the underlying trend remains positive. April’s figure was an outlier, with the year-to-date average being 969,000. As such, we continue to make slow-but-steady progress. At the same time, housing permits also declined, but single-family permitting increased from 597,000 units at the annual rate to 619,000, the fastest pace since November. This could be a sign that residential construction will accelerate in the months ahead. I still believe we will reach 1.1 million housing starts by year’s end. Moreover, homebuilder confidence was also higher for the month.

This week, we will get additional data on the health of the housing and manufacturing sectors. The Kansas City and Richmond Federal Reserve Banks will unveil their latest surveys, and Markit will release Flash Purchasing Managers’ Index (PMI) data for China, Japan, the Eurozone and the United States. We hope they will continue to reflect rebounding activity in the United States, and analysts will be closely following the June Chinese PMI data to see if the sector expands for the first time in 2014. The other key number to watch will be the second revision of real GDP for the first quarter. The consensus estimate is for the decline in output to exceed 1.5 percent, worse than the 1.0 percent decrease in the first revision. Other highlights include new data on consumer confidence, durable goods orders and shipments, existing and new home sales and personal income and spending.

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

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Manufacturing Production Rebounded in May after a Soft April

Manufacturing production increased 0.6 percent in May, rebounding from a revised 0.1 percent decline in April, according to the Federal Reserve Board. We have seen relatively strong growth in the manufacturing sector since January’s winter-related decreases in output. Indeed, manufacturing production has risen 2.8 percent since January, with 3.6 percent growth over the past 12 months. That was the fastest year-over-year pace for the sector since October.

Capacity utilization for manufacturers also increased for the month, up from 76.7 percent in April to 77.0 percent in May. That was the highest level since March 2008, continuing a trend of reaching near pre-recessionary paces nearly five years after the economic recovery began. Still, on a year-over-year basis, manufacturing capacity has grown just 1.4 percent, which leaves room for improvement.

In May, durable goods production growth outpaced nondurable goods activity by 0.9 percent to 0.4 percent, respectively. In all, 12 of the 19 major sectors experienced output gains for the month, with most of the decliners among nondurable goods segments. The largest increases in production were in the plastics and rubber products (up 1.8 percent), wood products (up 1.7 percent), motor vehicles and parts (up 1.5 percent), petroleum and coal products (up 1.3 percent), electrical equipment and appliances (up 1.1 percent), and machinery (up 1.1 percent) sectors.

In contrast, textile and product mills (down 0.9 percent), paper (down 0.5 percent), apparel and leather products (down 0.4 percent), food, beverage and tobacco products (down 0.3 percent), primary metals (down 0.1 percent), and printing and support (down 0.1 percent) had lower production in May.

On a year-over-year basis, durable goods production jumped from 4.7 percent in April to 5.3 percent in May, and it has risen steadily since bottoming out at 3.1 percent in January. Several durable goods sectors have experienced robust growth over the past year, including motor vehicles and parts (up 7.7 percent), machinery (up 7.6 percent), furniture and related products (up 6.7 percent), and wood products (up 6.2 percent). At the same time, nondurable goods output rose 2.2 percent over the past 12 months, up from 0.3 percent in January and 2.0 percent in April. The fastest annual growth in the nondurable goods space was plastics and rubber products (up 5.9 percent).

Meanwhile, overall industrial production rose 0.6 percent in May, recovering from the 0.3 percent drop in April. In addition to the gain from manufacturing for the month, mining output also grew strongly (up 1.3 percent). Yet, utility production dropped for the fourth straight month (down 0.8 percent). Total capacity utilization increased from 78.9 percent to 79.1 percent, with year-over-year growth of 2.4 percent.

In conclusion, manufacturers began to see better production numbers in May, with decent growth over the past few months. The NAM/IndustryWeek Survey of Manufacturers also suggests that business leaders remain mostly upbeat about sales and output over the next year, which is definitely positive.

Yet, we could still do more to make this growth more broad-based, particularly extending these production gains to the nondurable goods sector. And, it is also clear that manufacturers remain somewhat cautious in their optimism, remaining particularly frustrated with the political environment. For that reason, policymakers should focus on those initiatives which will keep the economy growing moving forward, helping to fulfill the hopeful outlook seen in so many surveys, including ours.

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

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Global Manufacturing Economic Update – June 13, 2014

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

Global growth has been slower than desired in the early months of 2014, and as a result, we have seen many analysts—including me—downgrade their forecasts for this year. Indeed, the latest World Bank’s Global Economic Prospects now predicts global GDP growth of 2.8 percent for the year, down from the 3.2 percent forecast in January. Much of that stems from softer growth in the first half of this year in the United States and decelerated activity in the emerging markets. Brazil, Russia and China experienced contracting manufacturing activity levels in May, with only India experiencing modest growth.

The good news is that the global economy is anticipated to pick up in the second half of this year, continuing into next year. The World Bank estimates real GDP growth of 3.4 percent in 2015, with the U.S. economy expanding by 3.0 percent. This would be consistent with the relatively upbeat outlook seen in the most recent National Association of Manufacturers (NAM)/IndustryWeek Survey of Manufacturers. Still, there continue to be threats to growth that could dampen these predictions, including deflationary risks in Europe, tighter monetary policies in the United States and a number of geopolitical struggles. For example, crude oil prices have risen sharply in the past few days to around $107 a barrel this morning because of confrontations in Iraq and worries about energy supplies.

In general, manufacturing activity worldwide continues to expand modestly, but at varying paces across a number of nations. The JPMorgan Global Manufacturing Purchasing Managers’ Index (PMI) increased slightly, up from 51.9 in April to 52.2 in May. Yet, 5 of the top 10 markets for U.S.-manufactured goods had declining levels of activity for the month, up from two in March and zero in December. China tops this list, having experienced its fifth consecutive monthly contraction despite some easing in the pace of the monthly decline. Three of the other four countries with contractions were also in Asia, including Hong Kong, Japan and South Korea. Meanwhile, Brazil has now contracted for two straight months, which is perhaps not the way it wanted to kick off the World Cup. At the other end of the spectrum, we continue to see strong growth in the United Kingdom and the United States, both of which saw heavy production gains in May.

Meanwhile, European economies continue to experience slight expansions, but growth eased in May. The Markit Eurozone Manufacturing PMI decreased from 53.4 to 52.2, its slowest pace since November but the 11th straight month for expanding levels of activity. This resulted from a deceleration in new orders, output, exports and hiring. Nonetheless, growth in the Eurozone remains subpar, with real GDP up just 0.2 percent in the first quarter and expected to increase around 1 percent in 2014 as a whole. Still, retail sales have increased in each of the first four months of 2014, and industrial production increased at its fastest pace since November.

Yet, the big worry in Europe continues to be deflation. Producer prices fell 0.1 percent in the Eurozone in April, with declines of 1.2 percent year-over-year. At the same time, annual inflation has fallen to 0.5 percent. Fears about deflation and slow growth have prompted the European Central Bank (ECB) to take actions to further stimulate the Eurozone economy at its June 5 meeting, cutting its main interest rate to 0.15 percent. In essence, the ECB will charge negative interest rates on bank deposits in an effort to spur institutions to lend more, and there is some speculation that it might pursue a more aggressive asset purchasing program in the future, if needed.

On the policy front, there is an increased focus from both a business and policy perspective on India, with its election of a new prime minister, and Europe, which also elected a new parliament and is constituting a new commission. Trade negotiations in the Asia-Pacific and Europe continue, but work needs to be done on both. Domestically, there is a heavy U.S. focus on the reauthorization of the Export-Import Bank before its expiration on September 30 and passage of a new Miscellaneous Tariff Bill, which has lagged more than 17 months, as well as new legislation on trade secrets.

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

brazilian GDP - jun2014

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Business Economists Anticipate 2.5 Percent Growth in Real GDP in 2014

Economists with the National Association for Business Economics (NABE) expect the economy to pick up in the second half of this year. Yet, overall estimates for growth for 2014 as a whole have fallen over the course of the past few months, with activity starting off somewhat disappointing in the first quarter. Economists now estimate real GDP growth of 2.5 percent for this year, down from 2.7 percent in the March survey and 2.8 percent in the December survey. This implies growth exceeding 3 percent in each of the remaining three quarters this year. In addition, survey respondents anticipate 3.1 percent growth in 2015.

Looking at the manufacturing sector, business economists expect industrial production to accelerate this year, with current estimates of 3.7 percent for 2014. That would be an improvement from the 3.2 percent growth rate forecasted three months ago. These results are consistent with the mostly upbeat data seen in the latest NAM/IndustryWeek Survey of Manufacturers, which predicted 4.0 percent growth in manufacturing output through the end of this year and sales rising at their fastest pace in two years.

In terms of auto production, light vehicle sales should rise from an average of 15.5 million annualized units in 2013 to 16.1 million and 16.5 million in 2014 and 2015, respectively. Meanwhile, housing starts are anticipated to grow rapidly, particularly next year, up from an expected 1.03 million in 2014 to 1.30 million in 2015. Capital spending should improve, as well, with relatively healthy gains for fixed investments in nonresidential structures, equipment and software, and intellectual property products.

Labor market growth has picked up since the last survey, not unlike the data seen in the most recent jobs report. Those taking the survey predict that nonfarm payrolls will average 209,000 per month in 2014, up from 188,000 each month in the last survey. With that said, business economists still predict a slow decline in the unemployment rate, averaging 6.2 percent this year.

A number of special questions focused on the Federal Reserve Board and monetary policy. Over ninety percent felt that the Fed would end its asset purchase program by year’s end, with the vast majority feeling that it would end in the fourth quarter. Similarly, 86 percent felt that short-term rates would rise in 2015, with over half anticipating the federal funds rate to increase in the second half of next year. In terms of global worries, the majority of respondents feel that the Russia/Ukraine crisis will hurt growth in Europe (84 percent) and that China will face a debt crisis in the next few years (51 percent). At the same time, nearly half suggest that deflationary concerns will hinder the economic recovery in Europe.

Chad Moutray is the chief economist, National Association of Manufacturers. Note that he was one of the panelists for the NABE Outlook Survey. 

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Monday Economic Report – May 19, 2014

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

There are numerous signs that global economic growth is lower than expected in 2014, with some disappointing data coming in last week. For instance, industrial production numbers were weaker in a number of countries, including slower industrial growth in China in April relative to just a few months ago and falling output in March in the Eurozone. Europe also learned that real GDP rose at the very slow pace of 0.2 percent in the first quarter, prompting new worries about sluggish income and labor market growth on the continent. Meanwhile, in the United States, the Federal Reserve reported that manufacturing production fell 0.4 percent in April. This followed relatively strong rebounds in February and March from winter-related softness in December and January. Still, output continues to reflect modest gains year-over-year, particularly for durable goods.

Despite April’s decline in industrial production, other data suggest that manufacturing activity in the United States appears to be recovering from earlier weaknesses. Manufacturing surveys from the New York and Philadelphia Federal Reserve Banks both show relatively strong expansions in their regions, even as the Philly Fed report eased a bit in May from April. New orders, shipments and employment reflected continuing expansion from the previous survey. More importantly, manufacturers in each district remained mostly upbeat about the next six months, with more than half of the respondents in both surveys anticipating new orders to increase moving forward. For their part, small business owners were also more optimistic, with the National Federation of Independent Business’s (NFIB) key index rising to its highest level since October 2007.

At first glance, the housing data released last week were also quite positive. Housing starts exceeded 1 million again for the first time this year, up from an annualized 947,000 units in March to 1,072,000 in April. New residential permitting was also higher. Yet, the bulk of April’s increases in both measures were primarily due to the more volatile multifamily housing segment. Single-family starts and permits were only marginally higher, but remain below the recent peaks last November. As such, there is perhaps more softness in the market than the headline figure indicated. (We will get existing and new home sales figures this week.) Indeed, homebuilder confidence fell to its lowest point in 12 months, with consumer anxieties cited as a concern. On the positive side, builders were somewhat more hopeful about future activity.

Consumer data were mixed. Retail sales increased 0.1 percent in April, extending the strong gains from February and March. Auto sales comprised much of April’s gains, with retail spending outside of motor vehicles unchanged from March. As such, consumers appeared to be somewhat cautious in April. This showed up in the latest consumer confidence data as well. The University of Michigan and Thomson Reuters reported that consumer sentiment edged slightly lower in May in its preliminary data, with Americans more concerned about current economic conditions. In terms of prices, consumer inflation has started to pick up slightly, led by higher food costs, but core pricing pressures remain below 2 percent at the annual rate, at least for now. A similar pattern was observed for producer prices.

This week, we will get more news on the health of the manufacturing sector worldwide, with flash Purchasing Managers’ Index (PMI) data from Markit for the United States, Europe, China and Japan. The Kansas City Federal Reserve will also release its latest sentiment survey. Finally, the Federal Open Market Committee (FOMC) minutes from its April 29–30 meeting will be released, providing some insights about current Federal Reserve debates. However, that meeting hardly produced any surprises, with the FOMC continuing to taper its asset purchases and the Federal Reserve’s forward guidance still pointing to short-term rate increases sometime next year.

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

yoy industrial production growth - may2014

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