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

In the first five months of 2013, manufacturing production has been virtually unchanged, according to the Federal Reserve Board, and capacity utilization in the sector edged lower from 76.4 percent in December to 75.8 percent in May. Production among manufacturers increased 0.1 percent in May, or up 1.7 percent year-over-year. The latest NAM/IndustryWeek Survey of Manufacturers predicted that the annual pace of production activity should increase to 2.8 percent by the fourth quarter of 2013. Manufacturing production will need to pick up for that to be true. Manufacturing export numbers have been soft, with higher taxes and across-the-board spending cuts dampening demand.

Regarding the NAM/IndustryWeek survey, manufacturers anticipate sales to increase 2.7 percent on average over the course of the next year. While this is higher than the 2.3 percent growth rate observed three months ago, it is below the 4.3 percent pace of 12 months ago. Larger businesses were more optimistic about sales and their company’s outlook than their small and medium-sized counterparts, with all respondents predicting sluggish hiring growth over the next year. The top concern, cited by 82.2 percent of respondents, was the rising cost of health insurance. The average health insurance premium increase in 2013 was 8.6 percent, with a 13.9 percent jump on average anticipated for 2014. The 2014 numbers suggest just how much uncertainty there is regarding insurance rates, with the perception they will go up significantly. I spoke about this survey and the general state of manufacturing on CNBC’s “Squawk Box” last Tuesday. (continue reading…)

The Federal Reserve Board said that industrial production was unchanged in May, with manufacturing activity up 0.1 percent. So far in 2013, manufacturing production has been virtually unchanged, up in two months and down in three. On a year-over-year basis, manufacturers have increased their output by 1.7 percent. That is far from ideal, as we would like to see production increase by at least double that to signify a flourishing manufacturing sector. Nonetheless, it is indicative of many of the weaknesses that we are seeing right now in the sector.

At the same time, manufacturing capacity utilization remained at 75.8 percent, which while the same as April’s figure represented a slowdown from the 76.4 percent utilization rate of December.

Both durable and nondurable goods production were up slightly in May, increasing 0.2 percent and 0.1 percent, respectively. Manufacturing activity gained the most in the month in the apparel and leather (up 3.1 percent), computer and electronic products (up 1.1 percent), wood products (up 1.1 percent), petroleum and coal products (up 0.9 percent), plastics and rubber products (up 0.9 percent), nonmetallic mineral products (up 0.8 percent), and motor vehicle (up 0.7 percent) sectors.

These increases were somewhat offset, though, by declines in primary metals (down 1.0 percent), furniture (down 0.8 percent), aerospace and miscellaneous transportation (down 0.6 percent), machinery (down 0.4 percent), and food and beverage (down 0.3 percent) sectors. (continue reading…)

The latest NAM/IndustryWeek Survey of Manufacturers found that rising health insurance costs topped the list of concerns this quarter. The issue was cited by 82.2 percent of respondents, higher than the 74.0 percent level observed in the first quarter survey.

A series of special questions on the Affordable Care Acts drilled further on this topic. Specifically, 99.0 percent of manufacturers surveyed said that they provide health insurance coverage to their workforce, with 38.0 percent of those self-insuring. The average health insurance premium increased 8.6 percent this year, with a whopping 13.9 percent predicted for next year. More than anything, the 2014 numbers suggest just how much uncertainty is out there regarding insurance rates, with the perception out there that they will go up significantly. Just 43.8 percent of manufacturers said that they were prepared to implement the ACA when it goes into effect starting later this year.

Looking at the current economic outlook, 72.3 percent of manufacturers said that they are either somewhat or very positive about their company’s outlook, up from 51.8 percent six months ago and 70.1 percent three months ago. With the exception of the December survey, optimism levels have been roughly 70 percent since September. In essence, this survey confirms the good-but-not-great nature of the current manufacturing economy, much as we have seen in the most recent Institute for Supply Management and employment numbers. Sales are expected to rise 2.7 percent over the course of the next 12 months. While this was higher than the 2.3 percent observed last time, it was still lower than the 4.3 percent observed one year ago. (continue reading…)

Business economists expect real GDP growth of 2.4 percent in 2013, with slightly faster growth of 3.0 percent in 2014. The May Outlook Survey from the National Association of Business Economics (NABE) found that output estimates for this year and next have not changed from what was predicted three months ago in the February survey.

Beyond the headline figure, there were improvements in some of the key components of GDP. Specifically, respondents expect improved consumer spending (2.3 percent in 2013), residential investment (15.0 percent), nonresidential structure investment (4.6 percent), and business inventories. Regarding the housing sector growth rate, new residential starts are expected to average 1 million in 2013, rising to 1.18 million in 2014. In contrast to these positive contributors to real GDP, shrinking government budgets are expected to fall by 2.3 percent in 2013 and 0.9 percent in 2014, suggesting that they will continue to be a drag on growth.

Industrial productoin should increase 3.1 percent in 2013 and 3.5 percent in 2014. This would suggest a pickup from the most recent year-over-year growth rate of  1.3 percent.

Businesses are expected to add 168,000 nonfarm payroll workers per month in 2013, increasing to 198,000 per month in 2014. This modest growth in hiring, though, is not anticipated to bring the unemployment rate down much from its current 7.5 percent rate, with business economists forecasting the unemployment rate to average 7.1 percent in 2014.

On financial matters, business economists say that pricing pressures shuld be modest, up 1.8 percent in 2013 and 2.0 percent in 2014. Each of these numbers are slightly lower than what was forecast in February, most likely due to lower energy costs in the most recent data. More importantly, they are also consistent with the Federal Reserve’s stated goal of keeping inflation at or below 2 percent. Oil prices are predicted to average $93 per barrel in 2013 and $95 per barrel next year.

Chad Moutray is the chief economist, National Association of Manufacturers. Note that he is also a former board member of NABE and a current participant in NABE’s Outlook Survey.

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

The manufacturing economy has hit some speed bumps, according to recent data. Industrial production declined 0.5 percent in April—more than expected—with capacity utilization levels back to where we were at the beginning of the year. The slower pace of domestic and global sales has negatively impacted activity, with production down mostly across-the-board. Only four of the 19 major manufacturing sectors experienced an increase in output for the month. Moreover, annual growth in manufacturing production of just 1.3 percent is insufficient, and such low rates of industrial growth are not enough to help boost hiring and output. Ideally, we would like to see annual output growth of 4.5 percent or greater, as outlined in the NAM’s “20/20 Vision” earlier this year.

The national pullback in manufacturing activity extends to two of the regional manufacturing surveys released last week. Sentiment surveys from the New York and Philadelphia Federal Reserve Banks found contracting levels of new orders, shipments and the average workweek. In addition, manufacturers were more negative in their overall views of the current business environment. However, employment was mixed between the two reports, with a pickup in hiring reported in the Empire State survey, and manufacturers in both Fed districts were cautiously optimistic about future growth. As a result, capital investments are expected to increase in the coming months.

The Conference Board’s Leading Economic Index—a forward-looking measure of the U.S. economy—rose a healthy 0.6 percent in April, with strong growth in housing permits. New residential permits exceeded the 1 million mark for the first time since June 2008, even as housing starts fell for the month. The long-term trend for the housing market remains positive, with permits data highlighting growth in future activity. Other good news can be seen in the latest University of Michigan consumer sentiment survey, with Americans reporting optimism levels not seen since mid-2007. Retail sales were also higher, even with declines in gasoline station spending due to lower petroleum costs. (continue reading…)

The Federal Reserve Board said that industrial production declined 0.5 percent in April, more than double the consensus expectation of 0.2 percent. For manufacturers, production activity fell 0.4 percent in April, after a 0.3 decrease in March. This was the third time so far in 2013 that manufacturing production has contracted, decelerating the year-over-year pace from 2.4 percent growth in December to 1.3 percent in April.

Manufacturing capacity has also fallen, down from 78.3 percent in March to 77.8 percent in April. This brings the utilization rate back to where it was at year’s end, erasing the capacity gains seen in the first four months of 2013.

Durable goods production fell 0.4 percent; whereas, production in the nondurable goods industries fell 0.1 percent. Declining levels of manufacturing activity were mostly across-the-board, with only four of the 19 major sectors experiencing a gain for the month. The four sectors with higher production in the month were plastics and rubber products (up 0.4 percent), chemicals (up 0.2 percent), computer and electronic products (up 0.2 percent), and food and beverages (up 0.2 percent).

The largest declines were seen in the nonmetallic mineral products (down 1.7 percent), apparel and leather (down 1.6 percent), petroleum and coal products (down 1.5 percent), motor vehicle and parts (down 1.3 percent), and miscellaneous durable goods (down 1.1 percent) sectors.

When combined with Empire State Manufacturing Survey data out this morning, we get a true sense of just the sluggishness of growth for the sector right now. With exports that are barely growing and domestic sales softened by higher payroll taxes, it is clear that the manufacturing sector has still not emerged from pullback in activity that we began to see in the second half of last year. Uncertainties about the economy and the impact of government budget cuts continue to persist, preventing manufacturers from making large gains to output and employment. (continue reading…)

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

Some of the indicators released last week helped confirm the belief that the U.S. economy has started 2013 on a stronger-than-expected note. First, industrial production rose 0.8 percent in February, led by strong demand for automobiles and other goods. This was a decent turnaround from much weaker numbers in January, with all but three major manufacturing sectors experiencing higher production. Second, retail sales rose a surprisingly healthy 1.1 percent in February. While much of that growth stemmed from higher gasoline prices and higher motor vehicle sales, the data suggested modest growth overall, with Americans continuing to make modest gains in purchases despite headwinds from higher taxes and fiscal uncertainties.

At the same time, those headwinds appear to be having some negative impacts. Industrial production was increasing at a 5.1 percent year-over-year pace at this point last year; today, that rate is 2 percent. That example can be replicated in so many of the recent indicators. For instance, the NAM/IndustryWeek Survey of Manufacturers reported an uptick in optimism in the latest survey, with sales expected to grow 2.3 percent over the next year. That represents an improvement from three months ago (when the rate was 1.0 percent), and the percentage of respondents who were positive about their own company’s outlook rose from about 52 percent in December to roughly 70 percent today. But this is a come-down from the stronger pace of nearly 5 percent growth in annual sales expected in March of last year (when approximately 89 percent were positive in their outlook). Clearly, more work still needs to be done to get the economy moving. (continue reading…)

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.

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.

The Federal Reserve Board reported that industrial production rose 0.3 percent in December, somewhat slower than the 1.0 percent gain in November. Much of the growth in November could be explained by production ramping back up after slowdowns from Hurricane Sandy.

The pace of growth in December illustrates that the economy is beginning to recover from its mid-year doldrums. This was especially true for in the manufacturing and mining sectors, which were up 0.8 percent and 0.6 percent in December. Production in utilities was down 4.8 percent for the month.

The good news for manufacturers was that the gains in December were fairly broad-based, with 15 of the 19 major sectors experiencing gains. Both durable and nondurable goods sectors were higher, up 1.0 percent and 0.6 percent. Of particular note, there were strong increases in the primary metals (up 2.9 percent), motor vehicles (up 2.6 percent), apparel and leather (up 1.9 percent), computers and electronics (up 1.5 percent), chemicals (up 1.4 percent), and printing and support (up 1.3 percent) sectors.

Declining production for the month was found in the electrical equipment and appliances (down 1.7 percent), textile and product mills (down 1.6 percent), nonmetallic mineral products (down 1.2 percent), and paper (down 0.4 percent). (continue reading…)