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…)

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

While much of the focus of late has been on the fiscal cliff, manufacturers have also been worried about slowing global sales. Business leaders have said that increasing their exports has been a struggle. Yet, despite these headwinds, year-to-date growth in U.S.-manufactured goods has risen almost 5 percent. The good news is that this figure represents positive growth, but it also shows significant easing from the same time period last year. Much of the deceleration in exports corresponded with challenging economic environments in a number of countries, going beyond Europe’s struggles to include Brazil, China, Japan and elsewhere.

The latest data indicate that the global economy appears to be strengthening, which should bode well for improving international trade this year. Europe and Japan are exceptions as both continue to experience significant weaknesses in their respective markets. The purchasing managers’ indices (PMIs) for both remain negative, with new orders, production and employment contracting. Political and economic uncertainties permeate these data, with manufacturers uncertain about what  the future holds. Elsewhere, the trends are more positive. Seven of the top 10 markets for U.S.-manufactured goods have economies that are growing—a definite improvement from three months ago when just four of them did. As a result, we are seeing pickups in manufacturing activity and business confidence. This does not mean that these economies are growing strongly, but it does suggest that global trends have stabilized and are moving in the right direction.

Ironically, the political battles over U.S. fiscal policy had implications beyond our borders, with concerns about a possible economic downturn a top concern among our trading partners. This was especially the case for Canada, our largest trading partner, but other nations fretted about our fiscal situation, as well. With a deal to avert the fiscal cliff, at least some of these anxieties will go away for now. However, there are still larger concerns about the long-term fiscal health of the United States, and possible battles over raising the debt ceiling will keep these issues front and center. Nonetheless, the United States is now poised for modest growth in 2013, with rising exports a major contributor both to our macroeconomic picture and to manufacturers’ business plans.

Next week, we will receive data on November’s U.S. trade balance. The previous month saw a widening of the trade deficit, with both exports and imports lower. Hopefully, a slowly improving global economy will help to turn that around. Globally, we will get the latest industrial production and retail sales data from a number of European countries, with the European Central Bank meeting to discuss its monetary policy plans for the first time in 2013. Trade data will also be released for China, as well as indices for consumer and producer prices. The larger number to watch from the Chinese perspective will be real GDP growth, which will be out on Wednesday, January 16, and is expected to show an increase of 7.7 percent.

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

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

The Federal Reserve noted the U.S. economy has seen some modest improvements during the past month, with a number of indicators highlighting this progress. Hurricane Sandy had an impact, both in slowing down activity in October and increasing it in November in its aftermath. Industrial production rose 1.1 percent in November, recovering from October’s 0.7 percent decline, with repairs from the storm possibly explaining at least some of these gains. Similarly, retail sales also rebounded for the month, led by strong auto sales and spending on appliances, building materials, furnishings and clothing. Lower petroleum costs also helped to ease Americans’ pocketbooks, with gasoline station sales down 4 percent in November on lower prices.

Despite the optimistic news on production and sales, major headwinds confront businesses and consumers. Manufacturing production remains 0.6 percent below July’s levels, a reflection of the weaker economic environment during the past few months. These headwinds mostly stem from uncertainties related to the fiscal cliff and the impact of a slowing global economy on international orders. The trade balance widened in October on reduced exports and imports. While year-to-date manufactured goods exports are higher than last year, they reflect significant easing in trade volumes, resulting from a weakened economic environment among our major trading partners. Meanwhile, in the United States, small business owner confidence plummeted last month on worries about the political environment and diminished expectations for sales, earnings, inventories and capital spending.

High unemployment rates and challenges to the U.S. and global economies are persistent worries for the Federal Reserve Board. The Federal Open Market Committee (FOMC) voted to purchase $85 billion in mortgage-backed and long-term securities each month in an effort to push down long-term interest rates and stimulate economic growth. Moreover, it will continue to do so until the unemployment rate hits 6.5 percent or forecasted inflation exceeds 2.5 percent. These economic indicator targets replace earlier language about maintaining these policies through mid-2015. Still, in practicality, the Fed does not expect the unemployment rate to reach 6.5 percent until 2015, according to its forecasts, suggesting that it will continue to pursue these policies for the foreseeable future.

The fact that inflation remains in-check, at least for now, facilitates the Fed’s willingness and ability to stimulate growth. Consumer and producer pricing data released last week back this up, with lower energy costs helping to ease cost pressures. Core consumer prices have risen 1.8 percent over the past 12 months, and manufacturing raw material costs—down 1.2 percent in November—have risen just 1.0 percent year-over-year. These rates are significantly lower than earlier in the year.

This week, we will learn more about regional manufacturing activity and housing. Surveys from the Kansas City, New York and Philadelphia Federal Reserve Banks—which all indicated a contraction last month—will likely show the sector continuing to struggle. Housing starts data, on the other hand, should continue to illustrate strength in the residential construction sector. Other highlights for the week include data on leading indicators, a second revision to GDP and personal spending.

Note: Due to the holidays, the next report will be released on Wednesday, December 26. There will be no report issued during the week of December 31. The schedule will resume on Monday, January 7, 2013.

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

The Federal Reserve Board said that industrial production rose 1.1 percent in November, more than offsetting the revised 0.7 percent decline experienced in October. A fair share of the decrease in October could be explained by slowdowns resulting from Hurricane Sandy, so these figures suggest that production impacted by the storm have been restored.

The bottom line is that industrial production appears to be recovering from some of the weaknesses of the autumn. However, even with these gains, manufacturing production remains 0.6 percent below where it was in July. That is true for capacity utilization, as well. While manufacturing capacity utilization improved from 75.9 percent in October to 76.6 percent in November, it is still below the 77.5 percent rate observed in July. This indicates that larger weaknesses – including uncertainties related to slowing global growth and fiscal cliff – continue to have an impact.

The good news is that the improvements in November were mostly broad-based in the manufacturing sector. Both durable and nondurable goods production were higher, up 1.6 percent and 0.5 percent, respectively. Sectors with the largest monthly gains included motor vehicles and parts (up 4.5 percent), primary metals (up 3.7 percent), wood products (up 3.4 percent), miscellaneous durables (up 3.4 percent), apparel and leather (up 2.5 percent), electrical equipment and appliances (up 2.3 percent), and plastics and rubber products (up 2.1 percent). As we saw in yesterday’s retail sales figures, at least part of these increases might be explained by repairs and replacements resulting from Hurricane Sandy.

Some areas of weakness were computer and electronic products (down 0.4 percent), aerospace (down 0.3 percent), petroleum and coal products (down 0.2 percent), and chemicals (down 0.2 percent).

Chad Moutray is chief economist, National Association of Manufacturers.

The Conference Board reported that its Leading Economic Index rose 0.2 percent in October, building on the 0.5 percent gain in September. The primary drivers of the increase, though, were credit and interest rates. The other positive contribution to the index came from improvements in initial weekly unemployment claims. Manufacturing provided an essentially neutral contribution, with stalled production, new orders and employment yielding a cumulative contribution of -0.01. Other negative contributors to the index were reduced building permits, lessened consumer confidence, and a slightly lower stock market.

Meanwhile, the Coincident Economic Index – which measures the current climate – increased 0.1 percent. The largest driver of the higher figure was strengthened manufacturing and trade sales, with higher nonfarm payrolls and personal income also making positive contributions. Industrial production, which declined 1.4 percent in October, was the lone negative contributor to the Coincident Index.

Overall, these numbers reflect an economy that is growing modestly, but still showing persistent weaknesses. Manufacturing activity, in particular, remains soft, with headwinds from slowing global sales and anxieties about the resolution of the fiscal cliff having an impact. If policymakers were able to avert the cliff, that would lift at least one of the uncertainties that are hampering growth in the sector.

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

The Federal Reserve Board said that industrial production declined 0.4 percent in October, reversing the 0.2 percent gain in September. Industrial production peaked in July at 97.9. In October it was 96.6, a decrease of 1.4 percent in just three months. This suggests what we already knew – the manufacturing economic environment remains choppy.

Uncertainties related to the fiscal cliff and slowing global growth are challenging sales and forcing business leaders to stall or curtail activity. Beyond these points, Hurricane Sandy impacted production in some areas. The Philadelphia Fed yesterday said that the average manufacturer in its region with reduced activity lost 2.2 days of down time.

Manufacturing production fell 0.9 percent in October, with 1.7 percent less production than in July. The decrease for the month was broad-based. Only two sectors – plastics and rubber products (up 0.2 percent) and nonmetallic mineral products (up 0.1 percent) – cited increased production levels in October. Outside of major sectors, high-technology industries report higher production, up 1.1 percent, on increased demand for computers and communications equipment.

Both durable and nondurable goods production was lower, down 0.6 percent and 1.0 percent. Production was down significantly in October in a number of sectors. This includes: apparel and leather (down 2.1 percent), machinery (down 1.9 percent), food and beverages (down 1.8 percent), printing and support (down 1.5 percent), electrical equipment and appliances (down 1.4 percent), and paper (down 1.2 percent). (continue reading…)