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

Looking at last week’s reports, there appears to be a split between the economic progress of the larger economy and what we continue to observe in the manufacturing sector. That is not to suggest that the U.S. economy is growing robustly—because it isn’t. Nonetheless, some of the data show signs of upward movement. The Bureau of Labor Statistics reported that 165,000 new nonfarm payroll workers were added in April, with healthy upward revisions for February and March. As a result, the economy created almost 200,000 workers in the first four months of 2013, and the unemployment rate fell to 7.5 percent, its lowest level in more than four years. At the same time, the participation rate remains low, and the “real” unemployment rate is still elevated at 13.9 percent, suggesting challenges continue on the labor front even with the recent progress.

One of those challenges can be seen in the manufacturing sector, with its employment levels unchanged in April and lower on a year-over-year basis. Several indicators show softness in activity nationally for manufacturers, with sales, production and employment growing at a slower pace. The Institute for Supply Management’s (ISM) Purchasing Managers’ Index (PMI) dropped from 51.3 in March to 50.7 in April largely on flat job growth, and factory orders declined 3.1 percent in the first quarter of 2013. Manufacturing construction spending was also lower. Regionally, several surveys tend to indicate an easing in activity, with modest growth at best, in manufacturing. The one exception of note was the Chicago Federal Reserve Bank’s Midwest Manufacturing Index, which noted an increase in production mainly due to higher output in the motor vehicle sector. (continue reading…)

The Institute for Supply Management’s (ISM) purchasing managers’ index declined from 51.3 in March to 50.7 in April. While the manufacturing sector continued to expand for the fifth straight month, it is clear that this expansion is very slow right now. Similar trends have been seen in the regional sentiment surveys, with some indicating declining levels of activity, and the latest U.S. PMI data from Markit, which was also released this morning, indicated a significant level of weakness.

The various subcomponents of the ISM report were mixed. One of the weaker factors was employment, with the jobs index dropping from 54.2 to 50.2. This suggests that job growth is essentially flat, with hiring stalled at least for now. Inventories also contracted further, down from 49.5 to 46.5. We saw this in yesterday’s ISM-Chicago report, as well. Once new orders pick up the pace significantly, production will need to accelerate to meet demand, particularly with low stockpiles of goods.

The pace of sales accelerated somewhat for the month, with its index up from 51.4 to 52.3, suggesting modest orders growth overall. The pace of production also grew slightly. This trend that was supported by the sample comments, such as the computer and electronics manufacturers who said that there was a “slight uptick in business.” At the same time new export orders decelerated slightly, down from 56.0 to 54.0. The good news regarding the trade numbers was the fact that export sales continue to grow, even if the pace is marginally slower.

The other key data point of note was the pricing measure. The index for the price of raw materials dropped from 54.5 (modest growth) to 50.0 (neutral). With lower energy and commodity costs, pricing pressures have definitely lessened over the past couple months. This index had been 61.5 in February, for instance.

As noted earlier, these findings were somewhat similar to the report issued by Markit. The U.S. Markit Manufacturing PMI decreased from 54.6 in March to 52.1 in April. This is its lowest level since last October, and it was driven by a much slower pace of growth for new domestic orders. The U.S. sales index dropped from 55.4 to 51.5, with new exports unchanged. Growth in output, employment, and inventories eased in the month. (continue reading…)

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

The global economy has seen some progress since last fall, but growth remains modest at best. There is also a “two steps forward, one step back” feel to some of the latest data. Six of the top 10 markets for U.S.-manufactured goods expanded in March, according to Markit. This is down from seven last month, but up from four last October. Canada, our largest trading partner, saw its manufacturing activity decline, with weaknesses in new orders, exports and hiring. Softness in the United States and Europe were cited as factors.

The other three markets with contracting sales, output and employment levels were in Europe, with its economic downturn widening. The Markit Eurozone Manufacturing Purchasing Managers’ Index (PMI) fell from 47.9 in February to 46.8 in March. This index has now contracted for 20 straight months, with little hope of improving anytime soon. While many of the recent headlines have surrounded the failure of the banks in Cyprus or the inconclusive Italian elections, the challenges are ones that confront the entire continent. The unemployment rate has risen to 12 percent, with more than one-quarter of the working population in Greece and Spain out of work, and real GDP is expected to contract throughout the year. This morning, we should learn even more about the manufacturing sector in Europe when new data on industrial production will be released. The data are expected to show a slight decline. (continue reading…)

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

While we have seen some modest improvements in manufacturing activity so far in 2013, these gains have not yet translated into significant increases in hiring. Employment numbers for March were disappointing overall, with only 88,000 nonfarm payroll workers added on net. This was well below the expected increase of 200,000 employees and suggests that the U.S. economy still shows signs of uncertainty. Higher payroll taxes and across-the-board federal spending cuts have eaten away at retail sales and slowed employment growth in some key sectors.

Manufacturers lost 3,000 workers on net in March. As we have seen for much of the past year, hiring in the sector continues to be soft. Over the past 12 months, manufacturing has contributed just 4 percent of the net new jobs in the economy. This is a reversal of the outsized role from the two years before that and something that can be reversed with pro-growth policies like those laid out in the NAM’s Growth Agenda and changed perceptions about the economic and political landscape. In the short term, however, the Society for Human Resource Management’s (SHRM) survey of hiring intentions in April suggests that the net percentage of new hiring among manufacturers decelerated over the course of the past month and since this time last year. This contrasts with service sector employment growth, which has picked up of late.

The Purchasing Managers’ Index (PMI) from the Institute for Supply Management (ISM) was also discouraging last week. Manufacturers responding to the survey suggested a slower pace of growth for new orders in March, dampening enthusiasm with a lower-than-expected PMI reading. The ISM PMI fell from 54.2 in February to 51.3 in March. In contrast, two other releases out last week were more encouraging. Factory orders rose a healthy 3.0 percent in February largely on strong demand for aircraft, and construction spending among manufacturers was higher, continuing a steady upward trend and reversing the slight pullback in the second half of last year. However, ideally, both of these gains could be more broad-based, as these gains are highly mixed across the sectors.

One piece of good news in the ISM report was new export orders were rising. With so many manufacturers exploring growth through trade, the higher export numbers were encouraging. The Bureau of Economic Analysis and the Census Bureau reported that the U.S. trade deficit narrowed in February, with goods exports up to their second-highest level ever. The bulk of that increase stemmed from a narrowing of the petroleum trade balance, with petroleum imports down and exports higher for the month. Outside of petroleum, manufactured goods exports have grown very slowly in the first two months of 2013, up just 2.5 percent. To make the President’s goal of doubling exports by 2015, this pace will need to pick up significantly. In January and February, total exports to Europe and Japan were down, but exports to our three largest trading partners (Canada, Mexico and China) were higher.

This week is a quieter one on the economic front. The retail sales and consumer confidence figures due out on Friday will be closely watched for clues regarding how the payroll tax increase and sequestration might have impacted spending and overall sentiment. Likewise, the National Federation of Independent Business (NFIB) and the Manufacturers Alliance for Productivity and Innovation (MAPI) will discuss how small businesses and manufacturers are faring in their latest surveys. Data on business and consumer sentiment were largely mixed in March. Aside from those indicators, the other highlights include new data on job openings and producer prices.

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

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

According to the latest economic data, U.S. manufacturers are seeing slow-to-decent progress in their businesses. While there continue to be challenges, many of the regional Federal Reserve Bank surveys reported continued expansion, even if the pace of growth might have slowed. The Dallas Fed survey has grown for four straight months on higher sales and production data, and businesses in the region were overwhelmingly positive about future activity over the coming months. At the other end of the spectrum, the Kansas City Fed’s composite index has contracted for six consecutive months. Both new orders and shipments were unchanged in February after falling sharply in January, and respondents tended to echo some of the frustrations of businesses in the area. Frequent concerns ranged from uncertainties about the economy to concerns about healthcare costs. Even in the Kansas City report, though, manufacturers expressed cautious optimism about the next six months – a constant sentiment across all the surveys.

This morning, we will get the latest read on the manufacturing sector from the Institute for Supply Management (ISM). The ISM purchasing managers’ index is expected to show a very modest gain in activity in March, following the survey’s uptick from 53.1 in January to 54.2 in February. Sales should drive the index higher, but other data show that these gains have been somewhat spotty lately. The Census Bureau’s advance estimates for new durable goods orders rose a very strong 3.6 percent in February, but this followed a 3.8 percent loss in January. Much of the volatility in that indicator has been due to the ups and downs in aircraft orders. Removing the transportation sector from of the analysis would have yielded a decline in new orders.

Motor vehicle demand appears in several of the indicators released last week. The durable goods report indicates that auto sales increased by a very robust 3.8 percent in February, and a rebounding motor vehicle sector helped to lift the Chicago Fed’s Midwest Manufacturing Index. Year-over-year production in the auto industry in the Chicago Fed District was up 15.2 percent, a strong figure that helps explain why the Midwest has fared so well since the end of the recession. These indicators were also consistent with analysis from a couple weeks ago that showed retail sales gains largely due to increased auto purchases and higher gasoline prices.

On the consumer front, personal incomes were up 1.1 percent in February. Spending increased 0.7 percent. The nondurable goods sector benefited the most from the increased spending. The sector was up 1.9 for the month. Manufacturing employees, meanwhile, benefitted from the pickup in activity through higher total wages and salaries. At the same time, the two consumer sentiment surveys out last week moved in opposite directions. The Conference Board’s report dropped significantly over jobs and income concerns. Respondents also cited across-the-board federal spending cuts as a factor. The University of Michigan’s consumer confidence figure reversed an earlier estimate and found the public more positive than the month before, with its index rising for four straight months. The update from the initial report suggests that some of the concerns about the economy in many of the earlier responses might have dissipated as the month progressed.

Aside from the ISM report, other economic highlights due out this week include the latest figures on employment and international trade. Nonfarm payrolls are expected to increase by around 200,000 in March, indicating reasonable job growth last month just shy of the 236,000 net new workers added in February. Manufacturing hiring growth should also closely mirror the previous month’s report. On the trade front, we will be looking to see whether recent improvements in many of our largest markets – with the notable exception of Europe – will lead to increases in exports of manufactured goods.

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

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

The Institute for Supply Management’s (ISM) Purchasing Managers’ Index showed a surprisingly strong gain in new orders and production in February. This report suggested that some of the weaknesses experienced in the second half of 2012 were beginning to dissipate, signaling a pickup in manufacturing activity to begin 2013. But across-the-board fiscal budget cuts, persistent challenges overseas (particularly in Europe) and higher energy costs stand in the way. Nonetheless, the ISM index was one of several indicators released last week showing modest improvements in the sector. Some regional data from the Chicago and Richmond Federal Reserve Banks also indicated stronger growth in February.

That does not mean that the U.S. economy has fully turned a corner, as evidenced by several key data points. The reality is more nuanced than that. First and foremost, real gross domestic product (GDP) was revised upward from shrinking by 0.1 percent in the fourth quarter of 2012 to growing by the same amount at the beginning of this year. Sharp reductions in defense and business inventory spending subtracted from growth, outweighing modest gains in business fixed investment and consumer spending. In addition, regional manufacturing data are quite mixed. While some regionals show improvement, as noted above, others continue to struggle. The Kansas City Federal Reserve Bank’s manufacturing survey, for instance, reported a significant contraction in activity in February, with worries about budget sequestration and poor weather top of mind. Similarly, the Dallas Federal Reserve Bank observed slower growth and reduced optimism last month.

Consumer confidence appears to have rebounded from the declines seen in December and January. Higher payroll taxes significantly influenced the decrease in January. In surveys from both the Conference Board and the University of Michigan, sentiment increased in February, with Americans generally more positive about the economic outlook. This is true despite the many headwinds that exist. With that said, it remains to be seen whether this confidence translates into higher purchases. Personal spending fell for durable goods in January and remained flat for nondurables. The larger headline on the personal income front, though, was the massive shift in dividend and other payments in December in advance of the fiscal cliff deal. This led to a large increase in personal income in December, followed by a large decrease in January. Beyond this story, though, weaknesses in the manufacturing sector slowed wage and salary growth in the second half of 2012, continuing into January.

This week, the focus will be on international trade and employment. Several surveys tended to show manufacturing employment growth lagging behind stronger activity in new orders and production. Indeed, many businesses are waiting for a more solid economic footing before making the commitment to begin hiring again, or to pick up the pace of hiring. The consensus is for roughly 150,000 nonfarm payroll workers to be added in February, with slow growth in manufacturing hiring similar to that of the past couple months. On the export front, recently improving economic conditions in many of our largest trading partners could translate into increased sales.

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

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

Manufacturing activity picked up somewhat in January, according to several reports that came out last week. The Institute for Supply Management’s (ISM) Purchasing Managers’ Index (PMI) rose from 50.2 in December to 53.1 in January. Stronger sales and production data helped to lift this index higher, with export growth still lagging (but no longer declining). The data was mirrored in the latest surveys from ISM-Chicago and the Chicago and Dallas Federal Reserve Banks. New durable goods orders were also higher in December, mainly due to increased aircraft sales.

The sentiment surveys tended to show an uptick in hiring in January, which might be a gauge of future activity. However, for now at least, the data show that employment growth in the sector has been slow at best. The ADP payroll data suggest that manufacturing employment contracted in January, while the government report showed that manufacturers added just 4,000 workers during the month. It is hard to ignore the significant slowdown in hiring that took place among manufacturers during the second half of 2012, with worries about sales and the economic outlook taking a toll on hiring and investing. While the larger economy added roughly 180,000 workers on average each month last year—a figure which is decent, but still not strong enough to bring the unemployment rate down—manufacturers only gained 11,000 additional workers in the last six months of the year.

Much of the economic uncertainty was tied to the fiscal cliff negotiations, with upcoming debates on the budget and deficit still causing uncertainty for many manufacturers. With the debt ceiling conversation postponed until mid-May, all eyes will now focus on the across-the-board federal budget cuts scheduled for March 1 and the possibility of a government shutdown on March 27. The fiscal cliff’s impact can be seen in the economic data as well, with manufacturing activity falling and consumer and business confidence indicators plunging. Dividends rose sharply at the end of the year (up 34.3 percent in December), as companies tried to accelerate these payments in anticipation of higher dividend taxes. The result was a 2.6 percent rise in personal income, pushing the savings rate up to 6.5 percent, its highest level (albeit a temporary one) in nearly four years.

The Federal Reserve Board reported that the economy “paused” at the end of 2012, referencing both Hurricane Sandy and the political wrangling over the fiscal cliff. Beyond that, however, the Federal Open Market Committee (FOMC) made little news. It continued the stimulative policies put in place in December, with new rotating members of the FOMC voting much like the old ones did. Kansas City Federal Reserve Bank President Esther L. George picked up the mantle of her fellow inflation hawks by being the lone dissenter.

This week is a much slower one on the data front. The key data to watch for will come on Thursday with new labor productivity numbers and on Friday with the latest international trade figures. The export data will be closely followed as it will be the first to show activity for all four quarters of 2012.

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

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

With a last-minute deal to avert the fiscal cliff, manufacturers have fewer uncertainties to worry about at the start of the new year. The threat of an economic downturn appears to have largely dissipated, with modest growth in real GDP of 2 percent or so expected this year. However, while the agreement ensures that tax rates for most individuals will remain the same, marginal tax rates will rise for some manufacturing companies that are organized as pass-through entities.

The agreement delays budget sequestration for two months, but that only extends the uncertainty over how this matter will be resolved. In addition, policymakers did not even begin to address the long-term fiscal challenges that confront us by ensuring meaningful tax and entitlement reforms. However, because of the structure of the agreement, they will have additional opportunities to do so over the next few months when they must address the debt ceiling limit, sequestration and the soon-to-expire continuing resolution that funds the government.

The data released last week tended to reflect an economy that was strengthening, even as it continues to show signs of persistent weaknesses. On the employment front, manufacturers added 25,000 net new workers. This is a healthy figure to end the year on, with 180,000 additional jobs in 2012 and 522,000 since the end of 2009. Still, the pace during the second half of the year was much slower than the first half, and it would be encouraging to see the sector producing outsized output and employment growth again. Sentiment surveys have tended to show some manufacturers pulling back on hiring. This might change if business leaders see an economy on more solid footing.

There are some signs that the U.S. and global economic environments have stabilized. As noted in the Global Manufacturing Economic Outlook released on Friday, January 4, seven of our top 10 markets for manufactured goods are growing—an improvement from just three months ago when much of the world outside of North America was experiencing declines. Looking specifically at the U.S. market, the Institute for Supply Management’s (ISM) Purchasing Managers’ Index (PMI) shifted from contraction to a slight expansion last month, with export orders and hiring helping to lift the measure. While there is still much progress to be made on this front, the positive PMI number is good news. Similarly, the Dallas Federal Reserve Bank reported higher activity levels and increased manufacturing business confidence in its region.

This week, the key highlight will come on Friday with the release of new international trade data for November. The October data reflected reduced exports and imports as a result of slowing global growth. With improvements in some countries, we will see if manufactured goods exports begin to pick up. Other numbers to watch include data on consumer credit, job postings and small business optimism.

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

The Institute for Supply Management’s purchasing managers’ index (PMI) edged higher, from a contracting 49.5 in November to a slight expansion of 50.7 in December. While the PMI is above the threshold figure of 50 which signifies net growth, it is also not growing with any gusto. Indeed, in the buildup to the fiscal cliff negotiations that just ended, manufacturers remained quite anxious, dampening production and sales. Indeed, in the last seven months of 2012, the PMI was below 50 four times, and overall manufacturing activity was reduced from what was seen earlier in the year.

On the positive side, though, it was nice to see manufacturers end the year with a net expansion, even a more lackluster one. The index for new orders was unchanged at 50.3, growing for the fourth consecutive month (but just barely). Meanwhile, the pace of production eased somewhat, slowing from 53.7 to 52.6. There were two notable areas of strength. First, export orders – which have been a real challenge for much of the past year – shifted from contraction (47.0) to expansion (51.5). This is definitely good news for the industry. Similarly, hiring also picked up, rising from 48.4 to 52.7.

The sample comments tend to support this mixed view of the economic world, with some signs of increased demand even as manufacturers were uncertain about the future. One respondent said, “We are seeing stabilization of orders and costs as well as production capacity for the first time in months.” Yet, others tended to echo the sentiment of the fabricated metal producer who cautioned that future conditions were “foggy.”

Overall, manufacturing sales and production appear to have improved in December, which bodes well for the sector as we move into 2013. Some of this is likely the result of a pickup in activity after Hurricane Sandy; although, increased exports and imports also suggest improvements in the international economic environment.

Yet, the pace of growth is only slightly above neutral, with many business leaders pulling back on activity in December due to uncertainties surrounding the U.S. fiscal situation and slowing orders globally. With the fiscal cliff situation resolved, at least some of these uncertainties will be resolved for now. Even with this, manufacturing production is expected to grow more modestly in 2013 than in 2012. Moreover, the fiscal cliff agreement did not tackle larger structural issues, leaving larger reforms to the tax code and to entitlements for later, perhaps during the political haggling over the debt ceiling which will take place between now and the spring.

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

The Institute for Supply Management’s purchasing managers’ index (PMI) moved lower in November, falling once again into contraction territory. The PMI fell from 51.7 in October to 49.5 in November. It is clear that worries about slowing sales and the fiscal cliff are having an impact. Additionally, the Mid-Atlantic region was likely affected by Hurricane Sandy.

Many of the subcomponents of this measure reflected a worsening of conditions in the past month. For instance, the index for new orders declined from modest growth (54.2) to essentially neutral (50.3). Reduced export sales were likely a factor in this decline, falling from 48.0 to 47.0, but easing domestic sales were probably also to blame. Surprisingly, the pace of production edged slightly higher in November, up from 52.4 to 53.7. However, this could be short-lived given the slowing of new sales.

Later this week, we will learn about hiring in the manufacturing sector both from ADP on Wednesday and the Bureau of Labor Statistics on Friday. The ISM figures suggest that these numbers will be weak, or potentially declining. Indeed, the index for employment dropped from 52.1 to 48.4, suggesting that more manufacturers are reducing their staffs than hiring during the month. It is the first time that this index has contracted in over three years. To demonstrate the extent to which net hiring has diminished, the employment index stood at 56.9 just six months ago in May.

The sample comments that were provided help frame the decreased levels of optimism in this month’s report. The concerns range from worries about the global environment to the U.S. fiscal situation. As one fabricated metal products company wrote, “The fiscal cliff is the big worry right now. We will not look toward any type of expansion until this is addressed…” Regarding international sales, a chemical manufacturer added, “Global economic uncertainty still seems to be sticking around, which is not necessarily making things worse, but it is also not making things better from a demand standpoint.”

A food manufacturer said that their business was in a “lull” right now.  That pretty much describes how many business leaders feel, with most of them frustrated with our political leaders for failing to avert the fiscal cliff up to this point.  Hurricane Sandy also played its part in reducing activity. But, based on the statements in the ISM survey as well as with the several manufacturers that I spoke with last week, business leaders are extremely nervous about the future direction of the economy.

Chad Moutray is chief economist, National Association of Manufacturers.