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Monday Economic Report – October 7, 2013

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

Policymakers’ ability to solve the country’s fiscal problems has once again come into focus with the government shutdown and the looming debt ceiling deadline. Manufacturers are eager for our leaders to solve these short-term differences and move on to address the nation’s long-term challenges. In the most recent NAM/IndustryWeek Survey of Manufacturers, nearly 85 percent of respondents said that they want the President and Congress to come to a long-term budget deal that effectively tackles the deficit and debt. In addition, three-fourths expressed the need to slow the growth of entitlement spending. Once these structural issues are solved, the country can begin to adopt pro-growth measures like those laid out in the NAM’s Growth Agenda that will allow the manufacturing sector and other businesses to expand and flourish. Instead, we are stuck in a budgetary impasse that creates more uncertainty and harbors increased frustrations with the political process.

With the government closed, statistical agencies will not be able to release new data. Last week, that meant that we did not get the latest jobs numbers as well as updates on construction spending and factory orders. There was some consternation about this, including stories in the USA Today and The Hill. Assuming the shutdown lasts through this week, we will not receive new data for international trade, job postings, producer prices, retail sales and wholesale trade. Private sources will only partially fill the vacuum left by the absence of government data. For instance, last week, Automatic Data Processing (ADP) announced its job estimates, with the Institute for Supply Management (ISM) releasing its closely watched Purchasing Managers’ Index (PMI) data. This week, the Federal Reserve will provide consumer credit data, and the Manufacturers Alliance for Productivity and Innovation (MAPI) will release its latest survey.

In terms of the numbers that were out last week, they tended to confirm the trends across the past few weeks. The ISM data show a clear uptick in manufacturing activity during the third quarter, with an average PMI of 55.8 in July, August and September. That is a significant improvement from a sector that essentially stalled during the second quarter, with the sharp acceleration in sales being a major factor. The third-quarter average for the new orders index was a surprisingly strong 60.7, up from 51.0 in the second quarter. Many regional surveys backed up this analysis, with rebounds in the latest reports from ISM-Chicago and the Chicago and Dallas Federal Reserve Banks.

One area that continues to lag behind is hiring. In many sentiment surveys, employment growth has been up only modestly. For the most part, manufacturers were positive about sales and output over the next 6 to 12 months, with some pickup predicted in hiring. The NAM/IndustryWeek survey predicted 1.1 percent growth on average in hiring in the manufacturing sector over the next year; yet, roughly 60 percent of respondents did not plan to change their employment levels at all. With that as context, it was perhaps not surprising that the ADP employment report continued to reflect disappointing jobs growth for manufacturing, up by just 1,000 in September and down by 12,000 year to date. Nonfarm payrolls also grew by a less-than-stellar 166,000 workers, suggesting a persistent hesitance to bring on new workers in the economy extending beyond the manufacturing sector.

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

adp employment - oct2013

Chicago Business Barometer Observed a Pickup in Manufacturing Activity in August

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The Chicago Business Barometer from ISM-Chicago and Deutsche Börse observed a pickup in manufacturing activity in the region in August. The purchasing managers’ index rose from 52.3 in July to 53.0 in August. This was the second consecutive increase in sentiment after a spring slowdown.

Higher sales were the largest driver, with the new orders index up significantly from 53.9 to 57.2. This was the fastest pace since February, as as such, it bodes well for increased output in the coming months. This suggests an improvement in the auto sector, which heavily dominates this measure. As such, it provides a different view of the region than was seen in the July Midwest Manufacturing Index for July, which was released earlier in the week, and it perhaps indicates that motor vehicle sales accelerated somewhat in August.

With that said, several of the other measures decelerated a bit for the month, even as they still relfect modest growth. The production index, for instance, declined from 53.6 to 53.0, with the employment figure down from 56.6 to 54.9. Inventories and the order backlog both declined at a slower pace, and raw material costs remained slightly elevated from where they were earlier in the year.

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

Monday Economic Report – June 3, 2013

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

The Bureau of Economic Analysis confirmed that the U.S. economy grew modestly in the first quarter of 2013, revising real GDP growth from the earlier estimate of 2.5 percent to 2.4 percent. Two factors that have had the greatest impact were the American consumer and a rebounding housing market. Business spending, while decelerating somewhat from the fourth quarter of 2012, also made a sizable contribution to growth. In fact, to illustrate the importance of consumer spending and gross private domestic investment to growth in the first quarter, they added 3.6 percentage points to real GDP, with government spending and net exports subtracting from that number. Moving forward, I expect real GDP to grow by 1.8 percent in the current quarter, with 2.3 percent growth overall for 2013.

Two surveys released last week both indicate a sharp rebound in consumer sentiment in May, with both rising to levels not seen in more than five years. The Conference Board and University of Michigan reports both observed improved perceptions about the current and future economic environment, and yet, Americans feel there are persistent challenges. These headwinds include elevated unemployment rates, higher payroll taxes and slow growth in the domestic and global economy. Softness in the economy contributed to flat personal income growth in April, with personal spending declining. In the manufacturing sector, wages and salaries have increased over the course of the past year, even as they were slightly lower in April. Read More

ISM-Chicago Data Suggest Contracting Activity in April

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The Chicago Business Barometer from ISM-Chicago and Deutsche Börse declined from 52.4 in March to 49.0 in April. This is the lowest value for the index since 2009, with the report indicating that manufacturing activity in the region contracted for the first time in 3½ years. As such, it stands in contrast to the Midwest Manufacturing Index from the Chicago Federal Reserve Bank, which was released yesterday and found production levels moving higher in March. It is consistent, though, with several of the other regional manufacturing surveys of late which have reported slowing in the sector.

For the ISM-Chicago report, production helped to drive the larger index lower. To illustrate the slowing of activity in this data, the index for production has fallen from 60.9 in January to 51.8 in March to 49.9 in April. The April reading indicated a slight contraction for the month, with manufacturing activity essentially stalled. Employment also declined, with its index dropping from 55.1 to 48.7. This was the first pullback in hiring since December.

On the positive side, new orders edged marginally higher for the month, up from 53.0 in March to 53.2 in April. This figure was still well-below the 60.2 reading of February. The good news is that inventory and order backlog levels continue to diminish. This should mean that activity should pick up on stronger sales data, with stockpiles so low.

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

ISM-Chicago Finds Higher Production, Reduced New Orders in November

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The Institute for Supply Management-Chicago and Deutsche Börse reported that its Chicago Business Barometer edged higher from 49.9 in October to 50.4 in November. While this suggests a minor expansion in manufacturing activity in the region, the various subcomponents provide mixed comfort.

Production rose from 51.8 to 54.7, and employment increased from 50.3 to 55.2. Both of these figures represent a nice improvement, with modest growth in output and hiring lifting the sector from the near-stalled levels seen in the month before. Much of the advancement stemmed from progress in the auto industry. At the same time, the pace of new orders slipped back into contraction (from 50.6 to 45.3). To the extent that sales are a proxy for future activity, this could mean that the gains seen in November might be temporary.

Indeed, the sample comments tend to highlight the anxieties of Midwestern manufacturers. One respondent said, “Business sales been slowing throughout the year, and continue to slow, but now at an increasing rate, becoming very alarming.” Another specifically noted concerns over the fiscal cliff. Even with these sentiments, however, other manufacturers were more cautiously optimistic about output next year, with at least one of them experiencing strong demand right now.

Chad Moutray is chief economist, National Association of Manufacturers.

Factory Orders Rise in July on Transportation, While ISM-Chicago Reflects Slower Growth

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The Census Bureau reported that new orders for manufactured goods rose 2.8 percent in July, reversing the 0.5 percent decline in June. A strong increase in transportation sales lifted durable goods orders by 4.1 percent, outpacing the 1.5 percent gain from nondurable goods.

Illustrating the impact of higher motor vehicle and nondefense aircraft orders on this figure, manufacturing new orders would have risen by just 0.7 percent without these sectors. This was noted a week ago when advanced data for durable goods was released.

The strongest sector for new orders in July was primary metals, which was up 2.9 percent. Most of the other major sub-industries were lower, including machinery (down 4.1 percent), electrical equipment and appliances (down 2.2 percent), fabricated metal products (down 0.8 percent), furniture and related products (down 0.4 percent), and computers and electronic products (down 0.2 percent).

Meanwhile, shipments of manufactured goods increased 2 percent in July. As with new orders, the bulk of this gain stemmed from transportation, which jumped 8.6 percent. Other leading sectors for shipments were beverage and tobacco products (up 3.7 percent), apparel (up 2.3 percent), petroleum and coal products (up 2.3 percent), chemical products (up 1.7 percent), primary metals (up 1.3 percent), and computers and electronic products (up 1.1. percent). Note the large presence of nondurables in this list, which helped to lift nondurable goods shipments by 1.5 percent.

The other key data point released today came from the Midwest. The latest ISM-Chicago report found slower growth in the region, with its Business Barometer down from 53.7 in July to 53.0 in August. With that said, the various components were mixed. Order backlogs and supplier deliveries were both contracting at their slowest paces since the second half of 2009. Yet, there were improvements in production, new orders, employment, and capital equipment spending. Cost pressures appear to be accelerating, though. Read More

Improvement in New Orders, But Slow Growth Overall in Chicago Region

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The Chicago Business Barometer from ISM-Chicago rose from 52.9 in June to 53.7 in July. This improvement was mainly due to a pickup in new orders, with the index increasing from 51.9 to 52.9. Still, this is a far cry from the 69.2 reading observed in February, which was followed by four consecutive monthly declines before July’s increase. 

Unfortunately, many of the other subcomponents of the ISM-Chicago survey mirrored weaknesses seen in other indicators. Current production, inventories, employment, and capital spending all grew at a slower pace in July.  The index for production, for instance, declined from 57.0 to 54.5.

The sample comments tend to echo this more-downbeat assessment. Many of the responses noted slower economic growth and rising uncertainties in the marketplace. While a couple of them observed higher sales, others tended to say that new orders were “erratic,” “softening,” “slower,” or “quiet.” In trying to explain the lower levels of activity, one individual said, “Summer vacations? Election year? Euro crisis? I wish I knew.” Indeed, these comments highlight the anxieties that we hear from manufacturers in other regions, as well.

Tomorrow, we will receive new data from the Institute for Supply Management’s national Purchasing Managers’ Index. In June, the PMI contracted for the first time since the official end of the recession. It will be interesting to see if the ISM-Chicago’s numbers foreshadow modest improvements, even as the larger picture remains weak.

Chad Moutray is chief economist, National Association of Manufacturers.