Tag: Kansas City Fed

Monday Economic Report – September 29, 2014

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

The U.S. economy grew an annualized 4.6 percent in the second quarter of this year, its fastest pace since the fourth quarter of 2011. Consumer and business spending were the big bright spots in the real GDP report, with strong rebounds after softness in the first quarter. This latest revision reflected improved nonresidential fixed investment and goods exports data relative to prior estimates. At the same time, it is hard to forget that real GDP fell by 2.1 percent in the first quarter, with growth in the first half of 2014 expanding by a frustratingly slow 1.2 percent. Moving forward, manufacturers remain mostly upbeat. For instance, the Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) held firm at 57.9, its fastest pace since May 2010.

I estimate real GDP growth of 3.3 percent for the third quarter, which ends this week. Nonetheless, there are a number of downside risks, and business leaders and the public remain tentative in their optimism.

Along those lines, regional surveys from the Kansas City and Richmond Federal Reserve Banks continued to show expanding activity levels in their districts. The Richmond release found that activity has now grown for six straight months since winter-related contractions earlier in the year. It also reflected an uptick in production and demand, with the pace of hiring accelerating to its highest level since December 2010. All of this was encouraging. In the Kansas City district, manufacturers remained mostly positive, with more than half of respondents expecting increased production and shipments in the next six months. Among the issues cited in the Kansas City survey, manufacturers noted persistent challenges in attracting and retaining skilled workers. Other sample comments mentioned rising pricing pressures, both for wages and raw materials.

Turning to the global economy, the HSBC Flash China Manufacturing PMI edged slightly higher, up from 50.2 in August to 50.5 in September. This marked the fourth consecutive month with expanding manufacturing activity, improving from contractions in the first five months of the year. Yet, even with some signs of stabilization in China in recent data, the country is expected to continue to decelerate in its growth rates moving forward, something that it continues to grapple with. Similarly, the European Central Bank has struggled to cope with slow economic and income growth in the Eurozone, with persistent worries about deflation. Indeed, the Markit Flash Eurozone Manufacturing PMI eased yet again, down from 50.7 to 50.5. This was the lowest level of growth since July 2013, the first month that the Eurozone emerged from its deep two-year recession.

Meanwhile, housing data released last week were mixed. New home sales rose sharply, up from an annualized 427,000 in July to 504,000 in August. This was the highest level in more than six years, and the pace of sales in August starkly contrasts with what we have seen so far in 2014. This makes it likely that September figures will pull back a little, but the trend line remains promising. In contrast, existing home sales decreased 1.8 percent in August, which was disappointing given recent improvements. It is likely that August’s decline was the result of a strong July reading, with some easing probably inevitable. Moving forward, the expectation is that existing home sales should move higher, continuing a longer-run trend in the data since March.

This week, the focus will be on jobs. After a disappointing employment report in August, we anticipate better news in September. I would not be surprised if the zero jobs figure in August for manufacturing was revised higher, and I continue to expect manufacturing jobs gains to revert to an average of 12,500 to 15,000 per month for the rest of the year. Nonfarm payrolls should once again exceed 200,000 in September, an improvement from the 142,000 figure in August (which is also likely to get revised upward). Other highlights this week include the latest data on construction spending, factory orders, international trade, personal income and manufacturing activity in the Dallas Federal Reserve district.

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

real GDP forecast - sept2014

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Kansas City Fed: After Slowing in August, Manufacturing Activity Picked Up a Little in September

The Kansas City Federal Reserve Bank said that manufacturing activity picked up a little in September, rebounding after slowing in August. The composite index of general business conditions increased from 3 in August to 6 in September. Through the first nine months of 2014, the main index has averaged 6.7, peaking at 10 in both March and May. As such, we continue to see modest gains among manufacturers in the Kansas City Fed district, with mostly positive expectations about the future.

For instance, the index for production rose from 4 in July to 12 in August, with the percentage of survey respondents saying that output had increased for the month rising from 25 percent to 34 percent. In contrast, one-quarter of those taking the survey said that their production levels were falling. Similar figures could be seen for shipments (up from 2 to 14). Employment shifted into positive territory (up from -4 to 7), with the average workweek also improving (up from -1 to 2). On the downside, the pace of new orders eased marginally, down from 6 to 5.

Several of the sample comments discussed skills shortages. As one respondent put it, “It is still very difficult to fill open positions for any type of worker from production to professional. I am seeing the same issue everywhere in our community.” The other issue of note in the comments was pricing pressures, both for wages and raw materials.  With that said, domestic energy production was mentioned as a positive for manufacturers in the region.

Looking ahead six months, manufacturers in the district remained optimistic overall. While the future-oriented composite index was unchanged at 17, over half of the respondents anticipate higher levels of production and shipments in the next six months. Moreover, the percentage expecting increased new orders rose from 38 percent to 44 percent for the months. Around 30 percent of those taking the survey plan to hire new workers or invest in more capital.

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

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Monday Economic Report – September 2, 2014

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

Manufacturers continue to report improved activity in August. Last week, the Dallas, Kansas City and Richmond Federal Reserve Banks all noted expanding levels of new orders and production for the month, mirroring releases from the New York and Philadelphia Federal Reserve Banks in the prior weeks. These surveys reflect rebounds from earlier in the year, and perhaps more importantly, they suggest a mostly upbeat assessment in demand, output, hiring and capital spending over the next six months. At the same time, the Dallas and Kansas City studies showed some easing in growth rates in August, with the latter indicating that hiring had turned negative for the month. Exports also contracted in the Kansas City district, showing persistent international sales weaknesses in that region. The data illustrate that, even where we have seen progress, there are often some nagging challenges beneath the surface.

This same observation could be made about much of the other data released last week, too. For instance, new durable goods orders soared in July, up a whopping 22.6 percent. This represented an all-time high for the data series, but it was also largely the result of a jump in nondefense aircraft sales. Commercial airplane orders are choppy, with sales usually announced in batches. New durable goods orders have improved from earlier in the year. Outside of transportation, the manufacturing sector was weak in July. New durable goods orders excluding transportation fell 0.8 percent for the month. This suggests that the broader market for manufacturers was soft in July despite the sky-high headline figure.

Along those lines, the Conference Board reported that consumer confidence rose to its highest point since October 2007. This increase stemmed from improvements in views about the current economic environment. Yet, the Conference Board’s figures also suggested some lingering worries about employment and income growth. The University of Michigan and Thomson Reuters’ report on consumer sentiment seems to focus even more on these anxieties. Even with a marginal increase in the August confidence measure, the University of Michigan data have not changed much this year, and respondents have had a diminished view of future growth over the past few months, not unlike what was seen in the Conference Board data. Geopolitical worries might be playing into these doubts. Either way, the confidence reports mirror other indicators, which show that consumers are cautious right now. Personal spending in July declined for the first time since January, consistent with other data showing flat retail sales.

Despite some softness in July, personal spending has increased at an annualized 4.1 percent over the past six months. Indeed, consumer and business spending were strengths during the second quarter, according to the latest revision of real GDP growth. The U.S. economy grew 4.2 percent at the annual rate during the second quarter, slightly better than the 4.0 percent original estimate and reflecting a rebound from the 2.1 percent decline in the first quarter. The biggest disappointment in the second quarter continued to be international trade figures, with net exports serving as a drag on growth. Moving forward, I estimate real GDP growth of roughly 3.0 percent during the second half of 2014. A number of risks abound, and business leaders and consumers remain tentative. If the first half of this year has taught us anything, it is an optimistic recovery can still be a fragile one.

This week, we will get additional insights regarding the health of the manufacturing sector. This morning, the Institute for Supply Management will release its August Purchasing Managers’ Index data for the sector. The ISM report found strong gains in demand, output and employment in July, and the August survey is expected to show another pickup in activity. Moreover, the Bureau of Labor Statistics will publish new jobs numbers on Friday. Manufacturers have added 15,000 workers on average each month since August 2013, with a 22,000 average from May to July of this year. Look for continued hiring growth for the sector in the August numbers that are at least consistent with the average of the past year. Other highlights this week include the latest data on construction spending, factory orders, international trade and productivity.

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

personal spending - sept2014

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Monday Economic Report – July 28, 2014

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

The International Monetary Fund (IMF) released its latest World Economic Outlook last week. The report reflected slower growth rates in the United States and elsewhere for 2014 mostly because of disappointing figures during the first half of the year. The IMF now predicts that U.S. real GDP will grow 1.7 percent in 2014, down from the 2.8 percent forecast in April. Much of this downgrade stemmed from the dismal 2.9 percent decline in real GDP in the first quarter, with output contracting for the first time in three years. At the same time, the manufacturing sector provided a positive contribution to growth in the first quarter, according to new data, despite bleakness in other areas. Fortunately, manufacturers are more upbeat about activity during the second half of this year and for next year. The IMF’s outlook for 2015 is for real GDP growth of 3.0 percent in the United States, which is in line with other predictions.

News regarding manufacturing activity was mostly positive last week, with surveys from the Kansas City and Richmond Federal Reserve Banks both reflecting a pickup in shipments and employment in July. New orders continued to grow at a moderate pace in each region, and respondents were mostly upbeat about sales and production over the next six months. Nonetheless, raw material costs have accelerated a bit in the Richmond district, and new export orders have contracted in eight of the past 12 months in the Kansas City district. Meanwhile, new durable goods orders rebounded in June, with year-to-date growth at a reasonably healthy rate of 4.4 percent. This indicates that the sector has recovered for the most part from winter-related softness, even if some components, such as motor vehicle sales, were lower for the month. Similarly, the Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) reflected relatively strong growth in sales and output for the sector despite some easing in the headline number in July.

Overseas, the data indicate that the Chinese economy has continued to stabilize from weakness in the first five months of the year. The HSBC Flash China Manufacturing PMI expanded for the second straight month in July, with the pace of activity up for new orders, exports and output. The sales pace was the fastest since January 2011, suggesting that recent measures taken by the Chinese government to stimulate growth have had a positive impact. Likewise, Japanese manufacturers also reported expanding levels of sentiment for two consecutive months, but activity decelerated overall and output stagnated. Export sales from Japan, on the other hand, grew. In other news, the European manufacturing sector made marginal progress in July, particularly for production and exports, and the Eurozone has now expanded for 13 straight months. Yet, growth varied from country to country. For instance, German manufacturing activity picked up in July, while the French economy continued to contract.

The other highlights last week centered on housing and pricing. The housing market remains weaker than we would like, as illustrated by the sharp drop in new home sales in June. Still, the June figure was consistent with the annual paces in March and April, with May’s sales numbers appearing to be an outlier. With the slower pace of sales, inventories of homes have increased. In contrast, existing home sales improved for the third straight month, with some progress in the second quarter relative to the softer first quarter. Even in the existing home sales release, however, there were some discouraging findings, including the fact that sales remain below where they were last year and that first-time homebuyers are still having difficulties making purchases. Meanwhile, on the inflation front, the consumer price index increased in June, led by higher gasoline costs. Yet, pricing pressures remain mostly in check, with core inflation up 1.9 percent over the past 12 months.

This week, the focus will be on second-quarter GDP and jobs. The expectation is that output will rebound from the drop in the first quarter, with consensus forecasts ranging from 2.5 percent to 3.5 percent growth. My view is that real GDP in the second quarter should exceed 3.0 percent. Regarding hiring, manufacturers have added, on average, more than 12,500 each month since August, and I would anticipate seeing a comparable figure for July. Nonfarm payrolls should increase by at least the roughly 230,000 average so far in 2014. Other items to look for this week include manufacturing survey results from the Dallas Federal Reserve Bank and the latest numbers for construction spending, consumer sentiment, employment costs and personal income and spending.

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

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Kansas City Fed: Manufacturing Activity Expanded for the Seventh Straight Month in July

The Kansas City Federal Reserve Bank said that manufacturing activity has expanded every month so far in 2014, picking up slightly in July from June. The composite index of general business conditions rose from 6 in June to 9 in July. The pace of growth accelerated in many of the key indicators, including new orders (up from 8 to 12), production (up from 2 to 11), shipments (up from 2 to 14) and employment (up from 1 to 8). One-third of survey respondents said that their production had increased in the month.

There were two negatives in the report, as well. The average workweek (down from 7 to -3) shifted into its first contraction in six months. The percentage of those taking the survey who noted a reduced workweek increased from 12 percent in June to 17 percent in July, enough to tip the diffusion index. In addition, new export orders (up from -11 to -6) continued to fall, albeit at a slower pace of decline for the month. This measure has been in contraction territory in 8 of the past 12 months, indicating weakness on the trade front in the Kansas City Fed’s district.

Nonetheless, there continue to be encouraging signs for the months ahead. The forward-looking composite index increased from 12 to 15, with relatively strong growth anticipated over the next six months. Manufacturers in the region expect higher new orders (up from 14 to 24), production (up from 17 to 23), shipments (up from 20 to 28), employment (up from 14 to 23) and capital expenditures (up from 23 to 25) at rather healthy rates of growth. In fact, over 40 percent predict increased sales, output and shipments, with more than one-third seeing additional hiring and capital spending. Yet, the sample comments also suggest frustrations with attracting qualified workers. Exports are predicted to grow just modestly (unchanged at 6).

Respondents expect pricing pressures to remain elevated, with nearly half of those taking the survey saying that raw material prices should increase over the next six months. Still, 24 percent felt that input costs for them might fall, and the diffusion index for this measure (down from 49 to 46) eased slightly in July.

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

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Kansas City Fed: Manufacturing Activity Expanded at a Slower Rate in June

The Kansas City Federal Reserve Bank said that manufacturing activity expanded at a slower rate in June; nonetheless, growth was positive for the sixth straight month. The composite index of general business activity fell from 10 in May to 6 in June. Several indicators eased for the month, including production (down from 14 to 2), shipments (down from 5 to 2), new orders (down from 11 to 8) and the average workweek (down from 14 to 7). To illustrate this, 34 percent of respondents said that their production had increased In June, down from 40 percent in May.

The largest negative in the report was exports (down from 6 to -11), with 16 percent of those taking the survey suggesting that their international sales had fallen in June. In addition, hiring (down from 10 to 1) slowed to a crawl, with 23 percent suggesting that they had added employees but 17 percent noting declines.

Still, there continue to be some encouraging signs for the months ahead, albeit with somewhat weaker sentiment than earlier data. The forward-looking composite index has edged down from 21 in April to 13 in May to 12 in June. Yet, at least 35 percent of survey respondents anticipate sales, shipments, and output to be higher six months from now, and 28 percent plan to add workers. Capital spending (up from 19 to 23) was expected to pick up slightly. Pricing pressures declined a bit for the month, but remain elevated with 48 percent of survey-takers anticipating increased raw material costs ahead.

Several of the sample comments noted workforce challenges. As one manufacturer put it, “It is not so much a question of short supply of workers, but rather a question of workers who are reliable and possess a strong work ethic.” Others noted the limited availability of possible employees with the right skills in their community and challenges with competition for workers in terms of compensation.

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

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Monday Economic Report – May 27, 2014

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

The Federal Reserve made little news at its April 29–30 Federal Open Market Committee (FOMC) meeting, mostly mirroring the observations and policy actions taken at its March meeting. Yet, the latest minutes do give us a glimpse of how the Federal Reserve sees the economy as well as its thinking about future policy actions. For instance, participants spent much time discussing “monetary policy normalization,” or the exit strategy from recent stimulative actions. With quantitative easing winding down by the fall and with short-term interest rates expected to rise sometime in 2015, the Federal Reserve has begun to contemplate “the combination of policy tools that might be used to accomplish those objectives.” Moreover, it stressed the need to communicate its plans effectively to the markets and the public well before taking any actions. In essence, including a discussion of normalization in the minutes was a first step in such communications.

Regarding economic trends, the Federal Reserve noted recent improvements in activity since winter storms wreaked havoc earlier in the year. It observed that “business contacts in many parts of the country were generally optimistic about economic prospects,” and there were signs of increased capital spending and hiring as well as stronger demand for loans. Indeed, the manufacturing surveys released last week tend to echo these sentiments. For instance, the Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) rose from 55.4 in April to 56.2 in May. The increase stemmed largely from higher production growth, with the output index up from 58.2 to 59.6, the fastest pace since February 2011. Likewise, the Kansas City Federal Reserve Bank reported that manufacturing new orders and production have been much stronger since March, leading to a renewed desire to add more workers.

However, not all of the news out last week was positive. The Chicago Federal Reserve Bank’s National Activity Index (NAI) found that the U.S. economy grew below its historical average in April. The reduction in manufacturing production was a large factor in the NAI’s decrease for the month. Weaker industrial production numbers were also a drag on the Conference Board’s Leading Economic Index (LEI) in April. Despite this, the long-term trend for both of these measures is a relatively optimistic one. For instance, the overall headline figure for the LEI expanded in each of the past three months, with 2.9 percent growth in the past six months. This should bode well for future activity.

Housing was a positive contributor in April in each of the above reports; however, the residential market remains a challenge. Improvements in housing starts and permits boosted sentiment, and there were increases in both existing and new home sales in April. Still, the housing market remains weaker today than it was several months ago. Existing home sales, for example, have dropped 13.6 percent since peaking in November, and new single-family sales have declined 3.9 percent since January. Even with these challenges, we remain cautiously optimistic about the housing market for the coming months, but will watch it closely in light of higher mortgage rates on the horizon.

On the international front, the HSBC Flash China Manufacturing PMI has shown contracting activity levels for five straight months, with economic growth decelerating of late. The good news, however, was that there were signs of this beginning to stabilize in the May data, with new orders, exports and production shifting to slight gains for the month. The overall PMI figure remains just shy of being neutral, and even though downside risks to growth remain, perhaps we will begin to see some expansion again in the June data. Likewise, Japan’s economy appears to be stabilizing after the imposition of higher taxes in April, but manufacturing activity has now contracted for two straight months. Meanwhile, manufacturers in Europe continue to reflect improvements in demand and output relative to this time last year, but the Markit Flash Eurozone Manufacturing PMI declined from 53.4 in March to 52.5 in April, reflecting some easing in the most recent data.

This week, much of the focus will be on revisions to real GDP growth for the first quarter. The original estimate was for just 0.1 percent growth, with weather and weaker activity bringing the economy to a crawl. Forecasts for this revision reflect newer data produced since then and hinge on whether activity rebounded enough in March to warrant an increase. Other highlights include the latest data on consumer confidence, durable goods orders, personal income and spending and manufacturing surveys from the Dallas and Richmond Federal Reserve Banks.

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

new and existing home sales - may2014

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Kansas City Fed: Manufacturing Activity Accelerated in May

The Kansas City Federal Reserve Bank said that manufacturing activity accelerated in May, continuing stronger growth seen since March. The composite index of general business activity increased from 7 in April to 10 in May, matching its level from March. This suggests that the sector has mostly rebounded from challenges related to winter storms earlier in the year. Indeed, the production index has averaged 16 over the past three months (March to May), a nice pickup from the -6 average in the three months prior to that (December to February). A similar rebound was seen for new orders.

On the labor front, the rebound in demand and output has led to a renewed desire to add new workers (up from 3 to 10), with just over one-quarter of respondents saying that their increased their employment levels for the month. Similarly, the average workweek also widened (up from 6 to 14) and production picked up. Regarding workforce development, several of the sample comments discussed difficulties in attracting and retaining employees. They suggest some tightness in the labor markets for some fields and the need to spend more on training for existing and prospective workers.

If there were any weaknesses, it would be growth in export sales (down from 0 to -3), which have contracted in 7 of the past 12 months. Meanwhile, pricing pressures have risen, with the index for the cost of raw materials increasing from 16 in March to 21 in April to 28 in May. Looking ahead six months, 54 percent of those taking the survey anticipate input costs to rise, with 37 percent planning for them to remain the same.

Fortunately, manufacturers in the Kansas City Fed district remained mostly positive about the coming months, even if the overall forward-looking measure eased for the month (down from 21 to 13). Still, nearly half of the respondents expect new orders and shipments to increase over the next six months, with roughly one-third planning to hire more workers and invest in new capital equipment.

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

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Monday Economic Report – April 28, 2014

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

Manufacturers contributed $2.14 trillion in value-added output in the fourth quarter of 2013, according to new real GDP data by industry from the Bureau of Economic Analysis. For the first time, the government is releasing this information on a quarterly basis, allowing us to get a better sense of which sectors have had the largest impacts to real GDP in any given quarter. After bottoming out at $1.69 trillion in the second quarter of 2009, manufacturers’ value-added output has bounced back. Overall, the manufacturing sector makes up 12.5 percent of real GDP and has made outsized contributions to output since the end of the recession. For instance, in 2013, manufacturers added 0.40 percentage points to the 1.9 percent growth rate in real GDP, or just more than 21 percent.

This week, we will get our first glimpse of real GDP growth for the first quarter of 2014. Winter storms and weak export sales are expected to take a toll, with consensus expectations around 1.5 percent. With weather-related softness abating as temperatures have started to warm up, we have seen a rebound in activity in many key manufacturing indicators in March, potentially boosting economic growth in the first quarter. I estimate real GDP growth of around 1.8 percent.

Several figures released last week support the notion that manufacturing has begun to recover from softness earlier in the year. For instance, the Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) reported that production in April was at its highest level since March 2011, with relatively strong growth in new orders. This was true despite some slight easing in the overall PMI figure. Likewise, manufacturing surveys from the Kansas City and Richmond Federal Reserve Banks also found rebounds in activity, and respondents remain mostly optimistic about the next six months. In the Kansas City Federal Reserve report, nearly half of respondents anticipate increased orders, shipments and production in the coming months, and more than one-third plan to bring on new workers and to invest in more capital spending. New durable goods orders for March were also quite positive across the board, rising 2.6 percent for the month and a healthy 9.1 percent year-over-year.

Such news has helped to lift spirits. The Conference Board’s Leading Economic Index (LEI) increased 0.8 percent in March, extending February’s 0.5 percent gain. This was the fastest pace since November, with better production data boosting the increase. In general, the index’s findings were supportive of a growing economy over the coming months. Americans, by and large, have also become more confident. The University of Michigan and Thomson Reuters reported that consumer sentiment rose to its highest point since July 2013, with its headline index rising from 80.0 in March to 84.1 in April. As such, it indicates that Americans’ attitudes have recovered slowly after falling during the government shutdown.

Still, it has not been all good news on the economic front. One area of concern was growth in manufacturing activity in China, which has now contracted for four straight months. Yet, the pace of the decline slowed, with the HSBC Flash China Manufacturing PMI up from 48.0 in March to 48.3 in April. The data largely mirrored the recent deceleration in other economic indicators, including China’s real GDP falling from an annualized 7.7 percent in the fourth quarter of 2013 to 7.4 percent in the first quarter of 2014. Despite the weaknesses, one could put a positive spin on the slightly better—but still contracting—levels of new orders and output. On the other hand, exports have now contracted in four of the past six months, negatively impacting overall manufacturing sentiment.

The other worry was sluggish housing growth. New single-family home sales plummeted, down 14.5 percent in March and off 13.3 percent year-over-year. Higher interest rates are likely a factor. The Mortgage Bankers Association reported significant declines in mortgage applications over the past year, largely for refinancings. At the same time, the number of new mortgages has also stalled. With new home sales down, the supply of new homes for sale has soared from 4.8 months in January to 6.0 months in March. Meanwhile, existing home sales have been soft all year.

In addition to real GDP, other economic highlights this week include new manufacturing surveys from the Institute for Supply Management and the Dallas Federal Reserve Bank and the latest data on construction spending, factory orders and personal income and spending. The Federal Reserve is expected to continue tapering, reducing its monthly purchases of long-term and mortgage-backed securities from $55 billion to $45 billion. On Friday, we will get new jobs numbers for April, with modest gains in manufacturing employment expected and nonfarm payrolls expanding around 200,000.

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

contributions to real GDP - apr2014

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Kansas City Manufacturers Noted Continued, but Slower, Expansion in April

Manufacturers in the Kansas City Federal Reserve Bank’s region noted expansion for the fourth straight month in April, albeit more slowly than in March. The composite index of business activity declined from 10 to 7 for the month, with easing observed in other key variables, as well.

For instance, the index for production declined from 22 in March to 12 in April. Still, one should not over-interpret this decline, as March’s figure was a strong rebound from winter-related softness observed from December to February. The positive news was that 38 percent of survey respondents reported increased output in April, with 17 percent noting decreases. Likewise, new orders (down from 13 to 9) and shipments (down from 16 to 14) were still encouraging despite the decelerated figures in April. One downside in the report was exports, which stagnated.

On the employment front, the average workweek extended somewhat (up from 3 to 6) and hiring moved from being flat to small net increases (up from zero to 3). Yet, the sample comments make it clear that manufacturers in the District continue to struggle to recruit new talent. “We are challenged finding good people with the right skill sets,” one individual wrote.

Regarding the longer-term outlook, manufacturing leaders in the Kansas City Fed area continue to be mostly optimistic about the next six months. Nearly half of them anticipate increased orders, shipments, and production in the coming months, and over one-third plan to bring on new workers and to invest in more capital spending.

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

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