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Monday Economic Report – November 12, 2013

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

The U.S. economy has been increasing a bit faster than expected, with real GDP up a surprisingly strong 2.8 percent in the third quarter. This was higher than consensus estimates of around 2.0 percent. In general, the data observed that many of the second-quarter trends extended into the third quarter, particularly with modest growth in consumer and business spending. In fact, goods spending grew an annualized 4.3 percent in the third quarter, contributing 0.99 percentage points to overall real GDP. Fixed investment was a positive contributor overall, but the largest component was inventory replenishment. Without inventory spending, real GDP would have been closer to the forecasted 2.0 percent. Other positives included stronger growth in exports and improved local and state government performance. While the data pre-dated the government shutdown, reduced federal government spending was once again a drag on growth, something that will continue moving into the fourth quarter.

October’s jobs numbers were also surprisingly strong. It was widely expected that the employment data from the Bureau of Labor Statistics were going to be closer to what ADP had estimated the week before, with roughly 130,000 additional workers added in the month. Instead, nonfarm payrolls increased by 204,000 in October, and when combined with significant revisions to August and September data, the average over the past three months is 201,667. This suggests hiring has picked up more recently in the larger economy, mirroring improvements in other data. However, the unemployment rate edged up slightly from 7.2 percent to 7.3 percent. This corresponded with the participation rate moving up a bit from 63.2 percent to 63.8 percent, suggesting that some workers might be returning to the market.

Manufacturers hired an additional 19,000 workers on net in October, its fastest pace since February. Both durable and nondurable goods firms brought on additional employees, up 12,000 and 7,000, respectively, for the month, and the largest increase occurred in the motor vehicle sector, which added another 5,700 workers. While this was better than recent figures, hiring growth for the sector has been disappointing. On a year-over-year basis, manufacturers have added 55,000 additional workers, or 2.4 percent of the 2.3 million nonfarm payroll workers added over the past 12 months.

Other data released last week also highlighted the recent acceleration in manufacturing activity. The JPMorgan Global Manufacturing Purchasing Managers’ Index (PMI) increased from 51.8 in September to 52.1 in October, its fastest pace since May 2011. Stabilization in Asia and Europe has helped to raise the level of new orders and output in many of our key trading partners, with modest growth in October. (For more information on these trends, see the latest Global Manufacturing Economic Update, which was released on Friday.) Increases in manufacturing sales helped lift the Conference Board’s Leading Economic Index (LEI) higher as well. For instance, new manufactured goods orders jumped 1.7 percent in September. Nonetheless, aircraft orders were the main driver of new factory orders, with weaknesses in the broader market.

Meanwhile, consumer confidence continued to fall in preliminary survey data from the University of Michigan and Thomson Reuters. Since reaching a six-year high in July, the confidence measure has fallen from 85.1 to 72.0. The government shutdown dampened overall sentiment, but attitudes were already waning before that. To some extent, the diminished enthusiasm about the current and future economic environment might have impacted Americans’ purchasing decisions. The latest personal spending report suggests individuals might be more hesitant about opening their pocketbooks, with only modest growth in purchases in recent months. Consumer spending fell in the third quarter, down from a year-over-year pace of 3.3 percent in June to 2.7 percent in September. Durable goods spending declined 1.3 percent in September, bringing down the total figure. Interestingly, this slowdown in spending has corresponded with relatively strong personal income growth, up an annualized 4.45 percent in the third quarter. As a result, the savings rate increased to 4.9 percent, its highest level so far in 2013.

This week, the focus will be on price, production and trade data. Prices have been increasing minimally, with core inflation running below 2 percent. That should continue to be true with the release of October consumer and producer pricing data on Thursday and Friday. Improvements in the global economy should lead to better export figures, and manufacturing production should also be up modestly, building on recent gains. Other highlights will be the latest regional manufacturing survey from the New York Federal Reserve Board and new reports on labor productivity and small business optimism.

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

real GDP forecast - nov2013

SHRM: Manufacturing Hiring in June to Remain Soft

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The Society for Human Resource Management (SHRM) said that manufacturing hiring will remain weak in June, but it expects service sector employment to pick up. The Leading Indicators of National Employment (LINE) survey is one of the few that look at hiring trends for the current month, and it mostly observes net hiring changes relative to what they were one year ago.

Specifically, 50.8 percent of manufacturers planned to increase employment in June, compared to 13.5 percent expecting to reduce employment. The good news is that this suggests net hiring of 37.3 percent, but it also indicates that the pace has eased from what was seen 12 months ago. In June 2012, just 5.2 percent planned employment decreases, with 49.0 percent hiring in that month. The net hiring rate was therefore 43.8 percent. Therefore, the year-over-year difference in net hiring is a drop of 6.5 percentage points.

In comparison, the net percentage of service sector firms planning increases this month was 42.9 percent, with 49.8 percent of service sector businesses expecting to increase employment in June. At the same time, 6.9 percent anticipating the need to let workers go. These figures are a significant shift from one year ago, when just 31.0 percent were planning to hire. Overall, the net percentage rose 20.5 percentage points from last year.

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

SHRM: Pace of Manufacturing Hiring Expected to Slow in April

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The Society for Human Resource Management (SHRM) reported that the pace of hiring in the service sector has picked up, but for manufacturers, it appears to be slowing. The monthly Leading Indicators of National Employment (LINE) report from SHRM says that 50.3 percent of manufacturers plan to increase their hiring in April, which is the exact same rate as one year ago. At the same time, there are 12.5 percent of manufacturers planning to decrease employment, up from 7.0 percent last year. As a result, the net percentage of new hiring in the manufacturing sector dropped from 43.3 in April 2012 to 37.8 today, or 5.5 percentage points lower.

In addition, this represents a deceleration of hiring from last month’s report, as well. In the March survey, there were 58.0 percent of manufacturers who said that they planned to increase hiring, compared to 8.9 percent planning to decrease. Therefore, the net hiring rate for March was 49.1 percent, suggesting that the pace of net hiring has slowed over the course of the past month (and not just the past year) in the manufacturing sector.

With that said, it appears to be getting easier to recruit new manufacturing workers. In March 2012, 18.3 percent of respondents said that it was more difficult to recruit, with just 1.1 percent feeling that it was easier for a net percentage of 17.2 percent. In this latest survey, the net percentage had dropped to 8.4 percent, with 7.7 percent suggesting that recruiting had become less difficult. Still, 16.1 percent continue to see hiring as a challenge. Read More

Monday Economic Report – March 25, 2013

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

Suddenly, in the midst of decent and cautiously optimistic U.S. growth, world economic markets have begun to focus on the banking crisis in Cyprus. With GDP of around $25 billion, Cyprus has seen its problems once again bring Europe’s sovereign debt challenges to the forefront of economic discussion. Cypriot lawmakers have struggled to find a way to bail out their banking system, particularly after attempts to tax depositors failed. The deal announced over the weekend was negotiated so that Cyprus could remain in the European Union. It was that prospect that has sent equity markets lower last week, particularly in Europe, on fears of how the crisis in Cyprus might spread to other countries.

Of course, Cyprus is not Europe’s only problem. The Eurozone is mired in a prolonged recession. As we have discussed in the monthly Global Manufacturing Economic Update, real GDP and employment continue to decline in the continent, with weaknesses even in Germany, its largest country. The Markit Flash Eurozone Purchasing Managers’ Index (PMI) dropped from 47.8 in February to 46.5 in March. This measure has contracted every month since July 2011. This latest report states that sales, output and hiring were all lower, and the prospects for improvements in April do not look good.

The data stand in contrast to what we are seeing elsewhere. Markit Flash PMI data for China and the United States reflect continuing, albeit modest, growth in manufacturing activity in both countries. In its Federal Open Market Committee (FOMC) statement last week, the Federal Reserve Board noted recent progress in many economic indicators, which had “paused” at the end of last year due to the fiscal cliff and weather-related concerns. Even with these improvements, the Federal Reserve continues to worry about slow economic growth and elevated unemployment rates. As such, it will continue to make purchases of $85 billion in long-term and mortgage-backed securities for the foreseeable future. In the short term, the Federal Reserve will be closely watching the impact of across-the-board budget cuts and the debt ceiling debate, both of which could put a dent in real GDP growth in the second quarter of 2013. Read More

Monday Economic Report – January 28, 2013

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

Several economic variables pertaining to manufacturing continue to show weaknesses in the marketplace, despite the fiscal cliff compromise reached earlier this month. In December, our NAM/IndustryWeek survey showed that uncertainty due to the fiscal cliff had forced firms on average to pull back on hiring and capital spending, and this trend appears to be continuing—at least for now. Over the course of the past two weeks, there have been four regional Federal Reserve Bank manufacturing surveys (Kansas City, New York, Philadelphia and Richmond), each showing contraction in their January reports. The nation’s fiscal challenges—and the concern over how Washington will deal with them—remain on business leaders’ minds.

However, manufacturers continue to be mostly positive about improved activity in 2013, even if their optimism has diminished somewhat over the past few months. For instance, the four regional Fed surveys anticipate higher sales and production over the next six months, with employment and investment also increasing, albeit more slowly. Other data points also indicate possible gains in the months ahead. Markit’s Flash Manufacturing Purchasing Managers’ Index (PMI) bucked the other surveys by rising from 54.2 in December to 56.1 in January. Strong gains in new orders and output fueled the increase. Meanwhile, the Conference Board’s Leading Economic Index rose 0.5 percent in December (although this forward-looking measure’s gains benefitted mostly from non-manufacturing variables).

Increased building permits contributed positively to the Leading Economic Index. Housing, in general, continues to be a bright spot, despite some of December’s numbers being weaker than November’s. Both existing and new home sales data declined in December. In each case, however, the longer-term trend reflects a significant turnaround in the sector. Existing home sales rose 12.8 percent in 2012, and new single-family home sales were up 8.8 percent for the year.

This week, we will be closely following a number of economic releases. On the employment front, I anticipate non-farm payrolls will rise at roughly the same rate as last month, up around 150,000 or so, with manufacturing hiring increasing more modestly. We will also get our first glimpse of real GDP growth for the last quarter of 2012, with my estimate being around 1.8 percent. The other big news of the week will be the Federal Open Market Committee (FOMC) meeting. While it will have new voting members this year, it is widely expected to continue its accommodative policies in an attempt to stimulate growth. Other data highlights for the week include regional manufacturing surveys from the Chicago and Dallas Federal Reserve Banks and new data on durable goods orders, consumer confidence, personal spending and construction activity.

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

Leading Indicators Edge Higher, With Persistent Weaknesses Still Present

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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.

Leading Indicators, Retails Sales Data Point to Need for Exports

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Today’s Organization for Economic Cooperation and Development’s Composite Leading Indicators signal demand abroad is on a path of improvement for 2010, but the American economy is not keeping up. Broad based growth sent the OECD higher in October for the eighth consecutive month, and above its long-term average of 100 to 101.4 in October from 100.4 in September. The October rise was driven by solid gains in Europe as well as milder increases in Asian economies. Economic conditions in the United States also are improving but at a slower pace than most of the other OECD nations. Stronger growth abroad along with a more competitive value of the dollar will continue to propel the recovery in U.S. exports that began in May.

Separately, the Commerce Department reported today that retail sales rose by 1.3 percent in November,  slight acceleration from the increase in October. However, 42 percent of last month’s rise was due to increased sales at gasoline stations, which were mainly driven by higher gasoline prices. Outside of purchases at gasoline stations, retail sales rose by only 0.8 percent in November, which was a deceleration from October.

Today’s reports show that while economic momentum is building abroad, the U.S. economy is not keeping pace. The American consumer is reluctant to spend, at least in part because of fears about job security.

While job creation remains a focal point in Washington these days, one of the most effective ways we can do that is to increase exports by approving pending free trade agreements. We know that 95 percent of the world’s consumers are overseas and they have money to spend. In both the near term and long term, an aggressive export campaign is going to be key to job creation.