Tag: manufacturing activity

Philly Fed: Manufacturing Activity Eased Slightly, but Growth Remains Strong

The Federal Reserve Bank of Philadelphia said that manufacturing activity eased slightly, but growth remained strong in its district. The Manufacturing Business Outlook Survey’s composite index of general business activity declined from 28.0 in August to 22.5 in September. While the figure decreased somewhat, it is important to note that August’s reading was the fastest pace since March 2011, and a modest pullback should have been anticipated. Many of the key indicators continued to expand at healthy rates, keeping the underlying trends positive.

As evidence of this, the paces for new orders (up from 14.7 to 15.5), shipments (up from 16.5 to 21.6) and employment (up from 9.1 to 21.2) accelerated. The percentage of respondents saying that their sales had increased in the month rose from 32.3 percent in August to 37.6 percent in September. Roughly one-quarter of respondents noted additional hiring in both months, with the percentage citing declines in employment dropping from 15.6 percent to 4.5 percent. Therefore, fewer manufacturers were cutting workers in September, which was encouraging. Still, the average workweek (down from 13.3 to 4.4) narrowed a bit.

Manufacturers remained overwhelmingly upbeat in their outlook despite a decrease in the forward-looking composite measure (down from 66.4 to 56.0). In fact, 55.1 percent of respondents anticipate increased new orders in the next 6 months, with 58.8 percent seeing higher shipment levels. Regarding employment, 43.6 percent expect to add new workers in the coming months, with just 4.0 percent indicating possible declines. Capital spending (up from 17.5 to 23.7) was also expected to increase at decent rates. The one downside was pricing pressures for raw materials, with almost half of those taking the survey predicting higher input costs ahead.

As further evidence of this optimism, manufacturers responded to a special question about production in the third quarter. Nearly 59 percent of them said that output would increase for their company in the third quarter relative to the second quarter, with 28.7 percent stating declines. On average, production was expected to increase by 2 percent in the third quarter. For the fourth quarter, those predicting an acceleration in activity (53.8 percent) outpaced those forecasting a deceleration (21.2 percent).

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

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NY Fed: Manufacturing Activity Expanded Strongly in September

The Empire State Manufacturing Survey from the New York Federal Reserve Bank reported a strong increase in activity in September, its fastest pace in nearly five years. The composite index of general business conditions rose from 14.7 in August to 27.5 in September, with almost 46 percent of those taking the survey saying that conditions had improved in the month. Other measures were mostly positive, as well, including faster paces for new orders (up from 14.1 to 16.9) and shipments (up from 24.6 to 27.1).

Yet, there were also some challenges, most notably in the labor market. Hiring eased in September, with the index for the number of employees dropping from 13.6 to 3.3. This decline stemmed from an increase in those respondents who said that their employment levels had decreased, up from 5.7 percent in August to 16.3 percent in September. Along those lines, the average employee workweek (down from 8.0 to 3.2) also narrowed.

Pricing pressures continued to be elevated, even as there was a marginal improvement for the month. The index for raw material prices declined slightly, down from 27.3 to 23.9, but that still represents a significant percentage of manufacturers in the Fed district seeing input costs rise. That is expected to continue over the next six months, with nearly 46 percent of respondents anticipating higher prices.

The other forward-looking measures continue to find a mostly optimistic outlook in the New York Fed region. There was a slight pullback in many of the measures assessing the next six months, but manufacturing leaders remain upbeat overall. In fact, 57.1 percent of those completing the survey predict sales increases, or about the same proportion as those anticipating higher shipments. Just over one-quarter expect to add more workers in the coming months, with 29.4 percent planning additional capital expenditures.

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

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Richmond Fed: Manufacturing Activity Expanded at Fastest Pace in Three Years

The Richmond Federal Reserve Bank said that manufacturing activity expanded at its fastest pace since March 2011 in August. The composite index of general business conditions rose from 7 in July to 12 in August, marking the fifth consecutive monthly expansion after winter-related contractions in both February and March. Indeed, much like other regional surveys, these data show an uptick in demand and production for manufacturers this summer, with a mostly upbeat assessment for the coming months.

Looking specifically at current activity, manufacturing leaders in the Richmond Fed district noted increased paces for many of the key measures. This included new orders (up from 5 to 13), shipments (up from 3 to 10), capacity utilization (up from 4 to 17) and the average workweek (up from 3 to 8). The index for employment (down from 13 to 11) edged slightly lower, but it still indicated decent growth in hiring and improvement from earlier this year. (Hiring growth was flat as recently as February.)

Enhanced perceptions about the current economic environment also carried through to better expectations about the future. The forward-looking indices for manufacturing activity were mostly higher, and each suggested relative strength over the next six months. For instance, the expected new orders variable rose from 34 to 47, its highest point since December 2010. Manufacturers also planned to expand employment (down from 19 to 18) and invest in more capital (up from 19 to 27), even though the former’s pace eased marginally for the month.

Inflationary pressures decelerated somewhat in August after increasing in July.  Manufacturers in the region said that prices paid for raw materials grew 1.39 percent at the annual rate in August, down from 1.99 percent in July. Yet, looking ahead six months, respondents expect input costs to increase an annualized 2.05 percent, up from 1.89 percent the month before. This suggests that businesses anticipate modest gains in input prices over the course of the second half of 2014, mostly in-line with Federal Reserve projections.

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

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Manufacturers in Texas Continue to Grow, but at a Somewhat Slower Pace in August

The Federal Reserve Bank of Dallas said that manufacturing activity continued to grow, but at a slower pace in August. The composite index of general business activity declined somewhat from 12.7 in July to 7.1 in August. It was the 15th consecutive month of expanding levels of activity; however, manufacturers reported a near-stagnant pace in February. As such, it suggests that manufacturing sentiment has rebounded since weather and other factors negatively impacted activity earlier in the year.

Nonetheless, with the composite index lower, many of the key subcomponents were less positive in August than in July. This included new orders (down from 13.0 to 2.2), production (down from 19.1 to 6.8), shipments (down from 22.8 to 6.4), hours worked (down from 6.3 to 2.9) and capital expenditures (down from 13.3 to 6.6). Hiring (down from 11.4 to 11.1) was only slightly lower, but still registering decent growth overall.

The declines in many of these indicators could simply be the result of very strong growth over the past few months, with August’s indices mostly sustaining past gains before moving forward. If that is the case, these latest data could reflect a “breather” before continued expansion in the months ahead.

In fact, manufacturers in the Dallas Fed region remain mostly positive about the next six months. The forward-looking measure of one’s company outlook rose from 24.4 in July to 30.1 in August, and several of the underlying data points also moved higher for the month. Over half of the survey respondents anticipate increased sales, production and shipments in the future, with nearly one-third planning new hires and over one-quarter expecting to increase their capital spending. The one negative remains elevated pricing pressures, with 45.5 percent of those taking the survey seeing higher input costs over the next six months versus just 1.9 predicted lower costs.

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

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Monday Economic Report – August 25, 2014

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

Market leaders continue to play the guessing game of when the Federal Reserve Board will start to normalize short-term interest rates. Conventional wisdom suggests that the Federal Open Market Committee (FOMC) will begin to raise the federal funds rate sometime in 2015 from the near-zero levels that have been prevalent since the financial crisis in 2008. The Federal Reserve has already announced that it will cease purchasing long-term and mortgage-backed securities in October. In the July FOMC meeting minutes, participants noted recent improvements in the economy, including increased activity among manufacturers (see below). Most notably, they said the following regarding monetary policy over the next few months:

“…many participants noted that if convergence toward the Committee’s objectives occurred more quickly than expected, it might become appropriate to begin removing monetary policy accommodation sooner than they currently anticipated.”

That line, which was widely reported in the media, was seen as hawkish. Indeed, financial markets saw that statement as a sign that short-term rates might rise sooner than expected, perhaps as early as the first quarter of 2015. In her keynote speech at a Kansas City Federal Reserve economic symposium at Jackson Hole, Wyoming, Federal Reserve Chair Janet Yellen reiterated this point, noting the role that upcoming economic data will have on the timing of policy normalization. She cited continued “slack” in labor markets, but also highlighted positive developments more recently. Either way, it remains true that monetary policy will remain highly accommodative for the foreseeable future, with short-term rate hikes (whenever they occur) being gradual. Recent data on consumer and producer prices have shown inflationary pressures easing a bit, even as they remain near the Federal Reserve’s stated target of 2 percent.

Meanwhile, economic data released last week suggest that the manufacturing rebound that we have seen since the winter continues to strengthen. The Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) increased sharply, up from 55.8 in July to 58.0 in August, reaching its highest level since April 2010. The indices for new orders and production were both above 60, suggesting strong growth and closely mirroring similar data from the Institute for Supply Management (ISM). The Philadelphia Federal Reserve Bank’s manufacturing survey also reported healthy gains in August, with activity growing at its fastest pace in more than three years, and respondents were very upbeat in their assessment of the next six months. Still, if there are any weaknesses of note, it would be overseas. Manufacturing demand and output were softer in both China and Europe, for instance.

The housing market also appears to be faring better of late, recovering somewhat from the lull that we saw earlier in the year. Housing starts jumped 15.7 percent in July, offsetting significant declines in both May and June. Starts reached their second-highest pace since November 2007, with an annualized 1,093,000 units in July. Both single-family and multifamily construction activity were higher for the month, and housing permits also reflected progress. In addition, existing home sales also notched improved figures in July, with activity up for the fourth straight month. Overall, this is encouraging news for residential construction. We would expect a solid 1.1 million housing starts at the annual rate by year’s end, representing slow-but-steady progress.

This week, we will get an update on second-quarter real GDP, with consensus expectations calling for a slight downward revision from the 4.0 percent growth rate estimate announced in late July. The new figure would still represent a rebound from the first quarter’s decline of 2.1 percent. We will also see if regional activity continues to expand in the August manufacturing surveys from the Dallas, Richmond and Kansas City Federal Reserve Banks, mirroring what we have seen in the similar New York and Philadelphia Federal Reserve reports. Other highlights include the latest data on consumer confidence, durable goods orders and personal income and spending.

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

markit us pmi - aug2014

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Philly Fed: Manufacturers Continue to See Health Gains in August

The Federal Reserve Bank of Philadelphia reported healthy gains in manufacturing activity in August, with the fastest pace since March 2011. The Business Outlook Survey’s composite index of general business activity increased from 23.9 in July to 28.0 in August. This represents significant progress from earlier in the year, when activity contracted briefly in February. It was the fifth straight month with the headline index being in double digits, averaging 20.3 from April to August. This would indicate more than just a rebound; it would suggest relatively strong growth overall.

The various sub-components of the index also reflect a continued expansion in the manufacturing sector. With that said, they also suggest that July’s strengths were a bit of an outlier, with many of the key measures pulling back in August while still reflecting solid gains. For instance, the paces for new orders (down from 34.2 to 14.7) and shipments (down from 34.2 to 16.5) both eased; yet, nearly one-third of the survey respondents said that each increased for the month, with roughly half suggesting that they stayed the same.

The employment data were mixed, but still positive. Hiring growth (down from 12.2 to 9.1) decelerated a bit, but one-quarter of those taking the survey reported additional hires. At the same time, the average workweek (up from 12.5 to 13.3) widened somewhat, with 21.2 percent of respondents citing a longer workweek in August.

Looking ahead six months, manufacturers in the Philly Fed district were overwhelmingly upbeat. The future-oriented composite index jumped from 52.0 to 58.1. Moreover, 56.1 percent of survey-takers said that they expect their sales to increase in the coming months, with just 2.6 percent predicted declines. Likewise, over 60 percent predict increased shipments, nearly one-third plan to hire additional workers, and over one-quarter intend to increase capital expenditures. Still, pricing pressures remain a worry. In fact, 40.9 percent of manufacturers in the region anticipate increased raw material costs, with 2.7 percent seeing reduced input prices.

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

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NY Fed: Manufacturers in its District Have Expanded Strongly for Six Straight Months

The Empire State Manufacturing Survey from the New York Federal Reserve Bank said that businesses expanded strongly for the sixth straight month in August. Yet, while growth rates remain at decent levels, the pace of expansion eased somewhat for the month. The composite index of general business conditions declined from 25.6 in July, which was a four-year high, to 14.7 in August. Given the loftiness of July’s figure, it should probably not be much of a surprise that the index came back down to earth. The good news was that much of July’s increases were sustained, with 31.4 percent saying that conditions were better and 51.9 percent suggesting that they remained the same in August.

The underlying data were mixed. On the positive side, the growth rate for shipments (up from 23.6 to 24.6) and the average employee workweek (up from 2.3 to 8.0) both picked up, reflecting increased activity levels. At the same time, new orders (down from 18.8 to 14.1) and hiring (down from 17.1 to 13.6) decelerated slightly, even as they remained at decent growth levels. Pricing pressures remained elevated (up from 25.0 to 27.3), with nearly 30 percent of survey respondents suggesting that input costs were higher in August.

Meanwhile, manufacturers in the New York Fed’s district were significantly more optimistic about the next six months. The forward-looking composite index jumped from 28.5 to 46.8, its highest level since January 2012. Roughly 60 percent of those taking the survey said that they anticipate higher sales and output levels in the months ahead, with approximately 30 percent planning to hire more workers and invest in additional capital expenditures. Still, the average workweek is predicted to be unchanged six months from now, and 46.6 percent feel that raw material prices should increase.

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

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New Factory Orders Have Risen in Four of the Past Five Months to an All-Time High

The Census Bureau said that new factory orders have risen in four of the past four months, up 1.1 percent in June. This was enough to offset the 0.6 percent decline observed in May. Since January (which was negatively impacted by winter weather), new orders for manufactured goods have increased 4.6 percent. With that said, year-over-year growth has been less robust, up just 1.5 percent. This shows the extent to which weather weakened sales earlier this year. Still, June’s new factory orders figure of $503.2 billion was a new all-time high, which was encouraging.

Durable goods sales were up strongly in June, up 1.7 percent, after being soft the month before. Orders for durable goods have jumped 8.2 percent since January, but they were actually down 0.6 percent over the past 12 months. In June, nondurable goods orders dropped 0.2 percent. Over the past five months, nondurable goods sales have grown 1.4 percent, with 3.5 percent gains year-over-year.

Looking specifically at new durable goods orders in June, the largest increases were seen in the electrical equipment and appliances (up 5.5 percent), computers and electronic products (up 2.9 percent), machinery (up 2.9 percent), furniture and related products (up 1.6 percent), transportation equipment (up 1.3 percent), fabricated metal products (up 1.2 percent), and primary metals (up 0.9 percent). Motor vehicle sales were unchanged from the months before.

Meanwhile, shipments of manufactured goods increased 0.5 percent, with durable and nondurable goods shipments rising 0.4 percent and 0.6 percent, respectively. Factory shipments have grown by 2.1 percent since January, or 3.8 percent year-over-year. The data were largely positive, with the biggest monthly gains in the textile products (up 2.8 percent) wood products (up 2.8 percent), apparel (up 2.6 percent) and beverage and tobacco products (up 1.7 percent) sectors. At the same time, there were decreased shipments observed in June in the machinery (down 1.6 percent), miscellaneous durable goods (down 1.6 percent) and paper products (down 1.3 percent) sectors.

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

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Monday Economic Report – August 4, 2014

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

The U.S. economy has rebounded after a slow start to the year, with a number of data sources last week showing manufacturing activity growing strongly of late. First, real GDP increased by a healthy 4.0 percent in the second quarter, more than offsetting the 2.1 percent drop in output during the first quarter. Consumer and business spending spurred the higher figure. Inventory investments alone contributed one-third of the growth in real GDP for the quarter, with higher investment levels for housing, nonresidential structures, equipment and intellectual property. In addition, goods spending increased at its fastest pace since the fourth quarter of 2010. Net exports, however, continued to be a weakness, with growth in goods imports outstripping increases in goods exports. Moreover, one cannot help but be frustrated with weak economic growth so far this year, even if the outlook has improved. Real GDP rose by a frustratingly slow 0.9 percent in the first half of 2014. Fortunately, manufacturers are cautiously upbeat about future growth.

The Institute for Supply Management’s (ISM) manufacturing Purchasing Managers’ Index (PMI) increased from 55.3 in June to 57.1 in July. More importantly, the production index has measured 60 or more for each of the past three months, indicating strong output growth. Demand and hiring were also up sharply, but export sales growth eased, and raw material costs remained elevated. Similarly, the Dallas Federal Reserve Bank’s survey also noted accelerating manufacturing activity, with overall activity up for the 14th consecutive month. The underlying data in that report were mostly higher across-the-board, and at least 45 percent of respondents expect sales, production and shipments to increase over the coming months, with just single-digit percentages anticipating declines. These findings mirror those of other recent regional surveys.

Meanwhile, the latest jobs report was mostly positive, with manufacturers adding 28,000 workers on net in July. More than half of that stemmed from the automotive sector, signifying that, if anything, employment growth could be more broad-based within the sector, extending in particular to the nondurable goods sector more. Yet, manufacturing employment has picked up, averaging 22,000 over the past three months and nearly 15,000 per month since August. Moreover, we continue to hear about skills shortages in many locations, which could create wage pressures moving forward. In fact, during the second quarter, manufacturing wages and salaries increased at their fastest pace in more than a decade, driving up overall employment costs. Nonetheless, total compensation for manufacturers has risen by 2.1 percent year-over-year, suggesting that wage pressures remain in check for the most part—at least for now.

Along those lines, personal income and spending both increased by 0.4 percent in June. Since January, when winter weather dampened purchases, personal spending has risen 2.2 percent, with year-over-year growth of 4.0 percent. This suggests that Americans continue to spend at a decent pace, even if their purchase decisions remain selective and cautious. Furthermore, there were two consumer confidence surveys released last week, with each moving in opposite directions. The University of Michigan and Thomson Reuters found that sentiment edged lower in July, with little change in confidence since December and persistent anxieties about the future direction of the economy. In contrast, the Conference Board observed that sentiment was at its highest point since the beginning of the recession (December 2007), led by an improved perception about the labor market. However, rising confidence did not necessarily translate into increased buying intentions.

For its part, the Federal Reserve Board noted recent improvements in the economy, but it also believes there continues to be “significant underutilization of labor resources.” The Federal Open Market Committee (FOMC) voted to continue tapering its long-term and mortgage-backed security purchases, down from $35 billion to $25 billion per month. These purchases are expected to end by October. While the FOMC will keep short-term rates near zero for now, these rates are predicted to begin rising sometime early in 2015. Nonetheless, the Federal Reserve will continue to monitor incoming economic data, including inflationary pressures. Recent data have shown prices accelerating, but at least for now, they appear to be under control. For instance, core inflation, which excludes food and energy costs, has increased 1.6 percent over the past 12 months, according to personal consumption expenditure deflator data released last week.

There are just a handful of data releases this week. Highlights include the latest data on exports, factory orders and productivity.

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

real GDP forecast - aug2014

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ISM: Healthy Expansion of Manufacturing Activity in July

The Institute for Supply Management’s (ISM) manufacturing purchasing managers’ index (PMI) was up strongly in July, building on the healthy gains seen in June. The headline PMI figure rose from 55.3 in June to 57.1 in July, its highest level since November. After declining sharply in January, sentiment has gradually moved higher each month, with the sector rebounding from winter-related disruptions and slow growth in the first quarter of this year. These findings are largely consistent with other indicators showing manufacturers cautiously optimistic about the next six months.

Production, in particular, appears to have recovered back to the stronger expansionary levels seen in the second half of last year. The index for production increased from 60.0 to 61.2, and it was the third straight month with the measure at 60 or greater. Note that output and sales growth both exceeded 60 for five consecutive months in 2013 (August to December) before that streak ended with weather factors in January. The pace of other components were also higher in July, including new orders (up from 58.9 to 63.4), supplier deliveries (up from 51.9 to 54.1) and employment (up from 52.8 to 58.2). The latter figure hopefully indicates positive news on hiring moving forward.

The sample comments echo the positive news seen in the data, but they also hint of possible weaknesses ahead. A transportation executive said, “Business is still very good and we are very optimistic for the rest of the year.” Yet, others are more restrained in their sales outlook, and world events are noted as possible risks to growth. For instance, a chemical manufacturer added, “Geopolitics still present a considerable risk as well as the European market.” Beyond these points, wage pressures are noted, with a petroleum and coal products respondent citing the need for salary increases “due to market competition and shortages in certain specialty skills.”

Along these lines, the ISM data also show both continued pricing pressures and an easing in export sales growth. The index for raw material costs edged higher (up from 58.0 to 59.5), with this indicator averaging 59.1 through the first seven months of 2014. That indicates an acceleration in input costs over the average of 53.8 seen for all of 2013, and it mirrors other inflation data. Regarding trade, the growth rates for exports (down from 54.5 to 53.0) and imports (down from 57.0 to 52.0) were both lower, and we have seen weaker international sales growth year-to-date in other data, as well.

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

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