Tag: manufacturing activity

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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Manufacturers in Texas Note Accelerated Activity in July

The Federal Reserve Bank of Dallas said that manufacturing activity accelerated in July, continuing to rebound from softer levels earlier in the year. The composite index of general business activity rose from 11.4 in June to 12.7 in July. It was the 14th consecutive month of expanding levels of activity; however, manufacturers reported a near-stagnant pace in February. In July, the underlying data were mostly higher across-the-board, including the pace of growth for new orders (up from 6.5 to 13.0), production (up from 15.5 to 19.1), shipments (up from 10.3 to 22.8), capacity utilization (up from 9.2 to 18.0) and capital expenditures (up from 12.7 to 13.3).

With that said, employment growth (down from 13.1 to 11.4) eased slightly, one of the few areas that decelerated in the month. Still, hiring has generally improved from where it was two months ago, with the index up from 2.9 in May. Moreover, one-quarter of respondents to the Dallas Fed survey said that they had added workers in July, with just 13.6 percent suggesting that employment was declining for their company. In addition, the average number of hours worked (up from 4.7 to 6.3) increased somewhat.

Along those lines, a fabricated metal manufacturer noted difficulties in attracting and retaining workers in the sample comments. They wrote, “Skilled employee turnover is getting out of control. There are too many employers chasing too few skilled workers.” Other commenters spoke about the pickup in demand seen in July, with one computer and electronics product respondent adding, “The second quarter was a sold quarter from start to finish….”

Looking ahead six months, Texas manufacturers remain positive about future levels of activity. At least 45 percent of those taking the survey expect sales, production, and shipments to increase over the coming months, with just single-digit percentages anticipating declines. Beyond that, 31.5 percent plan to bring on new workers, and one-quarter are expecting to increase their capital expenditures. The one downside would be the forecast of higher raw material costs moving forward, with a pickup in pricing pressures. In all, 40.7 percent predict increased producer prices in the coming months, with just 6.5 percent expecting declines.

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

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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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