Tag: MAPI

MAPI: Manufacturing Activity Expanded at a Slightly Slower Pace in October

The Manufacturers Alliance for Productivity and Innovation (MAPI) Foundation said that its Composite Business Outlook Index dropped from 71 in July to 67 in October. Despite the decline, manufacturing activity remained quite strong, with index readings over 50 indicating expansion. Indeed, the pace of new orders was unchanged (78) at a healthy rate of growth in the fourth quarter report, continuing to reflect improvements from six months ago (71).

Still, several of the key indicators eased in this survey. This included export orders (down from 67 to 65), the orders backlog (down from 72 to 69), prospective U.S. shipments (down from 87 to 83) and prospective foreign shipments (down from 76 to 72). Each of these readings, however, continues to reflect both strong growth.

In contrast, there were some areas of weakness to note. The percentage of respondents operating above 85 percent capacity dropped from 30.0 percent in July to 26.7 percent in October. Expected business investments also slowed considerably in this survey, with 2015 U.S. investment spending nearly just barely above 2014’s pace (down from 67 to 52) whereas foreign investment activity was expected to decline next year relative to this year (down from 64 to 48). On the other hand, the rate of R&D spending was expected to accelerate slightly (up from 67 to 70).

Overall, these data support the notion that manufacturing activity continues to improve, mirroring similar findings from other indicators. The MAPI Foundation has a generally upbeat outlook for the coming months. They predict that manufacturing production will increase by 3.4 percent and 4.0 percent in 2014 and 2015, respectively.

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

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MAPI: Manufacturing Activity Continued to Improve in the Second Quarter

The Manufacturers Alliance for Productivity and Innovation (MAPI) said that its Composite Business Outlook Index rose from 69 in March to 71 in June. Indeed, this was the sixth consecutive quarterly gain in the manufacturing outlook, up from 55 in December 2012. Index readings over 50 indicate expansion, and as such, these data suggest mostly positive trends in the sector. The pace of new orders (up from 71 to 78) and export sales (up from 60 to 67) accelerated, and profit margins edged higher (up from 66 to 70).

In terms of investment, manufacturers completing the MAPI survey said that they were increasing their capital spending levels both in the U.S. (up from 59 to 67) and abroad (up from 59 to 64). At the same time, the rate of research and development spending slowed slightly in this survey (down from 69 to 67), albeit a still-healthy paces.

Yet, the forward-looking indicators provided mixed news. Prospective shipments within the U.S. eased slightly (down from 88 to 87) but are still expected to grow relatively strongly. Similarly, export shipments also decelerated somewhat (down from 81 to 76). Overall, the data indicate that there is still room for improvement. The percentage of respondent companies that were operating at above 85 percent capacity dropped from 35.7 percent to 30.0 percent.

Overall, though, these data support the notion that manufacturing activity continues to improve, mirroring similar findings from other indicators. As reported last month, MAPI has a generally upbeat outlook for this year. They predict that manufacturing production will increase by 3.2 percent and 4.0 percent in 2014 and 2015, respectively, suggesting accelerating growth from the 2.6 percent pace of 2013.

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

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Monday Economic Report – January 21, 2014

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

Manufacturing production rose 2.6 percent in 2013, slowing from the 3.5 percent and 3.2 percent growth rate experienced in 2011 and 2012, respectively. Yet, the lower 2013 figure stemmed largely from weaknesses in the first half of the year, with manufacturing output rising an annualized 4.2 percent in the second half. As such, the sector ended the year on a strong note, with a pickup in demand and cautious optimism for 2014. Indeed, a number of other reports reached the same conclusion. Surveys from the New York and Philadelphia Federal Reserve Banks and from the Manufacturers Alliance for Productivity and Innovation (MAPI) both observed expanding levels of activity in their latest releases. Respondents to these surveys tended to be mostly upbeat about new orders, shipments, exports and hiring over the coming months—which is definitely good news.

Over the past couple years, the rebound in the housing sector has been one of the bright spots in the U.S. economy. Housing starts were lower in December, but it seems the November data were a bit of an outlier. Absent that soaring figure, new residential construction was generally higher to end 2013, particularly for single-family units. New single-family starts increased 7.6 percent year-over-year. Housing permits also eased slightly in December but increased 4.6 percent from the year before. The reduction in housing activity could have been due to severe winter storms, with somewhat higher borrowing costs as another possible contributing factor. The average 30-year mortgage rose from 4.29 percent in the week of November 27 to 4.48 percent in the week of December 26, according to Freddie Mac. Nonetheless, this still historically low rate helps to explain the generally upbeat assessment of home builders.

Meanwhile, the pace of retail sales slowed in December, with reduced auto sales dragging the overall figure lower. Still, motor vehicle sales increased 5.9 percent in 2013, making it one of the stronger components of consumer spending growth. Excluding autos, retail sales would have risen by 0.7 percent last month, suggesting broader strength than the headline figure implies. On a year-over-year basis, total retail spending increased 4.1 percent, a modest pace that marks the slowest since 2009.

The two measures of sentiment moved in opposite directions. Preliminary data from the University of Michigan and Thomson Reuters on consumer confidence was surprisingly lower for the month, down from 82.5 in December to 80.4 in January. The December data has noted a recovery in perceptions about the economy after falling in the wake of the government shutdown, and the expectation had been for January’s data to extend those gains. With a reduction in sentiment instead, this suggests that the public remains somewhat anxious about economic conditions. At the same time, the National Federation of Independent Business (NFIB) noted an increase in optimism for the second straight month. Underneath the main reading, however, the data were mixed, with more small business owners calling it a “good time to expand” but with sales and earnings remaining subpar.

In terms of news events, outgoing Federal Reserve Chairman Ben Bernanke delivered a speech at the Brookings Institution that provided his take on the lessons learned from the financial crisis. This “exit interview”—as it has been widely dubbed—was mostly a valedictory address defending the Fed’s monetary actions to help stimulate growth in the economy. Coincidently, Bernanke gave it on the same day that the Bureau of Labor Statistics reported that core consumer inflation had risen by just 1.7 percent over the past year. A similar conclusion on producer prices had been released the day before, and in each case, the data suggested that pricing pressures were increasing within an acceptable range, at least for now, according to the Fed’s stated targets.

There will only be a handful of economic data releases this week. From the manufacturing perspective, the highlights will come on Thursday. Markit will provide “flash” estimates for its purchasing managers’ index (PMI) reports for the United States, the Eurozone, and China. In addition, the Kansas City Fed will discuss the latest results of its regional manufacturing survey. In each instance, the expectation will be for manufacturers to note continued growth, building on recent gains. Other data releases include updates on the leading economic index and existing home sales.  

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

manufacturing production - jan2014

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Monday Economic Report – December 23, 2013

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

The U.S. economy grew a surprisingly strong 4.1 percent in the third quarter, according to the most recent revision of real GDP from the Bureau of Economic Analysis. While inventory replenishment accounted for a large portion of this increase, consumer and business spending continue to boost overall economic activity. I expect real GDP growth of 2.5 percent in the current (fourth) quarter, essentially the same pace for 2013 as a whole. For 2014, the economy should expand by 3.0 percent, which would be the first year since 2005 that the annual average would grow by that amount.

A number of data sources supported the view that economic activity has begun to improve, continuing the accelerating pace in the second half of 2013. For instance, manufacturing production rose 0.6 percent in November and 2.9 percent year-over-year. On the latter figure, the annual pace has made definite progress since July’s 1.2 percent pace. The Manufacturers Alliance for Productivity and Innovation (MAPI) predicts that industrial production will accelerate to 3.1 percent in 2014 and perhaps 4.1 percent in 2015.

A number of regional surveys show manufacturers tend to be mostly upbeat about new orders and output in the coming months. This includes the latest reports from the Kansas City, New York and Philadelphia Federal Reserve Banks. The more optimistic future assessment was true despite notable weaknesses in the current environment, particularly in the Kansas City and New York surveys. Similarly, the latest Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) suggested that output growth remained near the more robust pace at the beginning of 2012, with modest growth overall. Meanwhile, we continue to see stabilization in the Chinese and European economies. These releases show hiring growth remains modest at best.

The housing market also bounced back strongly in November. New housing starts soared to 1.09 million units at the annual rate, the highest level since February 2008. Both single-family and multifamily starts were up sharply for the month, and overall, new residential construction has increased nearly 30 percent over the past 12 months. Furthermore, new housing permits have also exceeded 1 million units for two straight months, which should bode well for future activity. The gains in residential activity have also helped to lift homebuilder confidence once more, according to the National Association of Home Builders and Wells Fargo. I expect that housing will continue to be one of the bright spots in the economy, particularly as borrowing costs remain at historic lows and the “sticker shock” of higher rates wears off.

The improvements in the economy have led the Federal Reserve to finally start to pare back its latest quantitative easing program. At the conclusion of its December Federal Open Market Committee (FOMC) meeting, the Federal Reserve decided to begin tapering its purchases of long-term and mortgage-backed securities, down from $85 billion each month to $75 billion starting in January. The expectation is that this will set in motion future reductions in these purchases, with all buying ending sometime in mid-2014. However, the Federal Reserve will still be pursuing a “highly accommodative” monetary policy, with short-term interest rates near zero for the foreseeable future. In his press conference afterward, Federal Reserve Board Chairman Ben Bernanke suggested short-term rates might not move up until after the unemployment rate hits 6.5 percent, which it is not likely to do until the end of 2014. He made a similar comment in his speech to the National Economists Club in November. Fortunately, pricing pressures remain quite low for now, providing the Federal Reserve with more time to pursue its stimulative measures.

This week will be a shortened one due to the Christmas holiday, but there will still be some key data releases. Later this morning, we will get the latest reads on personal spending and consumer confidence, both of great importance in terms of holiday spending. Sentiment had improved in the initial estimate from the University of Michigan and Thomson Reuters, rebounding from the dips in perceptions seen during the government shutdown. This should help retail sales, which have grown modestly of late. We will also learn more about the health of the manufacturing sector with a new report on durable goods sales and the latest survey from the Richmond Federal Reserve Bank.

Chad Moutray is the chief economist, National Association of Manufacturers. Due to the holidays, there will be no report issued during the week of December 30. The schedule will resume on Monday, January 6.

housing starts and permits - dec2013

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MAPI: Manufacturing Production Expected to Increase 3.1 Percent in 2014

The Manufacturing Alliance for Productivity and Innovation (MAPI) released its industrial outlook for next year. It predicts industrial production growth of 3.1 percent in 2014, up from the 2.1 percent rate seen for 2013. Moreover, it expects output to continue to accelerate into 2015, with production growth of 4.1 percent forecasted.

This relatively upbeat assessment of future activity in the sector is buoyed by several factors, according to MAPI. It says that “surprisingly robust employment growth” and rising wealth from higher asset prices will lead to stable growth in consumer spending. In addition, improvements in the global economy should increase overall export sales, which have risen disappointingly slow in 2013. Beyond that, the recently-passed government budget deal should help to alleviate some of the uncertainty in the market, at least to the extent that we will not have another shutdown for the next two years. This means that government uncertainty should provide less of a drag than what we have seen this year.

MAPI expects the housing sector to continue to rebound, with housing starts accelerating in both 2014 and 2015. Just yesterday, we received a positive affirmation of this with very strong numbers for housing starts in November. They also forecast 5 percent growth in private, nonresidential construction next year, with public sector construction spending flat.

Looking at specific sectors, MAPI anticipates healthy gains of five percent or more in the following manufacturing segments: aerospace products and parts; communications equipment; electrical lighting equipment; engine, turbine, and power transmission equipment; household appliances; industrial machinery; iron and steel products; mining and oil and gas field machinery; and ventilation, heating, air conditioning, and commercial refrigeration equipment.

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

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Monday Economic Report – July 15, 2013

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

Federal Reserve Chairman Ben Bernanke made news last week in a speech before the National Bureau of Economic Research. He said that monetary policy would stay highly accommodative “for the foreseeable future.” Financial markets soared on this news, but long-term interest rates have already moved steadily higher since the last Federal Open Market Committee (FOMC) meeting, where it was suggested that a “tapering” of asset purchases might be possible later this year. For instance, Freddie Mac reports that 30-year mortgage rates have risen from 3.35 percent at the beginning of May to 3.91 percent at the start of June to 4.51 percent last week. Not surprisingly, this has led to a decline in mortgage applications in June, which could impact housing starts and permits data out this Wednesday.

Meanwhile, the cost of petroleum has skyrocketed over the past few weeks, with political instability in Egypt and reduced supplies in the United States sending prices higher. As recently as June 21, the spot price of West Texas Intermediate crude was $93.81 per barrel, but on Friday, it closed at $106.17 a barrel. This will lead to higher gasoline prices at the pump, which could zap some optimism we have seen recently. The University of Michigan’s July consumer sentiment numbers edged slightly lower than what we saw in June, but the data generally suggest that Americans are more positive now than earlier this year. Higher energy costs could also accelerate inflationary pressures, which have been mostly in check for much of the year. Even before the recent run-up in crude oil costs, the Producer Price Index rose 0.8 percent in June, largely on increased energy prices. Producer prices have been modest over the past year, up just 1.4 percent. If the current oil prices are sustained, look for pricing pressures to accelerate.

Two manufacturing surveys released last week echoed other studies, which have found some recent progress in the sector regarding new orders and production. Yet, both the California Manufacturing Survey from Chapman University and the Business Outlook Survey from the Manufacturers Alliance for Productivity and Innovation (MAPI) also noted some persistent weaknesses. Respondents in California still had a high degree of caution moving forward, and hiring plans were less positive than other indicators. At the same time, MAPI’s analysis noted shrinking export sales, with weaker global demand dampening enthusiasm for foreign investment as well. Worldwide manufacturing activity has grown very slowly in the past month, according to the most recent Global Manufacturing Economic Update, with Europe’s recession and a deceleration of growth in China hurting exports.

This week, we will see if recent improvements in manufacturing activity—modest as they might be—continue, or if the slowing global environment hurts sales and production figures. The New York and Philadelphia Federal Reserve Banks will release their latest surveys. Both had shifted from a slight contraction to modest growth in last month’s reports. In addition, the Federal Reserve Board is expected to show a slight gain in industrial production in June, after being unchanged in May. Overall, manufacturing production has grown just 1.7 percent over the course of the past 12 months, a figure that is subpar and that we hope picks up in the coming months. Other key data releases out this week include the Consumer Price Index, leading economic indicators, new residential construction, retail sales and state employment.

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

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MAPI: Manufacturing Activity Mixed, Cautious Optimism Looking Forward

The Manufacturers Alliance for Productivity and Innovation (MAPI) said that its composite index of manufacturing activity fell slightly from 56 in third quarter of 2012 to 55 in the fourth quarter. As I have noted before, this index has declined every quarter since the second quarter of 2010, when it stood at just above 80. Overall, manufacturers continue to grow modestly – even with the lower figure – as the index remains above the threshold of 50 which signifies expansion for the sector.

It is clear from these data that sales within the manufacturing sector have been challenged, especially for international trade. The index for current new orders was unchanged at 57 between the third and fourth quarters, but this remains well-below the 70 observed in the second quarter. On the trade front, new export orders declined somewhat, down from 53 (slight expansion) to 49 (slight contraction). With slowing economies around the world, this figure is consistent with other reports of headwinds pertaining to growing exports.

The capacity utilization rates rose from 28.8 percent to 31.5 percent, suggesting some improvement, even as these rates remain sub-par. Other pieces of good news surround the forward-looking indices, with manufacturers responding to this survey cautiously optimistic about this year. Some growth is anticipated for shipments, orders, and investments. The pace of non-U.S. investment expectations pulled back one notch from 60 to 59, once again echoing some of the headwinds experienced offshore (but still representing increased investment overall).

In a series of special questions, respondents were asked about reshoring. Seventeen percent (or seven) of the companies said that they had brought some production back to existing facilities from elsewhere, with a few more stating their intention to do so this year. The primary reasons for doing so were labor and transportation costs as well as a re-evaluation of their supply chain. Among reasons cited for not choosing to reshore, the top ones provided were cheaper costs elsewhere, the U.S. tax code, and the desire to produce closer to foreign customers.

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

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MAPI: Slower Industrial Production Growth in 2013

The Manufacturing Alliance for Productivity and Innovation (MAPI) released its industrial outlook for next year. It predicts industrial production growth of 2 percent in 2013, down from 2.3 percent in its most recent quarterly forecast. This is also down from the estimated 4.2 percent growth seen in 2012. MAPI expects for production to pick up in 2014, though, with an annual percentage change of 3.2 percent anticipated.

As we have seen in other forecasts, housing continues to be a bright spot, with MAPI estimating starts of 979,000 by the end of 2013, or a 28 percent increase from 2012. This is a positive development that helps manufacturers involved in building materials and furnishings sectors, but it also helps lift the larger macroeconomy. Behind the scenes, these improvements are lifted by historically low mortgage rates – a benefit of the Federal Reserve’s quantitative easing initiatives.

Transportation is also expected to grow strongly in 2013, with strong demand for aerospace products and motor vehicles. Motor vehicle production increases in 2013 of 5 percent is slower than the 19 percent growth experienced in 2012. But, MAPI expects vehicle sales to total 15.1 million units in 2013 and grow to average 16.5 million units from 2015 to 2017. The sector is clearly moving in the right direction. Likewise, demand for new airplanes will push aerospace production up 16 percent and 17 percent, respectively, in 2013 and 2014.

Outside of those sectors, the sector-by-sector analysis is more mixed. Worries about slowing global sales and the fiscal cliff have hampered activity in the second half of 2012 continue to have an impact. Moreover, consumer spending is only growing modestly, up around 2 percent, which is limiting increased activity in some durable and nondurable goods industries. There is clearly a broad-based deceleration in production in most of the 24 sectors that MAPI analyzes, with 14 of these areas predicted to grow.

Chad Moutray is chief economist, National Association of Manufacturers.

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MAPI: Growth in Manufacturing Activity Dips Again

The Manufacturers Alliance for Productivity and Innovation (MAPI) said that its composite index of manufacturing activity eased from 61 in the second quarter to 56 in the third quarter. Interestingly, this index has declined every quarter since the second quarter of 2010, when it stood at just above 80. Even with this quarter’s decline, the measure remains over 50, suggesting continued expansion for the sector, albeit one that is growing more slowly.

Still, the lower levels of manufacturing activity reported in this survey are consistent with other measures noting recent weaknesses in the marketplace. The steepest decline was in the index for new orders, with sales dipping from 70 to 57. Included in this figure is exports, which have been pulled lower by slower global growth. The index for new export orders declined from 63 to 53, but one year ago, it was 80, illustrating the deterioration in growth for global trade.

Various other components were also weaker, including shipments, inventories, capacity utilization, and investment. Shipments of manufactured goods, both to the U.S. and abroad, are expected to grow at a slower pace in the fourth quarter. In short, manufacturing activity is anticipated to increase, but there is significant softness expected.

In a series of questions, respondents were somewhat split between what is the greater threat to the economy – the fiscal cliff or the challenges in Europe. The possibility that the sovereign debt crisis in Europe could impact the U.S. was cited by 42.4 percent as the single biggest threat, while the fiscal cliff was noted by 39 percent. The manufacturers who answered this survey are hopefully optimistic that the fiscal cliff can be averted, with 59.3 percent of them feeling that Congress will not allow it to happen. However, that suggests that the remaining 40.7 percent – a sizable percentage – feels otherwise.

Chad Moutray is chief economist, National Association of Manufacturers.

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MAPI: Manufacturing Optimism Eases on Increased Uncertainty

The Manufacturers Alliance for Productivity and Innovation (MAPI) said that its composite index of manufacturing activity eased from 65 in the first quarter of 2012 to 61 in the second quarter. Interestingly, this index has slipped every quarter since the second quarter of 2010, when it stood just above 80. Even with this month’s decline, the measure remains over 50, suggesting continued expansion for the sector, albeit one that is growing more slowly.

New orders were the largest drag on this quarter’s index, down from 77 to 70, essentially the level that it was in the fourth quarter. Shipments also slowed somewhat, falling from 83 in the fourth quarter to 77 in the first and 75 now. Exports have been impacted by struggles overseas, with both new export orders and overseas shipments lower. New export orders, for instance, dropped from 79 to 63 for the quarter.

In addition to these figures, another troubling sign was the drop in the capacity utilization index, which decreased from 40.0 to 35.2. This suggests that just 35 percent of manufacturing firms are operating above 85 percent of their capacity.

The MAPI survey, for the most part, mirrors other indicators which have shown the manufacturing sector slowing of late. In the recent NAM/IndustryWeek survey manufacturers ranked the unfavorable business environment as their number one concern and we are certaintly seeing that in other recent surveys and indicators. Until Washington acts ton pro-growth policies uncertainties about current and future economic growth will continue to weigh heavily on manufacturers’ minds.

Chad Moutray is chief economist, National Association of Manufacturers.

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