Tag: Monday Economic Report

Monday Economic Report – April 14, 2014

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

In the minutes of its March Federal Open Market Committee (FOMC) meeting, the Federal Reserve Board highlighted the negative impact of weather events on first-quarter growth. Winter storms hampered business investment, construction, consumer spending and manufacturing production. Nonetheless, the Federal Reserve still anticipates real GDP growth of between 2.8 and 3.0 percent in 2014, faster than last year’s 1.9 percent expansion. While this reflects a slight downgrade in the outlook for the year from the last forecast, it continues to suggest that the economy will regain its momentum moving forward. The Federal Reserve also predicts growth of 3.0 to 3.2 percent in 2015. The International Monetary Fund’s World Economic Outlook, which was released last week, mirrors these figures in its own forecasts for the United States.

The highlight of the FOMC minutes was the background discussion among participants regarding future monetary policy actions. The Federal Reserve largely feels that the U.S. labor market has a lot of “slack” in it, which is not reflected by the 6.7 percent unemployment rate. Despite improvements in the unemployment rate, weaknesses continue, with the participation rate near 30-year lows and high rates of both underemployment and part-time employment. While some FOMC members feel there has been sufficient economic progress to warrant less stimulative monetary policy measures, the majority view the current labor market as sufficiently weak enough to continue the Federal Reserve’s highly accommodative actions for the foreseeable future. The Federal Reserve will continue to reduce its long-term asset purchases, but short-term interest rates will likely not rise until next year at the earliest. Inflationary pressures remain modest, providing the Federal Reserve with some wiggle room to do its stimulative measures.

The most recent Job Openings and Labor Turnover Survey (JOLTS) data suggest the labor market for manufacturers remains soft. The number of manufacturing job openings declined for the third month in a row in February. Postings have been lower since peaking in November, and the December to February time frame mirrored the weather-related weaknesses seen in other data. Net hiring was also lower in those three months, with 2,000 more separations than hires in February. Still, the manufacturing sector has added an average of 12,125 workers each month since August, mirroring the uptick in demand and production that we have seen since that point. We are hopeful that hiring begins to accelerate again in the coming months.

Looking at the sentiment surveys last week, businesses and consumers were more upbeat. The California Manufacturing Survey from Chapman University reported rising expectations for new orders and production for the second quarter, but with employment growth remaining soft. Both durable and nondurable goods activity were anticipated to expand modestly in the current quarter. Likewise, small business owners in the National Federation of Independent Business’ (NFIB) survey were more optimistic about future sales, and those saying the next three months were a good time to expand edged marginally higher. Still, earnings remained weak, and the percentage suggesting they would bring on more workers moved lower. The University of Michigan and Thomson Reuters also noted improved consumer sentiment, a welcome gain after three months of dampened enthusiasm.

This week will be a busy one on the economic front, specifically with new reports on housing starts and industrial production. We hope to move beyond the weather-related weaknesses from earlier this year, and March’s manufacturing output numbers are expected to show a continued rebound. Similarly, housing starts moved slightly higher in February, but permits surpassed the 1 million mark for the first time since November; yet, rising interest rates, financial challenges for potential buyers and low inventory remain concerns. Other highlights this week include new data on consumer prices, leading indicators, manufacturing surveys from the New York and Philadelphia Federal Reserve Banks and state employment.

Chad Moutray is the chief economist, National Association of Manufacturers. Note that General Electric Chief Economist Marco Annunziata will prepare the Monday Economic Report for April 21.

participation rate - apr2014

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Monday Economic Report – April 7, 2014

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

Manufacturers appear to be recovering from softness in the first two months of the year, mainly due to the number of severe winter storms. The Institute for Supply Management (ISM) reported that its Purchasing Managers’ Index (PMI) edged higher, up from 53.2 in February to 53.7 in March. Production began expanding again, with the pace of new orders and exports picking up slightly. Despite some degree of progress in March, sentiment remains lower than just a few months ago. PMI values averaged 56.3 in the second half of last year, with sales and output measures exceeding 60—indicating strong growth—each month from August to December.

Likewise, new factory orders increased 1.6 percent in February, partially offsetting the sharp declines in December and January. Beyond autos and aircraft, however, durable goods sales were just barely higher, suggesting more needs to be done for broader growth in the sector. Meanwhile, the Dallas Federal Reserve Bank’s manufacturing survey reflected a rebound in activity consistent with other Federal Reserve districts. Texas manufacturers remain positive about sales, output, hiring and capital spending moving forward. For example, more than half of respondents anticipate increased demand over the next six months. Still, some cited regulatory, pricing pressure, workforce and foreign competition concerns.

On the hiring front, Friday’s jobs numbers provided mixed news for manufacturers. The sector lost 1,000 workers in March, mainly due to declines in nondurable goods industries. This was particularly disappointing given consensus expectations that were closer to the ADP’s estimates, which had a gain of 5,000 workers for the month. Yet, revisions to January and February data provided some comfort, adding 15,000 more employees than original estimates. As a result, the longer-term trend for manufacturing did not change much despite March’s lower figure. Manufacturers have added more than 600,000 workers since the end of the recession, and since August, the sector has generated an average of 12,125 net new jobs per month. Another positive in this report was that the average number of hours worked and average compensation both rose, findings that mirror the rebound in overall activity.

Meanwhile, the latest international trade figures were also disappointing. The U.S. trade deficit widened from $39.28 billion in January to $42.30 billion in February. This was the highest deficit since September and the result of a decrease in goods exports and an increase in service-sector imports. Petroleum exports were also marginally lower. The numbers were particularly discouraging given that manufactured goods exports in January and February of this year were 0.6 percent lower than the first two months of last year. Still, outside of softness in our goods exports to Canada, the other top-five export markets for U.S.-manufactured goods registered increases year-to-date in 2014 relative to 2013. In addition, there remains cautious optimism that export sales will improve in the coming months.

This week, the focus will be on the release of the minutes from the March Federal Open Market Committee (FOMC) meeting. The minutes will provide additional insights on the internal debates that led the Federal Reserve Board to continue tapering but to also change its forward guidance for short-term interest rates. On Friday, the release of producer price data should continue to show that overall inflation remains minimal. Other highlights include the latest data on consumer confidence, job openings, small business optimism and wholesale trade.

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

ism pmi - apr2014

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Monday Economic Report – March 31, 2014

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

The U.S. economy grew 2.6 percent in the fourth quarter, according to the most recent revision, and for 2013 as a whole, real GDP growth was a rather lackluster 1.9 percent. Consumer spending, business investment and net exports were bright spots in the fourth quarter, with reduced government spending subtracting nearly one percentage point from growth.

Meanwhile, business economists predict real GDP growth of 2.8 percent on average for 2014, with 1.9 percent growth in the current quarter. (My own forecast is marginally higher for both, up 3.0 percent for the year and 2.1 percent for the first quarter of 2014.) Weather-related slowdowns account for the deceleration in activity, particularly for manufacturers, in the current quarter. However, modest growth is expected to resume once temperatures warm up, and we have already begun to see that. The National Association for Business Economics (NABE) Outlook Survey also suggested that the industry should grow 3.2 percent in 2014 and 3.4 percent in 2015, which would indicate a pickup from the current pace.

The latest manufacturing surveys show a rebound in sentiment after softness from December to February. The Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) slowed a bit, down from 57.1 in February to 55.5 in March. Despite the lower figure, new orders and production growth continued to grow relatively strongly, with overall manufacturing activity improved from January’s winter storms. A similar recovery was seen in regional data from the Kansas City Federal Reserve Bank, mirroring the findings from New York and Philadelphia the week before. Still, not everyone has seen improvements yet. The Richmond Federal Reserve reported lackluster growth in sales and output, with weather continuing to “wreak havoc” for many manufacturers. In addition, while new durable goods orders were up a strong 2.2 percent in February, sales growth increased at the less-than-robust rate of just 0.2 percent when transportation orders were excluded.

On the consumer front, the data were mostly positive, but with some caveats. Personal income and spending both increased 0.3 percent in February, with each rising 3.0 percent over the past 12 months. This was a decent pace, but increased purchases of nondurable goods and services mainly fueled spending growth in February. Durable goods spending declined for the third month in a row. In terms of consumer confidence, the two reports out last week were mixed. The Conference Board’s measure of consumer sentiment reached a six-year high; yet, labor market worries dampened enthusiasm for the current environment. Likewise, the University of Michigan and Thomson Reuters reported that consumer sentiment edged lower in March, with employment and income growth also weighing on respondents’ minds. In both surveys, however, Americans are more confident today than in the fall during the government shutdown.

Looking overseas, Markit released preliminary manufacturing PMI data for China and the Eurozone. Chinese manufacturing activity has now contracted for three consecutive months, with March’s pace being the slowest since July. The data mirror other recent indicators, including industrial production, fixed asset investment and retail sales, which have slowed. As such, they all suggest that real GDP might fall below the 7.7 percent rate in the fourth quarter. (First-quarter real GDP for China will be released on April 15.) Meanwhile, European manufacturers have seen expanding activity levels for nine straight months, even as Eurozone PMI values eased slightly in March. New orders and production remain strong in Germany, and, of note, French manufacturers were positive in their sentiment for the first time since June 2011.

This week, the focus will be on the March jobs numbers, which will come out on Friday. The consensus expectation is for nonfarm payroll growth of around 190,000, with manufacturers hiring somewhere near the 12,000 average experienced in the sector since August. In addition, the Institute for Supply Management (ISM) is expected to show a slight rebound in manufacturing PMI activity in its March data, up from 53.2 in February. Other highlights this week include the latest data on construction spending, factory orders and international trade.

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

gdp forecast - mar2014

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Monday Economic Report – March 24, 2014

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

For much of the past month, people have been questioning how much of the recent softness in the manufacturing sector was due to weather and how much stemmed from other factors. The data released last week support the view that it was largely weather related, with numerous winter storms keeping shoppers from the stores and closing factories temporarily. Fortunately, manufacturing activity has rebounded in the latest reports. For instance, manufacturing production increased 0.8 percent in February, nearly offsetting January’s 0.9 percent decline, with capacity utilization for the sector rising from 75.9 percent to 76.4 percent. Similar rebounds were seen in the March surveys from the New York and Philadelphia Federal Reserve Banks, and more importantly, manufacturers continue to be mostly upbeat about new orders and shipments over the next six months.

In its monetary policy statement, the Federal Reserve Board’s Federal Open Market Committee (FOMC) acknowledged the negative effects of “adverse weather conditions” on recent activity. It also provided the following evaluation of the current economic environment:

Labor market indicators were mixed but on balance showed further improvement. The unemployment rate, however, remains elevated. Household spending and business fixed investment continued to advance, while the recovery in the housing sector remained slow. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has been running below the Committee’s longer-run objective, but longer-term inflation expectations have remained stable.

The biggest news from the FOMC’s statement was the change in its forward guidance, as expected, to no longer mention an unemployment rate target. Since its December 2012 meeting, the FOMC has said it would pursue a highly accommodative monetary policy until the unemployment rate hit 6.5 percent and/or long-term inflation consistently exceeded 2.0 percent. With unemployment falling, this put the Federal Reserve in a predicament because job growth continues to be a challenge, particularly for the long-term unemployed, and progress in the unemployment rate fails to acknowledge loforw participation rates and underemployment that exists in the labor market. For this reason, Federal Reserve Bank of Minneapolis President Narayana Kocherlakota opposed the change in the Fed’s guidance, and he subsequently said that he wanted a 5.5 percent unemployment rate target.

In the end, however, short-term interest rates cannot hover around zero percent forever, particularly with the U.S. economy improving. The Federal Reserve now forecasts real GDP growth in 2014 of 2.8 percent to 3.0 percent, with the unemployment rate falling to 6.1 percent by year’s end. The FOMC continued to taper its long-term asset purchases, down from $65 billion each month to $55 billion, and short-term interest rates are now expected to start rising sometime in 2015. (This is true even with new Federal Reserve Chair Janet Yellen’s suggestion that rates might begin to increase around six months after quantitative easing ends, a comment that spooked markets on Wednesday.)

Fortunately for the Federal Reserve, inflationary pressures remain minimal, allowing the FOMC to continue its stimulative measures for now. Consumer prices rose 0.1 percent in February, with core inflation increasing 1.6 percent over the past 12 months. Of course, higher interest rates could negatively impact spending, particularly for large consumer items and for business investments.

Along these lines, housing starts have stabilized a little, up from 905,000 annualized units in January to 907,000 in February, but still remain somewhat weak. On the positive side, housing permits—a proxy of future activity—exceeded 1 million for the first time since November, largely on gains in multifamily residential construction. Single-family permitting remained soft, however, and homebuilder sentiment continued to be down from where it was just a few months ago. In addition to weather challenges, National Association of Home Builders (NAHB) Chief Economist David Crowe attributes the current weakness to “a shortage of buildable lots and skilled workers, rising materials prices and an extremely low inventory of new homes for sale.”

Today, we will get March Markit Flash Purchasing Managers’ Index (PMI) data for the United States, China and Eurozone. In particular, economists will be looking to see if Chinese manufacturing activity continues to decelerate and if the slight easing in February’s data was a one-month phenomenon. (For more on international trends, see the latest Global Manufacturing Economic Update, which was released on Friday.) Other highlights this week include updates on consumer confidence, durable goods orders and shipments, GDP, manufacturing surveys from the Kansas City and Richmond Federal Reserve Banks, personal income and spending and state employment.

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

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Monday Economic Report – March 17, 2014

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

Recent events around the world remind us that the global economic and political environment remains uncertain. Manufacturers have had to cope with weather-related softness over the past few months, worries about the geopolitical situation and slowing growth rates in some of our largest trading partners, specifically China. Despite these challenges, they continue to be mostly upbeat about future activity.

The latest NAM/IndustryWeek Survey of Manufacturers found that 86.1 percent of respondents were positive about their company’s outlook, up from 78.1 percent three months ago, with increased expectations for sales, exports, employment and capital spending. Still, smaller manufacturers were less positive, particularly in their investment plans. The top challenges were the business climate and rising health care and insurance costs, with respondents noting the need for comprehensive tax reform and expressing concern about ever-increasing regulatory burdens.

Government regulations were also cited as the most important problem in the latest National Federation of Independent Business (NFIB) survey of small business owners. It was one of two sentiment surveys released last week showing reduced confidence. NFIB’s Small Business Optimism Index fell sharply, down from 94.1 in January to 91.4 in February. The percentage saying it was a good time to expand declined, with weak sales and earnings expectations. Likewise, preliminary March consumer confidence numbers from the University of Michigan and Thomson Reuters were also lower, perhaps reflecting concerns about job and income growth.

On the positive side, retail sales began to rebound in February, up 0.3 percent. While this was not enough to make up for the weather-induced declines of December and January, it did suggest there were possible “green shoots” on the consumer spending front, with Americans starting to return to the stores. For instance, the auto sector saw modest sales gains in February, a trend seen in other hard-hit sectors as well.

This week, much of the focus will be on the Federal Reserve Board, with a new monetary policy statement from the Federal Open Market Committee (FOMC) coming out on Wednesday. While hiring remains soft (as the latest job openings numbers show), the unemployment rate is likely to reach the 6.5 percent threshold in the next month or two. Therefore, the expectation is that the FOMC will change its forward guidance on short-term interest rates to omit mention of an unemployment rate target. Fortunately, pricing pressures remain minimal, allowing the Federal Reserve to continue to pursue highly accommodative policies, even as it continues to taper its long-term asset purchases. Look for the FOMC to reduce its purchases from $65 billion each month in long-term and mortgage-backed securities to $55 billion.

It will be a busy week for economic releases, including new data on industrial production and housing starts. Manufacturing output should rebound somewhat, even as bad weather dampened activity once again. Similar findings are expected in the New York and Philadelphia Federal Reserve Bank manufacturing surveys. Meanwhile, housing starts should also pick up slightly, but new residential activity will remain subpar relative to a few months ago. Still, we remain upbeat about the housing market for 2014 as a whole. Other highlights this week include new measures for consumer prices, homebuilder confidence and leading indicators.

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

nam industry week - mar2014

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Monday Economic Report – March 10, 2014

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

The Federal Reserve Board’s Beige Book noted recent progress in the economy but also reported the negative impacts of weather in many of its districts. The Federal Reserve wrote, “The weather was cited to have caused utility outages, disrupted supply chains and production schedules and resulted in a slowing of sales to affected customers.” However, the slowdown in activity in these regions is temporary, and manufacturers across the country were generally “optimistic about the future and expect manufacturing activity to rise in the coming months.”

Economists have had to try to parse through the data to determine just how much of the recent softness has been due to the weather. This is not an easy task, but in my view, the various reports suggest the momentum we saw at the end of last year should return with warmer temperatures. The latest NAM/IndustryWeek Survey of Manufacturers, which will be released this morning, echoes this finding, with 86.1 percent of respondents being positive about their company’s outlook for the next 12 months, up from 78.1 percent three months ago. Sales, capital spending and hiring expectations were also higher; however, the smallest manufacturers continue to be less upbeat about the economy and their company’s future plans. The top business challenges were an unfavorable business climate due to taxes, regulations and government uncertainties (79.0 percent) and rising health care and insurance costs (77.1 percent), with the latter serving as a proxy for frustrations with the Affordable Care Act.

Purchasing Managers’ Index (PMI) data released last week suggest that manufacturing sentiment has already begun to rebound from weather-related weaknesses of the month before. The Institute for Supply Management’s (ISM) measure rose from 51.3 in January to 53.2 in February, with a faster pace of new orders. On the negative side, production contracted for the first time since May, and manufacturing activity remains below December’s levels. Yet, the improvement in domestic sales was a step in the right direction. Along these lines, the Markit U.S. Manufacturing PMI reflected an even larger rebound, up from 53.7 to 57.1, on much stronger growth in output and sales. As such, these reports give us hope that the declines in new factory orders in both December and January, particularly in the auto sector, will turn around in the coming months.

On the labor front, nonfarm payrolls increased 175,000 in February, somewhat higher than anticipated and better than the 84,000 and 129,000 observed in December and January, respectively. Still, hiring remains below the 194,250 additional workers created each month in 2013, reflecting the easing that we have seen recently. Manufacturing employment has also grown more slowly over the past three months, with just 6,000 new hires in February. Nonetheless, manufacturers have added new workers on net in each of the past seven months, consistent with the rebound in activity since the beginning of the third quarter of last year. Once weather-related weaknesses go away, we hope to see hiring in the sector pick up once again. Elsewhere in the jobs report, the unemployment rate increased from 6.6 percent to 6.7 percent with a slight increase in the size of the labor force. Still, the participation rate remains at levels not seen since the late 1970s.

In our first look at international trade data for the new year, the U.S. trade deficit widened ever so slightly, up from $38.98 billion to $39.10 billion. There was a significant jump in the petroleum trade deficit for the month, with weather impacts more than likely increasing demand and prices for crude oil rising. Manufactured goods exports increased modestly, up 1.2 percent in January relative to the same month last year. While our goods exports were somewhat lower to Canada for the month, the data suggest slight increases in many of our other major trading partners. We remain hopeful that improvements in the global economic landscape will yield better manufactured goods exports growth than the 2.4 percent growth rate in 2013. At the same time, any expansion would build on last year’s $1.38 trillion in manufactured goods exports, an all-time high.

This week will be a slower one for economic releases. Highlights will be new data on consumer confidence, job openings, producer prices, retail sales and small business optimism.

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

employment situation - mar2014

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Monday Economic Report – March 3, 2014

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

The U.S. economy grew 2.4 percent in the fourth quarter, down from the earlier estimate of 3.2 percent. Given some of the recent weaker manufacturing, retail and housing data, the downward revision was largely expected. Still, there are some positives in the report, with strength in consumer spending, business investment and net exports. Fixed investment was higher in this revision, which was welcome news. Federal government spending accounted for the biggest drag on growth during the fourth quarter, subtracting one percentage point from the total figure.

The bottom line is that real GDP increased 3.3 percent in the second half of 2013, providing some momentum for growth moving into this year. While weather and other factors have dampened the economy recently (and will also reduce real GDP in the current quarter), we still expect 3.0 percent growth for 2014. Manufacturers continue to be mostly upbeat about demand and production over the coming months.

Despite such optimism in the outlook for the year, the current environment for manufacturers clearly has its challenges. Weather has negatively impacted production and shipments in a number of regions around the country, and surveys from the Dallas, Kansas City and Richmond Federal Reserve Banks all observed some easing in activity in February. This followed similar reports from the New York and Philadelphia Federal Reserve Banks the week before. Meanwhile, the Census Bureau has reported lower new durable goods orders for two straight months, with poor weather conditions likely a factor, particularly for auto sales. At the same time, new durable goods orders excluding transportation were higher, suggesting that the broader manufacturing market was slightly better than the headline figure indicated.

Some of the other data remain mixed. New home sales were up sharply in January to their highest level since July 2008, but year-over-year growth was more modest, and inventories of new homes have fallen over the past few months. Nonetheless, the positive report on new home sales stands in contrast to much weaker residential construction figures of late, including housing starts and existing home sales, which have seen negative impacts from the weather. Similarly, the two major reports about consumer confidence moved in opposite directions, with the Conference Board’s measure lower in February and the University of Michigan’s figure edging slightly higher. Doubts about income and labor growth have possibly fed some anxieties in sentiment in both surveys, but the two reports differ in their findings about the economic outlook.

This week, the focus will be on manufacturing activity, employment growth and international trade. We will get February Purchasing Managers’ Index (PMI) data from the Institute for Supply Management (ISM) later this morning. After falling from 56.5 in December to 51.3 in January, the ISM PMI is expected to increase modestly, still indicating weaknesses in new orders and production for the month. On the trade front, we will be looking for better manufactured goods exports in 2014, improving on the modest 2.4 percent growth rate seen in 2013. Still, manufactured goods exports hit an all-time high last year, providing a positive for economic growth.

The biggest news of the week will come on Friday with the release of new jobs numbers. Nonfarm payroll growth has been soft over the past two months, with just 75,000 and 113,000 net new workers added in December and January, respectively. The consensus expectation is for roughly 165,000 nonfarm workers added in February. In contrast, manufacturing job gains have been fairly decent over the past six months, averaging 15,500 since August, and we should get modest gains again in February. One of the bigger conversation pieces will be whether the unemployment rate falls to 6.5 percent in February, which is the rate specified in the Federal Reserve Board’s forward guidance. (Either way, look for the Federal Open Market Committee to change its guidance at its next meeting.) Other highlights this week include the latest data on construction spending, factory orders, personal income and spending and productivity.

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

personal consumption - mar2014

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Monday Economic Report – February 24, 2014

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

Mark Twain once said, “If you don’t like the weather in New England, just wait a few minutes.” Indeed, the poor weather conditions that temporarily closed many facilities and hampered shipments in the manufacturing sector over much of the past few weeks appear to have improved. Yet, the damage can be seen in many of the latest economic indicators released last week. Regional surveys from the New York and Philadelphia Federal Reserve Banks showed softness in new orders and production in February. This followed reports from earlier in the month that manufacturing production and the Institute for Supply Management’s (ISM) Purchasing Managers’ Index (PMI) both dropped sharply in January. Housing data were also weak, with new starts down 16 percent in January and homebuilder confidence plummeting 10 points in one month.

To the extent that weather was the primary factor in reducing activity, one should not over-interpret these results to suggest they indicate broad-based weaknesses in the economy. The same data sources provide hints that the momentum manufacturers experienced at the end of 2013 will continue into 2014. For example, housing permits fell less sharply in January, particularly for single-family homes, indicating that the intent to start new residential construction has largely been sustained (even if weather prevented homebuilders from doing so). Similarly, the New York and Philadelphia Federal Reserve surveys continue to report optimism for the next six months, with essentially half of the respondents in both surveys anticipating sales increases. Production, hiring and capital spending are also expected to rise in both regions.

Moreover, the Markit Flash U.S. Manufacturing PMI appeared to shrug off weather concerns altogether, up from 53.7 in January to 56.7 in February. The pace of growth for new orders (up from 53.9 to 58.8) and output (up from 53.5 to 57.2) increased significantly, with sales growth at its highest level since May 2010. Such data reinforce the notion that manufacturing should rebound from recent weaknesses.

Still, there were signs that global growth might also have slowed a bit. While European manufacturing activity continues to expand modestly and has made substantial progress after its deep two-year recession, there was a slight deceleration in the pace of growth in many key indicators in the preliminary February data. Meanwhile, the HSBC Flash China Manufacturing PMI has now contracted for two straight months, down from 49.5 in January to 48.3 in February. This suggests that the easing that we saw in industrial output during the final months of last year might be continuing in 2014. Nonetheless, even with reduced activity, the Chinese economy continues to grow solidly, with real GDP up an annualized 7.7 percent in the fourth quarter and industrial production up 9.7 percent year-over-year in December.

Regarding price stability in the United States, consumer and producer price data showed modest growth in January. Cold weather had an impact, with higher home heating costs pushing up natural gas and electricity prices. At the same time, pricing pressures remained minimal and in line with the Federal Reserve Board’s stated goal of keeping core inflation below 2 percent at the annual rate. This has allowed the Federal Reserve the luxury of pursuing highly accommodative monetary policies to try to stimulate growth. At the same time, the minutes from the January Federal Open Market Committee meeting suggests that better economic data might necessitate higher short-term interest rates by year’s end—sooner than expected. Either way, with the unemployment rate nearing 6.5 percent, the Federal Reserve will need to change its forward guidance. Long-term asset purchases are anticipated to end by mid-2014.

This week, the highlight will come on Friday when fourth-quarter real GDP will be revised. The consensus is for real GDP to decline from its earlier estimate of 3.2 percent to 2.3 percent. We will also get three new perspectives regarding current regional manufacturing activity in surveys from the Dallas, Kansas City and Richmond Federal Reserve Banks. These reports will be closely watched given the declines seen in last week’s releases. In addition, preliminary data on new durable goods orders and shipments are anticipated to reflect significant weaknesses. Other important releases include new data on consumer confidence, new home sales and the national activity index.

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

ppi - feb2014

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Monday Economic Report – February 18, 2014

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

A perfectly timed winter storm at the end of last week coincided with news that cold weather has had a negative impact on consumer spending and manufacturing output. Manufacturing production declined 0.8 percent in January, ending five straight months of expanding activity. Poor weather conditions closed some facilities and hampered shipments. Capacity utilization also decreased, down from 76.7 percent in December to 76.0 percent in January. That was the lowest utilization level since July. Yet, to the extent that weather contributed to the fall in manufacturing output, I would expect production to rebound in the coming months. After all, manufacturing production increased 3.0 percent in the second half of 2013, and manufacturers continue to be mostly upbeat about demand for 2014.

Nonetheless, we saw the effects of the weather in other indicators released last week as well. Retail sales fell 0.4 percent in January, extending December’s 0.1 percent decline. Reduced auto sales were a major factor in this decrease, with motor vehicle purchases down 1.8 percent in December and 2.1 percent in January. If you exclude autos from the analysis, retail spending was unchanged.

Although the University of Michigan and Thomson Reuters consumer sentiment measure was unchanged in February, respondents’ view of the current economy has slipped since December. One might surmise that weather impacted labor markets and incomes, lessening current confidence. However, Americans seem more optimistic about the future, with the expectations component rising from 71.2 in January to 73.0 in February.

There were signs that the U.S. economy’s recent improvements continue to bear fruit. Small business leaders have become more confident, with the National Federation of Independent Business’s Small Business Optimism Index edging higher for the third straight month, and January’s data also show an increased willingness to add workers. The net percentage planning to hire in the next three months rose to its highest level since September 2007. Along those lines, the number of manufacturing job postings increased from 283,000 in November to 297,000 in December. We have seen job openings in the sector recover from weaknesses midyear in 2013. Nonetheless, manufacturing net hires eased in December, and there was notable softness in the larger economy, both for new hires and job openings.

This week, we will get new numbers for the housing market and the latest data on manufacturing activity from a number of sources, including surveys from the New York and Philadelphia Federal Reserve Banks and Markit. The latter will report Flash Purchasing Managers’ Index (PMI) findings for the United States, China and the Eurozone. We will be looking for further evidence on the impact weather has had for manufacturers in the United States and for signs of improvement overseas. The Chinese PMI data had contracted in January’s report, but with output continuing to grow modestly. (For more information on worldwide trends, see the Global Manufacturing Economic Update, which was released on Friday.) Other highlights for the week include the latest data on consumer and producer prices, leading indicators and existing home sales.

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

retail sales - feb2014

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Monday Economic Report – February 10, 2014

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

Hiring in the manufacturing sector continued to expand in January, averaging 15,500 per month since August. This uptick in employment for manufacturers has corresponded to the acceleration in product demand and production in the second half of 2013, with cautious optimism for 2014. However, the overall jobs numbers were disappointing for the second straight month. Nonfarm payrolls grew by just 75,000 and 113,000 in December and January, respectively, which was well below the consensus expectation of 175,000 and the 2013 average monthly gain of 193,500.

Some of the releases out last week show the negative impact that weather has had on activity. For instance, new factory orders declined 1.5 percent in December, with broad-based weaknesses in the durable goods sector pulling the data lower. Shipments were also down. Likewise, manufacturing construction spending fell 5.1 percent in December, which was notable because of a mostly upward trend from June to November. Overall construction activity edged marginally higher in December, boosted by strong residential construction activity, but nonresidential and public spending was down.

The Institute for Supply Management’s Purchasing Managers’ Index (PMI) report showed a considerable decline in manufacturing sentiment, down from 56.5 in December to 51.3 in January. The biggest declines were in new orders, output and employment, but the pace of export orders was off only slightly. The pace of export orders was off only slightly. This indicates that domestic factors were the main contributors of the decline.

Meanwhile, the U.S. trade deficit rose from $34.56 billion in November to $38.70 billion in December, but the deficit narrowed for 2013 as a whole. Petroleum was a major factor in the smaller trade deficit last year, with increased petroleum exports and fewer imports. Unfortunately, manufactured goods exports did not increase as much last year as we would have preferred, up just 2.4 percent in 2013 versus 5.7 percent in 2012. We hope stronger global economic growth will produce improved manufactured goods exports in 2014.

In other news, the Congressional Budget Office released its 10-year budget and economic outlook. The deficit will be $514 billion in fiscal year 2014, an improvement from the more than $1 trillion deficits in fiscal years 2009–2012 and the $680 billion deficit in fiscal year 2013. The report shows the growth of mandatory spending rising from $2.03 trillion in fiscal year 2013 to $3.74 trillion in fiscal year 2024. Because of this, federal deficits will start to rise again beginning in fiscal year 2017, with deficits exceeding $1 trillion in fiscal year 2022. With such facts, it should not be a surprise that 86.3 percent of manufacturers want policymakers to find a long-term federal budget deal that tackles the debt and deficit, including reining in entitlements.

This week, we will get new industrial production data on Friday. The last report showed manufacturing output rising at an annualized 4.2 percent rate in the second half of 2013, but we will see if the data show production easing somewhat in January due to weather or other factors. The consensus expectation is for modest output gains of roughly 0.3 percent. Other highlights will be the latest figures on consumer confidence, job openings, retail sales and small business optimism.

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

cbo entitlement spending - feb2014

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