Tag: Monday Economic Report

Monday Economic Report – October 20, 2014

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

Global financial markets were highly volatile last week, with investors concerned about slower growth in Europe and an Ebola outbreak in the United States, among other factors. Indeed, industrial production in the Eurozone fell 1.8 percent in August, and activity was down largely across-the-board, most notably in Germany (down 4.3 percent), the Eurozone’s largest economy. Sluggish income and labor market growth in Europe has also pushed inflationary pressures lower, with year-over-year pricing changes of just 0.3 percent in September. Despite such worries, equity markets began to rebound on Friday, with the Dow Jones Industrial Average (DJIA) closing at 16380.41. Nonetheless, the DJIA remains 5.2 percent below its all-time high of 17279.74 on September 19.

Still, the U.S. economy has shown signs of resilience. Despite a softer August, manufacturing production increased 0.5 percent in September. Over the past 12 months, output in the sector has risen 3.7 percent. While this was slower than its July year-over-year pace, it reflects a nice improvement from the more sluggish 1.5 percent rate in January.

Moreover, surveys from the Manufacturers Alliance for Productivity and Innovation (MAPI) and the New York and Philadelphia Federal Reserve Banks observed expanding activity levels in their latest reports. Each measure eased somewhat in October, but they were expansionary nonetheless. The weakest of these reports was the Empire State Manufacturing Survey, which observed a slight contraction in new orders. Yet, even there, respondents remained mostly optimistic about demand and output over the next six months. Along those lines, MAPI has a generally upbeat outlook, predicting that manufacturing production will increase by 3.4 percent in 2014 and 4.0 percent in 2015.

Housing starts exceeded 1 million again, increasing from an annualized 957,000 units in August to 1,017,000 in September. This continues a slow-but-steady trend upward, with an average of 978,111 so far in 2014 relative to an average of 930,000 for all of 2013. Still, there was relatively weak housing activity throughout much of the second half of last year and the first half of this year, and the latest data suggest that the sector has begun to stabilize somewhat. I continue to predict housing starts solidly in the 1.1 million unit range by the beginning of 2015. Homebuilder confidence has also reflected a positive outlook despite slipping a bit in October. Lower mortgage rates might spur more residential construction activity. According to Freddie Mac, average 30-year fixed mortgage rates fell to 3.97 percent this past week, their lowest level since June 2013.

Meanwhile, there was mixed news on the consumer front. On the positive side, consumer confidence reached a pre-recessionary high, according to the University of Michigan and Thomson Reuters. This is a sign that improvements in the economy and lower gasoline prices have helped to lift Americans’ spirits. Yet, there are also lingering worries about income and labor market growth, and consumers remain somewhat cautious overall. Retail spending declined 0.3 percent in September, suggesting softness as we begin autumn. At the same time, year-over-year growth in retail sales was up 4.3 percent, a fairly decent rate, and the holiday season retail outlook looks pretty strong. We hope we will see better consumer spending data in the coming months.

This week, we will get additional insights regarding the health of the global economy. Markit will release Flash Purchasing Managers’ Index (PMI) data for China, Japan, the Eurozone and the United States. The European data are expected to show continued weakness, but we will be watching for signs of progress in the Chinese manufacturing sector, which has decelerated in recent months. The Kansas City Federal Reserve Bank will also unveil its latest manufacturing survey, and it is expected to show continued expansion in its district. Beyond these surveys, we will learn about growth in consumer prices, and if they are similar to the producer price index data released last week, they will reflect easing in both food and energy costs. Other highlights this week include reports on existing and new home sales, leading indicators and state employment.

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

DJIA - oct2014

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Monday Economic Report – October 14, 2014

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

Financial markets have been rocked by worries about slowing economic growth, particularly in Europe. The Dow Jones Industrial Average has fallen 4.2 percent so far this month, declining to 16,321.07 yesterday on Columbus Day. The concern started after the Federal Open Market Committee (FOMC) released the minutes from its September 16–17 meeting last Wednesday. Indeed, the participants discussed how softer economic activity and geopolitical events could risk U.S. economic progress.

Then, on Thursday, the International Monetary Fund (IMF) slightly downgraded its global outlook, with Asia, Europe and South America growing slower than expected three months ago. The IMF now expects world output to expand 3.3 percent and 3.8 percent in 2014 and 2015, respectively, down from 3.4 percent and 4.0 percent as estimated in its July report.

Interestingly, the IMF raised its forecast for the United States, with the estimate of real GDP growth for 2014 up from 1.7 percent to 2.2 percent. This reflects recent strength in the U.S. economy, particularly when compared to other nations. To be fair, the IMF had more optimistic expectations for growth coming into this year, projecting 2.8 percent growth in 2014 in its January report. After disappointing growth in the first quarter, however, it lowered its outlook projections, much like everyone else.

Otherwise, last week was light on economic indicators. Of the ones that were released, the data were mostly mixed. California manufacturers reported a slight easing in the pace of new orders and output, particularly for durable and high-tech industries. Nonetheless, the data still reflect relatively health gains in activity, and hiring in California ticked higher.

In contrast, net hiring in the sector slowed in August nationally. On the positive side, manufacturing job openings have risen steadily this year after bottoming out in February, rising to 297,000 postings in August. These gains were part of a larger upward trend, with total nonfarm job openings increasing to their highest level since January 2001.

Beyond those measures, we learned that wholesale sales were somewhat soft in August—not unlike a number of other indicators. In addition, consumers were less willing to take on credit card debt. At the same time, wholesale spending has increased 5.9 percent over the past 12 months, indicating decent growth, with consumer indebtedness rising 6.8 percent. As such, it is clear that Americans have continued to spend, even if the pace lessened somewhat in August.

After some unexpectedly soft data in August, we will be looking for better housing starts and industrial production figures for September, both of which come toward the end of this week. Industrial production is expected to increase around 0.3 percent, and housing starts should once again exceed an annualized 1 million units. There will also be manufacturing surveys from MAPI and the New York and Philadelphia Federal Reserve banks. Beyond those indicators, other highlights include the latest data on consumer and producer prices, consumer sentiment, retail sales and small business optimism.

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

job openings - oct2014

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Monday Economic Report – October 6, 2014

Here are the files for this week’s Monday Economic Report: 

Several recent indicators have shown marked improvements in the U.S. economy and for manufacturing activity, particularly when compared to earlier in the year. These range from the NAM/IndustryWeek Survey of Manufacturers to increased levels of demand and output. Last week, for instance, the Institute for Supply Management (ISM) reported that the pace of production (up from 64.5 to 64.6) was marginally higher in September, with the index exceeding 60—indicating strong growth—for four consecutive months. Likewise, the new orders index has measured 60 or higher for three straight months, even though it eased somewhat in September (down from 66.7 to 60.0). That was an encouraging sign, and it was consistent with a relatively upbeat outlook as noted by the National Association for Business Economics (NABE).

Yet, the headline ISM Purchasing Managers’ Index (PMI) for manufacturing unexpectedly dropped from 59.0 to 56.6. The prior month’s reading had been a three-year high, making the deceleration in sentiment a bit of a disappointment. The drop stemmed from slower paces of growth for domestic sales, exports (down from 55.0 to 53.5) and employment (down from 58.1 to 54.6). Along those lines, manufacturers added just 4,000 net new workers in September, with August’s employment number revised lower to reflect a decline of 4,000 employees for the sector. As such, we have had two straight months of disappointing manufacturing jobs numbers, which stand in stark contrast to the stronger hiring rates seen prior to August. We can hope for healthier job gains in the coming months, which would be more consistent with the mostly optimistic tone seen in other measures.

Indeed, the Dallas Federal Reserve Bank’s manufacturing survey noted robust pickups in production, capacity utilization and shipments in September, and respondents continue to expect stronger activity levels over the next six months. In addition, factory shipments have risen 2.1 percent year-to-date through August, or 3.1 percent over the past 12 months. The corresponding data on new factory orders reflected a sharp decline in August, but that was the result of very strong nondefense aircraft sales in July. While new manufactured goods sales remained soft when excluding transportation orders, the underlying data also reflect gains made since the winter months. Moreover, manufacturers have been confident enough in their outlook to increase construction spending, which rose 1.5 percent in August, increasing for the fifth straight month. Year-over-year growth in manufacturing construction spending was an impressive 14.9 percent.

At the consumer level, personal spending rebounded in August after holding steading in July. Since winter-related declines in January, personal spending has risen 2.7 percent, with 4.1 percent growth year-over-year. Strength in durable goods purchases boosted the August consumption figure. Still, Americans remain anxious, particularly about labor and income growth. The Conference Board’s Consumer Confidence Index declined from 93.4 in August to 86.0 in September, a notable and sizable decrease especially after the index had been at its highest point since October 2007 in August. It is possible that geopolitical events have put the public on edge, dampening enthusiasm. (The same could probably be said of the ISM report discussed above.) We have similar concerns in comparable data from the University of Michigan and Thomson Reuters, and the two releases support the notion that the consumer remains cautious despite recent improvements in sentiment.

Meanwhile, the U.S. trade deficit narrowed from $40.32 billion in July to $40.11 billion in August, its lowest level since January. In general, we have seen the trade deficit decline after peaking at $45.98 billion in April. Since then, goods exports have increased by $3.79 billion, and goods imports have declined by $1.99 billion, helping to explain the bulk of the shift over that four-month period. Much of that improvement can be explained by increased energy exports and reduced energy imports.

After a busy economic data release calendar last week, this week will be much lighter. The minutes of the September 16–17 Federal Open Market Committee meeting will be released on Wednesday, with market watchers looking for clues for when the Federal Reserve will start raising short-term rates. Other highlights include the latest data on consumer credit, job openings and wholesale trade.

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

manufacturing construction - oct2014

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Monday Economic Report – September 29, 2014

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

The U.S. economy grew an annualized 4.6 percent in the second quarter of this year, its fastest pace since the fourth quarter of 2011. Consumer and business spending were the big bright spots in the real GDP report, with strong rebounds after softness in the first quarter. This latest revision reflected improved nonresidential fixed investment and goods exports data relative to prior estimates. At the same time, it is hard to forget that real GDP fell by 2.1 percent in the first quarter, with growth in the first half of 2014 expanding by a frustratingly slow 1.2 percent. Moving forward, manufacturers remain mostly upbeat. For instance, the Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) held firm at 57.9, its fastest pace since May 2010.

I estimate real GDP growth of 3.3 percent for the third quarter, which ends this week. Nonetheless, there are a number of downside risks, and business leaders and the public remain tentative in their optimism.

Along those lines, regional surveys from the Kansas City and Richmond Federal Reserve Banks continued to show expanding activity levels in their districts. The Richmond release found that activity has now grown for six straight months since winter-related contractions earlier in the year. It also reflected an uptick in production and demand, with the pace of hiring accelerating to its highest level since December 2010. All of this was encouraging. In the Kansas City district, manufacturers remained mostly positive, with more than half of respondents expecting increased production and shipments in the next six months. Among the issues cited in the Kansas City survey, manufacturers noted persistent challenges in attracting and retaining skilled workers. Other sample comments mentioned rising pricing pressures, both for wages and raw materials.

Turning to the global economy, the HSBC Flash China Manufacturing PMI edged slightly higher, up from 50.2 in August to 50.5 in September. This marked the fourth consecutive month with expanding manufacturing activity, improving from contractions in the first five months of the year. Yet, even with some signs of stabilization in China in recent data, the country is expected to continue to decelerate in its growth rates moving forward, something that it continues to grapple with. Similarly, the European Central Bank has struggled to cope with slow economic and income growth in the Eurozone, with persistent worries about deflation. Indeed, the Markit Flash Eurozone Manufacturing PMI eased yet again, down from 50.7 to 50.5. This was the lowest level of growth since July 2013, the first month that the Eurozone emerged from its deep two-year recession.

Meanwhile, housing data released last week were mixed. New home sales rose sharply, up from an annualized 427,000 in July to 504,000 in August. This was the highest level in more than six years, and the pace of sales in August starkly contrasts with what we have seen so far in 2014. This makes it likely that September figures will pull back a little, but the trend line remains promising. In contrast, existing home sales decreased 1.8 percent in August, which was disappointing given recent improvements. It is likely that August’s decline was the result of a strong July reading, with some easing probably inevitable. Moving forward, the expectation is that existing home sales should move higher, continuing a longer-run trend in the data since March.

This week, the focus will be on jobs. After a disappointing employment report in August, we anticipate better news in September. I would not be surprised if the zero jobs figure in August for manufacturing was revised higher, and I continue to expect manufacturing jobs gains to revert to an average of 12,500 to 15,000 per month for the rest of the year. Nonfarm payrolls should once again exceed 200,000 in September, an improvement from the 142,000 figure in August (which is also likely to get revised upward). Other highlights this week include the latest data on construction spending, factory orders, international trade, personal income and manufacturing activity in the Dallas Federal Reserve district.

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

real GDP forecast - sept2014

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Monday Economic Report – September 22, 2014

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

Manufacturing production declined unexpectedly in August, led lower by reduced motor vehicle output. This drop was likely the result of automakers’ switching over to a new model year and summer vacations. Indeed, auto production has risen 8.1 percent over the past 12 months, continuing to make it one of the bright spots in the economy. Excluding autos, manufacturing output rose 0.1 percent, suggesting slightly better news for the broader sector. Still, the larger story is the accelerated pace of output seen since the winter months, with the year-over-year pace up from 1.6 percent in January to 4.0 percent in August. Durable and nondurable goods production has increased 5.6 percent and 2.2 percent year-over-year, respectively. Hopefully, the August figures reflect a brief pause before picking up again in September.

Regional sentiment surveys tend to suggest that this might be the case. The Empire State Manufacturing Survey from the New York Federal Reserve Bank said that business conditions rose at their fastest pace in nearly five years, with 46 percent of those taking the survey saying that the environment had improved in the month. At the same time, the Philadelphia Federal Reserve Bank’s Manufacturing Business Outlook Survey found healthy rates of growth in September, even as the pace pulled back slightly from very strong gains in August. Each of these two surveys reported higher levels for new orders and shipments, but they were mixed regarding hiring growth. Nonetheless, manufacturers in both districts were overwhelming upbeat about the next six months, with more than half of respondents predicting sales increases. Moreover, the Philly Fed found that a majority of those taking its survey expect production to increase in the third and fourth quarters.

Meanwhile, housing starts fell from an annualized 1,117,000 units in July to 956,000 in August. To be fair, the July figure—the second fastest pace since November 2007—was likely an outlier, and the pendulum—not unexpectedly—swung back somewhat. Yet, the slowdown in August was still disappointing. On the bright side, while single-family and multi-family unit starts and permits were both down, the highly volatile multi-family segment comprised the bulk of the decline. Looking at a longer time horizon, each has continued a slow, but steady upward trajectory. I continue to expect housing starts to be solidly at 1.1 million by year’s end. Indeed, home-builder confidence was equally optimistic about better figures moving forward, with the Housing Market Index at its highest level since November 2005.

The Federal Reserve Board provided the other major headline from last week. The Federal Open Market Committee (FOMC) began laying out its principles for winding down the extraordinary stimulus that it has pursued since the financial crisis at the end of 2008. The Fed will end its purchases of long-term and mortgage-backed securities after its October FOMC meeting, and the expectation is that short-term interest rates will begin to “normalize” at some point in 2015. The federal funds rate, however, will remain near zero for a “considerable time after the asset purchase program ends,” a statement that some suggest means that normalization will not occur until mid-2015 at the earliest. Fortunately, news that consumer and producer pricing pressures eased in August was likely welcomed at the FOMC because it takes some pressure off of the Fed to act sooner, at least for now. (Inflation has accelerated from where it was earlier in the year, but remains below the Fed’s stated 2.0 percent goal.)

In its FOMC statement, the Federal Reserve said that “economic activity is expanding at a moderate pace.” Nonetheless, it continues to worry about slack in the economy, particularly in labor markets. The Fed predicts growth this year of between 2.0 and 2.2 percent, with 2.6 to 3.0 percent real GDP growth next year. The unemployment rate is expected to fall to 5.9 or 6.0 percent by the end of 2014 and 5.4 to 5.6 percent by the end of 2015. In terms of inflation, the Fed forecasts prices growing by less than 2.0 percent over the next few years. If core inflation consistently exceeds 2.0 percent, it will give greater credence to hawks on the FOMC to increase rates sooner rather than later.

This week, we will get a sense of how manufacturing activity is faring globally with preliminary purchasing managers’ index (PMI) data from Markit for China, the Eurozone and the United States. The Chinese economy has begun to stabilize after slowing earlier in the year, but is still not growing by much. European growth has effectively come to a halt. In the United States, however, recent PMI data have reflected healthy gains in both demand and output over the summer months. We will also get new surveys from the Kansas City and Richmond Federal Reserve banks. Beyond those surveys, we will get the second revision to real GDP growth for the second quarter on Friday, with a consensus estimate of 4.3 percent growth, or just slightly higher than the previous 4.2 percent figure.

Other highlights this week include the latest data on consumer confidence, durable goods orders and shipments, and existing and new home sales.

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

housing starts and permits - sept2014

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Monday Economic Report – September 15, 2014

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

The latest NAM/IndustryWeek Survey of Manufacturers found that businesses are generally upbeat about the coming months. Manufacturing respondents expect 4.4 percent growth in sales on average over the next 12 months, the fastest pace of expected growth in new orders since the first quarter of 2012, when the sector was expanding more robustly. Indeed, nearly half of those taking the survey anticipate sales growth of at least 5 percent. Capital investment and hiring trends have also moved in the right direction, with manufacturers planning to increase capital spending and employment by 2.5 percent and 1.9 percent, respectively. The hiring figure represents substantial progress from the lackluster pace of job growth in 2013, which averaged just 0.8 percent. Overall, 87.3 percent said that they were positive in their outlook, the highest reading in two and a half years.

Nonetheless, the more positive attitude needs to be balanced against other issues. First, enthusiasm for expanded new orders and production is often nuanced by anxieties that events might prevent the economy from gaining traction—much as it has time and again in this recovery. Certainly, many of them are disappointed with the slow economic growth in the first half of 2014, even if they remain hopeful about the second half.

Second, manufacturers—like many Americans—continue to be frustrated with Washington. The top business challenges remain rising health insurance costs and an unfavorable business climate, cited by 77.1 percent and 73.1 percent, respectively, in the survey. Along those lines, the NAM released a study showing the disproportionate burden placed on small businesses and manufacturers when complying with federal regulations. Total federal compliance costs in 2012 were estimated to be $2.028 trillion, with an average cost of $19,564 per employee for manufacturers, or twice the level of all businesses.

Beyond these issues, there was encouraging news on the consumer front. Retail sales rose 0.6 percent in August, rebounding from softer increases in the previous three months. Prior to this release, there were worries that a more cautious consumer might derail brighter prospects for growth. This data suggests that the public might be more willing to spend. Retail sales have risen 3.8 percent year-to-date, or 5.0 percent over the past 12 months. Moreover, the consumer also appears to be less hesitant about borrowing, with July consumer credit up 9.7 percent in July. This included a sizable pickup in revolving credit, which includes credit cards. Another positive was the increase in consumer sentiment from the University of Michigan and Thomson Reuters, ending a lull in that measure throughout 2014 and marking its highest point since July 2013.

This morning, we will get new data on industrial production. Production in the sector jumped one percent in July, and the expectation is for modest gains in manufacturing output in August. It is also anticipated that housing starts and permits will once again exceeding one million annualized units when August figures are released on Thursday. This would suggest that residential construction activity has begun to recover from softness earlier in the year. Beyond those figures, the biggest headlines will come from the Federal Open Market Committee meeting this week, which is not expected to make any major shifts in monetary policy. Quantitative easing should end in October, with the largest focus being uncertainty over when the Federal Reserve will start raising short-term rates. With that said, new consumer and producer price data should reflect the recent easing in inflationary pressures, particularly from lower energy costs.

Other data releases this week include the latest findings on manufacturing activity in the New York and Philadelphia Federal Reserve Banks’ districts and data on home builder confidence, leading indicators and state employment.

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

retail sales - sept2014

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Monday Economic Report – September 8, 2014

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

The U.S. economy added 142,000 nonfarm payroll workers in August, a disappointing figure given signs of a rebound in many other indicators lately. The consensus expectation had been for nonfarm payroll growth to exceed 200,000 jobs for the seventh consecutive month, as was observed in the estimates provided by ADP the day before. Manufacturing employment was flat for the month, which was also a disappointment. It ended a 12-month streak of job gains for the sector, a period in which manufacturers added 168,000 net new workers. Hopefully, the August jobs report was just a brief pause in what otherwise had been positive news on the labor front.

The Institute for Supply Management’s (ISM) purchasing managers’ index (PMI) data provides much encouragement that manufacturing activity is moving in the right direction heading into the autumn months. The headline PMI figure rose from 57.1 in July to 59.0 in August, its highest level since March 2011, and it reflected a robust recovery from weaknesses earlier in the year. Indeed, new orders and production expanded at healthy paces. These findings mirror the latest NAM/IndustryWeek Survey of Manufacturers, which is being released this morning, showing respondents mostly upbeat about their own company’s outlook, with sales, capital spending and hiring expectations at two-year highs. Indeed, 87.3 percent of those taking the survey were either somewhat or very positive in their outlook, up from 85.9 percent three months ago. The data are largely consistent with 3.1 percent growth in manufacturing production over the next two quarters.

Manufacturers spent 4.4 percent more on construction projects in July, also providing some reassuring news. The sector has devoted 23.9 percent more to construction projects over the past 12 months, an indication that the increase in demand and output observed over that time frame has resulted in a jump in new investments. Meanwhile, new factory orders data provided mixed news. While orders increased by a whopping 10.5 percent in July, much of that stemmed from highly volatile nondefense aircraft sales. Excluding transportation orders, new factory orders declined 0.8 percent for the month, a finding that we had noted in the earlier release of preliminary durable goods data. Still, factory orders excluding transportation have risen 2.7 percent over the past six months (since weather-related declines in January), which mostly mirrors the more positive data in other releases.

Looking at exports, the U.S. trade deficit narrowed ever-so-slightly in July, with an increase in goods exports marginally offsetting an increase in goods imports. Yet, manufactured goods exports have risen only slightly year-to-date, up just 0.8 percent so far in 2014 using non-seasonally adjusted data. On the other hand, these same figures show that exports to our top five exports markets were higher through the first seven months of this year relative to last year. Regardless, manufacturers hope that the pace of export growth accelerates, with sluggish sales frustrating business leaders and net export growth providing a drag on real GDP over the past two quarters.

This week, we will get new data on consumer confidence, job openings, retail sales and small business optimism. Markets will also continue to digest Friday’s employment numbers, trying to decipher if they were an aberration or a sign of larger weaknesses. In particular, this discussion centers on how the Federal Reserve will interpret such things, with a debate already ongoing as to when the Federal Open Market Committee will begin to increase short-term interest rates. Conventional wisdom holds that short-term interest rates will rise sometime in 2015, but whether that occurs earlier or later in the year is up for debate between those who are more hawkish or dovish on inflation. In the Beige Book, which was released last Wednesday, the Fed mostly observed progress in the economy in recent months, including in manufacturing. Yet, as long as the Fed continues to see “slack” in the labor market, it might be less willing to normalize rates.

Chad Moutray is the chief economist, National Association of Manufacturers. 
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Monday Economic Report – September 2, 2014

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

Manufacturers continue to report improved activity in August. Last week, the Dallas, Kansas City and Richmond Federal Reserve Banks all noted expanding levels of new orders and production for the month, mirroring releases from the New York and Philadelphia Federal Reserve Banks in the prior weeks. These surveys reflect rebounds from earlier in the year, and perhaps more importantly, they suggest a mostly upbeat assessment in demand, output, hiring and capital spending over the next six months. At the same time, the Dallas and Kansas City studies showed some easing in growth rates in August, with the latter indicating that hiring had turned negative for the month. Exports also contracted in the Kansas City district, showing persistent international sales weaknesses in that region. The data illustrate that, even where we have seen progress, there are often some nagging challenges beneath the surface.

This same observation could be made about much of the other data released last week, too. For instance, new durable goods orders soared in July, up a whopping 22.6 percent. This represented an all-time high for the data series, but it was also largely the result of a jump in nondefense aircraft sales. Commercial airplane orders are choppy, with sales usually announced in batches. New durable goods orders have improved from earlier in the year. Outside of transportation, the manufacturing sector was weak in July. New durable goods orders excluding transportation fell 0.8 percent for the month. This suggests that the broader market for manufacturers was soft in July despite the sky-high headline figure.

Along those lines, the Conference Board reported that consumer confidence rose to its highest point since October 2007. This increase stemmed from improvements in views about the current economic environment. Yet, the Conference Board’s figures also suggested some lingering worries about employment and income growth. The University of Michigan and Thomson Reuters’ report on consumer sentiment seems to focus even more on these anxieties. Even with a marginal increase in the August confidence measure, the University of Michigan data have not changed much this year, and respondents have had a diminished view of future growth over the past few months, not unlike what was seen in the Conference Board data. Geopolitical worries might be playing into these doubts. Either way, the confidence reports mirror other indicators, which show that consumers are cautious right now. Personal spending in July declined for the first time since January, consistent with other data showing flat retail sales.

Despite some softness in July, personal spending has increased at an annualized 4.1 percent over the past six months. Indeed, consumer and business spending were strengths during the second quarter, according to the latest revision of real GDP growth. The U.S. economy grew 4.2 percent at the annual rate during the second quarter, slightly better than the 4.0 percent original estimate and reflecting a rebound from the 2.1 percent decline in the first quarter. The biggest disappointment in the second quarter continued to be international trade figures, with net exports serving as a drag on growth. Moving forward, I estimate real GDP growth of roughly 3.0 percent during the second half of 2014. A number of risks abound, and business leaders and consumers remain tentative. If the first half of this year has taught us anything, it is an optimistic recovery can still be a fragile one.

This week, we will get additional insights regarding the health of the manufacturing sector. This morning, the Institute for Supply Management will release its August Purchasing Managers’ Index data for the sector. The ISM report found strong gains in demand, output and employment in July, and the August survey is expected to show another pickup in activity. Moreover, the Bureau of Labor Statistics will publish new jobs numbers on Friday. Manufacturers have added 15,000 workers on average each month since August 2013, with a 22,000 average from May to July of this year. Look for continued hiring growth for the sector in the August numbers that are at least consistent with the average of the past year. Other highlights this week include the latest data on construction spending, factory orders, international trade and productivity.

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

personal spending - sept2014

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Monday Economic Report – August 18, 2014

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

While geopolitical events continue to provide significant downside risks to the economy, recent data suggest that manufacturers in the United States are faring better this summer. Manufacturing production increased 1.0 percent in July, helping to lift the year-over-year pace of manufacturing output to 4.9 percent, its fastest annual pace since June 2012. Last month’s gain stemmed largely from increased motor vehicle production, with all but three of the major manufacturing sectors notching higher output levels for the month. At the same time, the utilization rate for manufacturers increased to 77.8 percent, nearly reaching pre-recessionary capacity levels.

Similarly, the Empire State Manufacturing Survey reflected strong growth in August, albeit less so than the robust levels observed in July. More importantly, respondents to the New York Fed’s survey were significantly more upbeat, with roughly 60 percent anticipating higher sales and output over the next six months. This study also reported that approximately 30 percent of manufacturers in its district planned to hire more workers and invest in additional capital expenditures in the coming months. This is welcome news, and it was largely consistent with the recent pickup in the labor market. Manufacturing job openings increased in June to their highest level in two years, with net hiring also accelerating. Of course, we already knew that to some extent. The most recent employment data found that manufacturers hired an additional 22,000 workers on average from May to July.

Meanwhile, the European economy has shown signs of backtracking, with real GDP in the Eurozone remaining unchanged in the second quarter. Germany’s economy contracted by 0.2 percent, helping to push the continent’s growth figure lower, but Italy (also down 0.2 percent) and France (flat for the second straight quarter) were also weak. In addition, industrial production has decreased in three of the past four months, with output unchanged year-over-year. We will get our first look at August purchasing managers’ index (PMI) data this week. The Markit Eurozone Manufacturing PMI report in July provided mixed news, with activity expanding for 13 straight months but growth continuing to ease over the course of this year. The latest data suggest that Europe’s economic challenges are still not behind them.

To some extent, that is true in the United States as well. We have seen improvements in a number of economic indicators, and yet, there are also persistent worries about future growth. Some of this could stem from global anxieties, but it could also be a function of disappointment with the lack of growth in the first half of the year. Preliminary consumer sentiment data from the University of Michigan and Thomson Reuters appears to pick up on this nuance, with Americans less confident once again in their forward-looking expectations. Indeed, retail sales data also reflect cautiousness on the part of the consumer, with spending unchanged in June.

This week, we will get additional insights about the health of the manufacturing sector worldwide. In addition to new PMI data for Europe, Markit will also release flash reports for China, Japan and the United States. While China’s economy had begun to stabilize in July, last week we learned that Japan’s real GDP contracted by 1.7 percent in the second quarter, or 6.8 percent year-over-year. Closer to home, the Federal Reserve will release the minutes of its July 29–30 Federal Open Market Committee meeting. Analysts will be looking for clues about when the Fed plans to start normalizing short-term rates. The Fed received good news last week with an easing in producer prices in July from recent highs, and this should help to alleviate some of the immediate pressure from inflation hawks, at least for now. Other highlights this week include the latest data on consumer prices, housing starts and permits, leading indicators and Philadelphia Fed manufacturing sentiment.

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

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Monday Economic Report – August 11, 2014

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

In a light week for economic indicator releases, geopolitical events dominated the headlines and moved equity markets. With U.S. airstrikes in Iraq, battles between Israel and Hamas in the Gaza Strip, and mounting tensions with Russia, financial markets have a lot to absorb, with uncertainty sending stock values lower. Even with a triple-digit gain on Friday, the Dow Jones Industrial Average has fallen 3.5 percent since hitting an all-time high of 17,138.20 on July 16. From an economic perspective, geopolitical challenges could put downward pressure on forecasts for the second half of 2014 depending on how they evolve in the coming days and months. Absent these global anxieties, manufacturers have tended to be mostly upbeat about the next six months, and several recent data points have suggested rebounding demand and output as we began the third quarter.

New factory orders have risen in four of the past five months, increasing 1.1 percent in June and 4.6 percent since January. With that said, year-over-year growth has been less robust, up just 1.5 percent. This shows the extent to which winter weather weakened sales earlier this year. Still, June’s new factory orders figure of $503.2 billion reached an all-time high, which was encouraging. This data is largely consistent with positive news of late on real GDP, manufacturing sentiment surveys, and hiring. Indeed, manufacturing labor productivity increased by a relatively healthy 3.6 percent in the second quarter, lifted by robust gains in output. Unit labor costs declined 1.3 percent, with durable goods industries accounting for much of that decrease. Productivity gains since 2009 have helped to keep the sector more competitive globally, particularly for durable goods firms.

In June, the U.S. trade deficit fell to its smallest level since January, as goods imports declined at a faster pace than goods exports increased. Nonetheless, we continue to see relatively slow growth for U.S.-manufactured goods exports, which have increased 1.7 percent year-to-date. Ideally, we will see improvements moving into the second half of the year, as the current pace represents a deceleration from last year’s 2.6 percent rate of growth. Of course, challenges abound on this front, with news of weak growth in Europe, flat export sales growth to our largest trading partner Canada, and decelerating growth rates in China.

This week, we will get new industrial production figures for July. We anticipate manufacturing output growing for the sixth straight month, modestly extending upon the 3.1 percent growth observed since January. The New York Federal Reserve Bank’s Empire State Manufacturing Survey is also expected to show continued expansion for the sector in its district. Other highlights this week include the latest data on consumer sentiment, job openings, producer prices, retail sales, and small business optimism.

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

labor productivity - aug2014

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