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

The manufacturing economy has hit some speed bumps, according to recent data. Industrial production declined 0.5 percent in April—more than expected—with capacity utilization levels back to where we were at the beginning of the year. The slower pace of domestic and global sales has negatively impacted activity, with production down mostly across-the-board. Only four of the 19 major manufacturing sectors experienced an increase in output for the month. Moreover, annual growth in manufacturing production of just 1.3 percent is insufficient, and such low rates of industrial growth are not enough to help boost hiring and output. Ideally, we would like to see annual output growth of 4.5 percent or greater, as outlined in the NAM’s “20/20 Vision” earlier this year.

The national pullback in manufacturing activity extends to two of the regional manufacturing surveys released last week. Sentiment surveys from the New York and Philadelphia Federal Reserve Banks found contracting levels of new orders, shipments and the average workweek. In addition, manufacturers were more negative in their overall views of the current business environment. However, employment was mixed between the two reports, with a pickup in hiring reported in the Empire State survey, and manufacturers in both Fed districts were cautiously optimistic about future growth. As a result, capital investments are expected to increase in the coming months.

The Conference Board’s Leading Economic Index—a forward-looking measure of the U.S. economy—rose a healthy 0.6 percent in April, with strong growth in housing permits. New residential permits exceeded the 1 million mark for the first time since June 2008, even as housing starts fell for the month. The long-term trend for the housing market remains positive, with permits data highlighting growth in future activity. Other good news can be seen in the latest University of Michigan consumer sentiment survey, with Americans reporting optimism levels not seen since mid-2007. Retail sales were also higher, even with declines in gasoline station spending due to lower petroleum costs. (continue reading…)

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

In a slow economic news week, the stock market’s ascent became one of the top headlines. The Dow Jones Industrial Average (DJIA) passed 15,000 for the first time, a feat that was even more impressive after the depths of the decline during the financial crisis. The DJIA had previously peaked at 14,164.53 on October 11, 2007, before plummeting to a low of 6,547.05 on March 9, 2009. It has slowly moved higher since then, closing last week at 15,118.49. As impressive as the DJIA records might be, there is also a debate about whether the stock market’s all-time highs are warranted given some of the current economy’s weaknesses. Historically low interest rates have helped to push equity values higher, with Americans looking for more attractive yields for their dollars. Regardless of the debate, rising equity values should help to generate more wealth and consumer optimism, and manufacturers hope this means greater spending.

Retail sales data for April will be released this morning, and the consensus estimate is for spending to be flat. This would be consistent with slower growth in personal spending and the reduction in wholesale sales in March. Moreover, while consumer credit rose 3.4 percent in March, much of the higher figure stemmed from increased student loan borrowing. Auto loans were also higher, but revolving credit lines—which include credit cards—declined for the month and were essentially flat over the past year. This suggests some reluctance to take on more debt to support increased consumer spending, which, to the extent that it means smarter personal finance habits, is perhaps a good thing. (continue reading…)

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

Looking at last week’s reports, there appears to be a split between the economic progress of the larger economy and what we continue to observe in the manufacturing sector. That is not to suggest that the U.S. economy is growing robustly—because it isn’t. Nonetheless, some of the data show signs of upward movement. The Bureau of Labor Statistics reported that 165,000 new nonfarm payroll workers were added in April, with healthy upward revisions for February and March. As a result, the economy created almost 200,000 workers in the first four months of 2013, and the unemployment rate fell to 7.5 percent, its lowest level in more than four years. At the same time, the participation rate remains low, and the “real” unemployment rate is still elevated at 13.9 percent, suggesting challenges continue on the labor front even with the recent progress.

One of those challenges can be seen in the manufacturing sector, with its employment levels unchanged in April and lower on a year-over-year basis. Several indicators show softness in activity nationally for manufacturers, with sales, production and employment growing at a slower pace. The Institute for Supply Management’s (ISM) Purchasing Managers’ Index (PMI) dropped from 51.3 in March to 50.7 in April largely on flat job growth, and factory orders declined 3.1 percent in the first quarter of 2013. Manufacturing construction spending was also lower. Regionally, several surveys tend to indicate an easing in activity, with modest growth at best, in manufacturing. The one exception of note was the Chicago Federal Reserve Bank’s Midwest Manufacturing Index, which noted an increase in production mainly due to higher output in the motor vehicle sector. (continue reading…)

Last week was a disappointing one on the economic data front. Real GDP—the inflation-adjusted value of the nation’s output of goods and services—climbed 2.5 percent in the first quarter of 2013 at a seasonally adjusted annual rate, according to the Bureau of Economic Analysis’s advance estimate. While that represented an acceleration in economic growth from an even weaker 0.4 percent pace in the final quarter of last year, it was far below many analysts’ estimates.

The increase was driven by a 3.2 percent jump in consumer spending, the largest gain for that category in nine quarters, which came despite a tax increase that took effect at the beginning of the year. A sharp decline in the savings rate in the first quarter, however, indicated that the burst of spending growth was funded in part through a lower accumulation of savings, a situation that is unlikely to continue as the year goes on and individuals adjust their spending habits in response to reduced after-tax income. Indeed, monthly retail sales data suggest this adjustment may have begun as early as March.

Meanwhile, nonresidential fixed investment, though positive, grew at a lower rate than seen in the closing months of 2012 as businesses remained wary of making sizable forward-looking expenditures given a fragile global economic environment and a domestic backdrop of fiscal contraction and continued policy uncertainty. While exports rebounded in the first quarter from a decline in the previous period, they increased at a low pace relative to their post-recession pattern. Moreover, federal government spending was off sharply as the sequester became effective in March.

Other data releases last week did little to assuage growing concerns that the economy may be in the midst of yet another “spring swoon.” The Chicago Fed’s National Activity Index, a composite of 85 monthly economic indicators, slipped into negative territory in March. Meanwhile, the Kansas City and Richmond Fed manufacturing surveys, the Markit Purchasing Managers’ Index (PMI) and the durable goods orders reports all suggested an erosion of manufacturing sector momentum. Even the resurgent housing market was not immune from the March gloom, with existing home sales off modestly (though new home sales, as well as a variety of other measures, gave a more encouraging snapshot of housing’s recovery).

This week’s reports will shed further light on the direction of the economy at the end of the first quarter and beginning of the second. Of particular note:

• Wednesday’s release of the ISM Manufacturing PMI, a closely watched bellwether, will provide an early read on the strength of the manufacturing sector on a national level in April.
• Friday’s release of the employment report by the Bureau of Labor Statistics will provide insight into whether March’s disappointing gain of only 88,000 jobs was merely a one-month anomaly or the start of another deceleration in the pace of labor market recovery.

Other highlights include the Dallas Fed’s April survey of manufacturing conditions in Texas, the Conference Board’s Consumer Confidence Index for April and March data on factory orders and construction spending from the Census Bureau.

Timothy Gill is director of Economic, National Electrical Manufacturers Association.

Common themes emerged from several surveys and economic data releases last week: (1) Overall economic activity expanded at a moderate pace in March and early April; (2) the manufacturing sector grew modestly, with the exception of the motor vehicle and parts industry, which experienced robust gains; and (3) residential and commercial real estate activity continued to improve.

The New York Fed’s Empire State Manufacturing Survey indicated conditions for manufacturers in the district improved only slightly in April. The headline general business conditions index fell six points to 3.1 (an index above zero indicates expansion as compared to the prior month). Both new orders and shipments sub-indices weakened, offset slightly by a better employment index. The headline for the Philadelphia Fed Manufacturing Survey slipped from 2.0 to 1.3, with new orders down but the shipments index improved. Expectations over the next six months retreated as well.

The Federal Reserve’s Beige Book conveyed similar messages: overall economic activity expanded at a moderate pace entering the second quarter. Residential construction and automotive sales and production remained strong, but several districts reported uncertainty or weakness in defense-related sectors. Oil and natural gas activity has been robust, while coal production continued to decline. Employment conditions remained largely unchanged, and wage pressures were generally modest.

Industrial production in March rose 0.4 percent from the prior month, or 3.5 percent over March of 2012, largely reflecting a 5.3 percent increase in utility output due to unseasonably cold weather. Manufacturing production was down 0.1 percent from the prior month, with durable goods production declining 0.2 percent and nondurable goods essentially unchanged. The auto sector continues to lead the manufacturing sector, rising nearly 3 percent from February, or up 10 percent from a year ago. (continue reading…)

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

While we have seen some modest improvements in manufacturing activity so far in 2013, these gains have not yet translated into significant increases in hiring. Employment numbers for March were disappointing overall, with only 88,000 nonfarm payroll workers added on net. This was well below the expected increase of 200,000 employees and suggests that the U.S. economy still shows signs of uncertainty. Higher payroll taxes and across-the-board federal spending cuts have eaten away at retail sales and slowed employment growth in some key sectors.

Manufacturers lost 3,000 workers on net in March. As we have seen for much of the past year, hiring in the sector continues to be soft. Over the past 12 months, manufacturing has contributed just 4 percent of the net new jobs in the economy. This is a reversal of the outsized role from the two years before that and something that can be reversed with pro-growth policies like those laid out in the NAM’s Growth Agenda and changed perceptions about the economic and political landscape. In the short term, however, the Society for Human Resource Management’s (SHRM) survey of hiring intentions in April suggests that the net percentage of new hiring among manufacturers decelerated over the course of the past month and since this time last year. This contrasts with service sector employment growth, which has picked up of late.

The Purchasing Managers’ Index (PMI) from the Institute for Supply Management (ISM) was also discouraging last week. Manufacturers responding to the survey suggested a slower pace of growth for new orders in March, dampening enthusiasm with a lower-than-expected PMI reading. The ISM PMI fell from 54.2 in February to 51.3 in March. In contrast, two other releases out last week were more encouraging. Factory orders rose a healthy 3.0 percent in February largely on strong demand for aircraft, and construction spending among manufacturers was higher, continuing a steady upward trend and reversing the slight pullback in the second half of last year. However, ideally, both of these gains could be more broad-based, as these gains are highly mixed across the sectors.

One piece of good news in the ISM report was new export orders were rising. With so many manufacturers exploring growth through trade, the higher export numbers were encouraging. The Bureau of Economic Analysis and the Census Bureau reported that the U.S. trade deficit narrowed in February, with goods exports up to their second-highest level ever. The bulk of that increase stemmed from a narrowing of the petroleum trade balance, with petroleum imports down and exports higher for the month. Outside of petroleum, manufactured goods exports have grown very slowly in the first two months of 2013, up just 2.5 percent. To make the President’s goal of doubling exports by 2015, this pace will need to pick up significantly. In January and February, total exports to Europe and Japan were down, but exports to our three largest trading partners (Canada, Mexico and China) were higher.

This week is a quieter one on the economic front. The retail sales and consumer confidence figures due out on Friday will be closely watched for clues regarding how the payroll tax increase and sequestration might have impacted spending and overall sentiment. Likewise, the National Federation of Independent Business (NFIB) and the Manufacturers Alliance for Productivity and Innovation (MAPI) will discuss how small businesses and manufacturers are faring in their latest surveys. Data on business and consumer sentiment were largely mixed in March. Aside from those indicators, the other highlights include new data on job openings and producer prices.

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

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

According to the latest economic data, U.S. manufacturers are seeing slow-to-decent progress in their businesses. While there continue to be challenges, many of the regional Federal Reserve Bank surveys reported continued expansion, even if the pace of growth might have slowed. The Dallas Fed survey has grown for four straight months on higher sales and production data, and businesses in the region were overwhelmingly positive about future activity over the coming months. At the other end of the spectrum, the Kansas City Fed’s composite index has contracted for six consecutive months. Both new orders and shipments were unchanged in February after falling sharply in January, and respondents tended to echo some of the frustrations of businesses in the area. Frequent concerns ranged from uncertainties about the economy to concerns about healthcare costs. Even in the Kansas City report, though, manufacturers expressed cautious optimism about the next six months – a constant sentiment across all the surveys.

This morning, we will get the latest read on the manufacturing sector from the Institute for Supply Management (ISM). The ISM purchasing managers’ index is expected to show a very modest gain in activity in March, following the survey’s uptick from 53.1 in January to 54.2 in February. Sales should drive the index higher, but other data show that these gains have been somewhat spotty lately. The Census Bureau’s advance estimates for new durable goods orders rose a very strong 3.6 percent in February, but this followed a 3.8 percent loss in January. Much of the volatility in that indicator has been due to the ups and downs in aircraft orders. Removing the transportation sector from of the analysis would have yielded a decline in new orders.

Motor vehicle demand appears in several of the indicators released last week. The durable goods report indicates that auto sales increased by a very robust 3.8 percent in February, and a rebounding motor vehicle sector helped to lift the Chicago Fed’s Midwest Manufacturing Index. Year-over-year production in the auto industry in the Chicago Fed District was up 15.2 percent, a strong figure that helps explain why the Midwest has fared so well since the end of the recession. These indicators were also consistent with analysis from a couple weeks ago that showed retail sales gains largely due to increased auto purchases and higher gasoline prices.

On the consumer front, personal incomes were up 1.1 percent in February. Spending increased 0.7 percent. The nondurable goods sector benefited the most from the increased spending. The sector was up 1.9 for the month. Manufacturing employees, meanwhile, benefitted from the pickup in activity through higher total wages and salaries. At the same time, the two consumer sentiment surveys out last week moved in opposite directions. The Conference Board’s report dropped significantly over jobs and income concerns. Respondents also cited across-the-board federal spending cuts as a factor. The University of Michigan’s consumer confidence figure reversed an earlier estimate and found the public more positive than the month before, with its index rising for four straight months. The update from the initial report suggests that some of the concerns about the economy in many of the earlier responses might have dissipated as the month progressed.

Aside from the ISM report, other economic highlights due out this week include the latest figures on employment and international trade. Nonfarm payrolls are expected to increase by around 200,000 in March, indicating reasonable job growth last month just shy of the 236,000 net new workers added in February. Manufacturing hiring growth should also closely mirror the previous month’s report. On the trade front, we will be looking to see whether recent improvements in many of our largest markets – with the notable exception of Europe – will lead to increases in exports of manufactured goods.

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

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

Suddenly, in the midst of decent and cautiously optimistic U.S. growth, world economic markets have begun to focus on the banking crisis in Cyprus. With GDP of around $25 billion, Cyprus has seen its problems once again bring Europe’s sovereign debt challenges to the forefront of economic discussion. Cypriot lawmakers have struggled to find a way to bail out their banking system, particularly after attempts to tax depositors failed. The deal announced over the weekend was negotiated so that Cyprus could remain in the European Union. It was that prospect that has sent equity markets lower last week, particularly in Europe, on fears of how the crisis in Cyprus might spread to other countries.

Of course, Cyprus is not Europe’s only problem. The Eurozone is mired in a prolonged recession. As we have discussed in the monthly Global Manufacturing Economic Update, real GDP and employment continue to decline in the continent, with weaknesses even in Germany, its largest country. The Markit Flash Eurozone Purchasing Managers’ Index (PMI) dropped from 47.8 in February to 46.5 in March. This measure has contracted every month since July 2011. This latest report states that sales, output and hiring were all lower, and the prospects for improvements in April do not look good.

The data stand in contrast to what we are seeing elsewhere. Markit Flash PMI data for China and the United States reflect continuing, albeit modest, growth in manufacturing activity in both countries. In its Federal Open Market Committee (FOMC) statement last week, the Federal Reserve Board noted recent progress in many economic indicators, which had “paused” at the end of last year due to the fiscal cliff and weather-related concerns. Even with these improvements, the Federal Reserve continues to worry about slow economic growth and elevated unemployment rates. As such, it will continue to make purchases of $85 billion in long-term and mortgage-backed securities for the foreseeable future. In the short term, the Federal Reserve will be closely watching the impact of across-the-board budget cuts and the debt ceiling debate, both of which could put a dent in real GDP growth in the second quarter of 2013. (continue reading…)

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

Some of the indicators released last week helped confirm the belief that the U.S. economy has started 2013 on a stronger-than-expected note. First, industrial production rose 0.8 percent in February, led by strong demand for automobiles and other goods. This was a decent turnaround from much weaker numbers in January, with all but three major manufacturing sectors experiencing higher production. Second, retail sales rose a surprisingly healthy 1.1 percent in February. While much of that growth stemmed from higher gasoline prices and higher motor vehicle sales, the data suggested modest growth overall, with Americans continuing to make modest gains in purchases despite headwinds from higher taxes and fiscal uncertainties.

At the same time, those headwinds appear to be having some negative impacts. Industrial production was increasing at a 5.1 percent year-over-year pace at this point last year; today, that rate is 2 percent. That example can be replicated in so many of the recent indicators. For instance, the NAM/IndustryWeek Survey of Manufacturers reported an uptick in optimism in the latest survey, with sales expected to grow 2.3 percent over the next year. That represents an improvement from three months ago (when the rate was 1.0 percent), and the percentage of respondents who were positive about their own company’s outlook rose from about 52 percent in December to roughly 70 percent today. But this is a come-down from the stronger pace of nearly 5 percent growth in annual sales expected in March of last year (when approximately 89 percent were positive in their outlook). Clearly, more work still needs to be done to get the economy moving. (continue reading…)

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

The U.S. economy appears to be stabilizing, with several reports showing stronger-than-expected increases in activity, including the latest jobs numbers release on March 8. Nonfarm payrolls rose by 236,000 in February, well above the consensus estimate of around 155,000, and the unemployment rate dropped to 7.7 percent. Manufacturers hired an additional 14,000 workers for the month, which was in-line with the average monthly gain over the course of the past year. However, losses in several sectors offset some of the gains in manufacturing employment. Ideally, we could see stronger job growth, even as these numbers represent a good start. We need to see broad-based manufacturing hiring growth, with the sector creating an average of 20,000 jobs each month. This is consistent with the “20/20 vision” outlined by National Association of Manufacturers (NAM) President and CEO Jay Timmons in his Detroit Economic Club keynote speech last month.

The Federal Reserve Board’s Beige Book noted the “modest to moderate” pace of growth in the economy since its last report, citing strengths in housing and consumer spending in particular. Growth in manufacturing activity was more mixed, as we have seen in recent sentiment surveys from various regional Federal Reserve Banks. In addition to weaknesses in sales and production, respondents mentioned federal budget cutbacks, the regulatory environment and “the unknown effects of the Affordable Care Act” as roadblocks to their competitiveness. This suggests a degree of skittishness in hiring, which might be reducing the overall job growth numbers mentioned above. Nonetheless, the larger Beige Book findings suggest an economic environment that is improving, with wage and pricing pressures under control, at least for now. (continue reading…)