Economists with the National Association for Business Economics (NABE) expect for real GDP to grow 1.8 percent in 2012, down from 2.4 percent predicted in May and 1.9 percent in October. Housing, business investment, and export growth were the brighter spots observed in the forecast, with residential investment predicted to grow 12.0 percent next year.

Exports, which are expected to increase 3.3 percent in 2012, should grow 4.1 percent in 2013. Meanwhile, consumer spending should rise 2.0 percent next year, continuing to grow more slowly.

Despite the modest growth expected for 2013, the panelists responding to this survey anticipate slower growth for industrial production. The current forecast is for industrial production to rise 2.6 percent in 2013, down from the current estimate of 3.7 percent growth in 2012. This pullback is most likely a reaction of the weaknesses that we have seen in the manufacturing sector since July, with slow sales growth and uncertainties about the fiscal cliff having a large impact on production and employment. 

The the NAM/IndustryWeek Survey of Manufacturers has both hiring and capital spending turning negative on average over the next six months. While this is more-negative than the forecast from NABE, it does help to explain the slower pace. (continue reading…)

Business economists have lowered their growth estimates for 2012 and 2013, and remain cautiously optimistic about growth prospects for next year. According to the latest Outlook Survey from the National Association for Business Economics (NABE), real GDP is expected to increase 1.9 percent in 2012 and 2.4 percent in 2013. This is down from 2.4 percent and 2.8 percent in the May survey.

The largest driver of growth is expected to be residential and non-residential investment, with modest gains in consumer spending and a slight narrowing of the trade deficit. Government spending will continue to be a drag on growth. Hiring should also be modest (averaging 155,300 each month next year), with the unemployment rate not much different than what it is today.

It is worth noting that this forecast assumes that the U.S. will not go over the fiscal cliff. (continue reading…)

The NAM was one of the cosponsors of the inaugural Industry Conference of the National Association for Business Economics (NABE) titled “Making It in America: Manufacturing Matters.”

This event was held at the Federal Reserve Bank of Cleveland on May 31, with many participants touring an ArcelorMittal and NAM member Lincoln Electric plant the day before for perspective. The conference largely highlighted the outlook for manufacturing, including a discussion of its importance to growth in the current economic recovery.

Cleveland Fed President Sandra Pianalto began the day by providing her assessment for economic growth in her region and the U.S. She expects modest growth (around 2.5 percent in 2012) in real GDP, with continued cyclical headwinds.

In particular, she suggested that there continues to be slack in both labor and capital markets. She noted, as examples, that there are 3 applicants for every 1 job currently, and industrial capacity is now 6 percent lower than it was before the recession.

Her views are relevant because she is a current Federal Open Market Committee (FOMC) voting member. She has voted for accommodative monetary policies this year (e.g., keeping “exceptionally low interest rates through late 2014”). (continue reading…)

Economists with the National Association for Business Outlook expect for real GDP to grow 2.4 percent on average in 2012, with 2.8 percent growth expected next year. This is unchanged from the February survey and reflects an economy that is expanding modestly.

With that said, there were improvements in the forecasts for consumption, housing and vehicle sales. Manufacturing is also expected to fare better, with the median growth in industrial production up 4.1 percent in 2012. This is higher than the 3.5 percent increase anticipated in the previous survey.

In terms of employment, the panelists anticipate 188,000 additional nonfarm payroll jobs on average each month this year. This is slightly above the 170,000 gain predicted in the February survey, with business economists expecting the unemployment rate to fall to 8 percent in the fourth quarter of this year.

There were some areas that we were weaker. Business investment – particularly nonresidential structures and purchases of equipment and software – are expected to grow somewhat slower than what was previously predicted. In addition, the respondents anticipate a wider trade deficit and a slower growth rate for corporate profits.

For the most part, the NABE outlook mirrors those of other economists, including the Federal Reserve. I continue to expect real GDP to grow by 2.5 percent this year, with industrial production up 4 percent.

In other news, the Chicago Federal Reserve’s National Activity Index rose from a revised -0.44 in March to +0.11 in April. Higher industrial production was largely responsible for the positive swing, with activity up 1.1 percent in April, as reported last week. Other contributors to the gain include income and sales, orders, and inventories.

The three-month average for the National Activity Index now stands at -0.06. Numbers around zero suggest that the U.S. economy is growing at its historical trend, so this figure indicates that it is near that goal. More importantly, it indicates that the risk of recession is minimal.   

Chad Moutray is chief economist, National Association of Manufacturers.

 Two narratives dominated last week’s economic discussion. First, as the Beige Book from the Federal Reserve Board stated, the economy “continued to increase at a modest to moderate pace in January and early February.” In his congressional testimony, Chairman Ben Bernanke was also quick to cite the important role that manufacturing has played in the recent rebound, with higher levels of activity reported in most areas of the country. Indeed, regional surveys from the Dallas and Richmond Federal Reserve Banks observed greater production activity and increased optimism for the next six months.

This upbeat assessment is shared by business economists at the National Association for Business Economics, who see a stronger outlook. Their consensus estimates for real GDP growth for this year and next are 2.4 percent and 2.8 percent, respectively. Adding to this sentiment, the Bureau of Economic Analysis (BEA) revised its estimates for fourth quarter 2011 growth up from 2.8 percent to 3 percent, led by increased consumer spending and business inventory accumulation. BEA also reported modest growth in personal income and spending for January, with strong gains in durable goods purchasing. Consumers, too, are more confident, according to the Conference Board, with their sentiments about the current and future economy at their highest level since this time last year.

In contrast to the more positive tone of many of these studies, the second narrative of last week focused on a series of indicators that unexpectedly declined. Most of us were anticipating growth for the Institute for Supply Management’s purchasing managers index, but it declined from 54.1 in January to 52.4 in February. This was led by a slower pace of growth for new orders, with production and employment also easing. Likewise, the Census Bureau reported reduced durable goods orders and construction spending in January.

In each of these cases, the longer-term trend remains a positive one and is in line with the first narrative. November and December figures were sharply higher, and so it might be expected to have some easing afterwards. Growth should resume in the coming months, especially as industrial production should grow around 4 percent this year. Even with that said, it is also clear that manufacturers are closely watching the events of Europe, once-again resurgent energy and raw material prices, and policy actions stemming from Washington. They remain cautious that one of these headwinds might derail growth, even with higher optimism overall.

This week, everyone will be focused on Friday’s jobs numbers. With 82,000 net new jobs created in the past two months, I anticipate continued improvements in employment for the sector, but perhaps not as large as were seen in November and December. Other key indicators of note include the release of revised productivity data on Wednesday and international trade findings on Friday.

Chad Moutray is chief economist, National Association of Manufacturers.

The government reported that the U.S. economy grew by 2.8 percent in the fourth quarter of 2011, with manufacturers playing an integral role. Consumers and businesses replenishing their inventories were the largest contributors of real GDP for the quarter. In many ways, this number was not a surprise: other indicators also suggested an uptick in manufacturing activity in the months of November and December. Manufacturers are cautiously optimistic about future production, and the rebound is welcome news.

Yet, the GDP numbers also bring to mind challenges that might dampen growth in the coming months. It is unlikely, for instance, that we will see the same lift from inventories in the first quarter, and consumers have dipped into their savings to increase their purchases. At some point, this level of spending might ease so that consumers might pay off some of these debts. In addition, it is clear that the government sector will be a drag on growth for the foreseeable future – of which we were reminded when the Department of Defense announced budget cuts last week. Most pressing, though, is the constant reminder of Europe’s ills and the challenges that slowing global growth might have on our exports. Fitch Ratings downgraded several European nations’ credit ratings on Friday, following the lead of Standard & Poor’s from a few weeks ago.

These worries aside, most of the recent domestic economic indicators have been positive. Durable goods orders, for example, rose 3 percent in December, with strength in nondefense capital goods. This mirrors much-improved production, employment and investment data from the Kansas City and Richmond Federal Reserve Banks (and for that matter, in most of the recent regional) surveys. The National Association of Business Economics (NABE), in its latest Industry Survey, observes these improvements, with more economists upgrading their assessments for growth this year. Sixty-five percent of respondents to the NABE survey expect for real GDP to grow at least by 2 percent in 2012. Similarly, the Chicago Federal Reserve Bank’s National Activity Index indicates that the risk of a recession seems to be lessening.

These growth estimates are in line with those from the Federal Reserve Board, which estimates real GDP growing between 2.2 and 2.7 percent this year. The Fed also expects the unemployment rate to remain elevated, improving slowly to a range of 8.2 to 8.5 percent in 2012 and to 6.7 to 7.6 percent by 2014. The Federal Open Market Committee, even as it cites improvements in the domestic economy, remains worried about high unemployment, a still-weak housing market and uncertainties related to European sovereign debt. It stated last week that it now plans to keep interest rates at “exceptionally low” levels through late 2014 – an extension from its earlier intentions of doing so through mid-2013. With these moves, the Fed hopes that lower long-term rates spur more borrowing, both by homeowners and businesses.

This week, we will receive more data about production and employment, which will hopefully show continued growth in manufacturing in January. The Institute for Supply Management’s well-cited index of manufacturing activity will come out on Wednesday, and it is expected to be somewhat higher. On Thursday, new productivity data will be released, with manufacturing output per worker expected to continue to show strong growth. Finally, the Bureau of Labor Statistics will unveil new employment data on Friday, which should show increased hiring among manufacturers in conjunction with recently increased production.

Chad Moutray is chief economist, National Association of Manufacturers.

In releasing the latest Industry Survey, the National Association for Business Economics (NABE) noted recent improvements in U.S. growth. In fact, Nayantara Hensel, the chair of the survey committee and a professor at National Defense University, said, “The survey results suggest increased optimism concerning real GDP growth, as well as fewer inflationary or deflationary pressures” (Note: I am a member of this committee and contributed to the report write-up).

Sixty-five percent of business economists responding to this survey felt that real GDP growth would exceed 2 percent in 2012. This reflects a significant upward revision from the prior survey, which was released in October, in which 70 percent predicted growth of between 1 and 2 percent this year.

With that said, several of the indicators were mixed from the past survey. For instance, fewer individuals noted rising sales this time overall. In the goods-producing sector (which includes manufacturing), 40 percent of respondents observed rising sales, and 30 percent stated falling sales. The number of firms reporting profits as unchanged or rising (80 percent) remained mostly the same from the past survey.  On the international front, sales have fallen in recent months, reflecting some weaknesses in foreign operations.

The bulk of goods-producing respondents (67 percent) plan no change in capital spending, but none of them suggest lower spending levels. 

While 30 percent of goods-producing firms observed higher material costs, that figure was lower than the 54 percent who said the same three months ago. This reflects some of the easing that we have observed elsewhere with regard to pricing pressures.

There was less positive news on employment. No respondents in the goods-producing sector reported falling employment in October; in this survey, that figure is 20 percent. The outlook numbers are also poor. Interestingly, this conflicts with many of the other sentiment surveys on manufacturing, which are more upbeat in both of these areas.

Overall, this survey reflects the dynamic nature of the current economy. On the one hand, the larger macroeconomic picture is much-improved, helping to lift optimism among the many business economists who filled out the survey. And yet, many of the company-specific indicators remain weak, including slower growth in the goods-producing industries for sales, employment and capital spending. Reduced inflationary pressures is obviously welcome news, though.

Chad Moutray is chief economist, National Association of Manufacturers.

Small businesses became more pessimistic in August, according to the National Federation of Independent Business (NFIB). Their Small Business Optimism Index fell from 94.1 in January and 89.9 in July to 88.1 in August. This nearly matches where the index was one year ago.

Economic concerns were behind this decline, with 53 percent saying that the economy was not good and 13 percent noting economic uncertainty. The single most important problem continues to be poor sales, as cited by 25 percent of respondents. On the other hand, if one were to add together regulatory and tax concerns, this would top sales at 37 percent.

Small business owners on average expect sales to fall in the coming months. Twelve percent more of these owners see their sales falling than those who expect increases in the next three months. Likewise, more small businesses shrank employment than expanded it over the last three months. Looking ahead, a net 5 percent expect to hire, an improvement from July (which was a net +2 percent) but still not suggesting fast growth.

Meanwhile, the National Association of Business Economics (NABE) reported in its quarterly Outlook Survey that real GDP is expected to grow 1.7 percent this year, down from the earlier estimate of 2.8 percent made in May. Similarly, business economists foresee 2.3 percent growth in 2012 instead of 3.2 percent.

The reasons for the downgrade are multifaceted. First, the Bureau of Economic Analysis has reported much slower growth in the first half of this year than many economists expected (0.4 percent in the first quarter and 1 percent in the second). Second, businesses have faced a number of significant headwinds this year, from supply chain disruptions to rising raw material prices to falling business and consumer confidence. Growth in spending has been flat as a result. (continue reading…)

Two economic surveys – one released yesterday and the other today – show that economists are worried about economic growth, but they also are deeply concerned about rising budget deficits.

I should mention at the onset that I am involved with both of these surveys. I am a board member and the chair of the policy survey committee for the National Association for Business Economics (NABE), and I am one of the 43 economists surveyed by the Associated Press (AP).

The AP Survey of Leading Economists noted that there will be weak economic growth over the next twelve months, but it is unlikely that we will have a recession. With that said, economists feel that a recession is more likely today than when surveyed in June, with the average likelihood increasing to 26 percent from 15 percent earlier.

Consumer spending and continued weakness in the housing sector will dampen economic growth. GDP is expected to grow around 2 percent for second half of 2011, and the unemployment rate should be 9 percent at year’s end. The unemployment rate is expected to fall to 8.5 percent by the end of 2012. In addition, the respondents noted “more gridlock ahead as a congressional committee seeks ways to cut at least $1.2 trillion in debt.” (continue reading…)