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Business Economists Observe a Pickup in Activity in the Third Quarter

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The National Association for Business Economics (NABE) said that sales and earnings improved in the third quarter. The latest NABE Industry Survey was slightly more upbeat than the slowdown that was observed in the second quarter report. The net percentage of respondents saying that their sales were rising rose from 20 percent in the second quarter to 30 percent in the third quarter. In the goods-producing sector (which includes manufacturing), 53 percent of those taking the survey noted increasing sales in the third quarter, up from 43 percent who said the same thing in the second quarter. Still, a sizable proportion, 41 percent of goods producers, had no change in their sales.

With the pace of new orders accelerating, the earnings picture was also better. The net rising index improved from -3 to 14, with one-third of respondents saying that their sales were increasing in the third quarter. At the same time, 19 percent reported declining sales, down from 25 percent the quarter before. This progress carried through to the goods-producing sector, but the data continue to reflect larger weaknesses, particularly relative to earlier in the year or to the beginning of 2012. There were 24 percent of goods producers with declining profits in the third quarter, down from 29 percent in the second quarter but up from zero in the first quarter. Meanwhile, just over half said that their profits were unchanged.

On the employment front, the pace of hiring slowed in the third quarter. There were 29 percent of industry economists in the second quarter noting increased hiring, and that rate fell to 27 percent in the second quarter. The bulk of businesses were making no changes to their employment levels, with 62 percent saying that hiring was unchanged. Similarly, almost half of goods producing firms were keeping their employment flat, with 35 percent adding to their workforce and 18 percent noting declines.

The survey also suggested that “a sizable minority” feel that the Affordable Care Act could have a negative impact on employment over the course of the next year. Eighteen percent of respondents said that it has had a negative impact on hiring over the last 3 months, with 22 percent predicting that it will have a negative impact over the next 12 months. Just over three-quarters said that it would have no impact.

In terms of forecasts, business economists tend to be cautiously optimistic about the next 12 months. Of those completing the Industry Survey, 69 percent think that real GDP will grow 2.1 percent to 3.0 percent between the third quarter of 2013 and the third quarter of 2014. That is not much different from the 70 percent who said the same thing three months ago. At the other extremes, 19 percent felt that output would increase by 1.1 percent to 2.0 percent, with 7 percent expecting growth of 3.1 percent to 4.0 percent. As such, the forecasts were just marginally higher than three months ago, particularly on the upside, but with a mostly modest outlook overall.

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

Business Economists Note Slowing in the Second Quarter, Cautious Optimism Ahead

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The National Association for Business Economics (NABE) released its latest Industry Survey, which found that sales and earnings decelerated somewhat in the second quarter. A net percentage of 20 percent said that their sales were rising in the second quarter, down from 47 percent in the first quarter. This brings it back to levels seen in the third and fourth quarters of 2012. In the goods-producing sector (which includes manufacturing), 43 percent of respondents said that their sales were increasing in the second quarter, down from 73 percent who said the same thing in the first quarter.

These data mirror other indicators which have found softness in the second quarter. Timothy Gill, the Chair of the NABE Industry Survey Committee and the Vice President of Business Information & Statistics for the Aluminum Association, an NAM member, said that these results “possibly [reflected] increased headwinds from a weak global economic environment and tighter domestic fiscal policy in the latest period.”

The slowing pace of sales growth has impacted profit margins. In the goods-producing industries, 29 percent of respondents said that their profits had declined over the past three months, with half of them reporting no change. That represents deterioration in profits from the first quarter, where no one in the goods-producing sectors had declining sales (relative to the fourth quarter of 2012). In the larger economy, the results were similar, with the net percentage of those reporting higher profits down from 16 percent in the first quarter to -3 percent in the second.

The news on employment was more positive. Overall, there was a pickup in hiring observed in this latest survey. While 60 percent of respondents said that they had not changed their employment levels, 29 percent noted an increase in hiring in the second quarter. That is up from 22 percent reporting increased hiring in the first quarter. This carried through to the goods-producing sectors, as well, with 29 percent of those taking the survey suggesting that they had hired new workers in the second quarter, up from 18 percent three months ago. Here, it is important to note that goods-producing industries include construction and mining, both of which have seen employment gains of late, in contrast to manufacturing.

In terms of forecasts, business economists surveyed tend to be cautiously optimistic about the next 12 months. Seventy percent think that real GDP will grow 2.1 percent to 3.0 percent between the second quarter of 2012 and the second quarter of 2013. That is up from 60 percent who said the same in the last survey and 47 percent six months ago. As such, expectations about the future economic environment have been upgraded overall.

With that said, several other economic forecasts for 2014, including the one from the Federal Reserve, predict real GDP growth rates of 3.0 percent or more, and as such, these numbers appear to be slightly more subdued. Nearly one-fifth of the respondents felt that growth would be from 1.1 percent to 2.0 percent, for instance; although, that was down from 26 percent who said the same thing three months ago.

Chad Moutray is the chief economist, National Association of Manufacturers. He is a former board member of NABE.

Business Economists Predict Modest Growth in Real GDP

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Business economists expect real GDP growth of 2.4 percent in 2013, with slightly faster growth of 3.0 percent in 2014. The May Outlook Survey from the National Association of Business Economics (NABE) found that output estimates for this year and next have not changed from what was predicted three months ago in the February survey.

Beyond the headline figure, there were improvements in some of the key components of GDP. Specifically, respondents expect improved consumer spending (2.3 percent in 2013), residential investment (15.0 percent), nonresidential structure investment (4.6 percent), and business inventories. Regarding the housing sector growth rate, new residential starts are expected to average 1 million in 2013, rising to 1.18 million in 2014. In contrast to these positive contributors to real GDP, shrinking government budgets are expected to fall by 2.3 percent in 2013 and 0.9 percent in 2014, suggesting that they will continue to be a drag on growth.

Industrial productoin should increase 3.1 percent in 2013 and 3.5 percent in 2014. This would suggest a pickup from the most recent year-over-year growth rate of  1.3 percent.

Businesses are expected to add 168,000 nonfarm payroll workers per month in 2013, increasing to 198,000 per month in 2014. This modest growth in hiring, though, is not anticipated to bring the unemployment rate down much from its current 7.5 percent rate, with business economists forecasting the unemployment rate to average 7.1 percent in 2014.

On financial matters, business economists say that pricing pressures shuld be modest, up 1.8 percent in 2013 and 2.0 percent in 2014. Each of these numbers are slightly lower than what was forecast in February, most likely due to lower energy costs in the most recent data. More importantly, they are also consistent with the Federal Reserve’s stated goal of keeping inflation at or below 2 percent. Oil prices are predicted to average $93 per barrel in 2013 and $95 per barrel next year.

Chad Moutray is the chief economist, National Association of Manufacturers. Note that he is also a former board member of NABE and a current participant in NABE’s Outlook Survey.

Business Economists Downgrade GDP Estimate for 2012

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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. Read More

Business Economists Lower Forecasts

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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. Read More

Economic Conference at the Cleveland Fed Focuses on Manufacturing

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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”). Read More

Business Economists Anticipate Modest Real GDP Growth

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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.

Weekly Economic Report – March 5

By | Economy, Studies and Reports | No Comments

 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.

Monday Economic Report

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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.

Business Economists Are More Optimistic About Growth

By | Economy, Studies and Reports | One Comment

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.