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…)

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

Economic indicators released last week show that manufacturers are increasingly nervous. The latest NAM/IndustryWeek Survey of Manufacturers found that the percentage of respondents reporting their company’s outlook was positive has dropped from almost 89 percent in March to roughly 52 percent today. Business leaders are frustrated with the political process, and more than 84 percent cited the prospects of the fiscal cliff as their top concern. These worries are fueling manufacturers’ uncertainties, with about 42 percent saying that they have reduced or slowed down capital spending and 36 percent noting reduced or no hiring. In fact, the expected hiring and investment rates for the next 12 months have turned negative for the first time since 2009.

Nonresidential fixed business investment was a drag on growth in the recent revision to real GDP for the third quarter—a trend that is not likely to change in the fourth quarter. Moreover, the Institute for Supply Management’s (ISM) Purchasing Managers’ Index (PMI) reflected a contraction in November for the fourth time in the past six months. To be fair, Hurricane Sandy played an important role in reducing activity for the month, but it was not the only factor producing weakness. We have seen a more sluggish manufacturing sector since the summer, with slowing global sales and economic uncertainty weighing heavily on everyone’s minds. Similarly, employment growth has also been weak over this time frame, with manufacturers shedding 26,000 workers since July, according to the Bureau of Labor Statistics (BLS).

Up until now, these impacts have mostly been seen at the business level. While manufacturing optimism has diminished, consumer confidence rose throughout the fall months, which helped push up spending. Consumers accounted for 37 percent of the real GDP growth in the third quarter, and recent holiday sales figures have reflected decent growth. November’s vehicle sales numbers also showed strong gains (although they were boosted by auto replacements stemming from Hurricane Sandy). However, the University of Michigan’s Consumer Sentiment Survey showed a large decline in confidence, with its index down from 82.7 in November to 74.5 in December. It appears that consumers are finally starting to ponder the prospects of the fiscal cliff and its implications for the larger economy. As the media has increased its coverage of the fiscal cliff over the past month, the drop should not be surprising.

This week, we will get more clues about the current state of the manufacturing sector and the larger economy. The Federal Open Market Committee will likely stick with its current stimulative monetary policies at its December meeting. On the data front, the Fed will release industrial production numbers on Friday, which are expected to show modest growth at best, especially given current weaknesses. Tomorrow, the Commerce Department will announce export figures, and we will see if recent improvements overseas have yielded gains in worldwide sales. (For more on international trends, see the latest Global Manufacturing Economic Update.) Other highlights for the week include indicators on consumer and producer prices, job openings, retail sales and small business sentiment.

Chad Moutray is chief economist, National Association of Manufacturers.

The latest NAM/IndustryWeek Survey of Manufacturers shows just how dramatically business leaders have downgraded their economic views over the course of this year. In March, almost 89 percent of manufacturers said that they were either somewhat or very positive about their own company’s outlook; that has fallen each quarter this year, and is now just 51.8 percent. Moreover, the percentage of manufacturers saying that they were “somewhat negative” has more than tripled in the past six months, from 15.8 percent in June’s survey to 38.9 percent in the fourth quarter.

There are a number of factors behind these numbers. No one should discount the effect of slowing global sales, or more recently, the reductions in activity caused by Hurricane Sandy. But, it is clear that manufacturers in this survey are responding to post-election concerns and worries about the fiscal cliff. In fact, 84.2 percent of respondents said that uncertainties related to the political climate and the fiscal cliff were their top challenge. They were also highly skeptical that Washington will be able to address the nation’s long-term fiscal challenge, with only 7.5 percent of manufacturers anticipating a “grand bargain” in the Lame Duck session of Congress. Forty-eight percent feel that the cliff will be averted by delaying the tax increases and spending cuts by a few months or a year, with roughly 28 percent feeling that we will “go over the cliff.”

This has had a real impact on how manufacturing leaders perceive economic growth and their company’s sales and activity next year. Almost 63 percent of them admit to reducing their business outlook for 2013. More worrisome, 42.6 percent say that they have reduced or slowed down business investment, and 36.2 percent have either reduced their employment or stopped hiring. These impacts were even larger for smaller firms with less than 50 employees. Given this, it should not be a surprise that manufacturers have lowered their estimates for sales, investment, and employment for the next 12 months, with capital spending plans and hiring turning negative on average for the first time since the fourth quarter of 2009.

When asked about the most-pressing priorities for the second Obama term and the 113^th Congress, manufacturers say that that the top priority should be a long-term deal that tackles the deficit and debt (cited by 88.7 percent of respondents). Slowing the growth of entitlements (82.1 percent) and averting the fiscal cliff (75.5 percent) were also high on the list, as were a number of ways to make businesses more competitive globally. The latter items include reducing the overall regulatory burden (76.4 percent), passing comprehensive tax reform (68.7 percent), and controlling rising healthcare costs (67.6 percent).

In summary, these findings reflect a tremendous amount of nervousness on the part of the manufacturing community related to economic growth moving into 2013. These anxieties are dampening hiring and investment and reducing overall optimism. This is further proof that policymakers must act quickly to avert the fiscal cliff and address our long-term fiscal challenges, but all of this must also be done in such a way that would keep the U.S. economy growing and make U.S. manufacturing more competitive on a global scale.

Chad Moutray is chief economist, National Association of Manufacturers.

Today the results of the 3^rd Quarter NAM/IndustryWeek Survey of Manufacturers were released and the top concern for manufacturers was uncertainty related to the political climate, cited by 78.7 percent of respondents. This was followed by rising healthcare costs (69.4 percent), an unfavorable tax and regulatory environment (62.4 percent), and slowing sales and a weak domestic economy (60.7 percent).

Many of those taking the survey were quick to discuss their frustrations with the political process, with many of them saying that decisions were on hold until after the election. The fiscal abyss – including both tax increases and budget cuts – was clearly on their minds, as they worry that it will send the economy downward.

Manufacturers were also less optimistic in their current outlook. The third quarter survey showed that 69.2 percent of NAM members responding to this survey had a positive outlook. This is down from 88.7 percent in the spring and 83.1 percent just three months ago. The difference can be explained by individuals shifting from “somewhat positive” to “somewhat negative.” In fact, the percentage of respondents who were “somewhat negative” nearly doubled from 15.8 percent in June to 29.6 percent today.

With that said, the lower business outlook level is consistent with reduced growth in industrial output over the next six months. Using regression analysis, the data from the NAM/IndustryWeek survey – along with other explanatory variables – suggests that industrial production could decline 1.2 percent between now and the first quarter of 2013. This model has explained 90 percent of the variation in the past. Having said that, time will tell whether this is an anomaly or whether this is foreshadowing a real decline. At a minimum, it indicates that manufacturers are very worried about the future direction of the economy.

In a press release issues in association with this survey, I make the following statement: 

“Manufacturers are sending a clear message that Washington’s action or inaction can have a serious effect on our economy,” said NAM Chief Economist Chad Moutray. “The Congressional Budget Office has already warned that falling into the fiscal abyss will mean a recession next year, and manufacturers are not optimistic that Washington will be able to set us back on track in time. Unless Washington takes bold action to address the economic and political uncertainty and puts in place a pro-growth business climate, we can expect to see more dismal economic growth and pessimism from manufacturers.”

Chad Moutray is chief economist, National Association of Manufacturers.

The latest results of theNAM/IndustryWeek Manufacturing Index show that business conditions continued to improve in second quarter of 2010, though in some areas, the pace of the improvement was more moderate than in prior quarters.

 Roughly three quarters (74 percent) of the respondents to the second quarter survey reported a positive business outlook. While this was the highest level of confidence in three years and substantially up from the record low of just 28 percent in the first quarter of 2009, the rise from the 70 percent who had a positive business outlook in the prior quarter was the mildest improvement of the current recover to-date.

This signals that while the manufacturing recovery is likely to continue going forward, an accelerating growth path is not likely. This is consistent with other findings of the second quarter survey including expectations of positive, but mild, increases in both capital spending (1.7 percent growth) and employment (1.3 percent growth ) in the year ahead.

Asked if uncertainty about the business outlook is delaying plans to expand employment or capital spending, only a roughly quarter (26 percent) said no.  Of the roughly three quarters (74%) who responded that uncertain is a factor, the vast majority — 58% — reported that uncertainty is affecting both employment and capital spending plans.

Of those who reported that uncertainty is affecting their plans to expand capital spending and employment, the main areas of concern cited were the state of the U.S. economic recovery and possible regulatory or legislative changes from Washington D.C.

To see full results of the survey, click here.