Tag: new orders

MAPI: Manufacturing Activity Expanded at a Slightly Slower Pace in October

The Manufacturers Alliance for Productivity and Innovation (MAPI) Foundation said that its Composite Business Outlook Index dropped from 71 in July to 67 in October. Despite the decline, manufacturing activity remained quite strong, with index readings over 50 indicating expansion. Indeed, the pace of new orders was unchanged (78) at a healthy rate of growth in the fourth quarter report, continuing to reflect improvements from six months ago (71).

Still, several of the key indicators eased in this survey. This included export orders (down from 67 to 65), the orders backlog (down from 72 to 69), prospective U.S. shipments (down from 87 to 83) and prospective foreign shipments (down from 76 to 72). Each of these readings, however, continues to reflect both strong growth.

In contrast, there were some areas of weakness to note. The percentage of respondents operating above 85 percent capacity dropped from 30.0 percent in July to 26.7 percent in October. Expected business investments also slowed considerably in this survey, with 2015 U.S. investment spending nearly just barely above 2014’s pace (down from 67 to 52) whereas foreign investment activity was expected to decline next year relative to this year (down from 64 to 48). On the other hand, the rate of R&D spending was expected to accelerate slightly (up from 67 to 70).

Overall, these data support the notion that manufacturing activity continues to improve, mirroring similar findings from other indicators. The MAPI Foundation has a generally upbeat outlook for the coming months. They predict that manufacturing production will increase by 3.4 percent and 4.0 percent in 2014 and 2015, respectively.

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

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Philly Fed: Manufacturing Activity Continued to Ease, but Growth Remains Strong

The Federal Reserve Bank of Philadelphia said that manufacturing activity continued to ease, but growth remained strong in its district. The Manufacturing Business Outlook Survey’s composite index of general business activity has declined from 28.0 in August to 22.5 in September to 20.7 in October. While this figure has decreased somewhat, sentiment remains mostly positive. For instance, just over one-third of manufacturers in the Philly Fed district felt that business activity had increased in October, with 13.5 percent noting a worsening of conditions.

The pace of new orders (up from 15.5 to 17.3) picked up in October, which bodes well for future activity. This shift occurred largely because the percentage of respondents citing declining sales dropped from 22.1 percent in September to 18.9 percent in October. At the same time, rates of growth for shipments (down from 21.6 to 16.6) and employment (down from 21.2 to 12.1) have both decelerated for the month. Along those lines, the average workweek contracted slightly, down from 4.4 to -1.3, falling for the first time since February.

Manufacturers remained overwhelmingly upbeat in their outlook despite a decrease in the forward-looking composite measure (down from 56.0 to 54.5). In fact, 58.0 percent of respondents anticipate increased new orders in the next 6 months, with 58.5 percent seeing higher shipment levels. Regarding employment, 33.1 percent expect to add new workers in the coming months, with just 5.1 percent indicating possible declines. Capital spending was also expected to increase at decent rates, particularly for equipment, computers and software and energy-saving investments.

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

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NY Fed: Growth in Manufacturing Activity Slowed Considerably in October

The Empire State Manufacturing Survey from the New York Federal Reserve Bank showed growth in manufacturing activity slowing considerably in October. The composite index of general business conditions declined from 27.5 in September to 6.2 in October, its lowest level in six months. Indeed, one –quarter of those taking the survey said that conditions had improved in October, down from 46.0 percent who said the same thing in September.  As such, manufacturers in the New York Fed’s district were clearly more anxious this month, a disappointment after signs of relative strength in the sector from May to September.

A decrease in new orders (down from 16.9 to -1.7) helped to explain the change in sentiment. The percentage of respondents suggesting that sales had increased in the month dropped from 40.1 percent in September to 21.9 percent in October, a shift that produced the change in direction for the new orders index. Growth in shipments (down from 27.1 to 1.1) followed the same pattern, but with the percentage of firms saying that shipments had declined in the month jumping from 16.7 percent to 25.0 percent.

On the positive side, manufacturing activity has now expanded for 21 months, and businesses have reported rebounding levels of activity overall since earlier in the year. In addition, employment (up from 3.3 to 10.2) picked up somewhat in October. Pricing pressures (down from 23.9 to 11.4) have also eased.

Looking ahead six months, manufacturers in the New York Fed region remain mostly optimistic. While many of the forward-looking measures pulled back slightly in October, they still indicate expected strength in the outlook. For instance, 52.9 percent of respondents anticipate higher levels of new orders over the coming months, down from 57.1 percent in the prior survey. Nearly 24 percent expect to add more workers over the next six months, with 34.1 percent planning additional capital expenditures. These figures tend to indicate a brighter future for manufacturers, even if the current sales and shipments data are soft.

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

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ISM: Manufacturing Production Continues to Expand Strongly, but Activity Eased Slightly Overall

The Institute for Supply Management’s (ISM) manufacturing purchasing managers’ index (PMI) continues to reflect a strong expansion, but activity eased slightly overall in September. The headline figure dropped from 59.0 in August to 56.6 in September, which was weaker than anticipated. August’s reading had been the highest level since March 2011, and the pullback in September stemmed from slower paces of growth for new orders (down from 66.7 to 60.0), employment (down from 58.1 to 54.6) and exports (down from 55.0 to 53.5). It is likely that softer growth abroad and geopolitical events have dampened some enthusiasm, particularly on the international sales figures.

Despite some reduced data points for the month, manufacturers remain mostly positive. For instance, 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. As such, it suggests that manufacturing leaders continue to see strengths, albeit with less optimism that the month before. The sample comments tend to support this interpretation, with several of them noting increased demand, sales and shipments.

While it is disappointing that the employment index declined somewhat in September, the longer term trend line reflects improvements from earlier in the year. For instance, the hiring measures averaged 57.0 in the third quarter, a nice step up from the 51.9 and 53.4 averages in the first and second quarters, respectively.

Overall, manufacturing sentiment was a bit softer than expected in September, but the underlying data show strong expansions in both demand and output. Manufacturing leaders are mostly positive about the coming months. This is largely consistent with the findings of our most recent NAM/IndustryWeek Survey of Manufacturers, which observed two year highs in respondents’ outlook. Yet, business leaders are also keenly aware of possible risks on the horizon. This includes geopolitical events, slowing economic growth in key export markets, a still-cautious consumer, workforce challenges, and other possible downside risks.

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

ism

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Kansas City Fed: After Slowing in August, Manufacturing Activity Picked Up a Little in September

The Kansas City Federal Reserve Bank said that manufacturing activity picked up a little in September, rebounding after slowing in August. The composite index of general business conditions increased from 3 in August to 6 in September. Through the first nine months of 2014, the main index has averaged 6.7, peaking at 10 in both March and May. As such, we continue to see modest gains among manufacturers in the Kansas City Fed district, with mostly positive expectations about the future.

For instance, the index for production rose from 4 in July to 12 in August, with the percentage of survey respondents saying that output had increased for the month rising from 25 percent to 34 percent. In contrast, one-quarter of those taking the survey said that their production levels were falling. Similar figures could be seen for shipments (up from 2 to 14). Employment shifted into positive territory (up from -4 to 7), with the average workweek also improving (up from -1 to 2). On the downside, the pace of new orders eased marginally, down from 6 to 5.

Several of the sample comments discussed skills shortages. As one respondent put it, “It is still very difficult to fill open positions for any type of worker from production to professional. I am seeing the same issue everywhere in our community.” The other issue of note in the comments was pricing pressures, both for wages and raw materials.  With that said, domestic energy production was mentioned as a positive for manufacturers in the region.

Looking ahead six months, manufacturers in the district remained optimistic overall. While the future-oriented composite index was unchanged at 17, over half of the respondents anticipate higher levels of production and shipments in the next six months. Moreover, the percentage expecting increased new orders rose from 38 percent to 44 percent for the months. Around 30 percent of those taking the survey plan to hire new workers or invest in more capital.

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

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Richmond Fed: Manufacturing Activity Continued to Expand at Fastest Pace in Over 3 Years

The Richmond Federal Reserve Bank said that manufacturing activity continued to expand at its fastest pace since March 2011. The composite index of general business conditions rose from 12 in August to 14 in September. It was the sixth consecutive monthly expansion since the winter-related contractions in both February and March. Indeed, much like other regional surveys, these data show an uptick in demand and production for manufacturers recently, with a mostly upbeat assessment for the coming months.

Looking specifically at current activity, manufacturing leaders in the Richmond Fed district noted increased paces for many of the key measures. This included new orders (up from 13 to 14), shipments (up from 10 to 11), the average workweek (up from 8 to 10) and the number of employees (up from 11 to 17). Regarding hiring, that measure was the highest level observed since December 2010, suggesting that manufacturers in the region are adding new workers at an accelerated pace. The only measure to decelerate slightly in the month was capacity utilization (down from 17 to 13), but it continues to expand at a decent rate.

Manufacturers in the region remain relatively optimistic in their expectations for the next six months, albeit marginally less positive than the month before. Indices for a number of indicators shifted somewhat lower in September but still indicate strong growth ahead. This includes new orders (down from 47 to 37), shipments (down from 43 to 41), capacity utilization (down from 35 to 26), hiring (down from 18 to 17) and the workweek (unchanged at 10). On the positive side, capital expenditures picked up the pace, with the index increasing from 27 to 38. Wages (up from 28 to 35) also accelerated convincingly.

Inflationary pressures picked up once again in September, bucking the trends seen in national pricing data.  Manufacturers in the region said that prices paid for raw materials grew 2.10 percent at the annual rate in September, up from 1.39 percent in August. Yet, looking ahead six months, respondents expect input costs to increase an annualized 2.00 percent, down from 2.05 percent the month before. This suggests that businesses anticipate modest gains in input prices over the course over the next few months, mostly in-line with Federal Reserve projections.

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

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Markit: Chinese Manufacturing Picks Up Slightly, While Europe’s Eases Yet Again

The HSBC Flash China Manufacturing Purchasing Managers’ Index (PMI) edged slightly higher, up from 50.2 in August to 50.5 in September. The Chinese economy nearly stalled in July, and these latest data suggest that there are some signs of stabilization. For instance, this was the fourth consecutive month with expanding manufacturing activity – an improvement from earlier in the year when demand and output were contracting. In August, growth in new orders (up from 51.3 to 52.3) and exports (up from 51.9 to 53.9) accelerated somewhat, but production growth was unchanged at 51.8. One negative continues to be employment (down from 47.4 to 46.9), with hiring contracting for 11 straight months.

If the Chinese economy has rebounded marginally in September, it would be welcome news. Industrial production plummeted from 9.0 percent year-over-year in July to 6.9 percent in August, the slowest pace since December 2008. Fixed asset investments also slowed, down from an annual rate of 17.0 percent to 16.5 percent. Nonetheless, real GDP growth improved from 7.4 percent year-over-year growth in the first quarter to 7.5 percent in the second quarter. The latest data suggest that the annual pace of growth might decelerate further, however.

At the same time, the Markit Flash Eurozone Manufacturing PMI eased yet again, down from 50.7 to 50.5. This was the lowest level observed since July 2013, the first month that the Eurozone emerged from its deep two-year recession. As such, it indicates the extent to which activity in Europe has come to a halt. New orders (down from 50.7 to 49.7) contracted slightly for the first time in 15 months. Output was unchanged at 51.0, and export sales were flat at 51.7. Hiring advanced to a neutral position (up from 49.3 to 50.0). On the closely-watched inflation measures, both input (down from 51.8 to 49.4) and output (down from 50.3 to 49.2) prices moved into negative territory.

There have been persistent worries about deflation on the continent, with the European Central Bank lowering rates recently in the hope of spurring more economic activity and additional lending. As of August, Eurozone inflation had risen just 0.3 percent over the past 12 months, prompting continued worries about deflationary pressures in the economy. The annual inflation pace is down from 1.3 percent in August 2013. Real GDP remained unchanged in the second quarter, down from 0.2 percent growth in the first quarter. Moreover, it has increased just 0.7 percent year-over-year, illustrating just how sluggish the recovery has been.

Meanwhile, the Markit Flash U.S. Manufacturing PMI was unchanged at 57.9, its fastest pace since May 2010. This report continues to show strong growth in manufacturing activity in the U.S., a sign that the sector has regained the robustness seen at the end of 2013. The pace of new orders were unchanged at 60.5, indicating healthy gains, and hiring (up from 54.6 to 56.6) accelerated to its highest level since March 2012. Production (down from 60.7 to 59.9) growth was healthy, and export orders (down from 54.4 to 53.8) expanded modestly despite a slight deceleration in each figure.

Overall, the U.S. data suggest that manufacturers remain upbeat in September about overall activity, with the sector continuing to recover from softness earlier in the year. This data is largely consistent with other indicators, as well.

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

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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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Philly Fed: Manufacturing Activity Eased Slightly, but Growth Remains Strong

The Federal Reserve Bank of Philadelphia said that manufacturing activity eased slightly, but growth remained strong in its district. The Manufacturing Business Outlook Survey’s composite index of general business activity declined from 28.0 in August to 22.5 in September. While the figure decreased somewhat, it is important to note that August’s reading was the fastest pace since March 2011, and a modest pullback should have been anticipated. Many of the key indicators continued to expand at healthy rates, keeping the underlying trends positive.

As evidence of this, the paces for new orders (up from 14.7 to 15.5), shipments (up from 16.5 to 21.6) and employment (up from 9.1 to 21.2) accelerated. The percentage of respondents saying that their sales had increased in the month rose from 32.3 percent in August to 37.6 percent in September. Roughly one-quarter of respondents noted additional hiring in both months, with the percentage citing declines in employment dropping from 15.6 percent to 4.5 percent. Therefore, fewer manufacturers were cutting workers in September, which was encouraging. Still, the average workweek (down from 13.3 to 4.4) narrowed a bit.

Manufacturers remained overwhelmingly upbeat in their outlook despite a decrease in the forward-looking composite measure (down from 66.4 to 56.0). In fact, 55.1 percent of respondents anticipate increased new orders in the next 6 months, with 58.8 percent seeing higher shipment levels. Regarding employment, 43.6 percent expect to add new workers in the coming months, with just 4.0 percent indicating possible declines. Capital spending (up from 17.5 to 23.7) was also expected to increase at decent rates. The one downside was pricing pressures for raw materials, with almost half of those taking the survey predicting higher input costs ahead.

As further evidence of this optimism, manufacturers responded to a special question about production in the third quarter. Nearly 59 percent of them said that output would increase for their company in the third quarter relative to the second quarter, with 28.7 percent stating declines. On average, production was expected to increase by 2 percent in the third quarter. For the fourth quarter, those predicting an acceleration in activity (53.8 percent) outpaced those forecasting a deceleration (21.2 percent).

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

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NY Fed: Manufacturing Activity Expanded Strongly in September

The Empire State Manufacturing Survey from the New York Federal Reserve Bank reported a strong increase in activity in September, its fastest pace in nearly five years. The composite index of general business conditions rose from 14.7 in August to 27.5 in September, with almost 46 percent of those taking the survey saying that conditions had improved in the month. Other measures were mostly positive, as well, including faster paces for new orders (up from 14.1 to 16.9) and shipments (up from 24.6 to 27.1).

Yet, there were also some challenges, most notably in the labor market. Hiring eased in September, with the index for the number of employees dropping from 13.6 to 3.3. This decline stemmed from an increase in those respondents who said that their employment levels had decreased, up from 5.7 percent in August to 16.3 percent in September. Along those lines, the average employee workweek (down from 8.0 to 3.2) also narrowed.

Pricing pressures continued to be elevated, even as there was a marginal improvement for the month. The index for raw material prices declined slightly, down from 27.3 to 23.9, but that still represents a significant percentage of manufacturers in the Fed district seeing input costs rise. That is expected to continue over the next six months, with nearly 46 percent of respondents anticipating higher prices.

The other forward-looking measures continue to find a mostly optimistic outlook in the New York Fed region. There was a slight pullback in many of the measures assessing the next six months, but manufacturing leaders remain upbeat overall. In fact, 57.1 percent of those completing the survey predict sales increases, or about the same proportion as those anticipating higher shipments. Just over one-quarter expect to add more workers in the coming months, with 29.4 percent planning additional capital expenditures.

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

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