Tag: NFIB

Monday Economic Report – December 16, 2013

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

In the most recent NAM/IndustryWeek Survey of Manufacturers, 78.1 percent of respondents were either somewhat or very positive about their own company’s outlook. This figure has edged higher each quarter in 2013—a feat made easier by the fact that we were grappling with the prospect of the fiscal cliff at this point last year. As we move into 2014, manufacturing leaders anticipate mostly modest growth in a number of indicators, with an average sales increase of 3.0 percent expected over the next 12 months. While this estimate remains well below the 4.7 percent annual increase predicted in the first quarter of 2012, the good news is that the underlying data are consistent with a pickup in activity in the first half of next year.

However, manufacturers continue to worry about the effects of rising health insurance costs, a perceived unfavorable business climate and persistent uncertainties stemming from the government. On the topic of the Affordable Care Act (ACA), more than three-quarters of manufacturers have had their insurance costs increase by at least 5 percent for 2014, with an average increase of 8.76 percent. This was true even after many firms took steps to lower premium increases by raising employee copays (58.6 percent), reducing coverage (27.7 percent) and/or changing insurance providers (17.6 percent). Moreover, rising health insurance costs and uncertainties surrounding the ACA have forced one-third of manufacturers to reduce their outlook for next year, and a sizable percentage had reduced employment or stopped hiring (23.1 percent) and/or reduced or slowed down their business investment (20.2 percent). Beyond this, the NAM estimates the ACA will cost manufacturers at least $22.2 billion over the next three years to cover new fees, taxes, surcharges and administrative compliance costs required by the law.

Unfortunately, the NAM/IndustryWeek survey also suggested that many manufacturers remain hesitant about adding new workers. Over the next 12 months, employment is expected to grow by just 0.9 percent, with more than half of respondents saying they do not plan to change their employee levels in the next year. Despite this finding, there is some evidence that manufacturing employment has begun to improve, mirroring the recent uptick in new orders and output. The most recent jobs numbers suggest that the sector added an average of 16,500 workers from August to November, which would be progress from employment losses from March to July. Likewise, we learned last week that manufacturing job openings rose to their highest level in 16 months. While the pace of job postings and overall hiring remain lower than we might prefer, these numbers provide some encouragement—at least for now.

Other economic indicators released last week were also somewhat reassuring. Retail sales were up 0.7 percent in November, or 4.7 percent year-over-year. In addition, a survey of business economists found that they expect real GDP to accelerate to 2.8 percent in 2014, up from the 2.1 percent anticipated in 2013. For manufacturers, they predict that industrial production will expand from 2.4 percent in 2013 to 3.1 percent in 2014. Meanwhile, the National Federation of Independent Business (NFIB) reported that small business optimism edged higher in November, rebounding slightly after drops in September and October due to the government shutdown. While sales and earnings figures remained weak, the NFIB data did provide some signs of progress, including more small business owners saying it was a good time to expand.

Much of the focus this week will be on the Federal Reserve, which will have its final monetary policy meeting of the year. There is some speculation that the Federal Open Market Committee (FOMC) will announce its long-awaited plans to start tapering its purchases of long-term and mortgage-backed securities. I suspect that the FOMC will instead push this decision back to either the January 28–29 or March 18–19 meeting. Improvements in the macroeconomy should serve as an incentive to begin to scale back its asset purchases, but very low current inflationary pressures give the FOMC the leeway to stand pat if it wants to wait and see more evidence of growth before acting. Either way, financial markets have once again begun pricing in a possible taper, with the average yield on 10-year Treasury notes rising from a recent low of 2.51 percent on October 23 to a close of 2.87 percent on Friday.

This morning, we will get the latest data on industrial production for November, and Markit will announce Flash PMI data for the United States, China and the Eurozone. The expectation is these reports will reflect a decent increase in output, mirroring the acceleration in other data. We will also get new surveys from the Kansas City, New York and Philadelphia Federal Reserve Banks this week, providing further evidence about the current state of the manufacturing sector regionally. On Friday, the Bureau of Economic Analysis will give us another revision to third-quarter real GDP, which was estimated to have grown by 3.6 percent in its most recent release. In addition, other highlights this week include new data on consumer prices, housing starts, leading indicators, productivity and state employment.

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

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Small Business Owner Optimism Edged Higher in November

The National Federation of Independent Business (NFIB) said that small business confidence edged slightly higher last month. The Small Business Optimism Index rose from 91.6 in October to 92.5 in November. This reversed the declines in confidence observed in September and October surrounding the government shutdown, mirroring drops seen in other sentiment surveys. November’s figure was close to the year-to-date average of 92.3 for 2013 but below the peak of 94.4 experienced in May.

Small Business Optimism Index continued to be well below 100 – its threshold for stronger economic activity. It has not exceeded 100 since October 2006, over seven years ago. This suggests that the small business economy remains subpar overall.

The underlying data continued to reflect many of these weaknesses. For instance, the net percentage of those saying that they expect higher sales over the next three months was just 3 percent, up from 2 percent the month before. This was down from 8 percent who said the same thing in September. Earnings growth also remained weak.

Yet, there were also some signs of progress in the November data. The percentage of respondents saying that the next three months were a “good time to expand” increased from 6 percent to 9 percent, its highest level since July. Similarly, the number of job openings increased, with the net percentage planning to add workers in the next three months up from 5 percent to 9 percent. Those planning to increase their capital spending over the next three to six months were also up slightly from 23 percent to 24 percent.

As we have seen in recent surveys, economic conditions and the political climate were the top reasons cited by those saying that it was not a good time to expand. The “single most important problem” was government regulations once again, cited by 22 percent of those taking the survey. This was followed by taxes (21 percent) and poor sales (15 percent).

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

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Monday Economic Report – November 18, 2013

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

In July, year-over-year growth in manufacturing production was 1.2 percent, the slowest pace of growth in output for the sector since January 2010. It was the culmination of weaknesses experienced among manufacturers since mid-2012 as global demand and domestic uncertainties weighed heavily on overall production, pushing it to disappointingly low levels. Since then, however, we have begun to see a pickup in new orders and overall sentiment. The year-over-year pace of manufacturing production was 3.3 percent in the Federal Reserve Board’s most recent industrial production report. Manufacturing output has risen 1.1 percent in just the past three months, with capacity utilization up from 75.7 percent to 76.2 percent over that time frame.

While there has been progress, some weaknesses persist for the sector. Nondurable goods production continues to lag behind durable goods, with year-over-year growth of 1.5 percent for nondurable goods firms relative to a much stronger 5.4 percent increase for durable goods. Moreover, manufactured goods exports remain slow, up 2.2 percent year-to-date through September relative to the same nine-month period in 2012. Nonetheless, this suggests some improvement from the 1.7 percent year-to-date rate that was observed through June, with declines in export levels to Europe lessening as the year progresses. Meanwhile, the overall U.S. trade deficit widened from $38.7 billion in August to $41.8 billion in September largely on higher goods imports.

Labor productivity in the manufacturing sector rose at a slower pace in the third quarter, up 0.4 percent versus the 2.7 percent gain in the second quarter. Output was higher in the third quarter, led by strong gains for durable goods businesses. Unit labor costs were down 0.4 percent for durable goods manufacturers, helping to make them more competitive globally. Unit labor costs have decreased a whopping 11.1 percent for the durable goods sector since the end of the recession. In contrast, the numbers for nondurable goods manufacturers were more challenging, with third-quarter output down 0.3 percent and unit labor costs up 3.4 percent.

The two sentiment surveys released last week were both lower. The National Federation of Independent Business’s (NFIB) Small Business Optimism Index dropped from 93.9 in September to 91.6 in October. Weaker sales growth and continuing political frustrations were key factors in the latest drop in attitudes.

Meanwhile, the Empire State Manufacturing Survey from the New York Federal Reserve Bank reported contracting activity levels in November for the first time since May, with reduced new orders and shipments and employment stalled. Despite reduced optimism about the current economic environment, manufacturers in the New York Federal Reserve district remain mostly upbeat about the next six months. Nearly half of the respondents anticipate increased new orders and shipments in the coming months, with one-third expecting to add new workers. The latter is a potentially hopeful sign, especially with so many manufacturers hesitant to hire of late. Indeed, 56.6 percent said they were not planning to change their employment levels.

This week, we will learn even more about current manufacturing activity, with new surveys from the Kansas City and Philadelphia Federal Reserve Banks. In addition, Markit will release Flash PMI survey data for the United States, China and the Eurozone. Financial markets will focus on the minutes of the Federal Open Market Committee’s meeting October 29–30, trying to glean additional insights about future monetary policy directions before the upcoming December 19–20 meeting. As such, this will build on last week’s confirmation hearing of Janet Yellen to be the next Federal Reserve Board chair, in which she mostly reiterated the need to continue the Federal Reserve’s accommodative policies. Other highlights will be new data on consumer and producer prices, existing home sales, homebuilder optimism, job postings, retail sales and state employment changes.

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

manufactured goods exports - nov2013

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Small Business Owner Optimism in October Fell to Lowest Point since March

The National Federation of Independent Business (NFIB) said that small business confidence fell in October as owners became more frustrated with the budgetary impasse in Washington. The Small Business Optimism Index dropped from 93.9 in September to 91.6 in October, its lowest point since March. As such, it mirrored similar drops in consumer confidence, both from the Conference Board and the University of Michigan. In each case, the decrease in sentiment was enough to erase most of the gains in attitudes experienced year-to-date. With that said, I would expect each to rebound in the coming months, assuming government actions do not once again hinder that from happening.

In the case of the NFIB survey, the percentage of respondents saying that the next three months were a “good time to expand” dropped from 8 percent to 6 percent. The average reading on this indicator through the first 10 months was 6.3 percent, down from 6.7 percent for all of 2012. For those saying that it was not a good time for expansion, the top reasons cited continue to be economic conditions and the political climate. Respondents said that government regulations were the “single most important problem,” cited by 21 percent of those taking the survey. This was followed by taxes (20 percent) and poor sales (17 percent).

Outside of the impacts of the government shutdown, weaker expected sales growth was one of the key factors in reducing optimism in October. The net percentage of those saying that they expect higher sales over the next three months dropped from 8 percent to 2 percent, the lowest points since the net decline predicted in March. Not surprisingly, earnings growth also remained weak.

The pace of hiring and capital spending growth eased for the month, as well. The net percentage of those taking the survey that plan to add workers in the next three months declined from 9 percent to 5 percent. With that said, the percentage of firms with job openings that they cannot fill edged slightly higher, up from 20 percent to 21 percent – perhaps a hopeful sign. On a similarly mixed note, capital investment plans were off from 25 percent to 23 percent, even as the actual level of capital expenditures over the past six months reflected a slight uptick.

Overall, though, the NFIB survey found that small business owners remain quite anxious about the economy, with political headwinds sending confidence sharply lower in October. Moreover, sentiment continues to be subpar overall, reflecting softer small business sales growth. The Small Business Optimism Index remains well below 100 – its threshold for stronger economic activity.

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

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Monday Economic Report – October 15, 2013

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

Due to the federal government shutdown, several key data points were not released last week. This included the latest reports on international trade, job openings, producer prices, retail trade and wholesale trade. The vacuum in public data makes it more difficult to ascertain whether or not gains in many aspects of the domestic economy were continuing. This leaves us looking elsewhere for clues about current trends. Our perceptions about the present and future U.S. economic environment remain somewhat frozen as to where they were on September 30. For instance, the Manufacturers Alliance for Productivity and Innovation (MAPI) survey tended to echo the more upbeat tone from other similar surveys, with an accelerated pace for new orders, exports, utilization and domestic investment.

Yet, the budgetary impasse has reduced perceptions about the economy and heightened frustrations with the political process as a whole. Surveys released last week observed lower consumer and small business confidence levels, with each falling from higher levels during the summer. In the case of the University of Michigan’s consumer sentiment figure, the decline brought the index back to levels not seen since January, when we were still in the aftermath of the fiscal cliff deal. This shows that the fiscal crisis has zapped confidence and increased uncertainty. However, the National Federation of Independent Business (NFIB) survey, while edging slightly lower, still points to an upward trend for the year.

Interestingly, small business owners responding to the NFIB survey labeled government regulations as their most important problem. This was the second month in a row that “red tape” has topped the list, with taxes and poor sales following closely behind in second and third place.

Last week, President Obama nominated Janet Yellen to be the next Federal Reserve Board chair. This ends months of speculation about who would replace outgoing Chairman Ben Bernanke, whose term expires January 31, 2014. Notably, the President made his announcement on the day that the Federal Reserve released the minutes of the September 17–18 Federal Open Market Committee (FOMC) meeting. These minutes highlight the intense debate within the committee over when to start tapering its purchases of $85 billion in long-term and mortgage-backed securities. Financial markets expected this to begin at that meeting, but most FOMC participants wanted to see more data showing a rebound in the economy before acting. The impending budget battles were also a factor.

There continues to be speculation that the Federal Reserve will start to decelerate its quantitative easing program by year’s end, but in my view, the earliest that any taper would occur at this point would be at the FOMC’s December 17–18 meeting.

With the federal government shutdown now going into its third week, we are not expected to get consumer price index and housing starts data. In addition, the Federal Reserve has announced that it will be unable to produce industrial production data until the government reopens. It is also an open question about when the backlog of postponed data sources might be released after the budget issues are resolved, as the calendar could suddenly become quite busy in the coming weeks. Meanwhile, survey data from the New York and Philadelphia Federal Reserve Banks are still expected to be released this week, with the data more than likely reflecting the pickup that we saw prior to the shutdown. Other highlights include the Federal Reserve’s Beige Book and new data on homebuilder optimism, leading indicators and production sentiment in California.

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

monthly sentiment surveys - oct2013

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Small Business Owner Optimism Has Not Shifted Much Since May

The National Federation of Independent Business (NFIB) said that small business owners’ sentiment declined marginally, down from 94.1 in August to 93.9 in September. In general, the Small Business Optimism Index has not shift by much since May, averaging 94.0 over that five month period. On the one hand, this continues to suggest improvement in perceptions since earlier in the year. For example, from November 2012 to March 2013, the five-month average was 88.9. Yet, the stall in sentiment growth after April is notable, particularly as it indicates some persistent challenges facing the sector.

The index remains below 100, its threshold for stronger growth in the small business sector. This means that small business owners continue to worry about weaknesses in the economy. The last time the NFIB’s index had a reading over 100 was October 2006.

The percentage of respondents saying that the next three months were a “good time to expand” edged slightly higher from 6 percent to 8 percent. This was not far from the 7.6 percent average observed over the past five months. Economic worries and frustrations with the political environment were the main reasons cited by those saying it was not a good time for expansion. Respondents said that government regulations were the “single most important problem,” cited by 24 percent of those taking the survey. This was followed by taxes (18 percent) and poor sales (17 percent).

Looking at the various components, the data were mostly mixed. Sales and earnings continue to be weak; however, there was a gain in the net percentage of those expecting increased sales in the next three months, up from 5 percent to 8 percent. On the employment front, hiring was stagnant in September, with the net down from 4 percent to zero. The net percentage of small business owners planning to add workers in the next three months decreased from 10 percent to 9 percent, with that rate virtually unchanged since July.

Meanwhile, 25 percent of respondents plan to make capital expenditures over the next three to six months, the fastest pace since March. In addition, inventories continue to shrink, with a net two percent planning to decrease their stockpiles over the next three to six months.

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

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Small Business Optimism Virtually Unchanged in August

The National Federation of Independent Business (NFIB) said that small business owners’ sentiment declined marginally, down from 94.1 in July to 94.0 in August. This suggests that perceptions have not shifted much over the past few months, with the Small Business Optimism Index averaging 94.0 over the past four months (May to August). This compares to an average of 90.3 for the first four months of 2013 (January to April). So, while small businesses were more confident in August than earlier in the year, growth in optimism appears to have stalled more recently.

Beyond that, the index remains below 100, its threshold for stronger growth in the small business sector. This means that small business owners continue to worry about weaknesses in the economy. The last time the NFIB’s index has a reading over 100 was October 2006.

The percentage of respondents saying that the next three months were a “good time to expand” declined from 9 percent to 7 percent. Of those saying that it was not a good time for expansion, the economy and political environment were the main reasons. Respondents said that higher taxes were the “single most important problem,” cited by 23 percent of those taking the survey. This was followed by government regulations (21 percent) and poor sales (17 percent).

On this latter item, those surveyed suggested that both earnings and sales were lower in the prior three months, with both figures dropping sharply in August. For instance, the net percentage of actual sales (e.g., those saying it was higher minus those saying it was lower) declined from -7 percent in July to -24 percent in August. The good news was that respondents were more positive about the next three months, with the net percentage of sales expectations increasing from 7 percent to 15 percent.

Employment followed a similar pattern. Over the past three months, the net percentage of actual hiring declined from -1 percent to -3 percent. Yet, net hiring expectations for the next three months were more upbeat, up from 9 percent to 16 percent.

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

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Modest Gains in Small Business Sentiment in July

The National Federation of Independent Business (NFIB) said that small business owners’ sentiment rose modestly, up from 93.5 in June to 94.1 in July. This brings the index essentially back to where it was in May (94.4), with the average of the past four months (April to July) of 93.5. The average in the five months before that (November to March) was just 88.9, suggesting an upward trend in small business optimism in recent months. Yet, it is also true that small business optimism remains sub-par overall, with the index still below the threshold of 100 which would indicate strong growth in the sector. The last time the NFIB’s index has a reading over 100 was October 2006.

The percentage of respondents who say that the next three months are a “good time to expand” increased from 7 percent to 9 percent for the month. That was the highest percentage since January 2012. Of those saying that it was not a good time for expansion, the economy and political environment were the main reasons. Along those lines, taxes and government regulations were the single most important problems cited by those taking the survey, with each garnering 21 percent. This was followed up by poor sales, which has not been the top concern since November.

The key takeaways from this report were the modest gains in many of the business variables. Net sales expectations were somewhat higher, up from 5 percent in June to 7 percent in July. This was only slightly below May’s reading of 8 percent, but better than the -4 percent observed in March. Similarly, net hiring plans over the next three months have risen from zero in March to 7 percent in June to 9 percent in July. Hopefully, this suggests moderate increases in employment in the coming months. Despite the slight upticks in sentiment, earnings growth remains weak, and capital spending plans were unchanged from the previous survey.

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

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Small Business Owner Sentiment Edged Slightly Lower in June

The National Federation of Independent Business (NFIB) said that small business owners’ sentiment declined slightly, down from 94.4 in May to 93.5 in June. Even with this month’s lower figure, it is clear that small businesses have become more optimistic in the past few months, with an average Small Business Optimism Index of 93.3 in the second quarter of 2013 versus an average of 89.7 in the first quarter. This could suggest an upward trend. But, we should also caution that the index’s average in the first half of 2012 was also 93.5, but it declined significantly in the second half of the year to 90.9 as we approached the fiscal cliff and had slower sales growth both domestically and globally.

This is not to suggest that we will have a similar fate this year, as other surveys have indicated some cautious optimism about the second half of 2013. Still, the data show that uncertainties continue to persist for small business leaders. The net percentage of respondents expecting sales to increase over the next three months fell from 8 percent to 5 percent, with continued weakness in earnings. In addition, the net percentage saying that the next three months are a good time to expand dropped from 8 percent to 7 percent. (It is still higher than the 4 percent observed in April.)

The main reasons cited for those suggesting that the next three months were not a good time to expand were economic conditions and the political climate. The single most important problems in this survey were taxes and government regulations, with each garnering 20 percent of the responses. The next closest concern was poor sales, a proxy for the economy.

The data did provide some positive news on hiring, which is welcome. The net percentage of those planning to add employees in the next three months increased from 5 percent to 7 percent, its fastest pace since August and a definite improvement from the zero reading in March.

Similarly, capital spending plans for the next three to six months were unchanged, with 23 percent of respondents planning to make a capital expenditure. This figure has averaged 23.3 percent so far in the first six months of 2013, marginally higher than the 22.2 percent average for all of 2012. This suggests a slight pickup in investment spending in recent months, starting with the February report.

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

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Small Business Owner Optimism Moved Higher in April

The National Federation of Independent Business (NFIB) reported that small business owner sentiment moved higher last month. The Small Business Optimism Index rose from 89.5 in March to 92.1 in April, its highest level in six months. As you might expect, an improved sales outlook helped to lift these figures, with the net percentage of respondents expecting higher sales increasing from -4 percent to +4 percent. In addition, small businesses appear to be more willing to increase hiring, as well, with the net percentage planning to hire in the next three months rising from zero in March to 6 percent in April.

This does not mean, however, that small businesses have moved beyond their challenges. Keep in mind that small businesses are said to be growing strongly when the Optimism Index exceeds 100, so we are still quite a way from that. Indeed, the net percentage of business owners saying that the next three months were a “good time to expand” was unchanged at four percent. As with past reports, the top reasons cited for it not being a good time to expand were economic uncertainties and the political climate. (continue reading…)

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