Tag: personal income

Monday Economic Report – March 31, 2014

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

The U.S. economy grew 2.6 percent in the fourth quarter, according to the most recent revision, and for 2013 as a whole, real GDP growth was a rather lackluster 1.9 percent. Consumer spending, business investment and net exports were bright spots in the fourth quarter, with reduced government spending subtracting nearly one percentage point from growth.

Meanwhile, business economists predict real GDP growth of 2.8 percent on average for 2014, with 1.9 percent growth in the current quarter. (My own forecast is marginally higher for both, up 3.0 percent for the year and 2.1 percent for the first quarter of 2014.) Weather-related slowdowns account for the deceleration in activity, particularly for manufacturers, in the current quarter. However, modest growth is expected to resume once temperatures warm up, and we have already begun to see that. The National Association for Business Economics (NABE) Outlook Survey also suggested that the industry should grow 3.2 percent in 2014 and 3.4 percent in 2015, which would indicate a pickup from the current pace.

The latest manufacturing surveys show a rebound in sentiment after softness from December to February. The Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) slowed a bit, down from 57.1 in February to 55.5 in March. Despite the lower figure, new orders and production growth continued to grow relatively strongly, with overall manufacturing activity improved from January’s winter storms. A similar recovery was seen in regional data from the Kansas City Federal Reserve Bank, mirroring the findings from New York and Philadelphia the week before. Still, not everyone has seen improvements yet. The Richmond Federal Reserve reported lackluster growth in sales and output, with weather continuing to “wreak havoc” for many manufacturers. In addition, while new durable goods orders were up a strong 2.2 percent in February, sales growth increased at the less-than-robust rate of just 0.2 percent when transportation orders were excluded.

On the consumer front, the data were mostly positive, but with some caveats. Personal income and spending both increased 0.3 percent in February, with each rising 3.0 percent over the past 12 months. This was a decent pace, but increased purchases of nondurable goods and services mainly fueled spending growth in February. Durable goods spending declined for the third month in a row. In terms of consumer confidence, the two reports out last week were mixed. The Conference Board’s measure of consumer sentiment reached a six-year high; yet, labor market worries dampened enthusiasm for the current environment. Likewise, the University of Michigan and Thomson Reuters reported that consumer sentiment edged lower in March, with employment and income growth also weighing on respondents’ minds. In both surveys, however, Americans are more confident today than in the fall during the government shutdown.

Looking overseas, Markit released preliminary manufacturing PMI data for China and the Eurozone. Chinese manufacturing activity has now contracted for three consecutive months, with March’s pace being the slowest since July. The data mirror other recent indicators, including industrial production, fixed asset investment and retail sales, which have slowed. As such, they all suggest that real GDP might fall below the 7.7 percent rate in the fourth quarter. (First-quarter real GDP for China will be released on April 15.) Meanwhile, European manufacturers have seen expanding activity levels for nine straight months, even as Eurozone PMI values eased slightly in March. New orders and production remain strong in Germany, and, of note, French manufacturers were positive in their sentiment for the first time since June 2011.

This week, the focus will be on the March jobs numbers, which will come out on Friday. The consensus expectation is for nonfarm payroll growth of around 190,000, with manufacturers hiring somewhere near the 12,000 average experienced in the sector since August. In addition, the Institute for Supply Management (ISM) is expected to show a slight rebound in manufacturing PMI activity in its March data, up from 53.2 in February. Other highlights this week include the latest data on construction spending, factory orders and international trade.

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

gdp forecast - mar2014

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Personal Income and Spending Both Rose Modestly in February

The Bureau of Economic Analysis said that personal income and spending both increased by 0.3 percent in February, extending the modest gains of January. After weather-related softness in December, the data have been more favorable in the first two months of 2014. On a year-over-year basis, each of these measures has risen 3.0 percent. This compares to personal income growth of 2.9 percent in 2013, with a 3.2 percent pace for personal spending last year. (If you were to omit December, which was an outlier month due to the fiscal cliff the year before, personal income growth would have also been 3.2 percent.)

The increase in spending in February stemmed from both nondurable goods and services, both of which increased 0.3 percent for the month. Durable goods purchases fell for the third straight month, down 0.2 percent in February. It is likely that poor weather conditions negatively impacted these figures, with other releases showing weak spending for automobiles and other items from December to February.

Meanwhile, wages and salaries were up 0.2 percent in February, rising 3.1 percent over the past 12 months. For manufacturers, there was some softness on the wage front, likely due to weather-related slowdowns. Indeed, manufacturing wages and salaries have fallen from $758.0 billion in November to $754.2 billion in February. Prior to that, compensation had been rising, particularly as activity had picked up. For instance, wages in the sector averaged $707.1 billion, $735.4 billion, and $747.8 billion in 2011, 2012, and 2013, respectively.

The savings rate edged slightly higher, up from 4.2 percent in January to 4.3 percent in February. Still, we have generally seen this rate decelerate over the past year. The savings rate dropped from an average of 5.3 percent through the first 11 months of 2012 to 4.5 percent in 2013.

Overall inflationary pressures remain minimal, with prices for core personal consumption expenditures (PCE) up just 0.9 percent year-over-year, down from 1.2 percent last month. Energy prices had risen in December and January on increased home-heating costs, but these eased a bit in February, down 0.4 percent.  Inflation remains below the Federal Reserve’s 2 percent target rate, which frees the Fed up to pursue its highly accommodative policies. If anything, there are some who argue that disinflationary pressures might be a concern, but that is less true in the U.S. than it is in Europe.

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

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Personal Income and Spending Bounced Back in January, but Goods Purchases Were Lower

The Bureau of Economic Analysis said that personal income and spending bounced back in January after weaknesses seen in December. Consumer spending rose 0.4 percent in January after increasing just 0.1 percent the month before. Year-over-year growth in personal spending also edged higher, up from 3.2 percent to 3.45 percent, its fastest pace since December 2012. Nonetheless, the news was not as good for manufacturers as the headline figure might suggest.

The increase in spending in January stemmed entirely from services, up 0.9 percent for the month. In contrast, durable and nondurable goods spending were both lower, down 0.3 percent and 0.7 percent, respectively. It was the second consecutive monthly decline for durable goods spending, which declined 2.6 percent in December. It is likely that poor weather conditions negatively impacted these figures, with other releases showing weak spending for automobiles and other items over these two months.

Meanwhile, personal income increased 0.3 percent in January, an improvement from being unchanged in December. Total wage and salary disbursements were up 0.2 percent for the month, or 3.6 percent over the past 12 months. For manufacturers, wages and salaries have been essentially flat over the past three months, hovering around $758 billion. The figure has gradually moved higher over the longer-term, however. Six months ago, wages and salaries in the sector were $742.5 billion, and they have moved up from averages of $707.1 billion and $735.4 billion in 2011 and 2012, respectively.

The savings rate remained at 4.3 percent in January for the second straight month, and we have generally seen this rate decelerate over much of the past year. For instance, the savings rate dropped from an average of 5.3 percent through the first 11 months of 2012 (omitting December because of accelerated payouts due the fiscal cliff) to 4.5 percent in 2013.

Overall inflationary pressures remain minimal, with prices for core personal consumption expenditures (PCE) up just 1.1 percent year-over-year. Energy prices were up 0.4 percent in January, or 3.5 percent over the past 12 months, as more Americans needed to heat their homes due to cold weather conditions. Nonetheless, inflation remains below the Federal Reserve’s 2 percent target rate, which frees the Fed up to pursue its highly accommodative policies.

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

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Monday Economic Report – February 3, 2014

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

While equity markets around the world continue to worry about the emerging markets, the economic news in the United States has been more encouraging. In particular, we learned that real GDP grew at a relatively strong pace in the fourth quarter, up 3.2 percent. Robust growth in consumer spending and exports boosted the nation’s output, with the main drag being federal government spending. Note that this was the quarter that included the partial government shutdown, which might explain part of that decrease, with defense and nondefense government spending lower. Yet, the key takeaway from this data was the strength of the U.S. economy as we ended 2013, with real GDP increasing 3.7 percent at the annual rate in the second half of the year.

At the same time, it is worth noting that real GDP rose a more-disappointing 1.9 percent for 2013 as a whole, below the 2.8 percent figure seen in 2012. Likewise, personal income growth also decelerated, from 4.2 percent in 2012 to 2.8 percent in 2013. Personal incomes remained flat in general for the month. Nonetheless, total wages and salaries in the manufacturing sector increased from $760.9 billion in November to $763.6 billion in December, with annual growth of 1.9 percent. Meanwhile, personal spending in December rose 0.4 percent, extending the 0.6 percent gain observed in November. While the monthly increase resulted from a huge jump in nondurable goods spending, the annual data reflected larger increases for durable goods (7.1 percent versus 2.1 percent). In other developments, consumer confidence appears to have rebounded after falling during the government shutdown, as reflected in both Conference Board and University of Michigan reports.

Some of the other reports for the manufacturing sector were mixed. Regional sentiment surveys, such as those from the Dallas and Richmond Federal Reserve Banks, continue to show expanding levels of sales and production. Moreover, respondents remain mostly upbeat in their outlook for the next six months. In contrast, new durable goods orders dipped 4.3 percent in December. Moreover, even excluding the highly-volatile transportation sector, new orders would have fallen 1.6 percent, suggesting broader weaknesses beyond aircraft and motor vehicles. Shipments of durable goods were also lower. Weather could have been a factor, as well as the timing of some orders due to the holidays. As such, it will be interesting to see if upcoming data reveals the December data as an outlier.

For its part, the Federal Open Market Committee (FOMC) of the Federal Reserve stressed the positive, noting that “growth in economic activity picked up in recent quarters.” As expected, the FOMC further reduced its purchases of long-term and mortgage-backed securities from $75 billion each month to $65 billion. It had begun to taper these asset purchases at its December meeting. This marked the last meeting chaired by Ben Bernanke, as Janet Yellen became the chair of the Federal Reserve Board on February 1. The FOMC will continue to maintain its “highly accommodative” monetary policies for the foreseeable future, with short-term interest rates remaining effectively zero beyond when the economy reaches 6.5 percent. One notable element in the FOMC statement was that none of the participants dissented this time around. While the committee does have new participants for 2014, this was the first statement to not have a dissention since the June 2011 meeting.

This week, the focus will return to the labor market with the release of January employment numbers on Friday. Following the lackluster nonfarm payroll growth of December, the consensus is for 175,000 net new workers to have been added in January. For manufacturers, we will be looking to see if we can extend the strong hiring gains observed from August to December, adding an average of 16,000 jobs per month during that five-month period. Another highlight will be the December trade data, which will allow us to see if manufacturers were able to improve upon the mostly discouraging export figures that we have seen so far for 2013. Other economic indicators to watch include new data on construction spending, consumer credit, the Institute for Supply Management’s purchasing managers’ index, new factory orders and productivity.

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

annual real gdp growth - feb2014

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Personal Spending Rose Modestly in December, But Incomes Were Flat

Personal incomes were unchanged in December, according to the latest data from the Bureau of Economic Analysis. For the fourth quarter, incomes were up just marginally, increasing a very modest 0.1 percent. For the year of 2013 as a whole, personal incomes rose 2.8 percent, below the 4.2 percent gain observed in 2012.

For manufacturers, total wages and salaries increased from $760.9 billion in November to $763.6 billion in December. Average manufacturing wages and salaries for 2013 were $749.3 billion, up 1.9 percent from $735.4 billion in 2012.

Meanwhile, personal spending rose 0.4 percent in December, extending the 0.6 percent increase seen in November. Overall, consumers spent 1.1 percent more in the fourth quarter, with a gain of 2.0 percent for all of 2013. This was slightly below the 2.2 percent increase observed in 2012.

December’s higher personal spending figure stemmed largely from a significant jump in nondurable goods activity, up 1.5 percent for the month. In contrast, personal durable goods spending declined 1.8 percent, offsetting the 1.8 percent jump in November. Looking at the entire year, however, durable goods spending growth outpaced that for nondurable goods, 7.1 percent to 2.1 percent.

With personal incomes flat for the month, the savings rate fell from 4.3 percent in November to 3.9 percent in December. This was the lowest rate in 11 months, and it was the third consecutive monthly decrease, down from 5.1 percent in September.

The other notable item to report from this release was the personal consumption expenditure (PCE) data, which looks at consumer inflation. The Federal Reserve prefers this measure when looking at pricing pressures. Year-over-year growth in the PCE has edged somewhat higher over the past couple months, up from 0.7 percent in October to 0.9 percent in November to 1.1 percent in December. Yet, this still suggests that inflation remains largely in-check, at least for now. Core inflation — which excludes food and energy — has risen just 1.2 percent over the past year, which remains well below the Fed’s stated target of 2 percent.

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

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November Personal Spending Increased Modestly Led by Strong Growth in Durable Goods

The Bureau of Economic Analysis said that personal spending growth grew 0.5 percent in November, extending the 0.4 percent gain seen in October. Consumer spending has increased 3.5 percent over the past 12 months, its fastest pace so far in 2013 and an improvement from the 2.9 percent year-over-year rate in September. Nonetheless, it is clear that personal spending growth has decelerated from the 4.1 percent pace average of 2012 to the 3.1 percent average year-to-date in 2013.

Looking specifically at the November data, the growth in personal goods spending stemmed from an increase in durable goods expenditures. Spending on durable goods increased from an annualized $1.282 trillion in October to $1.307 trillion in November. Meanwhile, purchases of nondurable goods declined in the month from $2.667 trillion to $2.657 trillion.

Both durable and nondurable goods spending continue to increase over a longer term. Six months ago (May), for instance, durable and nondurable goods purchases were $1.255 trillion and $2.585 trillion, respectively.

Meanwhile, personal income rebounded in November, rising by 0.2 percent after falling 0.1 percent in November. Much of October’s decrease had been attributable to a sharp falloff in farm proprietors’ income, which was still down in November. But, it was offset by stronger growth in wages and salaries, which increased 0.4 percent for the month. For manufacturers, total wages and salaries rose from $754.3 billion to $759.1 billion. This figure has gradually moved higher. Six months ago, wages and salaries in the sector were $744.8 billion, and they moved steadily higher from the averages of $707.1 billion and $735.4 billion in 2011 and 2012, respectively.

Perhaps disappointingly, the year-over-year pace of personal income continues to decelerate, down from 3.4 percent in October to 2.3 percent in November. In contrast to personal spending, this was the lowest annual pace of the year. Through the first 11 months of 2013, the annual pace has averaged 3.2 percent, down from the 4.2 percent rate experienced in all of 2012.

With personal spending outstripping personal income, the savings rate has fallen in each of the past two months, down from 5.1 percent in September to 4.5 percent in October to 4.2 percent in November.

Overall inflationary pressures remain minimal, with prices for personal consumption expenditures (PCE) unchanged for the second month in a row. The year-over-year rate of PCE growth was just 0.9 percent, and when you exclude food and energy, the annual rate of core PCE growth was 1.1 percent. Much as we have seen in recent consumer and producer price data, inflation remains below the Federal Reserve’s 2 percent target rate, which frees the Fed up to pursue its highly accommodative policies.

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

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Modest Growth in Personal Spending on Goods in October

The Bureau of Economic Analysis said that personal spending growth rose modestly in October. Consumer spending increased 0.3 percent in October, the sixth straight month of gains in purchasing. The year-over-year pace strengthened from 2.6 percent in September to 2.8 percent in October. Still, it is clear that personal spending growth has decelerated from the 4.1 percent pace average of 2012 to the 3.0 percent average year-to-date in 2013.

Looking specifically at the October data, spending was higher for both durable and nondurable goods, up 0.6 percent and 0.3 percent, respectively.

Meanwhile, personal income fell 0.1 percent in October, the first decline since January. To be fair, however, much of that decrease was attributable to a sharp falloff in farm proprietors’ income. Wages and salaries rose 0.1 percent, and for manufacturers, total wages and salaries totaled $749.2 billion in October, up from $745.9 billion in September.  This figure has gradually moved higher, up from averages of $707.1 billion and $735.4 billion in 2011 and 2012, respectively.

The year-over-year pace of personal income has also eased, down from 3.9 percent in September to 3.4 percent in October. Through the first 10 months of the year, the annual pace has averaged 3.3 percent, down from the 4.2 percent rate experienced in all of 2012.

With personal spending outstripping personal income, the savings rate fell from 5.2 percent in September to 4.8 percent in October. Even with the slight decrease, the savings rate has edged higher in general as the year has progressed, with the year-to-date average being 4.6 percent. Nonetheless, the savings rate has generally been lower this year than last, when the saving rate averaged 5.3 percent from January to November 2012. (I omitted December due to accelerated payouts skewing the data in the lead-up to the fiscal cliff deal.)

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

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Leading Economic Indicators Rose in October for the Fourth Straight Month

The Conference Board said that the Leading Economic Index (LEI) rose 0.2 percent in October, the fourth straight month of gains. The main drivers of the increase in October were increased building permits, a rising stock market, favorable credit conditions, and the interest rate spread. Manufacturing activity provided a modest contribution to the monthly increase with continuing strength in new orders. There were also factors that weakened the LEI in October, including reduced consumer confidence and increases in average weekly unemployment claims.

Putting this data in perspective, Ken Goldstein, an economist with the Conference Board, said, “Overall, the data reflect strengthening conditions in the underlying economy. However, headwinds still persist from the labor market, accompanied by business caution and concern about federal budget battles. The biggest challenge to date has been relatively weak consumer demand, which continues to be restrained by weak wage growth and slumping confidence.”

Meanwhile, the Coincident Economic Index (CEI), which assesses current economic conditions, also rose by 0.2 percent in October. It was the third consecutive monthly increase, building on the 0.3 percent gain of September. The CEI had positive contributions from growth in nonfarm payrolls, personal income, and manufacturing and trade sales. With that said, industrial production, which was off 0.1 percent in October, subtracted a little from the CEI. Note that decreased output stemmed largely from weaknesses in the mining and utilities sectors, with manufacturing production up 0.3 percent.

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

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Personal Spending Slowed in September even as Income Growth was Strong

The Bureau of Economic Analysis said that personal spending growth weakened somewhat in September, even as personal incomes grew. Consumers purchased 0.2 percent more in September, down from the 0.3 percent rate of August. On a year-over-year basis, the pace of personal spending growth has decelerated from 3.3 percent in June to 2.7 percent in September, suggesting some degree of hesitance on the part of Americans to increase their overall spending.

This was particularly true for durable goods products, which spending in this category essentially flat in the third quarter, according to this data. For the month, spending on durable goods was down 1.3 percent in September, rebounding from a 1.4 percent increase in August. In contrast, nondurable goods spending in the third quarter was up 1.3 percent, with a 0.6 percent gain in September.

Meanwhile, personal income growth remained strong, up 0.5 percent in both August and September. Over the course of the past 12 months, incomes have risen 3.7 percent, but in the third quarter, the annual pace accelerated to 4.45 percent, a sign of renewed strength.

Manufacturing sector wages and salaries edged higher for the month, up from $754.3 billion to $754.6 billion. This figure has grown slow-but-steady, reflecting upward movement from averages of $707.1 billion and $735.4 billion in 2011 and 2012, respectively.  Total wages and salaries were up 0.5 percent and 0.4 percent over the past two months.

With growth in personal income outstripping personal spending in each of the past three months, the savings rate has moved higher. It has grown from 4.4 percent in June to 4.9 percent in September. This was the highest savings rate of 2013 so far, approaching the average of 5.3 percent for January to November of 2012. (I omitted December due to accelerated payouts skewing the data in the lead-up to the fiscal cliff deal.)

These data also show that inflationary pressures remain modest. Similar to the recent consumer price index report, price gains for consumer items have risen in an acceptable range. Year-over-year growth in prices for core personal consumption expenditures was 1.2 percent in September, the same as in August and roughly unchanged for the past six months. This keeps prices below the 2 percent growth threshold established by the Federal Reserve Board, with minimal inflationary pressures for now.

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

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Monday Economic Report – September 30, 2013

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

Increases in consumer spending and business investment in the second quarter boosted the economy, with the government announcing real GDP growth of 2.5 percent last week in its latest revision. This did not change from its previous estimate. Nonetheless, even with modest gains in the second quarter, the United States has grown too slowly in the first half of 2013, up just 1.8 percent. There have been some indications that manufacturing activity and other data have accelerated recently. Surveys show that manufacturers are generally positive about higher orders and production moving forward. Yet, it is also clear that persistent headwinds have prevented even faster economic growth. I anticipate real GDP growth of 2.0 percent for the third quarter.

While manufacturing activity has accelerated of late from weaknesses seen in the spring and early summer, data released last week showed some easing in new orders and the overall pace of growth. The Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) declined slightly from 53.1 in August to 52.8 in September. The lower figure stemmed largely from an easing in sales growth, with new export orders down somewhat. Hiring continues to be positive, but sluggish. Along those lines, manufacturing surveys from the Kansas City and Richmond Federal Reserve Banks also noted some disappointing results for September, pulling back from increases observed in August. In addition, durable goods sales edged higher in August, but new orders data generally disappointed, particularly when you look at the broader market.

Overseas data suggest that the economies in China and Europe continue to stabilize, with PMI readings showing expansion for three straight months in the Eurozone and two consecutive months in China. Hopefully, improvements in the global marketplace will result in increased exports ahead; although, that continues to be a challenge so far this year.

Meanwhile, consumer confidence has ebbed lower, with political gamesmanship and labor market concerns dampening sentiment. Americans responded less positively in surveys from both the Conference Board and the University of Michigan. In each case, the longer-term trend reflects upward movement from earlier in the year or relative to past years, but the recent declines have still been notable. At least for now, however, the reduction in consumer perceptions about the economy has not impacted overall spending behavior, at least not too much. Personal spending rose modestly in August, with year-over-year growth at 3.2 percent. This indicates a faster annual pace than in previous months, suggesting a bit of a rebound.

Looking at the housing market, new home sales rose 7.9 percent in August, recovering somewhat from the sharp drop in July. Higher borrowing costs have reduced residential sales activity, but with the Fed deciding not to taper at its last meeting, mortgage rates have begun to fall, which should be beneficial in the short term. Freddie Mac reported the average 30-year mortgage rate at 4.32 percent last week, down from 4.50 percent the week before. Still, this remains a full percentage point higher than that from the first week of May.

This week, the largest headlines will come on Friday with the release of September’s jobs numbers. Nonfarm payrolls are anticipated to show an increase of around 170,000, or roughly the same as in August. Manufacturing hiring should be positive, but only barely so. The other big news will come tomorrow with the September PMI figures from the Institute for Supply Management. Similar to other sentiment surveys, the consensus expects a modest pullback in the index, with growth easing from the strong rebound noted in both July and August, particularly for new orders. We will also get the latest reports on manufacturing activity from the Chicago and Dallas Federal Reserve Banks and new data on construction spending and factory orders.

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

personal income and spending - sept2013

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