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

In a slow economic news week, the stock market’s ascent became one of the top headlines. The Dow Jones Industrial Average (DJIA) passed 15,000 for the first time, a feat that was even more impressive after the depths of the decline during the financial crisis. The DJIA had previously peaked at 14,164.53 on October 11, 2007, before plummeting to a low of 6,547.05 on March 9, 2009. It has slowly moved higher since then, closing last week at 15,118.49. As impressive as the DJIA records might be, there is also a debate about whether the stock market’s all-time highs are warranted given some of the current economy’s weaknesses. Historically low interest rates have helped to push equity values higher, with Americans looking for more attractive yields for their dollars. Regardless of the debate, rising equity values should help to generate more wealth and consumer optimism, and manufacturers hope this means greater spending.

Retail sales data for April will be released this morning, and the consensus estimate is for spending to be flat. This would be consistent with slower growth in personal spending and the reduction in wholesale sales in March. Moreover, while consumer credit rose 3.4 percent in March, much of the higher figure stemmed from increased student loan borrowing. Auto loans were also higher, but revolving credit lines—which include credit cards—declined for the month and were essentially flat over the past year. This suggests some reluctance to take on more debt to support increased consumer spending, which, to the extent that it means smarter personal finance habits, is perhaps a good thing. (continue reading…)

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

The Institute for Supply Management’s (ISM) Purchasing Managers’ Index showed a surprisingly strong gain in new orders and production in February. This report suggested that some of the weaknesses experienced in the second half of 2012 were beginning to dissipate, signaling a pickup in manufacturing activity to begin 2013. But across-the-board fiscal budget cuts, persistent challenges overseas (particularly in Europe) and higher energy costs stand in the way. Nonetheless, the ISM index was one of several indicators released last week showing modest improvements in the sector. Some regional data from the Chicago and Richmond Federal Reserve Banks also indicated stronger growth in February.

That does not mean that the U.S. economy has fully turned a corner, as evidenced by several key data points. The reality is more nuanced than that. First and foremost, real gross domestic product (GDP) was revised upward from shrinking by 0.1 percent in the fourth quarter of 2012 to growing by the same amount at the beginning of this year. Sharp reductions in defense and business inventory spending subtracted from growth, outweighing modest gains in business fixed investment and consumer spending. In addition, regional manufacturing data are quite mixed. While some regionals show improvement, as noted above, others continue to struggle. The Kansas City Federal Reserve Bank’s manufacturing survey, for instance, reported a significant contraction in activity in February, with worries about budget sequestration and poor weather top of mind. Similarly, the Dallas Federal Reserve Bank observed slower growth and reduced optimism last month.

Consumer confidence appears to have rebounded from the declines seen in December and January. Higher payroll taxes significantly influenced the decrease in January. In surveys from both the Conference Board and the University of Michigan, sentiment increased in February, with Americans generally more positive about the economic outlook. This is true despite the many headwinds that exist. With that said, it remains to be seen whether this confidence translates into higher purchases. Personal spending fell for durable goods in January and remained flat for nondurables. The larger headline on the personal income front, though, was the massive shift in dividend and other payments in December in advance of the fiscal cliff deal. This led to a large increase in personal income in December, followed by a large decrease in January. Beyond this story, though, weaknesses in the manufacturing sector slowed wage and salary growth in the second half of 2012, continuing into January.

This week, the focus will be on international trade and employment. Several surveys tended to show manufacturing employment growth lagging behind stronger activity in new orders and production. Indeed, many businesses are waiting for a more solid economic footing before making the commitment to begin hiring again, or to pick up the pace of hiring. The consensus is for roughly 150,000 nonfarm payroll workers to be added in February, with slow growth in manufacturing hiring similar to that of the past couple months. On the export front, recently improving economic conditions in many of our largest trading partners could translate into increased sales.

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

With the threat of the fiscal cliff looming, many businesses began thinking about the tax implications of going off of the cliff, and they adjusted their payouts accordingly. As proof of this, the Bureau of Economic Analysis (BEA) said that personal income soared 2.6 percent in December, building on the 1.0 percent gain in November.

Digging deeper into the data, it is clear that many companies pushed up their dividend payouts to avoid possible higher taxes in 2013. (As part of the fiscal cliff deal enacted on January 2, 2013, dividend taxes went from 15 percent to 20 percent for those individuals earning more than $400,000, but it could have gone up to 39.6 percent had we gone over the fiscal cliff.) Personal dividend income increased 4.5 percent in November and a whopping 34.3 percent in December. There has also been evidence of bonuses being pushed into December, as well, even though BEA does not keep track of that.

Manufacturing wages and salaries rose from $751.4 billion in November to $756.2 billion in December. On average, manufacturing wages and salaries have continued to rise, up 7.2 percent over the past year. This is a reflection of the increased production in the sector overall. In contrast, wage and salary disbursements in all private sectors rose 4.4 percent over the past year.

While income was increasing significantly in December on end-of-year moves, personal consumption was growing more slowly, up 0.2 percent. The largest spending gains were in durable goods, up 1.0 percent (and extending the 2.7 percent increase of November). Based on the GDP data released yesterday, we know that much of this increase was in the motor vehicle sector. Nondurable spending declined 0.2 percent. For the year, though, personal spending numbers have been decent, up 3.6 percent, helping to boost demand for manufactured goods.

With income increasing substantially outstripping spending growth, the savings rate jumped from 4.1 percent in November to 6.5 percent in December. It had been as low as 3.3 percent in September. The savings rate is now at its highest point since May 2009; although, I would expect for it to settle back to reality in January once these one-time-only wage increases are no longer part of the picture.

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

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

We end the year with mixed news on the economy and ever-present uncertainty about the U.S. fiscal situation. The Bureau of Economic Analysis upwardly revised its figure for third-quarter real GDP to 3.1 percent—a healthy increase from its original estimate of 2 percent. However, slowing global sales and anxieties about the fiscal cliff have caused consumers and businesses to pull back. Both the Manufacturing Alliance for Productivity and Innovation (MAPI) and the National Association for Business Economics (NABE) suggest that industrial production will grow more slowly in 2013. Overall employment is also not anticipated to change much from this year.

Several other data points suggest continued sluggishness, even as some point to modest improvements during the past month. The Conference Board’s Leading Economic Index declined in November and has been flat over the course of the past six months. The Chicago Federal Reserve Bank’s National Activity Index finds that the U.S. economy continues to operate below its historical average. Meanwhile, manufacturing surveys from the Kansas City and New York Federal Reserve Banks observe contracting activity levels, with uncertainties about the fiscal cliff negatively impacting hiring and sales. However, the Philadelphia Fed Manufacturing Survey noted improvements among manufacturers in its region, with the recovery from Hurricane Sandy explaining part of the progress.

The latest personal income and spending numbers also show the bounce back from the storm. Both had fallen in October but recovered somewhat in November. New durable goods orders also improved, with healthy gains across-the-board except for the aerospace sector. To be fair, durable goods activity remains below its peak in July, but the recent data are still a sign of progress. The key will be whether this can be sustained given the uncertainties noted elsewhere. Manufacturers appear to be cautiously optimistic about future activity despite their concerns about the fiscal cliff.

Housing continues to be a bright spot in the economy, much as it has throughout 2012. Permits rose to 899,000 in November, the fastest pace in more than four years. This is an important proxy of future residential construction. Overall housing starts remain on a slow-but-steady upward trajectory, even as they dipped slightly in November to 861,000. The sector is experiencing greater confidence, and while hurdles still hold back even stronger growth, the prospects are for housing starts to grow to at least 950,000 by the end of 2013.

This will be a shortened week due to Christmas, but there are some key economic indicators that will be released. Regional manufacturing activity in Chicago and Richmond is expected to show continued weaknesses. The other highlight will be the latest consumer confidence figures from the Conference Board. We will see if consumer sentiment declines in the Conference Board’s index, much as it did in the University of Michigan’s survey.

Chad Moutray is the chief economist, National Association of Manufacturers. Note that there will not be a report next week, with the scheduling resuming on Monday, January 7, 2013.

The Bureau of Economic Analysis said that personal spending rose modestly in April, up 0.3 percent. This was slightly higher than the 0.2 percent growth observed in March. Weaker personal income growth held purchases back, with personal income increasing just 0.2 percent (down from 0.4 percent the month before).

With spending outstripping income, the savings rate dipped to 3.4 percent, essentially the low levels seen in the past three months. This represents a falloff in savings (or conversely, an increase in borrowing) from the 4 percent rate of January or the 4.8 percent of one year again. More Americans are needing to utilize their savings to make purchases, a trend that has persisted for the past year or so.

Manufacturing wage and salary disbursements rose from $715.3 billion in March to $719.6 billion, continuing a gradual trend upward. Looking at spending on manufacturing goods, these were also higher, but mixed. Goods purchases overall were up $3.8 billion to $3.82 trillion at the annual rate. Durable goods spending rose $7.7 billion; whereas, nondurable goods purchases fell by $3.9 billion.

Inflationary pressures continue to ease. Prices for consumer items are now up 1.8 percent at the annual rate, down from 2.1 percent the month before. In general, goods prices have edged lower each month for the past few months, with the most recent decline assisted by lower energy costs.

Chad Moutray is chief economist, National Association of Manufacturers.