The Census Bureau said that construction spending decreased 2.1 percent in January, the first decline in 10 months. Private, nonresidential construction activity fell 5.1 percent for the month, which was the main reason for the lower total figure. Residential spending was unchanged, and public construction activity declined 1.0 percent. Still, looking at a longer time frame, construction was up 7.1 percent year-over-year, with private housing construction increasing a whopping 22.0 percent and nonresidential activity rose 4.0 percent.

For manufacturers, the value of construction projects in January was 2.9 percent lower than in December, falling from $52.2 billion to $50.6 billion for the month. Still, December’s construction activity appears to be a bit of an outlier. If you were to exclude December from the analysis, there would be a clear upward trend in the manufacturing sector data from July’s value of $46.6 billion. The largest gains during that time frame appear to be in the food, beverage, and tobacco; chemical; and nonmetallic mineral sectors.

Looking private, nonresidential construction as a whole, the figures were mostly mixed. On a year-over-year basis, the strongest increases in construction activity occurred in the office (up 26.2 percent), lodging (up 13.3 percent), manufacturing (up 13.1 percent), educational (up 5.8 percent), and transportation (up 4.4 percent) sectors. For the month of January, the largest gains were in the health care (up 2.9 percent), religious (up 1.7 percent), and communications (up 1.2 percent) sectors; whereas, the biggest declines were in the power (down 14.5 percent), lodging (down 6.1 percent), and amusement and recreation (down 4.5 percent) sectors.

Public sector nonresidential spending was mostly lower, with year-over-year activity down 2.7 percent. Nonetheless, there were some monthly increases in construction spending in January. These included higher spending in the power (up 9.0 percent), commercial (up 3.0 percent), and amusement and recreation (up 1.4 percent) segments.

Chad Moutray is chief economist, National Association of Manufacturers.

Yesterday, NAM Executive Committee Member Drew Greenblatt, president and owner of Marlin Steel Wire Products in Baltimore, testified before the House Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust Law. The focus of the hearing was on the impact of regulations. In his testimony Mr. Greenblatt examined the negative impact of regulations on jobs and the global competitiveness of U.S. businesses.

Manufacturers are facing a growing number of burdensome regulations from various government agencies making it harder to compete today’s global marketplace. Mr. Greenblatt stated:

“To compete on a global stage, manufacturing in the United States needs policies that enable companies to thrive and create jobs. Growing manufacturing jobs will strengthen the U.S. middle class and continue to fuel America’s economic recovery.”

We need to find ways to reduce the cumulative burden of regulations on manufacturers so they can focus on getting Americans back to work.

The Institute for Supply Management’s purchasing managers’ index (PMI) rose much stronger than expected in February, up from 53.1 in January to 54.2 in February. The consensus estimate had been for the PMI to decline to around 52.5. Today’s report is similar to the results observed last week when Markit announced its Flash PMI data for the United States.

In both cases, the principal driver was higher sales. The index for new orders rose from 53.3 to 57.8. This was the second month of expanding orders, which is a good sign that manufacturing activity has picked up so far in 2013. This includes export orders, with its index rising from 50.5 to 53.5. Shipments data were also strongly higher, up from 53.6 to 57.6.

Most of the subcomponents provide better news about the manufacturing sector, but one exception is the pace of hiring. The employment index dropped from 54.0 to 52.6, suggesting that the pace of growth has slowed. This is consistent with other data which have shown hiring growth continuing to lag behind.

One other caveat of note was the escalation in pricing pressures. The index for the prices paid for raw materials jumped from 56.5 to 61.5, its fastest pace since this time last year. (continue reading…)

Two manufacturing surveys released this morning provide a mixed picture of what is happening in the Midwest, with one showing a strong rebound and the other reflecting continued weaknesses.

For its part, the Kansas City Federal Reserve Bank reported that manufacturing activity in its District contracted for the fifth consecutive month. The composite index of general business activity fell from -2 in January to -10 in February. All of the key measures of activity were down sharply across-the-board, including new orders, shipments, production, the average workweek, and inventories. For example, the index for sales dropped from -2 to -25, the largest shift of any of the sub-components. As is often the case, worries about sales tend to depress sentiment.

The sample comments provided some reference to significant decline. One respondent cited the bad weather, with blizzard conditions in the Kansas City region closing facilities. This individual said, “That is putting us behind last year.”

Many of the other comments centered on the across-the-board federal budget cuts, which are slated to go into effect on March 1. A manufacturer said, “Very concerned about the reduction in military spending which will likely happen. This could force us to reduce planned capital spending.” Another respondent added, “Sequestration is causing customers to delay and/or push back orders.”

Despite the dramatically lower data for February, manufacturers in the Kansas City Fed District remained cautiously optimistic about higher activity over the next six months, albeit less so that in January. The forward-looking composite index decreased from 7 to 4, but the index for new orders was still strong at 15 (down from 19 the month before). While hiring is expected to increase slowly in the coming months, the manufacturers surveys anticipate capital spending to rise (up from 3 to 18). (continue reading…)

The Bureau of Economic Analysis revised its real gross domestic product (GDP) estimates up from the previously released -0.1 percent to +0.1 percent growth in the fourth quarter of 2012. While this suggests that the U.S. economy eked out some slight growth last quarter, it also means that the economy was essentially flat.

Economists have assumed that real GDP would be revised higher – with consensus estimates of around 0.5 percent – since the higher-than-anticipated export numbers were released earlier in the month. Both exports and imports declined between the third and fourth quarters, with exports down at a faster pace. The contribution from net exports shifted from subtracting 0.25 percentage points to adding 0.24 percentage points between the first and second estimates. This was obviously helpful in lifting the GDP estimate.

Much of the rest of the story did not change much from the first GDP estimate, which was released at the end of January. The largest declines came from lower spending on inventories and from sharply reduced defense spending. The latter was the result of two things: (1) higher-than-normal end-of-fiscal-year spending on defense in the third quarter which was unlikely to be repeated, and (2) the threat of across-the-board federal spending cuts (or “sequestration”). As a result, defense spending fell 22.0 percent in the fourth quarter, more than offsetting the 12.9 percent increase in the third quarter. Total government spending – including at the federal and state and local levels – subtracted 1.38 percentage points from real GDP. This was larger than the original estimate of 1.25 percentage points.

At the same time, businesses spent less on inventory replenishment in the fourth quarter. Part of this was expected, as firms had already spent large amounts on inventories in the third quarter, helping to boost real GDP in that quarter. In the fourth quarter, though, the decline in inventory spending reduced real GDP by 1.55 percentage points, larger than the original estimate of 1.27 percentage points. (continue reading…)

This morning on Capitol Hill the National Association of Manufacturers (NAM) hosted a Shopfloor event to provide Congressional staff with additional information on the importance of the miscellaneous tariff bill (MTB). The current MTB expired at the end of 2012 and manufacturers have faced higher tariffs on products critical to their operations that are not available here in the United States.

The participants in today’s Shopfloor event included Linda Dempsey, vice president of international economic affairs for the NAM; Jessica Lemos, director of international trade policy; House Ways and Means Committee Chairman Dave Camp, Senator Bob Casey; Ron Eva, global sourcing and contracting manager for BASF Corporation and Ed McAssey, COO of Lasko Products, Inc.

Chairman Camp and Sen. Casey both discussed the importance of passing a bill as soon as possible. The MTB has bicameral and bipartisan support and helps support and create jobs.

Lasko Products produces desktop and oscillating fans at facilities in Pennsylvania, Tennessee and Texas and they employee 900 people. Mr. McAssey discussed how important the MTB is to the competitiveness of the company. Without the MTB they will see costs rise, making it more expensive to manufacture fans, putting jobs at risk. The failure to move an MTB will also resonate throughout the supply chain for manufacturers like Lasko, impacting even more jobs.

Mr. Eva from BASF talked about the importance of the MTB to help maintain competitiveness in markets such as automotive, printing, packaging, telecommunications and agriculture. BASF has more than 100 facilities in 31 states in the United States and employ more than 15,000 people. The global market is becoming increasingly more competitive and the MTB helps BASF better compete against this growing competition.

Following the Shopfloor event dozens of manufacturers met with members of Congress and staff in the House and Senate to drive home the importance of moving an MTB as soon as possible. “There is a lot of talk about growing manufacturing jobs and this is an easy step Congress can take to do just that,” said the NAM’s Jessica Lemos. With manufacturers already facing a 20 percent cost disadvantage compared to our major trading partners it’s important Congress gives manufacturers the tools they need to compete.

The Census Bureau reported that durable goods orders dropped 5.2 percent in January, its first decline since August. As was the case at that time, the largest factor in the decrease was a sharp drop in aircraft orders, both for defense and non-defense. Motor vehicle sales were flat, but the transportation sector as a whole had new order fall nearly 20 percent. Reductions in defense spending were largely at play in the lower defense aircraft figures. Excluding transportation, new orders would have risen 1.9 percent.

This latter point suggests that the headline number is somewhat misleading, as there were notable pockets of strength to report. Core capital goods items, or non-defense capital goods excluding aircraft, had new order increases of 6.3 percent in January. This was the fastest pace for core capital goods orders since December 2011.

The sector with the largest gains was machinery, with new sales up 13.5 percent. Other sectors with higher monthly sales included electrical equipment and appliances (up 1.4 percent), other durable goods (up 1.3 percent), and fabricated metal products (up 1.0 percent). Besides aircraft, sectors with declining new orders in January included computer and electronic products (down 5.3 percent) and primary metals (down 3.6 percent).

Meanwhile, shipments of durable goods shrunk 1.2 percent in January. The weaker shipments data were in a number of categories, including computer and electronic products (down 3.5 percent), primary metals (down 3.4 percent), and transportation (down 2.3 percent). Excluding the transportation sector was not enough to make the figure positive, as it would have declined 0.7 percent without it. Some positives, though, were higher shipments from the fabricated metal products (up 1.4 percent), other durable goods (up 1.2 percent), and electronics and appliances (up 0.5 percent).

Chad Moutray is chief economist, National Association of Manufacturers.

Markit reported this morning that the Chinese economy continued to grow in February, but at a somewhat slower pace. The HSBC Flash China Manufacturing Purchasing Managers’ Index (PMI), which is prepared by Markit, declined from 52.3 in January to 50.4 in February. The good news is that this index has been in expansion territory for four straight months (having contracted for 12 months prior to that). On the negative side, many of the subcomponents of this index eased in February, signifying a slower pace of activity.

Indeed, the index for output decreased from 52.7 to 51.2, and new orders dropped from 52.7 to 51.2. Hiring activity also slowed down, off from 51.2 to 50.5, indicating employment growth just barely above being flat. There were some measures which were contracting, including new export orders, inventories, and backlogs of work. The export sales figure shifted from just above neutral (50.1) to just barely below it (49.8).

These facts notwithstanding, we still expect for the Chinese economy to grow in 2013, picking up the pace from some of the weaknesses observed last year. The most recent real GDP figures suggested growth of 7.9 percent year-over-year in the fourth quarter of 2012. The forecasts for the current quarter are for growth just barely over 8 percent, with industrial production at the 10.5 percent rate. Therefore, the underlying story line of progress in the China’s economy is not altered by the latest Markit readings of slower activity in February.

Chad Moutray is chief economist, National Association of Manufacturers.

The Chicago Federal Reserve Bank said that the U.S. economy weakened in January. The National Activity Index (NAI) declined from 0.25 in December to -0.32 in January. Softness in the manufacturing sector contributed to the decrease in the index, with industrial production down 0.4 percent for the month. Other figures which lowered the figure included reduced housing starts and a slightly smaller contribution from employment-related indicators.

One of the unique aspects of the NAI is that it looks at the economy relative to its long-run historical trend, with negative values suggesting that the U.S. economy is growing below its historical average. IN addition, when the 3-month moving average falls below -0.70, the risk of recession is increased.

With these latest figures, the 3-month moving average is 0.30, up from 0.23 last month. This indicates that the national economy continues to grow modestly above its historical trend, even as it is clear (particularly with the January numbers) that there are some persistent weaknesses. Ideally, we would like to see stronger growth moving forward, particularly in the manufacturing sector. But, this will require business leaders feeling more confident about the economic environment than they do right now, with much of the current weakness can be explained by uncertainties related to the political wrangling over the U.S. fiscal situation.

Chad Moutray is chief economist, National Association of Manufacturers.

In contrast to the Empire State survey released last week which found a rebound in manufacturing activity, the Federal Reserve Bank of Philadelphia’s Business Outlook Survey observed contracting levels once again. In fact, the Philly Fed’s composite index of general business conditions declined from -5.8 in January to -12.5 in February, and it has been in negative territory for 7 of the past 10 months. Roughly half of the respondents to the latest survey said that the economic environment had not changed between January and February, with almost 32 percent suggesting it had decreased.

The principle driver of the lower figures in February – as it often is – was lower sales. The index of new orders dropped from -4.3 to -7.8. Nonetheless, there were some signs of modest improvements. The shipments index rose from 0.4 (essentially flat) to 2.4 (slight growth), and there was similar progress for delivery times, employment, and the average workweek. The workweek, though, continued to decline, albeit at a much slower pace. Meanwhile, inventories remain in contraction territory, and the pace of raw material price increases eased somewhat.

Even with the more-negative headline numbers, manufacturers in the Philadelphia Fed District were cautiously optimistic about future activity, even with a number of headwinds zapping current sentiment. In a series of special questions, nearly 54 percent of those surveys said that they expect production to increase in the first (and current) quarter of 2013 relative to what they were doing in the last quarter of 2012, compared to one-quarter who expect a decline. Looking forward to the next six months, the indicators for expected levels of activity remain strongly positive, with just over one half thinking that sales will improve and other measures higher across-the-board.

Chad Moutray is chief economist, National Association of Manufacturers.