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

The Federal Reserve Board’s Beige Book, released last week, noted some improvements in the economy since last month. The United States is growing modestly, and inflation appears to be in-check, at least for now. This latter point was also confirmed in the most recent price data from the Bureau of Labor Statistics. Yet, the Beige Book also cited weaknesses in the manufacturing sector in many of its districts, with activity mixed and firms hesitant to hire. In fact, the labor market description showed the softer manufacturing market:

The Boston, Richmond, Atlanta, Chicago, Kansas City and San Francisco Districts all reported delayed hiring, often in defense manufacturing, due to fiscal cliff uncertainties. Companies in the Chicago District with trade or investment exposures to Europe reduced their hiring plans as well. Chicago reported that manufacturers are choosing to cut hours instead of reducing headcount in expectation of production rebounds in 2013. Atlanta and Kansas City cited health-care policy changes and costs as another cause for minimal hiring. On the other hand, the New York, Atlanta, Minneapolis and Dallas Districts saw the labor market firming modestly. Finally, contacts in several districts reported difficulties finding qualified workers in some specialized fields, such as skilled manufacturing, energy and IT.

Many other data points out last week tended to echo these weaknesses. Both the New York and Philadelphia Federal Reserve Banks found contracting sales, inventories and employment levels in their respective districts. The Philly survey cited slower sales growth, the desire to keep costs low and uncertainties related to health care and the U.S. fiscal situation as the top reasons why manufacturers were holding back on hiring. Despite this, manufacturing production increased 0.8 percent in December, building on November’s 0.6 percent gain. Hurricane Sandy might explain part of this increase, but modest consumer spending growth was probably also a factor. Retail sales rose 0.5 percent for the month and 4.7 percent for the year. Still, even with these gains, manufacturing production was much slower in the second half of the year compared to the first half.

The residential construction sector continues to be a bright spot, with housing starts soaring to 954,000 at the annual rate in December. This represents a 36.9 percent increase year-over-year and is a clear indication that housing is recovering. Freddie Mac reported that the average 30-year mortgage rate fell to 3.38 percent—a major contributor to the recent progress in the residential market—and home builder confidence continued to grow throughout the year. I expect for housing starts to exceed 1 million units by year’s end—a major accomplishment, even as it remains well below the 2.1 million homes built in 2005 and 2006. Despite this upward movement, challenges remain, especially regarding tougher lending standards and persistent financial challenges for would-be buyers.

This week, we will learn more about the domestic and global manufacturing situation. Surveys from the Kansas City and Richmond Federal Reserve Banks will build on their mixed findings in December. Last month, the Kansas City District had declining activity for the third straight month, whereas the Richmond area noted positive growth, albeit at a slower pace. Hopefully, both districts report stronger production and sales levels to begin the new year. Meanwhile, Markit will report its “flash” Purchasing Managers’ Index (PMI) for the United States, China and Europe. The most recent PMI data continue to show signs of weakness in the Eurozone, with even Germany experiencing declines. This contrasts with the United States and China, which have shown some signs of progress, despite growing only modestly at best. I would expect those same trends to continue.

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

Overall housing data released so far this week are mixed. First, the Census Bureau and the U.S. Department of Housing and Urban Development reported lower housing starts in May, down from a revised 744,000 in April to 708,000 in May. Declines were seen in each region except for the West. New construction of multi-family units led the decline, falling from 214,000 to 192,000 for the month. Single-family construction increased from 500,000 to 516,000.

On the positive side, housing permits were up significantly. They rose from 723,000 to 780,000, reaching its highest level since September 2008. Single-family and multi-family units were both higher. This is obviously a good sign, as it could suggest greater activity in the months ahead.

Overall, the longer-term trend remains positive even with the decline in housing starts in May. Illustrating this upward movement, new residential construction has increased gradually over the past few months, where it stood at 630,000 as recently as October.

Other data tend to back this more optimistic interpretation. For instance, the National Association of Home Builders and Wells Fargo announced that its Housing Market Index rose from 28 in April to 29 in May. This was the second consecutive monthly gain. Gains in the Midwest and West were somewhat mitigated by declining activity in the Northeast and South.

This shows a housing market that is continuing to edge marginally higher, with gradual improvements in a still-depressed environment. Measurements under 50 indicate more weakness than strength, putting it into perspective. Yet, the index in May was at a level not seen since 2007, an indicator of slow-but-sure progress.

Chad Moutray is chief economist, National Association of Manufacturers.

The Conference Board announced that its Leading Economic Index rose 0.4 percent in December, the third consecutive month of gains. Manufacturing played an important role in this month’s increases, with increased new orders and a longer average workweek. Improvements in the employment situation, equity markets and the interest rate spread also made positive contributions to this figure, with lower consumer confidence dragging it lower.

The index has changed, effective with this month’s release, by replacing a measure of the money supply (M2) with a newly-created Leading Credit Index. The switch was made so that the indicator would do a better job of predicting the impact of credit crunches on the business cycle, with this new measure an improved predictor of the recent downturn. In this month’s analysis, the index was lower, providing a slight drag to the composite figure.

The Coincident Economic Index, which measures the current environment, increased by 0.3 percent. All of the subcomponents of this index rose. This includes higher levels of industrial production, manufacturing and trade sales, nonfarm employment and personal income.

This positive report mirrors another national index on the economy from the Chicago Federal Reserve Bank. Its National Activity Index rose from -0.46 in November to +0.17 in December. This measure looks to see if the U.S. is expanding at its historical growth rate; therefore, positive numbers reflect above-average growth. This month’s data suggest a significant improvement, with manufacturing output the leading contributor. The production-related variables shifted from -0.28 to +0.24 for the month, led by stronger manufacturing production and capacity utilization.

Other positive contributors included higher employment and sales. Housing, on the other hand, remains a weak spot. Overall, 85 indicators provided a positive contribution, offset by 32 others.

The three-month moving average for the composite index improved from -0.19 to -0.08 in December. This suggests that, while the overall economy remains below its long-term trend, it is moving in the right direction. Moreover, the risk of recession is reduced, as the index has moved further away from the -0.70 threshold which suggests an increased likelihood of recession.

These two measures – one from the Conference Board and the other from the Chicago Fed – are good news as we enter 2012. The economy is improving, with manufacturers playing an important role in its recent rebound.

Chad Moutray is chief economist, National Association of Manufacturers.

The Census Bureau reported that housing starts fell 30,000 units in August to an annualized 571,000 homes, building on the decline in July. More importantly, it fell below the psychological threshold of 600,000 again, with the market unable to sustain its growth above that point. The decrease was mainly due to a sharp drop-off in multi-family housing starts, which were down from 178,000 in July to 154,000 in August. Single-family housing also fell, but by a smaller amount (from 423,000 to 417,000).

The regional picture was mixed, with fewer starts in the Northeast and South being offset by gains in the Midwest and West. On a year-over-year basis, only the South has seen increases in housing starts.

Building permits, however, were up 3.2 percent in August, reversing last month’s decline. Both single-family and multi-family permitting grew; however, multi-family housing permits rose at a faster clip (up 4.5 percent).

These figures were consistent with new Housing Market Index (HMI) data from the National Association of Home Builders (NAHB) and Wells Fargo. The HMI has been virtually flat for much of the past year within the 13 to 17 range.  In September, it fell from 15 to 14, mostly unchanged from previous months. Regionally, the index fell everywhere except for the Midwest, and both the current and expected sales volume over the next six months remains weak.

NAHB Chief Economist David Crowe said, “The fact that the HMI continues to hover within such a narrow, low range reflects builders’ awareness that many consumers are simply unwilling or unable to move forward with a home purchase in today’s uncertain economic climate. While some bright spots are beginning to emerge in about a dozen select metro areas, the broader picture remains fairly bleak due to the weak economy and job market.”

Overall, these numbers show a housing market that remains depressed. As I noted in this McClatchy News report yesterday, “… housing presents both cyclical and structural problems for manufacturers.” In addition to dampening demand for housing materials and household furnishings from manufacturing companies, the larger macroeconomy is still dealing with a fragile housing situation where upside-down mortgages and foreclosures are hurting people’s “financial stability and preventing some [individuals] from moving to other regions where they might be more prosperous.”

Chad Moutray is chief economist, National Association of Manufacturers.

America’s transportation infrastructure – its roads, bridges, and rails – are in crisis, former Missouri Sen. Jim Talent says. The government should make fixing the nation’s ailing infrastructure a national priority, says Talent, a guest on this week’s “America’s Business with Mike Hambrick” radio program.

Talent is an honorary chairman of the National Association of Manufacturers’ Alliance to Improve America’s Infrastructure.

“I think it’s one of the three or four things the government must do in partnership with the American people if America is going to continue to be prosperous and great in the next generation,” Talent says.

The declining U.S. housing market put a damper on the economy. But are things about to turn around? National Association of Realtors Chief Economist Lawrence Yun will give us the scoop.

Exports have proven to be a bright spot in the economy. General Mills Chief Operating Officer Ian Friendly will tell us how his company, which makes popular foods such as Cheerios cereal, is taking advantage of free trade agreements.

Our nation would save countless lives and billions of dollars if we converted our healthcare records system from antiquated paper files to electronic ones. Jennifer Queen, the parent of a chronically ill child, will join us to tell us why health information technology legislation that would modernize the health care sector is so critical to her family and other Americans.

And “America’s Business” will make a special visit to the factory floor of Image National with company President Doug Bender. The Idaho company makes some of the electric signs that light up shopping centers across America.

In our regular segments, Renee Giachino of American Justice Partnership gives us the latest on tort reform and commentator Hank Cox recalls “The Way It Was.” And the National Association of Manufacturers President Gov. John Engler will close the program with “The Last Word.”

For more about “America’s Business with Mike Hambrick” and to listen to the program online please click here. And for video highlights and more, check out www.americasbusiness.org.