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.

The Federal Reserve Board reported that industrial production rose 0.3 percent in December, somewhat slower than the 1.0 percent gain in November. Much of the growth in November could be explained by production ramping back up after slowdowns from Hurricane Sandy.

The pace of growth in December illustrates that the economy is beginning to recover from its mid-year doldrums. This was especially true for in the manufacturing and mining sectors, which were up 0.8 percent and 0.6 percent in December. Production in utilities was down 4.8 percent for the month.

The good news for manufacturers was that the gains in December were fairly broad-based, with 15 of the 19 major sectors experiencing gains. Both durable and nondurable goods sectors were higher, up 1.0 percent and 0.6 percent. Of particular note, there were strong increases in the primary metals (up 2.9 percent), motor vehicles (up 2.6 percent), apparel and leather (up 1.9 percent), computers and electronics (up 1.5 percent), chemicals (up 1.4 percent), and printing and support (up 1.3 percent) sectors.

Declining production for the month was found in the electrical equipment and appliances (down 1.7 percent), textile and product mills (down 1.6 percent), nonmetallic mineral products (down 1.2 percent), and paper (down 0.4 percent). (continue reading…)

Here is the summary for this month’s Global Manufacturing Economic Update:

While much of the focus of late has been on the fiscal cliff, manufacturers have also been worried about slowing global sales. Business leaders have said that increasing their exports has been a struggle. Yet, despite these headwinds, year-to-date growth in U.S.-manufactured goods has risen almost 5 percent. The good news is that this figure represents positive growth, but it also shows significant easing from the same time period last year. Much of the deceleration in exports corresponded with challenging economic environments in a number of countries, going beyond Europe’s struggles to include Brazil, China, Japan and elsewhere.

The latest data indicate that the global economy appears to be strengthening, which should bode well for improving international trade this year. Europe and Japan are exceptions as both continue to experience significant weaknesses in their respective markets. The purchasing managers’ indices (PMIs) for both remain negative, with new orders, production and employment contracting. Political and economic uncertainties permeate these data, with manufacturers uncertain about what  the future holds. Elsewhere, the trends are more positive. Seven of the top 10 markets for U.S.-manufactured goods have economies that are growing—a definite improvement from three months ago when just four of them did. As a result, we are seeing pickups in manufacturing activity and business confidence. This does not mean that these economies are growing strongly, but it does suggest that global trends have stabilized and are moving in the right direction.

Ironically, the political battles over U.S. fiscal policy had implications beyond our borders, with concerns about a possible economic downturn a top concern among our trading partners. This was especially the case for Canada, our largest trading partner, but other nations fretted about our fiscal situation, as well. With a deal to avert the fiscal cliff, at least some of these anxieties will go away for now. However, there are still larger concerns about the long-term fiscal health of the United States, and possible battles over raising the debt ceiling will keep these issues front and center. Nonetheless, the United States is now poised for modest growth in 2013, with rising exports a major contributor both to our macroeconomic picture and to manufacturers’ business plans.

Next week, we will receive data on November’s U.S. trade balance. The previous month saw a widening of the trade deficit, with both exports and imports lower. Hopefully, a slowly improving global economy will help to turn that around. Globally, we will get the latest industrial production and retail sales data from a number of European countries, with the European Central Bank meeting to discuss its monetary policy plans for the first time in 2013. Trade data will also be released for China, as well as indices for consumer and producer prices. The larger number to watch from the Chinese perspective will be real GDP growth, which will be out on Wednesday, January 16, and is expected to show an increase of 7.7 percent.

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

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

The Federal Reserve noted the U.S. economy has seen some modest improvements during the past month, with a number of indicators highlighting this progress. Hurricane Sandy had an impact, both in slowing down activity in October and increasing it in November in its aftermath. Industrial production rose 1.1 percent in November, recovering from October’s 0.7 percent decline, with repairs from the storm possibly explaining at least some of these gains. Similarly, retail sales also rebounded for the month, led by strong auto sales and spending on appliances, building materials, furnishings and clothing. Lower petroleum costs also helped to ease Americans’ pocketbooks, with gasoline station sales down 4 percent in November on lower prices.

Despite the optimistic news on production and sales, major headwinds confront businesses and consumers. Manufacturing production remains 0.6 percent below July’s levels, a reflection of the weaker economic environment during the past few months. These headwinds mostly stem from uncertainties related to the fiscal cliff and the impact of a slowing global economy on international orders. The trade balance widened in October on reduced exports and imports. While year-to-date manufactured goods exports are higher than last year, they reflect significant easing in trade volumes, resulting from a weakened economic environment among our major trading partners. Meanwhile, in the United States, small business owner confidence plummeted last month on worries about the political environment and diminished expectations for sales, earnings, inventories and capital spending.

High unemployment rates and challenges to the U.S. and global economies are persistent worries for the Federal Reserve Board. The Federal Open Market Committee (FOMC) voted to purchase $85 billion in mortgage-backed and long-term securities each month in an effort to push down long-term interest rates and stimulate economic growth. Moreover, it will continue to do so until the unemployment rate hits 6.5 percent or forecasted inflation exceeds 2.5 percent. These economic indicator targets replace earlier language about maintaining these policies through mid-2015. Still, in practicality, the Fed does not expect the unemployment rate to reach 6.5 percent until 2015, according to its forecasts, suggesting that it will continue to pursue these policies for the foreseeable future.

The fact that inflation remains in-check, at least for now, facilitates the Fed’s willingness and ability to stimulate growth. Consumer and producer pricing data released last week back this up, with lower energy costs helping to ease cost pressures. Core consumer prices have risen 1.8 percent over the past 12 months, and manufacturing raw material costs—down 1.2 percent in November—have risen just 1.0 percent year-over-year. These rates are significantly lower than earlier in the year.

This week, we will learn more about regional manufacturing activity and housing. Surveys from the Kansas City, New York and Philadelphia Federal Reserve Banks—which all indicated a contraction last month—will likely show the sector continuing to struggle. Housing starts data, on the other hand, should continue to illustrate strength in the residential construction sector. Other highlights for the week include data on leading indicators, a second revision to GDP and personal spending.

Note: Due to the holidays, the next report will be released on Wednesday, December 26. There will be no report issued during the week of December 31. The schedule will resume on Monday, January 7, 2013.

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

The Federal Reserve Board said that industrial production rose 1.1 percent in November, more than offsetting the revised 0.7 percent decline experienced in October. A fair share of the decrease in October could be explained by slowdowns resulting from Hurricane Sandy, so these figures suggest that production impacted by the storm have been restored.

The bottom line is that industrial production appears to be recovering from some of the weaknesses of the autumn. However, even with these gains, manufacturing production remains 0.6 percent below where it was in July. That is true for capacity utilization, as well. While manufacturing capacity utilization improved from 75.9 percent in October to 76.6 percent in November, it is still below the 77.5 percent rate observed in July. This indicates that larger weaknesses – including uncertainties related to slowing global growth and fiscal cliff – continue to have an impact.

The good news is that the improvements in November were mostly broad-based in the manufacturing sector. Both durable and nondurable goods production were higher, up 1.6 percent and 0.5 percent, respectively. Sectors with the largest monthly gains included motor vehicles and parts (up 4.5 percent), primary metals (up 3.7 percent), wood products (up 3.4 percent), miscellaneous durables (up 3.4 percent), apparel and leather (up 2.5 percent), electrical equipment and appliances (up 2.3 percent), and plastics and rubber products (up 2.1 percent). As we saw in yesterday’s retail sales figures, at least part of these increases might be explained by repairs and replacements resulting from Hurricane Sandy.

Some areas of weakness were computer and electronic products (down 0.4 percent), aerospace (down 0.3 percent), petroleum and coal products (down 0.2 percent), and chemicals (down 0.2 percent).

Chad Moutray is chief economist, National Association of Manufacturers.

The Conference Board reported that its Leading Economic Index rose 0.2 percent in October, building on the 0.5 percent gain in September. The primary drivers of the increase, though, were credit and interest rates. The other positive contribution to the index came from improvements in initial weekly unemployment claims. Manufacturing provided an essentially neutral contribution, with stalled production, new orders and employment yielding a cumulative contribution of -0.01. Other negative contributors to the index were reduced building permits, lessened consumer confidence, and a slightly lower stock market.

Meanwhile, the Coincident Economic Index – which measures the current climate – increased 0.1 percent. The largest driver of the higher figure was strengthened manufacturing and trade sales, with higher nonfarm payrolls and personal income also making positive contributions. Industrial production, which declined 1.4 percent in October, was the lone negative contributor to the Coincident Index.

Overall, these numbers reflect an economy that is growing modestly, but still showing persistent weaknesses. Manufacturing activity, in particular, remains soft, with headwinds from slowing global sales and anxieties about the resolution of the fiscal cliff having an impact. If policymakers were able to avert the cliff, that would lift at least one of the uncertainties that are hampering growth in the sector.

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

The Federal Reserve Board said that industrial production declined 0.4 percent in October, reversing the 0.2 percent gain in September. Industrial production peaked in July at 97.9. In October it was 96.6, a decrease of 1.4 percent in just three months. This suggests what we already knew – the manufacturing economic environment remains choppy.

Uncertainties related to the fiscal cliff and slowing global growth are challenging sales and forcing business leaders to stall or curtail activity. Beyond these points, Hurricane Sandy impacted production in some areas. The Philadelphia Fed yesterday said that the average manufacturer in its region with reduced activity lost 2.2 days of down time.

Manufacturing production fell 0.9 percent in October, with 1.7 percent less production than in July. The decrease for the month was broad-based. Only two sectors – plastics and rubber products (up 0.2 percent) and nonmetallic mineral products (up 0.1 percent) – cited increased production levels in October. Outside of major sectors, high-technology industries report higher production, up 1.1 percent, on increased demand for computers and communications equipment.

Both durable and nondurable goods production was lower, down 0.6 percent and 1.0 percent. Production was down significantly in October in a number of sectors. This includes: apparel and leather (down 2.1 percent), machinery (down 1.9 percent), food and beverages (down 1.8 percent), printing and support (down 1.5 percent), electrical equipment and appliances (down 1.4 percent), and paper (down 1.2 percent). (continue reading…)

Below is the summary of this month’s Global Manufacturing Economic Update, with the full report found here:

In the past month, there have been some signs that the overall global economy is improving, despite significant headwinds. We continue to see modest growth in North America, including the United States and our largest trading partners, Canada and Mexico. Both Brazil and China have seen gains in production activity, with Brazil edging into expansion territory (with a Purchasing Managers’ Index (PMI) of 50.2) and China just barely there (49.5). (PMI values over 50 suggest that manufacturing activity is expanding, with contractions for values under 50.) This is not to suggest that these nations’ economies are strong, as persistent weaknesses continue to dampen growth, but it does indicate a more positive picture than seen in other regions of the world, most notably in Europe.

Manufacturing activity in the Eurozone is off sharply. The Flash Eurozone Manufacturing PMI fell from 46.1 in September to 45.3 in October. Declining new orders continue to reduce production and employment across the continent. October manufacturing PMI values from Markit show contracting activity levels, even as some indices improved for the month. This includes France (43.5, up from 42.7), Germany (45.7, down from 47.4) and the United Kingdom (47.7, down from 48.4). At the same time, these data are supported by reports that Eurozone industrial production has fallen nearly 3 percent over the past year, and unemployment has risen to an all-time high of 11.6 percent. (Spain’s unemployment rate is a whopping 25.8 percent.) Nonetheless, despite these dire statistics, it is important to note that the European Central Bank’s actions—including its program to purchase sovereign debt from troubled nations—has lifted spirits somewhat, even if it has not solved the underlying structural challenges.

As noted last time, six of the top 10 export markets for U.S.-manufactured goods are currently contracting, with PMI values of less than 50. This complicates our ability to increase exports. The most recent data suggest that the U.S. trade deficit widened in August on lower goods exports and imports. Higher petroleum costs accounted for much of this, but there were also significant declines in other categories, including industrial supplies, foods and consumer goods. On the other hand, year-to-date manufactured goods exports were $43.6 billion higher in 2012 than for the same period in 2011. While this suggests a much slower pace than in 2010 or 2011 (mostly due to the slower global economic environment), it is perhaps surprising that export growth is positive at all given the number of headwinds in the marketplace right now.

Over the course of the next week, several PMI reports will come out providing even greater detail on the current global manufacturing environment. This will culminate in the release of the JPMorgan Global Composite PMI on Tuesday, which summarizes activity across 32 different countries. The last one observed falling output, new orders and employment across the world manufacturing sector, with some countries helping to lift the index from 48.1 to 48.9. I would expect this figure to reflect some gains overall but continuing to contract. The other highlight of the week will come on Thursday, with the release of new international trade data for September.

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

The Federal Reserve Board said that industrial production increased 0.4 percent in September, partially recovering from its sharp 1.4 percent decline in August. The largest drivers of the gain (as well as the prior month’s fall) were in the mining and utilities sectors, with production in the two up 0.9 percent and 1.5 percent respectively in September.

In the manufacturing sector, production grew by 0.2 percent for the month, an improvement from the 0.9 percent loss the month before. Year-over-year growth has been 3.2 percent, a slowdown from earlier in the year. July 2011 to July 2012 gains in manufacturing production were 5.0 percent.

It is clear that manufacturing growth has been modest at best, with significant weaknesses apparent in the data. Capacity utilization remained at 76.8 percent in September, but it had stood at 78.0 percent as recently as February.

Looking at specific sectors, the largest monthly gains were seen in the aerospace (up 2.4 percent), electrical equipment and appliances (up 1.8 percent), apparel and leather (up 1.6 percent), and food and beverages (up 1.1 percent) sectors. The steepest declines were among motor vehicles (down 2.5 percent), printing (down 1.1 percent), primary metals (down 1 percent), and plastics and rubber (down 0.7 percent) sectors.

Today’s report reflects continued weaknesses in the manufacturing sector, even with the improvement in September. Growth among manufacturers has been disappointing in recent months, with softness in global sales and uncertainties in the U.S. market taking a definite toll. I would expect for this choppiness to continue in the coming months, especially with the looming fiscal cliff and slowness among our major trading partners on the minds of manufacturing leaders. In order to get things turned around Washington must act to address the fiscal cliff and other lingering issues that are slowing growth.

Chad Moutray is chief economist, National Association of Manufacturers.

The Federal Reserve Board reported that industrial production increased 0.6 percent in July. This was slightly higher than expected and above the 0.1 percent gains experienced in both May and June. Capacity utilization was also higher, rising from 78.9 percent to 79.3 percent.

Manufacturing production increased 0.5 percent in July, matching the similar increase in June. Year-to-date, manufacturers have produced 5 percent more. In July, the durable goods sector was once again the dominant driver of growth, up 0.8 percent, with nondurable goods production flat for the month. Manufacturing capacity utilization increased from 77.6 percent to 77.8 percent.

The largest gains in manufacturing production came from the motor vehicles (up 3.3 percent), aerospace (up 1.6 percent), computers and electronic products (up 1.5 percent), primary metals (up 1.1 percent), and miscellaneous durable goods (up 1.2 percent) sectors. These were counterbalanced by declines in machinery (down 1.9 percent), wood products (down 1.8 percent), and textile and product mills (down 1.5 percent), among others. Overall, of the 19 major sectors, seven of them experienced declines. (continue reading…)