The Federal Reserve Bank of Philadelphia’s Business Outlook survey found that manufacturing activity in its district weakened in January. The composite index of general conditions declined from 4.6 in December to -5.8 in January. This reflects seasonal adjustments revisions in the historical data series, something that is commonly performed at the beginning of the year.

Illustrating the slower growth and challenges faced in the manufacturing sector over the past year, the index was negative (or contracting) in 6 of the past 12 months. At least part of the increase in December could be explained by recovery from Hurricane Sandy.

Many of the sub-components were also in contraction territory, including new orders, inventories, prices received, employment, and the average workweek. Almost one-third of respondents, for instance, said that their sales levels had decreased in the past month, with another 42 percent indicating no change. The index for shipments went from decent growth (14.7) to being essentially flat (0.4).

On the topic of employment, the survey asked what was holding back hiring plans in a couple special questions. The most prevalent responses (cited by over 40 percent of them) were (1) the desire for the firm to keep operating costs low and (2) lower expectations for sales growth.

Other top factors restraining hiring were uncertainties related to health insurance costs, policy or regulatory uncertainties, and the inability of the firms to find qualified applicants. In terms of the impact of the nation’s fiscal (and political) challenges, 37 percent said that these developments had caused them to reduce hiring, with another 49 percent indicating no impact.

Despite these challenges and the more downbeat assessment of the current outlook, manufacturers were more positive about the next six months. Over 45 percent of them anticipate higher sales, and the forward-looking composite index rose from 23.7 to 29.2. Indeed, most of the indicators reflected a more-optimistic view for this year despite the many headwinds that we all face.

There is still a degree of cautiousness out there. Employment growth is expected to be up just modestly, with its index edging slightly lower from 11.2 to 10.7. In addition, capital spending plans also eased from 10.4 to 6.0.

Chad Moutray is chief economist, National Association of Manufacturers.

The Census Bureau and the U.S. Department of Housing and Urban Development said that new residential construction soared from 851,000 units in November to 954,000 in December. This represents a monthly gain of 12.1 percent and is fastest rate since June 2008. Housing continues to be one of the strongest components in the U.S. economy right now, with housing starts increasing 36.9 percent between December 2011 and December 2012. That is phenomenal growth, to say the least, even as the sector remains well below its peak from a few years ago. These gains were seen in every region, but were particularly strong in the Midwest, Northeast, and West.

While both single-family and multi-family housing starts were higher in December, the largest increase was for multi-family units, up from 281,000 to 338,000. To illustrate the significance of the increase in this segment over the course of the last year, multi-family housing starts were just 177,000 on December 2011. Clearly, the demand for new apartments and condos remains strong.

New single-family residential starts rose from 570,000 to 616,000. This is also a four-year high, as the last time we saw that pace was July 2008. On a year-over-year basis, single-family construction is up 18.5 percent.

Meanwhile, housing permits were largely unchanged, up slightly from 900,000 to 903,000 for the month. In December, single-family permitting increased 1.8 percent; whereas, multi-unit permits were down 2.1 percent. The good news is that the 900,000-unit threshold appears to be holding, and the long-term trend has been extremely positive. Permits are up 28.8 percent year-over-year, with a 27.3 percent increase for single-family units and a 35.0 percent increase for multi-family structures with 5 or more units. (continue reading…)

The consumer price index was unchanged in December, according to the Bureau of Labor Statistics. This was in-line with consensus estimates and an increase from November’s -0.3 percent decline. The primary drag on prices was lower energy costs. Gasoline prices were off 2.3 percent, building on the 7.4 percent decline the previous month.

Overall energy costs were down 1.2 percent for the month. Meanwhile, food prices have risen 0.2 percent for each of the past three months (October to December). In December, the largest increase for food items occurred among fruits and vegetables (up 0.6 percent).

Core inflation – which excludes food and energy costs – rose just 0.1 percent in December, the same as was observed in November. Inflation is running at the 1.9 percent rate on a year-over-year basis. As we saw yesterday with producer prices, the annual rate of inflation has eased throughout the year, largely on lower energy costs. Inflation was 2.3 percent in January 2012. For the most part, pricing pressures remain under control, at least for now, up modestly and within the range set by the Federal Reserve Board.

Chad Moutray is 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…)

The National Association of Manufacturers (NAM) supports open and expanded trade and opposes efforts to limit manufacturers’ ability to expand exports overseas. Exports have been and continue to be a critical source of growth and opportunity for manufacturers throughout the United States, and liquefied natural gas (LNG) exports are no exception.  A series of recent studies by energy research firm IHS CERA show that natural gas development has already led to the creation of more than 1 million jobs, and continued development of unconventional energy resources could create millions more.

Proposals that seek to limit LNG or coal or any other product would have far-reaching negative effects on the United States and should be rejected. Such restrictions limit economic opportunities and stifle job growth rather than provide a source of increased economic growth.

Export growth has created and saved manufacturing jobs over the past few years, which were tough economically for the United States. Export growth is vital not just for businesses across-the-board that directly export, but also for the many manufacturers in the supply chain. 

From the President’s first State of the Union address, doubling U.S. exports has been a top goal, supported by both businesses and workers and both Republicans and Democrats. From its origins, the United States has been built on exports. In fact, Article I, Section 9 of the U.S. Constitution provides quite explicitly that “no Tax or Duty shall be laid on Articles exported from any State,” evincing a strong disinclination to limit exports of any product. (continue reading…)

The Census Bureau announced that retail sales rose 0.5 percent in December, its fifth expansion in the past six months. Over the course of 2012, retails sales increased 4.7 percent, with some of its fastest growth stemming from the motor vehicle sector (up 1.6 percent for the month and 7.6 percent year-over-year). Other businesses with strong annual gains were nonstore retailers (up 12.6 percent), miscellaneous store retailers (up 9.9 percent), sporting goods and hobbies (up 9.1 percent), furniture and home furnishings (up 6.1 percent), and clothing and accessories (up 5.1 percent).

Overall, the key story centers on December’s decent gain in retail sales, and in particular, it suggests that growth in holiday spending was up modestly. This contrasts with reports elsewhere that said that holiday sales were weak, particularly at some stores. Indeed, the 4.7 percent year-over-year growth rate in retail sales was lower in 2012 than in either 2010 or 2011(7.0 and 6.6 percent, respectively).

With consumer confidence falling sharply in December and other headwinds from the fiscal cliff stalemate, the fact that consumer spending held up modestly was still a good sign, and the slower pace can easily be explained.

Chad Moutray is chief economist, National Association of Manufacturers.

Lower food and energy costs helped to push producer prices down for the third consecutive month, according to the Bureau of Labor Statistics. The price of finished consumer foods dropped 0.9 percent in December, largely on reduced prices for beef, vegetables, and cheeses. At the same time, energy costs have fallen for each of the last three months and were down 0.3 percent in December.

Core prices – which exclude food and energy costs – rose 0.1 percent in December. This was the same rate as was observed in November. The year-over-year core inflation rate was 2 percent, which is the target set by the Federal Reserve Board. As the attached picture shows, the year-over-year percentage change in producer prices has fallen throughout 2012, beginning the year at 3.1 percent. This has helped to reduce pricing pressures for manufacturers and other businesses. (continue reading…)

The New York Federal Reserve Bank’s Empire State Manufacturing Survey said that manufacturing activity continued to contract in its district for the sixth straight month. The composite index of general business conditions was -7.8 in January, slightly lower than the -7.3 reading observed in December.

All of the historical data were revised with new seasonal adjustments, as is customary to start a new year. This suggests that economic activity remains soft, with most of the key indicators in negative (or contracting) territory.

Shipments had improved in November and December, but they are starting January with a decline. The index for shipments dropped from 11.9 in December to -3.1, with over 29 percent of respondents saying that they had reduced fewer shipments this month than last and almost 45 percent reporting no change. Measures for new orders, hiring, and the average workweek were also all negative. The vast majority of firms in the district appear to be in a wait-and-hold pattern on employment, with 72 percent of them saying that the number of employees was the same.

Fewer of them plan to hire, as well, but that figure is at least positive. Roughly 23 percent of manufacturing firms in the New York region intend to have more employees six months from now, with 62 percent expected to not hire. Overall, manufacturers continue to be cautiously optimistic about the first half of 2013. The pace of expected employment and capital spending growth has eased from the month before, but there were improvements in anticipated sales and shipments.

The Empire State survey data are troubling in that they reflect a manufacturing community in the New York region that remains nervous. New orders were only positive once in the past seven months, and that was probably due to Hurricane Sandy. It is more difficult for these firms to start hiring and investing again when they see their sales challenged.

Despite hope for improvements down the line, it is notable that manufacturers are more skittish on hiring and capital spending plans. This might change if there is a turnaround in sales, but until then I would expect continued weakness. Uncertainties about the U.S. fiscal situation – even with the recent fiscal cliff deal – also tend to hamper activity.

Chad Moutray is chief economist, National Association of Manufacturers.

President Obama receives the credentials from a number of new foreign ambassadors today. The President’s schedule for the rest of the week is to be determined, though he is scheduled to be in Washington.

The Senate is out this week.

The House meets this afternoon and will take up the Sandy Recovery Improvement Act, which would expedite the payment of disaster relief funds. (More information about the bill is available here.) Later in the week, the House will consider a measure providing funds for the Hurricane Sandy recovery, the Disaster Relief Appropriations Act (H.R. 152). You can see the Majority Leader’s schedule here.

Executive Branch: Defense Secretary Leon Panetta leaves for Europe today and is set to visit Portugal, Spain, Italy and the United Kingdom. Acting Commerce Secretary Rebecca Blank is attending the Detroit Auto Show. On Friday, she addresses the Advanced Manufacturing Task Force, an initiative of the U.S. Conference of Mayors.

Economic Reports: From The New York Times: “Data scheduled to be released include retail sales for December, the Producer Price Index for December and business inventories for November (Tuesday); the Consumer Price Index for December, industrial production for December and the Federal Reserve Beige Book (Wednesday); weekly jobless claims, housing starts for December and the Philadelphia Fed index for January (Thursday); and the Thomson Reuters/University of Michigan Consumer Sentiment Index for January (Friday).” Here is more information from The Washington Post.

President Obama is expected to make several personnel announcements today, likely nominating former Sen. Chuck Hagel to serve as secretary of defense and Counterterrorism Adviser John Brennan to serve as CIA director.

After welcoming new members to the Capitol last week, the Senate and House are taking this week off. The House returns next week, and the Senate returns the week after.

Executive Branch: Secretary of State Hillary Clinton returns to work today, Vice President Biden is in the Virgin Islands until tomorrow, and Treasury Secretary Geithner meets with his Israeli counterpart, Finance Minister Yuval Steinitz.

Economic Reports: From The New York Times: “Data to be released this week include consumer credit for November (Tuesday); weekly jobless claims and wholesale trade inventories for November (Thursday); and the trade deficit for November and import prices for December (Friday).” The Washington Post has additional information here.