Monday Economic Report: 11314

 
A Publication of the National Association of Manufacturers
Monday Economic Report

January 13, 2014
Monday Economic Report Graph

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The labor market was disappointing in December, with just 74,000 nonfarm payroll workers added in the month. This was well below the consensus estimates of around 200,000 that was expected, and it somewhat undercuts the storyline that the U.S. economy was beginning to gain some momentum. However, it is important to not make too much of one month's data, which might have been influenced by weather and other factors. Nonfarm payrolls growth averaged 214,000 in the prior four months (August to November), and there is some thinking that December's hiring figures were a bit of an outlier. Indeed, the participation rate fell once again to 62.8 percent, matching what was seen in October, which was the lowest level since February 1978. As a result, the unemployment rate fell to a five-year low of 6.7 percent.

Meanwhile, manufacturers added 9,000 net new workers in December, its fifth month of positive gains. From August to December, the sector has averaged 16,000 additional hires each month. In contrast, the average from March to July was a net decline of 8,000 per month. This is generally consistent with the pickup in manufacturing activity that we have seen in other economic indicators, even if the net job growth in December was down from October and November. Indeed, new factory orders rose 1.8 percent in November, and even with quite a bit of volatility in the data (mainly due to choppiness in transportation orders), year-to-date sales growth increased modestly, up 2.6 percent in the first 11 months of 2013.

The other big news of last week was the narrowing of the U.S. trade deficit from $39.33 billion in October to $34.25 billion in November. On the surface, this is a positive development, with the decline in the deficit coming largely from reduced petroleum imports. This decrease corresponded to lower petroleum costs, as the cost of West Texas Intermediate crude fell sharply during that time frame. In addition, goods exports rose to an all-time high, up from $135.61 billion to $137.01 billion.

Nonetheless, one constant that we saw in much of the data last year was the frustratingly slow pace of growth for manufactured goods exports""a finding that was still true in the latest report. The value of U.S.-manufactured goods exports for the first 11 months of 2013 increased just 2.0 percent over the same time period in 2012. As such, despite stabilization in many of our key markets, including China and Europe, slower growth in foreign demand has been a challenge for growing sales all of last year. We hope to see continued progress on the international front that will yield stronger export growth in 2014. (For more worldwide economic trends, see the most recent monthly issue of the Global Manufacturing Economic Update , which was released on Friday.)

This week will be a busier one for economic data. A number of reports will provide new insights on the current health of the manufacturing sector, with the biggest highlight being Friday's industrial production data. It is expected that manufacturing output will continue to show signs of acceleration, extending the gains in October and November. In addition, we will get survey data from the New York and Philadelphia Federal Reserve Banks and the Manufacturers Alliance for Productivity and Innovation (MAPI). Beyond those releases, other statistics of note to look for include the latest data on consumer and producer prices, consumer confidence, housing starts and permits, job openings, retail sales and small business optimism.

Chad Moutray
Chief Economist
National Association of Manufacturers

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Economic Indicators


Last Week's Indicators:
(Summaries Appear Below)

Monday, January 6
Factory Orders

Tuesday, January 7
International Trade Data

Wednesday, January 8
ADP National Employment Report
Consumer Credit

Thursday, January 9
None

Friday, January 10
BLS National Employment Report



This Week's Indicators:


Monday, January 13

None

Tuesday, January 14
NFIB Small Business Survey
Retail Sales

Wednesday, January 15
New York Fed Empire State Manufacturing Survey
Producer Price Index

Thursday, January 16
Consumer Price Index
MAPI Manufacturing Survey
NAHB Housing Market Index
Philadelphia Fed Manufacturing Survey

Friday, January 17
Housing Starts and Permits
Industrial Production
Job Openings and Labor Turnover Survey
University of Michigan Consumer Sentiment

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Human Resources Policy

ADP National Employment Report
Automatic Data Processing (ADP) reported that manufacturers added 19,000 net new workers in December, suggesting that hiring was relatively strong to end 2013 . The average monthly net job gain in the fourth quarter (October to December) was 18,000. This was a significant improvement from the rest of the year, with the other nine months averaging a decline of 1,000 workers in the sector each month. As such, it indicates that the pickup in manufacturing sales and output that we have seen in other data starting with the beginning of the third quarter has begun to translate into additional hiring.

Meanwhile, nonfarm private payroll growth also accelerated in the final month of 2013. The economy added 238,000 new workers in December, up from 229,000 in November. The three-month average for the fourth quarter was 224,333""solid progress from the 165,000 average from January to September.

Looking at other sectors, professional and business services (up 53,000), construction (up 48,000) and trade, transportation and utilities (up 47,000) all experienced strong gains in employment during December. Small and medium-sized businesses (e.g., those with fewer than 500 employees) contributed just more than 70 percent of net new jobs for the month.

BLS National Employment Report
Manufacturers added 9,000 net new workers in December, according to the Bureau of Labor Statistics . This was below the much stronger hiring gains in October and November (17,000 and 31,000, respectively), but the average over the past five months suggests that employment has begun to pick up more recently, albeit at a pace that remains modest at best. From August to December, manufacturers hired an additional 16,000 net new employees on average each month. In contrast, the average from March to July was a net decline of 8,000 per month.

Looking at the entire year, manufacturers added 77,000 net new workers over the course of 2013. This was the slowest pace of hiring growth since 2009. Manufacturing sector employment rose by 109,000 in 2010, with 207,000 and 154,000 more workers added in 2011 and 2012, respectively. As such, manufacturers have added 557,000 more jobs since December 2009.

In December, both durable and nondurable goods firms added workers on net, up 6,000 and 3,000, respectively. Sectors with the largest monthly gains were food manufacturing (up 5,300), fabricated metal products (up 5,000), transportation equipment (up 3,800), primary metals (up 3,500), petroleum and coal products (up 1,600) and plastics and rubber products (up 1,600).

Some notable sectors with declining employment for the month included computer and electronic products (down 2,400), printing and related support activities (down 2,200), chemicals (down 1,800), nonmetallic mineral products (down 1,500) and furniture and related products (down 1,200).

On the hours and compensation front, the data were mixed for manufacturers. There was some slight easing in the average number of hours worked per week (down from 41.5 to 41.3) and in average weekly earnings (down from $1,078.17 to $1,075.04) for durable goods firms. At the same time, similar data were a bit higher for nondurable goods manufacturers, with average weekly hours (up from 40.2 to 40.3) and average weekly earnings (up from $891.64 to $895.87) higher. The longer-term trend for manufacturers on the labor front has been a positive one for both of these indicators.

Meanwhile, much of the attention in this month's jobs numbers has been on the weak nonfarm payroll growth. The overall economy added just 74,000 nonfarm payroll workers in December""a figure that was well below the consensus estimate of around 200,000. There is some suspicion that colder weather might have had an impact on the data. The average monthly gain in nonfarm payrolls for 2013 was 182,167. This was nearly identical to the averages in 2011 and 2012, which were 175,000 and 183,000, respectively. Nonetheless, the average from August to November had jumped to 214,000, providing some optimism for stronger numbers in December, which did not materialize.

The other surprising development in this report was the drop in the unemployment rate from 7.0 percent in November to 6.7 percent in December. This was the lowest rate since November 2008. Yet, it corresponds with another drop in the participation rate, down from 63.0 percent to 62.8 percent, its lowest level since February 1978. Those individuals who were "marginally attached to the labor force" rose by 331,000, including 155,000 additional "discouraged workers."

In conclusion, December's employment data show that we continue to have persistent weaknesses in the labor market despite recent progress. Weather might have been a factor, but overall, the jobs market data were disappointing. For manufacturers, the positive news was that the sector has added 16,000 additional workers over the past five months, and yet, this news is somewhat tempered by the reality that 2013 was the weakest year of hiring growth in the sector since 2009.

However, we remain cautiously optimistic about modest gains in employment for 2014. To ensure that employment gains in the second half of 2013 continue in the new year, policymakers should adopt pro-growth measures like those laid out in the NAM's Growth Agenda that will allow the sector to expand and flourish and fuel job creation.

Consumer Credit
The Federal Reserve Board reported that U.S. consumer credit outstanding rose 6.4 percent in November, led once again by strong growth in nonrevolving debt . Total consumer credit outstanding was $3.087 trillion, with $856.9 billion in revolving credit and $2.230 trillion in nonrevolving credit.

The largest gain in lending over the past few years has come primarily from nonrevolving credit, which includes auto and student loans. Nonrevolving loans have risen 8.2 percent and 17.3 percent over the past 12 and 24 months, respectively. These loans have helped to finance greater motor vehicle sales""one of the larger drivers of economic growth.

In contrast to nonrevolving credit increases, revolving loan levels have been nearly unchanged, up just 0.2 percent over the past two years. Revolving credit includes credit cards and other credit lines. In general, Americans have been hesitant to use their credit cards when making purchases since the recession.

Factory Orders
The Census Bureau reported that new manufactured goods orders rose 1.8 percent in November, rebounding from October's 0.5 percent decline . Over the past 12 months, new factory orders have risen 4.9 percent, but that somewhat overstates the year-over-year change. The data were highly volatile for much of 2013, with large swings in aircraft orders. Illustrating this, the year-to-date growth (from December 2012) was a more modest 2.6 percent, and November's level of new factory orders ($497.9 billion) was not much different than June ($497.1 billion).

Still, even with the volatility, new factory orders have moved higher, particularly looking at longer-term data. Over the past three years, new factory orders have grown 17.3 percent, up from $424.6 billion in November 2010.

Looking specifically at the November 2013 data, the increase stemmed largely from strong growth in durable goods sales, up 3.4 percent. In contrast, new nondurable goods orders were up just 0.3 percent. The report reflects healthy gains in aircraft and motor vehicle orders in November. Excluding transportation from the analysis, the increase in durable goods sales would be a more modest 1.1 percent. Nonetheless, the broader durable goods measure reflects a slow-but-steady increase in new orders, up 3.0 percent since January and 1.9 percent over the past two months. The latter figure suggests sales have accelerated more recently, consistent with other indicators.

Outside of aircraft, durable goods sectors with the largest monthly increases in new orders in November were furniture and related products (up 5.9 percent), machinery (up 3.3 percent), motor vehicles and parts (up 2.4 percent) and computers and electronic products (up 1.8 percent). Sectors that saw declines included electrical equipment and appliances (down 1.9 percent) and primary metals (down 0.5 percent).

Meanwhile, manufactured goods shipments increased 1.0 percent, its strongest monthly gain since July. Durable and nondurable goods shipments rose 1.8 percent and 0.3 percent, respectively. Sectors with the greatest increases in November included machinery (up 4.2 percent), transportation equipment (up 2.0 percent), computers and electronic products (up 1.6 percent), furniture and related products (up 1.9 percent), petroleum and coal products (up 1.4 percent) and primary metals (up 0.8 percent).

At the same time, sectors that saw reduced shipments for the month included textile mills (down 2.1 percent), beverage and tobacco products (down 1.5 percent), apparel (down 1.1 percent), paper (down 0.9 percent) and nonmetallic minerals (down 0.4 percent).

International Trade Data
The Bureau of Economic Analysis and the Census Bureau reported that the U.S. trade deficit fell sharply from $39.33 billion in October to $34.25 billion in November . This was the smallest deficit since August 2009 and the result of rising goods exports and, more particularly, a decline in goods imports for the month. Goods exports increased from $135.61 billion to $137.07 billion (an all-time high). At the same time, goods imports dropped from $194.45 billion to $191.00 billion.

A fair share of November's improved trade balance came from lower petroleum imports, down from $32.09 billion to $28.49 billion. Not surprisingly, this corresponded with reduced petroleum prices. The average cost of one barrel of West Texas Intermediate crude oil decreased from $106.29 in September to $100.54 in October to $93.86 in November.

In terms of goods exports, major sectors with the largest gains in November were industrial supplies (up $707 million), nonautomotive capital goods (up $336 million) and automotive vehicles and parts (up $141 million). However, these were somewhat offset by declines in exports for consumer goods (down $515 million) and foods, feeds and beverages (down $124 million).

One consistent theme in the international trade data in 2013 has been the frustrating pace of growth for manufactured goods exports. Manufacturers exported $1.086 trillion in goods through the first 11 months of the year, a 2.0 percent increase over the $1.065 trillion exported during the same time frame in 2012. As such, there has been a clear deceleration in manufactured goods export growth, down from the 5.7 percent annual gains of 2012 and the roughly 15 percent required to meet the President's National Export Initiative goal.

Goods exports to Europe remain lower year-to-date in 2013 relative to 2012, down from $243.74 billion through the first 11 months of 2012 to $241.40 billion in 2013. On the positive side, goods exports with Canada (up from $270.29 billion to $277.04 billion), Mexico ($199.55 billion to $208.19 billion) and China (up from $100.17 billion to $108.93 billion) have increased. Nonetheless, these gains with our three largest trading partners have been more modest than we would like to see.

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Questions or comments? Please contact Chad Moutray at cmoutray@nam.org