Monday Economic Report: 10614

A Publication of the National Association of Manufacturers
Monday Economic Report

January 6, 2014
Monday Economic Report Graph

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The incoming data show that manufacturers ended 2013 on a high note. Despite a slight decline in December, the Institute for Supply Management's (ISM) Purchasing Managers' Index (PMI) has reflected expanding manufacturing activity for seven consecutive months. Moreover, the manufacturing PMI data averaged 56.3 in the second half of 2013, a nice improvement from the 51.5 average during the first half of the year. As such, it appears that manufacturing activity has rebounded in the past few months from notable weaknesses in the spring, helping to buoy the prospects for continued growth in 2014. For instance, the real strength in the ISM report has been the new orders and production indices, both of which have exceeded 60.0""signifying healthy gains""for at least five straight months.

In a report released after Christmas, the Census Bureau reported that new durable goods orders increased 3.5 percent in November (or 1.2 percent, if you exclude the highly volatile transportation sector). From November 2012 to November 2013, sales of durable goods products rose at a strong 10.9 percent pace, and they are at their second-highest level since the end of 2007. Such findings are encouraging. At the same time, manufacturers in the Dallas and Richmond Federal Reserve Bank districts remain mostly upbeat about future activity for the sector. This was true even with some easing in new orders in both regions. More than half of the respondents to the Texas Manufacturing Outlook Survey expect increased new orders in the next six months.

Manufacturing construction spending rose 1.2 percent from $53.93 billion in October at the annual rate to $54.58 billion in November. This was the fifth straight month that construction spending has risen for the sector, increasing from $43.34 billion in June, the lowest point of the year. Over a longer time horizon, manufacturers have steadily upped their construction investment dollars after bottoming out in January 2011 at an annualized $28.84 billion pace. Overall construction activity increased 5.9 percent on a year-over-year basis, boosted significantly by the rebounding housing market. Private, residential construction activity has grown 16.6 percent since November 2012. Private, nonresidential construction spending has been stable, rising a more modest 1.0 percent year-over-year. However, nonresidential construction in the private sector has risen five months in a row, up 8.5 percent in that time frame.

Similarly, we have seen consumer confidence rebound in the latest data after falling during the federal government shutdown. Reports from both the Conference Board and the University of Michigan observed rising sentiment in December. The Conference Board's Consumer Confidence Index increased from 72.0 in November to 78.1 in December. While this remains below the recent peak of 82.1 in June (its highest point since January 2008), it is clear that Americans have become more optimistic over the course of 2013, with the index measuring 58.4 in January. Even with these gains, consumers remain somewhat anxious about the economy, particularly with their income and job potential. The Conference Board's key measure has not exceeded 100 since August 2007.

The Conference Board report does suggest an increased willingness to purchase homes and appliances, with automobile buying intentions improved from the summer. Similarly, personal spending growth has also made gains in the past few months, up 0.4 percent in October and 0.5 percent in November. Much of that growth stemmed from an increase in durable goods expenditures. Consumer spending has increased 3.5 percent over the past 12 months, its fastest pace of 2013 and an improvement from the 2.9 percent year-over-year rate in September.

This week, the primary focus will be the employment report due out on Friday. The consensus estimate is for roughly 200,000 nonfarm payroll jobs added in December, which would be in line with the 204,000 average per month from August to November. Likewise, manufacturers added an average of 16,500 net new workers each month over the same time frame, and they are expected to have continued to make modest hiring gains in December. The other key highlight this week will be new international trade data, which will be released tomorrow. Recent data have suggested a narrowing of the overall trade deficit, and yet, growth in manufactured goods exports has been quite slow. We hope improvements in the global economy will help to increase manufacturers' overseas sales moving forward.

Chad Moutray
Chief Economist
National Association of Manufacturers

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Economic Indicators

Last Week's Indicators:
(Summaries Appear Below)

Monday, December 30
Dallas Fed Manufacturing Survey

Tuesday, December 31
Conference Board Consumer Confidence

Wednesday, January 1

Thursday, January 2
Construction Spending
ISM Manufacturing Purchasing Managers' Index

Friday, January 3

This Week's Indicators:

Monday, January 6
California Manufacturing Survey
Factory Orders

Tuesday, January 7
International Trade Data

Wednesday, January 8
ADP National Employment Report
Consumer Credit

Thursday, January 9

Friday, January 10
BLS National Employment Report

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Human Resources Policy

Conference Board Consumer Confidence
The Conference Board reported that the Consumer Confidence Index (CCI) increased from 72.0 in November to 78.1 in December . This was the highest level since September's 80.2 reading. It is another sign that Americans' views of the economy have begun to recover after plummeting in October and November due to the government shutdown and continuing uncertainties related to the federal budget. The University of Michigan and Thomson Reuters also noted a rebound in confidence in December.

Moving beyond the shifts of the past few months, the longer-term trend has been positive, with individual perceptions improving during the year. For instance, the CCI started the year with Americans worried about the fiscal cliff, and the index was at its lowest point of the past two years at 58.4 in January. It steadily rose over the next few months, peaking at 82.1 in June (its highest level since January 2008).

Attitudes regarding the current and future economy were both higher for the month. Conference Board Director of Economic Indicators Lynn Franco noted the following:

Sentiment regarding current conditions increased to a five-and-a-half-year high (April 2008, 81.9), with consumers attributing the improvement to more favorable economic and labor market conditions. Looking ahead, consumers expressed a greater degree of confidence in future economic and job prospects, but were moderately more pessimistic about their earning prospects. Despite the many challenges throughout 2013, consumers are in better spirits today than when the year began.

On these latter points, the percentage of Americans expecting their income to increase declined from 15.3 percent to 13.9 percent. Nonetheless, there were also signs of progress on the labor front. The percentage of respondents predicting more jobs in the months ahead rose from 13.1 percent to 17.1 percent, with the percentage saying that jobs were hard to get dropping from 34.1 percent to 32.5 percent. However, this figure still remains quite high.

Construction Spending
The Census Bureau reported that manufacturing construction activity increased an annualized 1.2 percent in November . Manufacturing construction spending rose from $53.93 billion in October at the annual rate to $54.58 billion in November. It has risen for five straight months, increasing from $43.34 billion in June, the lowest point of the year.

Manufacturing construction has averaged $48.97 billion in the first 11 months of 2013. The sector has invested 15.6 percent more on a year-over-year basis, up from $47.23 billion in November 2012. Over a longer time horizon, manufacturers have steadily increased their construction spending dollars after bottoming out in January 2011 at an annualized $28.84 billion pace.

Total construction spending rose by 1.0 percent in November and has grown by 5.9 percent year-over-year. The bulk of that growth stemmed from residential construction spending, with the housing market rebound helping to propel overall activity higher. Dollars devoted to private, residential construction spending has increased 16.6 percent since November 2012, rising 1.9 percent for November 2013 alone.

Private, nonresidential construction has risen more modestly lately, up 2.7 percent in November and just 1.0 percent over the past 12 months. In addition to manufacturing activity, other sectors with higher construction spending for the month included communication (up 11.2 percent), commercial (up 4.7 percent), transportation (up 4.7 percent), office (up 4.6 percent) and power (up 3.3 percent). In contrast, sectors that saw declines in construction spending were educational institutions (down 3.1 percent) and health care facilities (down 1.2 percent).

Meanwhile, public dollars devoted to construction were off 1.8 percent for the month and down 0.2 percent year-over-year. November's data were mostly lower across-the-board, with the exception of power (up 1.6 percent), educational (up 1.1 percent) and commercial (up 0.2 percent) projects. Over the past 12 months, the largest increase in public construction spending was in transportation (up 5.2 percent), with the greatest declines in commercial (down 27.7 percent) and office (down 12.9 percent) developments.

Dallas Fed Manufacturing Survey
The Federal Reserve Bank of Dallas observed some easing in many key measures of manufacturing activity in December . The Texas Manufacturing Outlook Survey's production index dropped from 16.9 in November to 7.1 in December. The percentage of respondents saying that output rose in the month fell from 32.2 percent to 26.3 percent, with just more than half noting no change in production. Capacity utilization and shipments also decelerated.

Meanwhile, sales activity decreased slightly in December. The new orders index fell from 5.4 to -0.5. According to sample comments, some of this drop could be due to weather and holiday delays.

Manufacturers were somewhat more upbeat in their assessments of their own company's outlook. The company outlook index rose from 8.0 to 15.5, with the overall composite measure of general business activity up from 1.9 to 3.1. The composite index has risen for eight straight months, continuing the pickup in activity in many other indicators during the second half of 2013. Still, nearly 70 percent of respondents said their outlook had not changed in December.

Looking ahead six months, manufacturers continue to be mostly positive about future activity, with 51.7 percent expecting increased new orders. The forward-looking composite measure rose from 7.0 to 22.8 for the month, and there were healthy increases in anticipated production, capacity, shipments, hours worked and capital expenditures. The employment index was unchanged at 30.5; however, 37.8 percent of respondents plan to add workers in the first half of 2014. At the same time, more than half still plan to keep their employment levels unchanged.

ISM Manufacturing Purchasing Managers' Index
The ISM reported that the PMI eased slightly from 57.3 in November to 57.0 in December . Despite the lower figure, the underlying report was a positive one overall. The ISM data have reflected expanding manufacturing activity for seven consecutive months. Moreover, the manufacturing PMI measures averaged 56.3 in the second half of 2013, a nice improvement from the 51.5 average during the first half of the year.

One of the strongest elements in the ISM manufacturing report continues to be the sales component. The new orders index has exceeded 60.0 for five straight months, indicating an extremely healthy pace for sales growth. The index rose from 63.6 in November to 64.2 in December. This increase appears to be primarily from domestic sales. The index for export orders dropped from 59.5 to 55.0 for the month, suggesting some easing in our sales overseas.

The production index also reflects strong growth, albeit with a marginal decline in its pace in December (down from 62.8 to 62.2). It averaged 61.7 from July to December, far exceeding the 52.6 average from January to June.

Looking at other measures, hiring appears to be moving in the right direction, with modest employment growth overall. The employment index increased from 56.5 to 56.9, the fastest pace since April 2012. At the same time, inventory growth moved negative once more, down from 50.5 to 47.0, the first decline in stockpiles since August.

In general, this report shows that manufacturing activity in the United States grew strongly in the second half of 2013, with overall new business up significantly. The indices for new orders and production continue to reflect healthy increases, and manufacturers tend to be mostly upbeat about future activity. Moving forward, it will be important for policymakers to keep the momentum going by considering pro-growth measures like those laid out in the NAM's Growth Agenda that will allow the sector to flourish and build on the progress over the past few months.

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Questions or comments? Please contact Chad Moutray at