Economic Update: March 2, 2015

While manufacturers remain mostly optimistic in their outlook, we have seen softness in a number of recent economic indicators. Slower economic growth internationally, a stronger U.S. dollar, reduced crude oil prices and the West Coast ports slowdown have been cited as reasons for this weaker-than-desired performance. Along those lines, real GDP growth in the fourth quarter was revised lower, down from 2.6 percent to 2.2 percent. In addition, surveys from the Dallas, Kansas City and Richmond Federal Reserve Banks all reflected decelerated levels of new orders and exports. Most notably, Texas manufacturers have been adversely impacted by the sharp drop in petroleum prices, dampening demand throughout the energy supply chain and for the larger regional economy. Yet, even in the Dallas report, respondents continued to be more positive than negative in their expectations for sales, production, employment and capital spending over the next six months.

Meanwhile, the latest data on new durable goods orders brought mixed news. On the positive side, orders rose 2.8 percent in January, rebounding from the 3.7 percent decline in December. This was largely due to a sharp increase in nondefense aircraft orders. Still, if you exclude transportation equipment, new durable goods orders increased just 0.3 percent, well below the growth seen in the headline figure. Moreover, growth in durable goods orders and shipments has been less than desired over the past six months—a trend that we hope starts to reverse with January’s increase. On a year-over-year basis, durable goods orders have risen 5.4 percent, but that strength is somewhat misleading, as it builds off of the significant weather-related slowdowns seen at the beginning of last year.

Last week, the Energy Information Administration said that the average price of regular gasoline was $2.256 per gallon. This ticked up from $1.982 a gallon at the end of January, but remained well below the $3.639 per gallon average observed during the week of June 23, 2014, just eight months ago. As noted, this has had negative ripple effects for many manufacturers. Nonetheless, it has also helped to reduce inflationary pressures in the economy. The consumer price index, for example, has decreased 0.2 percent over the past 12 months, the first negative year-over-year pace since October 2009. This mirrored producer price index (PPI) data released earlier.

Both consumer and small business sentiment hit pre-recessionary peaks over the past few months, and yet, in each case, this was followed by a slight pullback in confidence. For instance, the Conference Board’s measure of consumer confidence declined from 103.8 in January, its highest level since August 2007, to 96.4 in February. Those taking this survey were more pessimistic in their responses about the future, particularly regarding job growth and expected income. The decrease in attitudes in this report mirrored similar drops in perceptions in the most recent University of Michigan and National Federation of Independent Business surveys. At the same time, each of these reports continue to show upward movement in perceptions overall, with Americans more optimistic today than one year ago.

In other news, the housing market has started 2015 with some weakness. Significant snowfalls in the Midwest and Northeast have likely contributed to slower activity. The National Association of Realtors® reported that existing home sales fell to their lowest levels in nine months. Moreover, the weather likely contributed to a decline in supplies of homes for sale as well. These findings were also noted in data on new home sales from the Census Bureau and the U.S. Department of Housing and Urban Development, which dipped marginally from the month before. Over a longer time horizon, however, new home sales of single-family residences have continued to inch higher. In addition, the outlook for the coming months remains encouraging.

This morning, the Institute for Supply Management will release its latest manufacturing Purchasing Managers’ Index (PMI), providing the latest glimpse of activity nationally. Markit will also provide final PMI numbers for a number of global economies, including China, which improved slightly in February’s preliminary figures after contracting for two straight months. In addition, this week, we will learn about vehicle sales on Tuesday and overall durable goods orders on Thursday. The biggest highlight of the week will come on Friday, with new jobs numbers for February. Other economic indicators coming out next week include the latest data on construction spending, labor productivity, international trade and personal income and spending.

Chad Moutray
Chief Economist
National Association of Manufacturers (NAM)

For more news from NAM, visit www.nam.org.