Economic Report: March 9, 2015

According to the latest NAM/IndustryWeek Survey of Manufacturers, which will be released this morning, business leaders remain mostly confident about activity over the coming months. In fact, 88.5 percent of respondents said they were either somewhat or very positive about the own company’s outlook, and the data are consistent with 3 percent growth in manufacturing production over the next two quarters. Yet, manufacturers who replied to this survey were slightly less upbeat than they were three months ago, when 91.2 percent of respondents were positive in their outlook. Sales, exports and hiring expectations over the next 12 months also decelerated slightly, even as they remain improved from the paces seen a year ago.

Overall, the NAM/IndustryWeek survey found that the manufacturing sector continues to expand, albeit at a slower pace. Indeed, sluggish growth abroad, a stronger U.S. dollar, the West Coast ports slowdown, still-cautious consumers and sharply lower energy prices have combined to provide a significant headwind for many manufacturers. These same findings could be observed in other economic releases last week. For instance, the Institute for Supply Management (ISM) reported that growth in manufacturing activity fell to its lowest level since January 2014, when severe winter storms dampened activity across-the-board. New export orders declined for the second straight month. Along those lines, goods imports and exports were both lower in January, with reduced crude oil prices playing a significant role. Nonetheless, the U.S. trade deficit narrowed somewhat, down from $45.60 billion in December to $41.75 billion in January.

Other measures pointed to softness in the marketplace as well. Factory orders declined 0.2 percent in January, falling for the sixth straight month. Indeed, new manufactured goods orders have been weaker since peaking in July 2014. Yet, there was also a possible sign of encouragement, with orders for core capital goods (or nondefense capital goods excluding aircraft) up 0.5 percent for the month. This was the first increase since August.

There were also weaknesses on the consumer front. Sales of light vehicles decreased for the third consecutive month, with snowstorms dampening demand for new automobiles, according to Autodata Corporation. Sales should pick up, however, with warmer weather. The forecast for auto sales for 2015 is for roughly 16.8 million units being sold. Meanwhile, personal spending was also lower for the second consecutive month, suggesting that Americans remain cautious in their purchases. With spending down, the savings rate jumped to 5.5 percent, the highest in two years. Still, even with recent declines, personal spending continues to reflect modest gains year-over-year, up 3.6 percent over the past 12 months. Therefore, consumer spending continues to buoy modest economic growth, as seen in the most recent GDP data.

Labor market data were mixed, but more positive than negative. Manufacturers hired 8,000 net new workers in February, down from 21,000 in January. Durable goods industries added 11,000 workers on net in February, with nondurable goods employment down by 3,000. Yet, manufacturers have now added to their workforces for 19 straight months, with 877,000 additional employees in the sector since March 2010, its lowest point after the recession. In the larger economy, nonfarm payroll employment increased 295,000 in February, exceeding 200,000 for the 12th consecutive month. Moreover, the unemployment rate fell to 5.5 percent, a level not seen since May 2008. As such, even with softer jobs numbers in the manufacturing sector, the employment picture appears to be moving in the right direction. Manufacturers are picking up their hiring overall (up just more than 17,400 per month on average over the past 14 months), much as they are increasing construction spending. Each is a sign of confidence in the economic outlook.

This week, we will continue to gauge consumer and small business optimism with new reports from the National Federation of Independent Business and the University of Michigan and Thomson Reuters. In addition, retail sales data will give us another look at consumer spending activity. On Friday, the NAM will release the Global Manufacturing Economic Update for this month. Other highlights include the most recent reports on job openings and producer prices.

Chad Moutray
Chief Economist
National Association of Manufacturers (NAM)

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