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Manufacturing & The Economy

Texas Manufacturing Activity Picks Up Pace Again

Texas factory activity increased again in July, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose from 15.5 to 19.1, indicating output grew at a faster pace than in June.

Other measures of current manufacturing activity reflected significantly stronger growth in July. The new orders index doubled from 6.5 to 13. The capacity utilization index also posted a strong rise, moving to 18 from 9.2 in June. The shipments index rose 12 points to 22.8, reaching its highest level since January 2013. The July readings for these indexes were all more than twice their 10-year averages, suggesting notably robust manufacturing growth.

Perceptions of broader business conditions were more optimistic this month. The general business activity index edged up from 11.4 to 12.7, pushing to its highest level in 10 months. The company outlook index rose 3 points to 11.3. 

June Durable Goods Orders Up 0.7%

New orders for manufactured durable goods in June increased $1.8 billion or 0.7% to $239.9 billion, the U.S. Census Bureau announced Friday. This increase, up four of the last five months, followed a 1.0% May decrease. Excluding transportation, new orders increased 0.8%. Excluding defense, new orders increased 0.7%.

Machinery, up following two consecutive monthly decreases, led the increase, $0.9 billion or 2.4% to $37.3 billion.

NAM Monday Economic Report – July 28, 2014

The International Monetary Fund (IMF) released its latest World Economic Outlook last week. The report reflected slower growth rates in the United States and elsewhere for 2014 mostly because of disappointing figures during the first half of the year. The IMF now predicts that U.S. real GDP will grow 1.7 percent in 2014, down from the 2.8 percent forecast in April. Much of this downgrade stemmed from the dismal 2.9 percent decline in real GDP in the first quarter, with output contracting for the first time in three years. At the same time, the manufacturing sector provided a positive contribution to growth in the first quarter, according to new data, despite bleakness in other areas. Fortunately, manufacturers are more upbeat about activity during the second half of this year and for next year. The IMF’s outlook for 2015 is for real GDP growth of 3.0 percent in the United States, which is in line with other predictions.

News regarding manufacturing activity was mostly positive last week, with surveys from the Kansas City and Richmond Federal Reserve Banks both reflecting a pickup in shipments and employment in July. New orders continued to grow at a moderate pace in each region, and respondents were mostly upbeat about sales and production over the next six months. Nonetheless, raw material costs have accelerated a bit in the Richmond district, and new export orders have contracted in eight of the past 12 months in the Kansas City district. Meanwhile, new durable goods orders rebounded in June, with year-to-date growth at a reasonably healthy rate of 4.4 percent. This indicates that the sector has recovered for the most part from winter-related softness, even if some components, such as motor vehicle sales, were lower for the month. Similarly, the Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) reflected relatively strong growth in sales and output for the sector despite some easing in the headline number in July.

Overseas, the data indicate that the Chinese economy has continued to stabilize from weakness in the first five months of the year. The HSBC Flash China Manufacturing PMI expanded for the second straight month in July, with the pace of activity up for new orders, exports and output. The sales pace was the fastest since January 2011, suggesting that recent measures taken by the Chinese government to stimulate growth have had a positive impact. Likewise, Japanese manufacturers also reported expanding levels of sentiment for two consecutive months, but activity decelerated overall and output stagnated. Export sales from Japan, on the other hand, grew. In other news, the European manufacturing sector made marginal progress in July, particularly for production and exports, and the Eurozone has now expanded for 13 straight months. Yet, growth varied from country to country. For instance, German manufacturing activity picked up in July, while the French economy continued to contract.

The other highlights last week centered on housing and pricing. The housing market remains weaker than we would like, as illustrated by the sharp drop in new home sales in June. Still, the June figure was consistent with the annual paces in March and April, with May’s sales numbers appearing to be an outlier. With the slower pace of sales, inventories of homes have increased. In contrast, existing home sales improved for the third straight month, with some progress in the second quarter relative to the softer first quarter. Even in the existing home sales release, however, there were some discouraging findings, including the fact that sales remain below where they were last year and that first-time homebuyers are still having difficulties making purchases. Meanwhile, on the inflation front, the consumer price index increased in June, led by higher gasoline costs. Yet, pricing pressures remain mostly in check, with core inflation up 1.9 percent over the past 12 months.

This week, the focus will be on second-quarter GDP and jobs. The expectation is that output will rebound from the drop in the first quarter, with consensus forecasts ranging from 2.5 percent to 3.5 percent growth. My view is that real GDP in the second quarter should exceed 3.0 percent. Regarding hiring, manufacturers have added, on average, more than 12,500 each month since August, and I would anticipate seeing a comparable figure for July. Nonfarm payrolls should increase by at least the roughly 230,000 average so far in 2014. Other items to look for this week include manufacturing survey results from the Dallas Federal Reserve Bank and the latest numbers for construction spending, consumer sentiment, employment costs and personal income and spending.

Chad Moutray is the chief economist, National Association of Manufacturers

Manufacturing Growth Holds Close to Four-Year Peak

At 56.3 in July, down from 57.3 in June, the seasonally adjusted Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) signaled the slowest improvement in overall manufacturing business conditions for three months.

The latest survey indicated that manufacturing production growth eased in July, after reaching its strongest pace for over four years in June. Nonetheless, the output index reading in July (60.4) was well above the 50.0 no-change mark and still pointed to a historically strong rate of growth.

Companies that reported higher levels of production generally cited stronger demand from domestic markets and the launch of new products at their plants. July data signaled a steep pace of overall new business growth across the manufacturing sector, albeit a softer expansion than in the previous month. 

Confidence Among Manufacturing and Logistics Workers at Record High

The Randstad Manufacturing & Logistics Employee Confidence Index, a measure of overall confidence among U.S. workers in this sector, hit an all-time high this quarter rising from 50.5 to 56.0 – a level not reached since Randstad began tracking the index in 2005. The quarterly survey, conducted by Harris Poll among 161 manufacturing and logistics workers on behalf of Randstad, also found workers' sense of economic strength, availability of jobs and their ability to find a new job all rose this quarter.

In addition, when it comes to job security, the majority (58%) of manufacturing and logistics workers feel it is not likely they will lose their jobs in the next 12 months. However, nearly four-in-10 (39%) workers say it is likely they will seek out new employment in the next year, increasing six points from last quarter. 

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