A Publication of the National Association of Manufacturers
October 14, 2014
NAM/IndustryWeek Survey of Manufactures Business Outlook by Quarter, 2012-2014

Financial markets have been rocked by worries about slowing economic growth, particularly in Europe. The Dow Jones Industrial Average has fallen 4.2 percent so far this month, declining to 16,321.07 yesterday on Columbus Day. The concern started after the Federal Open Market Committee (FOMC) released the minutes from its September 16–17 meeting last Wednesday. Indeed, the participants discussed how softer economic activity and geopolitical events could risk U.S. economic progress.

Then, on Thursday, the International Monetary Fund (IMF) slightly downgraded its global outlook, with Asia, Europe and South America growing slower than expected three months ago. The IMF now expects world output to expand 3.3 percent and 3.8 percent in 2014 and 2015, respectively, down from 3.4 percent and 4.0 percent as estimated in its July report.

Interestingly, the IMF raised its forecast for the United States, with the estimate of real GDP growth for 2014 up from 1.7 percent to 2.2 percent. This reflects recent strength in the U.S. economy, particularly when compared to other nations. To be fair, the IMF had more optimistic expectations for growth coming into this year, projecting 2.8 percent growth in 2014 in its January report. After disappointing growth in the first quarter, however, it lowered its outlook projections, much like everyone else.

Otherwise, last week was light on economic indicators. Of the ones that were released, the data were mostly mixed. California manufacturers reported a slight easing in the pace of new orders and output, particularly for durable and high-tech industries. Nonetheless, the data still reflect relatively health gains in activity, and hiring in California ticked higher.

In contrast, net hiring in the sector slowed in August nationally. On the positive side, manufacturing job openings have risen steadily this year after bottoming out in February, rising to 297,000 postings in August. These gains were part of a larger upward trend, with total nonfarm job openings increasing to their highest level since January 2001.

Beyond those measures, we learned that wholesale sales were somewhat soft in August—not unlike a number of other indicators. In addition, consumers were less willing to take on credit card debt. At the same time, wholesale spending has increased 5.9 percent over the past 12 months, indicating decent growth, with consumer indebtedness rising 6.8 percent. As such, it is clear that Americans have continued to spend, even if the pace lessened somewhat in August.

After some unexpectedly soft data in August, we will be looking for better housing starts and industrial production figures for September, both of which come toward the end of this week. Industrial production is expected to increase around 0.3 percent, and housing starts should once again exceed an annualized 1 million units. There will also be manufacturing surveys from MAPI and the New York and Philadelphia Federal Reserve banks. Beyond those indicators, other highlights include the latest data on consumer and producer prices, consumer sentiment, 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, October 6

Tuesday, October 6
California Manufacturing Survey
Consumer Credit
Job Openings and Labor Turnover Survey

Wednesday, October 6
FOMC Minutes (September 16–17 Meeting)

Thursday, October 6
Wholesale Trade

Friday, October 6

This Week's Indicators:

Monday, October 6


Tuesday, October 6
NFIB Small Business Survey

Wednesday, October 6
Beige Book
NY Fed Empire State Manufacturing Survey
Producer Price Index
Retail Sales

Thursday, October 6
Industrial Production
MAPI Manufacturing Survey
NAHB Housing Market Index
Philadelphia Fed Manufacturing Survey

Friday, October 6
Housing Starts and Permits
University of Michigan Consumer Sentiment

Summaries for Last Week`s Economic Indicators
California Manufacturing Survey
The California Manufacturing Index edged slightly lower, down from 61.3 in the third quarter (July) to 59.9 in the fourth quarter (October). The index is prepared by the A. Gary Anderson Center for Economic Research at Chapman University. Despite easing somewhat, the indicator continues to reflect relatively healthy growth in the state, with measures over 50 signifying expansion.

Still, new orders (down from 60.9 to 55.8) and output (down from 64.4 to 60.5) decelerated a bit in the fourth quarter, but both continue to expand modestly. On the positive side, hiring (up from 53.3 to 55.6) ticked up slightly.

Among nondurable goods manufacturers, sentiment improved this quarter (up from 60.5 to 62.5); among durable goods firms, it was softer (down from 62.0 to 58.4). Part of the slower activity for durable goods businesses stemmed from the high-tech industry, which also reported weaker production levels.

Consumer Credit
The Federal Reserve Board said that U.S. consumer credit outstanding rose an annualized 5.0 percent in August, slowing somewhat from the 8.1 percent pace seen in July. Total consumer credit was $3.247 trillion, with $880.3 billion in revolving credit and $2.367 trillion in nonrevolving credit. Total consumer credit outstanding has increased 4.8 percent over the first eight months of 2014 and 6.8 percent year-over-year.

The slower pace observed in August stemmed largely from a reduction in revolving credit, which includes credit cards and other lines of credit; it fell 0.3 percent in the month. This could suggest some caution on the part of consumers in August for taking on new credit card debt. Still, revolving credit has begun to pick up slightly in 2014, rising 2.6 percent year-to-date and 3.2 percent over the past 12 months.

Meanwhile, nonrevolving credit, which includes auto and student loans, increased 7.0 percent in August. This was a deceleration from the 8.3 percent pace experienced in July. Nonetheless, we have continued to see strong growth in nonrevolving loans, up 5.6 percent year-to-date and 8.2 percent year-over-year.

FOMC Minutes (September 16–17 Meeting)
The Federal Reserve Board expressed some concern about softening global economic growth and geopolitical events at its most recent Federal Open Market Committee (FOMC) meeting. Specifically, the minutes of the September 16–17 meeting state the following regarding the committee’s discussion:

Some participants expressed concern that the persistent shortfall of economic growth and inflation in the euro area could lead to a further appreciation of the dollar and have adverse effects on the U.S. external sector. Several participants added that slower economic growth in China or Japan or unanticipated events in the Middle East or Ukraine might pose a similar risk. At the same time, a couple of participants pointed out that the appreciation of the dollar might also tend to slow the gradual increase in inflation toward the FOMC’s 2 percent goal.

Beyond that news, the minutes mostly shed light on what we learned from the initial statement released at the conclusion of the FOMC meeting. The FOMC began laying out its principles for winding down the extraordinary stimulus that it has pursued since the financial crisis at the end of 2008. The Fed will end its purchases of long-term and mortgage-backed securities after its October FOMC meeting, and the expectation is that short-term interest rates will begin to “normalize” at some point in 2015. The federal funds rate, however, will remain near zero for a “considerable time after the asset purchase program ends,” a statement that some suggest means that normalization will not occur until mid-2015 at the earliest.

In its FOMC statement, the Federal Reserve said that “economic activity is expanding at a moderate pace.” Nonetheless, it continues to worry about slack in the economy, particularly in labor markets. The Fed predicts growth this year of between 2.0 and 2.2 percent, with 2.6 to 3.0 percent real GDP growth next year. The unemployment rate is expected to fall to 5.9 or 6.0 percent by the end of 2014 and 5.4 to 5.6 percent by the end of 2015. In terms of inflation, the Fed forecasts prices growing by less than 2.0 percent over the next few years. If core inflation consistently exceeds 2.0 percent, it will give greater credence to hawks on the FOMC to increase rates sooner rather than later.

Job Openings and Labor Turnover Survey
The Bureau of Labor Statistics said that manufacturing job openings edged slightly higher, up from 293,000 in July to 297,000 in August. The number of job postings in the sector has steadily risen this year after bottoming out at 258,000 in February. Indeed, job openings have averaged 296,000 over the past four months (May to August), an improvement from the first four months of 2014 (January to April), which averaged 264,000 manufacturing job openings per month.

However, the news was not all positive. Net hiring in the sector decelerated sharply in August. There were 234,000 hires in the manufacturing sector in August, down for the second straight month from 268,000 in June and 259,000 in July. At the same time, the number of separations also decreased over that time frame, down from 241,000 in June to 231,000 in July to 227,000 in August. As a result, net hiring (hires minus separations) dropped from 28,000 in July to 7,000 in August. This disappointing news on the hiring front was largely consistent with softness in the most recent jobs numbers.

Meanwhile, in the larger economy, job openings soared to their highest level since January 2001, up from 4,605,000 in July to 4,835,000 in August. Increased job postings in health care, leisure and hospitality, manufacturing and retail trade helped to lift the headline figure higher in August. At the same time, however, net hiring dropped from 305,000 in July to 200,000 in August, with reduced hiring in nearly every major sector.

Wholesale Trade
The Census Bureau said that wholesale inventories rose 0.7 percent in August, extending the 0.3 percent gain observed in July. On a year-over-year basis, inventories have increased 7.9 percent. For the month, the largest increases were found in the computer equipment (up 4.5 percent), drugs (up 1.6 percent), lumber (up 1.5 percent), farm products (up 1.0 percent), machinery (up 0.9 percent) and furniture (up 0.8 percent) sectors.

At the same time, wholesale sales declined 0.7 percent in August, with a 5.8 percent gain over the past 12 months. Sales activity was soft and mixed. Apparel (up 3.4 percent), chemicals (up 1.7 percent), alcohol (up 1.7 percent), metals (up 1.4 percent) and hardware (up 1.4 percent) orders were higher. However, these gains were largely offset by declines in the petroleum (down 4.2 percent), farm products (up 3.8 percent), paper (down 1.9 percent), computer equipment (down 1.7 percent) and other sectors.

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Questions or comments?
Contact Chief Economist Chad Moutray at cmoutray@nam.org.
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