Last week's economic reports were very positive. Of the nine major economic indicators, just two deteriorated. (To see all of last week's indicators, see the Latest Economic Reports section below.)

For the manufacturing sector, durable orders ended 2009 on a positive note.  While the overall increase was modest, excluding the volatile aircraft sector, where orders swing wildly from month to month, orders were up a strong 1.3 percent after a similar rise in November. This positive momentum is carrying into 2010. The three regional manufacturing surveys by the Federal Reserve (Texas, Richmond and Kansas City) all improved in January.

The big news last week was the advanced report on fourth quarter GDP last Friday, which showed that the economy grew at a robust annual rate of 5.7 percent in the final three months of the year. Note of caution: This estimate is based on incomplete dat and will be revised in coming months.  As the chart above shows, 60 percent of economic growth in the fourth quarter was due to a positive inventory swing. This was expected, and a similar contribution to growth from inventories will not likely take place in subsequent quarters. 

The fact that consumer spending did not decelerate as rapidly as expected was a welcome surprise. After rising by 2.8 percent in the third quarter largely due to "Cash for Clunkers" government program, consumer spending moderated to 2-percent growth in the fourth quarter.

The most positive news in the GDP report was on the trade front. Exports rose a solid 18 percent and exports of goods (most of which are manufactured products) rose a faster 28 percent, the quickest quarterly pace in 30 years!  In stark contast to the start of last economic recovery in 2002, a competitive value for the dollar and a recovering global economy are providing a timely boost to growth for manuacturers. In fact, improving global demand is likely one of the key forces behind the recent rise in durable goods orders, since about half of capital equipment manufactured in the U.S. is exported abroad.  

Dave Huether
Chief Economist
National Association of Manufacturers

Last Week’s Economic Indicators:

Color Code

Positive (improving)

Positive (slowing)

Unchanged

Negative (improving)

Negative (declining)

Durable Goods Orders (December)

After decreases earlier in the fourth quarter, durable goods orders rose by a modest 0.3 percent in December. The December upturn was held back by a 38-percent decrease in nondefense aircraft orders, which are volatile from month to month. Outside of aircraft, orders were up a solid 1.3 percent in December after a 1.4-percent rise in November.

For the fourth quarter overall, durable orders rose at a annual rate of just 1.6 percent, but outside of aircraft were up 5.3 percent, with double-digit increases taking place in machinery, primary and fabricated metals, motor vehicles, computer products and electrical equipment.  All of these sectors also posted health increases in shipments in the fourth quarter. The fact that exports rose significantly faster than domestic business investment suggests that much of the increase in durable goods shipments was due to global demand.

Texas Manufacturing Survey (January)

The Texas general business activity index increased to 8.3 in January from 3.2 in December after being below the growth threshold level of 0 for 25 consecutive months.

The January improvement was driven by increases in shipments and orders. While improving over the past six months, both employment and capital expenditures continued to be negative in January and a drag on the Texas manufacturing outlook.

Richmond Fed Manufacturing (January)

Below the growth threshold of 0 for a second consecutive month in January, the Richmond Fed manufacturing index edged up to  -2 from -4 in December.

After increasing from -55 in December 2008 to 14 in the third quarter of last year, the regression back into negative territory signal there is little reason to expect robust economic growth in the first half of this year.

Kansas City Fed Manufacturing Survey (January)

Federal Reserve's 10th district survey of manufacturing for January was unequivocally positive. The Kansas City Fed manufacturing survey showed that the production index rose from 7 in December to 13 in January, the fifth consecutive month above the growth threshold level of 0.

New orders increased significantly, inventories moved into a neutral stance of 0 after declining 12 of the prior 13 months, and the employment component of the survey moved into positive territory for the first time in 19 months.

Existing Home Sales (December)

After three strong months, sales of existing homes plummeted 16.7 percent in December to 5.45 million annualized units.

This decline was partly weather related. Sales slowed most dramatically in the Northeast and Midwest, likely depressed by winter storms.

Strong gains in prior months were likely driven by the impending end of the first-time homebuyer tax credit, which has been extended to mid-year 2010.

Going forward, low interest rates, increased affordability and the extension of the tax credit should provide support to the housing market. In addition, a strengthening job market in the second half of the year should put housing sales on a surer footing.

New Home Sales (December)

From many of the same factors that affected December existing home sales, new home sales also fell in December by 7.6 percent to level of 342,000 (SAAR) units, the lowest level since last March.

Although the decline in sales was smaller than November, it still indicates flagging demand and consumer confidence, though the extension of the homebuyer tax credit might still help to jumpstart sales in the first quarter of 2010.

S&P/Case-Shiller Home Price Index (November)

Existing-house prices marched higher between October and November, but at a slower rate than during the summer. The seasonally adjusted 20-city composite index rose 0.2 percent from the three months ending in October to the three months ending in November, on par with expectations for a modest increase. However, over the year, the 20-city composite declined 5.3 percent.

Consumer Confidence (January)

Consumer confidence rose for a third consecutive month in January after oscillating during the prior six months.

On the positive side, consumer confidence is up 50 percent over the past year. On the negative side, confidence remains 50 percent below its level in mid 2007 and 35 percent below its level in the wake of the September 2001 terrorist attacks. So while confidence is improving, it remains very weak.

Weekly Jobless Claims

After increasing during the prior three weeks, initial claims for unemployment benefits fell by 8,000 to 470,000 during the week ending January 23.

With seasonal holiday distortions now over, a larger decline was expected. If future declines in jobless claims do not accelerate over the coming weeks, a much-needed labor market recovery could be delayed.

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This Week’s Indicators:

Monday

Personal Income (December)

Construction Spending (December)

ISM Manufacturing Index (January)

Senior Loan Officer Survey (Q1 2010)

Tuesday

Vehicle Sales (January)

Pending Home Sales (December)

Wednesday

ISM Nonmanufacturing Index (January)

Thursday

Chain Store Sales (January)

Productivity (Q4 2009)

Weekly Jobless Claims

Friday

OECD Composite Leading Indicators (December)

Employment Situation (January)

Questions or Comments?
Please contact Dave Huether at dhuether@nam.org

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