A Publication of the National Association of Manufacturers
November 17, 2014
NAM/IndustryWeek Survey of Manufactures Business Outlook by Quarter, 2012-2014

Manufacturers produced $2.085 trillion in value-added in the second quarter, according to new data from the Bureau of Economic Analysis. That figure is continued evidence that the manufacturing sector has a significant impact on economic activity, accounting for 12 percent of GDP. Moreover, the sector added 0.81 percentage points to second-quarter real GDP growth, which rebounded by 4.6 percent after weakness in the first quarter. This suggests that manufacturers had an outsized impact on economic growth in the second quarter, with only the professional and business services sector having a larger contribution to real GDP.

Business leaders and consumers were more upbeat in their assessments of the economy in reports released last week. The National Federation of Independent Business (NFIB) reported that small business owner optimism rose in October, with sales and hiring expectations increasing. The outlook among small businesses has generally improved over the course of this year. With that said, earnings remained a challenge, and the net percentage saying that the next three months were a “good time to expand” declined slightly. In addition, government regulations and taxes topped the list of the “single most important problems.” The economic and political climate was also a concern for many businesses.

At the same time, the University of Michigan and Thomson Reuters found that consumer sentiment was at its highest level since July 2007. That finding mirrors similar data from the Conference Board, which also has reached a pre-recessionary high of late. This reflects improvement in Americans’ perception of the U.S. economy, and it is likely that lower gasoline prices and rising equity values have lifted consumers’ spirits. In addition, there have been fewer geopolitical events in the news recently that might lessen overall optimism.

The average price of regular gasoline was $2.91 last week, according to the Energy Information Administration, down from $3.64 in late June. Accordingly, consumers have more income in their wallets to spend, which should act like a stimulus to the economy, particularly building up to the holidays. Indeed, retail sales rose slightly above consensus in October, rebounding from softness in September. Excluding gasoline station sales (which declined in nominal terms due to lower prices), retail spending would have risen by 0.6 percent. On a year-over-year basis, retail sales have risen 4.1 percent, which suggests decent consumer spending growth over the past 12 months. Wholesale trade orders were also up in October.

Meanwhile, increased demand and output have led to better employment numbers for manufacturers. According to the most recent Job Openings and Labor Turnover Survey (JOLTS) report, the sector hired 280,000 workers in September, a sharp uptick after the soft 236,000 hires observed in August. The September figure reflected the fastest hiring pace since November 2010. Nonetheless, the number of job postings declined from 296,000 in August to 285,000 in September. While this was not a positive development, the longer-term trend for job openings remains a positive one.

This week, we will get a number of reports on the health of the manufacturing sector, including industrial production and surveys from the New York, Philadelphia and Kansas City Federal Reserve banks. In addition, we will get Flash PMI data from Markit for China, Japan, the Eurozone and the United States. Beyond these figures, other highlights include consumer and producer prices, housing starts and state employment reports.

Chad Moutray
Chief Economist
National Association of Manufacturers

P.S. If you have not already done so, please take a moment to complete the latest NAM/IndustryWeek Survey of Manufacturers. This 20-question survey helps us to gauge how manufacturing sentiment has changed since September’s survey. It also includes some special questions on reactions to the mid-term elections and various policy issues. To complete the survey, click here. Responses are due by Wednesday, November 26. As always, all responses are anonymous.

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Economic Indicators
Last Week's Indicators:
(Summaries Appear Below)

Monday, November 10

Tuesday, November 11
NFIB Small Business Survey

Wednesday, November 12
Wholesale Trade

Thursday, November 13
Job Openings and Labor Turnover Survey Real GDP by Industry (Second Quarter)

Friday, November 14
Retail Sales University of Michigan Consumer Sentiment

This Week's Indicators:

Monday, November 17

Industrial Production NY Fed Empire State Manufacturing Survey

Tuesday, November 18
NAHB Housing Market Index Producer Price Index

Wednesday, November 19
FOMC Minutes (October 28–29 Meeting) Housing Starts and Permits

Thursday, November 20
Conference Board Leading Indicators Consumer Price Index Existing Home Sales Markit Flash PMIs for China, Japan, Eurozone and the United States Philadelphia Fed Manufacturing Survey

Friday, November 21
Kansas City Fed Manufacturing Survey State Employment Report

Summaries for Last Week`s Economic Indicators
Job Openings and Labor Turnover Survey
The Bureau of Labor Statistics reported that manufacturers hired 280,000 workers in September, a sharp uptick after the soft 236,000 hires observed in August. The September figure was the fastest pace in hiring since November 2010.

At the same time, the number of manufacturing separations—including layoffs, firings and retirements—also increased, rising from 237,000 to 268,000. Therefore, there were 12,000 net new hires (or hires minus separations) in September, an improvement from the net loss of 1,000 manufacturing employees in August. In addition, net hiring has averaged 15,600 per month over the past five months (May to September), which is progress from the 5,000 average over the five months prior to that (December to April).

The number of manufacturing job openings declined from 296,000 in August to 285,000 in September. While job postings have risen since January’s 259,000 figure, the short-run trend reflects a decrease since peaking at 302,000 in June, which was a two-year high.

Meanwhile, there were similar trends in the larger economy. There were 5,026,000 hires in September, the most since December 2007 (the first month of the Great Recession). Hiring increased in the following sectors: construction, education and health services, leisure and hospitality, manufacturing and professional and business services. Job openings in the nonfarm sector fell from 4,853,000 to 4,735,000, even as the longer-term movement remains positive.

NFIB Small Business Survey
The National Federation of Independent Business reported that its Small Business Optimism Index rose from 95.3 in September to 96.1 in October, rebounding back to levels seen in August. Small business leaders have become more confident during the year, with the index moving higher after bottoming out at 91.4 in February. Since the first quarter, the index has averaged 95.7. At the same time, small business owners remain somewhat anxious, with the index remaining below the key threshold of 100, the level that would indicate strong growth for the sector. The index has now been below 100 since October 2006.

However, there were some positives in this month’s report. The net percentage of respondents saying they expect sales to increase over the next three months increased from 5 percent to 9 percent. While this was below the pace seen earlier in the year (e.g., 15 percent in May), it was a step in the right direction. Similarly, the net percentage planning to hire in the next three months rose from 9 percent to 10 percent, and those planning a capital expenditure in the next three to six months jumped from 22 percent to 26 percent.

Yet, there were also signs that small businesses are not yet out of the woods. Earnings data continued to be weak, and the net percentage saying the next three months were a “good time to expand” dropped from 13 percent to 11 percent. The economy was cited as the main reason for those saying it was not a good time to expand, followed by the political climate. Along those lines, government regulations (22 percent) and taxes (21 percent) topped the list of “single most important problems.”

Real GDP by Industry (Second Quarter)
The Bureau of Economic Analysis reported that manufacturers added 0.81 percentage points to real GDP growth in the second quarter. As reported earlier, real GDP rebounded strongly in the second quarter after weakness in the first quarter, expanding by 4.6 percent. Durable and nondurable goods sectors contributed 0.51 percent and 0.30 percent, respectively, to second quarter real GDP growth. Indeed, real value-added increased by 8.0 percent for durable goods firms, with 5.4 percent growth for nondurable goods manufacturers.

Other sectors with significant contributions to growth in the second quarter included:

  • Professional and business services (adding 0.90 percent);
  • Finance, insurance, real estate, rental and leasing (0.55 percent);
  • Retail trade (0.42 percent);
  • Wholesale trade (0.38 percent);
  • Mining (0.30 percent); and
  • Utilities (0.27 percent).

Manufacturing value-added increased 1.9 percent in the second quarter, up from $2.045 trillion in the first quarter to $2.085 trillion. On a year-over-year basis, manufacturing value-added rose 4.4 percent. This suggests that the sector has experienced decent growth in output over the past 12 months, even with softness earlier in the year. Manufacturing accounted for 12.0 percent of GDP in the second quarter.

Retail Sales
According to the Census Bureau, retail sales rose 0.3 percent in October, offsetting the 0.3 percent decline in September. This was slightly better than the consensus estimate of 0.2 percent growth for the month. Gasoline station sales fell 1.5 percent and have declined in four of the past five months. Of course, gasoline prices were largely behind this decrease, with the average price of regular gasoline dropping from $3.64 in late June to less than $2.91 last week. Excluding gasoline, spending would have risen 0.6 percent, suggesting better sales figures in the broader market.

On a year-over-year basis, retail sales have risen 4.1 percent. This would indicate decent consumer spending growth over the past 12 months. With that said, the year-over-year pace declined from 5.0 percent in August and 4.4 percent in September. This might indicate some continued caution, or it might simply be a result of stronger gains in the monthly data last year.

There were significant increases in retail spending for non-store retailers (up 1.9 percent), food services and drinking places (up 0.9 percent), health and personal care stores (up 0.7 percent), miscellaneous store retailers (up 0.6 percent), clothing and accessory stores (up 0.5 percent) and auto dealers (up 0.5 percent). Lower gasoline prices might have helped buoy spending in other categories.

Outside of gasoline stations, other areas of weakness included electronics and appliance stores (down 1.6 percent) and department stores (down 0.3 percent), with the decline in electronics being a reaction to strong gains the prior month (up 4.7 percent) on the introduction of the new iPhone.

University of Michigan Consumer Sentiment
The University of Michigan and Thomson Reuters reported that consumer confidence rose to its highest level since July 2007. Preliminary Consumer Sentiment Index data increased from 86.9 in October to 89.4 in November. This reflects continued improvement in Americans’ perceptions about the U.S. economy, with the headline figure rising from 75.1 in November 2013 (in the aftermath of the budget shutdown). Moreover, it mirrors similar data from the Conference Board, which also has reached a pre-recessionary high of late.

The largest increase in the November figure came from people’s opinions about current conditions, with the index for that component up from 98.3 to 103.0. That figure was also at its highest point since July 2007. It is likely that lower gasoline prices and rising equity values have lifted consumers’ spirits, with fewer geopolitical events in the news also perhaps beneficial. In addition, the forward-looking measure increased from 79.6 to 80.6, also reflecting progress.

At the same time, it is important to keep in mind that the index remains below 100, and the public continues to worry about labor market and income growth. Nonetheless, these data points suggest movement in the right direction. Final data for the month arrives on November 26; the Conference Board’s report will be released the day before on November 25.

Wholesale Trade
The Census Bureau reported that wholesale sales rose 0.2 percent in September, edging higher after falling 0.8 percent in August. Over the past 12 months, wholesalers have seen orders rise 5.2 percent, which suggests decent growth in demand year-over-year than the current softness might seem to indicate. August’s data were mixed, with durable goods sales up 0.5 percent while nondurable goods orders declined by 0.1 percent.

Monthly sales were higher for hardware (up 4.8 percent), apparel (up 4.0 percent), furniture (up 1.8 percent), lumber (up 1.8 percent) and automotive (up 1.4 percent), among other categories. In contrast, wholesale sales were lower for farm products (down 5.9 percent), paper (down 2.6 percent), chemicals (down 2.2 percent) and petroleum (down 1.7 percent). The petroleum figure was likely the result of reduced prices.

Meanwhile, wholesale inventories increased 0.3 percent in September, somewhat slower than August’s 0.6 percent growth rate. The year-over-year pace was a robust 7.4 percent. Increases in wholesale inventories for computer equipment (up 3.4 percent), chemicals (up 2.4 percent), groceries (up 1.8 percent) and metals (up 1.8 percent) helped to offset declines for petroleum (down 5.3 percent), farm products (down 3.0 percent) and drugs (down 2.4 percent).

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