Job Openings and Labor Turnover Survey
The Bureau of Labor Statistics reported that manufacturing job openings rebounded in January after easing slightly in December. The number of job postings in the sector rose from 310,000 in December to 330,000 in January, which was just slightly lower than the 332,000 seen in November. November’s pace had been the fastest since August 2007, and the number of openings has risen steadily on a year-over-year pace, up from 263,000 in January 2014. In this latest report, durable goods (up from 195,000 to 202,000) and nondurable goods (up from 115,000 to 127,000) reported more openings for the month.
At the same time, manufacturing net hiring has slowed, consistent with previously released jobs data. Manufacturers hired 262,000 workers in January, down from 276,000 in December. In addition, total separations, including layoffs, quits and retirements, edged marginally lower, down from 253,000 to 252,000. Therefore, net hiring (or hires minus separations) declined from 23,000 in December to 10,000 in January. On the positive side, hiring has picked up overall, with 236,000 hires in February 2014.
In the larger economy, nonfarm job openings rose from 4,877,000 in December to 4,998,000 in January. In January, there were more job openings in construction; leisure and hospitality; and trade, transportation and utilities, in addition to manufacturing. Beyond that, net hiring also decelerated for nonfarm payrolls, down from 338,000 to 175,000. Yet, hiring picked up in government; health care; leisure and hospitality; professional and business services; and retail trade.
NAM/IndustryWeek Survey of Manufacturers
Manufacturers in the latest NAM/IndustryWeek Survey of Manufacturers continued to be mostly optimistic about the economy and their business performance. Indeed, 88.5 percent of respondents were either somewhat or very positive about their own company outlook. Nonetheless, this was down from 91.2 percent who said the same thing three months ago. 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. As such, sentiment has pulled back a little from the prior survey, even as it remains mostly reassuring. Sales, capital spending and hiring are expected to increase at decent paces over the next 12 months, albeit with some easing since December. The data are consistent with 3.0 percent growth in manufacturing production over the next two quarters.
One of the bigger headwinds of late has been the global market, with slower economic growth in international markets and a stronger U.S. dollar. Indeed, 36.3 percent of respondents said that the dollar was a significant challenge for them right now. Moreover, the pace of expected export growth decelerated sharply over the past few surveys, down from 1.6 percent in June to 1.2 percent in December to 0.9 percent this time. In this survey, 32.7 percent of manufacturers expect export sales to rise over the next 12 months, down from 39.4 percent three months ago.
Despite the stronger economic outlook, manufacturers continue to express frustrations with the political environment. In fact, 73.6 percent of respondents said that the United States was on the wrong track, with 11.7 percent feeling we are headed in the right direction. The remaining respondents were unsure.
In special questions, 68.3 percent of respondents said their family-owned businesses would be adversely impacted by proposed changes to estate tax provisions. Separately, a majority of public company respondents have seen an increase in shareholder activism over the past two years. Of this activism, nearly 30 percent stemmed from activism to change social policies within the company (e.g., environmental reporting, human rights, political spending). Beyond that, 22.8 percent was directed toward changes in corporate governance and 12.3 percent related to executive compensation.
NFIB Small Business Survey
The National Federation of Independent Business reported that optimism rose marginally in February. The Small Business Optimism Index increased from 97.9 in January to 98.0 in February, but remained below December’s peak (100.4). The December level was the highest since October 2006. The good news was that the headline index has trended higher, up from 91.4 in February 2014. However, there continue to be some lingering anxieties about the economic outlook, with some of the underlying data points easing a bit in February.
Along those lines, the percentage of respondents suggesting that now was a good time to expand was unchanged at 13, but down from 16 in December. Weak economic conditions were the top reason cited by those indicating that it was not a good time for expansion. In addition, the net percentages expecting higher sales (down from 16 to 15) and employment (down from 14 to 12) over the next three months were both lower. Capital spending plans for the next three to six months were unchanged at 26 percent. To be fair, however, each of these measures was higher today than a year ago, consistent with progress made over the longer term.
The most important problem was regulatory burdens, cited by 21 percent of respondents, followed by taxes (20 percent), the quality of labor (14 percent) and poor sales (12 percent).
Producer Price Index
The Bureau of Labor Statistics reported that producer prices for final demand goods and services surprisingly fell 0.5 percent in February. The consensus expectation had been for an increase of 0.3 percent, particularly as petroleum prices have stopped falling. Indeed, final demand energy goods prices were unchanged as a whole in February, the first non-negative number since June. Yet, lower food prices helped to reduce producer prices for final demand goods for the eighth straight month, down 0.4 percent. In particular, there were lower prices reported for dairy products, fruits and vegetables, grains, meats and shellfish—precisely the areas that have seen significant increases over much of the past year. Food prices rose 4.3 percent in 2014, but declines in the first two months of 2015 have reduced these costs by 2.6 percent.
While overall energy goods prices were flat, this tells only part of the story. Gasoline prices increased 1.5 percent in February. This was consistent with the rise in West Texas Intermediate crude oil prices, up from an average of $47.22 per barrel in January to $50.58 a barrel in February. Still, this remained well below the average of $105.79 per barrel in June. At the same time, lower costs for residential natural gas (down 2.1 percent) and diesel fuel (down 1.5 percent) counteracted the increase in gasoline for the month.
On a year-over-year basis, producer prices for final demand goods and services fell 0.7 percent. This reflects significant easing in raw material costs since the 2.2 percent pace in May, and it was the second consecutive month with deflationary year-over-year figures. Meanwhile, core inflation—which excludes food and energy costs—has also decelerated, with year-over-year producer prices down from 2.1 percent in December to just 1.0 percent in February. Excluding food and energy, producer prices for final demand goods decreased 0.1 percent in February, declining for the second straight month.
This is likely to embolden inflationary doves on the Federal Reserve who would like for the FOMC to slow down its normalization efforts on short-term rates. While I still feel that the Federal Reserve will begin raising rates in mid-2015 on the relative strength in the U.S. economy, there have been increasing calls for the Federal Reserve to push that date back in light of global headwinds, including a stronger U.S. dollar. The FOMC meets this week, and this could provide some hints as to how recent economic developments might have shifted its thinking (or not).
The Census Bureau reported that retail sales slipped for the third straight month in February. Retail spending fell 0.6 percent for the month, building on the 0.9 percent and 0.8 percent declines in December and January, respectively. Much of the recent decline has stemmed from lower gasoline prices, with gasoline station sales reflecting reduced receipt levels. To illustrate this point, Americans spent $46.3 billion at gasoline stations in February 2014, but that figure has dropped 23.0 percent since then to $35.6 billion in this report. Indeed, retail sales grew 1.7 percent year-over-year, but excluding gasoline station spending, the year-over-year rate would have been 4.7 percent. This suggests that consumer spending is better than the headline numbers might indicate.
Overall, the February data were mixed. The most notable decline was in motor vehicles and parts, with sales down 2.5 percent for the month. Excluding autos, retail sales would have decreased by 0.1 percent. Building materials and supplies (down 2.3 percent), electronics and appliances (down 1.2 percent), general merchandise (down 1.2 percent) and health and personal care (down 0.7 percent) were among the other retailers with declines in February.
Despite the significant declines at gasoline stations over the past few months, sales were actually higher in February, up 1.5 percent. This was consistent with the recent run-up in gasoline prices, with the average price rising from $1.98 per gallon on January 26 to $2.36 a gallon on March 2, according to the Energy Information Administration. Other areas with higher spending levels in February included sporting goods and hobby stores (up 2.3 percent), nonstore retailers (up 2.2 percent) and grocery stores (up 0.5 percent).
Over the past 12 months, retail sales grew the fastest for the following types of businesses: nonstore retailers (up 8.6 percent), food services and drinking places (up 7.7 percent), furniture and home furnishing stores (up 5.8 percent), motor vehicles and parts dealers (up 5.4 percent), health and personal care stores (up 4.8 percent) and miscellaneous retailers (up 4.8 percent).
University of Michigan Consumer Sentiment
The University of Michigan and Thomson Reuters reported that consumer confidence unexpectedly slipped for the second straight month. The Consumer Sentiment Index has dropped from 98.1 in January to a revised 95.4 in February to 91.2 in March, according to preliminary data. The January figure had been the highest level in 11 years. Americans continue to be more positive today than a year ago, with the index measuring 80.0 in March 2014, and as such, the longer-term trend remains positive.
However, the data also suggest that the public remains anxious, mirroring the caution seen in recent spending data (see retail sales figures above). The University of Michigan survey indicates some easing in both current and expected measures over the past two months. Final data will be released on March 27.