August 15, 2011
For many Americans who might not follow the ups and downs of economic trends, the wild gyrations of the stock market have captured their attention and brought the larger challenges of the domestic and global macroeconomy to the forefront of their minds.
Much of the anxiety is international in nature. The downgrading of the U.S. government's debt by Standard & Poor's will not bring about any positives in terms of borrowing costs, economic growth, or national prestige. In the short-term, though, the demand for U.S. securities remains strong, and so long as the other ratings agencies continue to rate our debt as AAA, the impacts will be muted. The market turbulence of the last week had more to do with financial struggles in Europe – particularly the speculation that France, too, might see a debt downgrade – and with concerns about a slowdown in global growth.
This uncertainty has weighed heavily on businesses and consumers. The University of Michigan's consumer sentiment survey found on Friday that the public is extremely pessimistic about future economic growth, with its expectations index at its lowest point since 1980. Meanwhile, the National Federation of Independent Business (NFIB) reported that small businesses remain worried about poor sales, resulting in greater hesitancy for these owners to hire additional workers, invest in new capital equipment, or expand their businesses. The Job Openings and Labor Turnover (JOLTS) data show that job creation in the U.S. remains virtually stagnant.
In addition to these reports, the trade gap widened and productivity fell (mostly due to decreases in output). While business inventories and retail sales rose, it is clear that consumers are being much more careful with their purchases, particularly as they balance higher prices with increased economic anxieties. The good news – particularly for those who closely monitor the motor vehicle sector – is that sales of automobiles have begun to recover from the supply chain disruptions earlier in the spring.
In light of the recent deterioration in economic conditions (and mostly as a reaction to the dramatic slide in financial markets earlier last week), the Federal Reserve Board's Federal Open Market Committee (FOMC) voted to keep the federal funds rate at near-zero for the next two years. This suggests that the FOMC is more worried about economic growth than about pricing pressures. Nonetheless, it is notable for the fact that three individuals dissented, primarily out of concern that keeping interest rates so low for so long might promote inflation. Manufacturers have worried about rising energy and raw material prices for much of the past year, so while they might benefit from reduced borrowing costs, the possibility of increased pricing pressures must bring at least some trepidation, at least in my view.
This week, we will get a sense of the current inflationary trends with the release of new data on consumer and producer prices. In addition, industrial production and two regional Federal Reserve Bank surveys (New York and Philadelphia) will gauge recent manufacturing activity. Hopefully, the economic news this week will be less stressful.
Chad Moutray
Chief Economist
National Association of Manufacturers
NLRB FAILS TO COMPLY WITH CONGRESSIONAL SUBPOENA IN BOEING DISPUTE, COMMITTEE CHAIR CHARGES
Quick Manufacturing News
'Heightens concerns that this is a rogue agency acting improperly Click to continue
U.S. PORTS SEE DROPOFF OF 6%
Quick Manufacturing News
Total traffic for all imports entering all U.S. ports was down 6% in week 29, 2011, compared to the same week in 2010. Click to continue
For many Americans who might not follow the ups and downs of economic trends, the wild gyrations of the stock market have captured their attention and brought the larger challenges of the domestic and global macroeconomy to the forefront of their minds.
Much of the anxiety is international in nature. The downgrading of the U.S. government's debt by Standard & Poor's will not bring about any positives in terms of borrowing costs, economic growth, or national prestige. In the short-term, though, the demand for U.S. securities remains strong, and so long as the other ratings agencies continue to rate our debt as AAA, the impacts will be muted. The market turbulence of the last week had more to do with financial struggles in Europe – particularly the speculation that France, too, might see a debt downgrade – and with concerns about a slowdown in global growth.
This uncertainty has weighed heavily on businesses and consumers. The University of Michigan's consumer sentiment survey found on Friday that the public is extremely pessimistic about future economic growth, with its expectations index at its lowest point since 1980. Meanwhile, the National Federation of Independent Business (NFIB) reported that small businesses remain worried about poor sales, resulting in greater hesitancy for these owners to hire additional workers, invest in new capital equipment, or expand their businesses. The Job Openings and Labor Turnover (JOLTS) data show that job creation in the U.S. remains virtually stagnant.
In addition to these reports, the trade gap widened and productivity fell (mostly due to decreases in output). While business inventories and retail sales rose, it is clear that consumers are being much more careful with their purchases, particularly as they balance higher prices with increased economic anxieties. The good news – particularly for those who closely monitor the motor vehicle sector – is that sales of automobiles have begun to recover from the supply chain disruptions earlier in the spring.
In light of the recent deterioration in economic conditions (and mostly as a reaction to the dramatic slide in financial markets earlier last week), the Federal Reserve Board's Federal Open Market Committee (FOMC) voted to keep the federal funds rate at near-zero for the next two years. This suggests that the FOMC is more worried about economic growth than about pricing pressures. Nonetheless, it is notable for the fact that three individuals dissented, primarily out of concern that keeping interest rates so low for so long might promote inflation. Manufacturers have worried about rising energy and raw material prices for much of the past year, so while they might benefit from reduced borrowing costs, the possibility of increased pricing pressures must bring at least some trepidation, at least in my view.
This week, we will get a sense of the current inflationary trends with the release of new data on consumer and producer prices. In addition, industrial production and two regional Federal Reserve Bank surveys (New York and Philadelphia) will gauge recent manufacturing activity. Hopefully, the economic news this week will be less stressful.
Chad Moutray
Chief Economist
National Association of Manufacturers
NLRB FAILS TO COMPLY WITH CONGRESSIONAL SUBPOENA IN BOEING DISPUTE, COMMITTEE CHAIR CHARGES
Quick Manufacturing News
'Heightens concerns that this is a rogue agency acting improperly Click to continue
U.S. PORTS SEE DROPOFF OF 6%
Quick Manufacturing News
Total traffic for all imports entering all U.S. ports was down 6% in week 29, 2011, compared to the same week in 2010. Click to continue
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