Many of the key economic indicators released last week suggested that the domestic economy continues to improve. In deciding to leave current monetary policies in place (and not pursue additional rounds of quantitative easing at this time), the Federal Reserve noted that "the economy has been expanding moderately" since its last meeting in November.
Businesses are becoming more optimistic as we move into 2012. The just-released NAM/IndustryWeek Survey of Manufacturers found that 80 percent of respondents are either somewhat or very positive about the next year, with sales expected to grow by 4.4 percent. The Manufacturers Alliance for Productivity and Innovation (MAPI) anticipates 3 percent growth in production in 2012, led by higher output in the energy, high-tech, transportation and industrial equipment sectors. These sentiments can also be observed in the regional manufacturing surveys from the New York and Philadelphia Federal Reserve Banks, each of which found businesses in their region expecting improvements in new orders, production, employment and capital spending in the coming months.
With that said, headwinds in the domestic manufacturing economy continue. Manufacturing production fell 0.4 percent in November. The largest driver of this decline was a reduction in motor vehicle production, but even outside of autos, activity slowed. Retail sales in November grew at their slowest pace since June, despite strong Black Friday sales, and the number of manufacturing hires dropped in October. This is a sign that – even with predictions of higher output over the next six months or more – growth in the sector is not immune to the anxieties that exist globally. The NAM and others continue to advocate for pro-growth economic policies from Washington.
One piece of good news is that pricing pressures have eased, mostly due to lower energy costs. Core inflation at the consumer level is up 2.2 percent since November 2010 whereas core producer prices have risen 2.9 percent year over year. Both of these figures have edged higher with each passing month, yet inflationary pressures remain modest in the overall economy, at least for now. Manufacturers anticipate higher costs for next year, according to special questions in both the New York and Philadelphia Fed surveys, with the largest increases emanating from higher benefit and raw material costs.
This week, we will learn more about the current state of the housing market, which remains depressed despite recent improvements in housing starts and sales. In addition, new data on consumer sentiment and personal spending will shed light on Americans' confidence and willingness to purchase as we move into the holiday season. Past data have shown greater consumer optimism and spending, even as individual incomes grew more slowly and the savings rate dropped. We will end the week with a revision to third-quarter GDP figures and the latest on durable goods production.
Chad Moutray
Chief Economist
National Association of Manufacturers
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An AP survey found that more than 32 mostly coal-fired power plants in a dozen states will be forced to shut down because of new regulations ... continue
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