May 14, 2012

Much of the economic focus last week dealt with the aftermath of French and Greek elections. While European sovereign debt issues have been in the forefront the past few years, it seems there are always new developments that add to our collective anxieties about the euro’s stability and member nations’ ability to grapple with their finances. The Greek situation is the more precarious of the two, with new elections scheduled possibly for as early  as June and their future in the Eurozone being openly questioned. The European economy—already in a recession—hangs in the balance, particularly if the situation unravels, threatening global growth.

Manufacturers in the United States need the global economy to pick up, especially given the importance of international markets to manufacturing businesses. U.S. goods exports hit a record level in March, with increases across-the-board, including in Europe, due to strong sales of industrial supplies and capital goods. Yet, the growth of goods imports also rose to a record high, outpacing export growth and widening the overall trade deficit. The U.S. economy is growing modestly, but still fast enough to drive up our imports; meanwhile, economic growth elsewhere lagged.

Manufacturing job openings jumped significantly in March, as durable and nondurable goods sectors looked for more workers. Strong gains in manufacturing, along with  increased consumer spending, drove  demand for more workers. However, overall hiring did not pick up as rapidly as job postings. Manufacturers continue to struggle to find qualified workers, which suggests many jobs remain unfilled.  

Small businesses and consumers are more upbeat. While small business owners are still anxious about the economy and political environment, the National Federation of Independent Business’s (NFIB) Small Business Optimism Index rose two points in April, its highest point since the beginning of the recession. The University of Michigan and Thomson Reuters reported a stronger-than-expected gain in consumer confidence in May, with their index rising to 77.8, its highest point since the end of 2007. The NFIB survey noted that more firms, including small and medium-sized manufacturers, are more positive about hiring and expanding their operations in the next three months. The top concern, which had been “poor sales” for the past three and a half years, is now the regulatory environment.

This week will be a busy one on the data front. New industrial production figures and regional surveys from the New York and Philadelphia Federal Reserve Banks will provide the latest manufacturing activity information. This will be closely watched, especially after weaknesses last month. In addition, the latest housing starts data should report continued gradual improvements in the still-depressed sector. Seasonal factors, which helped to reduce starts in March (since warm weather pushed some projects to January and February), should start to wane. Finally, consumer inflation information should mirror the producer price data out last week, with energy prices pushing costs lower and keeping inflationary pressures modest.

Chad Moutray
Chief Economist
National Association of Manufacturers