Economic Report: April 13, 2015

After a slew of releases the week before, last week was a quiet one on the economic front. This brief pause allowed us to absorb the data that we have before moving forward. Manufacturers have needed to reconcile the weaker-than-desired market in the first quarter of 2015 with a still-upbeat sales, output and labor market outlook for the coming months. This is true even with significant headwinds, including a stronger U.S. dollar, which should continue at least for the rest of this year. The Federal Reserve has equally had to deal with these changing dynamics, particularly grappling with when to begin normalizing short-term interest rates later this year.

The consensus among economists is that the Federal Open Market Committee (FOMC) will start to increase its federal funds rate, which has been effectively zero since the end of 2008, in June, July or September. In the March 17–18 meeting minutes released last week, FOMC participants weighed a number of economic factors in their discussions about the timing of short-term rate increases, with a wide variety of opinions about when this might occur. Specifically, the minutes say the following on this matter:

Several participants judged that the economic data and outlook were likely to warrant beginning normalization at the June meeting. However, others anticipated that the effects of energy price declines and the dollar’s appreciation would continue to weigh on inflation in the near term, suggesting that conditions likely would not be appropriate to begin raising rates until later in the year, and a couple of participants suggested that the economic outlook likely would not call for liftoff until 2016.

In my view, an increase in short-term rates is still possible at the FOMC meeting slated for June 16–17, but this will hinge on whether we see better data between now and then. If the Federal Reserve does not feel that it has enough data to warrant such a move at its June meeting, participants are likely to shift this decision back to the September 16–17 meeting. Either way, rates will be higher this year.

For now, we continue to get economic news that reinforces the view that economic headwinds have put a dent in activity in recent months. Consumer credit was up sharply in February, but this same data also indicate a reduced proclivity toward credit cards in January and February. This mirrored softer personal spending and wholesale trade data in that time period.

On the labor market front, job openings and net hiring also shifted lower to start the new year. Despite some easing, the number of job openings continues to reflect progress over the past year, and in the larger economy, job postings exceeded 5 million for the first time in more than 15 years. This finding was consistent with the latest employment figures, which were released the week before. Even with disappointing employment data in February and March, the manufacturing sector has averaged 15,533 additional hires per month on average over the past 15 months. That is more encouraging than the recent data might suggest.

This week, there will be a number of economic indicators released that we hope begin to show some rebounds in activity. For manufacturers, we will get new data in industrial production and surveys from the New York and Philadelphia Federal Reserve Banks on new orders and shipments in their regions. In addition, we will get the latest reports on consumer prices, consumer confidence, housing starts, retail s

ales and small business optimism.

Chad Moutray
Chief Economist
National Association of Manufacturers (NAM)

For more news from NAM, visit www.nam.org.