Economic Report: November 23, 2015

There were some modest signs of progress to note in recent data, including a rebound in manufacturing production in October. This followed declines in both August and September. Despite slightly better performance, however, demand and output have been softer than desired for much of this year, with the year-over-year pace of manufacturing production declining from 4.3 percent in January to 1.9 percent in October. This easing has reflected headwinds from a strong dollar, weaknesses abroad and lower commodity prices, among other challenges. At the same time, total industrial production fell for the second straight month on weaker activity in mining and utilities. 

The manufacturing improvements in the national measure were also seen in regional surveys from the Kansas City and Philadelphia Federal Reserve Banks. The composite indices of general business conditions both reflected positive growth on net in their districts after contracting in prior months. The Kansas City report indicated some stabilization in activity after several months of challenges from lower crude oil prices and the strong U.S. dollar. On the latter point, exports are expected to remain a struggle over the next six months in that survey. Meanwhile, the progress noted in the Philadelphia region was incremental, with the pace of decline easing in most measures. As such, manufacturers in that district were not completely out of the woods yet from recent softness. That could be said of those completing the New York Federal Reserve’s survey as well, with activity contracting for the fourth straight month in November. Fortunately, all of these reports found that manufacturing leaders were cautiously optimistic about demand, production and hiring over the next six months, which is encouraging.

In other news, residential construction data released last week were mixed. New housing starts declined 11.0 percent for the month, down from an annualized 1,191,000 units in September to 1,060,000 units in October, its slowest pace since May. However, much of that decline stemmed from the highly volatile multifamily segment. Single-family housing starts have generally trended higher in recent months, despite a slight decline in this most recent report, up from an average of nearly 675,000 in the first half of 2015 to 738,750 since then from July through October. In addition, new housing permits were higher for both single-family and multifamily construction units in October, which should bode well for better construction activity in the coming months. Homebuilders also remain mostly upbeat about single-family sales moving forward.

A number of releases are due this week before the Thanksgiving holiday, each of which will give us another impression of the current state of the economy. On Tuesday, we will receive an update on real GDP growth in the third quarter, which is likely to be slightly higher than the 1.5 percent estimate reported earlier. Regarding manufacturing activity, there will be new surveys showing the health of the sector in the United States and Eurozone from Markit, the latest results from the Richmond Federal Reserve Bank and preliminary data on October durable goods orders and shipments. In addition, the Census Bureau will release early estimates for goods exports, which have been challenged this year by global weaknesses and the strong dollar. Beyond these measures, other indicators to watch for include the latest figures on consumer confidence, existing and new home sales and personal income and spending.

Chad Moutray, Chief Economist
National Association of Manufacturers (NAM)