Plus: Economic Indicators Improve, Factory Output Increases, Obama Urges Manufacturing Tax Breaks and Jobless Claims Continue Falling.
Leading Economic Indicators Improve in January
The Conference Board’s Leading Economic Index (LEI) for the United States rose 0.4 percent to a total of 94.9 in January, following a 0.5 percent increase in December and a 0.3 percent increase in November. The accelerated rate of growth points to an improving outlook for economic conditions at the start of the new year.
“This fourth consecutive gain in the LEI reflected fairly widespread strength among its components, pointing to somewhat more positive economic conditions in early 2012,” Ataman Ozyildirim, an economist for the research group, explains. “The LEI’s increase in January was led not only by improving financial and credit indicators, but also rising average workweek in manufacturing. These both offset consumers’ outlook about the economy, which remained pessimistic, though slightly less so.”
The LEI weighs 10 key indicators to track business cycle peaks and troughs and gauge economic prospects for the next three to six months. Last month, seven of the 10 indicators made positive gains: the interest-rate spread; average weekly manufacturing hours; stock prices; the leading credit index; the ISM new orders index; building permits; and manufacturers’ new orders for consumer goods and materials.
“An improvement in the labor market and increased hours worked may help deliver the income gains needed to encourage Americans to boost spending,” Bloomberg News reports. “A lack of inflation gives Federal Reserve policy makers room to keep interest rates low through 2014 to ensure the expansion endures a global slowdown.”
Meanwhile, the Conference Board’s Coincident Economic Index, which tracks current economic activity, rose 0.2 percent to 103.5 in January, following a 0.3 percent gain in December and no change in November.
Factory Output Increases
Overall industrial production in the U.S. was flat in January, as a gain in manufacturing was offset by declines in mining and utilities, according to the Federal Reserve last week. However, total industrial production for December was revised sharply upward, from a 0.4 percent advance to a full 1 percent increase, reflecting higher output for many manufacturing and mining industries, the central bank reports.
The flat overall performance in January was due to unseasonably warm weather, which led to a 2.5 percent decline in utility production. Meanwhile, the output of mines declined 1.8 percent last month.
Although industrial production as a whole was unchanged in January, factories in the U.S. boosted output by 0.7 percent, “capping the largest back-to-back increases in more than two years,” Bloomberg BusinessWeek notes. Within manufacturing, the index for motor vehicles and parts jumped 6.8 percent and the index for other manufacturing industries increased 0.3 percent.
“An important growth driver is pent-up demand,” Daniel Meckstroth, an economist for the Manufacturers Alliance for Productivity and Innovation (MAPI), wrote in an analysis of the Fed report. “After years of postponing big-ticket purchases, consumers have to replace motor vehicles. Businesses also have pent-up need for business equipment. So much capacity was eliminated during the 2008-2009 recession that even the moderate manufacturing recovery so far has rapidly pushed up the capacity utilization rate from 65 percent at the depths of the recession to 77 percent in January 2012, only a couple of percentage points from the pre-recession factory usage rate.”
The capacity utilization rate for total industry fell slightly to 78.5 percent last month, due to the sharp upward revision in December. The utilization rate in December was revised up to 78.6 percent from an initial reading of 78.1 percent.
Obama Outlines Pro-Manufacturing Measures
In his latest weekly radio and Internet address on Saturday, President Barack Obama highlighted several key measures intended to boost the U.S. manufacturing industry and help return jobs that have gone overseas back to U.S. shores.
In the address, recorded at a Boeing Co. manufacturing plant outside Seattle, Obama said that technological advances have made manufacturing businesses more productive and efficient, and enabled the industry to be a powerful driver of economic growth and job creation. To become more competitive with foreign companies, however, he said the U.S. needs to implement new tax proposals.
“No company should get a tax break for outsourcing jobs [offshore]. Instead, tax breaks should go to manufacturers who set up shop here at home. Bigger tax breaks should go to high-tech manufacturers who create the jobs of the future. And if you relocate your company to a struggling community, you should get help financing that new plant, that new equipment, or training for new workers,” Obama said. “It’s time to stop rewarding businesses that ship jobs overseas, and start rewarding businesses that create jobs here in America. And Congress should send me that kind of tax reform right away.”
Tax breaks and similar incentives could accelerate the economic recovery and encourage greater investment in domestic manufacturing capabilities, according to the president, especially considering that rising operational costs in China coupled with increasing productivity in the U.S. have optimized conditions for “insourcing” jobs. He also urged Congress to support export initiatives.
“Obama announced steps to offer financing to U.S. companies to match help their foreign competitors get, with the goal of helping American industries compete,” the Associated Press explains. “Obama called on Congress to extend the Export-Import Bank’s authorization. White House officials said the bank will reach its lending limit at the end of March and Obama pointed to it as a key player in helping promote U.S. exports.”
Jobless Claims Fall Again
New initial jobless claims fell in the latest week reported, continuing the trend of improving labor market conditions. According to the U.S. Department of Labor, seasonally adjusted unemployment claims for the week ending February 11 decreased by 13,000 to a total of 348,000. The four-week moving average, which provides a more long-term view, dropped 1,750 to 365,250.
“New jobless claims have now returned to the level of March 2008, when Wall Street investment bank Bear Stearns declared bankruptcy amid recession,” Agence France-Presse reports. “In January, the unemployment rate fell for the fifth straight month, to 8.3 percent, the lowest level since February 2009, thanks to a surge in job creation. The economy added 243,000 net new jobs in broad-based gains and wages rose 0.2 percent, prompting analysts to revise their forecasts for first-quarter economic growth.”
The recent drop in initial unemployment claims exceeded expectations, as economists polled by Reuters had forecast claims to rise to 365,000 for the week, while a Bloomberg survey of economic analysts included estimates ranging up to 380,000 claims. Following three consecutive weeks of drops, claims have now fallen below the 350,000 mark, indicating sustained improvement in the labor market.
“Europe might be headed for a recession. China’s growth looks like it’s slowing. The Middle East is, par for the course, in turmoil. And somehow, like a horse with a particularly effective pair of blinders, the U.S. economy is pushing ahead along the road to economic recovery,” The Atlantic notes. “As long as the numbers stay around here, or drop further, the U.S. labor market should be in good shape. Assuming the rest of the world doesn’t get in our way, that is.”
“Three out of four business owners think consumer demand either will stay the same or increase, a perspective that likely is informing their positive feelings about the economy,” according to last week’s Kauffman/LegalZoom Startup Confidence Index, the first in a series of quarterly surveys to gauge entrepreneurial confidence.
In a nationwide survey of 800 clients of LegalZoom, an online document service, more than 80 percent of start-up owners said they are confident their business will be more profitable in 12 months than it is today. The survey also shows that 68 percent of respondents think the economy will either improve or stay the same, and more than a quarter said they plan to hire additional staff in 2012.
“Despite the recent downward trends in business starts and start-up hiring, these data suggest new business owners have adopted the optimistic entrepreneurial spirit as they anticipate what lies ahead for their businesses in 2012,” Robert Litan, VP of research and policy at the Kauffman Foundation, said in a statement. “Entrepreneurs drive the economy and, while this survey is one monitor on one group of entrepreneurs who matter, it may be a leading indicator that the trends are turning around.”
In an announcement of the Kauffman Foundation’s third annual State of Entrepreneurship Address, Litan recently said that an important challenge for policymakers is “to create the conditions that enable an increase in the number of fast-growing job creators or to enhance the pace at which the most successful firms expand.” Litan continued, “We need to foster new thinking about how to stimulate job creation.”