Plus: Construction Industry Confidence Declines, Leading Indicators Point to Economic Growth, CEOs Less Gloomy in 2013, and Jobless Claims Hover at Five-Year Low.
Research firm Markit’s latest Purchasing Managers Index (PMI) found that manufacturing and services in the United States grew sharply in January, with the index rising to 56.1 from 54 in December. The latest reading signaled the strongest rate of growth since March 2011.
“The U.S. manufacturing sector started 2013 on a strong footing, reporting the fastest pace of expansion for nearly two years,” Chris Williamson, chief economist at Markit, explained. “Output and new orders both grew at sharply faster rates, encouraging increasing numbers of manufacturers to take on extra staff.”
Manufacturing production climbed to 57.2 in January, up from 54.5 the prior month and marking the fourth consecutive month of accelerating growth in output. Readings above 50 indicate overall expansion. Surging domestic demand helped drive up new orders to 57.7 this month from 54.7 in December, the fastest rate since May 2010. The employment index rose to 55.6 in January, up from 54.5, with new manufacturing jobs being created at the fastest pace in nine months.
Meanwhile, new export orders fell to 51.3 this month, indicating that growth in exports has continued for the third consecutive month, but at a slower pace than in December. Asian markets were cited as they key source for rising export rates among U.S. manufacturers.
“Global economic growth is reviving, meaning companies are seeing stronger demand from emerging markets such as China and India as well as parts of Europe, notably Germany,” Williamson added. “However, it is the domestic market that is clearly providing the main impetus to the upturn, linked to improved confidence in the future given more aggressive stimulus from the Fed and reduced fears about the fiscal cliff.”
Construction Industry Confidence Dips
A new report from Associated Builders and Contractors (ABC) reveals that in the second half of 2012, construction industry confidence dipped slightly from the beginning of the year due to uncertainty regarding the fiscal cliff.
The ABC Confidence Index fell in the second half of 2012. The index highlights three key changes in the non-residential construction industry: sales expectations fell from 66.3 to 62.3, profit margins dropped from 56.3 to 55.9, and staffing levels declined from 62.2 to 59.2.
“The ongoing lack of confidence, including among those who would otherwise purchase construction services, continues to produce small and halting gains in nonresidential construction spending,” according to ABC Chief Economist Anirban Basu, who also noted that unresolved fiscal cliff and debt ceiling issues will continue to impact confidence in the short-term future.
A separate report in January also found mixed conditions for the construction industry. According to the National Association of Home Builders/Wells Fargo, while the index for builders’ sentiment remains at 47, its highest level since April 2006, builders are less optimistic about sales for the first half of 2013. The outlook for sales dropped one point to 49, the lowest level since August. A reading below 50 indicates negative views about the housing market.
One key concern is whether the mortgage interest deduction will be altered or eliminated, a major policy issue that could weaken housing demand.
Leading Indicators Point to Economic Growth
The index of U.S. leading economic indicators rose in December at a faster pace than in recent months, as a stronger housing market and an improving job market helped boost the outlook for growth. The Conference Board’s Leading Economic Index (LEI) for the U.S. increased 0.5 percent in December to 93.9, following no change in November, and a 0.3 percent rise in October.
December’s reading exceeded expectations, as economists polled by MarketWatch had forecast the LEI to rise by 0.4 percent for the month. The index posted its strongest reading since September 2012. The LEI increased 1.3 percent in the six months leading to December, up from 0.5 percent in the prior six-month period.
“The latest data suggest that a pickup in domestic growth is now more likely, compared to a few months ago,” Ken Goldstein, an economist for the Conference Board, noted. “Housing, which has long been a drag, has turned into a positive for growth, and will help improve consumer balance sheets and strengthen consumption. However, for growth to gain more traction we also need to see better performance on new orders and an acceleration in capital spending.”
The LEI is a weighted gauge of 10 indicators tracking business cycle peaks and troughs. Five of the 10 indicators improved in December, led by fewer claims for unemployment benefits, a positive interest rate spread, a stronger credit index, higher stock prices, and rising building permits.
“The leading index for January may get another boost from a rally in equities after U.S. lawmakers avoided broad-based tax increases and moved to temporarily suspend the federal debt limit,” Bloomberg News reports. “Congress still must figure out how it will handle automatic spending cuts scheduled to begin March 1, an event that could further crimp economic growth.”
CEOs Less Gloomy About Economy in 2013
Chief executive officers (CEOs) are less pessimistic about global economic conditions in 2013 than they were the previous year, but most are cautious in their projections for growth, according to a new survey from PricewaterhouseCoopers (PwC).
PwC found that 36 percent of CEOs are “very confident” that their company will experience growth during 2013, down from 40 percent expecting similar growth in 2012, and 48 percent in 2011. However, 28 percent of CEOs say the economy will suffer contraction this year, down significantly from the 48 percent who expected the economy to shrink in 2012. Fifty-two percent expect the economy to stay the same, while only 18 percent of surveyed CEOs forecast economic expansion.
Pessimism about short-term growth was seen mostly in Western Europe (22 percent responded that they were “very confident” of growth), North America (33 percent), the Asia-Pacific region (36 percent), and Africa (44 percent). Confidence among Latin American CEOs was up to 52 percent.
Countries with the highest rate of short-term growth confidence included Russia (66 percent), India (63 percent), Mexico (62 percent), Brazil (44 percent), and China (40 percent).
“CEOs remain cautious about their short-term prospects and the outlook for the global economy,” Dennis Nailly, chairman of PwC International, said. “However, given the high levels of concern among CEOs about issues – such as over-regulation, government debt, capital market instability – it is no surprise that CEO confidence has declined in the last 12 months.”
Jobless Claims Hold at Five-Year Low
New initial jobless claims dipped slightly in the latest week reported, remaining at a five-year low hit the previous week, though it remains unclear whether the change is due to improved hiring or a reduction in layoffs. According to the U.S. Department of Labor, unemployment claims for the week ending January 19 fell by 5,000 to a total of 330,000, the lowest level since the same week in 2008.
Meanwhile, the four-week moving average, which smoothes out volatility and provides a clearer long-term picture of labor market conditions, fell by 8,250 to 351,750, marking the lowest level since March 2008.
“This is usually a good indicator of the state of the labor market, so that’s a healthy sign. What’s more, initial jobless claims have been dropping far faster than economists have expected all January…” the Washington Post notes. “So does that mean we’re on the verge of an economic boom? Many analysts remain quite cautious about this recent drop. The usual thing to say is that claims data in January is often quite volatile, since it’s inherently difficult for government statisticians to make the proper adjustments for seasonal hiring around the holiday period.”
The number of continuing claims, an important measure of those who remain on unemployment benefits for two weeks or more, dropped by 71,000 to a total of 3.16 million for the week ending January 12, the most recently available data.