Weekly Industry Crib Sheet: Manufacturing Productivity Increases Amid Broader Decline
Credit: Ford Motor Co.
Credit: Ford Motor Co.

Plus:
U.S. Factory Orders Increase
Trade Gap Shrinks to Three-Year Low
Consumer Confidence Takes a Hit
Jobless Claims Inch Down


Although U.S. worker productivity fell 2 percent in the fourth quarter of 2012, manufacturing sector productivity rose 0.5 percent during the same period, the U.S. Department of Labor reports.

The decline in overall labor productivity, or output per hour, derived from slower economic activity and marked the biggest drop since the first quarter of 2011. The decrease comes after a 3.2 percent rise in productivity during the previous three months. Expenses per worker rose 4.5 percent. Economists surveyed by Bloomberg News had forecast productivity would decline 1.4 percent for the quarter.

Meanwhile, manufacturing productivity has increased 1.3 percent over the last four quarters, while output increased 2.8 percent and hours worked rose 1.5 percent. Unit labor costs in the sector rose 0.4 percent during the fourth quarter, 3.4 percent above the total for the same quarter in 2011.

“Productivity growth has definitely slowed but not nearly to the degree that this data suggests,” Mark Zandi, chief economist at Moody’s Analytics Inc., told Bloomberg News, noting that the productivity data will most likely be revised to a higher percentage. However, according to the Associated Press, economists forecast worker productivity will remain weak through 2013, and companies may need to hire more employees to keep pace if the demand for their products increases.


U.S. Factory Orders Increase

New orders for U.S. manufactured goods rose 1.8 percent in December, following a 0.3 percent decline in November and ending 2012 with a net gain, albeit lower than in recent years, according to the U.S. Department of Commerce. The value of new orders climbed $8.6 billion to a total of $484.8 billion for the month. For 2012 as a whole, factory orders rose 3 percent to $5.66 trillion, a considerable slowdown from the 11.8 percent gain in 2011.

Transportation equipment orders posted the largest gain in December, climbing 11.7 percent to $75.6 billion. Excluding the often volatile transportation category, new orders increased 0.2 percent in December. Demand for computers and electronic products rose 4.1 percent to $21.7 billion, and primary metals orders increased 3.2 percent to $29.6 billion. Meanwhile, machinery orders fell 1.1 percent to $31.3 billion.

“The overall economy actually contracted in the October-December quarter at an annual rate of 0.1 percent, the first negative reading since the recession was ending in the summer of 2009. The decline reflected a big drop in defense spending, slower business stockpiling and a fall in exports,” the Associated Press reports. “However, other parts of the economy showed strength including housing and business investment on equipment and software, which rose at an annual rate of 12.4 percent, the best showing in more than a year and a rebound from a decline in business investment in the July-September quarter.”

On a more troubling note, orders for core capital goods (excluding aircraft and defense equipment), which serve as an indicator for future spending plans, fell 0.3 percent in December after a revised 3.3 percent increase in November. Core capital goods demand also decreased 0.3 percent for 2012 as a whole, dropping to $759 billion.


Trade Gap Shrinks to Nearly Three-Year Low

The U.S. trade deficit plunged to $38.5 billion in December, a 20.7 percent drop from the revised $48.6 billion total in November and the lowest level since January 2010, largely due to surging energy exports, according to the U.S. Department of Commerce. December exports rose 2.1 percent to $186.4 billion, while imports fell 2.7 percent to $224.9 billion—the steepest drop in three years.

“Record petroleum exports helped shrink the U.S. trade deficit in December to the smallest in almost three years as America moved closer to energy self- sufficiency, a goal the nation has been pursuing since the 1973 Arab oil embargo,” Bloomberg News notes. “In addition to trimming the trade deficit, greater fuel autonomy helps boost household incomes, jobs and government revenue and makes American companies more competitive. An improving global economy, reflected by record exports to South and Central America, also means manufacturers such as Caterpillar Inc. will benefit.”

The goods deficit for the month fell to $56.2 billion, a $9.4 billion decrease from November, while the services surplus inched up $0.7 billion to $17.7 billion. Goods exports rose by $3.3 billion to $132.6 billion, led by higher demand for industrial supplies and materials, while goods imports dropped by $6.1 billion to $188.8 billion, reflecting lower demand for industrial goods and materials from overseas. Among energy products, the U.S. exported a record $11.6 billion of petroleum in December.

“The outcome, paradoxically, provided both an unexpected boost to estimates of year-end economic growth and evidence of how tough it is to increase American exports in a competitive global economy while a major trading partner – Europe – is in recession,” the Washington Post reports. “The large and persistent trade deficit with China and the outcome of the first months of the free-trade agreement with South Korea also prompted criticism at a time when the Obama administration is deciding how to press new trade initiatives in Asia and possibly with Europe.”


Consumer Confidence Takes a Hit

The Conference Board’s Consumer Confidence Index plunged 8.1 percentage points to 58.6 in January, the lowest level since November 2011, as consumers’ concerns about increased taxes lowered their optimism.

The percentage of consumers expecting business conditions to improve in the next six months fell to 15.4 percent from 18.1 percent, while those expecting business conditions to worsen declined slightly to 20.6 percent from 21.1 percent. The outlook for the labor market also worsened, with those anticipating more jobs in the months ahead falling to 14.3 percent from 17.9 percent. The number of consumers who expect their income to decline in six months rose to 22.9 percent in January from 19.1 percent in December.

“Consumer Confidence posted another sharp decline in January, erasing all of the gains made through 2012,” Lynn Franco, director of economic indicators at the Conference Board, said. “Consumers are more pessimistic about the economic outlook and, in particular, their financial situation. The increase in the payroll tax has undoubtedly dampened consumers’ spirits and it may take a while for confidence to rebound and consumers to recover from their initial paycheck shock.”

Consumers’ opinions about current conditions also deteriorated last month, with those stating business conditions are “good” falling to 16.7 percent from 17.2 percent. Those stating business conditions are “bad” increased to 27.4 percent from 26.3 percent.


Jobless Claims Inch Down

New initial jobless claims dipped slightly in the latest week reported, dropping to levels seen in the second half of 2012 but still pointing to slow hiring in the U.S. labor market. According to the Department of Labor, unemployment claims for the week ending February 2 fell by 5,000 to a total of 366,000.

Meanwhile, the four-week moving average, which smoothes out volatility and provides a clearer long-term picture of job market conditions, decreased by 2,250 to 350,500, hovering near a five-year low.

“Jobless claims are a key economic indicator because they’re considered a proxy for layoffs. Over the last month, they’ve been especially volatile, making it difficult to get a clear reading on the job market,” CNN Money explains. “Initial claims plunged to a five-year low in early January, and then snapped back up in the following weeks. Now, they’re hovering back in the 350,000 to 400,000 range, where they’ve largely been stuck for more than a year.”

At their current levels, claims are consistent with hiring rates that add an average of 180,000 jobs to the U.S. economy per month, roughly in line with the average for the past two years.

 

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