Weekly Industry Crib Sheet: Leading Economic Indicators Flat in June

July 22, 2013


Fed Reports 'Moderate' Economic Growth

Housing Starts Fall 10 Percent

Economic Confidence Wanes

U.S. Industrial Production Surged in June

Jobless Claims Fall Suddenly

The Conference Board's index of leading U.S. indicators showed no change in June, a sign of uneven progress across economic sectors. The data has economists predicting that the rest of 2013 will be shaky.

Data released Thursday showed the leading index was unchanged last month after rising a revised 0.2 percent in May, first reported as 0.1 percent. The figures fell short of economists' modest predictions of 0.3 percent growth.

Gains in consumer expectations and other financial indicators were offset by a decline in building permits, new orders, and stock prices. The coincident index rose 0.2 percent in June following a 0.2 percent increase in May. The lagging index also rose, ticking up 0.3 percent last month after a 0.4 percent advance in May.

"Some segments of the economy are turning around faster than others, resulting in positive but moderate growth," Ken Goldstein, an economist at The Conference Board, said in a statement

. The biggest uncertainties remain the pace of business spending, the improvements in consumer spending power, and the impact of slower global growth on U.S. exports."

The index increased 1.7 percent in the first six months of this year, showing a long-term positive outlook. The index grew only 1.1 percent in the previous six months.

"We expect things to continue to pick up, although it's probably not going to be an even trajectory," Scott Brown, chief economist at Raymond James and Associates in St. Petersburg, Fla., told Bloomberg

. "We're still definitely on the recovery path."

Fed Reports 'Moderate' Economic Growth

Last week, the U.S. Federal Reserve said economic growth remained moderate, with manufacturing expanding in most areas of the country.

The Fed's Beige Book

report, based on anecdotal information on business activity, said manufacturing increased in 11 of the Fed's 12 districts throughout June and early July. "Residential real estate and construction activity increased at a moderate to strong pace in all reporting districts," the Fed said. "Manufacturing expanded in most districts since the previous report."

Petrochemical manufacturers helped bolster growth in the Dallas region. Chicago, St. Louis, and Minneapolis production remained strong, thanks to a healthy auto market. The Fed also reported that "steel and metal production increased in several districts, including Philadelphia, Chicago, Minneapolis, Dallas, and San Francisco."

Kansas City, Mo. experienced a slight contraction due to recent devastating storm activity.

Hiring was mixed, with some areas experiencing growth and others reluctant to add full-time staff. The Fed reported that Chicago and Richmond, Va., had strong demand for part-time work. Other areas struggled to find skilled workers. In particular, transportation businesses in Atlanta, Cleveland, and Kansas City reported challenges in finding qualified drivers. Meanwhile, New York, Richmond, and San Francisco had a shortage of technology workers.

Fed Chairman Ben Bernanke recently told Congress that the bank will be "responding to data" before deciding when to reduce its $85 million-per-month bond-buying stimulus. The Fed will meet in Washington on July 30 and 31 to discuss the stimulus and other matters.

Housing Starts Fall 10 Percent

Housing starts and permits for future home construction dropped in June, prompting fears of a housing slowdown and a general economic stall.

According to numbers released by the U.S. Department of Commerce

 last week, privately owned housing starts dropped 9.9 percent to a seasonally adjusted annual rate of 836,000. This figure was 10.4 percent above the June 2012 rate of 757,000. Economists polled by Reuters

 had expected a rise in June to a rate of 959,000. Single-family housing starts dropped 0.8 percent from May's figure of 596,000 to 591,000.

New building permits dropped 7.5 percent from May's rate of 985,000 to 911,000 in June, which was 16.1 percent higher than the June 2012 rate of 785,000. Economists had expected the rate to rise to about 1 million.

Economists interpreted the disappointing figures as further signs that economic growth in the U.S. was slowing in the second quarter after a 1.8 percent annual growth rate in the first quarter. The economy is combating sinking worldwide demand due to the ongoing European recession and reduced consumption in Asia, as well as reduced government spending following sequestration.

Economic Confidence Wanes

Gallup's Economic Confidence Index

fell to -12, the lowest reading since April. However, confidence remains above the -22 figure seen in early March, which Gallup sees as a reaction to disappointment over sequestration. The index has otherwise remained within a tight range of -17 and -3 since January.

Confidence in current conditions has remained steady all year. July's figure was down two points to -14. Economic outlook fell four points from -6 to -10.

Americans remain largely dissatisfied with the way things are going in the U.S., according to a separate Gallup poll

. The vast majority -- 68 percent -- are dissatisfied with the way things are going. Those who are satisfied ticked up a single percentage point in July to 28 percent. While the number is higher than May's 24 percent figure, Gallup notes that there has been no clear trend in satisfaction this year, with numbers ranging from lows of 21 percent to highs of 30 percent.

U.S. Industrial Output Surged in June

Industrial output rose in June, boosted by a surge in automobile and computer production.  Overall output at factories, mines, and utilities surged by 0.3 percent -- the largest uptick since February, according to new Federal Reserve data.

Meanwhile, manufacturing output, a critical component of industrial production, rose by 0.3 percent after a 0.2 percent increase in May, which may indicate that factories could boost the economy for the remainder of 2013, the Associated Press reported

. Recent data show that manufacturing has been weak, with output falling from an annual rate of 0.2 percent in the second quarter, after growing by 5.1 in the previous quarter. Factories have cut a total of 24,000 jobs since February.

Recent weak manufacturing output is linked to a decline in U.S. export demands. Europe is still in recession, while China's economy grew at the slowest pace in two decades, from April to June, the AP noted


"Manufacturing should grow faster than GDP again in 2013, but the growth premium is narrowed by sluggish domestic demand and lackluster export opportunities," according to Daniel Meckstroth, the chief economist for the Manufacturers Alliance for Productivity and Innovation, Industry Week reported


Jobless Claims Fall Suddenly

The number of Americans filing new unemployment claims dropped unexpectedly last week, hitting the lowest level in four months. While the numbers seem to be a positive sign, many economists remain skeptical.

Jobless claims fell by 24,000 to 334,000 for the week ending July 13, according the U.S. Dept. of Labor. The four-week moving average, which smoothes out volatility, declined by 5,250 to 351,000. This indicates a more favorable long-term trend.

July is known as a volatile month for jobless claims, as auto plants often shutdown for the first two weeks of the month to retool for the new model year. This causes a temporary spike in layoffs. The New York Times

notes that the recent decrease could be the result of automakers shortening the shutdowns to keep up with existing demand.

Overall, economists caution against reading too much into the figures. "The story in July is always about the inability of the seasonals to cope with the exact timing and extent of the annual auto retooling shutdowns, and it will be another couple of weeks before the numbers are clear of distortions," Ian Shepherdson, chief economist at Pantheon Macroeconomics, told MarketWatch




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