Weekly Industry Crib Sheet: Economic Growth Tempered by Shutdown

October 21, 2013

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Anecdotal evidence indicates that American manufacturing grew modestly last month, the Federal Reserve Board reported in its latest Beige Book survey. Overall, the economy continued to expand at a moderate pace at best.

Manufacturing grew faster in the Midwest districts of Cleveland, St. Louis and Minneapolis, while growth slowed in the New York, Richmond, Va., and Chicago regions, the central bank reported.

“While there was little immediate disruption from the federal government shutdown, contacts were worried about the potential impact if the closing became prolonged,” the Fed said in its assessment of the manufacturing sector.

As reported in Industry Market Trends, analysts at the Standard & Poor’s rating agency estimated that the 16-day shutdown sucked $24 billion out of the economy and will cause a significant deceleration of growth for the fourth quarter.

Prior to the shutdown, consumer spending and business investment grew in most of the 12 Federal Reserve districts.

In manufacturing, the aerospace and automotive industries continued to be a source of strength in much of the country, the Fed noted. The Cleveland, Chicago, St. Louis and San Francisco districts reported steady increases in demand for steel. Demand for manufactured inputs to energy production was strong in the Cleveland and Dallas regions.

High-tech manufacturing edged up in several districts, with Boston and Dallas reporting slightly higher demand for semiconductors, and biotech manufacturing increasing in the San Francisco area.

The construction materials market remained strong for the Philadelphia region, the survey indicated. Demand for fabricated metals was mixed in the Chicago and Richmond districts, but stronger in the Dallas region.

The Beige Book survey comes two weeks before Federal Reserve officials meet to debate when to reduce their stimulus policy. The survey might be one of the few barometers the central bank has to determine the nation’s economic health. The government shutdown closed such agencies as the Labor and Commerce departments which produce major economic reports.

Philly Factories See Growth This Month

Philadelphia manufacturing beat market expectations in October, according to a new report from The Federal Reserve Bank of Philadelphia.

Although Philadelphia’s general economic index fell to 19.8 from a two-year high of 22.3 in September, market analysts had projected a greater drop in productivity. The expansion suggests the 16-day government shutdown did not affect manufacturing in the area as much as feared. Prior to the release, economists were estimating a range from minus 2.0 to 27.5, according to Bloomberg, with an average reading of 15.0, according to Reuters.

Economic indices over zero signify growth. October’s figure represents five straight months of growth in the region, and analysts expect this trend to continue.

"This is a fairly strong result, especially given the turmoil in Washington," Jim O'Sullivan, chief U.S. economist at High Frequency Economics, told The Atlanta Journal-Constitution.

The new orders index rose to 27.5 and employment rose to 15.4, though prices paid fell to 21.7. Market observers were cautious about the future predicted by these figures.

Scott Brown, chief economist with Raymond James in St. Petersburg, Fla., told Reuters, "I want to see another month of this. The key economic story was that it was going to be stronger were it not for the government."

Housing Starts Up Even as Home Builder Confidence Declines

The National Association of Home Builders (NAHB) estimates total new housing starts in September were between 875,000 to 900,000 units, based on continuing improvement in single-family and multifamily starts. U.S. home builders, however, are less confident about the sector’s housing affordability.

Due to the partial shutdown of the federal government which prevented the U.S. Census Bureau from releasing housing starts data for September, NAHB, an industry trade group released its own report. The housing market index was at 55 in October, two points lower than the downwardly revised September index. Index levels over 50 reflect expansion for the industry.

The NAHB estimates that the seasonally adjusted annual rate of construction for single-family houses fell between 620,000 and 630,000 in September. The pace of construction of multifamily units was an additional 255,000 to 270,000 last month.

The NAHB estimate of between 875,000 to 900,000 housing starts in September -- signifying growth of between 2 percent and 5 percent from the year earlier period -- is a close estimate to MarketWatch’s consensus forecast of 910,000 starts last month, which equals to growth of about 7 percent from the year-earlier period.

Meanwhile, a slight dip in builder confidence is a result of ongoing challenges in the marketplace and due to debt uncertainty, according to NAHB.

"A spike in mortgage interest rates along with the paralysis in Washington that led to the government shutdown and uncertainty regarding the nation's debt limit have caused builders and consumers to take pause," said NAHB chief economist David Crowe. “However, interest rates remain near historic lows and we don’t expect the level of rates to have a major impact on sales and starts going forward. Once this government impasse is resolved, we expect builder and consumer optimism will bounce back.”

Jobless Claims Fall but Full Picture Still Unclear

The number of Americans filing for first-time unemployment benefits declined last week. However, the data is skewed as California continued to slog through a backlog of un-entered claims.

Jobless claims decreased by 15,000 to 358,000 in the week ended Oct. 12 from a revised 373,000 in the prior period, a Labor Department report showed Thursday. The less volatile four-week moving average rose 11,750 to 336,500.

An additional 70,000 furloughed federal employees sought benefits in the week ending Oct. 5, but those are being tallied as separate figures not included in the total. But many non-federal workers who were dismissed as a result of the shutdown are included in the total. It is unknown how many are there, and if they will be hired back immediately.

All of this leads to a confusing picture of the state of the job market.

The Bureau of Labor Statistics (BLS) announced last week that it would release figures for its September jobs report tomorrow. The data, originally scheduled for Oct. 4, was delayed as part of the shutdown. In addition, the BLS October jobs report will come out Nov. 8, one week later than originally scheduled.

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