Senior financial manufacturing executives reported improving business conditions in June. Four out of six current condition indexes in MAPI’s (Manufacturers Alliance for Productivity and Innovation) quarterly Business Outlook improved, as did five out of seven forward-looking indexes.
The Composite Business Outlook Index increased to 58 from 56 in March. Measures above 50 indicate expansion. It is the second consecutive quarter of advances, following 10 straight quarters of declines.
The Current Orders Index rose to 53 in June, recovering from 47 in March. Backlog orders rebounded to 54 from 43. Capacity utilization edged up from 20.7 to 21.2. Negative signs came in the form of inventories, which rose to 51 from 48, and profit margins, which fell from 62 to 56. The Export Orders Index was unchanged at 45.
Expectations for the rest of 2013 are on the rise, according to survey results. The U.S. Investment Index ticked up from 64 to 65 and the R&D Spending Index reached 73, up from 68 in March. The Prospective U.S. Shipments Index, which is based on projections for third-quarter shipments, jumped to 67 from 61 in March. The Non-U.S. Prospective Shipments Index also increased from 53 to 60.
The Annual Orders Index, which is based on a comparison of total project orders for 2013 with orders in 2012, fell sharply from 74 in March to 64 in June.
A supplemental section of the report polled manufacturers about the impact of health care reforms and the actions they are taking in response. Thirty-nine percent of the respondents stated that they have added or are considering adding minimum essential coverage or similar affordable health care options. Nearly 35 percent reported that their companies are considering eliminating high-cost (“Cadillac”) health care options. Only 9 percent of the respondents said that their companies are considering eliminating health care plans and directing employees to the government-run plans.
Small Business Optimism Falls in June
The small business optimism index dropped 0.9 points from 94.4 in May to 93.5 in June after two months of gains, according to the National Federation of Independent Business (NFIB). Although plans to increase employment rose slightly, more business owners reported negative sales trends, due to weak consumer spending.
The percent of business owners expecting improved business conditions within six months marked a slight 1 point improvement, but was still in the negative, at -4 percent. While the overall June index was 12 points higher than during its lowest reading during the Great Recession, it remained 14 points below the peak during the expansion, the NFIB reported. Six out of 10 index components fell, while two rose, and two stayed the same.
Of the small business owners surveyed, 20 percent ranked taxes, regulations, and red tape as their top business problems. Meanwhile, 18 percent said that weak sales were their top challenge. Just 2 percent said that financing was a major concern. The findings also indicate that while part-time jobs surged with 360,000 new jobs added, nearly 240,000 full-time positions were lost. The proportion of owners (19 percent) who reported that they could not fill current openings remained unchanged from the previous index.
“After two months of incremental but solid gains, the Index gave up in June. This appears par for the course, given that there is no reason for small employers to be more optimistic and lots of things to worry about,” said NFIB Chief Economist Bill Dunkelberg, who noted that consumers remain cautious about spending. “It certainly doesn’t help that the endless stream of delays and capitulations of certain provisions of the health care law adds to the uncertainty felt by owners. Until growth returns to the small business half of the economy, it will be hard to generate meaningful economic growth and job creation,” he said.
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IMF Revises Down World Economy Growth Prediction
The International Monetary Fund (IMF) revised its 2013 global economic growth forecast downward to incorporate the negative effects of the European recession and reduced demand.
The IMF announced last week that the world economy will grow 3.1 percent in 2013, 0.2 percentage points lower than its April forecast of 3.3 percent, and the same growth rate as 2012. The 2014 forecast was likewise scaled back slightly, from 4.0 percent to 3.8, as The LA Times reported.
To explain for this revised forecast, the IMF cited emerging worries about the slowdown of developing countries experiencing depreciating currencies and the deepening eurozone recession. The United States is expected to reduce stimulus spending, which will negatively impact developing countries. The eurozone recession caused economists to anticipate a 0.4 percent annual contraction, but contributing factors have worsened the rate to 0.6 percent. A weak growth rate of 0.9 percent is forecast to return to the eurozone in 2014.
The IMF expects the U.S. economy to grow at 1.7 percent in 2013, ticking up to 2.7 percent in 2014, but both figures are 0.2 percent lower than previous forecasts. The IMF, whose head Christine Lagarde has criticized U.S. spending reductions and the sequester, has an overall more pessimistic outlook for the U.S. economy than the White House, whose Office of Management and Budget forecast 2.4 percent growth this year, increasing to 3.4 percent next year. The Federal Reserve adjusted its figures last month to more closely match the White House’s numbers.
U.S. Import Prices Dropped Twice as Fast as Exports
Data from the U.S. Bureau for Labor Statistics (BLS) reveal that prices for U.S. imports are declining at twice the rate of U.S. export prices. The decrease in prices for non-fuel imports more than offset a slight uptick in fuel import prices.
Prices for imports to the U.S. fell by 0.2 percent in June, which follows a 0.7 percent drop in May. The latter is twice the rate of decline seen in export prices, which slipped down 0.1 percent. Export prices had fallen 0.5 percent in May.
All imports except fuel decreased by 0.3 percent, the same rate as in May. Prices fell for all the major non-fuel import categories, including industrial supplies and materials, and all finished goods categories. Fuel imports rose 0.1 percent in June after two months of declines. Prices had fallen 1.9 percent in May and 2.4 percent in April.
Year-to-date (YTD) import prices rose 0.2 percent despite four straight months of decline. YTD export prices grew much faster, rising 0.8 percent through June.
Jobless Claims Jump Despite Increase in Openings
The number of people seeking unemployment benefits for the week ending July 5 shot up by 16,000 to a seasonally adjusted 360,000, the highest level in two months, according to the latest figures from U.S. Dept. of Labor. The four-week moving average, which smoothes out volatility in week-to-week figures, showed a rise of only 6,000 to 351,750.
The increase has few worried, as July is known as an unpredictable month for employment figures. The automotive industry, for example, often closes down during the month to retool. Education industries also cut back during the summer months.
“July claims numbers get totally bounced around by the auto-plant shutdowns,” Brian Jones, senior U.S. economist at Societe Generale told Bloomberg. “The labor market is showing steady progress. The pace of hiring is good.”
Positive news came from a separate Labor Department report, which noted that job openings rose in May. The number of positions posted increased 28,000 over April to 3.83 million. The openings were largely in retail, which added 80,000 postings. Government and construction each increased open positions by 4,000. All other industry categories cut back on openings, including manufacturing, which posted 7,000 less in May than April.
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