NAM Monday Economic Report – July 6, 2014

Vehicle sales rose to a higher-than-expected 17.0 million unit pace in June. This reflects improving job growth (and incomes), pent-up demand and gains in household wealth. Construction spending edged higher by 0.1 percent in May as weak private-sector spending was offset by higher spending by the public sector. Residential spending was off by 1.5 percent as the housing recovery has slowed, but private nonresidential spending moved higher. Spending on manufacturing projects fell by 1.5 percent in May, but was up 6.7 percent for the year. The chemical industry, in particular, has driven manufacturing investment growth over the past year, as new projects are being built to capitalize on the shale gas advantage.

The nation’s trade deficit fell by $2.6 billion to $44.4 billion on stronger exports of motor vehicles and parts, consumer goods, industrial supplies and other goods. This will add to second-quarter GDP growth. Imports ticked lower as U.S. imports of petroleum eased. Increasing oil production from shale resources is displacing oil imports from other parts of the world.

For manufacturers, the Institute for Supply Management’s Purchasing Managers’ Index (PMI) continues to indicate expanding manufacturing activity for the 13th consecutive month. The PMI edged down to 55.3 percent as production increased at a slower rate during June. Orders accelerated and inventories continued to grow. From the Census Bureau, headline factory orders slipped in May with lower orders for civilian aircraft and defense goods. Orders for core business investment goods, however, were up by 0.5 percent and were ahead 3.6 percent compared to last year. Inventory growth outpaced shipments, and the inventories-to-shipments ratio edged higher, but overall inventories remain roughly balanced against sales.

The next week is relatively light for economic news, but some important indicators will be released, including new data on labor market turnover, consumer debt, wholesale inventories and small business optimism. The Organisation for Economic Co-operation and Development composite leading indicators will give us a forward look at economic conditions in other countries, including major trading partners. Data on chain store sales will also give a preview to the retail sales numbers for June that are expected later this month.

Martha Moore, Senior Director of Economics and Policy Analysis, American Chemistry Council