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Mid-Week Update - 2012-04-04

Factory orders jumped 1.3 percent during February, thanks to a surge in aircraft orders, more than reversing the contraction experienced in January.  Factory orders grew by $6.0 billion to a seasonally adjusted $468.4 billion.  This was 9.8 percent above levels reported a year earlier, but still 3.4 percent below peak levels from July 2008.  As usual, aircraft orders were a major driver to the headline factory orders figure.  Orders for defense aircraft and parts jumped 12.5 percent during February while those for non-defense aircraft and parts grew 6.0 percent.  After netting out transportation goods, factory orders increased 0.9 percent in February and 9.3 percent since February 2011. 

Manufacturing activity appears to have sped up in March, according to the latest Report on Business from the Institute for Supply Management. The Purchasing Managers' Index grew by one full point to 53.4.  A reading above 50.0 is consistent with expansion-the PMI has been above this threshold for 32 straight months. While the index for new orders lost 4/10^ths of a point to 54.5, those for production (+3.0 to 54.5) and employment (+2.9 to 56.1) each experienced strong gains. The press release noted that survey participants expressed "positive" comments "with several respondents citing increased sales and demand for the next few months."

A bit less encouraging was the 1.1 percent decline in construction spending during February.  The Census Bureau reported on Monday construction spending of $808.9 billion on a seasonally adjusted annualized basis. Even with two consecutive months of declines, construction spending was up 5.8 percent from a year earlier. Private construction spending declined 0.8 percent in February while public construction spending fell 1.7 percent. 

On the brighter side, vehicle sales remained strong in March.  Autodata, Corp estimates vehicle sales slowed 4.8 percent from February to a seasonally adjusted annualized pace of 14.37 million units.  Yet, despite the drop, sales were up 10.0 percent from a year earlier.  Auto sales slowed 6.9 percent during March (with a SAAR pace of 7.64 million cars), but were nevertheless up 12.6 percent from a year earlier.  Similarly, light truck/SUV sales declined 2.4 percent last month to 6.73 million units (SAAR) but had a 12 month comparable of +7.2 percent.

The Federal Reserve on Tuesday released the minutes to the March meeting of the Federal Open Market Committee, which showed committee members viewing business conditions to be "positive on balance." Labor market conditions were characterized as having "improved further" and that the unemployment rate "had declined notably" but remained "elevated."  While consumer and business investment spending "continued to advance," the housing market "remained depressed."  Expectations were for "moderate" economic growth over the near-term, with the unemployment rate continuing to fall "gradually."  Meeting participants differed on the Fed's ability to manage its dual mandate of price stability and maximum employment.  Some members were concerned about "considerable resource slack" (e.g., elevated unemployment rates, etc.) while others were concerned that price pressures could build as the economy gains momentum. As a result, the minutes suggest that further stimulus does not appear to be likely over the near-term.

Later today, the ISM will release its March Report on Business for the non-manufacturing sector of the economy.  Thursday brings us jobless claims data from last week and the March Challenger report on layoffs.  Friday, we learn about job creation during March (the current best guess has payroll gains slightly below the 227,000 reported for February) and the February report on consumer credit. Read all of this week's economic data in next Monday morning's edition of AFP EconWatch.