In a slow economic news week, the stock market’s ascent became one of the top headlines. The Dow Jones Industrial Average (DJIA) passed 15,000 for the first time, a feat that was even more impressive after the depths of the decline during the financial crisis. The DJIA had previously peaked at 14,164.53 on October 11, 2007, before plummeting to a low of 6,547.05 on March 9, 2009. It has slowly moved higher since then, closing last week at 15,118.49. As impressive as the DJIA records might be, there is also a debate about whether the stock market’s all-time highs are warranted given some of the current economy’s weaknesses. Historically low interest rates have helped to push equity values higher, with Americans looking for more attractive yields for their dollars. Regardless of the debate, rising equity values should help to generate more wealth and consumer optimism, and manufacturers hope this means greater spending.

Retail sales data for April will be released this morning, and the consensus estimate is for spending to be flat. This would be consistent with slower growth in personal spending and the reduction in wholesale sales in March. Moreover, while consumer credit rose 3.4 percent in March, much of the higher figure stemmed from increased student loan borrowing. Auto loans were also higher, but revolving credit lines—which include credit cards—declined for the month and were essentially flat over the past year. This suggests some reluctance to take on more debt to support increased consumer spending, which, to the extent that it means smarter personal finance habits, is perhaps a good thing.

The other big story from last week was a bit of a carryover from the previous one. Manufacturers have slowed down the pace of job postings and hirings, with the Job Openings and Labor Turnover Survey (JOLTS) data showing reductions in March. This follows news of stagnant net job growth in April’s employment numbers. Slowing domestic and global sales and challenges related to higher taxes and reduced government spending have stymied manufacturing growth, as we have seen in a number of economic indicators. Net hiring has been slow to pick up, even as we have seen modest improvements in manufacturing activity since the end of last year. Moreover, manufacturing job separations—including layoffs, quits and retirements—were at an all-time low in March, suggesting that the challenges manufacturers face regarding employment have more to do with a hesitancy to hire and less to do with cyclical factors that might induce layoffs.

This week will be an important one as we look at the overall health of the manufacturing sector. Industrial production for April will be released on Wednesday, with the expectation for very slow growth for the month. Any growth would be welcome news, especially given that manufacturing production declined by 0.1 percent in March. In addition to industrial production, regional surveys will assess the sector’s activity in both the New York and Philadelphia Federal Reserve Bank districts. Beyond production, the housing market will also be a focus, with starts and permits data released on Thursday. In March, housing starts surpassed 1 million for the first time since 2008, and manufacturers will continue to look for slow but steady improvement in this vital sector, which has helped lift the overall economy of late. Other economic releases this week include new data on consumer confidence, consumer and producer prices, leading indicators, small business optimism and state employment.

Chad Moutray
Chief Economist
National Association of Manufacturers

Consumer Credit
The Federal Reserve Board reported that U.S. consumer credit rose by $8 billion, or 3.4 percent, in March. This was slower than anticipated, with the consensus estimate expected to show a $15 billion increase. Total debt outstanding was $2.8075 trillion, with $846.2 billion in revolving credit and $1.9613 trillion in nonrevolving loans outstanding.

Revolving loans declined for the month, including credit cards and other credit lines. The value of revolving credit decreased by 2.4 percent for the month, and in the first quarter of 2013, it only eked out a 0.2 percent gain. In general, we have seen some deleveraging in revolving credit since the end of the recession, with these lines up just 0.2 percent and 0.4 percent in 2011 and 2012, respectively.

The decline in March data is consistent with analysis showing an easing of both personal income and spending. This suggests that the pullback in purchases also meant a decline in credit card borrowing for the month.

Meanwhile, nonrevolving credit lines increased 5.9 percent in March, or 8.1 percent in the first three months of the year. This category, which includes autos and student loans, has seen tremendous growth over the past few years. These loans have helped to finance greater motor vehicle sales—one of the larger drivers of economic growth of late. However, growth in student lending, which the federal government administers now, has been tremendous, up 23.9 year-over-year. Excluding the federal government from the analysis, nonrevolving loans were 3.3 percent higher than a year ago.

This suggests that consumer debt has moved only modestly over the past 12 months. While overall credit outstanding is 5.7 percent year-over-year, the bulk of that growth was in auto and student loans, particularly the latter.

Job Openings and Labor Turnover Survey
The Bureau of Labor Statistics reported that manufacturing job openings declined from 274,000 in February to 260,000 in March, according to the latest JOLTS report. The number of job postings has stayed within a narrow range of 240,000 to 275,000 since June 2012. If there is a longer-term trend, it is that the number of manufacturing job openings appears to have stalled after topping out at 324,000 in March 2012.

Net hiring data turned negative again for manufacturers in March for the first time since September 2012. Manufacturers hired 200,000 workers in March, the slowest pace in almost four years. This is down from 231,000 in February. Meanwhile, total separations—which include layoffs, quits and retirements—declined from 225,000 to 205,000 for the month. On the positive side, the separations rate is at an all-time low in the JOLTS report’s 13-year history. Nonetheless, net hiring (or hiring minus separations) was -5,000 in March, down from +6,000 in February, reflecting significant weaknesses in the manufacturing sector.

Looking at the larger macroeconomy, job openings and hiring eased somewhat between February and March, but net hiring was still positive. The number of job postings declined from 3,899,000 to 3,844,000, with both figures representing 2.8 percent of total employment. Net hiring was 46,000, down from 271,000 the month before. The greatest monthly gains in hiring in March occurred mainly in the service sector, primarily from professional and business services (up 24,000) and education and health services (up 16,000).

Wholesale Trade
The Census Bureau reported that wholesale trade sales dropped 1.6 percent in March, reversing the 1.5 percent gain in February. Nondurable goods sales were down more than durables, off 2.5 percent versus 0.6 percent, respectively. However, a fair share of the decline in nondurable goods stemmed from lower petroleum prices, with sales down 7.5 percent. Pockets of strength included pharmaceuticals (up 3.9 percent), alcohol (up 1.9 percent) and automotive (up 1.7 percent) sales, with the greatest weaknesses (outside of petroleum) in apparel (down 5.5 percent), farm products (down 2.7 percent) and metals (down 2.5 percent).

Inventories increased 0.4 percent in March. This offset February’s 0.3 percent decline, with durable goods inventories outpacing nondurables, up 0.5 percent and 0.1 percent, respectively. Petroleum inventories (down 3.4 percent) weighed down the nondurable goods data. Sectors that increased stockpiles included hardware (up 2.1 percent), apparel (up 1.7 percent), automotive (up 1.2 percent), machinery (up 1.2 percent) and groceries (up 1.2 percent). Aside from petroleum, the other declining inventory businesses were computer equipment (down 1.0 percent), paper (down 0.8 percent), metals (down 0.3 percent) and chemicals (down 0.3 percent).

The current inventory-to-sales ratio was 1.21 in March, up from 1.19 in February and 1.17 a year ago. This measure is a proxy for the number of months it would take to deplete inventories, and as such, the fact that it is edging higher is a reflection of slower economic growth. This same trend can be seen for durable goods (1.61 relative to 1.53 a year ago), with nondurable goods more stable at 0.89.