Cautious Optimism Among Manufacturers as U.S. Economy Surges Courtesy John Moore/Getty Images

Cautious Optimism Among Manufacturers as U.S. Economy Surges

According to a recently released report from the National Association of Manufacturers, the U.S. economy grew an annualized 4.6% in the second quarter of 2014, its fastest pace since the fourth quarter of 2011. In the real gross domestic product (GDP) report, consumer and business spending rebounded quite well after a rather soft first quarter thanks to improved nonresidential fixed investment and goods exports data relative to prior estimates.

At the same time, it’s hard to forget that real GDP fell by 2.1% in the first quarter, with growth in the first half of 2014 expanding a mere 1.2%. Moving forward, manufacturers remain tend to be upbeat—for instance, the Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) held firm at 57.9, its fastest pace since May 2010.

Chad Moudray, chief economist for the National Association of Manufacturers, estimates real GDP growth of 3.3% for the third quarter. Downside risks still persist, though, causing tentativeness among business leaders. Regional surveys from the Kansas City and Richmond Federal Reserve Banks continue to show expanding activity levels in their districts.

The Richmond release reports six straight months of growth since winter-related contractions earlier in the year. It also revealed a surge in production and demand, with the pace of hiring accelerating to its highest level since December 2010.

In the Kansas City district, manufacturers remained mostly positive, with more than half of respondents expecting increased production and shipments during the next six months. Issues cited in the Kansas City survey include persistent challenges in attracting and retaining skilled workers, and rising pricing pressures in terms of wages and raw materials.

On the global front, the HSBC Flash China Manufacturing PMI edged up from 50.2 in August to 50.5 in September—the fourth consecutive month with expanding manufacturing activity after contractions in the first five months of the year. Yet, even with some signs of stabilization, it’s expected that China will experience decelerating growth rates moving forward.

Similarly, the European Central Bank has struggled to cope with slow economic and income growth in the Eurozone, with persistent worries about deflation. For example, the Markit Flash Eurozone Manufacturing PMI eased once again, down from 50.7 to 50.5. This represented the lowest growth level since July 2013, the first month that the Eurozone emerged from its deep two-year recession.

Meanwhile, the latest housing data delivered mixed results. New home sales rose sharply from an annualized 427,000 in July to 504,000 in August—the highest level in more than six years, and more of an anomaly when compared to monthly sales for the year. Thus, it’s likely that September figures will pull back a little, but the trend line remains promising.

In contrast, existing home sales decreased 1.8% in August, which was probably the result of an inevitable easing after a strong July. Moving forward, the expectation is that existing home sales should move higher, continuing a longer-run trend that goes back to March. 

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