There were a few important reports on the U.S. economy released this morning. First, data from the Federal Reserve Bank of Dallas showed that business activity in the southern region of the country firmed this month, with the general activity index rising from +10.2 to +15.5 in December. That was the highest print since February 2012, and only the second positive (expansionary) reading in almost two years. The production index, a key measure of state manufacturing conditions, also lifted in December (+6.7 to +8.8), the second-best reading since 2014. Under the hood, total employment fell but measures of capacity utilization, new orders, shipments, wages, hours worked, and capital expenditures all improved this month. Most gauges of future activity (six months ahead) also increased in December, and comments from survey respondents were generally positive. One manager added that “We are hoping to get help with overly-burdensome labor regulations, taxation relief and red-tape reductions to allow American companies to become more competitive. If the new administration is able to make good on its promises, we expect to be more competitive globally and increase our investments in technology, hiring and increasing U.S.-based manufacturing.”
Similarly, a report from the Federal Reserve Bank of Richmond showed that manufacturing activity in the Mid-Atlantic region of the country continued to rebound this month, with the composite index rising from +4.0 to +8.0 in December. That was the fourth monthly improvement in a row for the headline index, and the highest reading since July. Under the hood, total employment contracted in December but measures of shipments, new order volumes, order backlogs, capacity utilization, hours worked, and employee compensation all increased this month. Surveyed managers’ expectations for capital expenditures and general activity six months from now also improved in December. Altogether, this was the fifth and final report from the government on manufacturing released this month, and every region signaled a continued improvement in activity in December. These encouraging reports, along with positive private-sector data on manufacturing, suggest that the “industrial recession” in America may finally be ending.
Elsewhere, the consumer confidence index from The Conference Board surged to 113.7 in December, much better than expected and the highest reading since 2001. This solid gain reflects a continuation of November's spike in optimism following the results of the Presidential election, with most of the improvement in the headline index resulting from another uptick in consumers’ expectations for future economic conditions. Moreover, 23.6 percent of surveyed Americans expect business conditions to improve over the next six months, up from 16.4 percent in November, and 21.0 percent anticipate greater job availability in the months ahead. Similar gains in overall sentiment can be found in recent data from Gallup and the University of Michigan. Lynn Franco, Director of Economic Indicators at The Conference Board, added that “The post-election surge in optimism for the economy, jobs and income prospects, as well as for stock prices which reached a 13-year high, was most pronounced among older consumers. … Looking ahead to 2017, consumers’ continued optimism will depend on whether or not their expectations are realized.”
Sources: Econoday, Bloomberg, ZH, FRBD, FRBR, The Conference Board, FRBSLPost author: Charles Couch