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As with the prior week, last week's economic reports were generally positive. Of the eight major economic indicators, five improved and three declined (To see all of last week's indicators, see the Latest Economic Reports section below.)
Some important caveats need to be made with respect to several of the indicators. First, a deterioration in the November trade deficit was mainly due to an increase in oil prices and solid domestic consumer spending during the month as well as a drop in aircraft exports, which are volatile from month to month. Adjusting for inflation, exports grew faster than imports during the three months ending in November, which is positive news.
Second, while industrial production rose in December, the increase was driven by unseasonably cold weather, which boosted utility output to its largest monthly gain in 20 years. Manufacturing production was flat last month, with 11 of the 19 major manufacturing industries posting declines in production.
Due to a large gain in November, manufacturing production followed a 9.5-percent annualized gain in the third quarter with a 6.1-percent gain in the fourth quarter (see final two green barsin the chart above). Still, even with these increases, the current level of manufacturing production is slightly below the level of the second quarter of 2002 (see black line in the chart above).
If the manufacturing sector were to grow at a 4-percent pace going forward, pre-recession levels of production would not be reached until the end of 2011. However, this expectation is unlikely.
According to the 4th Quarter NAM/Industry Week Manufacturing Index released last Friday, NAM members anticipate their sales will increase by just 1.6 percent over the coming year. While optimism did improve modestly in the fourth quarter, with 60 percent having a positive business outlook, roughly half of the survey respondents do not expect their company's production to bottom out until the second half of this year at the earliest. Therefore, it seems unlikely that a robust recovery is in the cards for 2010. The full results of the 4th Quarter NAM/Industry Week Manufacturing Index are posted at:
4th Quarter NAM/IndustryWeek Manufacturing Index
Dave Huether
Chief Economist
National Association of Manufacturers | 
