The Bureau of Economic Analysis announced that real gross domestic product (GDP) rose 2.2 percent in the first quarter. This is below the 3 percent growth rate experienced in the fourth quarter of 2011, but much of this was expected due to lower inventory replenishment needs in the first quarter. Inventories accounted for 1.81 percent of the 3 percentage points of growth in the fourth quarter as the economy started picking up steam. This was unlikely to be repeated moving into 2012.

Consumers accounted for the bulk of the growth in the first quarter, bucking lower sentiment amid worries about higher gasoline prices. In fact, personal consumption accounted for 2.04 percent of the 2.2 percent in growth for the quarter, or nearly all of it. This also shows the strength of the manufacturing sector continuing into the new year. Durable and nondurable goods consumption added 1.13 percent and 0.35 percent, respectively, (or nearly 1.5 percent) to real output in the quarter.

Other positives in today’s release include business investment and exports. Both of these were somewhat tempered from the previous quarter, however. Gross private fixed investment added 0.77 percent to growth (down from 2.59 percent, largely on slower inventory growth and reduced nonresidential spending). Meanwhile, goods exports were up modestly over the fourth quarter, but these were counterbalanced by higher imports. Overall net exports essentially added nothing to real GDP in the quarter.

Government continues to provide a drag on growth, something that is expected to continue. With defense and state and local government spending cuts, government reduced real GDP by 0.6 percentage points. This was, however, an improvement from the previous quarter’s 0.84 percent negative contribution.

Overall, these numbers are consistent with modest economic growth in 2012. I continue to predict that real GDP will increase around 2.5 percent this year, with industrial production up 4 percent. Moreover, these figures confirm the importance of manufacturing in our current economic environment, with durable and nondurable goods spending contributing nearly two-thirds of the net growth in the quarter. This is also a testament to the durability of the consumer, who – despite uncertainties in the economy and higher prices – has continued to spend.

Moving forward, a number of headwinds will continue to confront both manufacturers and the public at large. The global economy – in both Europe and elsewhere – has slowed, and despite progress in labor and housing markets, both remain weak. Manufacturers remain mostly positive about future activity, but as recent weaknesses in the data illustrate, such optimism is tenuous at best. Policymakers would be wise to adopt pro-growth strategies that will help to ensure growth for the rest of this year and beyond, and where possible, to alleviate anxieties in the marketplace.

The Kansas City Federal Reserve Bank noted continued easing of manufacturing activity in April. The composite index has fallen from 13 in February to 9 in March to 3 in April. This suggests that the region is continuing to expand, but at a much slower pace. (Since the beginning of 2010, the region has only contracted in one month – December 2011.)

The various sub-components of the data were mixed. Employment growth remained decent, unchanged at 12. Elsewhere, though, indicators were mostly lower across-the-board. Production was flat (falling from 13 to 0), and the growth of new orders turned negative (declining from 17 to -8). Other measures of activity followed suit, with a declining average workweek and weaker shipments data. On the positive side, pricing pressures have eased from their highs in January but remain elevated.

Looking forward six months, manufacturers in the Kansas City region continue to be positive, but with less vigor than in February. New orders, shipments, and employment are expected to grow somewhat strongly, with capital expenditures and exports also expanding.

Seasonal issues might be at play with some of the data. A warmer winter allowed for increased activity earlier in the year than normal, for instance. In addition, the release adds the following: “The majority of producers reported some negative effects from elevated gasoline prices, and nearly half of all respondents noted difficulty in finding workers.” This is consistent with other findings, as well.

Today’s Wall Street Journal painted a pretty picture about manufacturing’s success in the first quarter of 2012. Companies like 3M Co., Cummins Inc., and Eaton have reported increased earnings and improved forecasts for the rest of the year. This is good news and a testament to the strength of manufacturing in the U.S.

The lion’s share of the credit is given to domestic successes with the caveat that future growth is largely dependent on growth in Europe and China.

However, the article doesn’t paint the full picture. Manufacturers in the U.S. are succeeding in spite of the current environment of regulation and the ongoing threat of tax hikes. Yet, as the article explains, “Despite rising profits, manufacturers remain cautious about hiring in the U.S., generally relying on their current workforces to churn out more products.”

Getting down to brass tacks here – manufacturers in the U.S. are leading our economic recovery, but they are doing so in a hostile environment for business. To maintain domestic success and lessen our dependence on fluctuations in markets overseas, Washington needs to put forth policies that place certainty back in the tax system and make sure that regulations don’t stand in the way of growth and job creation.

We’ve had enough of the class warfare rhetoric and choking regulations – it’s past time to implement policies that will eliminate the 20% cost disadvantage manufacturers face and work together to foster our own economic recovery.

The National Activity Index from the Chicago Federal Reserve Bank dropped from +0.07 in February to -0.29 in March. Positive numbers suggest that the U.S. economy is growing above its historical trend, with negative values implying the opposite. The fact that this indicator has turned negative after three consecutive months of above-trend growth is a sign that U.S. growth has become sluggish.

The three-month moving average still remains positive at +0.05. Values under -0.70 suggest that the economy might be in a recession, signifying that recessionary risks still remain low.

Manufacturing production and capacity utilization both fell slightly in March, and as such, they were one of the main contributors to the index’s decline. Other factors included a weaker contribution from the job market and continued drags from housing.

Stepping back a second, it is important to note that many of the indicators used in this index have shown considerable improvement since last year, with a longer-term trend positive. The outlook for 2012 calls for modest economic growth, for instance, and most manufacturers continue to have a cautiously optimistic outlook. Still, the National Activity Index reflects what other data have shown of late; economic growth is tenuous with a number of persistent headwinds continuing to cause anxieties.