Dallas Fed: Reduced Energy Prices Have Weakened Manufacturing Activity

Texas manufacturers have been hurt by lower petroleum prices. The Dallas Federal Reserve Bank said that manufacturing activity contracted in its district for the first time since May 2013, with reduced energy prices weakening demand and dampening the outlook. The composite index of general business activity has declined from 10.1 in November to 3.5 in December to -4.4 in January. The bulk of the sample comments, for instance, mentioned crude oil prices, both for those in the energy supply chain and from others who are worried about the impacts on the broader Texas economy.   (continue reading…)

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Business Economists Were More Optimistic in the Latest Industry Survey

The National Association for Business Economics (NABE) said that sales and earnings have improved, with a mostly upbeat outlook for 2015. The latest Business Conditions Survey observed that industry participants were more optimistic in January than they were in October. The percentage of respondents saying that their sales were rising increased from 49 percent three months ago to 54 percent now. This was somewhat offset, however, by an increase in the percentage suggesting that their sales were falling, up from 7 percent to 15 percent. Therefore, the news on current demand was mixed. Still, business leaders continue to be positive moving forward, with 69 percent of goods-producing respondents expecting sales to rise in the next three months, up from 58 percent in October. (continue reading…)

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Don’t Be So Quick to Dismiss the Growth Potential of Tax Reform

For a number of years, manufacturers have been calling for an overhaul of our tax system, arguing that a simpler, fairer, more competitive and pro-investment tax system will unleash economic growth and the jobs that go with it. A study we released just last week backs this up.

A Missed Opportunity: the Economic Cost of Delaying Pro-Business Tax Reform, takes a close look at the economic impact of enacting a five-prong pro-business tax package that includes a maximum corporate tax rate of 25 percent; a globally competitive international tax system; full expensing for capital equipment; enhanced and permanent research and development incentives; and parallel changes for non-corporate pass-through businesses. (continue reading…)

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Monday Economic Report – January 26, 2015

Here is the summary for this week’s Monday Economic Report: 

The European Central Bank (ECB) finally announced its long-awaited quantitative easing program on Thursday. The ECB will purchase 60 million euros in bonds each month until September 2016—totaling at least 1.1 trillion euros overall—in an attempt to stimulate growth. Depending on where the Eurozone economy stands pointing September 2016, the ECB might extend its purchasing beyond that point. The impact on the euro was almost immediate, with the euro exchanging for $1.1206 at Friday’s close, down from $1.3927 on March 17, the high point of 2014. This will complicate manufacturers’ ability to sell goods into Europe, something that was mentioned in the sample comments in the latest Kansas City Federal Reserve Bank’s monthly survey (see below).

The ECB believes that it needs to act to stimulate economic growth in the Eurozone. Real GDP in the Eurozone is expected to grow about one percent in 2015, and deflation has been a top concern. Indeed, the annual inflation rate declined by 0.2 percent in December, a troublesome development. On the positive side, some signs indicate that the European manufacturing sector has started to stabilize. The Markit Flash Eurozone Manufacturing purchasing managers’ index (PMI) increased to its highest level since July. It was up from 50.6 in December to 51.0 in January on stronger new orders, output and employment growth. Investors were also more optimistic, brushing off anxieties that have plagued European financial markets of late.

The other manufacturing surveys released last week were mixed. In China, for instance, the HSBC Flash Manufacturing PMI found that new orders and output grew once again in January after contracting in December.  Yet, the headline PMI figure has now contracted for two straight months, and real GDP grew 7.3 percent year-over-year in the fourth quarter, decelerating from 7.7 percent growth in the fourth quarter of 2013.

Likewise, surveys of manufacturers in the United States reflected continued expansion in the new year, but at a somewhat softer pace of growth. The Markit Flash U.S. Manufacturing PMI declined from 53.9 to 53.7, its lowest reading in 12 months. Still, these figures also show demand and production expanding at a relatively strong rate, even with some easing in this month’s responses. Similarly, manufacturers in the Kansas City Fed’s district are mostly optimistic in their outlook for the next six months for sales, production, shipments, hiring and capital spending, but they remain uncertain about exports, which are threatened by sluggish economic growth overseas and the strong dollar.

Meanwhile, housing starts rebounded in December to 1,089,000 annualized units. New residential construction units started averaged just over 1,050,000 in the second half of 2014, which was a nice improvement from the roughly 955,000 observed in the first half of the year. Single-family activity provided the encouraging news in this data, rising to 728,000 units in December, the fastest pace since 2008. As such, we have seen slow-but-steady progress in the housing market, and I continue to expect 1.1 million housing starts in the coming months. For their part, home builders remain confident about future activity. In contrast to single-family units, multi-family starts and permits—each of which were lower in December—have grown more minimally and with a lot more volatility. Existing home sales were up in December, but remain below their October peak. On the positive side, sales of existing homes were up 3.5 percent year-over-year, and median prices were at their highest level since 2007.

Two of the larger headlines this week will be the Federal Open Market Committee policy statement on Wednesday and our first read on fourth quarter real GDP on Friday. Beyond those headlines, we will also get a number of reports on the health of the manufacturing sector, such as the Dallas Federal Reserve Bank survey on Monday and the Richmond Fed survey and preliminary durable goods orders numbers on Tuesday. Other highlights include the latest figures on consumer confidence, employment costs and state employment.

Chad Moutray is the chief economist, National Association of Manufacturers. 

housing starts and permits - jan2015

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January Chinese and Eurozone PMI Figures Move Higher, But Global Softness Remains

Even as the global economy remains soft, there were some signs of stabilization in Asia and Europe, according to the most recent purchasing managers’ index (PMI) data. The Markit Flash Eurozone Manufacturing PMI increased from 50.6 in December to 51.0 in January. This was the highest level since July. The pace of growth for new orders (up from 50.2 to 50.4), output (up from 50.9 to 52.2) and employment (up from 50.6 to 50.9) each picked up somewhat. At the same time, exports (down from 51.6 to 50.7) eased slightly but continued to expand. (continue reading…)

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Court’s Shareholder Activist Standard Eliminates Free Market Principles

The Manufacturers’ Center for Legal Action (MLAC) filed an amicus brief with the Third Circuit Court of Appeals in Trinity Wall Street v. Wal-Mart Stores, Inc. asking the Court to reverse the lower court’s ruling.  In Trinity Wall Street v. Wal-Mart Stores, Inc.,  a federal District Court overruled the staff of the SEC to compel Wal-Mart to include a shareholder proposal in the company’s proxy statement.  The proposal sought greater board oversight over a broad swath of products that could endanger “public safety” or “well-being”, that have “the potential to impair the reputation” of the company and that are “offensive” to “family and community values.”  Now on appeal to the federal Third Circuit Court of Appeals, the MLAC filed an amicus brief in the case in support of Wal-Mart. (continue reading…)

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Imbalances in the Global Trading System Say India and Brazil? Let’s Start with Manufacturing Tariffs

As the World Trade Organization (WTO) enters its third decade, WTO Director General Roberto Azevêdo is seeking to move forward on a long stalled global liberalization trade negotiations that began in Doha, Qatar, in November 2001. These ambitious, but long troubled talks had fallen apart as major emerging economies, starting with India Brazil and China, failed to commit to ambitious liberalization outcomes for their own economies. (continue reading…)

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Kansas City Fed: Manufacturers Began the New Year on a Softer Note

The Kansas City Federal Reserve Bank said that manufacturing activity slowed in January, beginning the new year on a softer note. The composite index of general business conditions dropped from 8 in December to 3 in January, its lowest level in five months. Underlying this figure, new orders (down from 14 to -8), production (down from 7 to -2), shipments (down from 8 to -5) and exports (down from zero to -7) declined for the month, and hiring (down from 8 to zero) stagnated. On the positive side, it was the 13th straight month with expanding levels of sentiment, and manufacturers remain mostly optimistic about the coming months. (continue reading…)

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One-Hundred and Twenty Years of the National Association of Manufacturers.

Today, the NAM turns 120. One- hundred and twenty years of advocating for manufacturers, one-hundred and twenty years of growth and innovation in manufacturing, and one-hundred and twenty years of supporting hardworking Americans. To see where the NAM has come in one-hundred and twenty years, let’s take a look back to the past.

The year was 1895 and the place was Cincinnati, Ohio. In the middle of a deep recession, manufacturers saw a strong need to export production to new markets in other countries. The newly founded National Association of Manufacturers began calls for the creation of the U.S. Department of Commerce and helped launch the National Council of Commerce, which later became the U.S. Chamber of Commerce. (continue reading…)

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Death and Taxes

It’s been said that nothing in life is certain but death and taxes. Well it appears that the President wants to double down on this certainty by proposing to expand the death tax. (continue reading…)

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