House Acts on Cyber Bills Today, Senate Needs to Follow

The U.S. House of Representatives is scheduled to vote today on four separate cybersecurity- related bills. The four pieces of legislation cover a number of issues ranging from improving the Federal cybersecurity workforce to facilitating more sharing of real-time threat information between the public and private sector. The NAM applauds the House for addressing a top priority for all manufacturers but we are still faced with a cold reality – if the Senate does not also act, none of these bills will become law.

The NAM has advocated aggressively for legislation that would increase the ability of the private sector to receive up-to-date information on the ever-present cyberthreat faced by manufacturers. Trade secrets, patents, customer data, and technological innovations are what separate manufacturers in the United States from their competitors. The NAM works on a number of different fronts to help protect this “secret sauce” but a government partner is needed. Federal Agencies have access to information that, if shared with the private sector, can do a great deal to help protect our innovation from bad actors. There has been a lot of talk from Congress about understanding this need, but little action.

Manufacturers place cybersecurity as one of their highest priorities. They are committed to keeping our assets secure and therefore keeping our nation safe. These and many other issues are at the top of the agenda of the NAM D.A.T.A. Center, a venue for NAM members to educate  policy makers and the general public to ensure they know the innovative breakthroughs in all aspects of life come from manufacturers. To get involved in the D.A.T.A. Center contact, Brian Raymond, NAM’s Director of Technology and Domestic Economic Policy.

NOTE:

The bills scheduled to be considered today by the House of Representatives are:

H.R. 2952 – The Critical Infrastructure Research and Development Act

H.R. 3107 – The Homeland Security Cybersecurity Boots-on-the-Ground Act

H.R. 3696 – The National Cybersecurity and Critical Infrastructure Protection Act

H.R. 3635 – Safe and Secure Federal Websites Act of 2013

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Manufacturers in Texas Note Accelerated Activity in July

The Federal Reserve Bank of Dallas said that manufacturing activity accelerated in July, continuing to rebound from softer levels earlier in the year. The composite index of general business activity rose from 11.4 in June to 12.7 in July. It was the 14th consecutive month of expanding levels of activity; however, manufacturers reported a near-stagnant pace in February. In July, the underlying data were mostly higher across-the-board, including the pace of growth for new orders (up from 6.5 to 13.0), production (up from 15.5 to 19.1), shipments (up from 10.3 to 22.8), capacity utilization (up from 9.2 to 18.0) and capital expenditures (up from 12.7 to 13.3).

With that said, employment growth (down from 13.1 to 11.4) eased slightly, one of the few areas that decelerated in the month. Still, hiring has generally improved from where it was two months ago, with the index up from 2.9 in May. Moreover, one-quarter of respondents to the Dallas Fed survey said that they had added workers in July, with just 13.6 percent suggesting that employment was declining for their company. In addition, the average number of hours worked (up from 4.7 to 6.3) increased somewhat.

Along those lines, a fabricated metal manufacturer noted difficulties in attracting and retaining workers in the sample comments. They wrote, “Skilled employee turnover is getting out of control. There are too many employers chasing too few skilled workers.” Other commenters spoke about the pickup in demand seen in July, with one computer and electronics product respondent adding, “The second quarter was a sold quarter from start to finish….”

Looking ahead six months, Texas manufacturers remain positive about future levels of activity. At least 45 percent of those taking the survey expect sales, production, and shipments to increase over the coming months, with just single-digit percentages anticipating declines. Beyond that, 31.5 percent plan to bring on new workers, and one-quarter are expecting to increase their capital expenditures. The one downside would be the forecast of higher raw material costs moving forward, with a pickup in pricing pressures. In all, 40.7 percent predict increased producer prices in the coming months, with just 6.5 percent expecting declines.

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

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Monday Economic Report – July 28, 2014

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

The International Monetary Fund (IMF) released its latest World Economic Outlook last week. The report reflected slower growth rates in the United States and elsewhere for 2014 mostly because of disappointing figures during the first half of the year. The IMF now predicts that U.S. real GDP will grow 1.7 percent in 2014, down from the 2.8 percent forecast in April. Much of this downgrade stemmed from the dismal 2.9 percent decline in real GDP in the first quarter, with output contracting for the first time in three years. At the same time, the manufacturing sector provided a positive contribution to growth in the first quarter, according to new data, despite bleakness in other areas. Fortunately, manufacturers are more upbeat about activity during the second half of this year and for next year. The IMF’s outlook for 2015 is for real GDP growth of 3.0 percent in the United States, which is in line with other predictions.

News regarding manufacturing activity was mostly positive last week, with surveys from the Kansas City and Richmond Federal Reserve Banks both reflecting a pickup in shipments and employment in July. New orders continued to grow at a moderate pace in each region, and respondents were mostly upbeat about sales and production over the next six months. Nonetheless, raw material costs have accelerated a bit in the Richmond district, and new export orders have contracted in eight of the past 12 months in the Kansas City district. Meanwhile, new durable goods orders rebounded in June, with year-to-date growth at a reasonably healthy rate of 4.4 percent. This indicates that the sector has recovered for the most part from winter-related softness, even if some components, such as motor vehicle sales, were lower for the month. Similarly, the Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) reflected relatively strong growth in sales and output for the sector despite some easing in the headline number in July.

Overseas, the data indicate that the Chinese economy has continued to stabilize from weakness in the first five months of the year. The HSBC Flash China Manufacturing PMI expanded for the second straight month in July, with the pace of activity up for new orders, exports and output. The sales pace was the fastest since January 2011, suggesting that recent measures taken by the Chinese government to stimulate growth have had a positive impact. Likewise, Japanese manufacturers also reported expanding levels of sentiment for two consecutive months, but activity decelerated overall and output stagnated. Export sales from Japan, on the other hand, grew. In other news, the European manufacturing sector made marginal progress in July, particularly for production and exports, and the Eurozone has now expanded for 13 straight months. Yet, growth varied from country to country. For instance, German manufacturing activity picked up in July, while the French economy continued to contract.

The other highlights last week centered on housing and pricing. The housing market remains weaker than we would like, as illustrated by the sharp drop in new home sales in June. Still, the June figure was consistent with the annual paces in March and April, with May’s sales numbers appearing to be an outlier. With the slower pace of sales, inventories of homes have increased. In contrast, existing home sales improved for the third straight month, with some progress in the second quarter relative to the softer first quarter. Even in the existing home sales release, however, there were some discouraging findings, including the fact that sales remain below where they were last year and that first-time homebuyers are still having difficulties making purchases. Meanwhile, on the inflation front, the consumer price index increased in June, led by higher gasoline costs. Yet, pricing pressures remain mostly in check, with core inflation up 1.9 percent over the past 12 months.

This week, the focus will be on second-quarter GDP and jobs. The expectation is that output will rebound from the drop in the first quarter, with consensus forecasts ranging from 2.5 percent to 3.5 percent growth. My view is that real GDP in the second quarter should exceed 3.0 percent. Regarding hiring, manufacturers have added, on average, more than 12,500 each month since August, and I would anticipate seeing a comparable figure for July. Nonfarm payrolls should increase by at least the roughly 230,000 average so far in 2014. Other items to look for this week include manufacturing survey results from the Dallas Federal Reserve Bank and the latest numbers for construction spending, consumer sentiment, employment costs and personal income and spending.

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

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Timmons in Pittsburgh to Talk Energy and Manufacturing Comeback

NAM President and CEO Jay Timmons addressed some of the country’s leading manufacturing executives today in Pittsburgh at an energy panel hosted by Jones Day.  The discussion centered on the critical need for an affordable and abundant energy supply to fuel the manufacturing comeback.

Jones DayTimmons kicked off the event by noting that, “major events like the shale revolution don’t happen often. Manufacturers can’t let this opportunity pass us by, so we welcome any chance to talk about the transformation in our sector.”

Despite recent manufacturing success, there are significant obstacles facing the economy.  Timmons told executives that “if policymakers make the wrong choices, those decisions could bring the energy revolution to a halt and do irreparable harm to manufacturing and the overall economy.”

Timmons also urged energy and manufacturing executives alike not to settle with their current success but to continue to lead the push for comprehensive policy reform.  He presented manufacturers with a new goal, suggesting that “our challenge in the months ahead is to run up the score on energy—and fix the broken policies that are holding manufacturers back.”

To learn more about the importance of energy to manufacturers, click here.

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Four Years Later and Still Unclear

This week, at a House Financial Services hearing entitled  “Assessing the Impact of the Dodd-Frank Act Four Years Later,” manufacturers called on Congress to provide clarity for derivatives end-users and to enact legislation that ensures companies are not faced with undue regulatory burdens.

Four years into the rule-making process, regulatory uncertainty continues to harm manufacturers. Despite Congress’ intention to exempt derivatives end-users from costly margin requirements and clearing requirements, subsequent rules implementing Dodd-Frank are unclear and capture manufacturers trying to hedge risk. Tom Deas, Vice President and Treasurer of FMC Corporation, testified that even the rules that supposedly provide end-user exemptions do not provide relief.

When author of the 2010 law and former House Financial Services Committee Chairman Barney Frank was asked about potential updates to his legislation, he responded, “I agree with much of what [Deas] said about the end-user.”  House Agriculture Committee Chairman Frank Lucas mentioned several legislative fixes that the NAM supports saying, “End-users did not create the financial crisis of 2008 and should not be regulated like they did.” We couldn’t agree more. After four years of uncertainty, manufacturers welcomed this bipartisan support and urge lawmakers to act – better late than never.

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In an Otherwise Bleak First Quarter, Manufacturers Made a Positive Contribution to Growth

The Bureau of Economic Analysis said that manufacturers added 0.30 percentage points to real GDP in the first quarter of 2014. Nondurable goods output provided 0.86 percent to growth; whereas, durable goods activity subtracted 0.57 percent. Indeed, winter weather and other factors helped to lead the country to its first quarterly contraction in real GDP in three years, with output down a very disappointing 2.9 percent.

Therefore, we can say that manufacturers made a positive contribution to growth overall in an otherwise bleak first quarter. Real value-added from manufacturing increased 2.1 percent in the first quarter, its slowest growth rate in five quarters and below the 3.1 percent pace seen in all of 2013. Yet, at least it was positive. Sectors with the largest quarterly declines in real value-added in the first quarter included:

  • Agriculture, forestry, fishing and hunting (down 31.0 percent)
  • Utilities (down 16.4 percent)
  • Construction (down 8.9 percent)
  • Wholesale trade (down 8.7 percent)
  • Professional and business services (down 6.4 percent)
  • Mining (down 5.6 percent)
  • Transportation and warehousing (down 4.6 percent)
  • Educational services, health care and social assistance (down 3.0 percent)
  • Finance, insurance, real estate, rental and leasing (down 2.9 percent)

With that said, value-added in manufacturing dropped from $2.14 trillion in the fourth quarter of 2013 to $2.09 trillion in the first quarter of 2014. Manufacturing accounted for 12.3 percent of GDP in the first quarter, down from 12.5 percent in the prior quarter.

This suggests that the increase in the “real” measure was influenced by price changes. Indeed, the price index for value-added output in manufacturing fell by an annualized 10.3 percent in the first quarter. Despite the quarterly decline, value-added in manufacturing has continued to move higher in the longer term, up from $2.05 trillion in the first quarter of 2013.

Next week, we will get our first look at real GDP growth for the second quarter of 2014. The expectation is that output will rebound from the 2.9 percent drop in the first quarter, with consensus forecasts ranging from 2.5 to 3.5 percent growth. My view is that real GDP in the second quarter should exceed 3.0 percent, but we will see next Wednesday.

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

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New Durable Goods Orders Increased 0.7 Percent in June, Rebounding from May’s Decline

The Census Bureau said that new durable goods orders increased 0.7 percent in June, rebounding from a 1.0 percent decline in May. This suggests that durable goods sales have continued to recover from winter-related softness in December and January, and it was mostly in-line with consensus estimates. Through the first six months of this year, new durable goods orders have risen 4.4 percent, which indicates reasonably healthy growth year-to-date.

Unlike previous reports, transportation orders did not skew the data by much, with the sector having sales growth of 0.6 percent for the month. If you were to exclude transportation, June’s new durable goods orders would have increased by 0.8 percent, with a year-to-date gain of 4.4 percent.

The underlying sector-by-sector data were mostly positive. The largest increases were observed in defense aircraft and parts (up 15.3 percent), nondefense aircraft and parts (up 8.2 percent), machinery (up 2.4 percent), primary metals (up 0.9 percent) and computers and electronic products (up 0.8 percent). On the other hand, motor vehicles and parts (down 2.1 percent), which have been a bright spot in general of late, were a drag on growth in June. Year-to-date, motor vehicle and parts orders have increased 2.2 percent.

Meanwhile, durable goods shipments were up a more-paltry 0.1 percent in June, offsetting the 0.1 percent decrease in May. Excluding transportation (which was up 0.7 percent, mainly on nondefense aircraft), durable goods shipments would have fallen by 0.1 percent. This indicates that shipments activity was weaker than the headline figure suggests. In fact, the data were mixed. Increased shipments for communications equipment (up 3.3 percent), primary metals (up 0.8 percent) and fabricated metal products (up 0.7 percent) were largely counterbalanced by declines in defense aircraft and parts (down 2.3 percent), motor vehicles and parts (down 2.0 percent) and machinery (down 2.0 percent).

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

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Exporters for Ex-Im: Maker Of Biodegradable Products Doesn’t Want Ex-Im Bank To Vanish

Leslie Harty and her husband made –and still sell— the country’s first biodegradable coffee bag.

Their company, Maverick Enterprises Inc., has been operating in Monroe, North Carolina, for 21 years. The company specializes in making biodegradable products, including coffee bags and containers for food, to help reduce landfill waste.

Mrs. Harty, the company’s president, said they used the U.S. Export-Import Bank from 2005 to 2010 when they were selling biodegradable bags to companies in Mexico. They ultimately lost one of the contracts but intend to use the Ex-Im Bank again soon because they’re finishing up a biodegradable backing to use in baby diapers.

The potential buyer is in Mexico, and Mrs. Harty said the company will apply for export credit insurance from the Ex-Im Bank once the product is complete.

“I wouldn’t send anything down to Mexico without having the insurance from Ex-Im Bank,” she said. She said she’s heardMaverick Enterprises “horror stories” of small businesses trying to collect payments for products they’ve exported.

She said it would be “disastrous” if the Ex-Im Bank weren’t reauthorized by Congress in September, right when the company is set to begin exporting again. In addition to hurting the company’s sales, it would hurt their ability to conduct research and development.

She said the company is currently designing biodegradable netting for capturing fish and for laying sod as well as small biodegradable coffee cups like those used in Keurig coffee machines.

Those cups, or pods aren’t biodegradable. There’s a potential market for biodegradable coffee pods, and they’d like to capture those sales if possible.

Having the Ex-Im Bank as a resource, she said, will help them do that.

“Exporters for Ex-Im” is a blog series focused on the importance of the Export-Import Bank to manufacturers. To learn more or to tell Congress you support reauthorization of the Export-Import Bank, visit http://www.nam.org/Issues/Trade/Ex-Im-Bank.aspx.

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Kansas City Fed: Manufacturing Activity Expanded for the Seventh Straight Month in July

The Kansas City Federal Reserve Bank said that manufacturing activity has expanded every month so far in 2014, picking up slightly in July from June. The composite index of general business conditions rose from 6 in June to 9 in July. The pace of growth accelerated in many of the key indicators, including new orders (up from 8 to 12), production (up from 2 to 11), shipments (up from 2 to 14) and employment (up from 1 to 8). One-third of survey respondents said that their production had increased in the month.

There were two negatives in the report, as well. The average workweek (down from 7 to -3) shifted into its first contraction in six months. The percentage of those taking the survey who noted a reduced workweek increased from 12 percent in June to 17 percent in July, enough to tip the diffusion index. In addition, new export orders (up from -11 to -6) continued to fall, albeit at a slower pace of decline for the month. This measure has been in contraction territory in 8 of the past 12 months, indicating weakness on the trade front in the Kansas City Fed’s district.

Nonetheless, there continue to be encouraging signs for the months ahead. The forward-looking composite index increased from 12 to 15, with relatively strong growth anticipated over the next six months. Manufacturers in the region expect higher new orders (up from 14 to 24), production (up from 17 to 23), shipments (up from 20 to 28), employment (up from 14 to 23) and capital expenditures (up from 23 to 25) at rather healthy rates of growth. In fact, over 40 percent predict increased sales, output and shipments, with more than one-third seeing additional hiring and capital spending. Yet, the sample comments also suggest frustrations with attracting qualified workers. Exports are predicted to grow just modestly (unchanged at 6).

Respondents expect pricing pressures to remain elevated, with nearly half of those taking the survey saying that raw material prices should increase over the next six months. Still, 24 percent felt that input costs for them might fall, and the diffusion index for this measure (down from 49 to 46) eased slightly in July.

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

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Are Big Changes Coming to Employer-Sponsored Insurance?

Arguably the biggest outstanding question about the Affordable Care Act is what effect it will have on employer-sponsored insurance (ESI) coverage. According to the Bureau of Labor Statistics, 156 million Americans receive coverage through their employer or their spouse’s employer.

Many employers had to change the benefit structure of their plans to comply with the mandates contained in the ACA, but the larger question looming is whether employers continue to provide coverage at all in the coming years? The frightening thing about this question is no one really knows and there is a wide variance in the estimates out there:

  • One analysis done by the Urban Institute comes to the conclusion that the employer mandate is pretty meaningless and there would be little impact on the decision of employers to provide coverage or not. They estimate that roughly 200,000 fewer employers will provide coverage.
  • Another analysis done by S&P Capital IQ estimates that 90 percent of employers will decide to stop providing employees health coverage in the next six years. That translates to over 100 million Americans moving to the health insurance exchanges because their ESI has gone away.
  • Yet another estimate from Dr. Ezekiel Emanuel, one of the principal architects of the ACA, predicts that 80 percent of employers will suspend offering ESI in the next ten years. If he is right, it’s likely the smaller employers in the fully-insured market that would represent the 80 percent of employers deciding to stop offering coverage.


The two higher estimates are astounding numbers that signal an enormous disruption to millions of Americans in the coming years. As a country we have to determine whether such a dramatic transformation of how we all get health insurance coverage is acceptable – intended or not. Even if the estimates are off by half, we have a fog of uncertainty looming that employers and millions of their employees are going to navigate through in the coming years.

Ninety-seven percent of NAM members provide health coverage to their employees and most, if not all, I speak to want to continue providing that benefit. According to the BLS, manufacturers generally are more likely to offer coverage and their employees are more likely to accept health benefits compared to other sectors of our economy.

The ACA substantially changed the dynamics by increasing regulatory burdens and costs. If 90 percent of employers decide to stop offering coverage, it’s very reasonable to expect some of those employers will be manufacturers. It should be abundantly clear to everyone what forced them to make that decision.

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