Yet Another Reason Congress Should Act ASAP on Tax Extenders

Manufacturers continue to tell Congress that failure to renew the expired tax provisions typically contained in the “tax extenders” package creates unnecessary uncertainty and sidelines business investments. Now, even the agency responsible for carrying out U.S. tax laws is joining the debate.

Stating he is “concerned” that Congress will likely not approve a tax extenders package until later this year, John Dalrymple, the IRS deputy commissioner for services and enforcement, said this week that he hopes Congress will pass extenders as soon as possible to give the agency enough time to make the necessary systems changes for the tax filing season.

The NAM has long been pushing Congress to act ASAP to renew the expired tax provisions since the absence of the R&D tax credit, enhanced Section 179 expensing, bonus depreciation and other important tax incentives are having a negative impact right now. Without these incentives in place and without a clear view of when and for how long they will be renewed, manufacturers cannot incorporate new investments into their future business plans. Since investments translate into production and expansion, every day that goes by without these incentives in place is a missed opportunity for growth in manufacturing and in turn, the U.S. economy.

The House has already acted to make permanent several pro-manufacturing tax provisions typically found in the extenders package, but the Senate has not yet passed their extenders bill, the EXPIRE Act. Earlier this year, the NAM joined over 150 organizations in writing to Senators in support of the bill, and continues to meet with Congress to urge that the expired tax provisions be reinstated as soon as possible. After all, eight months is far too long for the U.S. to be sitting on the sidelines while our global competitors continue to incentivize productive business investments.

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Philly Fed: Manufacturers Continue to See Health Gains in August

The Federal Reserve Bank of Philadelphia reported healthy gains in manufacturing activity in August, with the fastest pace since March 2011. The Business Outlook Survey’s composite index of general business activity increased from 23.9 in July to 28.0 in August. This represents significant progress from earlier in the year, when activity contracted briefly in February. It was the fifth straight month with the headline index being in double digits, averaging 20.3 from April to August. This would indicate more than just a rebound; it would suggest relatively strong growth overall.

The various sub-components of the index also reflect a continued expansion in the manufacturing sector. With that said, they also suggest that July’s strengths were a bit of an outlier, with many of the key measures pulling back in August while still reflecting solid gains. For instance, the paces for new orders (down from 34.2 to 14.7) and shipments (down from 34.2 to 16.5) both eased; yet, nearly one-third of the survey respondents said that each increased for the month, with roughly half suggesting that they stayed the same.

The employment data were mixed, but still positive. Hiring growth (down from 12.2 to 9.1) decelerated a bit, but one-quarter of those taking the survey reported additional hires. At the same time, the average workweek (up from 12.5 to 13.3) widened somewhat, with 21.2 percent of respondents citing a longer workweek in August.

Looking ahead six months, manufacturers in the Philly Fed district were overwhelmingly upbeat. The future-oriented composite index jumped from 52.0 to 58.1. Moreover, 56.1 percent of survey-takers said that they expect their sales to increase in the coming months, with just 2.6 percent predicted declines. Likewise, over 60 percent predict increased shipments, nearly one-third plan to hire additional workers, and over one-quarter intend to increase capital expenditures. Still, pricing pressures remain a worry. In fact, 40.9 percent of manufacturers in the region anticipate increased raw material costs, with 2.7 percent seeing reduced input prices.

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

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Ozone Education Campaign Continues With State Ad Campaign

By now, you may be familiar with the NAM’s efforts to bring attention to the severe economic impact that the EPA’s pending revisions to the National Ambient Air Quality Standards (NAAQS) for ground-level ozone would have not only on manufacturers, but on the overall economic health of our country as well.  As part of this effort, this week we launched radio and digital ads in a trio of critical states – Colorado, Kentucky, and North Carolina – to shed additional light on the economic impact these regulations could have and to ensure that policymakers are paying attention.

Our recent analysis of the pending revisions found that the U.S. stands to lose trillions of dollars and potentially millions of jobs at the hands of the new standard, making it potentially the most expensive regulation ever imposed on the American public. NAM President and CEO Jay Timmons put a finer point on the matter last week in the editorial pages of the Wall Street Journal, writing that “no single regulation has come close to rendering this level of self-inflicted and ultimately unnecessary economic pain.”

The national numbers are massive. And in the states, the economic toll is no less staggering – a point that our new advertising campaign hopes to illuminate. In Colorado, for instance, businesses could face $11 billion in compliance costs. North Carolina could see its economic output drop by $150 billion and could shed 150,000 job equivalents every year. And the study projects that Kentuckians could say goodbye to $32 billion in economic activity and more than 30,000 job equivalents.

The outlook is no better in other states, where pending revisions to the ozone standard threaten to similarly sap economic activity and drive away jobs.

Manufacturers are ready to keep providing the economic fuel that has helped to put our economy back on track. But we need a sound regulatory landscape in order to do that. This week’s ads underscore this fact. And the NAM will work throughout the coming months to make sure that policymakers understand what the EPA’s aggressive new ozone standards could mean for the American economy.

To see our new online ads, or to listen to the radio ads, click here. And be sure to keep tabs on our ongoing education campaign at www.NAM.org/ozone.

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Growth in Chinese and European Manufacturing Activity Slowed in August, While U.S. Was Up Sharply

Given the contraction seen in the Eurozone economy in the second quarter, analysts were eagerly anticipating the preliminary Markit Purchasing Managers’ Index (PMI) data released this morning. Indeed, the HSBC Flash Eurozone Manufacturing PMI decelerated from 51.8 in July to 50.8 in August, suggesting that growth in manufacturing activity on the continent has slowed to a crawl. Germany (down from 52.4 to 52.0) eased slightly, but with output falling to its slowest pace since June 2013. French manufacturers (down from 47.8 to 46.5) continue to struggle, with its Flash Manufacturing PMI contracting for the fourth straight month and new orders declining at their quickest pace since in 16 months.

For the Eurozone as a whole, manufacturing activity was slower across-the-board. New orders (down from 52.1 to 51.0), output (down from 52.7 to 50.9), exports (down from 52.6 to 52.1) and employment (down from 49.9 to 49.1) were all lower in August, with the latter contracting for the second consecutive month. Production growth was at its weakest point since Europe emerged from its deep recession 13 months ago. In essence, the good news was that European manufacturing activity did not contract in August, but it is clear that demand and output are moving in the wrong direction. These data will continue to be fodder for those looking for economic stimulus in the months ahead.

Meanwhile, the HSBC Flash China Manufacturing PMI was also much softer for the month, down from 51.7 in July to 50.3 in August. As such, manufacturing expanded for the third straight month, but only barely so. New orders (down from 53.3 to 51.3), output (down from 52.8 to 51.3) and export sales (down from 52.6 to 51.4) downshifted from a modest pace to slower growth, and employment (down from 49.4 to 48.2) deteriorated further. In fact, hiring has been negative in 16 of the past 17 months. While China has begun to stabilize its economy after weaknesses earlier in the year, these data show that there remains room for improvement.

Japan’s economy contracted in the second quarter, falling 1.7 percent in the second quarter or 6.8 percent year-over-year. Yet, the Markit/JMMA Flash Japan Manufacturing PMI (up from 50.5 to 52.4) seem to indicate that manufacturers are in a better mood, with a pickup seen in demand and output. This was the fastest pace since March, or before the imposition of a new tax in April that sent the economy lower. The underlying data were mostly higher, including sales (up from 51.2 to 54.4), production (up from 49.8 to 53.2), exports (up from 50.8 to 53.0) and hiring (up from 50.2 to 51.1).

Closer to home, the Markit Flash U.S. Manufacturing PMI was up sharply, up from 55.8 to 58.0. This was the highest level for manufacturing activity in the U.S. since April 2010. Both new orders (up from 59.5 to 60.8) and output (up from 59.7 to 60.2) were above 60, suggesting strong growth and closely mirroring similar data from the Institute for Supply Management (ISM). New export orders (up from 50.3 to 54.4) and employment (up from 51.2 to 54.6) were both higher, as well, with each recording modest expansions. Overall, these data were quite positive, indicating that the recent rebound in manufacturing activity in the U.S. (after softness in the early months of 2014) has begun to take hold.

Flash data give us an advance estimate of manufacturing activity incorporating “approximately 85% of the usual monthly survey replies,” with the final PMI data for the month released in early September.

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

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Manufacturers Support Innovative Reform, National Regulatory Budget

On July 24, Reps. Steve Scalise (R-LA) and Doug Collins (R-GA), introduced the National Regulatory Budget Act of 2014 (H.R. 5184). The bill would establish an annual cap of regulatory costs (i.e., a budget for regulatory costs) to which federal agencies must comply. H.R. 5148 is the House version of S. 2153, which was introduced in March by Sen. Marco Rubio (R-FL). The National Regulatory Budget Act of 2014 would require Congress to pass an annual bill establishing a regulatory cost cap for each agency and the federal government overall. It also would establish an independent agency to analyze regulatory costs and find ways to make rules more efficient and less costly. The NAM appreciates the leadership of Sen. Rubio and Reps. Scalise and Collins in promoting efforts to reduce the federal regulatory burdens imposed on manufacturers and other businesses in the U.S.

Manufacturers recognize the important role of regulations in protecting the public and the environment, but unnecessary regulatory costs place manufacturers in the U.S. at a competitive disadvantage within the global economy. New regulations are too often poorly designed and analyzed and ineffective in achieving their benefits. Regulations are allowed to accumulate with no real incentives to evaluate or clean up past measures. They are often unnecessarily complex and duplicative of other mandates.

The National Regulatory Budget Act of 2014 is an innovative reform measure that would provide an incentive for federal agencies to reform our regulatory framework and eliminate unnecessary burdens that impede economic growth. It would help establish a regulatory system that is aligned with Administration initiatives targeting unnecessary regulatory burdens. Executive Orders 13563 and 13610 require agencies to consider cumulative burdens and give priority to regulatory approaches and reforms that would reduce those burdens. Despite these requirements, agency efforts have not produced significant burden reductions, and agencies continue to expand regulatory requirements.

Reducing the unnecessary regulatory burdens imposed on manufacturers and other businesses in the U.S. requires a consistent and systematic process, as well as a discipline and incentives that do not currently exist in our system. The National Regulatory Budget Act of 2014 would help reduce the inefficiencies associated with our current regulatory system by creating incentives and a system that would promote efficiency and better government. We urge Congress to pass S. 2153 and H.R. 5184.

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Moving the U.S.-India Relationship from Aspirations to Action

In his recent Independence Day speech, India’s Prime Minister Narendra Modi laid out his vision for a future driven by innovation and aimed at improving the lives of all Indians. To achieve a “Digital India”, his government plans to build the infrastructure necessary to ensure all Indians have access to essential public services and information.

It’s a critical focus and surely an inspiring signal to his constituents and international partners. After all, innovation is essential for the growth of any nation in the 21st century. By embracing the potential of technology, the people of India can connect and unite like never before. From improving access to education and embracing the diverse benefits of telemedicine, to increasing the country’s electronic manufacturing capabilities, even those living in the far remote expanses of rural India could benefit.

The Obama Administration was quick to praise Modi’s approach and to highlight opportunities for collaboration.  In comments at the New York Foreign Press Center, U.S. Assistant Secretary of State for South and Central Asia Nisha Biswal expressed “a great deal of desire to look and see what we can do to create or stand up a infrastructure platform that would allow American companies to be able to focus their tools, their technologies, their capabilities around the priorities that have been identified by the Indian Government.”

Indeed, there is “a great deal of desire.” But translating Modi’s grand vision into reality will be difficult, and so far there’s been more talk than action. India continues to maintain discriminatory industrial policies that are blocking U.S. exports of the very information and communication technology products Modi will need to achieve a “Digital India.”  Widespread copyright piracy and weak protection of intellectual property rights in India are discouraging innovation and investment.

While other countries are opening their markets and undertaking the kinds of legal and economic reforms necessary to build and sustain a modern digital economy, India is falling further behind.  Between 2013 and 2014, India slipped ten places in the global innovation index  and now ranks a disappointing 76th in the world. According to the 2014 World Economic Forum’s Global Enabling Trade Report, India’s trading regime ranks 96th out of 132 countries in terms of enabling trade.

Modi’s government is still in its early days, and manufacturers remain hopeful that positive progress can be achieved and that a promising bilateral commercial relationship can get back on track. If India’s new leadership is serious about taking the actions necessary to achieve their vision, the NAM and American businesses stand ready to work with them.

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Oregon Deals Blow to Exports by Denying Permit for Morrow Export Terminal Expansion

Yesterday, the Oregon Department of State Lands slapped a “closed for business” sign on future export projects along its coast. In what sadly comes as no surprise given Gov. Kitzhaber’s vocal opposition to the project, today the state agency responsible for issuing a state dock “fill” permit denied that permit for Ambre Energy’s Coyote Island coal export Terminal at the Port of Morrow.

For manufacturers, this is a disturbing precedent. Our goods are exported, and a great deal of them travel through ports in Oregon. Today, one state’s vendetta against coal may have inadvertently erected new barriers to the export of all manufactured products through the state. Moreover, it might be subjecting the nation to trade liability under WTO agreements, as set forth by a NAM report last December.

Manufacturers are obviously disappointed, and urge Oregon to work through whatever issues it needs to work through so that the Port of Morrow may be constructed.

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Consumer Inflation Eased Slightly in July, but with Prices Up 2 Percent in the Past 12 Months

The Bureau of Labor Statistics said that consumer prices increased 0.1 percent in July, its slowest pace in 6 months. Nonetheless, food prices continue to rise, up 0.4 percent in July. The price of food purchased for the home has risen 2.2 percent year-to-date, or 2.5 percent in the past 12 months. The bulk of this increase has come from meats, eggs, shellfish and fresh produce. For instance, consumers have spent 9.3 percent more year-over-year on meats (e.g., beef and veal, pork, poultry and fish and seafood), with an increase of 0.4 percent for the month, mirroring the headline figure.

In contrast, energy prices have eased, mirroring producer price data released last week. Consumers have benefited from lower prices for natural gas and petroleum. For instance, the cost of West Texas intermediate crude oil declined from a recent peak of $107.95 per barrel on June 20 to $98.23 on July 31. The consumer price index data suggest that energy prices fell 0.3 percent in July. At the same time, energy expenses have risen 1.2 percent over the past 12 months, largely from higher costs for the home.

Excluding food and energy, consumer prices were up 0.1 percent, matching the increase seen the month before. Higher prices for apparel, medical care, new motor vehicles and shelter were somewhat offset by reduced costs for transportation services and used cars and trucks.

Overall, the consumer price index rose 2.0 percent from July 2013 to July 2014, its fourth straight month with an inflation rate of 2.0 percent or more. With that said, it represents an easing from the 2.1 percent paces seen in May and June. The core inflation rate – which excludes food and energy – has been 1.9 percent for three consecutive months.

While core pricing pressures have accelerated from earlier in the year, they appear to be stabilizing somewhat this summer. That should be good news for the Federal Reserve, which has targeted 2.0 percent in its stated goals. Still, the Federal Open Market Committee will closely watch to see how pricing pressures develop in the coming months, particularly as it prepares to start normalizing short-term rates in early 2015.

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

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Housing Starts Rebounded in July to Their Second-Highest Pace since the Recession

The Census Bureau and the U.S. Department of Housing and Urban Development said that housing starts increased 15.7 percent in July, offsetting significant declines in both May and June. Starts increased from an annualized 945,000 in June to 1,093,000 in July. This was the fastest pace since the 1,105,000 rate observed in November, making it the second-highest pace since November 2007. This is a sign that the lull that we have seen in the housing market so far this year has begun to dissipate, which is definitely a positive sign. New residential construction starts have increased 21.7 percent year-over-year.

The bulk of the increase in July stemmed from the highly-volatile multi-family segment, up from 339,000 to 437,000. This was the fastest pace in multi-family construction activity since January 2006. At the same time, single-family starts also improved, up from 606,000 to 656,000, the highest rate since December. Single-family starts have increased 10.1 percent over the past 12 months.

Meanwhile, housing permits mirrored the progress with starts data, rising 8.1 percent in July after two consecutive decreases in May and June. Housing permits grew from 973,000 at the annual rate in June to 1,052,000 in July, representing an increase of 7.7 percent year-over-year. Single-family (up from 634,000 to 640,000) and multi-family (339,000 to 412,000) permitting were both higher, with the latter up a whopping 21.5 percent for the month.

Overall, July’s housing numbers were encouraging, particularly given the softness seen earlier in the year. Housing starts had averaged 961,000 from January to June, bottoming out at 897,000 in January. Financial difficulties in obtaining credit (particularly for first-time home buyers) and economic uncertainties were obstacles for some. Moving forward, we would expect August’s housing data to remain above the one-million mark, with starts solidly at 1.1 million by year’s end, representing slow-but-steady progress in the residential market.

This would be consistent with rising confidence in the National Association of Home Builders and Wells Fargo report released yesterday. The Housing Market Index increased for the third straight month, up from 53 in July to 55 in August. It was the second month with the index above 50, an indication that more home builders were positive than negative in their outlook. More importantly, it was the highest level since January, with builder confidence lagging from February to June with an average of 46.4 over that five-month span. The latest rebound is perhaps a sign that the sector has begun to recover somewhat.

Indeed, the index of expected single-family sales over the next 6 months rose from 63 in July to 65 in August, its fastest pace in 12 months. With that said, some of the underlying data indicate that persistent challenges remain. For instance, the index of buyer traffic, while up from 39 to 42, remains below the all-important threshold of 50. Moreover, the regional data were mixed, with home builder confidence up in the Midwest and Northeast but marginally lower in the South and West.

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

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Exporters for Ex-Im: For This Small Manufacturer, Ex-Im Bank Holds the Keys to a $15 million Project

Jason Speer spent months developing a business deal that was shaping up nicely.

Speer is the president of Quality Float Works, Inc., a manufacturer of metal float balls, valves and assemblies that level liquid controls for a variety of industrial applications. He had reached an agreement with a residential real estate developer in Saudi Arabia to supply shut-off switches for water tanks installed in the new homes of a development outside of Riyadh.

Speer had traveled from Schaumburg, Ill., about 25 miles northwest of Chicago, to Saudi Arabia three times to negotiate the multi-phase deal. He is awaiting a letter of credit from the Saudi real estate developer’s bank to his bank with an accompanying purchase order.

Right now, one obstacle stands in the way. Speer needs a working capital guarantee from the U.S. Export-Import Bank to finance the raw materials required to manufacture the switches. With Ex-Im Bank’s lending authorization set to expire on September 30 if Congress fails to extend its charter, the contract with his Saudi client hangs in the balance.

“Private lenders won’t touch (loans) for the type of materials we need, and it’s very hard for small and medium size businesses to raise capital upfront,” Speer said. “During our planning, never once did we think the Bank would lose its authorization. We might be forced to scramble to try to find other options, without which we won’t be able to fulfill this order.”

If the deal collapses, Quality Float Works stands to lose $15 million in revenue and will hold off hiring the six new employees needed to service the Saudi contract, Speer said. Ex-Im’s predicament is troubling for a small business increasingly dependent on exports. While exports accounted for just 3% of Quality Float Works’ sales in 2001, today they make up 35% of the firm’s sales, with customers in nearly three dozen countries. The number of employees at the company has doubled to 24 in that time.

The pending deal with the Saudi developer is the first instance in which Quality Float Works has applied for an Ex-Im loan guarantee, and it hopes it won’t be the last. Speer, a committed small business advocate who has testified before Congress in support of free trade agreements, says his message to members of Congress is simple: “The Ex-Im Bank can make or break the ability of small and medium size businesses to export, and, by extension, their ability to create jobs and grow the economy.”

“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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