NAM Leadership Road Show Heads to the Steel City

With Election Day now less than three weeks away, the NAM continued its Leadership Engagement Series today with a stop in Pittsburgh, Pennsylvania. Numerous manufacturing leaders including Gerald MacCleary, President of Bayer MaterialScience; Marc Skalla, President of SASCO Chemical Group, Inc.; Richard Harshman, Chairman, President and CEO of Allegheny Technologies Incorporated; and Nicholas Pinchuk, Chairman and CEO of Snap-on Inc. met with NAM President and CEO Jay Timmons to discuss the future of the manufacturing sector and both the opportunities and the obstacles that lie on the horizon.

What better place, after all, to talk about the vital role of manufacturers and the policies that impact them than the Steel City?

Pittsburgh has long been at the forefront of the manufacturing sector. Today, while heavy manufacturing and industry remains a mainstay of Pittsburgh’s economy, the city is also helping to drive the development of advanced manufacturing techniques and technologies that will help the United States to remain a world leader in manufacturing. In Pittsburgh’s back yard, the Marcellus Shale is providing the ample, affordable energy needed to sustain the current manufacturing renaissance, and continue to lure producers back to the United States.

The conditions in Pittsburgh – strong R&D, affordable energy, and a legacy built on manufacturing – are emblematic of what’s helped the American manufacturing sector to grow in recent years. We can sustain these conditions nationwide against the right policy backdrop. Unfortunately, Washington seems bent on policies that would work contrary to these goals. The Environmental Protection Agency continues to advance air regulations that would cripple our energy sector and devastate our economy. Congress remains idle on reauthorization of the Export-Import Bank. Our tax code remains a burdensome relic.

The NAM’s Leadership Roadshow is focused on helping manufacturers to present a unified voice in the face of such threats. With just a few short days until the votes are tallied, doing so has rarely been more important. To get involved in the upcoming election, visit the NAM’s Election Center.

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University of Michigan: Consumer Confidence Rose to a Pre-Recessionary High in October

The University of Michigan and Thomson Reuters said that preliminary data on consumer confidence reflects a pre-recessionary high in October. The Consumer Sentiment Index increased from 84.6 in September to 86.4 in October, its highest level since July 2007. This mirrors similar data from the Conference Board, which has also reached pre-recessionary levels of late (although that measure unexpectedly declined in September, reflecting a public that remains on edge).

Even with the increase in October, the University of Michigan report also shows these anxieties. The index for the current economic environment was unchanged at 98.9, and it remains below its recent peak of 99.8 in August. Geopolitical events, slowing global growth, stock market volatility and worries about Ebola might help to explain this hesitance. Moreover, Americans remain concerned about labor market and income growth, despite better data of late on the hiring front.

At the same time, the future-oriented index rose from 75.4 to 78.4, its highest level in two years. Lower gasoline prices likely lifted people’s spirits, helping to increase disposable income, at least for now. Overall, this survey suggests that consumers’ views about the economy are quite nuanced, and at least for this month, optimism about the future outweighed the concerns.

We will get final data on October consumer sentiment from the University of Michigan on October 31. The Conference Board will also release its survey data on consumer confidence on October 28.

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

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Housing Starts Exceed 1 Million Units Again in September

The Census Bureau and the U.S. Department of Housing and Urban Development said that housing starts exceeded one million units again in September.  It was the third time this year that it had done so, or the second in three months. Housing starts increased from an annualized 957,000 units in August to 1,017,000 in September. This continues a slow-but-steady trend upward, with an average of 978,111 so far in 2014 relative to an average of 930,000 for all of 2013. Still, there was relatively weak housing activity throughout much of the second half of last year and the first half of this year, and the latest data suggest that the data have begun to stabilize somewhat.

As usual, the bulk of the monthly change stemmed from an increase in the highly volatile multi-family segment. Multi-family housing starts rose from 318,000 at the annual rate in August to 371,000 in September, and the average year-to-date has been 353,667 units. Yet, multi-family starts have ranged from 314,000 in January to 446,000 in July, with large shifts from month to month. Even with such unpredictability, multi-family unit activity has trended higher, up 32.0 percent over the past 12 months.

At the same time, single-family starts were also higher, up from 639,000 to 646,000. The average through the first nine months of 2014 is 624,444, and year-over-year growth in September was 11.0 percent. The recent peak was 652,000 in July.

Meanwhile, housing permits mirrored many of these same developments, with permitting up from 1,003,000 to 1,018,000. On a year-over-year basis, housing permits grew 2.5 percent since September 2013. The underlying data were mixed, however. Multi-family permits were up from 376,000 to 394,000; whereas, single-family permitting edged slightly lower, down from 627,000 to 624,000. Permits for single-family homes have improved after bottoming out at 593,000 in February, but the data have been in a narrow range over much of the past year, with a year-over-year decline of 0.5 percent.

Nonetheless, we still remain optimistic about residential construction activity moving forward, and I would expect continued movement in the right direction, even with some volatility. I continue to predict housing starts solidly in the 1.1 million unit range by the beginning of 2015. One thing that might help spur more activity – beyond an improving economy, of course – is lower interest rates. According to Freddie Mac, average 30-year fixed mortgage rates fell to 3.97 percent this week, their lowest level since June 2013.

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

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New study shows EPA greenhouse gas regulation would raise electricity prices, impose massive new costs on manufacturers

This week, NERA Economic Consulting released an economic study on the impact of the Environmental Protection Agency’s (EPA) proposed new greenhouse gas regulation for existing power plants. The study was supported by groups from most sectors of the U.S. economy, including the American Farm Bureau Federation, American Fuel & Petrochemical Manufacturers, American Coalition for Clean Coal Electricity, National Mining Association, Association of American Railroads, Electric Reliability Coordinating Council and Consumer Energy Alliance.

NERA’s report confirms many of our fears about this new regulation: 43 states will experience double-digit increases in the price of electricity, and overall compliance costs exceed $360 billion. Some states could see price increases that exceed 20 percent. In addition, NERA found that all consumers will have to make major new upfront investments in order to reduce overall electricity demand from their power plants. For manufacturers, that is money that could often be better spent on product development.

Manufacturers are committed to addressing global climate change and have taken strong steps to reduce our emissions, promote energy efficiency and new technologies, and become more sustainable. Those steps are working. But we must also remember that many manufacturers are trade exposed and can rarely stomach major new costs (like higher energy prices) that make us less competitive against our international competitors who don’t play by the same environmental rules. Manufacturers urge EPA to revise its greenhouse gas rule for existing power plants to avoid the higher energy prices and other consequences predicted in NERA’s report.

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Manufacturers Gather in Seattle for NAM’s Leadership Engagement Series

Leading manufacturers gathered in Seattle today to spark a conversation about America’s manufacturing comeback and the important role manufacturers must play to ensure America’s competitiveness in the 21st Century economy.  The economic situation in Washington is better than the rest of the nation. The unemployment rate is lower than the national average, median incomes are higher and we can credit a lot of this to the manufacturing industry here.

Manufacturing employs nearly 10 percent of Washington’s workforce, almost 300,000 jobs. Manufacturers’ ability to compete is significantly affected by decisions made in Washington, D.C. and it’s absolutely critical that they engage in important policy discussions. That’s why NAM is hosting a Leadership Engagement Series, traveling to major cities across the nation to discuss top manufacturing concerns and urge manufacturers to engage in the political process.

From overburdening energy regulations to increasing healthcare premiums and taxes and the need to open the doors to more free trade agreements with Trade Promotion Authority, Congress is preventing the manufacturing industry from reaching its full potential. But as a top employer, manufacturers have a powerful voice in the November elections and it’s time we take action and push for more substantive federal policies that benefit, not punish, job creators.

Follow NAM on Twitter (@ShopFloorNAM) for more information on NAM’s Leadership Engagement Series and visit the NAM’s Election Center for more information on how you can get involved.

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MAPI: Manufacturing Activity Expanded at a Slightly Slower Pace in October

The Manufacturers Alliance for Productivity and Innovation (MAPI) Foundation said that its Composite Business Outlook Index dropped from 71 in July to 67 in October. Despite the decline, manufacturing activity remained quite strong, with index readings over 50 indicating expansion. Indeed, the pace of new orders was unchanged (78) at a healthy rate of growth in the fourth quarter report, continuing to reflect improvements from six months ago (71).

Still, several of the key indicators eased in this survey. This included export orders (down from 67 to 65), the orders backlog (down from 72 to 69), prospective U.S. shipments (down from 87 to 83) and prospective foreign shipments (down from 76 to 72). Each of these readings, however, continues to reflect both strong growth.

In contrast, there were some areas of weakness to note. The percentage of respondents operating above 85 percent capacity dropped from 30.0 percent in July to 26.7 percent in October. Expected business investments also slowed considerably in this survey, with 2015 U.S. investment spending nearly just barely above 2014’s pace (down from 67 to 52) whereas foreign investment activity was expected to decline next year relative to this year (down from 64 to 48). On the other hand, the rate of R&D spending was expected to accelerate slightly (up from 67 to 70).

Overall, these data support the notion that manufacturing activity continues to improve, mirroring similar findings from other indicators. The MAPI Foundation has a generally upbeat outlook for the coming months. They predict that manufacturing production will increase by 3.4 percent and 4.0 percent in 2014 and 2015, respectively.

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

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Philly Fed: Manufacturing Activity Continued to Ease, but Growth Remains Strong

The Federal Reserve Bank of Philadelphia said that manufacturing activity continued to ease, but growth remained strong in its district. The Manufacturing Business Outlook Survey’s composite index of general business activity has declined from 28.0 in August to 22.5 in September to 20.7 in October. While this figure has decreased somewhat, sentiment remains mostly positive. For instance, just over one-third of manufacturers in the Philly Fed district felt that business activity had increased in October, with 13.5 percent noting a worsening of conditions.

The pace of new orders (up from 15.5 to 17.3) picked up in October, which bodes well for future activity. This shift occurred largely because the percentage of respondents citing declining sales dropped from 22.1 percent in September to 18.9 percent in October. At the same time, rates of growth for shipments (down from 21.6 to 16.6) and employment (down from 21.2 to 12.1) have both decelerated for the month. Along those lines, the average workweek contracted slightly, down from 4.4 to -1.3, falling for the first time since February.

Manufacturers remained overwhelmingly upbeat in their outlook despite a decrease in the forward-looking composite measure (down from 56.0 to 54.5). In fact, 58.0 percent of respondents anticipate increased new orders in the next 6 months, with 58.5 percent seeing higher shipment levels. Regarding employment, 33.1 percent expect to add new workers in the coming months, with just 5.1 percent indicating possible declines. Capital spending was also expected to increase at decent rates, particularly for equipment, computers and software and energy-saving investments.

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

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Capitol Hill Goes 3D

Modern manufacturing is not only generating life changing products, but game-changing processes as well.

3D printing, an additive manufacturing technology tool, is changing the way more manufacturers make things – from the largest companies in the world to the smallest shop floors. An industry leader, Stratasys, is driving widespread adoption of 3D printing in the manufacturing enterprise and it has brought a live demonstration to Capitol Hill today to provide a hands on demonstration of this revolutionary technology.

Congressional staff got an up close and personal look at this technology – and it was deeply impressive. In addition to the demonstrations, they received a detailed briefing on 3D printing’s economic benefits. Manufacturing is on rise and technology being put on the shop floor by Stratasys is bringing it to even greater heights.

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Manufacturing Production Rebounded in September from a Soft August

Manufacturing production increased 0.5 percent in September, offsetting the revised 0.5 percent decline observed in August. Over the past 12 months, manufacturing output has risen 3.7 percent. This was slower than the 4.7 percent pace observed in July but a nice improvement from the more-sluggish 1.5 percent rate observed in January. As such, this latest data reflects some a bit of softness in market, most notably for motor vehicles, which had a 1.4 percent decline in production in September. Still, auto sector output has expanded 5.7 percent year-over-year, continuing to make it one of the brighter spots overall.

Capacity utilization in the sector was also higher, up from 77.1 percent to 77.3 percent. On a year-over-year basis, capacity has expanded by a modest 2.1 percent.

Both durable and nondurable goods production rose 0.5 percent in September. Furniture and related products (up 2.4 percent), aerospace and other transportation equipment (up 1.7 percent), miscellaneous durable goods (up 1.6 percent), apparel and leather products (up 1.5 percent) and plastics and rubber products (up 1.2 percent) were among the leaders for production growth in the month. In contrast, sectors with declining output included motor vehicles and parts (down 1.4 percent), wood products (down 0.8 percent), nonmetallic mineral products (down 0.2 percent) and machinery (down 0.1 percent).

Meanwhile, overall industrial production jumped 1.0 percent in September, a nice gain after declining by 0.2 percent in August. Mining (up 1.8 percent) and utilities (up 3.9 percent) were up strongly for the month. Mining production, in particular, has increased significantly over the past 12 months, up 9.1 percent, largely due to the pickup in energy exploration. Total capacity utilization rose from 78.7 percent to 79.3 percent, its highest level since May 2007.

In conclusion, manufacturers have continued to be mostly upbeat about the economy. These production figures suggest that manufacturing output growth remains relatively healthy, with durable and nondurable goods production up 5.4 percent and 2.7 percent year-over-year, respectively. Each represents progress from earlier in the year (even if the durable goods figure has fallen since July).

Nonetheless, volatility in global markets and a still-cautious consumer pose downward risks moving forward, and it will be interesting to see how events play out in the coming days and weeks to see if they derail what had been a relatively positive outlook for manufacturers.

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

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Recent approvals signal “new normal” for LNG exports

Last week, the Federal Energy Regulatory Commission (FERC) quietly issued a final environmental impact statement for Cheniere Energy’s Corpus Christi liquefied natural gas (LNG) export facility in Texas. It required Cheniere to agree to 104 special conditions to ensure that the environment is protected, and it allowed the project to move forward. Ten days prior, FERC issued a similar approval for Dominion’s Cove Point LNG export facility in Maryland. Like the Cheniere approval, FERC required Dominion to adhere to 79 special conditions to protect the environment. It will do that, and the project is moving forward.

No drama. No congressional hearings or presidential proclamations. It was all so…normal.

Kind of nice, isn’t it?

A couple things happened to get us to this point. The meritless arguments from “not in my back yard” opponents and law firms masquerading as environmental groups didn’t hold water with FERC. The protests petered out.  (Which, for what it’s worth is what happens when you protest FERC on a Sunday, when it is closed.) The Department of Energy finally figured how to get itself out of the way and stop causing unnecessary delays. Freed from these regulatory constraints, the environmental permitting process was allowed to work properly. And so it did.

So with an election just a few weeks away, and with it the hope that the 114th Congress can actually work together on energy policy, it’s reassuring to see that on LNG exports at least we have reached a “new normal” whereby companies wanting to take on these projects actually get a yes or no answer in a reasonable amount of time.  However, it’s worth reminding everyone that Keystone XL has been waiting on a final permit decision for six years, coal exports in the Pacific Northwest are fighting uphill to just get their permits heard, and countless other projects are caught in permit limbo. Getting infrastructure projects moving and getting shovels in the ground is a bipartisan priority. Let’s use this “new normal” on LNG as a stepping stone to even better things.

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