Personal Income and Spending Both Rose 0.2 Percent in October

The Bureau of Economic Analysis said that personal spending rose 0.2 percent in October, an improvement from being flat in September. This was slower than the 0.5 percent growth observed in August, however. Indeed, we have seen the year-over-year rate of spending growth fall from 4.2 percent in August to 3.6 percent in October. Still, this is a decent figure, indicating modest growth in consumer purchasing. In October, the increased spending occurred primarily with nondurable goods (up 0.2 percent) and services (up 0.3 percent). Durable goods orders (down 0.2 percent) fell for the second straight month. (continue reading…)

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Excluding Transportation, New Durable Goods Orders Were Soft in October

The Census Bureau said that new durable goods orders rose 0.4 percent in October, increasing for the first time since July. Yet, the October figure was buoyed by higher transportation order sales, which grew 3.4 percent for the month. Orders of motor vehicles and parts were up 0.3 percent for the month and 6.1 percent year-to-date, suggesting that that segment of the manufacturing sector remains quite healthy. Defense aircraft sales were also up sharply in October. (continue reading…)

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NAM Weighs in on Improved Proposal on Margin Requirements for Derivatives Users

The NAM November 24 joined the Coalition for Derivatives End-Users in submitting comments to the Federal Reserve and Prudential banking regulators thanking them for taking a positive step forward in their new proposed margin rule. The letter also calls attention to issues that still need to be resolved, including how end-users with centralized treasury units (CTUs) will be treated.

The reproposed  “Margin Requirements for Non-cleared Swaps” released in September acknowledges what manufacturers have been saying for years – margin requirements should be decided between a non-financial end-user and their bank counterparty and not imposed by a third party regulator. Unfortunately the 2011 proposal required margin to be imposed even on those transactions involving end-users and the NAM and Coalition for Derivatives End-Users have been urging regulators to recognize that Congress did not intend to subject end-users to mandatory margin requirements.

Clearly the latest proposal is a major improvement over the previous margin rule yet there are still areas of the rulemaking where manufacturers need clarity. One of the most important is the need for clarification that manufacturers employing a CTU to hedge risk are still able to claim the end-user exception from clearing requirements granted under Dodd-Frank.

As regulators work to finalize the rules implementing the Dodd-Frank Act, it is essential that regulations are not overly burdensome to manufacturers. After all, end-users did not contribute to the financial crisis. Moreover, end-users make up less than 10 percent of the derivatives marketplace, but create over 90 percent of the jobs. Subjecting end-users to unnecessary derivatives requirements would be harmful to job creation and economic growth.

The NAM will continue to push for more permanent solutions to these issues by asking lawmakers to provide manufacturers with the certainty that they will not have to face margin or clearing requirements in the future. Congress can help end-users by supporting legislation to provide a clear margin exemption (S. 888/H.R. 634) and much-needed CTU clarification (H.R. 5471).

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Conference Board: Consumer Confidence Unexpectedly Fell in November

The Conference Board said that consumer sentiment unexpectedly fell in November. The Consumer Confidence Index was anticipated to build on October’s revised 94.1 reading, which was the highest since October 2007. Instead, the index declined to 88.7 in November, its lowest level since June. This figure has seesawed over the past four months, with the index up in August, down in September and then up and down again in October and November. (continue reading…)

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Richmond Fed: Manufacturing Activity Expanded at a Slower Rate in November

The Richmond Federal Reserve Bank said that manufacturing activity expanded at a slower rate in November. The composite index of general business conditions declined from 20 in October to 4 in November. To be fair, the October figure represented the fastest pace since December 2010, and as such, some pullback might have been expected. The larger story is that manufacturers in the Richmond Fed district have now reported expanding levels of activity for eight straight months, with the headline index averaging 9 over that time frame. This suggests modest growth overall. (continue reading…)

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Real GDP Revised Higher, with Economy Growing 3.9 Percent in the Third Quarter

The Bureau of Economic Analysis revised its third quarter real GDP figure higher, with the U.S. economy growing an annualized 3.9 percent. It was originally estimated to have grown by 3.5 percent, and this latest figure exceeded consensus expectations, with economists anticipating a revision down to 3.3 percent. The revision reflected upward revisions for consumer and business spending and on inventory investment. In addition, export growth, while still a positive contributor, added less to real GDP than originally thought. (continue reading…)

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Manufacturing Continues to Be a Pathway to the Middle Class

A recent analysis by the National Employment Law Project asserts that manufacturing wages are declining, and employees in the sector are falling behind their peers in other industries. The reality is that manufacturing continues to be a pathway to the Middle Class for millions of Americans, with compensation that is rising, not falling, in recent years. (continue reading…)

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Dallas Fed: Manufacturing Activity Continued to Expand in November

The Dallas Federal Reserve Bank said that manufacturers continued to expand in November. The composite index of general business conditions was unchanged at 10.5 for the month. It has averaged 9.7 over the past nine months, which was progress from the 0.3 index reading in February. As such, we continue to see modest gains among manufacturers in the Dallas Fed district, with mostly positive expectations about the future. (continue reading…)

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Lame Duck Congress Must Revive R&D Credit, Jobs Depend on It

Congress still has the opportunity this year to take a major step in boosting the economy and jobs by reinstating and making permanent some of the expired tax provisions – including the R&D tax credit, which is critical to domestic manufacturing jobs.

The R&D tax credit is a true jobs credit—70 percent of the credit’s dollars go to paying salaries of high skilled R&D workers. Since the credit applies only to domestic workers, it is an incentive for research and new product innovation in the United States. Not only that, but as a Nov. 17 R&D Credit Coalition letter to Congress points out, if Congress enhanced the R&D credit and made it permanent, research-related employment would be increased by 300,000 jobs.

Need more proof of the credit’s effectiveness? Take a look at Ball Corporation, a manufacturing company founded in 1880 that employs over 14,500 people worldwide. The R&D tax credit has helped Ball Corporation make investments of roughly $125 million in new manufacturing capabilities that have directly led to the creation of more than 120 high-paying manufacturing jobs in Colorado and Indiana.

Ball Corporation invested in R&D to develop the new Alumi-Tek bottle, an aluminum vessel that allows consumers to re-close their beverage. The research and development done in Broomfield, Colorado resulted in an Alumi-Tek production line in Ball’s plant in Monticello, Indiana, and now the line and the jobs created from this innovative product have spread to Golden, Colorado. Just this one example of an R&D investment enabled by the R&D tax credit has led to the creation of more than 120 long-term high-paying manufacturing jobs in multiple local communities.

If Ball was able to create hundreds of jobs because of the R&D tax credit, just imagine the exponential increase in research and resulting jobs that Ball and other manufacturers could undertake if the credit was strengthened and made permanent. Plus, we would gain the added benefit of having these new cutting-edge products being developed here in the USA.

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Monday Economic Report – November 24, 2014

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

Central banks around the world have acted recently in an attempt to lift a sagging global economy. On Friday, for instance, the European Central Bank (ECB) announced that it has begun purchasing asset-backed securities, finally beginning a quantitative easing program that some have long sought. Earlier in the day, ECB President Mario Draghi said that “we will do what we must” to spur economic growth. In addition, the People’s Bank of China surprised markets by cutting interest rates on Friday. These actions followed the Bank of Japan’s announcement on October 31 that it would increase the amount of its monthly asset purchases. (continue reading…)

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