New Durable Goods Orders Up in April, But Still Lag Behind Levels of Year’s End

New durable goods orders were up 3.3 percent in April, somewhat reversing the 5.9 percent decline observed in March. This data has been highly volatile so far in 2013, up one month and then down the next largely on wide swings in aircraft orders. Nonetheless, even with the gain in April, durable goods orders were $222.56 billion, down from $228.45 billion at the end of 2012. These ups and downs can clearly be seen in the chart below.

As noted, defense and nondefense aircraft orders were up significantly in April, the reverse of what was true in March. Excluding transportation orders from the analysis, new orders increased 1.3 percent, suggesting some broader strengths beyond airplanes. Some of the other sectors with higher levels of sales in April included communications equipment (up 5.7 percent), machinery (up 1.9 percent), motor vehicles (up 1.9 percent), and fabricated metal products (up 1.2 percent). The computer and related products sector was one of the few areas of weakness, down 3.7 percent. (continue reading…)

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CBO Releases Carbon Tax Report

This week the Congressional Budget Office (CBO) released a report, Effects of a Carbon Tax on the Economy and the Environment, which explores the economic and environmental impacts of a carbon tax.

The NAM recently released an economic study conducted by nonpartisan NERA Economic Consulting, looking at two carbon tax scenarios: one levied at $20 per ton increasing at 4 percent, and the other designed to reduce carbon dioxide (CO2) emissions by 80 percent. Our study, which was actually cited in the CBO report, found that any revenue raised by the carbon tax would be far outweighed by the negative impacts to the overall economy – even if all of the revenue was used for either reducing the federal deficit or decreasing marginal tax rates (the two less bad options according to CBO). In fact, our study showed the higher the carbon tax the more severe the impacts to the economy.

A carbon tax designed to reduce CO2 levels by 80 percent could place tens of millions of jobs at risk and raise gasoline prices by over $10 per gallon, residential electricity prices by over 40 percent, and natural gas prices by almost 600 percent. Manufacturing output could drop by as much as 15.0 percent in energy-intensive sectors and 7.7 percent in non-energy-intensive sectors. The overall impact on jobs could be substantial, with a loss of worker income equivalent to as many as 1.5 million jobs in 2013 and 21 million by 2053. (continue reading…)

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House STEM Bill Key Solution for Manufacturers’ Skills Gap

Today, Congressman Darrell Issa (R-CA) introduced the “Supplying Knowledge-Based Immigrants and Lifting Levels of STEM (SKILLS) Visas Act’’ , which is another step on immigration reform efforts in the House of Representatives.  For years, the NAM has maintained that the Immigration system is broken and manufacturers need access to highly-skilled foreign born talent.

The existing immigration system  is hindering research, development, growth and job creation. The SKILLS Visas Act would raise the number of H-1B visas to 155,000 per year and also increase green cards for advanced degree holders in the STEM fields. In addition, it includes a STEM fund to provide for additional opportunities in the domestic STEM pipeline -a priority of utmost importance to NAM members. The NAM appreciates the work of the House Judiciary Committee, particularly Chairman Bob Goodlatte (R-VA) and Representative Issa .

We look forward to working then them in the coming weeks on this as well as other important legislation to modernize our immigration system.

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A Tale of Two Stories on Coal Exports

Yesterday we saw two very different takes on coal exports in a petition filed by environmental groups, and a study released by the National Mining Association.

Several environmental groups filed a petition with the Army Corps of Engineers (Corps) asking them “to evaluate the cumulative and related impacts of all proposed coal export terminals in Oregon and Washington in a single, comprehensive, area-wide environmental impact statement (“EIS”) under the National Environmental Policy Act (NEPA). Such a process will allow explicit consideration of the collective impacts of multiple distinct but related decisions.” Their message was clear, we don’t want you to do anything that involves fossil fuels.

The National Mining Association (NMA) released a report prepared by Ernst & Young LLP that explored the economic and jobs benefits of coal exports in 2011. The report estimated the economic value of related coal activity at $16.6 billion in 2011. They also estimated that 25,130 jobs or almost 19 percent of those working at coal mines were directly related to coal exports. The report sent an equally clear message, fossil fuels creates economic activity and jobs.

This petition by the environmental groups is an attempt to slow down the permitting process and to kill these export expansion efforts by delaying permits for years and by requiring huge expenditures by the private and public sectors. Expanding environmental review to include all of the Washington and Oregon proposals and their potential cumulative economic and environmental impacts across the region, the United States and the world, would be a drastic policy shift from current practices that would undermine national goals to boost exports.

A Programmatic EIS for coal export projects in the Pacific Northwest would create a major disincentive for manufacturers to export their products, impacting jobs and economic growth. This is exactly the effect these groups hope to have on these projects, and in fact most any other project that involves fossil fuels.

The NAM sent a letter to the Corps in June of 2012 urging them not to expand its NEPA analysis beyond the individual, project-specific review required under the statute. The NAM believes that by expanding this focus to include the environmental impact of the cargo, and all similar cargo transported through the region, the Corps could be laying the foundation for similar exercises for just about any port or rail expansion to transport any type of cargo. For instance, what if the cargo at issue was not coal but cars, or tractors, or even airplanes? Would the Corps need to perform a Programmatic EIS to determine the lifecycle environmental impact of that cargo? What if the cargo was an agricultural or animal product; should methane emissions be considered? The possibilities are endless and deeply troubling to manufacturers and their employees.

 

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Kansas City Fed Manufacturing Activity Positive for the First Time Since September

The Kansas City Federal Reserve Bank said that manufacturing activity in its District turned positive for the first time since September. The composite index improved from -5 in April to 2 in May. Even as other regional sentiment surveys had some progress earlier in the year, the Kansas City Fed survey continued to reflect more pessimism. Now, it appears to be one of the few indicating some slight growth, with surveys from the New York and Philadelphia Fed Banks reporting contractions last week.

The good news is that measures of production, shipments, and new orders were all higher for the month. The new orders index, for instance, shifted from being unchanged in March and April to modest growth (an index reading of 6) in May. Looking ahead six months, manufacturers were somewhat more upbeat about additional activity, with this cautious optimism increasing the forward-looking composite index from 4 to 11.

Still, there were also some areas to caution us from getting too optimistic. Export sales continue to be negative (for the 12th consecutive month), and hiring and the average workweek were both headed in the wrong direction. The index for the number of employees dropped from -3 to -7. Recognizing these weaknesses, Chad Wilkerson, a vice president and economist at the Kansas City Fed, observed that “activity remains at only about year-ago levels and firms are having difficulty passing cost increases through.” He said this even as he recognized the achievement of gains after seven months of declines.

The sample comments tend to add to the narrative provided by these numbers. Several respondents commented on their inability to pass along costs increases. Several comments focused on slower manufacturing activity. One individual, for example, said, “We had a better month last month, but it was  till very much lower than we should be this time of the year.” In addition to those comments, there were also those which focused on policy. As one company added, “Customers comment on the uncertainty of future health care costs and federal taxes. Both issues are creating too much uncertainty  for many companies to spend discretionary dollars.”

Chad Moutray is chief economist, National Association of Manufacturers.

 

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Markit: Manufacturing Output Shrinks in China and Europe, Slows in the U.S.

The latest Markit purchasing managers’ index (PMI) data reflect slower manufacturing activity worldwide in May, continuing a trend that we saw in April. Last month, the Chinese economy slowed surprisingly, with the HSBC China Manufacturing PMI falling from 51.6 in March to 50.4 in April. Now, we see that the Flash measure has fallen further to 49.6 in May, its first contraction since October. A decline in new orders, with the sales index down from 51.7 to 49.5, was largely responsible for the decrease in the larger index. Exports, employment, and inventories were also lower. With that said, overall manufacturing output was only off slightly (down from 51.1 to 51.0), with very modest growth.

While the Chinese decline was unexpected, the European data have been in contracting levels since August 2011, and it is not expected to emerge from its recession any time soon. Nonetheless, the Markit Flash Eurozone Manufacturing PMI did improve somewhat from 46.7 in April to 47.8 in May, even as it remains in contraction for the 22nd consecutive month. The pace of new orders (including exports) and output slowed in the month, helping to ease the rate of decline. The bottom line, though, is the fact that production and employment in the manufacturing sector are falling. The survey also indicates that selling prices among manufacturers are also decreasing, with deflation occurring each month so far in 2013.

In contrast to China and Europe, manufacturing activity in the United States is growing, but very slowly. The Markit Flash U.S. Manufacturing PMI edged marginally lower from 52.0 in April to 51.9 in May, decelerating for the fourth straight month. This easing appears to have erased the stronger growth that we saw in the U.S. at the beginning of the year, when the PMI was 56.1. (continue reading…)

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A True Bipartisan Breakthrough on TSCA Reform

In this town, it’s a rare occurrence for a room full of lobbyists to be truly surprised.  This morning was one of those times.  In remarks to the American Alliance for Innovation, a coalition of industry trade groups of which the NAM is a member, Sen. David Vitter (R-LA) announced today that he was introducing his long-awaited Toxic Substances Control Act (TSCA) reform legislation . . . except that rather than introducing an “alternative” bill to legislation from Sen. Frank Lautenberg (D-NJ), he had instead drafted a brand new bill with Sen. Lautenberg that they were introducing along with over a dozen other Republicans and Democrats.

We commend Sens. Vitter and Lautenberg for their leadership and for achieving a far too rare feat in Washington: coming together in bipartisan fashion to propose badly-needed reform to a federal law impacting human health, manufacturers in all sectors, and American innovation.

Manufacturers are committed to producing safe, innovative and sustainable products that provide essential benefits to consumers while protecting human health and the environment. To accomplish this, we believe Toxic Substance Control Act (TSCA), the primary statute regulating the manufacture and use of chemical substances in the United States, should be modernized. However, we worried that the debate over how to reform this outdated law would fall prey to partisan politics, much like the vast majority of other environmental and energy issues in recent memory.

Today at least, it appears that bipartisanship can prevail. We believed Senators needed to start from scratch; it appears that they did. We believed there needed to be broad stakeholder input; once again, there was. And there needed to be some way to bridge the substantive divide between Sen. Lautenberg’s Safe Chemicals Act, which industry opposed, and this new bill being drafted by Sen. Vitter.  The Senators made it happen. (continue reading…)

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Senate Finance Holds Customs Reauthorization Hearing

Earlier today, the Senate Finance Committee held a hearing on the Trade Facilitation and Trade Enforcement Act of 2013 (S. 662). The bill was introduced by Chairman Max Baucus and Ranking Member Orrin Hatch in March to help reduce costs and delays at the border by modernizing U.S. Customs and Border Protection (CBP) and U.S. Immigration and Customs Enforcement (ICE), two key trade-related agencies. CBP is charged with facilitating imported cargo through U.S. ports of entry, enforcing trade and customs laws at the border, collecting customs revenue and enforcing import security laws to prevent illicit shipments from entering the United States.

As Chairman Baucus noted in his opening statement, about 365,000 entries move through U.S. ports – including more than 3,000 express entries – on a typical day. These goods arrive in more than 66,000 truck, rail and sea containers as well as hundreds of aircraft. “American businesses, ranchers, farmers and consumers depend on the timely movement of all these goods across borders to remain competitive. In business, time is money. So CBP and ICE must facilitate trade expeditiously,” Chairman Baucus said. In his opening statement, Ranking Member Hatch reiterated the importance of international trade to the U.S. economy and highlighted the need to protect intellectual property rights.

Manufacturers were represented at the hearing by Chrysler, Procter & Gamble and the National Electrical Manufacturers Association (NEMA). William Cook, Director of Worldwide Logistics and Customs for Chrysler, described the impact of delays at the border on Chrysler’s bottom line in his testimony. (continue reading…)

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Immigration Reform Clears First Hurdle

The Senate Judiciary Committee completed work on S. 744 last night, which sets up consideration by the full Senate in June. The vote was 13-5 and demonstrated bi-partisan support for the framework. Prior to passage, the committee adopted an amendment negotiated by Senator Orrin Hatch (R-UT) and Chuck Schumer (D-NY), which would address critical aspects of the H-1B visa provisions of the bill.

The NAM joined the U.S. Chamber in sending a letter of support for Senator Hatch’s amendment to all members of the Judiciary Committee. In June, the Senate will take up a comprehensive immigration package that contains the following: increased access to high-skilled talent; increased legal access to lower-skilled workers; a pathway to citizenship for the undocumented; and an enhanced verification program with protections for employers acting in good faith. The NAM is anticipating vigorous debate on this legislation over the summer in both the Senate and the House of Representatives.

 

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Business Economists Predict Modest Growth in Real GDP

Business economists expect real GDP growth of 2.4 percent in 2013, with slightly faster growth of 3.0 percent in 2014. The May Outlook Survey from the National Association of Business Economics (NABE) found that output estimates for this year and next have not changed from what was predicted three months ago in the February survey.

Beyond the headline figure, there were improvements in some of the key components of GDP. Specifically, respondents expect improved consumer spending (2.3 percent in 2013), residential investment (15.0 percent), nonresidential structure investment (4.6 percent), and business inventories. Regarding the housing sector growth rate, new residential starts are expected to average 1 million in 2013, rising to 1.18 million in 2014. In contrast to these positive contributors to real GDP, shrinking government budgets are expected to fall by 2.3 percent in 2013 and 0.9 percent in 2014, suggesting that they will continue to be a drag on growth.

Industrial productoin should increase 3.1 percent in 2013 and 3.5 percent in 2014. This would suggest a pickup from the most recent year-over-year growth rate of  1.3 percent.

Businesses are expected to add 168,000 nonfarm payroll workers per month in 2013, increasing to 198,000 per month in 2014. This modest growth in hiring, though, is not anticipated to bring the unemployment rate down much from its current 7.5 percent rate, with business economists forecasting the unemployment rate to average 7.1 percent in 2014.

On financial matters, business economists say that pricing pressures shuld be modest, up 1.8 percent in 2013 and 2.0 percent in 2014. Each of these numbers are slightly lower than what was forecast in February, most likely due to lower energy costs in the most recent data. More importantly, they are also consistent with the Federal Reserve’s stated goal of keeping inflation at or below 2 percent. Oil prices are predicted to average $93 per barrel in 2013 and $95 per barrel next year.

Chad Moutray is the chief economist, National Association of Manufacturers. Note that he is also a former board member of NABE and a current participant in NABE’s Outlook Survey.

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