NAM Urged President to Address Trade Facilitation with Indian Prime Minister

Last week, NAM President & CEO Jay Timmons was joined by several other trade association leaders in calling on President Obama to prioritize in his meeting with Indian Prime Minister Narendra Modi the importance of India playing a positive role in the global economy, including by addressing concerns about India’s ongoing blockage of a global agreement on trade facilitation. The World Trade Organization (WTO) agreement, agreed to last year in Bali, would simplify customs procedures and facilitate the movement of goods across borders and is estimated to provide a more than $1 trillion stimulus to the world economy once implemented.

In the weeks leading up to a key July 31 deadline, India blocked implementation of the WTO Trade Facilitation Agreement. The agreement set a July 31 deadline for the WTO’s General Council to accept notifications of Category A commitments, adopt the Protocol of Amendment, and open the Protocol for acceptance. Hours before the final deadline, the WTO announced it had not been able to find a solution to the impasse.

In remarks yesterday to the Global Services Summit, WTO Director General Roberto Azevedo said the WTO “is facing a challenge the gravity of which is hard to overstate.” Azevedo said he remained hopeful that WTO members could resolve the differences blocking implementation of the TFA and move on to completing a work program to finish the long-running Doha Round of trade talks, which began in 2001. The umbrella Trade Negotiations Committee is scheduled to meet on October 6.

Earlier this week, The WTO’s Preparatory Committee on Trade Facilitation met to review 32 new notifications from developing countries received since the last meeting informing the WTO of their Category A commitments, demonstrating the strong interest globally in implementing this agreement. Category A commitments are those commitments countries promise to implement immediately when the TFA enters into force.

The NAM remains committed to the objectives outlined in the TFA, and NAM leaders have been vocal about manufacturers’ concerns over India’s recent actions. In a Wall Street Journal Op-Ed on August 11, Timmons wrote that India’s “high-stakes gamble risks hurting economic growth worldwide while calling into question India’s respect for its international commitments. In an Op-Ed for The Hill, NAM Vice President Linda Dempsey noted that India’s recent actions “create new skepticism about whether the Modi government is fully committed to the type of reforms that are critical for India’s own growth and its international competitiveness.”

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Manufacturing Construction Spending Rose 1.5 Percent in August

The Census Bureau said that manufacturing construction spending rose 1.5 percent in August, increasing for the fifth straight month. Manufacturers have continued to edge their construction dollars higher since bottoming out at $46.84 billion at the annual rate in March. Manufacturing construction rose from $55.47 billion in July to $56.31 billion in August, with year-over-year growth of 14.9 percent. This indicates that manufacturers are stepping up their investments in new structures, which is consistent with the recent pickup in demand and output.

Meanwhile, total construction spending fell 0.8 percent in August, pulling back from the 1.2 percent gain observed in July. Both private and public sector spending were lower for the month, down 0.8 percent and 0.9 percent, respectively. Private, nonresidential construction activity was off 1.4 percent. In addition to manufacturing, other areas with higher levels of spending in August were communication (up 3.6 percent), educational (up 1.4 percent), religious (up 0.9 percent) and lodging (up 0.4 percent) projects. However, these were offset by declines for power (down 3.9 percent), amusement and recreation (down 3.7 percent), commercial (down 3.5 percent), and transportation (down 2.0 percent) firms, among others.

It should be noted that the year-over-year data for private, nonresidential construction spending, which has risen 9.2 percent over the past 12 months. The top five areas for growth in the past year were office (up 18.6 percent), power (up 17.2 percent), manufacturing (up 14.9 percent), commercial (up 10.2 percent) and lodging (up 9.7 percent) construction projects.

Public, nonresidential construction spending was off 1.0 percent for the month but has increased 2.3 percent over the past 12 months. Some bright spots at the public sector level year-over-year include office (up 20.2 percent), conservation and development (up 18.3 percent), amusement and recreation (up 16.2 percent), power (up 9.9 percent), sewage and waste disposal (up 4.7 percent), transportation (up 3.2 percent) and educational (up 2.9 percent) endeavors.

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

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ISM: Manufacturing Production Continues to Expand Strongly, but Activity Eased Slightly Overall

The Institute for Supply Management’s (ISM) manufacturing purchasing managers’ index (PMI) continues to reflect a strong expansion, but activity eased slightly overall in September. The headline figure dropped from 59.0 in August to 56.6 in September, which was weaker than anticipated. August’s reading had been the highest level since March 2011, and the pullback in September stemmed from slower paces of growth for new orders (down from 66.7 to 60.0), employment (down from 58.1 to 54.6) and exports (down from 55.0 to 53.5). It is likely that softer growth abroad and geopolitical events have dampened some enthusiasm, particularly on the international sales figures.

Despite some reduced data points for the month, manufacturers remain mostly positive. For instance, the pace of production (up from 64.5 to 64.6) was marginally higher in September, with the index exceeding 60 – indicating strong growth – for four consecutive months. Likewise, the new orders index has measured 60 or higher for three straight months. As such, it suggests that manufacturing leaders continue to see strengths, albeit with less optimism that the month before. The sample comments tend to support this interpretation, with several of them noting increased demand, sales and shipments.

While it is disappointing that the employment index declined somewhat in September, the longer term trend line reflects improvements from earlier in the year. For instance, the hiring measures averaged 57.0 in the third quarter, a nice step up from the 51.9 and 53.4 averages in the first and second quarters, respectively.

Overall, manufacturing sentiment was a bit softer than expected in September, but the underlying data show strong expansions in both demand and output. Manufacturing leaders are mostly positive about the coming months. This is largely consistent with the findings of our most recent NAM/IndustryWeek Survey of Manufacturers, which observed two year highs in respondents’ outlook. Yet, business leaders are also keenly aware of possible risks on the horizon. This includes geopolitical events, slowing economic growth in key export markets, a still-cautious consumer, workforce challenges, and other possible downside risks.

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

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ADP: Manufacturers Added 35,000 Workers in September

ADP said that manufacturers added 35,000 net new workers in September, the fastest monthly pace of job growth in the sector since May 2010. With that said, the August number was revised down from its original estimate of 23,000 to 16,000. Note that this is still more than the zero jobs added in August according to the Bureau of Labor Statistics, but it is widely assumed that figure might get revised slightly higher with Friday’s employment data release. I expect Friday’s jobs report to be more consistent with the 12,500 to 15,000 per month average experienced over the past year for the manufacturing sector.

The ADP data show positive job gains in each of the past eight months, with January’s weather-related decline being an exception to an otherwise decent year. Over the past five months, manufacturers have hired 17,000 additional workers each month on average, reflecting a pickup in hiring since the spring.

In the larger economy, nonfarm private businesses added 213,000 employees in September, averaging 217,000 since January. Moreover, it was the sixth straight month with nonfarm payroll growth exceeding 200,000. Outside of manufacturing, the largest job gains in September were seen in trade, transportation and utilities (up 38,000); professional and business services (up 29,000); construction (up 20,000) and financial activities (up 5,000). Small and medium-sized businesses (e.g., those with less than 500 employees) contributed 63.8 percent of the net new jobs.

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

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Conference Board: Consumer Confidence Unexpectedly Fell in September

The Conference Board said that consumer sentiment unexpectedly fell in September to its lowest level since May. The Consumer Confidence Index declined from a revised 93.4 in August to 86.0 in September. This pullback was even more disappointing given the fact that August’s reading had been the highest since October 2007, nearly seven years ago and pre-dating the recession. Therefore, while confidence remains higher today than earlier in the year, it is clear that Americans still remain anxious about the economy and about labor and income growth. It is also possible that geopolitical events have put the public on edge, dampening optimism. We have similar concerns in comparable data from the University of Michigan and Thomson Reuters.

Indeed, perceptions about current (down from 93.9 to 89.4) and future (down from 93.1 to 83.7) conditions were both lower for the month, particularly the latter. The percentage of respondents saying that jobs were “plentiful” dropped from 17.6 percent to 15.1 percent, and the percentage expecting their incomes to decrease rose from 11.6 percent to 13.4 percent. These data tend to suggest that there are nagging worries about jobs and the economy. Yet, there were also some positives. The percentage of those taking the survey who felt that their incomes would increase rose from 15.5 percent to 16.8 percent, and overall, many of these measures had made improvements over recent months despite the declines in September.

Buying intentions were also mixed, largely mirroring the reduced confidence described above. The percentages planning to buy a new automobile (down from 13.5 to 12.0 percent) and home (down from 5.3 percent to 4.9 percent) were both lower; yet, the percentage planning to purchase new appliances increased from 45.7 percent to 51.3 percent.

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

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Eastman Chemical, Merck, Janssen R&D LLC win EPA Energy Star CHP Award

NAM board members Eastman Chemical Company and Merck & Co., along with Pennsylvania manufacturer Janssen R&D LLC, won the Environmental Protection Agency’s ENERGY STAR Combined Heat and Power (CHP) Award for their highly efficient CHP systems, which greatly exceed the operating efficiency of similar conventional systems. CHP provides both electric power and thermal energy (heat) from a single fuel source, as opposed to conventional systems that expel the steam as waste heat. A CHP system captures the energy that would normally be waste heat and uses it to provide heating and cooling.

The NAM supports policies that encourage CHP systems, which promote energy efficiency while also reducing emissions. CHP and similar technologies have allowed manufacturers to reduce our environmental footprint while increasing our productivity. Congratulations to Eastman, Merck and Janssen on today’s award.

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Cove Point LNG terminal takes giant step forward

Yesterday, the Federal Energy Regulatory Commission (FERC) formally approved the siting and construction of Dominion’s Cove Point liquefied natural gas (LNG) export terminal in Maryland, a major milestone that puts the project in position to start construction. Cove Point is an existing LNG import facility that has been in operation for nearly 40 years; Dominion is now seeking to use the facility for LNG exports, a project that will cost $3.4 to $3.8 billion and create thousands of jobs. In May, FERC completed a two-year environmental assessment and concluded that the project could be built safely with no significant environmental impact. Yesterday’s FERC order includes 79 special conditions to ensure that the environmental impact will be mitigated.

The clock is now ticking on the Department of Energy (DOE) to issue a final license to export to non-FTA countries; the agency issued a conditional license in September 2013. DOE issued a final license to Sempra’s Cameron LNG terminal on September 10, 83 days after FERC had issued that project’s combined operating license.

Manufacturers are pleased to see the permitting process for Cove Point moving closer to its conclusion, and urge DOE to move quickly on a decision for a final license.

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Dallas Fed: Manufacturing Activity Picked Up in September

The Federal Reserve Bank of Dallas said that manufacturing activity picked up in September. The composite index of general business activity increased from 7.1 in August to 10.8 in September, and in general, the data continue to show stronger growth since being nearly stagnant in February. In fact, the paces for production (up from 6.8 to 17.6), capacity utilization (up from 3.6 to 20.2) and shipments (up from 6.4 to 15.9) were all up strongly in September, which was encouraging.

At the same time, there were also measures that expanding at a less-robust pace. New orders (up from 2.2 to 7.5) rose modestly, but with somewhat less gusto than the production figures. Just over one-quarter of those taking the survey said that their sales had increased in September, with 18.4 percent noting declines and 55.7 percent saying that orders were unchanged. Along those lines, hiring (down from 11.1 to 10.6) and capital spending (down from 6.6 to 4.4) both eased slightly, even as they both continued to reflect modest expansion.

The sample comments tend to reflect this nuanced view of the current economic environment, noting both strengths and some challenges. For instance, a chemical manufacturer said, “Our increased business activity is based on orders placed this time last year. We see some softening, especially in demand from Europe and China, while the U.S. remains strong.” Other concerns include cautious consumer behavior and wage and price pressures. A food manufacturer noted, for example, “We remain concerned that our consumers remain under serious financial pressure.” Indeed, where we have seen pricing pressures this year, it has largely been in the food category, with higher costs for meats, eggs, dairy and produce.

Manufacturers in the Dallas Fed region were mostly positive in September about the next six months, albeit less so than in August. The forward-looking measure of business activity dropped from 18.7 to 12.1. With that said, over 40 percent of respondents expect higher levels of production,  new orders, and shipments in the coming months, with nearly 30 percent planning to add new workers and 35.7 percent predicting increased capital spending. The one negative remains elevated pricing pressures, with 45.5 percent of those taking the survey seeing higher input costs over the next six months versus 9.1 predicted lower costs.

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

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Business Economists Anticipate “Steady” Growth in Second Half of 2014 and for 2015

Economists with the National Association for Business Economics (NABE) expect steady growth for the rest of this year and for next year. Respondents predict real GDP growth of 3.0 percent in the third quarter of 2014, 3.1 percent in the fourth quarter, and 3.0 percent for all of 2015. As such, it suggests that business economists feel that we have made significant progress in growth since weaknesses in the first quarter of this year.

You can see this rebound in the manufacturing figures, with panelists predicting 4.0 percent and 3.6 percent industrial production growth in 2014 and 2015, respectively. Each figure was marginally higher than in the June survey. These results are consistent with the mostly upbeat data seen in the latest NAM/IndustryWeek Survey of Manufacturers, which had sales, capital spending and hiring expectations at two-year highs. In terms of auto production, light vehicle sales should rise from an average of 15.5 million annualized units in 2013 to 16.3 million and 16.7 million in 2014 and 2015, respectively.

Meanwhile, housing starts should continue to move higher, up from an annualized 1.00 million in 2014 to 1.17 million in 2015, according to the panelists. Note that this reflects some easing in growth rates for the housing sector, as the June survey had predicted 1.27 million units by the end of 2015. The inability of business to obtain credit was the biggest factor for recent softness in the housing market, cited by 65 percent of those taking the survey. Yet, the longer-term trend remains positive.

The forecast was also encouraging in other areas. For instance, capital spending should continue to improve, with healthy gains for fixed investments in nonresidential structures, equipment and software, and intellectual property products. In terms of jobs, nonfarm payrolls should average 228,000 per month in 2014 and 211,000 in 2015. Business economists also expect the unemployment rate to drop to 5.7 percent by the end of 2015, down from 6.1 percent right now.

Regarding the Federal Reserve, nearly 70 percent of all respondents felt that the Fed would start raising short-term interest rates in either the second or third quarters of 2015.

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

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Personal Spending Rebounded in August from Cautiousness in July

The Bureau of Economic Analysis said that personal spending rebounded in August after being unchanged in July. Personal spending increased 0.5 percent in August. Aside from the brief pause in July, consumers have been more willing to open their wallets since the weather-related storms in January. Indeed, since January, personal spending has risen 2.7 percent, with 4.1 percent growth year-over-year. The August consumption figure was boosted by strength in durable goods spending, which rose 1.8 percent for the month.

Meanwhile, personal income was also modestly higher, up 0.3 percent in August. Over the past 12 months, personal incomes have expanded by 4.3 percent. For manufacturers, total wages and salaries increased from $786.1 billion in July to $789.7 billion in August. This continues an upward trend for compensation in the sector, with average wages and salaries of $734.4 billion and $747.6 billion in 2012 and 2013, respectively.

With the pace of spending growth outpacing income growth in August, the savings rate edged down from 5.6 percent in July to 5.4 percent in August. Still, the longer term trend reflects upward movement in the savings rate, up from 4.1 percent in December.

In other news, the personal consumption expenditure (PCE) deflator was unchanged in August, with falling energy prices helping to reduce inflationary pressures. Nonetheless, food costs continue to move higher, up 0.3 percent in the month. On a year-over-year basis, the PCE deflator has increased 1.5 percent, down from 1.7 percent in May. Core inflation (which excludes food and energy costs) was also at a 1.5 percent pace in August. While pricing pressures have accelerated somewhat from earlier in the year, the recent easing will provide a little breathing room to the Federal Reserve as its seeks to normalize its policies.

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

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