Below is my weekly Monday Economic Report:
Much of the conversation last week centered on two economic issues: oil prices and taxes. On oil prices, businesses and consumers have benefitted from lower energy costs over the past few months. But the spot price of West Texas Intermediate crude jumped to nearly $110 per barrel as of Friday, up from an average of $85.61 per barrel in September. The run-up in oil prices threatens to zap consumer confidence – a measure that closely follows pocketbook issues such as gasoline prices – at a time when it is just starting to rebound. Moreover, it once again stresses the need for an all-of-the-above energy approach, which would put us on a sound path toward increased domestic production and lower energy costs.
On the tax front, the President released a proposal to reform the corporate income tax, lowering the top rate from 35 percent to 28 percent. For manufacturers, the effective rate could drop to 25 percent. This would be paid for by eliminating “loopholes.” While many items in this proposal are steps in the right direction, there are others that – as NAM President and CEO Jay Timmons put it – “miss the mark.” For instance, this reform does little to help the 70 percent of manufacturers who are organized as pass-through entities. Moreover, it seeks to punish multinational businesses with operations overseas with its minimum global tax, further complicating the tax code and, in the end, working to make manufacturers in the U.S. less competitive globally. In addition, it unfairly targets oil and gas companies at a time when they should be more focused on additional investment.
Aside from the discussion of economic policy issues, only a handful of indicators were released last week. These statistics continued the rebound in economic activity. The Kansas City Federal Reserve Bank reported increased production and employment in its region, with manufacturers more upbeat about the next six months. Likewise, a number of data sources showed improvements in the housing market. With this forward progress, the Chicago Fed observed above-trend growth in the national economy, led by a stronger manufacturing sector.
This week, we will see if that narrative still holds. On Thursday, new data from the Institute for Supply Management’s purchasing managers’ index are expected to show increased manufacturing activity. Similar findings are anticipated from the Dallas and Richmond Federal Reserve Bank surveys and new durable goods orders. In addition, the Federal Reserve will provide its monthly assessment of the national economy with the release of the latest Beige Book on Wednesday. Also on Wednesday, we will get the first revision to fourth quarter 2011 real GDP growth, which should still be in the 3 percentage point range. (It was estimated to be 2.8 percent last month.) Finally, personal income and spending data will come out on Thursday.
Chad Moutray is chief economist, National Association of Manufacturers.