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CASE Act – A Smart Approach to Ozone

The National Association of Manufacturers (NAM) applauds Senator John Thune (R-SD) and Representatives Pete Olson (R-TX) and Bob Latta (R-OH) for proposing a reasonable approach to ozone regulations that would provide necessary relief to manufacturers who already pay, on average, $19,500 per employee, per year in regulatory costs according to a recent NAM study. In three months, these costs could increase substantially as the Environmental Protection Agency (EPA) is expected to propose a new ozone air quality standard that could be more expensive than any single existing regulation.

The NAM has continually encouraged policymakers to adopt reasonable policies that promote a clean environment while allowing manufacturers to remain competitive in the global marketplace. The Clean Air, Strong Economies (CASE) Act does exactly that. It would ensure that air quality continues to improve while giving states and counties time to meet the existing standards without adding another layer of regulatory burdens; ensure that economically stifling nonattainment designations are only made if there is accurate monitored data to support such findings; require EPA to consider all impacts to the public before proposing a tighter standard including health, environmental and economic; and require the EPA to include at least one analysis that presents to the public the benefits of reducing ozone levels – the purpose of the regulation – without any of the so called co-benefits from other pollutants already covered under other programs.

In July, the NAM released a study that found a tighter ozone standard could cost the economy trillions of dollars and millions of jobs. One of the most disturbing findings from the study was that EPA has only identified one-third of the necessary controls to meet the low-end of the standard it is considering; classifying the remaining two-thirds of necessary controls as “unknown”.  While little question exists regarding how massively expensive such a regulations would be (EPA’s own estimate would still make it the most expensive regulation of all time), there are legitimate concerns regarding whether a significantly lower ozone standard is even achievable in many parts of the country, regardless of costs.

Senator Thune’s and Representatives Olson’s and Latta’s CASE Act ensures that two important trends are permitted to continue: improving air quality and a growing economy. The NAM looks forward to working with Senator Thune, Representatives Olson and Latta, cosponsoring members of congress, and all members of the U.S. Senate and House of Representatives to pass this important legislation.

Senate cosponsors include, Mitch McConnell (R-Kentucky), David Vitter (R-Louisiana), John Cornyn (R-Texas), Jim Inhofe (R-Oklahoma), Roy Blunt (R- Missouri), Dan Coats (R-Indiana), Deb Fischer (R-Nebraska), Jeff Flake (R-Arizona), Mike Johanns (R-Nebraska), Pat Roberts (R-Kansas), and Roger Wicker (R-Mississippi).

House cosponsors include, Henry Cuellar (D-Texas), John Shimkus (R-Illinois), Randy Weber (R-Texas), Bill Cassidy (R-Louisiana), Bill Flores (R-Texas), Lamar Smith (R-Texas), Ralph Hall (R-Texas), Tom McClintock (R-California), Randy Hultgren (R-Illinois), Scott Tipton (R-Colorado), David McKinley R-West Virginia), Jason Smith (R-Missouri), Walter Jones (R-North Carolina), Kristi Noem (R-South Dakota), Cynthia Lummis (R-Wyoming), Mike Pompeo R-Kansas), Gregg Harper (R-Mississippi), Kevin Brady (R-Texas), Billy Long (R-Missouri), and Bill Johnson (R-Ohio).

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Federal Reserve Sets Principles for its Exit Strategy

The Federal Open Market Committee (FOMC) began laying out its framework for “normalizing” monetary policy moving forward. In particular, the Federal Reserve plans to end it quantitative easing program next month, with its purchases of long-term and mortgage-backed securities coming to a conclusion after its October meeting. Because of these purchases, the Fed’s balance sheet has now soared to over $4.4 trillion. Moving forward, the Fed’s assets will be reduced “in a gradual and predictable manner.” That does not mean, however, that the balance sheet will return to pre-crisis levels, as it is likely to remain at elevated levels for the foreseeable future. Still, the FOMC added the following language to its guidance, perhaps to allay worries from those who suggest that the Fed’s actions have distorted the marketplace:

The Committee intends that the Federal Reserve will, in the longer run, hold no more securities than necessary to implement monetary policy efficiently and effectively, and that it will hold primarily Treasury securities, thereby minimizing the effect of Federal Reserve holdings on the allocation of credit across sectors of the economy.

Moreover, the Fed is expected to start raising short-term interest rates, which have effectively been zero since late 2008, beginning next year. The guessing game is when that will occur, whether in the first half or second half of 2015. The FOMC’s principles state that rates will begin to rise when “economic conditions and the economic outlook warrant” such an action. In the monetary policy statement issued at the conclusion of its September 16-17 meeting, the FOMC said that “it will take a balanced approach consistent with its longer-term goals of maximum employment and inflation of 2 percent” in deciding to normalize rates. Nonetheless, the statement continues to assert that the federal funds rate will be at its current low levels for a “considerable time after the asset purchase program ends.”

The decision to continue stimulating the economy for the foreseeable future despite progress in the economy was supported by most of the FOMC participants. Fed participants remain concerned about “slack” in the economy, particularly in labor markets. Yet, inflation hawks on the FOMC dissented with these actions. Dallas Federal Reserve Bank President Richard W. Fisher felt that the pickup in economic growth warranted less accommodative policies; whereas, Philadelphia Federal Reserve Bank President Charles I. Plosser would objected to the long time horizon for keeping short-term rates at their current levels.

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

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Ball Corporation Scores High With Dow Jones Sustainability Index

NAM member Ball Corporation has for the second year in a row been recognized as an industry leader in corporate sustainability by the Dow Jones Sustainability Index (DJSI) and Dow Jones Sustainability Index North America. Ball also took first place in the Container and Packaging Category and remains the only company in its sector to appear on both lists.

“The Dow Jones recognition is important to us and we’re thrilled to be listed again this year,” said John A. Hayes, chairman, president and CEO. He went on to say that sustainability is a “fundamental part” of the company’s vision, and that their high scores highlight their drive to make sustainability efforts an integrated part of Ball. This year marks the 15th anniversary of the DJSI, and each year the index is modified to better reflect trends in corporate sustainability management and to better gauge corporation’s sustainability practices. The index takes a variety of factors in to account, including environmental, economic and social.

Dow Jones is not the only organization to recognize Ball Corporations success in sustainability. In June, Newsweek, in partnership with Corporate Knights Capital and leading sustainability experts, ranked Ball third among the 500 largest U.S. companies on overall environmental performance. Ball also has been listed in the international FTSE4Good index for five consecutive years and is included in the MSCI Global Sustainability Indexes, the STOXX Global ESG Leader Indices and the Euronext Vigeo US 50 index.

Manufacturers are committed to sustainable practices and the NAM is happy to see that its members are being recognized for their efforts. For more information on Ball’s sustainability efforts and an overview of all external assessments, please visit www.ball.com/sustainability.

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Iowa Hosts 4th Stop on NAM’s Leadership Engagement Series

Iowa’s top manufacturing leaders joined the NAM today for a discussion on advancing federal policies that strengthen manufacturing growth and opportunity. The roundtable event in Iowa is part of NAM’s nationwide Leadership Engagement Series focused on uniting the manufacturing community and elevating top manufacturing priorities.

Panelists included CEOs from Vermeer Corporation, Vantec Inc, EFCO Corporation, Kent Corporation, Al-jon Manufactuing LLC and Pella Corporation.  Leaders agreed that manufacturing in America is making a comeback, employing over 12 million workers and contributing over $2 trillion to the U.S. economy annually. However, panelists expressed concern over Washington’s political agenda threatening to hurt manufacturers’ competitiveness—from costly energy regulations and taxes to the potential shut down the Export-Import Bank.

These unfavorable federal policies could have a huge impact on jobs and the economy in Iowa, as manufacturers account for 16.7 percent of the total output in the state, employing 14 percent of the workforce. As the midterm elections quickly approach, the manufacturing community must engage in the political process to make sure the manufacturing comeback continues in the future.

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. Next stop, New York City on September 24.

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TRIA Needs to be Reauthorized Now

As Congress negotiates the final details of a bill to fund the government ahead of the September 30 deadline, lawmakers should be mindful of another fast-approaching date: December 31, the deadline to renew the Terrorism Risk Insurance Act (TRIA).  It first passed after the 9/11 attacks, when insurers and reinsurers stopped offering coverage for terrorist events, and has played an important role in ensuring the availability and affordability of commercial terrorism insurance for manufacturers. Recently the Senate voted to reauthorize TRIA with overwhelming bipartisan support, and last week the NAM joined over 400 businesses and industry groups in asking House members to do the same.

The NAM has outlined the benefits of TRIA in the past, but it essentially provides a high-level backstop for insurers and reinsurers who offer terrorism coverage and mechanism to recoup any federal outlays stemming from a catastrophic event. In another letter sent to Congress last week, the National Association of Insurance Commissioners noted that it is especially important for workers compensation (WC) because WC statutes require nearly all US employers to cover terrorism.

It is rare to see regulators and industry send letters in support of the same legislation and it indicates the importance of renewing TRIA. The clock is ticking and Congress needs to act.

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Monday Economic Report – September 15, 2014

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

The latest NAM/IndustryWeek Survey of Manufacturers found that businesses are generally upbeat about the coming months. Manufacturing respondents expect 4.4 percent growth in sales on average over the next 12 months, the fastest pace of expected growth in new orders since the first quarter of 2012, when the sector was expanding more robustly. Indeed, nearly half of those taking the survey anticipate sales growth of at least 5 percent. Capital investment and hiring trends have also moved in the right direction, with manufacturers planning to increase capital spending and employment by 2.5 percent and 1.9 percent, respectively. The hiring figure represents substantial progress from the lackluster pace of job growth in 2013, which averaged just 0.8 percent. Overall, 87.3 percent said that they were positive in their outlook, the highest reading in two and a half years.

Nonetheless, the more positive attitude needs to be balanced against other issues. First, enthusiasm for expanded new orders and production is often nuanced by anxieties that events might prevent the economy from gaining traction—much as it has time and again in this recovery. Certainly, many of them are disappointed with the slow economic growth in the first half of 2014, even if they remain hopeful about the second half.

Second, manufacturers—like many Americans—continue to be frustrated with Washington. The top business challenges remain rising health insurance costs and an unfavorable business climate, cited by 77.1 percent and 73.1 percent, respectively, in the survey. Along those lines, the NAM released a study showing the disproportionate burden placed on small businesses and manufacturers when complying with federal regulations. Total federal compliance costs in 2012 were estimated to be $2.028 trillion, with an average cost of $19,564 per employee for manufacturers, or twice the level of all businesses.

Beyond these issues, there was encouraging news on the consumer front. Retail sales rose 0.6 percent in August, rebounding from softer increases in the previous three months. Prior to this release, there were worries that a more cautious consumer might derail brighter prospects for growth. This data suggests that the public might be more willing to spend. Retail sales have risen 3.8 percent year-to-date, or 5.0 percent over the past 12 months. Moreover, the consumer also appears to be less hesitant about borrowing, with July consumer credit up 9.7 percent in July. This included a sizable pickup in revolving credit, which includes credit cards. Another positive was the increase in consumer sentiment from the University of Michigan and Thomson Reuters, ending a lull in that measure throughout 2014 and marking its highest point since July 2013.

This morning, we will get new data on industrial production. Production in the sector jumped one percent in July, and the expectation is for modest gains in manufacturing output in August. It is also anticipated that housing starts and permits will once again exceeding one million annualized units when August figures are released on Thursday. This would suggest that residential construction activity has begun to recover from softness earlier in the year. Beyond those figures, the biggest headlines will come from the Federal Open Market Committee meeting this week, which is not expected to make any major shifts in monetary policy. Quantitative easing should end in October, with the largest focus being uncertainty over when the Federal Reserve will start raising short-term rates. With that said, new consumer and producer price data should reflect the recent easing in inflationary pressures, particularly from lower energy costs.

Other data releases this week include the latest findings on manufacturing activity in the New York and Philadelphia Federal Reserve Banks’ districts and data on home builder confidence, leading indicators and state employment.

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

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Exporters for Ex-Im: There’s More Than Meets the Eye with Large Corporate Ex-Im Bank Users

Behind every large corporate user of the U.S. Export-Import (Ex-Im) Bank—a guarantor of affordable export financing—are hundreds, even thousands, of small business suppliers whose futures are inextricably connected to the bank’s fate.

Click Bond, Inc., in Carson City, Nevada, is a case in point. The company is a developer and manufacturer of fastening hardware and adhesive bonding processes for the aerospace, surface transportation, maritime, and offshore energy markets. Click Bond is the classic “invisible exporter,” a company that supplies parts to large U.S.-based manufacturers, which in turn export a majority of their products with the help of Ex-Im’s financing backing.

The aerospace industry is Click Bond’s oldest and biggest market—the company’s fasteners can be found on the 787 Dreamliner, F-35 Lightning II fighter jet, and even NASA’s Mars Curiosity Rover. Its largest strategic civil aviation customer is Boeing, which depends on Ex-Im to back competitive loans proffered to foreign purchasers of its airplanes.

Boeing is a frequent target of anti-corporate rhetoric from critics who would like to see the bank’s charter expire, but Click Bond Director of Strategic Partnerships Paul McNeill says those critics fail to recognize Ex-Im’s downstream impact on small and mid-size manufacturers that do not contract directly with Ex-Im Bank.

“A significant majority of components found on Boeing aircraft are manufactured by other companies—companies in Boeing’s supply chain,” McNeill says. “When someone sees a Boeing airplane in the sky, that’s not just the work of Boeing. It represents the contributions of thousands of small businesses.”

Without Ex-Im, Boeing would be at a disadvantage to its European rival Airbus, and its suppliers’ competitiveness would also suffer, according to McNeill. “When Boeing thrives, its U.S. suppliers become more competitive by investing in innovation and in processes that improve performance and lower costs. We can’t do that if Boeing isn’t selling airplanes. Boeing is an enormous economic engine that fuels competitiveness at multiple levels in the U.S. manufacturing base.”

Click Bond says that Ex-Im’s closure would jeopardize the jobs of its 400-plus employees, 80 percent of whom directly or indirectly support Boeing’s commercial airplane exports. “It would be a significant blow to our competitiveness,” McNeill states.

“Exporters for Ex-Im” is a blog series focused on the importance of the Export-Import Bank to manufacturers. To learn more or to tell Congress you support reauthorization of the Export-Import Bank, visit http://www.nam.org/Issues/Trade/Ex-Im-Bank.aspx.

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Leadership Engagement Series Continues in Houston

The NAM’s Leadership Engagement Series, a nationwide roadshow aimed at elevating top manufacturing priorities, continued today in Houston. Today’s event featured a panel discussion led by NAM President and CEO Jay Timmons, who was joined by BP America Chairman and President John Mingé. Also participating were the CEOs of Emerson, Fluor Corporation, and Marlin Steel Wire Products. Our panelists shared their insights on a wide range of topics, including national energy policy and Washington’s legislative agenda for the rest of the year.

Of particular concern to our panelists and manufacturers participating in today’s event is the reauthorization of the Export-Import Bank (Ex-Im). The Ex-Im bank remains an invaluable tool for manufacturers, especially smaller companies, who rely on the bank’s funding to help finance export projects. Yet Ex-Im is currently in danger of being shut down if not reauthorized by Congress by the end of September, an outcome that would have dire consequences for Texas’ economy.

Houston Leadership EventThat’s because exports are a big business in Texas. Manufacturing accounts for more than 93 percent of Texas’ exports, which in turn support over 26 percent of Texas manufacturing jobs. And most of those exporters are small companies, not large corporations. Without the Export-Import Bank, many of these smaller manufacturers could find themselves shut out of a critical source of capital financing for their businesses, putting jobs in jeopardy.

Ex-Im was just one of many topics discussed and debated at today’s Leadership Engagement Series. There are a multitude of challenges being faced by manufacturers in today’s economic and political climate, and in the coming weeks the NAM will use these types of forums to help engage manufacturing leaders in the political process.

Stay tuned for updates from our next Leadership Engagement Series stop, coming up on September 15th in Iowa.

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Monday Economic Report – September 8, 2014

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

The U.S. economy added 142,000 nonfarm payroll workers in August, a disappointing figure given signs of a rebound in many other indicators lately. The consensus expectation had been for nonfarm payroll growth to exceed 200,000 jobs for the seventh consecutive month, as was observed in the estimates provided by ADP the day before. Manufacturing employment was flat for the month, which was also a disappointment. It ended a 12-month streak of job gains for the sector, a period in which manufacturers added 168,000 net new workers. Hopefully, the August jobs report was just a brief pause in what otherwise had been positive news on the labor front.

The Institute for Supply Management’s (ISM) purchasing managers’ index (PMI) data provides much encouragement that manufacturing activity is moving in the right direction heading into the autumn months. The headline PMI figure rose from 57.1 in July to 59.0 in August, its highest level since March 2011, and it reflected a robust recovery from weaknesses earlier in the year. Indeed, new orders and production expanded at healthy paces. These findings mirror the latest NAM/IndustryWeek Survey of Manufacturers, which is being released this morning, showing respondents mostly upbeat about their own company’s outlook, with sales, capital spending and hiring expectations at two-year highs. Indeed, 87.3 percent of those taking the survey were either somewhat or very positive in their outlook, up from 85.9 percent three months ago. The data are largely consistent with 3.1 percent growth in manufacturing production over the next two quarters.

Manufacturers spent 4.4 percent more on construction projects in July, also providing some reassuring news. The sector has devoted 23.9 percent more to construction projects over the past 12 months, an indication that the increase in demand and output observed over that time frame has resulted in a jump in new investments. Meanwhile, new factory orders data provided mixed news. While orders increased by a whopping 10.5 percent in July, much of that stemmed from highly volatile nondefense aircraft sales. Excluding transportation orders, new factory orders declined 0.8 percent for the month, a finding that we had noted in the earlier release of preliminary durable goods data. Still, factory orders excluding transportation have risen 2.7 percent over the past six months (since weather-related declines in January), which mostly mirrors the more positive data in other releases.

Looking at exports, the U.S. trade deficit narrowed ever-so-slightly in July, with an increase in goods exports marginally offsetting an increase in goods imports. Yet, manufactured goods exports have risen only slightly year-to-date, up just 0.8 percent so far in 2014 using non-seasonally adjusted data. On the other hand, these same figures show that exports to our top five exports markets were higher through the first seven months of this year relative to last year. Regardless, manufacturers hope that the pace of export growth accelerates, with sluggish sales frustrating business leaders and net export growth providing a drag on real GDP over the past two quarters.

This week, we will get new data on consumer confidence, job openings, retail sales and small business optimism. Markets will also continue to digest Friday’s employment numbers, trying to decipher if they were an aberration or a sign of larger weaknesses. In particular, this discussion centers on how the Federal Reserve will interpret such things, with a debate already ongoing as to when the Federal Open Market Committee will begin to increase short-term interest rates. Conventional wisdom holds that short-term interest rates will rise sometime in 2015, but whether that occurs earlier or later in the year is up for debate between those who are more hawkish or dovish on inflation. In the Beige Book, which was released last Wednesday, the Fed mostly observed progress in the economy in recent months, including in manufacturing. Yet, as long as the Fed continues to see “slack” in the labor market, it might be less willing to normalize rates.

Chad Moutray is the chief economist, National Association of Manufacturers. 
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Hiring Growth Took a Holiday in August, with Manufacturing Employment Unchanged

The Bureau of Labor Statistics (BLS) said that manufacturing employment was unchanged in August, ending a 12-month streak of job gains in the sector. Over the course of the past year, manufacturers have added 168,000 net new workers, with average job growth of 13,538 per month over that time frame. Still, it is hard not to be disappointed with these results. Other recent indicators have reflected a pickup in activity this summer, with ADP’s estimate yesterday showing 23,000 additional workers hired in August. The expectation had been for strong growth in hiring in August in the BLS numbers, as well. Hopefully, predictions of increased demand and output will lead to more hiring in the coming months, with August’s figures just being a pause in an otherwise upward trend.

On a sector-by-sector basis, the August manufacturing jobs figures were mixed, with a gain of 2,000 workers in durable goods industries offset by a 2,000-employee decline among nondurable goods firms. The largest employment gains were in nonmetallic mineral products (up 2,900), machinery (up 2,500), wood products (up 1,700), food manufacturing (up 1,500) and chemicals (up 1,500). Transportation equipment employment fell substantially, down 9,200, with motor vehicles and parts alone dropping 4,600. Other sectors with declining employment included miscellaneous nondurable goods (down 3,100), plastics and rubber products (down 1,100), paper and paper products (down 900) and apparel (down 500).

Despite the underwhelming job gains, average weekly earnings in the sector were slightly higher, up from $1,017.59 in July to $1,022.13 in August. Over the course of the past 12 months, average weekly earnings have risen 2.3 percent. At the same time, the average number of hours worked was up only marginally, increasing from 40.9 hours to 41.0 hours with overtime unchanged at 3.4 hours.

Meanwhile, nonfarm payroll growth was also disappointing, up just 142,000 in August. Total job gains were expected to exceed 200,000 for the seventh straight month, mirroring the ADP estimates yesterday of an increase of 204,000. Nonetheless, the unemployment rate decreased to 6.1 percent in August, down from 6.2 percent in July but returning to the rate observed in June. The participation rate also returned to its June level of 62.8 percent, keeping it near 30-year lows.

Overall, today’s jobs numbers were frustrating, particularly given the strength seen in a host of other data points. Perhaps hiring activity took a holiday in August. My view is that hiring will pick up in the coming months, with accelerated levels of new orders and production leading to more employment growth. As such, we should revert to an average of 12,500 to 15,000 per month job gains for the rest of this year.

Still, this report could also feed into anxieties among some that the economic growth remains less-than-desired, with the recovery still not gaining the traction that we have long been waiting for. For that reason, manufacturers continue to urge the enactment of pro-growth initiatives to better ensure strength in the economy moving forward.

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

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