General

Heading Down a Cumbersome and Expensive Path

Monday, the Washington Post Editorial Board published the first in a “brief series” of editorials on the status of U.S. greenhouse gas (GHG) policies. The Post article gives a short history of GHG politics over the last 15 years and assesses the current state-of-play in and outside the beltway. Of course, the policy that is driving most of the discussion and debate when it comes to GHGs is the EPA’s June 2 proposed rule for existing power plants – a regulation the Post describes as “a cumbersome and expensive way to reduce emissions.”

If after reading through the 1,600 pages of regulatory text of EPA’s proposal you were looking for two words to sum up what likely consumed the better part of your summer, you could do worse than “cumbersome” and “expensive”. Anyone who sat through EPA’s two-day hearings on the rule in late July in Pittsburg, Atlanta, Colorado or D.C. repeatedly heard similar words used by the industries that will be most impacted by the regulation. The fact is the rule proposes to fundamentally change how energy is made, distributed and consumed in this country. There is little argument that it won’t have at least some upward pressure on energy prices and there is good reason to think the increases could be dramatic in many parts of the country. In fact, at some level, that is one of the end-goals of this regulation – to make electricity, and in particular fossil electricity, more expensive in order send a price signal to producers and consumers alike to change behavior. It’s always going to be hard for manufacturers – consumers of one-third of the nation’s energy – to get behind a policy designed to increase energy prices, particularly when our foreign competitors aren’t paying for similar price increases and are more than offsetting any of our emissions reductions.

However, what makes this rule all the more troubling is all of the uncertainty and questions it has created. Beyond questions regarding EPA’s legal authority to implement such an expansive rule – for which there are many. And beyond uncertainties of whether energy markets throughout the country can deliver uninterrupted electricity and heat under the proposed rule’s framework – EPA hasn’t model it. There are fundamental questions regarding what EPA is even proposing. For instance, how are certain new units treated for a state’s compliance in the rule? How does EPA plan to implement such a program if it does not approve of a state’s plan? How exactly does the interplay between net electricity importing and exporting states work for compliance? We are a month and a half away from when EPA will no longer accept written input on this rule and still these questions persist about what the proposed rule is proposing.

This doesn’t make sense. It’s time for EPA to take a step back. It’s time for the Administration to remove the arbitrary deadlines driving this expedited process. And as the Post will no doubt suggest in its coming editorial series, it’s time to explore better ways to establish our nation’s environmental and energy policies.

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Monday Economic Report – August 25, 2014

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

Market leaders continue to play the guessing game of when the Federal Reserve Board will start to normalize short-term interest rates. Conventional wisdom suggests that the Federal Open Market Committee (FOMC) will begin to raise the federal funds rate sometime in 2015 from the near-zero levels that have been prevalent since the financial crisis in 2008. The Federal Reserve has already announced that it will cease purchasing long-term and mortgage-backed securities in October. In the July FOMC meeting minutes, participants noted recent improvements in the economy, including increased activity among manufacturers (see below). Most notably, they said the following regarding monetary policy over the next few months:

“…many participants noted that if convergence toward the Committee’s objectives occurred more quickly than expected, it might become appropriate to begin removing monetary policy accommodation sooner than they currently anticipated.”

That line, which was widely reported in the media, was seen as hawkish. Indeed, financial markets saw that statement as a sign that short-term rates might rise sooner than expected, perhaps as early as the first quarter of 2015. In her keynote speech at a Kansas City Federal Reserve economic symposium at Jackson Hole, Wyoming, Federal Reserve Chair Janet Yellen reiterated this point, noting the role that upcoming economic data will have on the timing of policy normalization. She cited continued “slack” in labor markets, but also highlighted positive developments more recently. Either way, it remains true that monetary policy will remain highly accommodative for the foreseeable future, with short-term rate hikes (whenever they occur) being gradual. Recent data on consumer and producer prices have shown inflationary pressures easing a bit, even as they remain near the Federal Reserve’s stated target of 2 percent.

Meanwhile, economic data released last week suggest that the manufacturing rebound that we have seen since the winter continues to strengthen. The Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) increased sharply, up from 55.8 in July to 58.0 in August, reaching its highest level since April 2010. The indices for new orders and production were both above 60, suggesting strong growth and closely mirroring similar data from the Institute for Supply Management (ISM). The Philadelphia Federal Reserve Bank’s manufacturing survey also reported healthy gains in August, with activity growing at its fastest pace in more than three years, and respondents were very upbeat in their assessment of the next six months. Still, if there are any weaknesses of note, it would be overseas. Manufacturing demand and output were softer in both China and Europe, for instance.

The housing market also appears to be faring better of late, recovering somewhat from the lull that we saw earlier in the year. Housing starts jumped 15.7 percent in July, offsetting significant declines in both May and June. Starts reached their second-highest pace since November 2007, with an annualized 1,093,000 units in July. Both single-family and multifamily construction activity were higher for the month, and housing permits also reflected progress. In addition, existing home sales also notched improved figures in July, with activity up for the fourth straight month. Overall, this is encouraging news for residential construction. We would expect a solid 1.1 million housing starts at the annual rate by year’s end, representing slow-but-steady progress.

This week, we will get an update on second-quarter real GDP, with consensus expectations calling for a slight downward revision from the 4.0 percent growth rate estimate announced in late July. The new figure would still represent a rebound from the first quarter’s decline of 2.1 percent. We will also see if regional activity continues to expand in the August manufacturing surveys from the Dallas, Richmond and Kansas City Federal Reserve Banks, mirroring what we have seen in the similar New York and Philadelphia Federal Reserve reports. Other highlights include the latest data on consumer confidence, durable goods orders and personal income and spending.

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

markit us pmi - aug2014

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Canada Boosting Export Infrastructure While U.S. Projects Mired in Politics

Canadian officials have given the green light to expand coal export facilities, securing increased  investment and opportunities for (pacific or western) Canadian ports.

Meanwhile, in the U.S., state officials in the Pacific Northwest continue to delay the valuable investments in area ports that come with exporting U.S. coal.

Over $1.5 billion in private infrastructure investment has been proposed in the Northwest for coal and other commodities. Approving the new terminals would strengthen area ports – our closest gateway to Asia – and help make American exports more competitive.

Port expansion at Westshore Terminal in British Columbia and a long term renewal to export coal at the Port of Long Beach, California underscore the growing demand from Asia for U.S. energy, and the benefits meeting that demand provide to our vital ports.

There’s no reason the Northwest shouldn’t benefit from the expansion of port facilities which will increase jobs, stimulate the economy and increase our ability to export a range of commodities, including coal.

Moreover, looking to President Obama’s objective to double exports by 2015, if we hope to meet this goal, it’s essential that we act soon to develop robust, cutting edge facilities where we can safely and efficiently export our goods overseas.

The National Association of Manufacturers will continue to call on Washington State and Oregon State to invest in its own future and work to develop, not delay, the growth of these much-needed export terminals.

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WTO Sides with United States in Trade Enforcement Case Against Argentina

Manufacturers applaud today’s announcement that the United States has prevailed in the World Trade Organization (WTO) trade enforcement case against Argentina.  The WTO panel agreed with the United States that Argentina’s use of import license requirements and other import restrictions violate international trade rules.

In 2012, the United States was joined by the European Union and Japan in challenging Argentina’s trade-restrictive measures imposed on imported goods. Manufacturers have long called on Argentina to reverse their harmful trade policies, which damage U.S. exporters’ ability to enter that market, and on USTR to raise our concerns at the WTO. Last year, the NAM and a group of other business associations detailed our serious concerns with Argentina’s protectionist policies and their negative impact on U.S. exports to USTR.

Manufacturers in the United States are most successful when our trading partners play by the rules, including treating our products on an equal basis in their markets and not providing their own industries with special advantages. Trade agreements and the WTO set the rules of the global economy, which must be fully enforced.

For our trade agreements to be successful, it is vital to ensure effective enforcement of the commitments contained in those agreements by our trading partners. In manufacturing communities across America, the gains from trade can and should be increased. The United States achieved a record level of $1.38 trillion in manufactured exports last year, but we can and should do better so that America can expand manufacturing and jobs here at home. To improve manufacturers’ global competitiveness and grow our manufactured goods exports, the NAM urges continued enforcement by USTR of our trading partners’ obligations under free trade agreements and under the WTO.

 

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Exporters for Ex-Im: For This Small Manufacturer, Ex-Im Bank Holds the Keys to a $15 million Project

Jason Speer spent months developing a business deal that was shaping up nicely.

Speer is the president of Quality Float Works, Inc., a manufacturer of metal float balls, valves and assemblies that level liquid controls for a variety of industrial applications. He had reached an agreement with a residential real estate developer in Saudi Arabia to supply shut-off switches for water tanks installed in the new homes of a development outside of Riyadh.

Speer had traveled from Schaumburg, Ill., about 25 miles northwest of Chicago, to Saudi Arabia three times to negotiate the multi-phase deal. He is awaiting a letter of credit from the Saudi real estate developer’s bank to his bank with an accompanying purchase order.

Right now, one obstacle stands in the way. Speer needs a working capital guarantee from the U.S. Export-Import Bank to finance the raw materials required to manufacture the switches. With Ex-Im Bank’s lending authorization set to expire on September 30 if Congress fails to extend its charter, the contract with his Saudi client hangs in the balance.

“Private lenders won’t touch (loans) for the type of materials we need, and it’s very hard for small and medium size businesses to raise capital upfront,” Speer said. “During our planning, never once did we think the Bank would lose its authorization. We might be forced to scramble to try to find other options, without which we won’t be able to fulfill this order.”

If the deal collapses, Quality Float Works stands to lose $15 million in revenue and will hold off hiring the six new employees needed to service the Saudi contract, Speer said. Ex-Im’s predicament is troubling for a small business increasingly dependent on exports. While exports accounted for just 3% of Quality Float Works’ sales in 2001, today they make up 35% of the firm’s sales, with customers in nearly three dozen countries. The number of employees at the company has doubled to 24 in that time.

The pending deal with the Saudi developer is the first instance in which Quality Float Works has applied for an Ex-Im loan guarantee, and it hopes it won’t be the last. Speer, a committed small business advocate who has testified before Congress in support of free trade agreements, says his message to members of Congress is simple: “The Ex-Im Bank can make or break the ability of small and medium size businesses to export, and, by extension, their ability to create jobs and grow the economy.”

“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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Monday Economic Report – August 18, 2014

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

While geopolitical events continue to provide significant downside risks to the economy, recent data suggest that manufacturers in the United States are faring better this summer. Manufacturing production increased 1.0 percent in July, helping to lift the year-over-year pace of manufacturing output to 4.9 percent, its fastest annual pace since June 2012. Last month’s gain stemmed largely from increased motor vehicle production, with all but three of the major manufacturing sectors notching higher output levels for the month. At the same time, the utilization rate for manufacturers increased to 77.8 percent, nearly reaching pre-recessionary capacity levels.

Similarly, the Empire State Manufacturing Survey reflected strong growth in August, albeit less so than the robust levels observed in July. More importantly, respondents to the New York Fed’s survey were significantly more upbeat, with roughly 60 percent anticipating higher sales and output over the next six months. This study also reported that approximately 30 percent of manufacturers in its district planned to hire more workers and invest in additional capital expenditures in the coming months. This is welcome news, and it was largely consistent with the recent pickup in the labor market. Manufacturing job openings increased in June to their highest level in two years, with net hiring also accelerating. Of course, we already knew that to some extent. The most recent employment data found that manufacturers hired an additional 22,000 workers on average from May to July.

Meanwhile, the European economy has shown signs of backtracking, with real GDP in the Eurozone remaining unchanged in the second quarter. Germany’s economy contracted by 0.2 percent, helping to push the continent’s growth figure lower, but Italy (also down 0.2 percent) and France (flat for the second straight quarter) were also weak. In addition, industrial production has decreased in three of the past four months, with output unchanged year-over-year. We will get our first look at August purchasing managers’ index (PMI) data this week. The Markit Eurozone Manufacturing PMI report in July provided mixed news, with activity expanding for 13 straight months but growth continuing to ease over the course of this year. The latest data suggest that Europe’s economic challenges are still not behind them.

To some extent, that is true in the United States as well. We have seen improvements in a number of economic indicators, and yet, there are also persistent worries about future growth. Some of this could stem from global anxieties, but it could also be a function of disappointment with the lack of growth in the first half of the year. Preliminary consumer sentiment data from the University of Michigan and Thomson Reuters appears to pick up on this nuance, with Americans less confident once again in their forward-looking expectations. Indeed, retail sales data also reflect cautiousness on the part of the consumer, with spending unchanged in June.

This week, we will get additional insights about the health of the manufacturing sector worldwide. In addition to new PMI data for Europe, Markit will also release flash reports for China, Japan and the United States. While China’s economy had begun to stabilize in July, last week we learned that Japan’s real GDP contracted by 1.7 percent in the second quarter, or 6.8 percent year-over-year. Closer to home, the Federal Reserve will release the minutes of its July 29–30 Federal Open Market Committee meeting. Analysts will be looking for clues about when the Fed plans to start normalizing short-term rates. The Fed received good news last week with an easing in producer prices in July from recent highs, and this should help to alleviate some of the immediate pressure from inflation hawks, at least for now. Other highlights this week include the latest data on consumer prices, housing starts and permits, leading indicators and Philadelphia Fed manufacturing sentiment.

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

manufacturing production - aug2014

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PPG Brings Lawmaker to Discussion with Manufacturers

Manufacturers are keeping up the dialogue with policymakers during the August recess, taking advantage of the opportunity to bend their ears about pro-growth policies.

Among these meetings was a discussion hosted this week by PPG Industries with 25 companies in attend. Representative Mike Kelly (R-PA-03), a member of the powerful Ways and Means Committee, met with manufacturers for 2 hours to talk about tax reform, regulation, Ex-Im Bank reauthorization and the critical need for bipartisan cooperation to accomplish the hard work that must be done.

Rep. Kelly, a friend to manufacturers with a 100% voting record with the NAM during this Congress, knows firsthand the impact that Washington policies have on business owners across the country. Manufacturers were especially pleased with his dedication to reauthorizing the Ex-Im Bank.

Manufacturers in the U.S. are more engaged than ever – and we’ll be keeping up the drumbeat all summer long.

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Exporters for Ex-Im: ​Brownies, Cakes, And Ex-Im Bank Collide

If you’ve eaten cheesecake, chocolate cake or brownies at a major chain restaurant, there’s a good chance it was made by Love and Quiches Gourmet in Freeport, N.Y.

Susan Axelrod, the company’s chairwoman and founder, started the company in her home kitchen in 1973 and knocked on thousands of doors to get people interested in her quiche and desserts. The company grew from there and now has several hundred employees who help the company sell pastries and a variety of cakes all over the world.

That success, Ms. Axelrod said, is partly attributable to the U.S. Export-Import Bank, a small government agency that could be shut down if Congress doesn’t act by the end of September. Love and Quiches started using the Ex-Im Bank almost 20 years ago and, like thousands of small business around the country, found it crucial to its success.

Love and Quiches relies on the Bank’s credit insurance program. The Bank charges the company a fee for insurance in case a foreign customer fails to pay for the desserts the company ships abroad.

But in the nearly two decades since Ms. Axelrod starting using the Bank, her company hasn’t had to file a claim with the Ex-Im Bank. “We’re very careful who we do business with. We’ve never had a claim – never,” she said.

The Ex-Im Bank named Love and Quiches its 2014 Small Business Exporter of the Year, an award that Ms. Axelrod is proud to discuss.

She said the company doesn’t want the Ex-Im Bank to go away. That, she said, would make it “harder for us to compete with all the other bakery companies in the world that get more support from their government.”

She said other small businesses don’t have the same flexibility as her company and, without Ex-Im Bank, they “would have to walk away from their export business.”

“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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NFIB: Small Business Confidence Edged Higher in July

The National Federation of Independent Business (NFIB) said that small business confidence edged higher in July, bouncing back after dropping slightly in June. The Small Business Optimism Index increased from 95.0 in June to 95.7 in July. While the index remains below the 96.6 reading observed in May (which was its highest level since September 2007), it has averaged 95.6 over the past four months (April to July). This represents an upward trend, with the first quarter (January to March) averaging 93.0. As such, it suggests that small business owners have become somewhat more positive over the past few months.

Much of the data supports this finding. The percentage of respondents saying that the next three months are a “good time to expand” increased from 7 percent to 10 percent, matching the level observed in May. Net sales expectations were off marginally, down from 11 percent to 10 percent. However, these data also suggest that the sales outlook has improved so far in 2014 with a year-to-date average of 10.9 percent, up from an average of 3.8 percent for all of 2013. In July, capital expenditure plans (up from 24 percent to 25 percent) were also higher.

Nonetheless, the Small Business Optimism Index remains below 100, indicating that the sector continues to experience subpar growth and sentiment. Survey respondents suggest that economic conditions and the political climate are factors that discourage expansion. Along those lines, taxes and government regulations are cited as the top problems faced by small business owners, with each garnering 22 percent. These are followed by poor sales (13 percent) and the inability to attract workers (10 percent).

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

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Exporters for Ex-Im: Small Business Owner Expands Construction-Equipment Business With Ex-Im Bank

Barry Stoughton developed on his own a product that revolutionized the construction equipment business, but needed the help of the Export-Import Bank of the United States to sell that revolutionary product overseas.

Mr. Stoughton, a former high school math teacher, started Bensenville, Ill.-based BLS Enterprises out of a garage in 1986. The company makes track pads made with polyurethane retreading for construction equipment. Prior to him, companies used rubber, which was less durable.

Most of the 12-employee company’s sales are domestic, but about 14 years ago Mr. Stoughton realized there was an international hunger for his company’s TUFPADS track pads.

We “are always looking for new customers around the world,” he said.

So he turned to the Ex-Im Bank and started with small orders to Taiwan, requiring cash-in-advance payments. But as the company’s orders grew, they needed more flexible financing options – and the Ex-Im Bank stepped in to help.

The Bank provides the company – for a charge, of course – with credit insurance in case their foreign buyers fail to pay.

Because of the Ex-Im Bank, the company has been able to take advantage of opportunities to expand sales to Malaysia, Australia and other countries.

He fears what will happen if Congress doesn’t reauthorize the Ex-Im Bank by September 30, but he’s confident they will support the Bank if they understand what it does.

He said “when people see that small companies are trying to expand and sell American products abroad using Ex-Im, they will support it.”

“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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