Monday Economic Report – August 11, 2014

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

In a light week for economic indicator releases, geopolitical events dominated the headlines and moved equity markets. With U.S. airstrikes in Iraq, battles between Israel and Hamas in the Gaza Strip, and mounting tensions with Russia, financial markets have a lot to absorb, with uncertainty sending stock values lower. Even with a triple-digit gain on Friday, the Dow Jones Industrial Average has fallen 3.5 percent since hitting an all-time high of 17,138.20 on July 16. From an economic perspective, geopolitical challenges could put downward pressure on forecasts for the second half of 2014 depending on how they evolve in the coming days and months. Absent these global anxieties, manufacturers have tended to be mostly upbeat about the next six months, and several recent data points have suggested rebounding demand and output as we began the third quarter.

New factory orders have risen in four of the past five months, increasing 1.1 percent in June and 4.6 percent since January. With that said, year-over-year growth has been less robust, up just 1.5 percent. This shows the extent to which winter weather weakened sales earlier this year. Still, June’s new factory orders figure of $503.2 billion reached an all-time high, which was encouraging. This data is largely consistent with positive news of late on real GDP, manufacturing sentiment surveys, and hiring. Indeed, manufacturing labor productivity increased by a relatively healthy 3.6 percent in the second quarter, lifted by robust gains in output. Unit labor costs declined 1.3 percent, with durable goods industries accounting for much of that decrease. Productivity gains since 2009 have helped to keep the sector more competitive globally, particularly for durable goods firms.

In June, the U.S. trade deficit fell to its smallest level since January, as goods imports declined at a faster pace than goods exports increased. Nonetheless, we continue to see relatively slow growth for U.S.-manufactured goods exports, which have increased 1.7 percent year-to-date. Ideally, we will see improvements moving into the second half of the year, as the current pace represents a deceleration from last year’s 2.6 percent rate of growth. Of course, challenges abound on this front, with news of weak growth in Europe, flat export sales growth to our largest trading partner Canada, and decelerating growth rates in China.

This week, we will get new industrial production figures for July. We anticipate manufacturing output growing for the sixth straight month, modestly extending upon the 3.1 percent growth observed since January. The New York Federal Reserve Bank’s Empire State Manufacturing Survey is also expected to show continued expansion for the sector in its district. Other highlights this week include the latest data on consumer sentiment, job openings, producer prices, retail sales, and small business optimism.

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

labor productivity - aug2014

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How to Encourage Investment in the United States

Here at the NAM, we’re big proponents of a manufacturing comeback and one of our top priorities is to make the United States the best place in the world to manufacture and attract foreign direct investment. A pro-investment tax climate is key to achieving this goal and manufacturers are all for it.

On the other hand, we are increasingly concerned about “one-off” changes to the current tax code, like the anti-inversion proposals under discussion in Washington that will actually discourage investment in the United States, taking a toll on job creation and economic growth.

In today’s Wall Street Journal, John McKinnon takes a closer look at the potential negative impact of the anti-inversion legislation just on foreign direct investment in Firms Warn Inversion Crackdown Carries Risks. This is a big issue for the manufacturing sector—U.S. subsidiaries of foreign companies employee more than 2 million U.S. workers, over 17 percent of America’s manufacturing workforce. As we’ve said many times before, we don’t need more tinkering with our broken tax code, what our country needs is a pro-growth, pro-competitive, fairer, simpler and predictable tax climate.

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U.S. Trade Deficit at Lowest Level since January

The Bureau of Economic Analysis and the Census Bureau said that the U.S. trade deficit narrowed for the second straight month, down from $44.66 billion in May to $41.54 billion in June. This was the smallest trade deficit since January’s $40.05 billion level. Still, it is notable that the U.S. trade deficit has been larger in 2014 averaging $43.34 billion over the first six months of the year than it was in 2013, which averaged $39.70 billion for the year as a whole. The larger year-to-date trade deficit has largely stemmed from growth in goods imports outpacing growth in goods exports.

With that said, in June, goods imports declined (down from $200.05 billion to $197.16 billion); whereas, goods exports were marginally higher (up from $136.74 billion to $136.87 billion). This explained the bulk of why the U.S. trade deficit narrowed for the month. The petroleum trade deficit was another factor, narrowing slightly in June (down from $8.89 billion to $8.15 billion).

Looking specifically at goods exports by sector, the data were mostly positive, but not significantly so. Consumer goods (up $411 million), automotive vehicles and parts (up $163 million), industrial supplies and materials (up $51 million) and non-automotive capital goods (up $33 million) experienced growth in exports in June. In contrast, exports of foods, feeds and beverages (down $264 million) were off for the month because of reduced international sales for soybeans and fish and shellfish. The trade deficit’s June decline can be explained by falling goods imports for consumer goods (down $1.28 billion), automotive vehicles (down $1.07 billion), industrial supplies and materials (down $548 million) and non-automotive vehicles (down $259 million).

Goods exports to our top 5 export markets for U.S.-manufactured goods were higher through the first six months of this year relative to the same time frame last year. This included (using non-seasonally adjusted data):

  • Canada (up from $150.97 billion to $154.56 billion)
  • Mexico (up from $110.72 billion to $118.33 billion)
  • China (up from $54.97 billion to $58.67 billion)
  • Japan (up from $32.24 billion to $33.31 billion)
  • Germany (up from $23.76 billion to $25.43 billion)

That is encouraging news, particularly given recent weaknesses in growing export sales. Overall, manufactured goods exports have increased from $588.58 billion year-to-date in 2013 to $591.17 billion in 2014 (non-seasonally adjusted). This represents an increase of just 0.4 percent from last year, which would be a deceleration from last year’s 2.4 percent pace. (We should be able to update this figure with seasonally adjusted data as soon as Trade Stats Express is revised to include second quarter data.)

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Monday Economic Report – August 4, 2014

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

The U.S. economy has rebounded after a slow start to the year, with a number of data sources last week showing manufacturing activity growing strongly of late. First, real GDP increased by a healthy 4.0 percent in the second quarter, more than offsetting the 2.1 percent drop in output during the first quarter. Consumer and business spending spurred the higher figure. Inventory investments alone contributed one-third of the growth in real GDP for the quarter, with higher investment levels for housing, nonresidential structures, equipment and intellectual property. In addition, goods spending increased at its fastest pace since the fourth quarter of 2010. Net exports, however, continued to be a weakness, with growth in goods imports outstripping increases in goods exports. Moreover, one cannot help but be frustrated with weak economic growth so far this year, even if the outlook has improved. Real GDP rose by a frustratingly slow 0.9 percent in the first half of 2014. Fortunately, manufacturers are cautiously upbeat about future growth.

The Institute for Supply Management’s (ISM) manufacturing Purchasing Managers’ Index (PMI) increased from 55.3 in June to 57.1 in July. More importantly, the production index has measured 60 or more for each of the past three months, indicating strong output growth. Demand and hiring were also up sharply, but export sales growth eased, and raw material costs remained elevated. Similarly, the Dallas Federal Reserve Bank’s survey also noted accelerating manufacturing activity, with overall activity up for the 14th consecutive month. The underlying data in that report were mostly higher across-the-board, and at least 45 percent of respondents expect sales, production and shipments to increase over the coming months, with just single-digit percentages anticipating declines. These findings mirror those of other recent regional surveys.

Meanwhile, the latest jobs report was mostly positive, with manufacturers adding 28,000 workers on net in July. More than half of that stemmed from the automotive sector, signifying that, if anything, employment growth could be more broad-based within the sector, extending in particular to the nondurable goods sector more. Yet, manufacturing employment has picked up, averaging 22,000 over the past three months and nearly 15,000 per month since August. Moreover, we continue to hear about skills shortages in many locations, which could create wage pressures moving forward. In fact, during the second quarter, manufacturing wages and salaries increased at their fastest pace in more than a decade, driving up overall employment costs. Nonetheless, total compensation for manufacturers has risen by 2.1 percent year-over-year, suggesting that wage pressures remain in check for the most part—at least for now.

Along those lines, personal income and spending both increased by 0.4 percent in June. Since January, when winter weather dampened purchases, personal spending has risen 2.2 percent, with year-over-year growth of 4.0 percent. This suggests that Americans continue to spend at a decent pace, even if their purchase decisions remain selective and cautious. Furthermore, there were two consumer confidence surveys released last week, with each moving in opposite directions. The University of Michigan and Thomson Reuters found that sentiment edged lower in July, with little change in confidence since December and persistent anxieties about the future direction of the economy. In contrast, the Conference Board observed that sentiment was at its highest point since the beginning of the recession (December 2007), led by an improved perception about the labor market. However, rising confidence did not necessarily translate into increased buying intentions.

For its part, the Federal Reserve Board noted recent improvements in the economy, but it also believes there continues to be “significant underutilization of labor resources.” The Federal Open Market Committee (FOMC) voted to continue tapering its long-term and mortgage-backed security purchases, down from $35 billion to $25 billion per month. These purchases are expected to end by October. While the FOMC will keep short-term rates near zero for now, these rates are predicted to begin rising sometime early in 2015. Nonetheless, the Federal Reserve will continue to monitor incoming economic data, including inflationary pressures. Recent data have shown prices accelerating, but at least for now, they appear to be under control. For instance, core inflation, which excludes food and energy costs, has increased 1.6 percent over the past 12 months, according to personal consumption expenditure deflator data released last week.

There are just a handful of data releases this week. Highlights include the latest data on exports, factory orders and productivity.

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

real GDP forecast - aug2014

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Most expensive regulation in history may be coming this December. Merry Christmas, America.

This morning, the National Association of Manufacturers (NAM) released a study by NERA Economic Consulting that examines the economic costs of a stricter new standard for ground-level ozone. The study, an executive summary, and individual results for each of the lower 48 states can be found on our website at

We asked NERA to model an ozone standard set at 60 parts per billion (ppb), a level EPA is currently considering and the number environmental and health advocates are asking the EPA to arrive at. According to NERA, the costs of a regulation set at this level are very, very high: $270 billion in GDP, 2.9 million lost job-equivalents, and nearly $1,600 less for the average household to spend per year. But as troubling as those numbers are, what is equally if not more troubling is the reason for them: EPA has identified only a third of the controls needed to comply with a 60 ppb standard, and the remaining two-thirds are left to what the agency calls “unknown controls.”

Let me state that again: we don’t know what we would have to do to make two-thirds of the reductions (approximately 2.6 million tons of nitrogen oxides) in order to meet a 60 ppb standard. That’s a problem.

What NERA did was try to estimate what we would really have to do to get those 2.6 million tons out of the environment. They concluded that you’d have to start shutting down, scrapping or substantially modifying everything from power plants and factories to heavy-duty trucks, trains, farm equipment, off-road vehicles and even passenger cars. All of that comes at an extremely high cost.

So for the benefit of our members and the Administration, we asked NERA to produce what we believe is the most intellectually rigorous analysis that’s ever been done in the area of ozone. NERA took into account the unique characteristics of each state and did the analysis from the ground up. They identified which sectors would bear the compliance burdens in each state, and how. And they identified areas where data is lacking and provided guidance on what EPA can do to fill these gaps.

This study, we hope, will help guide EPA and others in the Administration to a reasonable end point. The existing ozone standard – the most stringent ozone standard ever – was just revised in 2008, and is still being implemented. It will drive substantial reductions in ozone levels for the next several years. We all want clean air and clean water, and manufacturers are committed to complying with the 2008 standard and doing our part.

Ozone levels are getting so low that even national parks like Yellowstone and Rocky Mountain would be in violation at the levels EPA is considering. As NERA’s study shows, we may have reached the point at which significant further reductions simply cannot be accomplished in any cost-effective manner.

We believe the current standard of 75 ppb needs to be on the table for EPA’s proposal in December. As this study shows, 60 ppb is simply not achievable and should be off the table.  We sent the report to EPA leadership this morning and offered to provide them an in-depth briefing to understand the study results and methodology. We hope they will take us up on our offer.

This regulation directly impacts every single one of our 12,000 members. We owe it to them to make sure EPA gets this regulation right.

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WTO Trade Facilitation Agreement Faces Deadline and Disagreement

U.S Trade Representative Michael Froman is holding out hope that India and a few other countries blocking implementation of the World Trade Organization’s Trade Facilitation Agreement reached last year in Bali will reconsider their position before today’s midnight deadline.

“I certainly encourage the other countries who are currently holding up that agreement –​ it’s a very small number of countries who’ve expressed their willingness to break that consensus – I encourage them to come back to the table and support the consensus,” Ambassador Froman said at a Senate Finance Committee hearing yesterday. In his written testimony, Ambassador Froman noted that the WTO Trade Facilitation Agreement is part of a coordinated trade and development strategy for Africa in particular. The Organisation for Economic Co‑operation and Development (OECD) estimates that full implementation of the Trade Facilitation Agreement would reduce trading costs by more than 14% for developing countries and by more than 15% for lower middle-income countries.

The NAM strongly supports implementation of the Trade Facilitation Agreement, in accordance with the timeline agreed upon in Bali. An important deadline for the first phase of implementation comes today, with the 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. Unfortunately, a meeting of the WTO Preparatory Committee on Trade Facilitation adjourned earlier this month without consensus on a Protocol of Amendment. WTO Director General Roberto Azevedo has scheduled an informal meeting with the heads of all 160 delegations for 9 p.m. in Geneva (3 p.m. in Washington, D.C.). The WTO expects to issue a statement after the meeting.

On July 17, the NAM was joined by eight other trade associations in sending a letter to G20 Trade Ministers in support of the WTO Trade Facilitation Agreement. In the Chairman’s Summary of the G20 Trade Ministers meeting on July 19, Australian Trade Minister Andrew Robb said “We undertook to show leadership in our support for the full implementation of all elements of the Bali outcome agreed at the 9th WTO Ministerial Conference in December 2013, including the Agreement on Trade Facilitation, consistent with the agreed timelines. We agreed this is critical to securing a strong future for the multilateral trading system. We reaffirmed the importance of capacity building to help developing countries implement their commitments.”

Ahead of the G20 Trade Ministers meeting, India’s trade ministry said it would be “difficult” for the country to support the TFA Protocol unless it is satisfied that adequate emphasis is being placed on negotiations about food security. In a statement to Reuters after the G20 meeting, WTO Ambassador Michael Punke said that “India clearly and forcefully expressed its concern that work proceed on all fronts, including food stockpiling, and received assurances that all G20 members are committed to the full implementation of all Bali agreements on the agreed timetables.”

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Tennessee Mat Maker Is Expanding With Help Of Ex-Im

Wearwell Inc. is a small Tennessee company that makes rugged and long-lasting mats used on factory floors around the world.

It’s a second-generation company and has about 100 employees who work nearly around the clock in a 150,000-square-foot facility. The company provides retirement benefits to their employees, offers them health care, and makes WWL-now (1)products stamped with the words “Made in the U.S.A.”

Given this, Chief Executive Steve Goldsmith said he is worried that some lawmakers appear willing to end a program – the U.S. Export-Import Bank – that has helped them grow.

“All these people talk about creating jobs. We’re hiring. We’re expanding. We’re a U.S. manufacturing company,” Mr. Goldsmith said. “The Export-Import Bank is the kind of thing that benefits us. It strikes me as odd, you think we’re the company lawmakers want to help.”

Wearwell is just one of the thousands of companies around the United States that use the Ex-Im Bank to create and support jobs. The Ex-Im Bank has supported 1.2 million jobs over the last five years, and those jobs are at risk if Congress doesn’t reauthorize the Bank by the end of September.

Mr. Goldsmith said the company started using the Ex-Im Bank several years ago. “Coming out of the recession, we were going strong but decided we wanted to diversify” and start going international, he said.

He said their mats can be found on factory floors, including large automotive factories, throughout the United States and Europe. He said the company tried going to private sector lenders first to get help, but private banks wanted to charge them $20,000 or more in premiums for insurance before they even exported anything.

“To start with a $20,000 credit insurance bill before you have any sales is kind of onerous,” he said.

Insurance, Mr. Goldsmith said, is necessary when working overseas, and he asserts the Ex-Im Bank’s pay-as-you-go credit insurance is better.

“I really have no knowledge or ability to collect bills overseas if someone decides not to pay me,” he said. But when the Ex-Im Bank is involved, people know to pay up or they’ll have to deal with the U.S. government.

Mr. Goldsmith said people in foreign countries generally take pride in buying American-made products and U.S. politicians should take note of that.

“This is creating jobs and this is getting U.S. products out there,” he said. “We wouldn’t be able to do that without Ex-Im. There’s a certain prestige around the world to having U.S.-made products.”

“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

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Exporters for Ex-Im: Milwaukee Business Owner Says ‘Point Blank’ Ex-Im Has Helped Him Create Jobs

Bill Maxon is the second generation of his family to run Maxon Industries Inc., a Milwaukee-based company that has been able to send its concrete-transportation equipment all over the world because of the Export-Import Bank of the United States.

Maxon IndustriesMr. Maxon doesn’t understand the recent dust-up over the Ex-Im Bank. He’s a self-described fiscally conservative Republican but has spent several years working with the small government agency – and he’s seen firsthand how it helps companies grow.

“I can tell you point blank that I have created jobs with the assistance of Ex-Im Bank,” Mr. Maxon said.

Maxon Industries is like thousands of companies—the majority of them small businesses—that have relied on the Ex-Im Bank to grow and keep jobs in the United States. If Congress doesn’t act soon, the Ex-Im Bank’s charter will expire on September 30.

The Ex-Im Bank has supported 1.2 million jobs in the last five years, something Mr. Maxon can speak to.

His 30-person company, he said, wouldn’t be where it is today without Ex-Im Bank.

The company sells large capital equipment to move and place concrete, such as large cement mixing trucks. Their equipment helped transport millions of cubic yards of concrete for the expansion of the Panama Canal and supported power generation plants in countries such as Turkey.

He said he relies on Ex-Im Bank because as a small business his local bank is “scared as hell of doing business overseas.”

The Ex-Im Bank provides export credit insurance, alleviating concerns that a foreign customer may be unable or unwilling to pay for the goods received and enabling commercial lenders to provide necessary financing. In his company’s five years of working with Ex-Im Bank, it has never had to file a claim.

Mr. Maxon is quick to emphasize that his company, and all the others that use the insurance the Ex-Im Bank offers, pay for the service.

He said the competition from foreign companies is fierce, and companies from China – and elsewhere –often get aggressive help from their government. According to a recent NAM report, U.S. Ex-Im Bank is dwarfed by our major trading partners when it comes to export credit assistance.

He doesn’t like to even entertain what would happen if the Ex-Im Bank were reauthorized, but he knows it will hurt his business.

“Ex-Im Bank helps me almost every day,” he said.

“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

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Real GDP Rebounded Strongly in the Second Quarter; Up 0.9 Percent in the First Half of 2014

The U.S. economy grew strongly in the second quarter, up 4.0 percent and recovering from a very disappointing first quarter. With that said, the first quarter data was revised again, improving slightly from a decline of 2.9 percent to a decline of 2.1 percent. The second quarter data were higher than the consensus estimates and mostly reflected an economy that has rebounded from weaknesses earlier in the year, including winter disruptions. Still, real GDP growth in the first half of 2014 was soft overall, increasing just 0.9 percent.

Consumer and business spending were strengths in the second quarter. This is perhaps not a surprise given the softness seen in the first quarter and data released since then suggesting recovering levels of activity. On the consumer side, goods spending rose an annualized 6.2 percent in the second quarter, its fastest pace since the fourth quarter of 2010 but also reflecting a bounce-back from the 1.0 percent rate of the first quarter (when winter storms prevented people from going to the stores). Personal consumption added 1.69 percentage points to real GDP, with 1.38 percent stemming from goods spending.

Businesses provided the biggest boost to the economy in the second quarter, with higher levels of investment for structures, equipment and intellectual property. Housing was also a positive for the first time in three quarters. Gross private domestic investment added 2.57 percentage points to real GDP, rebounding from the 1.13 percent drag seen in the prior quarter. Inventory spending alone contributed 1.66 percentage points to the bottom line as firms restocked their shelves after letting them deplete in the previous two quarters. Indeed, inventory spending was so strong that it could slow the growth rate in the third quarter a bit.

Government spending added 0.30 percentage points to growth, but reduced defense spending was a drag at the federal level. State and local government investments returned to being a positive contributor to growth.

Export growth remained the primary weakness in the economy, subtracting from real GDP for the second straight quarter. While goods exports increased 2.3 percent at the annual rate for the quarter, this was more than outstripped by the 13.3 percent gain seen in goods imports. As a result, net exports subtracted 0.61 percentage points from real GDP in the second quarter.

Overall, the news was positive, with healthy increases in consumer and business spending helping to lift the economy in the second quarter. This suggests that we have begun to move beyond the softness seen in the disappointing first quarter. Yet, we also cannot help but note that 2014 has started off much weaker than we would have liked, with real GDP increasing by less than 1 percent in the first half of the year. While manufacturers remain mostly upbeat about the second half, it means that real GDP will once again settle in for an average of around 2 percent this year. That is not at all what we were thinking at the start of the year.

Also, the trade data suggest that we need to do more to increase manufactured goods exports. We have seen export growth continue to decelerate so far this year. This means that policymakers should consider policies that will aid manufacturers as they seek new markets. First and foremost, it means that we need to reauthorize the Export-Import Bank. (See our study released yesterday that shows the magnitude of foreign export credit activity overseas.). As a result, the United States would forfeit billions of dollars of export opportunities if we failed to reauthorize the Ex-Im Bank by September 30.  The weak U.S. export data also mean that we need the President and Congress to work together expeditiously to enact new Trade Promotion Authority legislation that is critical to enable the United States to negotiate comprehensive and high-standard agreements in Europe and the Asia Pacific and elsewhere, which will boost U.S. manufacturing exports.

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Forfeiting Opportunity is Not an Option

Earlier today, the NAM released a new report that documents the massive size and growth of foreign export credit activity. The findings of the report, along with those of an NAM policy brief, underscore why the reauthorization of the U.S. Export-Import (Ex-Im) Bank is critical to support exports, manufacturing and jobs.

A diverse array of manufacturers, small and large, who use the Ex-Im Bank joined NAM President and CEO Jay TimmonsExImPanel in Washington to unveil the report. Without the Ex-Im Bank, these manufacturers and thousands more would not be able to grow jobs at home and compete in the global marketplace. Even with the Ex-Im Bank’s services, manufacturers in the United States seeking to export their products, and expand their businesses to reach the 95 percent of consumers who live outside U.S. borders, are at a competitive disadvantage.

As the report found, foreign export credit agencies (ECAs) continue to grow among our largest trading partners and in emerging markets. The ECAs of nine of our top trading partners—Brazil, Canada, China, France, Germany, Japan, Mexico, South Korea and the United Kingdom—provided nearly half a trillion dollars in export credit assistance to their exporters in 2013. Collectively, that amount is more than 18 times greater than the modest $27 billion the U.S. Ex-Im Bank provided the same year. China dominates the export credit financing landscape and authorized more than $153 billion in 2013.

If Congress fails to reauthorize the Ex-Im Bank, the discrepancy in export financing between the United States and the rest of the world will only continue to grow. Other nations will jump in and fill the void. Neither our nation’s manufacturers nor the economy can afford for that to happen.

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