Studies and Reports

Report Shows Positive Outlook for Manufacturing in the U.S.

According to a report released today, manufacturers in the United States will continue to benefit from increased investments – many of which might have gone elsewhere in previous years. The report, released by Boston Consulting Group, attributes the enormous growth potential to our growing competitive advantages in energy costs and labor productivity. The authors predict that there could be up to 1.2 million new manufacturing jobs added by the end of the decade, with another 1.9 million to 3.5 million additional indirect workers in the services sectors.

While manufacturers are pleased with the positive outlook, the truth is that we are now at a crossroads: the right policy choices can propel us toward a manufacturing renaissance. But the wrong choices can send manufacturers into a precipitous decline.

Manufacturers from all across the country are concerned about our ability to continue to compete and succeed with more aggressive and strategic countries. According to recent surveys of Member companies, 55 percent of business owners would not start their business again today if they had the chance to do so and 64 percent believe the drama and brinksmanship surrounding the fiscal cliff debate in December led them to believe that Congress is simply not capable of adequately addressing our nation’s fiscal challenges.

This malaise is not surprising considering the political and policy reality in Washington.  Our elected leaders took the nation to the brink of the fiscal cliff.  While they averted an economic disaster, it was only temporary. This type of week-by-week, month-by-month budgeting is having major repercussions not only in manufacturing, but in businesses in all sectors.

If manufacturers are to live up to the potential laid out in this report, Washington must embrace the policies that make this country more competitive and give businesses the certainty they need to be successful.

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

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The Federal Reserve Makes No Changes to Monetary Policy

The Federal Reserve Board’s Federal Open Market Committee (FOMC) maintained its existing monetary policy actions, as announced in its statement released this afternoon.  Much of the wording of this statement was similar to the last two. The only part that changed was the paragraph describing the economy:

Information received since the Federal Open Market Committee met in January suggests that the economy has been expanding moderately. Labor market conditions have improved further; the unemployment rate has declined notably in recent months but remains elevated. Household spending and business fixed investment have continued to advance. The housing sector remains depressed. Inflation has been subdued in recent months, although prices of crude oil and gasoline have increased lately. Longer-term inflation expectations have remained stable.

Aside from the description of an improved economy, much of the rest of the text remained the same. On the topic of inflation, the Fed feels that pricing pressures remain subdued. In particular, the release says the following:

Strains in global financial markets have eased, though they continue to pose significant downside risks to the economic outlook. The recent increase in oil and gasoline prices will push up inflation temporarily, but the Committee anticipates that subsequently inflation will run at or below the rate that it judges most consistent with its dual mandate.

It left intact the policy – enacted at its January meeting – of “exceptionally low” levels of interest rates through late 2014. Because of this action, Jeffrey Lacker, the President of the Richmond Federal Reserve Bank, dissented once again. All of the other FOMC members voted in favor. 

The Fed will also maintain its plan to continue rebalancing its portfolio toward holding more long-term securities (“Operation Twist”) and reinvesting principal payments in mortgage-backed securities. The intent of this policy is to push interest rates – particularly those impacting mortgages – lower.

Overall, it was widely anticipated that the Fed would make no new moves at its March FOMC meeting. Recent improvements in the economy and developments in Europe have tended to lessen the drive for additional stimulus from the Fed, such as another round of quantitative easing. While pricing pressures have begun to accelerate again – led by higher energy and raw material prices – core inflation as a whole remains modest, at least for now.

Chad Moutray is chief economist, National Association of Manufacturers.

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Manufacturing Job Openings Increase in January

The Bureau of Labor Statistics (BLS) observed a higher number of job openings in January in the manufacturing sector, according to new Job Openings and Labor Turnover (JOLTS) data. Manufacturers posted 285,000 new jobs in January, up from 252,000 in December. The bulk of this increase occurred in durable goods industries, with nondurable goods manufacturers’ also upping their job postings slightly.

This is obviously a positive sign of future hiring intentions, but it contrasts somewhat with actual hiring activity in January. Both net hiring and net separations figures dropped in the month. The number of manufacturing hires fell from 269,000 in December to 246,000 in January. December’s figure appears to indicate a rush of hiring before the end of the year, which was not sustained in January. Likewise, separations for the industry dropped from 239,000 to 213,000. These numbers suggest net hiring of 33,000 in January.

Looking at the larger economy, job openings, hirings and separations were all lower in January than December. Growth in manufacturing job openings was one of the bright spots. There were 3,459,000 job openings in January, compared to 3,540,000 in December. Still, the longer-term job openings trend is a positive one, as there were 2,860,000 job openings overall in January 2011. This can also be seen in the attached graphic for the manufacturing sector.

Likewise, the overall job market has improved at the state level, as well. BLS also released state and regional employment information for January showing mostly lower unemployment rates and higher levels of nonfarm employment. The lowest unemployment rate in the U.S. is still in North Dakota at 3.2 percent, with Nevada having the highest at 12.7 percent. The largest monthly improvements in the unemployment rate were found in Mississippi (now 9.9 percent) and Missouri (now 7.5 percent), with each down 0.5 percentage points since December.

Looking at the manufacturing sector, the largest monthly gain occurred in Michigan, up 16,300 workers in January. This reflects recent gains in the motor vehicle sales. On a year-over-year basis, Michigan has added 31,800 manufacturing jobs since January 2011, the most of any state. Other states with large increases in manufacturing employment in the past year include Texas (up 25,900), Ohio (up 17,700), Indiana (up 16,900), Washington (up 16,400), Iowa (up 11,800), South Carolina (up 11,200) and Illinois (up 10,500). These gains speak largely to growth in durable goods production in many of these regions.

Chad Moutray is chief economist, National Association of Manufacturers.

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Retail Sales Were Stronger in February Largely on Autos and Gasoline

The Census Bureau reported that retail sales rose much faster in February than in recent months, up 1.1 percent. This was the fastest pace since September, with January sales increasing 0.6 percent (a revised level). The two sectors with the strongest growth were gasoline stations (up 3.3 percent, due to higher prices) and motor vehicles and parts (up 1.6 percent, reversing last month’s 1.6 percent decline). If you exclude autos and gasoline, retail sales rose 0.6 percent, below the 1 percent gain of January.

Outside of those sectors, though, the news was mostly positive.  These included clothing and accessories (up 1.8 percent), building materials (up 1.4 percent), electronics and appliances (up 1 percent), sporting goods and hobbies (up 1 percent) and nonstore retailers (up 1 percent). The only businesses with lower retail sales in February were furniture and home furnishings (down 1.2 percent) and general merchandisers (down 0.1 percent).  Warm weather and improvements in the economy have helped to lift consumer spending.

Year-over-year gains in retail sales indicate a 6.5 percent increase since February 2011. Among the sectors with the fastest yearly sales growth are building materials (up 13.8 percent), gasoline stations (up 10.3 percent), furniture and home furnishings (up 8.3 percent), clothing and accessories (up 7.3 percent) and motor vehicle and parts (up 6.9 percent).

Meanwhile, the Census Bureau also announced new business inventory figures for January. Total inventories rose 0.7 percent, its fourth straight month of healthy increases. Retail inventories led the gain, up 1.1 percent, aided by higher auto sales. Motor vehicle inventories grew by 2.6 percent for the month. Manufacturing inventories grew 0.6 percent, which was stronger than the 0.2 percent increase in December. In addition to motor vehicles, other sectors with large increases in inventories include building materials (up 1.1 percent) and clothing and accessories (up 0.8 percent).

As noted in previous releases, the inventory-to-sales (I/S) ratios remain mostly constant, especially as businesses have done a good job with inventory control. The current I/S ratio for manufacturing is 1.33, which is unchanged from the previous month.

Chad Moutray is chief economist, National Association of Manufacturers.

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Weekly Economic Report – March 12

With consumers and businesses more confident, the U.S. economy continues to expand modestly. An improved – but still weaker-than-desired – jobs picture is part of that. The U.S. added 227,000 net new jobs in February, or 1.2 million in the past six months. Manufacturing has played a significant role in the recent rebound and since the end of the recession. In fact, over the past three months, manufacturers have added 111,000 new workers as overall activity has picked up. The manufacturing sector has contributed over 13 percent of all net new jobs created in the nonfarm economy since December 2010.

To be fair, the recent job gains in manufacturing have not been as broad-based as we might prefer. They have stemmed primarily from durable goods producing industries, with nondurables continuing to lag. This trend has been fairly consistent over the past two years, yet it would be nice to see greater employment gains across-the-board. Of course, this also mirrors industrial production data, with stronger growth tending to concentrate among the motor vehicle, aerospace, fabricated metals, machinery and primary metals sectors.

One of the larger threats to growth is a slower global economy. Mario Draghi, the European Central Bank president, announced a lower forecast for real GDP growth, with output slightly contracting for the continent as a whole this year. Meanwhile, other economies are also slowing. China, for instance, just cut its growth target to 7.5 percent. This slower growth shows up in the international trade figures released on Friday. Goods exports dropped in most regions of the world, including those to China and Europe. Increased imports of petroleum were another factor, with the overall trade deficit widening for the third consecutive month.

This week, we will gain further insights into the strength of the current rebound. New industrial production figures will be released on Friday, following regional survey data from New York and Philadelphia. The Federal Reserve Board will also announce on Tuesday whether or not it intends to pursue any new monetary policies. As always, the Fed will be mindful of inflation, and later in the week, the Bureau of Labor Statistics will issue updates on both consumer and producer prices. In addition to those releases, other highlights for the week include updates on consumer and small business sentiment, job market turnover and retail sales.  

Chad Moutray is chief economist, National Association of Manufacturers.

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Exports Lower on Slowing Global Growth in January

The Bureau of Economic Analysis and the Census Bureau reported that the U.S. trade deficit grew from $50.4 billion in December to $52.6 billion in January. Americans imported $233.4 billion in goods and services for the month (up from $228.7 billion the previous month) and exported $180.8 billion (up from $178.2 billion). This was the third consecutive month of a widening trade deficit, and the highest that it has been since October 2008.

A widening of the deficit for petroleum was the largest factor behind this month’s higher overall deficit. Exports of petroleum dropped from $10.6 billion to $9.4 billion; at the same time, imports grew from $37.8 billion to $39.1 billion.

The trade deficit for goods widened in the month, while there was a modest improvement in the services sector. The value of U.S. manufactured goods exported in January was $77.2 billion, down from $83.0 in December. Despite the decline, exports are still up overall from the $70.8 billion registered in January 2011.

Among goods exports, areas of strength included capital goods excluding automotive (up $1.3 billion), automotive vehicles and parts (up $1.05 billion) and foods, feeds and beverages (up $97 million). Declining exports were found among industrial supplies (down $295 million), consumer goods (down $215 million) and other goods (down $548 million). Meanwhile, the largest increases among goods imports were found in automotive vehicles (up $2.4 billion), industrial supplies (up $1.1 billion) and foods, feeds and beverages (up $437 million).

One of the things that definitely stands out with these numbers is the impact of slowing global growth. This is clear with both Europe (with exports falling from $27.2 billion to $24.5 billion) and China (down from $10.1 billion to $8.1 billion). Europe is currently in a recession, and China just announced slower growth targets for this year.

Overall, these figures show that exports have slowed recently due to weaknesses in the global economy. With import growth outstripping export growth, our trade balance has widened. For manufacturers – which contribute 60 percent of our total exports – it will be important for us to regain our footing by selling more of our goods overseas.

This, of course, will hinge on faster growth around the world, but it will also depend heavily on adding new markets and exploring new opportunities abroad. For this, policymakers can be helpful. Among their top priorities: getting the Export-Import Bank reauthorized. Beyond that, Washington should work to expand the number of trade agreements for greater access to new markets.

Chad Moutray is chief economist, National Association of Manufacturers.

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Manufacturers Added 31,000 Jobs in February, Unemployment Rate Remains 9.3 Percent

The U.S. economy added 227,000 net new jobs in February, according to the Bureau of Labor Statistics. This was a stronger-than-expected increase, but it was still below the revised gain of 284,000 in January. Manufacturers added 31,000 net new workers, bringing the sector’s three month increase to 111,000. Since December 2010, the manufacturing sector has generated 316,000 net new jobs. Over the same time period, there were 2.35 million nonfarm payroll jobs added in the past 14 months. Therefore, 13.4 percent of all of the nonfarm payroll jobs added in those 14 months were from manufacturing. 

Much has been made of the participation rate lately, as we have seen a drop in the number of people employed over the past few months. The participation rate rose from 63.7 percent in January to 63.9 percent in February. Still, the rate was 64.2 percent in February 2011. Meanwhile, the number of discouraged workers dropped 53,000 in the month. The “real” unemployment rate – which included discouraged and underemployed workers – is now 14.9 percent, down from 15.1 percent last month.

Looking specifically at the February job gains in manufacturing, all of the net job gains stemmed from the durable goods sector, which rose by 31,000. Nondurable sector employment was flat. The largest gains came from fabricated metal products (up 11,400), transportation equipment (up 8,300, including 5,600 from motor vehicles), machinery (up 4,500), furniture and related products (up 3,100) and beverages and tobacco products (up 2,300). Declining sectors included printing and related support activities (down 2,500), miscellaneous manufacturing (down 1,600) and paper products (down 1,300).

The average workweek for manufacturers rose slightly from 40.9 hours in January to 41.0 in February. The average amount of overtime remained at 3.4 hours. Likewise, the average weekly earnings for manufacturing workers rose from $977.51 to $979.90.

Overall, these numbers show continued strength in the U.S. economy, with manufacturing playing a key role in the recent rebound. While total nonfarm payroll and manufacturing employment grew somewhat below the gains of January, the job gains of the past three or four months have been impressive. Manufacturers continue to express cautiously optimistic about activity over the next few months – something which bodes well for employment growth in the sector.

With that said, it is also clear that manufacturers are closely following the developments in Europe and the tax and regulatory discussions in DC. The recent run-up in energy and raw material prices has also captured their attention. Therefore, as we have noted for a while, anxieties about possible threats to the economy continue to persist, even as the domestic outlook has become more positive.

Chad Moutray is chief economist, National Association of Manufacturers

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Consumer Credit Surges in January Despite Lower Revolving Balances

The Federal Reserve Board reported that consumer credit increased $17.8 billion in January to $2,512.3 billion. This is the fifth consecutive month of gains, with strong increases in the last three. This month’s advance stemmed entirely from higher nonrevolving loan amounts, as revolving credit fell by $2.9 billion in January. The largest increase among nonrevolving credit lines was for student loans from the federal government, up $27.9 billion. A drop in commercial bank loans was largely responsible for the decline in revolving credit, down $16 billion.

Overall, consumer credit is up 8.6 percent year-over-year. The surge in borrowing was mostly attributable to increased auto and student loans, with nonrevolving balanced up 14.7 percent since January 2011. Revolving loans, on the other hand, dropped 4.4 percent over the past year, reflecting weaker consumer spending recently.

Chad Moutray is chief economist, National Association of Manufacturers.

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ADP Reports 10,000 Additional Manufacturing Workers in January

According to Automated Data Processing (ADP), manufacturers added 21,000 net new employees in February, up from an increase of 16,000 in each of the past two months. This suggests that the stronger growth in industry employment has continued into February. Goods-producing firms – which include manufacturing, construction, and mining – added 46,000 net new jobs. This is the fifth consecutive month of gains in the goods-producing sectors, with 146,000 more employees added in that time frame.

For the economy as a whole, there were 216,000 new nonfarm, private payrolls, up from 173,000 last month. Small and medium-sized employers (e.g., those with less than 500 employees) accounted for all but 20,000 of those jobs.

Of course, the ADP figures are a precursor for the release of the official jobs report from the Bureau of Labor Statistics (BLS) on Friday. BLS reported 243,000 new nonfarm payrolls jobs and 50,000 manufacturing workers in January. Expectations are slightly lower payroll numbers for February, with the current consensus estimate of 150,000 new nonfarm payroll jobs. 

Chad Moutray is chief economist, National Association of Manufacturers.

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Weekly Economic Report – March 5

 Two narratives dominated last week’s economic discussion. First, as the Beige Book from the Federal Reserve Board stated, the economy “continued to increase at a modest to moderate pace in January and early February.” In his congressional testimony, Chairman Ben Bernanke was also quick to cite the important role that manufacturing has played in the recent rebound, with higher levels of activity reported in most areas of the country. Indeed, regional surveys from the Dallas and Richmond Federal Reserve Banks observed greater production activity and increased optimism for the next six months.

This upbeat assessment is shared by business economists at the National Association for Business Economics, who see a stronger outlook. Their consensus estimates for real GDP growth for this year and next are 2.4 percent and 2.8 percent, respectively. Adding to this sentiment, the Bureau of Economic Analysis (BEA) revised its estimates for fourth quarter 2011 growth up from 2.8 percent to 3 percent, led by increased consumer spending and business inventory accumulation. BEA also reported modest growth in personal income and spending for January, with strong gains in durable goods purchasing. Consumers, too, are more confident, according to the Conference Board, with their sentiments about the current and future economy at their highest level since this time last year.

In contrast to the more positive tone of many of these studies, the second narrative of last week focused on a series of indicators that unexpectedly declined. Most of us were anticipating growth for the Institute for Supply Management’s purchasing managers index, but it declined from 54.1 in January to 52.4 in February. This was led by a slower pace of growth for new orders, with production and employment also easing. Likewise, the Census Bureau reported reduced durable goods orders and construction spending in January.

In each of these cases, the longer-term trend remains a positive one and is in line with the first narrative. November and December figures were sharply higher, and so it might be expected to have some easing afterwards. Growth should resume in the coming months, especially as industrial production should grow around 4 percent this year. Even with that said, it is also clear that manufacturers are closely watching the events of Europe, once-again resurgent energy and raw material prices, and policy actions stemming from Washington. They remain cautious that one of these headwinds might derail growth, even with higher optimism overall.

This week, everyone will be focused on Friday’s jobs numbers. With 82,000 net new jobs created in the past two months, I anticipate continued improvements in employment for the sector, but perhaps not as large as were seen in November and December. Other key indicators of note include the release of revised productivity data on Wednesday and international trade findings on Friday.

Chad Moutray is chief economist, National Association of Manufacturers.

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