Our nation’s infrastructure is in need of investment and repair. Manufacturers rely on our rails, roads, ports and waterways to deliver billions worth of commodities annually. It is a positive step that President Obama is discussing the need for reforms but we need real action to speed up the review process of many infrastructure projects. The environmental streamlining reforms in the Water Resources Development Act, which passed the Senate this week, are the types of reforms that we would need to see for future projects.

Just yesterday Peter Bowe, President and CEO of Ellicott Dredge Enterprises, testified before the House Small Business Subcommittee on Agriculutre, Energy and Trade about the benefits of Keystone XL.

“So what does the Keystone pipeline have to do with us, and why do we care? For us, it’s all about jobs, not construction jobs for the pipeline itself, but ongoing jobs every year for decades to come, all related to the production of oil from the Alberta oil sands deposits. This oil needs the Keystone pipeline. The oil sands in Alberta are one of the largest markets worldwide for dredging equipment. Our dredges are used to rehandle the tailings generated by the mining process. Tailings are the wet waste which is a combination of clay, sand, and water after the oil- bearing bitumen has been removed. All the oil sands projects generate substantial amounts of tailings which are deposited into ponds. Oil sands producers have been criticized for water usage, but now, thanks to tailings reclamation, they recycle 85% to 90% of water used, and dredges are an integral part of the recycling process.”

Keystone XL will create thousands of jobs and is critical for the competitiveness of companies like Ellicott Dredges. Keystone XL has been pending for more than 5 years, the time has come to approve this important energy and infrastructure project.

Chip Yost is assistant vice president of energy and resources policy, National Association of Manufacturers.

At the same time, the Leading index also highlighted some of the current weaknesses in the economy, particularly for manufacturers. Measures for new orders and the average workweek of production workers were net drags on the index. Indeed, manufacturing employment has been quite sluggish of late, with hiring unchanged in April. In addition, while consumer confidence did improve in April, it remains sub-par, lowering the index somewhat.

Meanwhile, the Coincident Economic Index – which measures the current climate – increased 0.1 percent in April. The higher figure resulted from stronger growth in nonfarm payrolls and personal income, with modest growth in new manufacturing sales. These increases, though, were mitigated by the 0.5 percent decline in industrial production in the month. As such, softness in the manufacturing sector has dampened the U.S. economy, something we continue to see in a number of economic indicators lately.

Chad Moutray is chief economist, National Association of Manufacturers.

The gain in confidence was more than expected, with a consensus estimate of 78.0. Perceptions about the current and future economic environment improved, with the largest gains regarding present conditions. The index for the current situation increased from 89.9 to 97.5; whereas, the forward-looking component moved from 67.8 to 74.8.

Surveys such as this one tend to rise and fall on pocketbook issues, and manufacturers tend to focus in particular on confidence indices to see if they might impact consumer behavior. The recent declines were in large part due to fiscal uncertainties, higher payroll taxes, and persistent economic worries. These issues have not necessarily gone away, but Americans are more than likely reacting to lower energy costs, decent nonfarm payroll gains, and modest growth in the U.S. economy. Earlier in the week, we did learn that retail sales – particularly when you exclude gasoline station spending – rose, a sign that consumers have picked up their purchases of late.

Moreover, the University of Michigan data tend to mirror similar upticks in confidence from the National Federation of Independent Business on small business sentiment and the most recent consumer survey from the Conference Board.

Chad Moutray is chief economist, National Association of Manufacturers.

There were four witnesses, one of which was Mr. Peter Bowe, an NAM member, the President and CEO of Ellicott Dredge Enterprises, LCC. Ellicott Dredge makes dredging equipment that is used in the processing and the reclamation of tailing ponds at the mining site. President Obama is visiting the Ellicott Dredge facility in Maryland today to discuss infrastructure.

The other witnesses included Mr. Brent Booker, Secretary Treasurer, Building and Construction Trades Department, Department, AFL-CIO, ; Mr. Mat Brainerd, President, Brainerd Chemical Company, Tulsa, OK; and Mr. Christopher Knittel from the Center of Energy and Environmental Policy Research, Massachusetts Institute of Technology.

Peter’s business is a small business with about 200 employees in four locations, Maryland, Wisconsin and Europe. For Peter and the Ellicott Dredge organization, the Keystone XL is critical because it will move oil more quickly and result in additional demand. As oil demand increases so does the demand for his products and will result in $10s of millions of dollars being spend within his supply chain. These are small and large companies located throughout the United States. The ripple effect of spending within his supply chain is substantial and impacts a number of smaller communities throughout the country.

Brent Booker’s testimony discussed the importance of the Keystone XL pipeline to the building and construction trades. Brent called the Keystone XL pipeline a lifeline for many construction workers and that the unemployment among these workers is over 13 percent. He expressed frustration with the administration for the long delay in the approval of the project. He noted that the State Department’s study determined there as “no discernible impact on greenhouse gasses through the construction of this pipeline.” In closing he noted that this project will create tens of thousands of good  paying jobs both  here in the U.S. and Canada; and that it would further boost the American manufacturing resurgence.

Matt Brainerd’s company has 83 employees in three locations and serves 3,000 customers nationwide. His company is a chemical distribution company that is part of the chemical supply chain providing products to over 750,000 businesses.  Matt stated that his company would benefit a great deal from increased supply of crude and a decrease in price. Companies like his take bulk volumes of chemicals and then break them into smaller units and also blend the chemicals before they transport and resell it to their customers.

Right now there is oil stranded in Canada because of the lack of pipeline capacity and Keystone XL would provide that additional capacity and in doing so place downward pressure on prices for the products created by crude oil. Some of these products are used in hydraulic fracturing and would decrease the costs of extracting gas from shale formation. He urged the committee to do all that they could to get this project approved and underway.

Christopher Knittel is an Energy and Environmental Economist that believes using oil from the oil sands and transporting it through the Keystone XL pipeline would have little impact on the greenhouse gas emissions. The fact that this oil would replace heavy oil from California and Venezuela, he noted, the overall impact on the environment would be far less than many would have you believe. Many make this calculation base on replacing oil sand crude with more traditional crude but that is simply not the case. It is not replacing traditional crude but it is replacing heavy crude which means that the overall impact as we switch from one source to another is not significant.

Christopher also argued that the economics of the pipeline are pretty straight forward. Building the pipeline will increase the profits of the producers by lowering costs and in turn those lower cost will get passed down throughout the economy. Finally, he said “The pipeline’s effect on jobs is amplified by the fact that the economy is still recovering from the Great Recession. When an economy is at less than full employment, short-term stimulus measures, such as governmental stimulus or capital intensive projects like the Keystone XL pipeline, can have longstanding effects beyond the short term employment effects tied to the actual project.”

Several members including Chairman Scott Tipton (CO-03) and Ranking Member Rep. Patrick Murphy (FL-18) asked the panel to discuss their feelings about the drawn out process and if there was anything they could add to why this project should not be approved quickly. Most of the Subcommittee Members express frustration with the slowness of the process and the lack of urgency. H.R. 3, Northern Route Approval Act, will come to the House Floor early next week for a final vote. It is expected to pass easily with support from both sides.

Chip Yost is assistant vice president of energy and resources policy, National Association of Manufacturers.

The NAM-supported chances include:

• Establishing uniform rules for taxing digital goods and services so that manufacturers would no longer be subject to taxation from multiple states based on just one online transaction.  The Digital Goods and Services Tax Fairness Act, introduced last Congress by Sens. John Thune (R-SD) and Ron Wyden (D-OR) would eliminate duplicative taxes on digital goods;
• Creating a bright-line test for when a state can assess income tax on an out-of-state employee who is temporarily working in that state.  The Mobile Workforce State Income Tax Simplification Act, introduced by Rep. Howard Coble (R-NC), would establish a 30 day bright-line test before states could tax these employees.
• Permanently extending the moratorium on Internet access taxes and multiple and discriminatory taxes on electronic commerce.  Without an extension of this moratorium, which expires in 2014, businesses of all sizes could be facing new taxes, further increasing the cost of doing business in the United States.  The Permanent Internet Tax Freedom Act of 2013 introduced by Sen. Kelly Ayotte (R-NH) in the Senate and Steve Chabot (R-OH) in the House, would permanently ban the internet tax; and,
• Clarifying how much activity a business must engage in within a state to become subject to that state’s business activity taxes.  The NAM has supported legislation (Business Activity Tax Simplification Act) to establish a bright-line, physical presence test clarifying when states can impose business activity taxes so that manufacturers will no longer be subject to punitive tax assessments by states where they have no plant or employees in the state.

While the Senate taxwriters make it clear that their paper discusses options, not proposals, we’re glad that these common-sense clarifications were part of the mix.  Each of the options outlined above would further spur economic and job growth by reducing the complexities brought on by having a plethora of differing state taxation rules creating administrative, compliance, and duplicative taxation burdens for manufacturers in the United States.

Christina Crooks is director of tax policy, National Association of Manufacturers.

This week’s ruling follows on the heels of another defeat for the Board last week that invalidated its notice posting rule after nearly two years of legal wrangling. The U.S. Court of Appeals for the D.C. Circuit invalidated the notice posting rule as a result of a suit filed by the NAM in September of 2011.

Joe Trauger is vice president of human resources policy, National Association of Manufacturers.

The indices looking at current activity declined, indicating some sluggishness this month. For instance, the shipments index shifted from modest growth in April (9.1) to a modest contraction in May (-8.5). The percentage of respondents saying that their shipments had declined from the previous month increased from 18.8 percent in April to 32.4 percent in May. The average workweek, unfilled orders, and delivery times were all negative, as well.

Unlike the Empire State Manufacturing Survey from the New York Fed, which was released yesterday, manufacturers in the Philly region were hiring fewer workers in May. The index for employment declined from -6.8 to -8.7. The two surveys did agree, though, on the forward-looking hiring measures. The index of expected employment six months from now rose from 8.2 to 10.0, suggesting that manufacturers plan to increase their hiring in the coming months moderately.

Indeed, manufacturers in the Philly Fed region remain cautiously optimistic about the future. The general business activity measure for six months from now rose from 19.5 to 32.3. Almost 45 percent of those completing the survey anticipate better economic conditions in the coming months, with 36.3 expecting them to be the same. Manufacturers are also planning for increased sales, shipments, and capital spending in the second half of 2013.

Regarding inventories, 58.1 percent of those answering a special question on the topic said that their stockpiles were “about right for current economic conditions.” Just over one-quarter of them expect to decrease their inventories in the second quarter, and in fact, the forward-looking index for inventories reflects a slight contraction.

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

Indeed, the decrease in the price of gasoline was the main contributor to reduction in the CPI in both March and April, with gasoline costs down 4.4 percent and 8.1 percent in those two months, respectively. On a year-over-year basis, gasoline costs were off 8.3 percent. These declines more than offset increases in electricity and natural gas.

Food prices were up a very modest 0.2 percent, with the largest increases in cereals and baking products (up 0.6 percent) and meats, poultry, fish and eggs (up 0.4 percent). The cost of fruits and vegetables declined 1.4 percent, offsetting some past increases. Overall food costs continue to experience moderate gains, up 1.5 percent on annual basis. This represents a slight pullback from the 1.8 percent pace of December.

Core inflation, which excludes food and energy costs, remains in the acceptable range. The year-over-year pace is currently 1.7 percent, down from 1.9 percent in March and 2.0 percent in February. This is below the stated goal of the Federal Reserve Board of 2.0 percent, enabling the Federal Open Market Committee to continue to pursue expansionary policies. As such, it also mirrors the producer price index data released yesterday. Both consumers and manufacturers continue to benefit from the slower pace of growth in prices, with inflationary pressures in-check, at least for now.

Chad Moutray is chief economist, National Association of Manufacturers.

The largest factor behind the decline in housing starts was the plummeting of multi-family housing starts, down from 398,000 in March to 243,000 in April. These declines appear to have taken place in all regions of the country except for the Midwest. Multi-family starts nationally are now slightly lower than they were 12 months ago, reversing the healthy gains seen in recent months. Meanwhile, new single-family construction starts decreased less dramatically, down from 623,000 to 610,000. These losses were primarily in the South. The year-over-year pace for single-family starts is still quite impressive, up 20.8 percent.

At the same time, housing permits soared to 1,017,000 annualized units in April from 890,000 in March. The permits data are important because they serve as a proxy for future construction activity, and as such, they allow us to get less worried about the declines in starts. The good news is that this is the first time that housing permits have been above 1 million since June 2008 (when they were headed lower). The year-over-year growth in housing permits between April 2012 and April 2013 was a very healthy 35.8 percent.

The largest gainer for housing permits was the increase in multi-family unit activity, up from 291,000 to 400,000, its fastest pace since (not coincidently) June 2008. Single-family permitting rose from 599,000 to 617,000.

Overall, these data continue to show an upward trend in housing, even as the latest new starts data are discouraging. The fact that housing permits grew so strongly is an indication that April’s housing starts levels should be a temporary pullback, with a slow-but-steady growth in the sector progressing forward. I would expect that housing starts should return to being over 1 million units in the coming months, and this time, they will stay there.

One other factor that helps me remain positive was the rebound yesterday in the National Association of Home Builders (NAHB) Housing Market Index (HMI). After peaking at 47 in December and January, the index has been in a lull the past few months, falling to 42 in April. In the May survey, the HMI rose to 44, a sign that home builder confidence rose slightly for the month. Even with the recent easing, builder sentiment has risen steadily over the past couple years, with the HMI measuring 16 in May 2011 and 28 in May 2012.

Optimism increased in each region of the country except for the West, and the indices for current and future potential sales of single-family homes rose. In fact, the index of expected single-family home sales in the next six months increased from 52 to 53, and it has been above 50 in eight of the past nine months. Values over 50 indicate that more respondents are positive than negative in their views.

NAHB Chief Economist David Crowe added, “While industry supply chains will take time to re-establish themselves following recession-related cutbacks, builders’ views of current sales conditions have improved and expectations for the future remain quite strong as consumers head back to the market in force.”

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

It’s no secret that our nation’s aging system of inland waterways and ports are in need of modernization. The lack of investment is catching up to us. Our inland waterways system averages 52 service disruptions per day throughout the system. Manufacturers rely on these waterways to move commodities, finished products and inputs vital to their supply chains. Continued disruptions in the system drive up costs and makes manufacturers less competitive.

The WRDA bill passed by the Senate includes important reforms to improve project delivery and streamline the environmental review process for infrastructure projects sponsored by the Army Corps of Engineers. The legislation also includes a Water Infrastructure Finance and Innovation Act (WIFIA) pilot program which will help to leverage investments in critical water infrastructure projects. And importantly the bill assesses the critical issue of under-investment in our ports and harbors by increasing authorized funding from the Harbor Maintenance Trust Fund for harbor maintenance dredging.

The National Association of Manufacturers sent a Key Vote letter to Senators yesterday urging them to support this important bill. We strongly urge the House to take up and pass a WRDA bill as soon as possible. America’s infrastructure is in great need of investment and WRDA provides us an opportunity to start making investments no in our waterways and ports.