New study shows EPA greenhouse gas regulation would raise electricity prices, impose massive new costs on manufacturers

This week, NERA Economic Consulting released an economic study on the impact of the Environmental Protection Agency’s (EPA) proposed new greenhouse gas regulation for existing power plants. The study was supported by groups from most sectors of the U.S. economy, including the American Farm Bureau Federation, American Fuel & Petrochemical Manufacturers, American Coalition for Clean Coal Electricity, National Mining Association, Association of American Railroads, Electric Reliability Coordinating Council and Consumer Energy Alliance.

NERA’s report confirms many of our fears about this new regulation: 43 states will experience double-digit increases in the price of electricity, and overall compliance costs exceed $360 billion. Some states could see price increases that exceed 20 percent. In addition, NERA found that all consumers will have to make major new upfront investments in order to reduce overall electricity demand from their power plants. For manufacturers, that is money that could often be better spent on product development.

Manufacturers are committed to addressing global climate change and have taken strong steps to reduce our emissions, promote energy efficiency and new technologies, and become more sustainable. Those steps are working. But we must also remember that many manufacturers are trade exposed and can rarely stomach major new costs (like higher energy prices) that make us less competitive against our international competitors who don’t play by the same environmental rules. Manufacturers urge EPA to revise its greenhouse gas rule for existing power plants to avoid the higher energy prices and other consequences predicted in NERA’s report.

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Manufacturers Gather in Seattle for NAM’s Leadership Engagement Series

Leading manufacturers gathered in Seattle today to spark a conversation about America’s manufacturing comeback and the important role manufacturers must play to ensure America’s competitiveness in the 21st Century economy.  The economic situation in Washington is better than the rest of the nation. The unemployment rate is lower than the national average, median incomes are higher and we can credit a lot of this to the manufacturing industry here.

Manufacturing employs nearly 10 percent of Washington’s workforce, almost 300,000 jobs. Manufacturers’ ability to compete is significantly affected by decisions made in Washington, D.C. and it’s absolutely critical that they engage in important policy discussions. That’s why NAM is hosting a Leadership Engagement Series, traveling to major cities across the nation to discuss top manufacturing concerns and urge manufacturers to engage in the political process.

From overburdening energy regulations to increasing healthcare premiums and taxes and the need to open the doors to more free trade agreements with Trade Promotion Authority, Congress is preventing the manufacturing industry from reaching its full potential. But as a top employer, manufacturers have a powerful voice in the November elections and it’s time we take action and push for more substantive federal policies that benefit, not punish, job creators.

Follow NAM on Twitter (@ShopFloorNAM) for more information on NAM’s Leadership Engagement Series and visit the NAM’s Election Center for more information on how you can get involved.

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MAPI: Manufacturing Activity Expanded at a Slightly Slower Pace in October

The Manufacturers Alliance for Productivity and Innovation (MAPI) Foundation said that its Composite Business Outlook Index dropped from 71 in July to 67 in October. Despite the decline, manufacturing activity remained quite strong, with index readings over 50 indicating expansion. Indeed, the pace of new orders was unchanged (78) at a healthy rate of growth in the fourth quarter report, continuing to reflect improvements from six months ago (71).

Still, several of the key indicators eased in this survey. This included export orders (down from 67 to 65), the orders backlog (down from 72 to 69), prospective U.S. shipments (down from 87 to 83) and prospective foreign shipments (down from 76 to 72). Each of these readings, however, continues to reflect both strong growth.

In contrast, there were some areas of weakness to note. The percentage of respondents operating above 85 percent capacity dropped from 30.0 percent in July to 26.7 percent in October. Expected business investments also slowed considerably in this survey, with 2015 U.S. investment spending nearly just barely above 2014’s pace (down from 67 to 52) whereas foreign investment activity was expected to decline next year relative to this year (down from 64 to 48). On the other hand, the rate of R&D spending was expected to accelerate slightly (up from 67 to 70).

Overall, these data support the notion that manufacturing activity continues to improve, mirroring similar findings from other indicators. The MAPI Foundation has a generally upbeat outlook for the coming months. They predict that manufacturing production will increase by 3.4 percent and 4.0 percent in 2014 and 2015, respectively.

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

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Philly Fed: Manufacturing Activity Continued to Ease, but Growth Remains Strong

The Federal Reserve Bank of Philadelphia said that manufacturing activity continued to ease, but growth remained strong in its district. The Manufacturing Business Outlook Survey’s composite index of general business activity has declined from 28.0 in August to 22.5 in September to 20.7 in October. While this figure has decreased somewhat, sentiment remains mostly positive. For instance, just over one-third of manufacturers in the Philly Fed district felt that business activity had increased in October, with 13.5 percent noting a worsening of conditions.

The pace of new orders (up from 15.5 to 17.3) picked up in October, which bodes well for future activity. This shift occurred largely because the percentage of respondents citing declining sales dropped from 22.1 percent in September to 18.9 percent in October. At the same time, rates of growth for shipments (down from 21.6 to 16.6) and employment (down from 21.2 to 12.1) have both decelerated for the month. Along those lines, the average workweek contracted slightly, down from 4.4 to -1.3, falling for the first time since February.

Manufacturers remained overwhelmingly upbeat in their outlook despite a decrease in the forward-looking composite measure (down from 56.0 to 54.5). In fact, 58.0 percent of respondents anticipate increased new orders in the next 6 months, with 58.5 percent seeing higher shipment levels. Regarding employment, 33.1 percent expect to add new workers in the coming months, with just 5.1 percent indicating possible declines. Capital spending was also expected to increase at decent rates, particularly for equipment, computers and software and energy-saving investments.

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

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Capitol Hill Goes 3D

Modern manufacturing is not only generating life changing products, but game-changing processes as well.

3D printing, an additive manufacturing technology tool, is changing the way more manufacturers make things – from the largest companies in the world to the smallest shop floors. An industry leader, Stratasys, is driving widespread adoption of 3D printing in the manufacturing enterprise and it has brought a live demonstration to Capitol Hill today to provide a hands on demonstration of this revolutionary technology.

Congressional staff got an up close and personal look at this technology – and it was deeply impressive. In addition to the demonstrations, they received a detailed briefing on 3D printing’s economic benefits. Manufacturing is on rise and technology being put on the shop floor by Stratasys is bringing it to even greater heights.

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Manufacturing Production Rebounded in September from a Soft August

Manufacturing production increased 0.5 percent in September, offsetting the revised 0.5 percent decline observed in August. Over the past 12 months, manufacturing output has risen 3.7 percent. This was slower than the 4.7 percent pace observed in July but a nice improvement from the more-sluggish 1.5 percent rate observed in January. As such, this latest data reflects some a bit of softness in market, most notably for motor vehicles, which had a 1.4 percent decline in production in September. Still, auto sector output has expanded 5.7 percent year-over-year, continuing to make it one of the brighter spots overall.

Capacity utilization in the sector was also higher, up from 77.1 percent to 77.3 percent. On a year-over-year basis, capacity has expanded by a modest 2.1 percent.

Both durable and nondurable goods production rose 0.5 percent in September. Furniture and related products (up 2.4 percent), aerospace and other transportation equipment (up 1.7 percent), miscellaneous durable goods (up 1.6 percent), apparel and leather products (up 1.5 percent) and plastics and rubber products (up 1.2 percent) were among the leaders for production growth in the month. In contrast, sectors with declining output included motor vehicles and parts (down 1.4 percent), wood products (down 0.8 percent), nonmetallic mineral products (down 0.2 percent) and machinery (down 0.1 percent).

Meanwhile, overall industrial production jumped 1.0 percent in September, a nice gain after declining by 0.2 percent in August. Mining (up 1.8 percent) and utilities (up 3.9 percent) were up strongly for the month. Mining production, in particular, has increased significantly over the past 12 months, up 9.1 percent, largely due to the pickup in energy exploration. Total capacity utilization rose from 78.7 percent to 79.3 percent, its highest level since May 2007.

In conclusion, manufacturers have continued to be mostly upbeat about the economy. These production figures suggest that manufacturing output growth remains relatively healthy, with durable and nondurable goods production up 5.4 percent and 2.7 percent year-over-year, respectively. Each represents progress from earlier in the year (even if the durable goods figure has fallen since July).

Nonetheless, volatility in global markets and a still-cautious consumer pose downward risks moving forward, and it will be interesting to see how events play out in the coming days and weeks to see if they derail what had been a relatively positive outlook for manufacturers.

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

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Recent approvals signal “new normal” for LNG exports

Last week, the Federal Energy Regulatory Commission (FERC) quietly issued a final environmental impact statement for Cheniere Energy’s Corpus Christi liquefied natural gas (LNG) export facility in Texas. It required Cheniere to agree to 104 special conditions to ensure that the environment is protected, and it allowed the project to move forward. Ten days prior, FERC issued a similar approval for Dominion’s Cove Point LNG export facility in Maryland. Like the Cheniere approval, FERC required Dominion to adhere to 79 special conditions to protect the environment. It will do that, and the project is moving forward.

No drama. No congressional hearings or presidential proclamations. It was all so…normal.

Kind of nice, isn’t it?

A couple things happened to get us to this point. The meritless arguments from “not in my back yard” opponents and law firms masquerading as environmental groups didn’t hold water with FERC. The protests petered out.  (Which, for what it’s worth is what happens when you protest FERC on a Sunday, when it is closed.) The Department of Energy finally figured how to get itself out of the way and stop causing unnecessary delays. Freed from these regulatory constraints, the environmental permitting process was allowed to work properly. And so it did.

So with an election just a few weeks away, and with it the hope that the 114th Congress can actually work together on energy policy, it’s reassuring to see that on LNG exports at least we have reached a “new normal” whereby companies wanting to take on these projects actually get a yes or no answer in a reasonable amount of time.  However, it’s worth reminding everyone that Keystone XL has been waiting on a final permit decision for six years, coal exports in the Pacific Northwest are fighting uphill to just get their permits heard, and countless other projects are caught in permit limbo. Getting infrastructure projects moving and getting shovels in the ground is a bipartisan priority. Let’s use this “new normal” on LNG as a stepping stone to even better things.

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NY Fed: Growth in Manufacturing Activity Slowed Considerably in October

The Empire State Manufacturing Survey from the New York Federal Reserve Bank showed growth in manufacturing activity slowing considerably in October. The composite index of general business conditions declined from 27.5 in September to 6.2 in October, its lowest level in six months. Indeed, one –quarter of those taking the survey said that conditions had improved in October, down from 46.0 percent who said the same thing in September.  As such, manufacturers in the New York Fed’s district were clearly more anxious this month, a disappointment after signs of relative strength in the sector from May to September.

A decrease in new orders (down from 16.9 to -1.7) helped to explain the change in sentiment. The percentage of respondents suggesting that sales had increased in the month dropped from 40.1 percent in September to 21.9 percent in October, a shift that produced the change in direction for the new orders index. Growth in shipments (down from 27.1 to 1.1) followed the same pattern, but with the percentage of firms saying that shipments had declined in the month jumping from 16.7 percent to 25.0 percent.

On the positive side, manufacturing activity has now expanded for 21 months, and businesses have reported rebounding levels of activity overall since earlier in the year. In addition, employment (up from 3.3 to 10.2) picked up somewhat in October. Pricing pressures (down from 23.9 to 11.4) have also eased.

Looking ahead six months, manufacturers in the New York Fed region remain mostly optimistic. While many of the forward-looking measures pulled back slightly in October, they still indicate expected strength in the outlook. For instance, 52.9 percent of respondents anticipate higher levels of new orders over the coming months, down from 57.1 percent in the prior survey. Nearly 24 percent expect to add more workers over the next six months, with 34.1 percent planning additional capital expenditures. These figures tend to indicate a brighter future for manufacturers, even if the current sales and shipments data are soft.

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

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More Confusion Rather than Safer Workplaces

Today, the NAM filed supplemental comments to OSHA’s proposed rule publicizing injury and illness data of private employers. In January, the NAM’s Labor and Employment Policy team participated in a public hearing on this rule and from the outset, the NAM has opposed this rule for a few very simple reasons: 1) OSHA has the tools they need to improve workplace safety at their disposal already; 2) This data would be presented without context and could result in a serious misrepresentation of a particular company or industry; 3) This rule gets us no closer to the shared goal of a safer workplace. Nothing has changed to mitigate these concerns – improbably, the rule is getting worse

In August, OSHA reopened the rule posing several questions, without any actual regulatory text. What OSHA appears to be doing is adding new provisions to the rule as well as additional burdens and confusion to employers.

For example, if an employer has a stellar record for being injury and illness free for several months, the employer, to boost morale and to show the company’s safety record, may prominently post this for employees and customers to see.  Defying logic, however, supplements to the rule would a classify this type of posting as discouraging employees from reporting injuries and illnesses in the workplace. OSHA could therefore cite an employer for this.  Despite a reality devoid of data, scientific studies or research to back up OSHA’s assertion, they are moving forward in this misguided thinking.

OSHA should take time now to apply the fundamental question to its rule making process – does it make the workplace safer? Unfortunately, in this case it misses the mark.

Amanda Wood is Director of Employment Policy for the National Association of Manufacturers

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Lower Energy and Food Costs Push Producer Prices Down in September

The Bureau of Labor Statistics said that producer prices for final demand goods and services were down 0.1 percent in September. It was the third straight month with inflationary pressures easing, a positive development that helps both businesses and consumers. On a year-over-year basis, final demand producer prices have risen 1.6 percent over the past 12 months, decelerating from 2.1 percent in May. Producer prices for final demand goods were off 0.2 percent, extending the 0.3 percent decline observed in August, with both food and energy costs lower.

Energy prices have fallen in four of the past five months, declining by 0.7 percent in September. One of the key drivers of this decrease was the fall in gasoline prices, down 2.6 percent for the month. Indeed, the price of West Texas intermediate crude was $97.86 per barrel on August 29, but by September 30, that figure had fallen to $91.17 a barrel. (It has declined further since then, closing at $81.84 per barrel yesterday. This could indicate further deceleration in energy and producer prices in October.)

Meanwhile, food prices also decreased 0.7 percent in September. After rising 5.4 percent from December to April, producer prices for final demand food products have eased by 1.5 percent. As such, the cost of food remained 3.8 percent higher in September than at the start of the year. This has largely stemmed from higher prices for meats, eggs, dairy and produce. The largest price declines in August were seen in beef and veal, chicken, cooking oils, eggs, grains, milled rice, pork, oilseeds and turkey products.

Beyond food and energy, core prices for final demand goods were up 0.2 percent. There were higher monthly costs for commercial products, floor coverings, industrial chemicals, pumps and compressors and women’s apparel. At the same time, producer prices for footwear, household appliances and furniture, jewelry, lawn and garden equipment, passenger cars, toys and games and truck trailers were lower.

Core inflation for final demand goods and services was 1.6 percent in September, down from 1.8 percent in August and 2.1 percent in May. As such, the reduction in inflation seen in the past few months should take some pressure off of the Federal Reserve Board as it prepares to normalize its monetary policies.

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

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