New Durable Goods Orders Increased 0.7 Percent in June, Rebounding from May’s Decline

The Census Bureau said that new durable goods orders increased 0.7 percent in June, rebounding from a 1.0 percent decline in May. This suggests that durable goods sales have continued to recover from winter-related softness in December and January, and it was mostly in-line with consensus estimates. Through the first six months of this year, new durable goods orders have risen 4.4 percent, which indicates reasonably healthy growth year-to-date.

Unlike previous reports, transportation orders did not skew the data by much, with the sector having sales growth of 0.6 percent for the month. If you were to exclude transportation, June’s new durable goods orders would have increased by 0.8 percent, with a year-to-date gain of 4.4 percent.

The underlying sector-by-sector data were mostly positive. The largest increases were observed in defense aircraft and parts (up 15.3 percent), nondefense aircraft and parts (up 8.2 percent), machinery (up 2.4 percent), primary metals (up 0.9 percent) and computers and electronic products (up 0.8 percent). On the other hand, motor vehicles and parts (down 2.1 percent), which have been a bright spot in general of late, were a drag on growth in June. Year-to-date, motor vehicle and parts orders have increased 2.2 percent.

Meanwhile, durable goods shipments were up a more-paltry 0.1 percent in June, offsetting the 0.1 percent decrease in May. Excluding transportation (which was up 0.7 percent, mainly on nondefense aircraft), durable goods shipments would have fallen by 0.1 percent. This indicates that shipments activity was weaker than the headline figure suggests. In fact, the data were mixed. Increased shipments for communications equipment (up 3.3 percent), primary metals (up 0.8 percent) and fabricated metal products (up 0.7 percent) were largely counterbalanced by declines in defense aircraft and parts (down 2.3 percent), motor vehicles and parts (down 2.0 percent) and machinery (down 2.0 percent).

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

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Exporters for Ex-Im: Maker Of Biodegradable Products Doesn’t Want Ex-Im Bank To Vanish

Leslie Harty and her husband made –and still sell— the country’s first biodegradable coffee bag.

Their company, Maverick Enterprises Inc., has been operating in Monroe, North Carolina, for 21 years. The company specializes in making biodegradable products, including coffee bags and containers for food, to help reduce landfill waste.

Mrs. Harty, the company’s president, said they used the U.S. Export-Import Bank from 2005 to 2010 when they were selling biodegradable bags to companies in Mexico. They ultimately lost one of the contracts but intend to use the Ex-Im Bank again soon because they’re finishing up a biodegradable backing to use in baby diapers.

The potential buyer is in Mexico, and Mrs. Harty said the company will apply for export credit insurance from the Ex-Im Bank once the product is complete.

“I wouldn’t send anything down to Mexico without having the insurance from Ex-Im Bank,” she said. She said she’s heardMaverick Enterprises “horror stories” of small businesses trying to collect payments for products they’ve exported.

She said it would be “disastrous” if the Ex-Im Bank weren’t reauthorized by Congress in September, right when the company is set to begin exporting again. In addition to hurting the company’s sales, it would hurt their ability to conduct research and development.

She said the company is currently designing biodegradable netting for capturing fish and for laying sod as well as small biodegradable coffee cups like those used in Keurig coffee machines.

Those cups, or pods aren’t biodegradable. There’s a potential market for biodegradable coffee pods, and they’d like to capture those sales if possible.

Having the Ex-Im Bank as a resource, she said, will help them do that.

“Exporters for Ex-Im” is a blog series focused on the importance of the Export-Import Bank to manufacturers. To learn more or to tell Congress you support reauthorization of the Export-Import Bank, visit http://www.nam.org/Issues/Trade/Ex-Im-Bank.aspx.

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Kansas City Fed: Manufacturing Activity Expanded for the Seventh Straight Month in July

The Kansas City Federal Reserve Bank said that manufacturing activity has expanded every month so far in 2014, picking up slightly in July from June. The composite index of general business conditions rose from 6 in June to 9 in July. The pace of growth accelerated in many of the key indicators, including new orders (up from 8 to 12), production (up from 2 to 11), shipments (up from 2 to 14) and employment (up from 1 to 8). One-third of survey respondents said that their production had increased in the month.

There were two negatives in the report, as well. The average workweek (down from 7 to -3) shifted into its first contraction in six months. The percentage of those taking the survey who noted a reduced workweek increased from 12 percent in June to 17 percent in July, enough to tip the diffusion index. In addition, new export orders (up from -11 to -6) continued to fall, albeit at a slower pace of decline for the month. This measure has been in contraction territory in 8 of the past 12 months, indicating weakness on the trade front in the Kansas City Fed’s district.

Nonetheless, there continue to be encouraging signs for the months ahead. The forward-looking composite index increased from 12 to 15, with relatively strong growth anticipated over the next six months. Manufacturers in the region expect higher new orders (up from 14 to 24), production (up from 17 to 23), shipments (up from 20 to 28), employment (up from 14 to 23) and capital expenditures (up from 23 to 25) at rather healthy rates of growth. In fact, over 40 percent predict increased sales, output and shipments, with more than one-third seeing additional hiring and capital spending. Yet, the sample comments also suggest frustrations with attracting qualified workers. Exports are predicted to grow just modestly (unchanged at 6).

Respondents expect pricing pressures to remain elevated, with nearly half of those taking the survey saying that raw material prices should increase over the next six months. Still, 24 percent felt that input costs for them might fall, and the diffusion index for this measure (down from 49 to 46) eased slightly in July.

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

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Are Big Changes Coming to Employer-Sponsored Insurance?

Arguably the biggest outstanding question about the Affordable Care Act is what effect it will have on employer-sponsored insurance (ESI) coverage. According to the Bureau of Labor Statistics, 156 million Americans receive coverage through their employer or their spouse’s employer.

Many employers had to change the benefit structure of their plans to comply with the mandates contained in the ACA, but the larger question looming is whether employers continue to provide coverage at all in the coming years? The frightening thing about this question is no one really knows and there is a wide variance in the estimates out there:

  • One analysis done by the Urban Institute comes to the conclusion that the employer mandate is pretty meaningless and there would be little impact on the decision of employers to provide coverage or not. They estimate that roughly 200,000 fewer employers will provide coverage.
  • Another analysis done by S&P Capital IQ estimates that 90 percent of employers will decide to stop providing employees health coverage in the next six years. That translates to over 100 million Americans moving to the health insurance exchanges because their ESI has gone away.
  • Yet another estimate from Dr. Ezekiel Emanuel, one of the principal architects of the ACA, predicts that 80 percent of employers will suspend offering ESI in the next ten years. If he is right, it’s likely the smaller employers in the fully-insured market that would represent the 80 percent of employers deciding to stop offering coverage.


The two higher estimates are astounding numbers that signal an enormous disruption to millions of Americans in the coming years. As a country we have to determine whether such a dramatic transformation of how we all get health insurance coverage is acceptable – intended or not. Even if the estimates are off by half, we have a fog of uncertainty looming that employers and millions of their employees are going to navigate through in the coming years.

Ninety-seven percent of NAM members provide health coverage to their employees and most, if not all, I speak to want to continue providing that benefit. According to the BLS, manufacturers generally are more likely to offer coverage and their employees are more likely to accept health benefits compared to other sectors of our economy.

The ACA substantially changed the dynamics by increasing regulatory burdens and costs. If 90 percent of employers decide to stop offering coverage, it’s very reasonable to expect some of those employers will be manufacturers. It should be abundantly clear to everyone what forced them to make that decision.

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Continued Progress in China and the U.S., with Europe and Japan Growing More Modestly

The HSBC Flash China Manufacturing Purchasing Managers’ Index (PMI) expanded for the second straight month in July, rebounding from softness from January through May. The headline index rose from 50.7 in June to 52.0 in July, its highest level since March 2011. The underlying data were mostly higher, including new orders (up from 51.8 to 53.7), output (up from 51.8 to 52.8) and exports (up from 50.6 to 52.7). The sales pace was the fastest since January 2011, and each of these measures are a sign that recent stimulative actions taken by the Chinese government have had a positive impact. Some downsides in the PMI survey contracting hiring rates for the 16th consecutive month (up from 48.7 to 49.5) and slightly accelerated raw material prices (up from 50.8 to 52.9).

Meanwhile, Japanese manufacturing activity also expanded for the second straight month, but it eased slightly in July. The Markit/JMMA Flash Japan Manufacturing PMI declined from 51.5 to 50.8. The recent uptick in activity has materialized as the Japanese economy has recovered from an increased in taxes that went into effect on April 1st. Still, manufacturers in the country cannot cheer yet, as output growth came to a halt in July (down from 51.8 to 50.0, or neutral). Other indicators were mixed. Export sales (up from 49.0 to 51.6) and employment (up from 49.8 to 50.8) both shifted to positive growth, but the pace of new orders decelerated somewhat (down from 52.0 to 51.1).

In other news, the Markit Flash Eurozone Manufacturing PMI edged marginally higher, up from 51.8 to 51.9. The Flash Eurozone PMI Composite PMI was up more strongly, increasing from 52.8 to 54.0, suggesting healthier growth in the service sector. For manufacturers, the data suggest slightly faster growth in production (up from 52.8 to 53.0) and exports (up from 52.4 to 52.7), but the pace of growth for new orders (51.9) and employment (50.3) were unchanged.

Overall, these figures provide a limited degree of encouragement for the manufacturing sector in Europe, which has worried of late about slow economic and income growth. It is also still clear that the data vary on country-by-country basis, with German manufacturing activity (up from 52.0 to 52.9) accelerating in July but with French manufacturers noting yet another deterioration in sales and output. Indeed, the French economy remains in a rut, with manufacturing activity positive in just three months since January 2013.

Closer to home, the Markit Flash U.S. Manufacturing PMI decreased from 57.3 to 56.3. Despite the slight easing in July, manufacturing activity continues to grow at relatively decent rates. Through the first seven months of 2014, the top-line index has averaged 55.9, stronger than the 53.5 average noted for 2013 as a whole. The July data show both new orders (down from 61.7 to 59.8) and output (down from 61.0 to 60.4) growing at a healthy paces, albeit with some deceleration for the month. Yet, hiring growth remains more modest (down from 53.8 to 52.1) and export sales (down from 50.9 to 50.6) were just barely growing, suggesting that there remains room for improvement.

Flash data give us an advance estimate of manufacturing activity incorporating “approximately 85% of the usual monthly survey replies,” with the final PMI data for the month released on August 1.

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

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Manufacturers Support Pension Law Clarification

There is no question that maintaining a traditional defined benefit pension plan comes with significant complexity and costs for the manufacturers that sponsor these plans. We have written before about the millions of dollars manufacturers must pay the Pension Benefit Guaranty Corporation (PBGC) in the form of premiums, but manufacturers are also running up against further costs as a result of the PBGC’s interpretation of an existing pension law.

Under Section 4062(e) of the Employee Retirement Income Security Act (ERISA), companies with traditional pension plans must notify the PBGC when they cease operations at a facility and 20 percent of employees in the pension plan are separated from employment. The PBGC then determines if the company is liable for providing financial security to the pension plan. Unfortunately, the PBGC has been interpreting the law in an overly broad manner and undertaking enforcement measures even if it is not clear that a 4062(e) triggering event occurred.

As a result, manufacturers are holding off on making important changes to their business operations, such as closing a plant in an inconvenient location and moving employees to another location, because the liability requirement can force the company to sideline millions of dollars away from productive business investments.

The NAM met with the PBGC twice this year as well as the Department of Commerce to voice the concerns we have heard from manufacturers facing 4062(e) liability. Soon after these meetings, the PBGC announced that they would place a moratorium on their enforcement of 4062(e) until the end of 2014.

While the moratorium is a positive first step, manufacturers need the certainty of a permanent solution. To that end, Senators Tom Harkin (D- IA) and Lamar Alexander (R-TN) introduced legislation (S. 2511) to clarify the definition of substantial cessation of operations contained in Section 4062(e) so that manufacturers will know exactly what type of changes to business operations will trigger liability.

The NAM wrote a letter supporting the Harkin-Alexander bill, which was approved by the Senate Committee on Health, Education, Labor, and Pensions Committee today by voice vote, and urges the Senate and House to pass S. 2511 as soon as possible.

 

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Manufacturers Be Aware: Money Market Fund Reform Rules are Now Finalized

For years, regulators have threatened to impose new reforms on money market funds (MMFs) in an attempt to reduce the risk of future runs and maintain financial stability. Today, by a 3-2 vote, the Securities and Exchange Commission (SEC) approved final rules that will change the way MMFs operate. Since many businesses use MMFs to meet short term financing and investment needs, manufacturers should be aware that these new rules may impact how manufacturers manage cash.

The new rules, effective over a two year transition period, require that institutional prime funds adopt a floating net asset value (NAV) instead of using the current stable value, meaning that the share price will fluctuate. The rule also implements new discretionary liquidity gates and fees for all non-government MMFs.

After the reforms were proposed last year, the NAM, in a joint letter to the SEC, noted that the floating NAV may carry negative accounting, tax, and operational implications. The NAM also requested that the SEC hold a roundtable on the proposal to gain the perspective of key stakeholders before any changes are finalized – a request that was unfortunately ignored. The NAM has blogged before about the negative impact that the proposed MMF reforms could have on manufacturers and other business. For example, moving to a floating NAV could cost investors up to $2 billion initially and close to that amount in annual operating costs.

In her statement, SEC Chairman Mary Jo White said the Commission has worked to address at least one concern raised by the business community regarding the additional tax burden that the floating NAV would bring. To that end, the Department of Treasury and Internal Revenue Service will release guidance and proposed rulemaking today aimed at providing relief through a simplified aggregate tax accounting method and exempting investors from tracking individual transactions for tax reporting.

Republican Commissioner Daniel Gallagher voted in favor of the final rule, stating that his support had been contingent upon fixing the tax issue. On the other hand, Republican Commissioner Michael Piwowar told his fellow Commissioners that the public should have the opportunity to review and weigh in on proposed IRS tax rules before the SEC’s MMF rules are finalized, and opposed the rule for this and other reasons.

Now that the rules are final, manufacturers should consider the costs and administrative impacts that moving to a floating NAV, along with potentially paying fees or facing a gate when trying to redeem cash from a fund fees, will have on their cash management practices. Manufacturers should also review the proposed tax changes that the Treasury and IRS release today and consider if they adequately provide relief from additional tax reporting burdens.

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Improved Trade Policies Will Foster Indian Innovation and Opportunity

While there are many variables that factor into a country’s development, the ability for businesses and individuals to innovate is key to empowering economic growth and fostering opportunity. When countries like India embrace innovation, they can create new jobs, expand trade opportunities and strengthen international relations.

There is reason to hope that the government of newly elected Prime Minister Narendra Modi will improve the India’s innovation environment and reverse a worrying downward trend in the protection and enforcement of intellectual property rights. Case in point, India was ranked 76th in the annual Global Innovation Index (GII) Survey published earlier this week by Cornell University, INSEAD, and the World Intellectual Property Organisation. With a drop of 10 spots from last year, India was the worst performer among the BRICS nations and the only BRICS member that did not improve its position from last year.

Part of this drop in rankings is the result of protectionist policies that undermine international trade norms and unfairly prop up domestic markets by closing off markets to foreign competition. For example, India has implemented retail investment caps that require stores to purchase from Indian producers as well as domestic manufacturing requirements that mandate certain materials be manufactured within India. As a result of these harmful policies, this is the fourth consecutive year that India has dropped in the GII rankings.

Ultimately, these policies create barriers to cutting edge technologies and harm domestic companies by restricting innovators’ access to next generation technologies. Rather than creating false protections for domestic producers at its own economic expense, India should incentivize ingenuity and entrepreneurship by implementing policies that reward the invention and creativity of its citizens.

Manufacturers hope the Indian government will continue on a path toward productive trade negotiations that will ultimately lead to policies that incentivize innovation and foster creativity. We are ready to work with Indian businesses to share best practices and improve operations to grow economic opportunity and create jobs in both of our nations.

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Manufacturers Lead Charge to Close the Skills Gap

President Obama signs the Workforce Innovation and Opportunity Act into law

President Obama signs the Workforce Innovation and Opportunity Act into law

President Obama put his signature to important legislation to address the skills gap – an issue that has plagued manufacturers in recent years, with 80 percent of them reporting a serious difficulty in finding skilled workers. Recently, a Monster.com jobs expert took a close look at the skills gap and what manufacturers are facing.

The NAM and Manufacturing Institute have led the business community’s effort to ensure that employers have access to the 21st century workforce that they need to drive innovation, production and growth. Enacting the Workforce Innovation and Opportunity Act into law provides much needed streamlining of skills certification programs and the direction of necessary funding to ensure manufacturers have the workforce they need to succeed in a globally competitive environment.

The United States has long been the home of the most productive and successful workforce in the world. By coming together in a bipartisan manner (a sight too rarely seen in Washington these days), Congress and the President have taken an important step toward ensuring that the American workers’ reputation as the world’s best will continue.

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Exporters for Ex-Im:Mint Oil Maker Wants Ex-Im Bank Reauthorized

Terry Cochran didn’t know it at the time, but growing up on a mint farm helped prepare him for his career.

OLYMPUS DIGITAL CAMERAMr. Cochran and his brother run Norwest Ingredients in Royal City, Washington. A 15-person company, they makes mint and other oils used in gum, confection and a range of oral care products from mouthwash to toothpaste. They buy mint oil from farms around the country and process it to ensure it’s safe – and of high quality – before selling it in giant barrels that cost more than $10,000.

The two brothers started the company in 1998 and started exporting shortly thereafter. They’ve gained enough credibility that they count toothpaste giant Colgate among their customers. But as they grew, getting financing from commercial banks became a problem.

“As we grew and more and more of our sales were overseas, our local banks began to get a bit uneasy about it because as you know once it’s overseas it can be hard to get paid,” Mr. Cochran said. The company turned to the U.S. Export-Import Bank, which has approved the company loan guarantees for overseas customers. Their sales have increased, on average, about 20% annually since they began exporting.

Norwest Ingredients is like the many other small firms that rely on the Ex-Im Bank when commercial banks aren’t willing or able to help them expand abroad. The Ex-Im Bank has supported 1.2 million jobs in the last five years, and those jobs could be at risk if Congress doesn’t reauthorize Ex-Im Bank by the end of September.

Mr. Cochran doesn’t want to see that happen. If the Ex-Im Bank doesn’t get reauthorized, his sales will suffer.

And some of the company’s suppliers, including the employees who work on mint farms like Mr. Cochran did, will suffer.

“Exporters for Ex-Im” is a blog series focused on the importance of the Export-Import Bank to manufacturers. To learn more or to tell Congress you support reauthorization of the Export-Import Bank, visit http://www.nam.org/Issues/Trade/Ex-Im-Bank.aspx.

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