California’s Manufacturing Sector Expected to Improve in the Second Quarter

Manufacturing activity in California is expected to improve in the second quarter, according to the A. Gary Anderson Center for Economic Research at Chapman University. The composite purchasing managers’ index (PMI) increased from 56.2 in the first quarter (January) to 58.5 in the second quarter (April). Indeed, manufacturers largely anticipate increased paces for production (up from 60.5 to 64.4) and new orders (up from 55.8 to 60.9). Roughly half of the respondents in the survey said that they thought sales and output would be higher in the second quarter.

Employment growth remained soft (down from 55.6 to 53.3). Looking at the specific responses, 24.1 percent felt that their employment levels would increase in the second quarter, with 11.4 percent saying that it would be lower. However, the bulk of responses (64.5 percent) said that their hiring levels would be unchanged for the quarter. One positive, of course, was that net hiring was positive, albeit only modestly so.

The PMI for nondurable goods (up from 56.7 to 58.2) advanced more than the one for durable goods industries (up from 58.1 to 58.3), which increased only marginally. Each was lower than it was one year ago, however, when durable and nondurable goods firms had index values of 60.3 and 60.9, respectively.

Overall, these data show that manufacturers in California see demand and production picking up this quarter. That is a good thing, but it is also worth noting that the pace of growth remains below the pace observed in mid-2013. Moreover, manufacturers in Orange County were less positive this quarter than in the last (down from 64.1 to 58.5) on slower new order and employment growth.

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

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Manufacturers Testify Before House Ex-Im Panel

Yesterday, manufacturers like Boeing and FirmGreen participated in a panel hosted by House Financial Services Committee Ranking Member Maxine Waters (D-CA) to highlight the critical importance of reauthorizing the U.S. Export-Import (Ex-Im) Bank. Ex-Im Bank faces a tough reauthorization fight in Congress this year.

Manufacturers, especially small and medium-sized manufacturers, cannot afford a lapse in the financing support that helps them stay competitive in the global marketplace. Most of the Bank’s financing deals help small businesses, Ex-Im Chairman and President Fred Hochberg told the panel. Hochberg spoke with the NAM’s Member Focus magazine last year about efforts to help businesses of all sizes.

Unfortunately, manufacturers are already facing the consequences of the uncertainty surrounding Ex-Im’s reauthorization. FirmGreen CEO Steve Wilburn told lawmakers that his company lost a $57 million contract to a South Korean competitor because reauthorization legislation faces an uncertain future in Congress. “I just want you to understand the impact on people in my company, me personally and the people in the Midwest that I can’t give those jobs to,” he said. “To me, it’s unconscionable that we allow this debate to rage on a partisan basis.”

Ted Austell, Boeing’s vice president of executive, legislative and regulatory affairs, said that Ex-Im supports the company’s 160,000 employees, 15,000 suppliers and vendors, and hundreds of thousands of workers connected to the aerospace sector. “In a word, it’s jobs,” he said.

House Democratic Whip Steny Hoyer (MD) addressed the panel yesterday afternoon, and he indicated that he will make Ex-Im a legislative priority. The NAM appreciated Rep. Hoyer’s outstanding leadership during the last reauthorization of Ex-Im, and we are very pleased that he continues to make this issue a priority. It is a critical tool that allows our small, medium and larger manufacturers to compete globally. Rep. Hoyer announced at a press conference earlier today that he is including Ex-Im Bank reauthorization in his manufacturing initiative.

This evening, Rep. Denny Heck (D-WA) and other members of the New Democrat Coalition will take to the House floor to discuss the Ex-Im Bank’s positive impact on American jobs during a “special order.” You can follow along with the New Dems on Twitter here.

The NAM will continue to advocate for Ex-Im Bank’s reauthorization on Capitol Hill and with the Administration. In March, we spearheaded a letter that was joined by more than a dozen other business leaders to urge the Senate Banking, Housing and Urban Affairs Committee and the House Financial Services Committee to take immediate action on legislation. We’re also engaging our members to add their voices and influence. Click here to learn more about what manufacturers can do today.

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Manufacturers Comment on McCabe Nomination

Manufacturers have worked with Janet McCabe in various capacities in EPA’s air office and we enjoy a constructive working relationship. It’s no secret that we haven’t always seen eye-to-eye on several of the regulations the air office has presided over. Greenhouse gas regulations are at the top of this list, and we hope EPA takes a more moderate approach.

EPA requirements for new power plants and their expected focus for existing power plants are simply not technologically achievable.  We know because our members make the technologies that EPA is basing its standards on.  The result will be to make our electricity supply less diverse, less reliable and more expensive.

A more balanced regulatory approach – one that is technologically achievable – would ensure American businesses and consumers continue to enjoy the affordability and reliability that results from an ‘all of the above’ approach to energy.  We hope the EPA will more carefully consider these concerns going forward.

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H-1B Visa Petition Period Open For a Grand Total of One Week

Yesterday, US Customs and Immigration Service announced that it had received more than enough H-1B petitions to reach the cap for FY 2015. At this point all submitted petitions will be placed in a lottery to determine which are accepted. As the USCIS announcement states, “A computer-generated process will randomly select the number of petitions needed to meet the caps…” Computers, not the employers in need of the workers, are randomly deciding who should design, build and manufacturer tomorrow’s products. Unless we address immigration reform we are driving our innovators to leave the United States.

Every day, foreign-born innovators that are already legally in the United States sit in limbo, waiting up to 10 year for their green card. These valuable employees cannot be promoted or change companies for fear of being forced to start all over again at the back of a 10 year process.  This cycle needs to stop. Manufacturers need access to a skilled workforce and need to know we can hire and promote the right person for the job – not play the job lottery.

Reform of the legal immigration system is necessary for US manufacturing to succeed. The uncertainty associated with a random lottery is counterproductive to economic growth. Manufacturers want to create jobs here in the US, not drive them abroad. Gambling our future on the Federal government drawing the right person is not a sound strategy for our economy.

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Manufacturer Testifies on Need for a Permanent R&D Credit

Last week, Congress took a positive first step to reinstating the R&D tax credit when the Senate Finance Committee passed a tax extenders package that included a two-year retroactive extension. Today, the House signaled its intention to consider a permanent R&D incentive during a Ways & Means Committee hearing on the benefits of permanent tax policy for job creators.

Judith Zelisko, Vice President of Tax for  Brunswick Corporation testifies before the House Ways and Means Committee.

Judith Zelisko, Vice President of Tax for Brunswick Corporation testifies before the House Ways and Means Committee.

Judith Zelisko, Vice President of Tax for manufacturing company Brunswick Corporation urged members of the House tax-writing committee to reinstate the R&D tax credit and to make the incentive permanent. Brunswick, a manufacturer of recreation products including marine engines and boats, utilizes the R&D credit in the design and technological developments for their 14 boat brands sold around the world. According to Zelisko’s testimony, attaining effective results from research and development help Brunswick innovate and compete successfully.

Since its lapse at the end of 2013, the NAM and the R&D Credit Coalition have been urging Congress to seamlessly extend the R&D credit as soon as possible. Last week, the Coalition released a statement of support of the extenders package that the Senate Finance Committee passed by a voice vote, but also submitted comments to House Ways and Means Committee Chairman Dave Camp (R-MI) on his tax reform draft. The Coalition’s comment letter applauded Camp for including a permanent R&D incentive in his tax reform plan, but opposed the elimination of supplies and computer software from qualifying for the credit.

The House is expected to introduce a bill, separate from the Camp tax reform discussion draft, to provide an enhanced, permanent R&D tax credit. Meanwhile, the tax extenders package must still be considered on the Senate floor. As both chambers move forward with their separate approaches, the NAM will continue to advocate for a strengthened, permanent R&D incentive, and at a minimum that the now expired R&D tax credit be retroactively extended as soon as possible

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Manufacturing Job Postings and Hiring Data Were Weaker in February

The Bureau of Labor Statistics said that manufacturing job openings declined for the third month in a row in February. After peaking at 298,000 in November, the number of job postings in the sector has continued to move lower, with 250,000 openings recorded in February. Weather has negatively impacted overall economic activity over much of this period, and it is possible that winter conditions hampered employment growth, as well. Nonetheless, this is a trend that will hopefully reverse with coming data, and it reverses what had been upward movement from May to November of last year (up from 203,000 to 298,000).

Net hiring has followed a similar pattern and was also lower in February for the third straight month. Manufacturers added 234,000 workers in February, down from 244,000 in January. At the same time, the number of separations – including layoffs, quits, and retirements – fell from 242,000 to 236,000 for the month. As such, net hiring (or hires minus separations) shifted from a net gain of 2,000 in January to a net loss of 2,000 in February. This was well below the net hiring rate of 41,000 observed in November, illustrating the current softness in the labor market.

In contrast, employment numbers in the larger economy improved in February. Total job openings increased from 3,874,000 in January to 4,173,000 in February. This was the fastest pace for job postings since January 2008. Likewise, net hiring in the month in the nonfarm business sector rose from a rather weak 97,000 in January to 203,000 in February. While manufacturers hired fewer workers in the month, there were notable increases for retail trade, leisure and hospitality, and government.

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

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Manufacturers Stand Strongly Behind Public-Private Partnerships for Innovation

As Jay Timmons, NAM president and CEO, has been saying overseas in Germany and Belgium this week, ALL manufacturing is advanced manufacturing these days. It is fueled by innovation and technology that delivers life-changing and life-improving products. However, that sort of innovation doesn’t just happen – it takes effort, dedicated resources and a commitment from both the public and private sector.

The Senate Committee for Commerce, Science and Technology is set to mark-up legislation tomorrow, S. 1468 that would authorize funding for manufacturing hubs across the country. The pilot program in Youngstown, Ohio has already delivered success in additive manufacturing solutions and we expect even greater things as the National Network for Manufacturing Innovation (NNMI) expands.

The NAM strongly supports this legislation, and Timmons has highlighted it’s potential benefits to Chairman Rockefeller (D-WV) and Ranking Member Thune (R-SD). The potential of these hubs are critical to our future way of life. As Timmons wrote, “The type of public-private manufacturing hubs that S. 1468 would authorize funding for would not only lead to groundbreaking developments that have the potential to be on par with the light bulb or the airplane but it will get these products to market faster and drive the growth of jobs in the United States versus outside our borders.”

Manufacturers will continue to stand behind the NNMI and legislation that will put the necessary resources behind it.

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NAM’s Timmons Caps European Tour at Hannover Messe

As the capstone of an immensely successful European trip, NAM President and CEO Jay Timmons delivered remarks last night at an event hosted by Germany Trade and Invest as part of Hannover Messe. As the world’s largest industrial fair, Hannover Messe and brings together industrial and government leaders from across the globe. These leaders heard Timmons’ clear message on the importance of the economic relationship between Germany and the United States and the significance that manufacturing plays. Timmons noted that the Transatlantic and Trade and Investment Partnership (T-TIP) is a vital component to advance these partnerships and promote innovation, jobs and growth. You can read his full remarks here.

He spoke extensively about the important issues to tackle in the T-TIP negotiations, from regulatory cooperation and market access to intellectual property, investment and cross-border data flows. These issues will take resolve and persistence, but can be achieved if leaders and business on both sides of the Atlantic are tenacious and vocal in their quest for an agreement that will eliminate unnecessary and duplicative barriers and set in place a next generation trade agreement that can set global standards to enable the future of manufacturing.

Manufacturers are ready for the 4th Industrial Revolution and the policies Timmons discussed at Hannover Messe are critical to making it happen. The NAM will continue to build these relationship overseas because they represent the pathway to growth.

 

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Small Business Confidence in March Recovered Some of its February Decline

The National Federation of Independent Business (NFIB) said that small business confidence in March recovered some of its February decline. The Small Business Optimism Index increased from 91.4 in February to 93.4 in March, but it had fallen from 94.1 in January. Sentiment among small firm owners has generally moved higher over the course of the past year, with quite a bit of volatility. For instance, just over the past six months, the Index has ranged from 91.6 to 94.1, with the government shutdown, weather and persistent uncertainties dampening optimism at times.

Despite the higher headline figure, the underlying data were largely mixed. On the positive side, the percentage of firms saying that the next three months were a “good time to expand” increased from 6 percent to 8 percent, returning it to the level recorded in January but still below December (10 percent). Of those saying that it was not the right time for expansion, the economy was the primary reason.

Still, “poor sales” – a proxy for the current economy – was not listed as the “single most important problem.” Instead, the top concern was a tie between taxes and “red tape,” with each cited by 21 percent of respondents. This was followed by poor sales (14 percent), the cost of insurance (10 percent), and the quality of labor (9 percent). Indeed, the net percentage of respondents saying that they expect higher sales in the next three months rose from 3 percent to 12 percent, reflecting a pickup in sentiment.

Nonetheless, earnings figures remain weak overall, and the employment and capital spending data were less positive. Small business owners said that the hiring slightly declined in March, with the net percentage planning to bring on new workers in the next three months down from 12 percent in January to 7 percent in February to 5 percent in March. Hopefully, the uptick in optimism on sales will reverse this trend in the coming months. Meanwhile, capital spending has edged marginally lower, with capital expenditure plans essentially unchanged so far this year.

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

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Revolving Credit Declined for the Second Straight Month in February

The Federal Reserve Board said that U.S. consumer credit outstanding rose 6.4 percent in February. Total consumer credit was $3.130 trillion, with $854.2 billion in revolving credit and $2.275 trillion in nonrevolving credit.

Over the course of the past 12 months, consumer credit has risen 5.6 percent, but that tells only part of the story. Nonrevolving credit, which includes auto and student loans, increased 7.7 percent over that time frame. However, revolving credit, which includes credit cards and other lines of credit, was up just 0.5 percent. In general, it suggests that Americans have been hesitant to use their credit cards when making purchases since the recession. Along those lines, revolving loans have declined in the first two months of 2014, down 0.3 percent from $856.8 billion in December.

Overall, growth in consumer credit has stemmed largely from increases in nonrevolving debt, especially for auto and student loans. For instance, student and motor vehicle loans increased 8.3 percent and 8.5 percent, respectively, using non-seasonally adjusted data in 2013.

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

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