Indiana Added the Most New Manufacturing Jobs in July and also Year-to-Date

The Bureau of Labor Statistics reported that Indiana created the most net new manufacturing jobs in July, adding 5,500 workers during the month. These gains came from both durable and nondurable goods sectors, with hiring up by 3,400 and 2,100, respectively. Other states with significant growth in manufacturing employment in manufacturing employment in July included Kentucky (up 5,000), California (up 4,600), Michigan (up 4,200) and Illinois (up 3,900).

Indiana has also generated the most employment gains year-to-date, with 13,900 additional manufacturing jobs added through the first seven months of 2014. Missouri (up 8,100), Texas (up 7,600), Ohio (up 7,600) and Michigan (up 6,800) have also added a sizable number of new manufacturing jobs so far this year. Michigan (up 111,000) continues the lead the list of the most net new manufacturing jobs added since the end of the recession.

The national unemployment rate rose to 6.2 percent in July, as we learned in an earlier release. The lowest unemployment rate continues to be North Dakota’s 2.8 percent, followed by Nebraska (3.6 percent), Utah (3.6 percent), South Dakota (3.7 percent) and Vermont (3.7 percent). Meanwhile, Mississippi (8.0 percent) had the highest unemployment rate in the country, with several states also experiencing elevated rates, including Georgia (7.8 percent), Michigan (7.7 percent), Nevada (7.7 percent) and Rhode Island (7.7 percent).

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

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Monday Economic Report – August 18, 2014

Here is the summary for this week’s Monday Economic Report:

While geopolitical events continue to provide significant downside risks to the economy, recent data suggest that manufacturers in the United States are faring better this summer. Manufacturing production increased 1.0 percent in July, helping to lift the year-over-year pace of manufacturing output to 4.9 percent, its fastest annual pace since June 2012. Last month’s gain stemmed largely from increased motor vehicle production, with all but three of the major manufacturing sectors notching higher output levels for the month. At the same time, the utilization rate for manufacturers increased to 77.8 percent, nearly reaching pre-recessionary capacity levels.

Similarly, the Empire State Manufacturing Survey reflected strong growth in August, albeit less so than the robust levels observed in July. More importantly, respondents to the New York Fed’s survey were significantly more upbeat, with roughly 60 percent anticipating higher sales and output over the next six months. This study also reported that approximately 30 percent of manufacturers in its district planned to hire more workers and invest in additional capital expenditures in the coming months. This is welcome news, and it was largely consistent with the recent pickup in the labor market. Manufacturing job openings increased in June to their highest level in two years, with net hiring also accelerating. Of course, we already knew that to some extent. The most recent employment data found that manufacturers hired an additional 22,000 workers on average from May to July.

Meanwhile, the European economy has shown signs of backtracking, with real GDP in the Eurozone remaining unchanged in the second quarter. Germany’s economy contracted by 0.2 percent, helping to push the continent’s growth figure lower, but Italy (also down 0.2 percent) and France (flat for the second straight quarter) were also weak. In addition, industrial production has decreased in three of the past four months, with output unchanged year-over-year. We will get our first look at August purchasing managers’ index (PMI) data this week. The Markit Eurozone Manufacturing PMI report in July provided mixed news, with activity expanding for 13 straight months but growth continuing to ease over the course of this year. The latest data suggest that Europe’s economic challenges are still not behind them.

To some extent, that is true in the United States as well. We have seen improvements in a number of economic indicators, and yet, there are also persistent worries about future growth. Some of this could stem from global anxieties, but it could also be a function of disappointment with the lack of growth in the first half of the year. Preliminary consumer sentiment data from the University of Michigan and Thomson Reuters appears to pick up on this nuance, with Americans less confident once again in their forward-looking expectations. Indeed, retail sales data also reflect cautiousness on the part of the consumer, with spending unchanged in June.

This week, we will get additional insights about the health of the manufacturing sector worldwide. In addition to new PMI data for Europe, Markit will also release flash reports for China, Japan and the United States. While China’s economy had begun to stabilize in July, last week we learned that Japan’s real GDP contracted by 1.7 percent in the second quarter, or 6.8 percent year-over-year. Closer to home, the Federal Reserve will release the minutes of its July 29–30 Federal Open Market Committee meeting. Analysts will be looking for clues about when the Fed plans to start normalizing short-term rates. The Fed received good news last week with an easing in producer prices in July from recent highs, and this should help to alleviate some of the immediate pressure from inflation hawks, at least for now. Other highlights this week include the latest data on consumer prices, housing starts and permits, leading indicators and Philadelphia Fed manufacturing sentiment.

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

manufacturing production - aug2014

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University of Michigan: Consumer Confidence Slipped Again in August

The University of Michigan and Thomson Reuters said that preliminary data on consumer confidence slipped again in August. The Consumer Sentiment Index decreased from 81.3 in July to 79.2 in August, its lowest level in 9 months and off significantly from the recent high of 84.1 in April. The average reading year-to-date in 2014 is 81.5, up marginally from the 79.2 average of 2013 as a whole.

Interestingly, as the University of Michigan’s data has reflected less optimism on the part of consumers of late, a similar report from the Conference Board had its consumer confidence measure reaching a pre-recession high in July. As such, these competing data points show the complex thinking of the American consumer right now, with economic data showing rebounding activity from earlier in the year but also with nagging worries about future growth.

Indeed, the August University of Michigan data reflect this nuance. The index for present conditions improved (up from 97.1 to 99.6), but the forward-looking expectations measure dropped significantly (down from 71.1 to 66.2). The latter measure was at its lowest level since the government shutdown last fall. It is possible that Americans are reacting to geopolitical events in this survey.

We will get final data on August consumer sentiment from the University of Michigan on August 29. The Conference Board will also release its survey data on consumer confidence on August 26.

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

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PPG Brings Lawmaker to Discussion with Manufacturers

Manufacturers are keeping up the dialogue with policymakers during the August recess, taking advantage of the opportunity to bend their ears about pro-growth policies.

Among these meetings was a discussion hosted this week by PPG Industries with 25 companies in attend. Representative Mike Kelly (R-PA-03), a member of the powerful Ways and Means Committee, met with manufacturers for 2 hours to talk about tax reform, regulation, Ex-Im Bank reauthorization and the critical need for bipartisan cooperation to accomplish the hard work that must be done.

Rep. Kelly, a friend to manufacturers with a 100% voting record with the NAM during this Congress, knows firsthand the impact that Washington policies have on business owners across the country. Manufacturers were especially pleased with his dedication to reauthorizing the Ex-Im Bank.

Manufacturers in the U.S. are more engaged than ever – and we’ll be keeping up the drumbeat all summer long.

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Time Will Tell If DOE Has Fixed The Problem

The Department of Energy (DOE), which has faced broad criticism over its slow handling of applications for a license to export liquefied natural gas (LNG), today finalized new procedures that it says will expedite the process. While we are glad that the DOE has responded to these criticisms proactively by taking steps to address the problem, only time will tell whether any of these procedural changes will actually work. We are disappointed that several of NAM’s proposed changes, which we believe would have strengthened the rule, were not accepted.

The bottom line for manufacturers is that this permitting process for energy exports should operate in a way that permits the market to function. If the DOE’s new procedures get us there, great. If not, then DOE should plan to hear a lot more from us.

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Exporters for Ex-Im: Bank A “Valuable Tool” For Commercial Cleaning System Exporter

Bob Toews, vice president of Kaivac Inc., says his company is defined by its entrepreneurial spirit. That resourcefulness helped them design a no-touch commercial cleaning system that can clean floors 30 times better than a mop – in a fraction of the time.

Their patented cleaning system has appeal across the globe. It’s used in London Heathrow and Amsterdam Airports, to name a few, as well as the iconic Louvre Museum in Paris. But as is the case for many businesses looking to tap into global demand, Kaivac found the Export-Import Bank to be a valuable asset in making those deals possible.

Kaivac is based in Hamilton, Ohio, and has 50 employees. When the company started to explore potential new markets, Toews said the company networked through friends and family to reach new customers. Their success, however, was limited by the fact that they needed required cash in advance for overseas sales.

The company needed to offer credit terms to grow, but the availability of private sector credit insurance did not, according to Toews, “reach down to their level.” In 2010, Toews started using Ex-Im Bank credit insurance and got five international customers qualified.

“Offering foreigners credit terms was a big benefit. It ratcheted up their interest and ability to buy,” he said

The result has been a significant uptick in overseas sales. Toews said that last year, the company doubled their export sales – about half of which were supported by Ex-Im credit insurance. In fact, the company has just hired another person solely dedicated to selling the cleaning systems internationally.

Toews says Ex-Im is so valuable because it is “a great tool to reach markets that are hard to reach without it.” He is disappointed about the current fight in Congress for reauthorization but is confident the benefits of Ex-Im will shine through.

“At the end of the day,” Toews noted, “what other programs really help small businesses?”

“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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Despite Higher Food Producer Prices in July, Overall Inflationary Pressures Eased Slightly

The Bureau of Labor Statistics said that producer prices for final demand goods and services increased 0.1 percent in July, slowing from the 0.4 percent gain seen in June. Specifically, producer prices for final demand goods were unchanged for the month, with food prices up 0.4 percent but energy costs down 0.6 percent. The increase in food costs stemmed largely from higher prices for meats and shellfish; however, there was some relief from recent price gains for produce. On the energy side, producers have benefited from lower prices for natural gas and petroleum of late. For instance, the cost of West Texas intermediate crude oil declined from a recent peak of $107.95 per barrel on June 20 to $98.23 on July 31.

Beyond food and energy, core prices for final demand goods rose 0.2 percent in July. The largest increases were seen in apparel for women, girls and infants; commercial furniture; industrial chemicals; light motor trucks; pharmaceuticals; and transformers and power regulators. These were offset somewhat by declines in prices for floor coverings, gold and platinum jewelry, pet food, sanitary paper products, tires and x-ray equipment.

On an annual basis, producer prices for final demand goods and services rose 1.7 percent over the past 12 months. This was down for the third straight month, off from the 2.1 percent pace observed in April. Likewise, core inflation – which excludes food and energy costs – increased 1.6 percent over the past 12 months, down from 2.0 percent in May.

Overall, this suggests that inflationary pressures have eased slightly over the past couple months. While we have seen some acceleration in producer prices since the beginning of the year, costs remain below the Federal Reserve’s stated threshold of 2 percent. This indicates the inflation remains in-check, at least for now, and the recent deceleration should ease the pressure on the Federal Open Market Committee to expedite its plans to normalize rates. Of course, the final decision to raise short-term rates will hinge on economic data in the months to come.

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

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Manufacturing Production Rose One Percent in July, with Capacity Reaching a Six-Year High

Manufacturing production increased 1.0 percent in July, its fastest pace since February’s post-weather rebound earlier in the year. The jump in output helped to lift the year-over-year pace of manufacturing production to 4.9 percent, its fastest annual rate since June 2012. As such, it illustrates the recover in output in the sector since the winter months, with the year-over-year pace up from 1.5 percent in January.

Meanwhile, manufacturing capacity utilization increased from 77.2 percent in June (and just 75.5 percent in January) to 77.8 percent in July. This suggests that utilization rates for manufacturers have nearly reached their pre-recessionary levels, with July’s rate the highest level since February 2008.

Looking at sectoral performance, durable and nondurable goods output were both higher, up 1.7 percent and 0.3 percent, respectively. The largest increase stemmed from motor vehicle production, which increased by a whopping 10.1 percent in July, recovering from being flat in June. On a year-over-year basis, motor vehicles and parts output has risen 21.9 percent. This reflected the sizable gain in 2014, but it was also a function of softness in 2013 due to the sector gearing up for a new model year.

Other sectors with notable increases in July included apparel and leather (up 1.8 percent), textile and product mills (up 1.7 percent), furniture and related products (up 1.4 percent), petroleum and coal products (up 1.3 percent), nonmetallic mineral products (up 1.0 percent), primary metals (up 1.0 percent), machinery (up 0.9 percent) and computer and electronic products (up 0.8 percent). In contrast, just 3 of the 19 major sectors had declining production for the month, and these were: miscellaneous durable goods (down 0.8 percent); food, beverage and tobacco products (down 0.3 percent); and plastics and rubber products (down 0.3 percent).

On a year-over-year basis, durable goods production has risen by a healthy 8.2 percent since July 2013, with nondurable goods output up 2.1 percent. The five sectors with the fastest growth over the past 12 months include: motor vehicles and parts (up 21.9 percent), furniture and related products (up 9.2 percent), machinery (up 8.3 percent), plastics and rubber products (up 7.4 percent) and nonmetallic mineral products (up 7.3 percent).

Meanwhile, overall industrial production rose 0.4 percent in July, equaling the increase seen in June. It was the sixth straight monthly gain in production, following January’s weather-induced decline. Since January, industrial output has risen 3.0 percent, with 5.0 percent growth year-over-year. Mining production increased 0.3 percent, but utility output continues to soften, down 3.4 percent for the month. Total capacity utilization increased from 79.1 percent in June to 79.2 percent in July, its highest rate since June 2008.

In conclusion, manufacturers continue to expand strongly in July, recovering from weaknesses earlier in the year. Moreover, surveys suggest optimism for the months ahead, including respondents from the Empire State Manufacturing Survey released this morning. Yet, manufacturing leaders have also been disappointed with the slow pace of growth in the first half of this year, and their upbeat sentiment about the second half remains is filled with caution. For that reason, policymakers should focus on those initiatives which will keep the economy growing moving forward.

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

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NY Fed: Manufacturers in its District Have Expanded Strongly for Six Straight Months

The Empire State Manufacturing Survey from the New York Federal Reserve Bank said that businesses expanded strongly for the sixth straight month in August. Yet, while growth rates remain at decent levels, the pace of expansion eased somewhat for the month. The composite index of general business conditions declined from 25.6 in July, which was a four-year high, to 14.7 in August. Given the loftiness of July’s figure, it should probably not be much of a surprise that the index came back down to earth. The good news was that much of July’s increases were sustained, with 31.4 percent saying that conditions were better and 51.9 percent suggesting that they remained the same in August.

The underlying data were mixed. On the positive side, the growth rate for shipments (up from 23.6 to 24.6) and the average employee workweek (up from 2.3 to 8.0) both picked up, reflecting increased activity levels. At the same time, new orders (down from 18.8 to 14.1) and hiring (down from 17.1 to 13.6) decelerated slightly, even as they remained at decent growth levels. Pricing pressures remained elevated (up from 25.0 to 27.3), with nearly 30 percent of survey respondents suggesting that input costs were higher in August.

Meanwhile, manufacturers in the New York Fed’s district were significantly more optimistic about the next six months. The forward-looking composite index jumped from 28.5 to 46.8, its highest level since January 2012. Roughly 60 percent of those taking the survey said that they anticipate higher sales and output levels in the months ahead, with approximately 30 percent planning to hire more workers and invest in additional capital expenditures. Still, the average workweek is predicted to be unchanged six months from now, and 46.6 percent feel that raw material prices should increase.

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

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Senator, You’re Aiming At the Wrong Target

The NAM believes that recent M&A activity in the international arena highlights the critical need for a comprehensive overhaul of the U.S. tax system to reflect the global marketplace of the 21st century. In short, the answer is comprehensive tax reform, not punitive tax treatment of foreign-owned companies or other “on-off” tax changes that have been floating around Washington this summer.

The latest proposal, unveiled yesterday by Senate Finance Committee member Chuck Schumer (D-NY), takes aim at interest deductions by non-U.S. headquartered companies. Unfortunately, Sen. Schumer’s proposal seems to disregard the very important role that foreign direct investment plays in the U.S. economy. Indeed, U.S. subsidiaries of foreign companies employee more than 2 million U.S. workers, over 17 percent of America’s manufacturing workforce The ability to deduct interest expense is a critical factor in a company’s decision to invest and create jobs in the United States

Foreign investment is particularly important in U.S. manufacturing, where one in every seven U.S. manufacturing workers is employed by foreign-owned firms in the United States. These firms contributed $649.3 billion to the economy in 2010, the most recent year with data. Foreign affiliates are major exporters and, in fact, accounted for nearly 18 percent of America’s global exports.

Because of the importance of foreign direct investment to the U.S. economy, it is critical that policymakers avoid imposing discriminatory taxes on foreign-owned companies. Congress should focus on tax policies that attract and maintain more capital investment, rather than discourage it.

 

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