The Conference Board said that its Leading Economic Index rose 0.6 percent in April. The largest component of the increase stemmed from the jump in housing permits for the month, which exceeded the 1 million mark for the first time since June 2008. This factor alone added 0.4 percentage points to the Leading Economic Index. The other major factor helping to push this forward-looking measure higher were measures of credit, including the interest rate spread and the Conference Board’s index of credit conditions.

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.

Consumer confidence rebounded in May, according to the University of Michigan and Thomson Reuters. The Consumer Sentiment Survey’s overall index rose from 76.4 in April to 83.7 in May, its highest level since July 2007. It is also a sign that the lull that we have seen in consumer confidence since November has dissipated, at least in this preliminary figure. (A revised number, with more complete information, will be released on May 31.)

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.

Manufacturers that sell/and or distribute  their products outside of their home state—and that’s most Manufacturers—currently face a myriad of confusing and conflicting tax rules that cost them time, money and sometimes, business.  In a tax reform options paper  on Economic and Community Development released May 15th, the Senate Finance Committee did a good job of outlining some changes Congress could make to ensure that tax rules are consistent among the states, thus reducing potential double taxation and compliance costs, while also providing some certainty to states struggling to balance their budget.  And that’s a win-win in our eyes.

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.

It seems like each new week brings another setback for the National Labor Relations Board. This morning, the U.S. Court of Appeals for the Third Circuit issued a ruling invalidating President Obama’s recess appointments to the Board. The Third Circuit ruling was essentially the same as the conclusion reached by the Court of Appeals for the D.C. Circuit – the President’s recess appointment power was intended for times between sessions of Congress not simply short breaks taken during a session for lawmakers to return home to their states.

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.

Consumer prices declined for the second straight month, according to the Bureau of Labor Statistics. The consumer price index (CPI) was down 0.4 percent in April, building on the 0.2 percent decrease in March. These declines have helped to decelerate the year-over-year pace in inflation, falling from 2.0 percent in February to 1.5 percent in March to 1.1 percent in April. This suggests that Americans have generally benefited from mild inflationary pressures, with lower energy costs helping to provide a buffer for other increases.

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.

This week, the House of Representatives will once again vote on a bill that has little prospect of passage in the Senate and has zero chance of being signed by the President if it were to succeed. By some counts, this is the 37^th time Congress will hold a vote to repeal the Patient Protection and Affordable Care Act (ACA). So if everyone agrees that it is likely to fail to become law, why should anyone care?

The NAM did not support the ACA when it was passed by Congress and signed by the President three years ago. Generally, implementation of the law over the past three years has been disappointing. As we reach the mid-point of 2013, the implementation process has become downright alarming, which is no doubt a factor behind the vote the House of Representatives will take on Thursday to repeal the ACA.

In less than five months, beginning on October 1, 2013, Americans are supposed to have access to health insurance through state exchanges that meet the criteria set out by the ACA. Some states are setting up their own exchanges and some are just letting the federal government do it, but that’s not really the issue that’s sounding alarms and feeding anxieties among consumers and businesses alike.

With less than five months before this program goes live, there is a lot we don’t know:

-          What products are available?
-          What are the prices for those products?
-          How do consumers get coverage?
-          How much will the federal subsidies cover?
-          How do we compare plans offered?
-          Who do I call with questions?
-          What is the impact on employer-sponsored coverage?

We don’t seem to be getting very many answers from the department in charge of putting this thing together- unless you consider planning a major public relations campaign an acceptable strategy for implementation. Most people don’t have confidence a public relations campaign will do the trick.

Ultimately, that’s the meaning of the vote being taken by the House of Representatives on Thursday – it is a vote of no-confidence. It is a firm and unambiguous statement of position on a major revision of federal law that will be confronting us not only in the months ahead, but also for many years to come. That is why the NAM supports a piece of legislation that has failed 37 times – and why everyone else should be paying close attention too.

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

The Bureau of Labor Statistics reported that producer prices for finished goods were down 0.7 percent in April, extending the 0.6 percent decline in March. Lower energy prices have helped to reduce pricing pressures over much of the past year, with producer prices up just 0.6 percent from where they were 12 months ago. This year-over-year rate is down from 1.4 percent in January and 2.3 percent as recently as October. To further illustrate how inflationary pressures have eased, the year-over-year rate was 4.2 percent in January 2012, with a recent peak of 7.3 percent in July 2011. (See the attached graphic.)

Behind these figures, there were lower food and energy costs for the month. Energy costs were down 2.5 percent in April, building on the 3.4 percent decrease in March. The average price of West Texas intermediate crude oil was $92.02 per barrel in April, down from $95.31 in February and $92.94 in March. This helped to reduce energy costs at both the finished and intermediate goods levels. Meanwhile, food prices were off 0.8 percent, offsetting the increase of the same amount the month before. Reduced meat and vegetable prices were largely responsible for this decrease.

Core producer prices, which exclude food and energy costs, at the finished goods level rose a modest 0.1 percent for the month of April and were up 1.7 percent year-over-year. This number is important, as it indicates that inflationary pressures remain below the Federal Reserve Board’s stated target of 2 percent or less. This frees the Federal Open Market Committee to pursue “highly accommodative” policies to attempt to stimulate economic growth, such as it reiterated at the last meeting.

For manufacturers, the reduction in pricing pressures has been extremely helpful. Raw material costs for the sector fell 0.2 percent in April, and year-over-year, producer prices were down 0.3 percent. The largest decline was in the petroleum and coal products sector, down 1.7 percent for the month and 9.3 percent on an annual basis.

This is not to suggest that rising costs are not still an issue, as they are for some segments of the industry. On a year-over-year basis, the following sectors have seen the fastest growth: wood products (up 10.6 percent), nonmetallic mineral products (up 3.2 percent), food (up 2.5 percent), and beverage and tobacco (up 2.4 percent) manufacturing. At the opposite end of the spectrum, primary metals manufacturers have seen their input costs fall 6.0 percent over the past 12 months.

Chad Moutray is chief economist, National Association of Manufacturers.

The Federal Reserve Board said that industrial production declined 0.5 percent in April, more than double the consensus expectation of 0.2 percent. For manufacturers, production activity fell 0.4 percent in April, after a 0.3 decrease in March. This was the third time so far in 2013 that manufacturing production has contracted, decelerating the year-over-year pace from 2.4 percent growth in December to 1.3 percent in April.

Manufacturing capacity has also fallen, down from 78.3 percent in March to 77.8 percent in April. This brings the utilization rate back to where it was at year’s end, erasing the capacity gains seen in the first four months of 2013.

Durable goods production fell 0.4 percent; whereas, production in the nondurable goods industries fell 0.1 percent. Declining levels of manufacturing activity were mostly across-the-board, with only four of the 19 major sectors experiencing a gain for the month. The four sectors with higher production in the month were plastics and rubber products (up 0.4 percent), chemicals (up 0.2 percent), computer and electronic products (up 0.2 percent), and food and beverages (up 0.2 percent).

The largest declines were seen in the nonmetallic mineral products (down 1.7 percent), apparel and leather (down 1.6 percent), petroleum and coal products (down 1.5 percent), motor vehicle and parts (down 1.3 percent), and miscellaneous durable goods (down 1.1 percent) sectors.

When combined with Empire State Manufacturing Survey data out this morning, we get a true sense of just the sluggishness of growth for the sector right now. With exports that are barely growing and domestic sales softened by higher payroll taxes, it is clear that the manufacturing sector has still not emerged from pullback in activity that we began to see in the second half of last year. Uncertainties about the economy and the impact of government budget cuts continue to persist, preventing manufacturers from making large gains to output and employment. (continue reading…)

The Census Bureau reported that retail sales rose 0.1 percent in April. The consensus estimate had been for a decline of 0.3 percent. With that said, much of the increase could be explained by more spending on autos, with motor vehicle and parts purchases up 1.0 percent. This continues strong growth in the auto sector, with retail sales up 8.8 percent year-over-year.

Outside of autos, retail sales dropped 0.1 percent. The largest drag on purchasing growth stemmed from gasoline station sales, which dropped 4.7 percent in April. This extends the 3.2 percent loss in March, and year-over-year spending was down 4.6 percent. Lower gasoline prices were the primary factor in reducing the amount. The average price of West Texas intermediate crude oil was $92.02 per barrel in April, down from $95.31 in February and $92.94 in March.

The good news is that when you exclude auto and gasoline station sales, retail purchases rose 0.6 percent, suggesting that there were some broader strengths to report beyond the headlines. Businesses with increased sales in April included building materials (up 1.5 percent), nonstore retailers (up 1.4 percent), clothing and accessories (up 1.2 percent), and general merchandise stores (up 1.0 percent). At the same time, there were declines among food and beverage (down 0.8 percent) and health and personal care (down 0.1 percent) stores.

Chad Moutray is chief economist, National Association of Manufacturers.

Here is the summary for this month’s Global Manufacturing Economic Update:

Last week, we learned that the U.S. trade deficit narrowed in March. While the headline number might seem positive at first glance, the trade gap shrunk on declining levels of both exports and imports. This report was one of the more disappointing ones of late. After slowing to 5.5 percent growth in 2012, manufactured goods exports have eked out only a 1 percent gain in the first three months of 2013 so far. The data suggest that export sales have essentially stalled. The largest weakness is in the European market, but exports to Canada—our largest trading partner—also declined. Asia and South America saw the largest gains, with manufactured goods exports to China up 9.3 percent during the first three months of this year relative to the same time period last year.

There has been considerable weakness in U.S. manufacturing data during the past few months, with the Institute for Supply Management’s Purchasing Managers’ Index (PMI) decelerating and manufacturing employment unchanged in April. Regional sentiment surveys have also suggested softness in the sector, with slower sales dragging optimism lower. Domestic policies are fueling weakness in the sector, including higher taxes, tighter government spending and regulatory uncertainties. Nonetheless, our largest trading partners continue to see slower sales, with discouraging export numbers highlighting the slowdown. (continue reading…)