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Monday Economic Report – July 14, 2014

By | Economy | No Comments

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

Just a few data releases came out last week, so our view of the economy changed little from the previous week. Manufacturers continue to wrap their heads around the fact that growth in the early months of 2014 has been more disappointing than originally anticipated, but at the same time, they are cautiously upbeat about the second half of the year. The sharp 2.9 percent drop in real GDP in the first quarter clearly altered perceptions about the economy, with business leaders struggling to try to figure out how that impacts their prospects for the rest of this year. For instance, was the drop in activity mostly due to severe weather, or were there larger doubts about the economy at play?

For their part, business economists have lowered their projections for real GDP growth in 2014, from 2.5 percent in June (before the GDP revision) to 1.6 percent. At the same time, real GDP is expected to bounce back in the second quarter, with a median growth estimate of 3.0 percent, according to the National Association for Business Economics (NABE). (My own projection would be somewhat higher than that, perhaps around 3.5 percent.) Moreover, almost 60 percent of economists surveyed felt that the odds of a recession in 2014 or 2015 were less than 10 percent. In addition, more than half of the NABE respondents felt that the Federal Reserve would start raising short-term interest rates in the first six months of 2015.

Along those lines, the minutes from the June 17–18 Federal Open Market Committee (FOMC) meeting suggest that the Federal Reserve Board continues to also see improvements in the U.S. economy in the months ahead, even as sufficient “slack” remains in the labor market. While the Federal Reserve projects real GDP growth of 3.0 to 3.2 percent in 2015, it also intends to maintain its highly accommodative stance to monetary policy for the foreseeable future.

The FOMC reported plans to end its purchases of long-term and mortgage-backed securities in October, which mainly confirmed existing conventional wisdom, and it devoted a lot of discussion at its meeting to its exit strategy. The timing of the Federal Reserve’s move toward “normalization” in its policies has already become a focus of debate, with the guessing game now being when the increase in federal funds rate will begin. With pricing pressures accelerating of late, some will suggest that the Federal Reserve should move faster in its efforts to raise short-term rates, especially if core inflation starts to consistently exceed the stated FOMC goal of 2 percent on an annual basis.

Meanwhile, the National Federation of Independent Business (NFIB) reported that small business confidence declined somewhat in June on a slightly weakened outlook. The underlying data paint a mixed picture of encouraging news and persistent challenges, with continuing doubts about momentum in the economy and frustration with the political climate. Nonetheless, the small business labor market appears to be improving, both in terms of current job openings and those intended for the next three months. Similarly, the latest Job Openings and Labor Turnover Survey (JOLTS) data show the fastest pace of manufacturing job postings in six months, with an increase in net hiring in May. While hiring has picked up from softness earlier in the year, it continues to remain lower than what was observed in the second half of last year.

This week we will get a better sense of whether the recent pickup in manufacturing activity can be sustained as we move into the summer months. Industrial production is expected to reflect a modest gain in June, with expansion also predicted in surveys from the New York and Philadelphia Federal Reserve Banks. With that said, the pace of sales and output growth is anticipated to ease slightly. Other highlights include the latest data on consumer sentiment, housing starts and permits, producer prices, retail sales and state employment.

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

Manufacturers Named to Council on Jobs and Competitiveness

By | Economy | No Comments

The White House has announced the names of the members of the President’s Council on Jobs and Competitiveness, which meets for the first time this afternoon.

The 23 members include nine current manufacturing executives or people who have led manufacturing operations so that’s good. President Obama earlier appointed Jeff Immelt, head of General Election, to chair the advisory group.

The full list of members is here.

The manufacturers:

  • Lewis “Lew” Hay, III is chairman and chief executive officer of NextEra Energy, Inc., one of the nation’s leading electricity-related services companies and the largest renewable energy generator in North America
  • Ellen Kullman is chair of the board and chief executive officer of DuPont. Prior to becoming chief executive officer in 2009, she served as executive vice president and a member of the company’s office of the chief executive.
  • A.G. Lafley is the former Chairman of the Board, President and Chief Executive Officer of Procter & Gamble. He currently serves as Special Partner at Clayton, Dubilier & Rice and as a Director of the General Electric Company
  • Darlene Miller is the owner and CEO of Permac Industries, a Minnesota machining company custom manufacturing precision parts for customers worldwide.
  • Paul S. Otellini is President and Chief Executive Officer of Intel Corporation. Mr. Otellini previously had served as Intel’s president and chief operating officer, positions he held since 2002, the same year he was elected to Intel’s board of directors.
  • Antonio Perez is Chairman and Chief Executive Officer of Kodak. Since joining the company in 2003, Mr. Perez has led the worldwide transformation of Kodak from a business based on film to one based primarily on digital technologies.
  • Brian L. Roberts is Chairman and CEO of Comcast Corporation and Chairman of the Board of Directors of NBCUniversal.
  • Matt Rose is Chairman, President and Chief Executive Officer of Burlington Northern Santa Fe Railway Corporation.

The one small-business representative on the panel is Darlene Miller of Permac Industries.

UPDATE (11:05 a.m.): The Washington Post reports, “The president will assemble a motley crew of business executives and others Thursday to solicit ideas on the economy at the White House.” Post must have meant “motley” as in the sense of diverse, not harlequin-like.

Was Watson Invited?

By | Economy, Trade | One Comment

From The San Francisco Chronicle, “Obama to dine with Bay Area high-tech titans“:

President Obama, making his eighth official visit to California, is coming to the Bay Area today for an intimate dinner with some of the Bay Area’s star high-tech executives – a session aimed at focusing on innovation, job creation and education….

Those leaders included Google’s Eric Schmidt, Intel’s Paul Otellini and Cisco Systems’ John Chambers. Facebook founder Mark Zuckerberg – whose company Obama has praised as an innovation leader – will be among the guests, Bloomberg News reported, citing a source with knowledge of the meeting.

Bloomberg also reports the planned attendance of Jeff Immelt, CEO of General Electric and the chairman of the President’s Council on Jobs and Competitiveness.

When President Obama spoke at the U.S. Chamber of Commerce on Feb. 7, he said the Council on Jobs and Competitiveness would hold its first meeting on Feb. 24, a week from today. We haven’t seen anything else about that meeting in the news, though.

Also, members of the Innovation Coalition, a national network of technology and entrepreneurial associations held a Washington fly-in Wednesday to promote policies that support innovation and R&D.

GE’s Immelt: A Blueprint for Keeping America Competitive

By | Economy, Energy, Innovation, Regulations, Trade | 3 Comments

The White House has announced that President Obama will sign an executive order creating the President’s Council on Jobs and Competitiveness. The chairman will be Jeff Immelt, chairman and chief executive of General Electric.

Immelt referred to the new council in an op-ed in today’s Washington Post, saying it would comprise representatives of small and large businesses, labor, economists and government and expressing hope it would serve as “a sounding board for ideas and a catalyst for action on jobs and competitiveness.”

And what action does America need? Immelt identified manufacturing, exports and innovation as priorities. From “A blueprint for keeping America competitive“:

Manufacturing and exports: We need a coordinated commitment among business, labor and government to expand our manufacturing base and increase exports. The assumption made by many that the United States could transition from a technology-based, export-oriented economic powerhouse to a services-led, consumption-based economy without any serious loss of jobs, prosperity or prestige was fundamentally wrong. But there is nothing inevitable about America’s declining manufacturing competitiveness if we work together to reverse it. For example, we have returned many GE appliance manufacturing jobs to the States by collaborating with our unions and making our operations more efficient.

Working with Boeing CEO Jim McNerney, who leads the President’s Export Council, the Council on Jobs and Competitiveness will look for ways to harness the power of international markets – home to more than 95 percent of the world’s consumers. Currently, the United States ranks lowest among the world’s largest manufacturing nations in the ratio of domestically produced goods sold overseas, or export intensity. We must set as our highest economic priority not just increasing our exports, as the president has pledged, but also making the United States the world’s leading exporter in the 21st century.

Free trade: America cannot expand its manufacturing base without greatly increasing the volume of goods it sells overseas. That is why I applaud the free-trade agreement recently concluded between the United States and South Korea, which will eliminate barriers to U.S. exports and support export-oriented jobs. We should seek to conclude trade and investment agreements with other fast-growing markets and modernize our systems for export finance and trade control. Those who advocate increasing domestic manufacturing jobs by erecting trade barriers have it exactly wrong.

Immelt is scheduled to host President Obama on a tour of GE’s Schenectady operations this afternoon.

The White House is also letting it be known that competitiveness will be a major theme of the President’s State of the Union address next Tuesday.

Executive orders on regulations and now a council for jobs and competitiveness are good things. The President could demonstrate his support for policies to match the goals of the orders by acting quickly to submit the pending free trade agreements (Korea, Panama, Colombia) to Congress for enactment. And then rein in the EPA.

Dispatch from the Front: The Week of January 10

By | Briefly Legal, Dispatch from the Front, General | One Comment

The President balances a response to the Tucson shootings and a focus on foreign policy this week.  The Senate is on recess, and the House has canceled legislative business.

President Obama and First Lady Michelle Obama lead a moment of prayer at 11 a.m. this morning in remembrance of the victims of the Tucson shootings. He then meets with French President Sarkozy in the White House for a discussions and a working lunch. The President has postponed a planned trip to the GE plant in Schenectady and his schedule is otherwise in flux.

House leadership has cleared the week’s schedule of legislative action following the shooting rampage in Tucson that killed six and left Rep. Gabrielle Giffords (D-AZ) gravely injured. This was originally going to be the week during which the House would debate H.R. 2, the Repealing the Job-Killing Health Care Law Act. The House is not in session Thursday and Friday to accommodate the Republican policy retreat. Check back at the Majority Leader’s website for updates.

The Senate has adjourned until Tuesday, Jan. 25.

Jay Timmons, executive vice president of the National Association of Manufacturers, speaks Thursday at the Export-Import Bank’s launch of the Global Access for Small Business initiative. Also participating: Commerce Secretary Gary Locke, U.S. Trade Representative Ron Kirk, Eximbank Chairman Fred Hochberg, the SBA’s Karen Mills and Tom Donohue of the U.S. Chamber.

House Hearings: House Ways & Means holds an organizational meeting Wednesday. Also Wednesday, House Foreign Affairs Committee holds a hearing, “The United Nations: Urgent Problems that Need Congressional Action.”

Executive Branch: Defense Secretary Gates is traveling to China, Japan and South Korea through Thursday. Secretary of State Clinton makes stops in the United Arab Emirates, Oman and Qatar this week. (Briefing) Secretary of Agriculture Vilsack speaks to the Farm Bureau in Atlanta today. Vice President Biden travels to Pakistan. The White House is also previewing Cabinet addresses in advance of China President Hu Jintao’s visit to Washington next week: On Wednesday, Treasury Geithner will delivers remarks at the Johns Hopkins School of Advanced International Studies (SAIS), where he will discuss the U.S. economic relationship with China. Thursday, Commerce Secretary Locke addresses the U.S. – China Business Council (details). On Friday, Secretary Clinton will deliver a major address at the State Department that presents the Administration’s broad vision of U.S. – China relations in the 21st Century.

Judicial Branch: The U.S. Supreme Court hears oral arguments this week on cases of interest to manufacturers. Today, the case is Matrixx Initiatives, Inc., v. Saracusano, regarding securities class-action suits based on a company’s failure to disclosure non-material information. (NAM’s Manufacturing Law Center entry.) On Tuesday, the court hears two cases in tandem that could vastly expand the scope of product liability suits against foreign manufacturers in state courts on the thinnest of jurisdictional connections. The cases are J. McIntyre Machinery, Ltd. v. Nicastro (Law Center entry), and Goodyear Dunlop Tires Operations v. Brown (Law Center entry).

Economic Reports: From CNBC: Wholesale trade for November is reported Tuesday, import prices for December are Wednesday and international trade for November is Thursday. The Fed’s beige book is released Wednesday afternoon.There is also inflation data, when producer prices are reported Thursday and consumer prices are reported Friday. Friday’s data also include industrial production, consumer sentiment and business inventories. See also Associated Press summary, Neil Irwin’s column in The Washington Post.

The North American International Auto Show opens in Detroit with press previews today, industry previews on Wednesday and the public show on Saturday.

Manufacturing Discussions Galore in Chicago at Reuters Event

By | Economy, Infrastructure | No Comments

Reuters wraps up its three-day Reuters Manufacturing and Transportation Summit today in Chicago. Interesting remarks abound, with a theme of recovery.

Terex looks for deals, but valuations are high: “Large equipment manufacturer Terex Corp (TEX.N) is looking to grow through acquisitions, particularly in Europe, but Chief Executive Ron DeFeo said opportunities are limited due to rich valuations.”

Navistar CEO cheered by JB Hunt buy but cautious: “(Reuters) – The top executive of Navistar International Corp (NAV.N), a U.S.-based vehicle maker, said on Tuesday he is beginning to see some signs of improvement in the hard-hit commercial truck business — though he cautioned “it’s still very tough out there.”

U.S. in ‘Nike swoosh’ recovery: Timken: “(Reuters) – The chief executive of global bearings maker Timken Co (TKR.N) feels “hopeful but cautious” about the sustainability of a U.S. economic recovery, whose shape is likely to resemble a Nike swoosh logo, CEO Jim Griffith said on Monday. ‘We believe the recovery is real,’ Griffith told the Reuters Manufacturing and Transportation Summit. ‘We believe it’s modest, and we’re running the company on the basis that there will be a slow, gradual improvement in the economy.'”

Risks rise as capex borrowing returns: PayNet CEO: “(Reuters) – Small trucking companies appear to be borrowing again to finance investment in their businesses, a sign they are gaining confidence in the economic recovery, Bill Phelan, president of PayNet, said on Monday.”

SPX CEO sees return to growth in 2011” “(Reuters) – SPX Corp (SPW.N), which is braced for a 2010 profit drop of up to 23 percent, expects to resume growth in 2011 as the aging U.S. electric grid and emerging-market recovery spurs demand for its products.”

Very impressive lineup of speakers and subjects. Congrats to Reuters.

Wisely, White House Shelves ‘Tax Deferral’ Plan…For Now

By | Economy, Taxation | No Comments

The Wall Street Journal today covers the ins and outs of tax deferral, a critically important issue for businesses with an international presence, “Business Fends Off Tax Hit.” Under the U.S. global tax system, taxation of overseas earnings are deferred until those earnings are brought home to the United States. In May, President Obama detailed his plans to raise taxes on those earnings by using aggressively populist — and misleading — rhetoric about “companies that ship jobs overseas.”

As John Engler, president of the National Association of Manufacturers, said at the time:”President Obama’s proposal to impose more than $100 billion in new taxes on corporate foreign earnings will destroy jobs in the United States and make U.S. companies less competitive globally.” (NAM release; NAM Manufacts sheet on deferral.)

Today’s Journal piece details the response from the business world, taken aback that the Administration would propose such a tax increase during a recession and unhappy at the President’s repeated lumping together of “tax loopholes” and international tax policy. As Honeywell Chief Executive David Coate, an Obama supporter, said, “You can’t love jobs and hate those who create them.” Concern was especially high in the high-tech sector.

Companies ranging from Microsoft Corp. to General Electric Co. to International Business Machines Corp. put the topic at the top of their Washington agendas. Many CEOs and business lobbyists say the proposal — and the rhetoric used to push it — betrayed a tone-deafness on business issues among the president and his advisers. White House officials say the issue has often dominated discussions during meetings with CEOs.

And now?

Obama aides say the administration has set the idea aside for now, but may return to it as part of a broader tax overhaul sometime next year. The White House had billed the proposed change as an overdue fix to the tax code and potentially a key revenue-raiser.

“This has gone all of a sudden from red-hot to white-cold,” says Michael Klayko, chief executive of Brocade Communications Systems Inc., a large data-storage company. But he says he is concerned that if the proposed tax changes get entangled in the health-care overhaul, “it could go back to red-hot again.”

With federal deficit spending running at unprecedented (peace-time) levels, yes, the coals of revenue raising are probably only banked.

UPDATE (12:34 p.m.): JimPethokoukis of Reuters tweets, “Obama is dumping plan to hike corporate taxes by $20b a year. Why? 1) Dem-friendly techs screamed; 2) VAT ion its way so wait w/ big change”

Export Markets, Even More Important During a Recession

By | Economy, Trade | No Comments

More on the recurring theme, a Chicago Tribune story, “A rebalancing act,” with the subhed, “U.S. firms sharpen focus on overseas consumers.”

WASHINGTON – — With American consumers cutting back in response to the recession, many U.S. companies increasingly are looking outward, toward fast-developing countries like China, India and Brazil.

But instead of seeing those countries primarily as cheap producers of goods, both American manufacturing firms and giant multinational corporations see them as potential customers for U.S. products and services. And it reflects what may be the beginning of a shift in the global economy, a rebalancing in which the world relies less on U.S. consumers and more on consumer spending in places such as China.

General Electric’s Jeff Immelt is a leading advocate of making exports a larger part of the U.S. manufacturing economy, serving growing markets overseas. But it’s not just giants like GE that have a stake in the game.

Without their overseas customers, companies like Power Curbers Inc., a small construction-equipment maker in Salisbury, N.C., probably would have gone bankrupt in the recession.

“We’re fortunate that infrastructure development is going on in other countries,” said Dyke Messinger, Power Curbers’ president. He said 75 percent of his sales this year are international, compared with 25 percent two years ago.

Dyke is a director and member of the NAM’s Executive Committee.

G.E. Expanding Domestic Production, with Unions’ Assistance

By | Energy, Global Warming, Innovation, Labor Unions, Taxation, Technology | No Comments

And now, a word of praise for the labor unions…and G.E., of course.

From The New York Times, “G.E. to Add Two New U.S. Plants as Unions Agree on Cost Control,reporting on General Electric’s plans to expand domestic manufacturing operations:

G.E. is building a 350-employee plant in Schenectady, N.Y., to make high-density batteries that will turn many locomotives into diesel-electric hybrids. And in Louisville, Ky., it is adding a factory that will employ 420 workers to produce hybrid electric water heaters — heaters now made in China.

The two moves by G.E., often accused of being too quick to close plants and move operations overseas, came only after its unions agreed to keep costs down by swallowing painful concessions, including a two-tier wage structure.

Jeffrey R. Immelt, G.E.’s chief executive, said the two new operations are part of his campaign to get corporate America to strengthen and expand manufacturing in the United States.

Times reporter Steven Greenhouse interviews Immelt, who makes many compelling points, including: “Labor sees the need to be more competitive than in decades past. After everything that happened in Detroit, it points to more alignment between management and labor. My sense is this is a different day.”

Indeed, International Union of Electrical Workers-Communications Workers of America voted to accept a two-year wage freeze and a lower wage tier for new employees, with G.E. agreeing to not to move operations for two years.

Albany Business-Review, “Union vote, incentives bring battery plant to Schenectady
Albany Times-Union, “Schenectady wins battery battle
WTEN-10 News, “GE’s new battery plant coming to Schenectady
WTEN-10 News, “A salt-powered battery — what’s that?

Breaking Bread and Prime Time Schedules

By | General | No Comments

From The Street, “No Free Lunch at White House for CEOs“:

CEOs from Wal-Mart Stores, Starbucks, Verizon and Nucor were asked to fork over their credit cards so the White House could charge them for a lunch they had with President Barack Obama on Friday, according to reports.

Obama is being careful not to create a conflict of interest as he meets with these CEOs to figure out how to get the private sector back on solid footing.

Last month the CEOs from Xerox, Coca-Cola, AT&T and Honeywell were also asked to pay for their own lunches at the Big House, Politico originally reported.

These lunches use to be paid out of the taxpayer-funded entertainment budget.

From The Washington Post, “The Prez, The Press, The Pressure“:

In the days before President Obama’s last news conference, as the networks weighed whether to give up a chunk of their precious prime time, Rahm Emanuel went straight to the top.

Rather than calling ABC, the White House chief of staff phoned Bob Iger, chief executive of parent company Disney. Instead of contacting NBC, Emanuel went to Jeffrey Immelt, the chief executive of General Electric. He also spoke with Les Moonves, the chief executive of CBS, the company spun off from Viacom.

Whether this amounted to undue pressure or plain old Chicago arm-twisting, Emanuel got results: the fourth hour of lucrative network time for his boss in six months.