The Manufacturers Alliance for Productivity and Innovation (MAPI) said that its composite index of manufacturing activity fell slightly from 56 in third quarter of 2012 to 55 in the fourth quarter. As I have noted before, this index has declined every quarter since the second quarter of 2010, when it stood at just above 80. Overall, manufacturers continue to grow modestly – even with the lower figure – as the index remains above the threshold of 50 which signifies expansion for the sector.

It is clear from these data that sales within the manufacturing sector have been challenged, especially for international trade. The index for current new orders was unchanged at 57 between the third and fourth quarters, but this remains well-below the 70 observed in the second quarter. On the trade front, new export orders declined somewhat, down from 53 (slight expansion) to 49 (slight contraction). With slowing economies around the world, this figure is consistent with other reports of headwinds pertaining to growing exports.

The capacity utilization rates rose from 28.8 percent to 31.5 percent, suggesting some improvement, even as these rates remain sub-par. Other pieces of good news surround the forward-looking indices, with manufacturers responding to this survey cautiously optimistic about this year. Some growth is anticipated for shipments, orders, and investments. The pace of non-U.S. investment expectations pulled back one notch from 60 to 59, once again echoing some of the headwinds experienced offshore (but still representing increased investment overall).

In a series of special questions, respondents were asked about reshoring. Seventeen percent (or seven) of the companies said that they had brought some production back to existing facilities from elsewhere, with a few more stating their intention to do so this year. The primary reasons for doing so were labor and transportation costs as well as a re-evaluation of their supply chain. Among reasons cited for not choosing to reshore, the top ones provided were cheaper costs elsewhere, the U.S. tax code, and the desire to produce closer to foreign customers.

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

The Manufacturing Alliance for Productivity and Innovation (MAPI) released its industrial outlook for next year. It predicts industrial production growth of 2 percent in 2013, down from 2.3 percent in its most recent quarterly forecast. This is also down from the estimated 4.2 percent growth seen in 2012. MAPI expects for production to pick up in 2014, though, with an annual percentage change of 3.2 percent anticipated.

As we have seen in other forecasts, housing continues to be a bright spot, with MAPI estimating starts of 979,000 by the end of 2013, or a 28 percent increase from 2012. This is a positive development that helps manufacturers involved in building materials and furnishings sectors, but it also helps lift the larger macroeconomy. Behind the scenes, these improvements are lifted by historically low mortgage rates – a benefit of the Federal Reserve’s quantitative easing initiatives.

Transportation is also expected to grow strongly in 2013, with strong demand for aerospace products and motor vehicles. Motor vehicle production increases in 2013 of 5 percent is slower than the 19 percent growth experienced in 2012. But, MAPI expects vehicle sales to total 15.1 million units in 2013 and grow to average 16.5 million units from 2015 to 2017. The sector is clearly moving in the right direction. Likewise, demand for new airplanes will push aerospace production up 16 percent and 17 percent, respectively, in 2013 and 2014.

Outside of those sectors, the sector-by-sector analysis is more mixed. Worries about slowing global sales and the fiscal cliff have hampered activity in the second half of 2012 continue to have an impact. Moreover, consumer spending is only growing modestly, up around 2 percent, which is limiting increased activity in some durable and nondurable goods industries. There is clearly a broad-based deceleration in production in most of the 24 sectors that MAPI analyzes, with 14 of these areas predicted to grow.

Chad Moutray is chief economist, National Association of Manufacturers.

The Manufacturers Alliance for Productivity and Innovation (MAPI) said that its composite index of manufacturing activity eased from 61 in the second quarter to 56 in the third quarter. Interestingly, this index has declined every quarter since the second quarter of 2010, when it stood at just above 80. Even with this quarter’s decline, the measure remains over 50, suggesting continued expansion for the sector, albeit one that is growing more slowly.

Still, the lower levels of manufacturing activity reported in this survey are consistent with other measures noting recent weaknesses in the marketplace. The steepest decline was in the index for new orders, with sales dipping from 70 to 57. Included in this figure is exports, which have been pulled lower by slower global growth. The index for new export orders declined from 63 to 53, but one year ago, it was 80, illustrating the deterioration in growth for global trade.

Various other components were also weaker, including shipments, inventories, capacity utilization, and investment. Shipments of manufactured goods, both to the U.S. and abroad, are expected to grow at a slower pace in the fourth quarter. In short, manufacturing activity is anticipated to increase, but there is significant softness expected.

In a series of questions, respondents were somewhat split between what is the greater threat to the economy – the fiscal cliff or the challenges in Europe. The possibility that the sovereign debt crisis in Europe could impact the U.S. was cited by 42.4 percent as the single biggest threat, while the fiscal cliff was noted by 39 percent. The manufacturers who answered this survey are hopefully optimistic that the fiscal cliff can be averted, with 59.3 percent of them feeling that Congress will not allow it to happen. However, that suggests that the remaining 40.7 percent – a sizable percentage – feels otherwise.

Chad Moutray is chief economist, National Association of Manufacturers.

The Manufacturers Alliance for Productivity and Innovation (MAPI) said that its composite index of manufacturing activity eased from 65 in the first quarter of 2012 to 61 in the second quarter. Interestingly, this index has slipped every quarter since the second quarter of 2010, when it stood just above 80. Even with this month’s decline, the measure remains over 50, suggesting continued expansion for the sector, albeit one that is growing more slowly.

New orders were the largest drag on this quarter’s index, down from 77 to 70, essentially the level that it was in the fourth quarter. Shipments also slowed somewhat, falling from 83 in the fourth quarter to 77 in the first and 75 now. Exports have been impacted by struggles overseas, with both new export orders and overseas shipments lower. New export orders, for instance, dropped from 79 to 63 for the quarter.

In addition to these figures, another troubling sign was the drop in the capacity utilization index, which decreased from 40.0 to 35.2. This suggests that just 35 percent of manufacturing firms are operating above 85 percent of their capacity.

The MAPI survey, for the most part, mirrors other indicators which have shown the manufacturing sector slowing of late. In the recent NAM/IndustryWeek survey manufacturers ranked the unfavorable business environment as their number one concern and we are certaintly seeing that in other recent surveys and indicators. Until Washington acts ton pro-growth policies uncertainties about current and future economic growth will continue to weigh heavily on manufacturers’ minds.

Chad Moutray is chief economist, National Association of Manufacturers.

The Manufacturers Alliance for Productivity and Innovation (MAPI) announced that its composite index of manufacturing activity edged slightly lower from 67 in the third quarter of 2011 to 66 in the fourth quarter. Similar to the Institute for Supply Management’s surveys, readings over 50 suggest that the sector is expanding. Therefore, the senior financial executives from the manufacturing sector responding to this survey still suggest strong growth overall for the manufacturing industry, with slight easing in some of the numbers only reflecting a slightly lower growth rate. The index has grown now for nine consecutive quarters.

Looking at the various components of the index, each of them suggests strong growth moving forward, even as some of figures were lower than in the previous quarter. Illustrating the mixed nature of these results are shipments, which grew from 81 to 83 for the quarter, and new orders, which fell from 79 to 70. It is hard to get upset over either reading, despite the lower growth rate for new orders. Nonetheless, several indicators did mirror the easing observed in the new orders figure, including the level of exports, capital investments, profit margins and capacity utilization.

The survey asked a series of questions about uncertainties related to the European sovereign debt crisis. Almost all (97 percent) of the respondents felt that Europe would experience a recession in 2012, and 45 percent of them said that their exports to Europe have slowed as a result. Nonetheless, three-quarters of them anticipate no changes in the European strategies moving forward, at least at this time.

Overall, this survey continues to represent much stronger sentiment than many of its industry peers, and yet, other surveys also indicate an improved economic environment for manufacturers. Highlighting this, Donald Norman, a key MAPI economist responsible for this survey, says, “Barring a meltdown in the Eurozone, the U.S. manufacturing sector should continue growing at a moderate pace heading into 2012.”

Chad Moutray is chief economist, National Association of Manufacturers.

The Manufacturers Alliance for Productivity and Innovation (MAPI) released its quarterly industrial outlook today. It forecasts manufacturing production to rise by 3 percent in 2012, with 4 percent growth in 2013. The report analyzes 27 major manufacturing sectors and notes that it anticipates overall production in 2011 to grow by 4 percent, with economic growth picking up in the second half of the year.

Daniel Meckstroth, MAPI’s Chief Economist, said, “The growth is being led by the energy, transportation, and industrial equipment industries.” He goes on to add that domestic auto production, which has picked up dramatically over the past year, will continue to be a major driver of growth in 2012. 

In addition, production of computer and high-tech products are forecasted to grow 6 percent and 10 percent in 2012 and 2013, respectively, which is more twice the rate of non-high-tech manufacturing.

Of course, one major headwind could derail many of these predictions: the European sovereign debt crisis. In the summary of the report, the authors write:

A major problem with the slow growth outlook is that this stall speed pace makes the economy susceptible to a double-dip recession, if induced by a major shock. The shock most likely to push the United States into another recession is a systemic bank lending freeze coming from the European sovereign debt crisis. A top domestic risk is that U.S. employers will become more risk averse and cut costs, thus halting job growth. Our modeling finds that the risk of a recession is an uncomfortably high 40 percent probability at this time.

Nonetheless, despite these headwinds, MAPI is anticipating modest growth in U.S. manufacturing production for next year. The sectors experiencing the strongest growth in 2012, in their estimates, were: aerospace products and parts, mining and oil and gas field machinery, motor vehicles and parts and metalworking machinery. They anticipate weakening production in public works construction, household appliances and pharmaceuticals and medicines.

Much of this analysis was also discussed in a recent webinar, “The 2012 Manufacturing Economic Outlook,” organized by the Manufacturing Roundtable of the National Association of Business Economics. The panelists were Daniel Meckstroth and Don Johnson (Chief Economist from Caterpillar), and I served as the moderator. For those who are interested, the slides from these presentations are available on the NABE website.

Chad Moutray is chief economist, National Association of Manufacturers.

The Manufacturers Alliance/MAPI released new survey data suggesting little change from the past quarter, and yet, it remains overwhelmingly more positive than many of its peers in terms of current and future sentiment. The composite index for the third quarter edged down from 68 in the second quarter to 67 now. While down significantly from earlier quarters (where it was 77 last year at this time), it still represents a strong expansion in the industry. Values over 50 suggest growth.

New orders and shipments continued to grow, but at essentially the same rates as last quarter. Indices for these measures were 79 and 81, respectively, suggesting strong growth. Meanwhile, investment was slightly higher, increasing from 78 to 81.

Exports, inventories and profit margins experienced slower rates of growth. Exports, in particular, are lower due to slower global economic activity and significant financial headwinds in European markets. These values remain highly elevated, however, and forward-looking indices suggest that manufacturers remain optimistic moving forward. (continue reading…)

The Small Business Administration’s Office of Advocacy report we cited below , “The Impact of Regulatory Costs on Small Firms,” did not take into account the Bush Administration’s 2008 ozone regulations (reducing the ambient air quality standard to 75 parts per billion), nor the Obama Administration’s proposed regulations, which could lower the standard to 60 ppb.

It’s safe to say those regulations will be expensive. Bet small business gets hit the hardest.

From The Oil and Gas Journal, “Proposed ozone standard would devastate US economy, API warns“:

WASHINGTON, DC, Sept. 21 — A US Environmental Protection Agency proposal to reduce the national primary ozone standard to 60 ppb from 75 ppb would devastate the US economy by forcing most of the country to meet stringent standards which now are imposed of its most heavily populated areas, the American Petroleum Institute warned.

“We all know that EPA cannot consider economics in considering standards,” Howard Feldman, API’s director of regulatory and scientific affairs, said in a Sept. 21 teleconference with reporters. “But it cannot ignore them. There’s a real cost and real significance to this.”

The story builds on the NAM-API co-sponsored report, “Economic Implications of EPA’s Proposed Ozone Standard (ER-707. The analysis by Donald A. Norman, Ph.D., Manufacturers Alliance/MAPI economist, concluded:

• GDP would be reduced by $676.8 billion in 2020 (in 2010 dollars), an amount that represents 3.6 percent of projected 2020 GDP in the baseline case (2.5 percent annual GDP growth);
• Total U.S. job losses attributable to a 60 ppb ozone standard are estimated to rise to 7.3 million by 2020, a figure equal to 4.3 percent of the projected 2020 labor force;
• Together, annual attainment costs and reduced GDP in 2020 would total $1.7 trillion.

API’s Feldman raises another an angle we hadn’t considered: Unreasonably stringent ozone rules represent yet another move again U.S. energy security, including the tremendous promise shown by natural gas development of such areas as the Marcellus Shale: “Clearly, natural gas drilling is increasing across the country, and we expect that to continue…As more of it moves into areas such as Pennsylvania which would not meet these new standards, it would require extra costs and controls. The states also would have to offset these emissions.”

Earlier posts: (continue reading…)