Earlier today, the U.S. Census Bureau released final factory order numbers from April, with new orders down 1.2 percent from March.  Much of this analysis was discussed in greater detail in a blog post last week with the release of preliminary durable goods orders, which declined 3.6 percent. The transporation sector took the largest hit, falling 9.3 percent (revised from 9.5 percent in the preliminary analysis). Excluding transporation, new orders dropped 0.2 percent. New orders for nondurable goods rose 0.6 percent. Unfilled orders grew 0.3 percent, and inventories were up for 16 straight months.

Overall, this analysis confirms the larger trend seen in April and May data. Manufacturing output fell dramatically in those months, largely due to supply chain and other issues. Yesterday’s ISM numbers for May were weak, especially given the strength of the sector earlier this year. But, the good news is that the ISM numbers were mostly above 50 (except for inventories) — a sign that the sector is still growing, albeit much slower than before.  Tomorrow, we will see employment numbers that will continue to reflect this weakness, perhaps mirroring the decline in manufacturing employment seen in the recent ADP numbers.

Interestingly, yesterday I participated in a webinar to discuss the economy for RSM McGladrey. The firm recently released the Spring 2011 Manufacturing & Distribution Monitor, which surveys firms on their current business outlook. As we have seen in recent regional Federal Reserve Bank surveys, while current economic indicators are negative, the longer-term forecast is more positive. This represents a juxtoposition of views that might be difficult for people to reconcile (unless they see the current bad news as a temporary one). The McGladrey survey, for instance, finds that 90 percent of its respondents have a favorable view of the business environment and over half want to hire new workers in the next 12 months. This is positive news that hopefully bodes well for future releases regarding manufacturing, production, and employment.

The Senate is currently debating a bill (H.R. 5297) that would extend bonus depreciation and expand a small business loan program. The Manufacturers have no problem with these provisions, and in fact, we’ve been on the record supporting both.*

Unfortunately, this isn’t enough for some folks. To be honest, it gets a little tiring to hear rhetoric claiming that we are “leaving small business behind” or that “small business is being held hostage by partisan politics.” The reality is that passing this bill at a time when small businesses are facing trillions of dollars in new taxes in less than six months is sort of like buying new furniture for someone facing foreclosure. 

In a recent survey conducted by RSM McGladrey, more than 85 percent of small- and medium-sized manufacturers said they were concerned about increased tax rates –- with 61 percent reporting they were very concerned.  By not acting, Congress will be increasing the top rates for small business owners to nearly 40 percent, increasing the estate tax to 55 percent, and nearly tripling the tax on dividend income.  One can logically ask: Exactly who is leaving small business owners behind?

* The National Association of Manufacturers joined this coalition letter and this one in support of extended bonus depreciation. The NAM is a member of the Small Business Access to Credit Coalition, which last week sent this letter to the Senate urging support for extending and improving SBA loan programs.

RMS McGladrey has released early results of a survey of top executives that reports serious concern about the effects on business and investment of federal tax increases. From the release, “RSM McGladrey 2010 National Manufacturing and Wholesale Distribution Survey finds significant concern among companies about potential tax increases“:

Distributed to more than 23,000 C-level executives at U.S.-based manufacturing and distribution companies, recipients were asked about the impact of potential various tax increases on their company as the federal government looks for potential revenue sources.

The results were significant enough that RSM McGladrey has released an early report on tax policy rather than waiting to include this information in the full survey report scheduled for release in early June.

“Increased taxes have a negative impact on cash flow and small and mid-sized companies, who don’t have the resources of large companies, are particularly hard hit,” said Tom Murphy, executive vice president of MWD at RSM McGladrey. “They are struggling to recover from the recent recession, and less cash flow is a barrier to investment in capital equipment and to the hiring of additional employees, both of which are needed to capture growth opportunities.”

Of the total 1,088 respondents included in the survey analysis, 91 percent were private companies and the remaining 9 percent were publicly owned. Of the private companies, 35 percent were structured as C-Corporations, 63 percent were pass-through entities (S-Corporations, LLCs, or Partnerships) and two percent identified themselves as “other.” Respondents reporting as pass-through entities are of particular importance since the earnings of these companies are “passed through” to individual shareholders, and taxed at individual tax rates, as compared with C-Corporations that are taxed at the corporate rate.

The NAM held a coffee for reporters with Murphy and our tax people earlier this week, and The Hill wrote an item. The point being made: Tax increases on the so-called wealthy are also tax increases on many small businesses.

That National Association of Manufacturers (NAM) on Tuesday urged lawmakers to extend the Bush tax cuts for upper-income taxpayers, saying the rate increase will hit small businesses that pay taxes based on individual rates.

Approximately 70 percent of firms belonging to NAM are taxed at individual rates, said Dorothy Coleman, VP of tax and policy at the organization.

NAM released a poll by RSM McGladrey today showing that 87 percent of manufacturers and distributors are concerned about the impending rate increase.

Every time you hear a politician talk about “a tax on the wealthy” just revise that to, “a tax on the wealthy and small business.”