The Richmond Federal Reserve Bank said that manufacturing activity, which had contracted sharply in January, improved in February. The composite index of general business conditions rose from -12 in January to 6 in February. Indeed, there were signals of progress – as well as some continued weaknesses – in many of the key indicators. For instance, the shipments index increased from -11 to 10, and capacity utilization jumped from -18 to 11.

At the same time, new orders were unchanged, with the index up from -17 to zero. The fact that they were not declining, though, should be taken as a good sign. On the employment front, hiring turned positive for the first time since July, but the average workweek has decreased for three straight months. This suggests that employers are starting to think about bringing on more workers, even as the workload continues to lag behind.

To the extent that hiring is taking place then, it must be based on improving expectations about the future, and the forward-looking measure for hiring rose from being unchanged last month to a decent increase this month. Other indicators also reflected cautious optimism over the next six months, including increased index values for new orders, shipments, capacity utilization, and wages. The anticipated pace of capital spending, however, eased somewhat in February, but was still positive with modest growth ahead.

In terms of pricing pressures, respondents noted a deceleration in inflation from last month, but they expect for raw material prices to pick up the pace in the months ahead. The prices paid for input increased 2.04 percent at the annual rate in February, down from 2.54 percent in January. Looking ahead six months, manufacturers in the Richmond Fed District expect for prices to rise 2.72 percent, up from 1.97 percent last month.

Overall, this study finds a more optimistic manufacturing community in the Richmond region. To be fair, though, it is important to note that these gains in February are from a sharp decline in January. It will be interesting to see how these opinions shift in the coming month, particularly if the across-the-board spending cuts go into effect on March 1 as planned. Virginia – and for that matter, the entire metropolitan DC area – will experience some of the greatest impacts, as noted in our study released last year.

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

Today the Task Force on American Innovation, chaired by NAM and Texas Instruments, sent a letter to the President and Congressional leaders calling for a halt to the sequester. Signed by the heads of leading business and technology associations, the letter represents thousands of businesses, educational institutions and other interested parties. The sequester is set to make across the board budget cuts to discretionary spending, with much of those cuts to the defense sector.

The NAM has led the opposition to the sequester basically since its inception. Manufacturers released a study detailing the serious damage that these cuts will have on our economy – we took that message around the country and have used every tool at our disposal to make sure that policymakers are well aware of the damage that will be inflicted.

Unfortunately, in the 18 months since the Budget Control Act was passed, Washington hasn’t found a way to avoid the sequester and the numbers haven’t changed. If the planned defense cuts go into effect we’ll see a body blow to our efforts at economic recovery.

• Over 1 million jobs lost
• A loss of 1% of GDP
• An 0.7& increase in the unemployment rate

Additionally, we would see a drain on innovation and scientific advancement that manufacturers rely on to drive their business in such a competitive global economy.  Continued economic growth is the true solution to our fiscal issues and if Washington allows the sequester to become a reality, we will have eliminated one of the most critical elements for success.

The cuts undermine our economic growth in a shortsighted fashion that will hurt America for generations to come. The businesses and other organizations that signed the letter to the President and Congressional leaders are not crying wolf – it’s a very real threat to our ability to grow and lead the world economy and it’s entirely self-inflicted. It’s beyond time to solve this problem and get focused on growing the economy.

For more than a year, manufacturers have been telling policy makers that the pending sequester, now set for March 1st, will impair our national security and cripple a vital part of the manufacturing sector. This morning at Georgetown University, Defense Secretary Leon Panetta delivered the same message, and laid out the true national security ramifications.

On the need to maintain the defense industrial base, he told the audience, “The last damn thing we need, if we face a crisis, is to have to contract out that responsibility to another country.” As the deadline fasts approaches for the across-the-board cuts to kick in, we strongly urge Congress and the Administration to work together to replace the sequester with less damaging cuts in federal spending and not job-killing tax increases.

Manufacturers supported the Budget Control Act of 2011 that, among other things, included some $917 billion in spending cuts and set up a “Super Committee” to find an additional $1.2 trillion to $1.5 trillion of deficit reduction. If the Super Committee failed, as it did, the penalty was a “sequester,”  $1.2 trillion in across-the-board spending cuts divided between defense and nondefense spending. NAM members feel strongly that we need to get our nation’s fiscal house in order and get government spending under control but we oppose the “chain saw” approach of the sequester. Arbitrarily cutting federal programs, particularly in the defense area, threatens jobs, national security and the economy.

As a result, we’ve urged lawmakers to abandon the “across-the-board” approach and instead take a critical and deliberative look at cutting government spending with a focus on entitlement reforms and potential cuts in discretionary spending, keeping in mind the impact spending cuts will have on our economic and national security. In short, we have a spending problem and the focus should be on spending cuts. 

So we’re surprised at recent proposals from Congressional Democrats and today, President Obama, who want to replace the sequester with a mix of spending cuts and tax increases.  As the NAM and many other groups have pointed out, the sequester will cost U.S. jobs and economic growth.  And tax increases will do the same.

Replacing the sequester with tax hikes is substituting one bad idea for another.  Rather, let’s use this opportunity to begin a much needed and very important debate on actually cutting federal spending.

The headline of the New York Times Feb. 3 editorial, “A Million Jobs at Stake,” caught the attention of Manufacturers who’ve been warning Congress and the Administration of the potential job-killing impact of the sequestration now set to kick in on March 1st. Indeed, we agree with the Times that the sequester was never supposed to happen and that allowing it to kick in will hurt our struggling economy. But we strongly disagree that the solution to avoid sequestration is tax increases, particularly those directed a specific industries or tax payers. Yes we need to cut federal spending, but imposing new tax increases or arbitrarily lopping off some spending is not the way to go.

Rather, we believe strongly that the solution is thoughtful reductions in federal spending—particularly entitlement spending. As NAM Board member Della Williams so aptly told the House Armed Services Committee last summer, “sequestration is cosmetic surgery with a chainsaw.” There’s no way to avoid it: policy makers need to take a hard look at all federal spending—including entitlement spending with an eye to avoiding unintended and damaging impacts. Clearly our nation’s fiscal challenges are of critical importance not only to the future of American manufacturers but to the future of all Americans. Any plan to address these our fiscal problems will have a long-lasting and significant impact on our economy.  We urge policy makers not to take the “easy way out” and let the sequester “happen” but to use this opportunity to tackle our real fiscal challenges.

President Obama’s assertion last night that the sequester “will not happen,” was encouraging news to manufacturers who are extremely concerned about the impact on jobs and the economy of the $1.2 trillion in federal spending set to begin January 1^st. Although the administration walked back the comments a bit following the debate, it is still an important commitment that we hope the President will uphold.

Earlier this year, we released a report showing that the defense cuts will reduce U.S. employment by more than 1 million jobs in 2014 alone. Similarly, the Information Technology and Innovation Foundation (ITIF), a non-partisan think tank, in September released a study called Eroding Our Foundation: Sequestration, R&D, Innovation and U.S. Economic Growth concluded that close to 200,000 jobs per year could be in jeopardy if across the board cuts to federal R&D investment are implemented. But avoiding the sequester addresses only part of the problem. Pending tax increases for a wide range of individual taxpayers and small businesses along with the spending cuts under sequestration will hit the U.S. economy with a $500 billion fiscal shock on January 1^st, a shock that likely will send our already weakened economy into a tailspin.

So, while manufacturers appreciate the President’s commitment to avoiding the sequester, we also believe it is critically important to maintain the status quo on current tax policy for all Americans. Almost 70 percent of all manufacturers (about 200,000 nationwide) pay income taxes at the individual rate. The average taxable income for these small manufacturers is $570,000 – so unless Congress extends current tax rates, these employers will be subject to new tax rates of almost 40 percent and subject to new restrictions on itemized deductions and exemptions. Not exactly good news for job creation and investment.

The drum beat of the massive damage that the U.S. will see should the defense cuts go into effect is picking up. This weekend the Las Vegas Review-Journal ran an editorial by Click Bond Inc. executive Karl Hutter.

The NAM released a report that paints a stark picture of job loss and economic loss – to the tune of over a million jobs lost nationwide by 2014. But you don’t have to take the word of an economic report – real manufacturers are telling the exact same story.

Mr. Hutter writes about who will bear the brunt of these proposed cuts. “In the aerospace sector, most of the pain from these cuts will not be felt by large corporations, but by the small and midsize businesses that form the extended supply chain. About two-thirds of an aircraft’s value is contributed by smaller suppliers, and three-quarters of all aerospace and defense-related manufacturing jobs are at these firms. So cuts to large programs and their big prime contractors will immediately flow down to where most of the work is done. My company, Click Bond Inc. in Carson City, is one of these firms.”

In a recent survey of manufacturers and small businesses, over two-thirds have cited uncertainty in the economic and political arena as their major road block to job creation and investment. Mr. Hutter’s comments put a face to those significant concerns.

“Sequestration stands to negatively impact our planned growth through investments in equipment and construction, in research and technology and, most importantly, in hiring and training people. While we wait for Congress to act, the mere uncertainty surrounding sequestration makes running a business difficult. It’s hard to invest in new products or hire new workers with the sequestration buzz saw hanging over aerospace and defense programs. It’s risky investing in expensive tooling or materials for work on contracts that may be sequestered, but it’s equally dangerous putting off work in the face of tight customer deadlines and long material lead times.

We must sign contracts now with our own suppliers on work for 2013, but it’s impossible to know which projects will survive sequestration’s scythe. Such judgments must be made by every firm up and down the entire supply chain, exponentially magnifying the damage that is already under way.”

This is why the President and the Congress need to act now, on behalf of companies like Click Bond, to halt these cuts, restore certainty and save the million-plus jobs that are at risk.

We have learned today that the Office of Management and Budget (OMB) is urging defense and other government contractors not to issue layoff notices as sequestration approaches. The OMB has even offered to cover any potential legal costs that could come up as a result. The guidance offered by OMB appears to be more about politics than about finding a solution that will offer certainty to manufacturers across the United States.

The NAM has been saying for months that the defense cuts in sequestration amount to surgery with a chainsaw and they will cost the United States more than 1 million jobs by 2014. The cuts threaten both our economic and our national security – an unacceptable reality in such unstable times. As such, we have called for policymakers to take the necessary steps to put a stop to these damaging cuts and find a way to address our national debt by reforming the real drivers of this crisis, entitlement programs.

With so much at stake, and with 67% of manufacturers saying there is too much uncertainty in the market today to expand, grow or hire new workers, it’s a fair to wonder if the time spent urging defense manufacturers not to issue layoff notices would have been better spent trying to find a solution to the problem of sequestration.

The Information Technology and Innovation Foundation (ITIF), a non-partisan think tank, just released a study called Eroding Our Foundation: Sequestration, R&D, Innovation and U.S. Economic Growth highlighting the broad impact sequestration will have on the R&D funding, the innovation it creates and the job creation engine it powers. The report specifically focused on basic research funding at civilian agencies, the technology breakthroughs that have resulted, the partnerships businesses have with those universities and agencies that receive that funding, and the jobs that result when they are brought to market – and the threat posed to this entire ecosystem if sequestration takes effect.

The NAM is very aware of the current budget environment and the need to prioritize investments. We are also aware the high-level of competition we face from around the world to invent and develop the next game-changing manufacturing technology, medical device, or process. As NAM research has highlighted, cuts to the Defense budget will have devastating effects on the manufacturing supply-chain with potential job losses totaling close to one million manufacturing workers. The ITIF report brings even more attention to the danger of sequestration and finds that close to 200,000 jobs per year could be in jeopardy if these across the board cuts to R&D investment are implemented.

As manufacturers lead the U.S. economic recovery now is not the time to shut down one of the key components of economic growth that has helped solidify our worldwide innovative lead. We encourage you to read the NAM report on defense cuts as well as the ITIF report and tell your elected officials how it will impact your business.

Brian Raymond is director of technology and domestic economic policy, National Association of Manufacturers.

With congress going out for another recess and both presidential candidates preoccupied with campaign politics, it seems like everyone has all but forgotten about the most serious issue looming over businesses and the US economy – the pending fiscal abyss. If Washington refuses to face reality and doesn’t take action to address this crisis, on January first we will be hit with $500 billion in tax increases and $109.3 billion in automatic, across-the board budget cuts.

Boeing has launched a new website, nocliff.com, to remind lawmakers that this is a serious threat to our economic security and that these devastating cuts and tax increases will affect every industry and every American. The website highlights the NAM’s study on the impact of the defense spending cuts, which found that the cuts will result in a loss of over 1 million private sector jobs up and down the defense industry supply chain. The website also reinforces the CBO warning that going over the fiscal abyss will mean a significant recession in 2013 and a loss of nearly 2 million jobs. These are numbers that Congress cannot continue to ignore.

With all signs pointing to a severe economic blow next year and the looming uncertainty already effecting businesses and investment, Washington must fix this now. Take action through NAM’s Manufacturing Works website and tell Congress to act before we plunge of the fiscal abyss.