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Manufacturing & The Economy

MAPI Predicts 3.4% Manufacturing Growth in 2014

The outlook for the U.S. economy is for steady growth but there is little expectation for a significant upward trajectory, according to a new report.

The MAPI Foundation released its quarterly economic forecast, predicting that inflation-adjusted gross domestic product will expand 2.2% in 2014 and 3.0% in 2015. The former is a decrease from 2.5% and the latter a decline from 3.2% in the previous report. GDP is forecast to grow by 3.3% in 2016.

Manufacturing production is expected to outpace GDP, with anticipated growth of 3.4% in 2014, an increase from 3.2% in the previous forecast, and 4.0% in 2015, no change from the prior report. Manufacturing production is anticipated to rise by 3.6% in 2016. 

Industrial Production Declines for First Time Since January

The index of industrial production edged down 0.1% in August, and the index for manufacturing output decreased 0.4%; the declines were the first for each since January. The gains in July for both indexes were revised down. The declines in total industrial production and in manufacturing output in August reflected a decrease of 7.6% in the production of motor vehicles and parts, which had jumped more than 9% in July. Excluding motor vehicles and parts, factory output rose 0.1% in both July and August. The production at mines moved up 0.5% in August, and the output of utilities rose 1.0%. At 104.1% of its 2007 average, total industrial production in August was 4.1% above its year-earlier level. Capacity utilization for total industry decreased 0.3% in August to 78.8%, a rate 1.0% above its level of a year earlier and 1.3% below its long-run (1972–2013) average. 

NAM Monday Economic Report – September 15, 2014

The latest NAM/IndustryWeek Survey of Manufacturers found that businesses are generally upbeat about the coming months. Manufacturing respondents expect 4.4 percent growth in sales on average over the next 12 months, the fastest pace of expected growth in new orders since the first quarter of 2012, when the sector was expanding more robustly. Indeed, nearly half of those taking the survey anticipate sales growth of at least 5 percent. Capital investment and hiring trends have also moved in the right direction, with manufacturers planning to increase capital spending and employment by 2.5 percent and 1.9 percent, respectively. The hiring figure represents substantial progress from the lackluster pace of job growth in 2013, which averaged just 0.8 percent. Overall, 87.3 percent said that they were positive in their outlook, the highest reading in two and a half years.

Nonetheless, the more positive attitude needs to be balanced against other issues. First, enthusiasm for expanded new orders and production is often nuanced by anxieties that events might prevent the economy from gaining traction—much as it has time and again in this recovery. Certainly, many of them are disappointed with the slow economic growth in the first half of 2014, even if they remain hopeful about the second half.

Second, manufacturers—like many Americans—continue to be frustrated with Washington. The top business challenges remain rising health insurance costs and an unfavorable business climate, cited by 77.1 percent and 73.1 percent, respectively, in the survey. Along those lines, the NAM released a study showing the disproportionate burden placed on small businesses and manufacturers when complying with federal regulations. Total federal compliance costs in 2012 were estimated to be $2.028 trillion, with an average cost of $19,564 per employee for manufacturers, or twice the level of all businesses.

Beyond these issues, there was encouraging news on the consumer front. Retail sales rose 0.6 percent in August, rebounding from softer increases in the previous three months. Prior to this release, there were worries that a more cautious consumer might derail brighter prospects for growth. This data suggests that the public might be more willing to spend. Retail sales have risen 3.8 percent year-to-date, or 5.0 percent over the past 12 months. Moreover, the consumer also appears to be less hesitant about borrowing, with July consumer credit up 9.7 percent in July. This included a sizable pickup in revolving credit, which includes credit cards. Another positive was the increase in consumer sentiment from the University of Michigan and Thomson Reuters, ending a lull in that measure throughout 2014 and marking its highest point since July 2013.

This morning, we will get new data on industrial production. Production in the sector jumped one percent in July, and the expectation is for modest gains in manufacturing output in August. It is also anticipated that housing starts and permits will once again exceeding one million annualized units when August figures are released on Thursday. This would suggest that residential construction activity has begun to recover from softness earlier in the year. Beyond those figures, the biggest headlines will come from the Federal Open Market Committee meeting this week, which is not expected to make any major shifts in monetary policy. Quantitative easing should end in October, with the largest focus being uncertainty over when the Federal Reserve will start raising short-term rates. With that said, new consumer and producer price data should reflect the recent easing in inflationary pressures, particularly from lower energy costs.

Other data releases this week include the latest findings on manufacturing activity in the New York and Philadelphia Federal Reserve Banks’ districts and data on home builder confidence, leading indicators and state employment.

Chad Moutray is the chief economist, National Association of Manufacturers

US Manufacturing Technology Orders Down in July

July U.S. manufacturing technology orders totaled $354.63 million according to The Association for Manufacturing Technology (AMT). This total was down 11.5% from June and down 1.4% when compared with the total of $359.70 million reported for July 2013. With a year-to-date total of $2,711.36 million, 2014 is down 2.3% compared with 2013.

“We continue to see manufacturing as a leading player in the U.S. economy. While manufacturing technology orders were down for the month, we believe we are coming into an environment ripe for capital investment,” said Douglas K. Woods, AMT president. “With a strong PMI reading in July and a record high for U.S. exports, manufacturing shows no signs of slowing. Additionally, as capital equipment is reaching an advanced age and interest rates are continuing to stay low, we believe we will see strong order activity in the months following IMTS.” 

NAM Industry Week Survey Shows Manufacturers Cautiously Optimistic

The latest National Association of Manufacturers (NAM)/IndustryWeek Survey of Manufacturers shows manufacturers continue to face significant challenges due to policies emanating from Washington, including a broken tax code and energy regulations, and remain extremely frustrated as a result. While manufacturers continue to be mostly upbeat, their optimism can be tied to confidence in their own workforce and ability to grow their business. 

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