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Manufacturing & The Economy

Senators Ask GAO to Examine Effectiveness of U.S. Manufacturing Policies

A bipartisan group of U.S. senators is asking the Government Accountability Office (GAO) to analyze federal manufacturing policies and provide recommendations for improvement. In a letter sent to GAO Comptroller General Gene Dodaro on Tuesday, the senators requested answers to a range of questions about the scope, effectiveness, and potential for redundancy of federal manufacturing programs and tax incentives.

“Given the importance of manufacturing in the United States, it is critical that federal manufacturing policy be effective,” the senators wrote. “However, because the sector is diverse, no one federal department or agency deals exclusively with manufacturing.”

The letter was signed by Sens. Chris Coons (D-DE), Roy Blunt (R-MO), Tom Coburn (R-OK), Brian Schatz (D-HI), Mark Kirk (R-IL), Mark Warner (D-VA) and Lindsey Graham (R-SC).

Report Finds Changes in Global Manufacturing Cost Competitiveness

Dramatic shifts in cost competitiveness around the world over the past decade are starting to spur a number of companies to change their global sourcing and manufacturing investment strategies, according to a new report by The Boston Consulting Group (BCG).

Global automakers are expanding production in the UK, for example, which has emerged as one of Western Europe’s lowest-cost manufacturing locations, while at the same time they are slashing capacity in Australia, now one of the most expensive. In Mexico, manufacturing costs are now estimated to be cheaper than those of China.

BCG research, released in April, found that several economies still often perceived as low-cost manufacturing nations—such as China, Brazil, Russia, and the Czech Republic—are no longer much cheaper than the U.S. In some cases, they are estimated to be even more expensive, according to the new BCG Global Manufacturing Cost-Competitiveness Index. The index also found that the competitiveness of historically high-cost nations, such as the U.S. and the UK, has significantly improved. 

Feds Delay Proposed ‘Factoryless Goods Producer’ Category

The Office of Management and Budget (OMB) is announcing that the Factoryless Goods Producer (FGP) recommendation will not be implemented in 2017. The August 17, 2011, the OMB required Federal statistical agencies to implement the FGP classification beginning no later than 2017. However, the Economic Classification Policy Committee (ECPC), which advises OMB, recently reported that results of preliminary research on the effectiveness of survey questions designed to identify Factoryless Goods Producers shows inconsistent results. These results indicate that questions tested in the 2012 Economic Census fail to yield responses that provide accurate and reliable identification and classification of FGPs. The ECPC has advised that additional research, testing, and evaluation are required to find a method for accurate identification and classification of FGPs, and that this process could take several years.  

NAM Monday Economic Report – August 18, 2014

While geopolitical events continue to provide significant downside risks to the economy, recent data suggest that manufacturers in the United States are faring better this summer. Manufacturing production increased 1.0 percent in July, helping to lift the year-over-year pace of manufacturing output to 4.9 percent, its fastest annual pace since June 2012. Last month’s gain stemmed largely from increased motor vehicle production, with all but three of the major manufacturing sectors notching higher output levels for the month. At the same time, the utilization rate for manufacturers increased to 77.8 percent, nearly reaching pre-recessionary capacity levels.

Similarly, the Empire State Manufacturing Survey reflected strong growth in August, albeit less so than the robust levels observed in July. More importantly, respondents to the New York Fed’s survey were significantly more upbeat, with roughly 60 percent anticipating higher sales and output over the next six months. This study also reported that approximately 30 percent of manufacturers in its district planned to hire more workers and invest in additional capital expenditures in the coming months. This is welcome news, and it was largely consistent with the recent pickup in the labor market. Manufacturing job openings increased in June to their highest level in two years, with net hiring also accelerating. Of course, we already knew that to some extent. The most recent employment data found that manufacturers hired an additional 22,000 workers on average from May to July.

Meanwhile, the European economy has shown signs of backtracking, with real GDP in the Eurozone remaining unchanged in the second quarter. Germany’s economy contracted by 0.2 percent, helping to push the continent’s growth figure lower, but Italy (also down 0.2 percent) and France (flat for the second straight quarter) were also weak. In addition, industrial production has decreased in three of the past four months, with output unchanged year-over-year. We will get our first look at August purchasing managers’ index (PMI) data this week. The Markit Eurozone Manufacturing PMI report in July provided mixed news, with activity expanding for 13 straight months but growth continuing to ease over the course of this year. The latest data suggest that Europe’s economic challenges are still not behind them.

To some extent, that is true in the United States as well. We have seen improvements in a number of economic indicators, and yet, there are also persistent worries about future growth. Some of this could stem from global anxieties, but it could also be a function of disappointment with the lack of growth in the first half of the year. Preliminary consumer sentiment data from the University of Michigan and Thomson Reuters appears to pick up on this nuance, with Americans less confident once again in their forward-looking expectations. Indeed, retail sales data also reflect cautiousness on the part of the consumer, with spending unchanged in June.

This week, we will get additional insights about the health of the manufacturing sector worldwide. In addition to new PMI data for Europe, Markit will also release flash reports for China, Japan and the United States. While China’s economy had begun to stabilize in July, last week we learned that Japan’s real GDP contracted by 1.7 percent in the second quarter, or 6.8 percent year-over-year. Closer to home, the Federal Reserve will release the minutes of its July 29–30 Federal Open Market Committee meeting. Analysts will be looking for clues about when the Fed plans to start normalizing short-term rates. The Fed received good news last week with an easing in producer prices in July from recent highs, and this should help to alleviate some of the immediate pressure from inflation hawks, at least for now. Other highlights this week include the latest data on consumer prices, housing starts and permits, leading indicators and Philadelphia Fed manufacturing sentiment.

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

Businesses Stockpiles Increased 0.4% in June

The Commerce Department announced this week that manufacturers’ and trade inventories, adjusted for seasonal variations but not for price changes, were estimated at an end-of-month level of $1,743.1 billion, up 0.4% (±0.1%) from May 2014 and up 5.8% (±0.4%) from June 2013.

The combined value of distributive trade sales and manufacturers’ shipments for June, adjusted for seasonal and trading-day differences but not for price changes, was estimated at $1,346.7 billion, up 0.3% (±0.2%) from May 2014 and were up 4.7% (±0.6%) from June 2013. 

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