August 8, 2011

August 8, 2011

The health of the U.S. and global economies remained topic number one for many Americans last week. After a vigorous debate on deficit reduction measures and the downgrading of U.S. debt from AAA to AA+ on Friday night, conversations have shifted to economic fundamentals and to longer-term budget solutions.

Clearly, U.S. policymakers need to find ways to address the structural deficits inherent in our current budget trajectory (something that was well-known even before Standard & Poor's made its decision on Friday night). Meanwhile, many observers remain worried about European economies and the impact on world markets if another nation — such as Italy or Spain — were to need a bailout. The European Central Bank decided to purchase government securities from those two countries over the weekend to help ease the situation.

While many corporations are reporting strong earnings in the second quarter, their outlook for the rest of the year has turned more cautious. We are starting this week off with a very tense stance, hoping that the U.S. debt downgrade and other challenges have minimal impacts on the larger macroeconomic environment, and yet, we also realize that we are in a new realm. While it is too early to know the full impacts, manufacturers are bound to see higher borrowing costs for the foreseeable future, and America's reputation for fiscal soundness has taken a beating that will take years to restore.

Prior to the announcement of the downgrade, Friday's employment numbers brought a brief respite. With manufacturers creating 24,000 new jobs in July, the sector appears to be on stronger footing after a few weak months. Since December 2009, manufacturers have created 289,000 new jobs and have been one of the brighter spots in the recovery, led primarily by growth in the durable goods sector. Much of the growth in July stemmed from a rebound in hiring in the auto sector, which is a sign that motor vehicle assembly plants are beginning to return to normalcy after the devastating Japanese earthquake and the subsequent supply chain disruptions.

Despite the positive employment news, however, some economic challenges remain moving forward. New orders for manufactured goods have been down in some of the more recent surveys, including the Institute for Supply Management and Census Bureau numbers described below. While the larger weaknesses remain in the transportation sector, the growth in new orders is mixed overall. Consumers remain anxious about current and future economic growth, and have been more careful with their spending. To the extent that consumers become too skittish about the economy, curtailed personal spending could put a damper on economic activity.

To be sure, stronger growth in the second half of 2011 will require stronger economic fundamentals than we are currently seeing. The third quarter has not gotten off to a good start. For the economy to pick up steam, it will require a more vibrant manufacturing sector. While many manufacturers expect for new orders, production and employment to pick up over the next six months, such optimism is often tempered by stories of the many headwinds that could derail those prospects.

This week, we will receive new data on consumer sentiment, productivity, hiring and wholesale and retail sales. Small businesses, which have really struggled to recover from the recession, will also report on their current outlook. For many manufacturers, though, international trade represents the key to their growth strategies, and on Thursday, we will get the most recent export and import numbers.

Chad Moutray
Chief Economist
National Association of Manufacturers

MAJOR US COMPANIES MAKING BIG PLANS TO EXPAND OVERSEAS
Los Angeles Times
"Many major US companies are making big plans to expand overseas even as some of them announce new layoffs at home, and there's a chilling reason why: They're beginning to give up on the American consumer as a source of future growth." The Times explains that, "for years, US companies went off shore to get cheaper labor and lower manufacturing costs for products to be sold to Americans. Now, as the nation's economy stalls and personal incomes stagnate, they see consumers in Asia and Latin America as offering brighter prospects for future sales and profits." The "shifting focus is one reason new job growth here has slowed to a trickle in recent months. And without more jobs to propel incomes and consumer spending, the US economy is looking increasingly vulnerable to a prolonged period of sluggishness, if not outright recession."

S&P DOWNGRADE UNDERSCORES NEED FOR PRO-GROWTH POLICIES
National Association of Manufacturers
NAM President and CEO Jay Timmons issued a statement on Standard & Poor's (S&P) decision to strip the US of its AAA rating. "This downgrade by just one of the three agencies is troubling news for manufacturers because higher interest rates are now on the horizon. Given the weakened state of the economy, higher borrowing costs will have ripple effects throughout the entire economy. Most notably, they will hinder recovery in the housing market, which has a direct impact on manufacturing." Timmons said, "Manufacturers recognize that some programs are critical to our nation's economic and national security. As rates go up, the cost of interest payments will rise, actually increasing the federal debt. Policymakers need to evaluate every line item in the federal budget." Timmons added, "Too often, Presidents and Congresses have enacted expensive programs that are politically popular, with little or no regard for future economic impact. Now is the time for difficult decisions and priority setting to take place in Washington. We need leadership from our policymakers."

CONGRESS HAS A SHOT AT PASSING JOBS-CREATING BILLS
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The biggest asset a company has is the employee, and Starbucks does a magnificent job of giving people the toolset that allows them to do it really well ... continue

VIEWPOINT: THE ASSAULT ON AMERICA'S PLASTIC COMPOSITES INDUSTRY
Quick Manufacturing News
Jobs and revenue are at great risk for leaving the U.S. if people become afraid of styrene as a result of the National Toxicology Program classifying styrene as 'reasonably anticipated to be a human carcinogen' in June, says Congressman Manzullo. Click to continue

FIRST DREAMLINER SET FOR DELIVERY
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OSHA AIMS TO IMPROVE WHISTLEBLOWER PROTECTIONS
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In response to a critical report from the Government Accountability Office, OSHA announced it is implementing measures to strengthen its Whistleblower Protection program. Click to continue

BLOG: LEAN GOVERNMENT
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