THE MANUFACTURING ECONOMIC UPDATE        Dr. Chad Moutray             Chief Economist   National Association of Manufactur...
Strengths in the Economy in 2012, Which are          Expected to Continue Going into 2013 A Recovering Housing Market Hi...
Housing Starts, Permits                                                                    NAHB Housing   (in thousands of...
Percent           Average 30-Year Fixed Mortgage Rates   9   8   7   6   5   4   3   2       2000   2001    2002   2003   ...
Percentage Growth in Real GDP and            Contributions to Real GDP of Goods and Services   5.0%   4.0%                ...
Personal Income/                                                                               Savings Rate    Spending (%...
% Growth of Manufactured Goods Exports  25.0%                                                                             ...
Purchasing Managers’ Indices for the Top 10 Export                    Markets for U.S. Manufactured Goods                 ...
Real Gross Domestic Product                                            (Chained 2005 Dollars)   6%                        ...
Manufacturing Business Outlook   100%                                            89.1%                                    ...
Regressing NAM/IndustryWeek Data      to Predict Future Industrial Production105100 95 90 85 80 75      Industrial Product...
Expected Growth of Manufacturing   Percent             Sales, Investment, and Employment    6    5    4    3    2    1    ...
Primary Current Business Challenges,                              Fourth Quarter 2012                Uncertainties related...
Special Question: “Has the inability of the nation to                address the long-term budget issues caused you to do ...
Special Question: “What do you see as the most pressing               priorities for the Obama Administration, 113th Congr...
Monthly Business and ConsumerConsumer                                                                                     ...
Manufactured Durable Goods                                        (in Billions of Dollars)    $250    $230    $210    $190...
Industrial Production/    Capacity Utilization %         Industrial Production   105   100     95     90     85     80    ...
Percent            % Changes in Manufacturing Production, 2012    2.5      2    1.5      1    0.5      0             Jan  ...
ISM Manufacturing Indices   70.0   60.0   50.0   40.0   30.0   20.0                   Purchasing Managers Index     New Or...
Index for all but      Regional Federal Reserve Bank   Chicago   (Growth >0)           Manufacturing & Business Surveys   ...
Producer Price Index   Percent                  Year-Over-Year Percentage Changes for Each Month   8%   7%   6%   5%   4% ...
Monthly Changes in Employment, 2012                                                    (Thousands of Employees)   300     ...
Millions    of Workers                                     Employment Situation                        Unemployment       ...
Manufacturing Sectors with the Largest Net              Employment Gains YTD, in Thousands of Employees                   ...
Top 20 States for Manufacturing Job Creation,                          December 2009 to October 2012                      ...
Manufacturing Employment Growth                                         (December 2007 = 100)   105   100     95     90   ...
Manufacturing Job Hires & Separations                                       (January 2007 to November 2012)  550  500  450...
Growth in Output per Hour for                     Manufacturing & Nonfarm Businesses                                      ...
Percentage Changes in Manufacturing                            Productivity & Unit Labor Costs  13%                      1...
Federal Government Receipts & Expenditures as a %                    of Gross Domestic Product, 1947 to Present   28%   26...
Federal Mandatory Spending, 2011-2022                                           (in Trillions of Dollars)   $4.5   $4.0   ...
Questions?          Dr. Chad Moutray           Chief EconomistNational Association of Manufacturers        cmoutray@nam.or...
Primary Drivers of Future Growth,                                Fourth Quarter 2012      Stronger domestic economy, sales...
Percent                               Pricing Pressures    2.5    2.0    1.5    1.0    0.5    0.0             2010        ...
Net % of                    Lending Standard and Borrowing Demand   Respondents                                  For Comme...
Manufacturing Value-Added Per Worker         United States                                                                ...
Manufacturing and Business R&D                                                Information                                 ...
Manufacturing’s Multiplier Effect                            Indirect Economic Activity Generated by $1 of Sector GDP     ...
Average Private Sector Value-Added                   Contributions to Real GDP, 1998-2011                                M...
Global Manufacturing Output                   U.S. Still Dominates Manufacturing Worldwide, with China Close Behind  25.0%...
U.S. Manufacturing Relative to GDP                              of the 15 Largest Nations  $16.000000  $14.000000  $12.000...
Distribution of U.S. Exports                                                  Services                                    ...
Manufactured Goods Trade Balance                    for FTA & FTA Countries, in Billions of Dollars    $100               ...
Examining Defense Sequestration Alone   Over 1 million private sector jobs, including 130,000 in      manufacturing, will...
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Manufacturing Economic Update

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The economic update presented at the National Association of Manufacturers' Council of Manufacturings Associations' 2013 Winter Leadership Conference.

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Manufacturing Economic Update

  1. 1. THE MANUFACTURING ECONOMIC UPDATE Dr. Chad Moutray Chief Economist National Association of Manufacturers Updated January 17, 2013
  2. 2. Strengths in the Economy in 2012, Which are Expected to Continue Going into 2013 A Recovering Housing Market Historically Low Interest Rates Modest Growth in Consumer Spending Growth in Exports, Albeit at a Slower Pace Lower Energy Costs, Aided by Shale Exploration Increased Signs of Reshoring, Improved Global Competitiveness
  3. 3. Housing Starts, Permits NAHB Housing (in thousands of units) Housing Market Situation Market Index 2,500 80 70 2,000 60 1,500 50 40 1,000 30 20 500 10 0 0 2011 2005 2006 2007 2008 2009 2010 2012 2013 Housing Starts Housing Permits NAHB Housing Market IndexSource: U.S. Census Bureau, National Association of Home Builders
  4. 4. Percent Average 30-Year Fixed Mortgage Rates 9 8 7 6 5 4 3 2 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013Source: Freddie Mac
  5. 5. Percentage Growth in Real GDP and Contributions to Real GDP of Goods and Services 5.0% 4.0% 4.1% 3.0% 3.1% 2.6% 2.5% 2.4% 2.3% 2.0% 2.2% 2.0% 1.3% 1.3% 1.0% 1.1% 1.1% 1.1% 1.0% 1.0% 1.0% 0.9% 0.9% 0.9% 0.9% -0.1% -0.1% -0.2% 0.8% 0.4% 0.5% 0.7% 0.0% 0.5% 0.4% 0.7% 0.1% 0.5% 0.7% 0.4% 0.3% 0.2% 0.3% 0.6% 0.1% 0.7% 0.2% 0.3% 0.0% 0.0% Q1:2010 Q2:2010 Q3:2010 Q4:2010 Q1:2011 Q2:2011 Q3:2011 Q4:2011 Q1:2012 Q2:2012 Q3:2012 -1.0% Real GDP Durable Goods Nondurable Goods ServicesSource: Bureau of Economic Analysis
  6. 6. Personal Income/ Savings Rate Spending (% Change) Personal Income and Spending Percentage 2 6.0 5.0 1.5 4.0 1 3.0 0.5 2.0 0 1.0 -0.5 0.0 Personal Income Personal Spending Savings RateSource: Bureau of Economic Analysis
  7. 7. % Growth of Manufactured Goods Exports 25.0% 23.8% 20.1% 20.0% 17.2% 16.7% 15.9% 15.0% 13.8% 13.0% 10.7% 10.8% 10.0% 7.4% 6.6% 5.0% 4.6% 2.7% 3.0% 0.0% Canada Mexico FTA Europe Asia South TOTAL America Annual Change, 2011 vs. 2010 Year-to-Date, Q3:2012 vs. Q3:2011Source: U.S. Department of Commerce
  8. 8. Purchasing Managers’ Indices for the Top 10 Export Markets for U.S. Manufactured Goods (December 2012) 60.0 57.1 Note: Eurozone PMI: 46.1 55.0 51.5 51.4 51.7 51.1 50.4 50.1 50.0 49.6 46.0 45.0 45.0 40.0 Canada Mexico China Japan United Germany Brazil Netherlands South Korea Hong Kong KingdomSource: Markit
  9. 9. Real Gross Domestic Product (Chained 2005 Dollars) 6% Forecast 4% 2% 0% -2% -4% Real GDP Forecast: ↑ 2.0% (2011) -6% ↑ 2.0% (2012) -8% ↑ 2.0% (2013) -10%Source: Bureau of Economic Analysis, NAM calculations using Moody’s Analytics simulation model
  10. 10. Manufacturing Business Outlook 100% 89.1% 88.7% 90% 86.1% 84.8% 83.1% 78.4% 78.5% 80% 74.0% 73.1% 71.6% 69.6% 69.2% 70% 60% 52.8% 51.8% 47.6% 46.3% 50% 40% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Q1:12 Q2:12 Q3:12 Q4:12Source: NAM/Industry Week Survey of ManufacturersNote: Percentage of respondents who characterized the current business outlook at somewhat or very positive. Percentagesare annual averages. Q4:2010 and Q1:2011 data are imputed from comparable data using a regression model.
  11. 11. Regressing NAM/IndustryWeek Data to Predict Future Industrial Production105100 95 90 85 80 75 Industrial Production Industrial Production (Predicted) Prediction for Industrial Production Q2:2013 ↑ 0.1 % Y-O-Y But ↓ 2.0% from Q4:2012
  12. 12. Expected Growth of Manufacturing Percent Sales, Investment, and Employment 6 5 4 3 2 1 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Q1:12 Q2:12 Q3:12 Q4:12 -1 -2 Sales Investment Employment Avg. 12-Mo. Growth Rates:Source: NAM/Industry Week Survey of Manufacturers Sales: ↑ 1.0%Note: Expected growth rates are annual averages. Investment: ↓ 0.6% Employment: ↓ 0.4%
  13. 13. Primary Current Business Challenges, Fourth Quarter 2012 Uncertainties related to the political climate (e.g., fiscal abyss, pending budget cuts, etc.) 84.2% Rising healthcare/insurance costs 79.0% Unfavorable business climate (e.g., taxes, regulation, etc.) 74.7% Weaker domestic economy, sales for our products to U.S. customers 67.6% Rising energy and raw material costs for our products 39.6% Attracting and retaining a quality workforce 38.7% Weaker global growth, slower export sales 33.9% Challenges with access to capital or other forms of financing 8.4% Other 2.5%Source: NAM/Industry Week Survey of ManufacturersNote: Respondents were able to check all that apply. Therefore, responses exceed 100 percent.
  14. 14. Special Question: “Has the inability of the nation to address the long-term budget issues caused you to do any of the following?” Reduce your business outlook for 2013 62.5% Reduce or slow down business investment 49.7% Reduce employment or stop hiring 39.0% No changes in employment, business investment, or outlook 16.7% Uncertain 13.4%Source: NAM Survey for Member Focus (February 2013)Note: Respondents were able to check all that apply. Therefore, responses exceed 100 percent.
  15. 15. Special Question: “What do you see as the most pressing priorities for the Obama Administration, 113th Congress?” Finding a long-term federal budget deal that tackles the deficit/debt 88.7% Slowing the growth of entitlement spending 82.1% Reducing the regulatory burden on manufacturers and other businesses 76.4% Averting the fiscal abyss and budget sequestration 75.5% Passing comprehensive tax reform 68.7% Controlling rising health care costs 67.6% Implementing a true "all-of-the-above" energy policy 48.8% Addressing the "skills gap" facing manufacturers 30.4% Expanding economic opportunities with more trade agreements 22.0% Other 4.5%Source: NAM/Industry Week Survey of ManufacturersNote: Respondents were able to check all that apply. Therefore, responses exceed 100 percent.
  16. 16. Monthly Business and ConsumerConsumer NFIB SmallConfidence Indices Sentiment Surveys Business Index120 110110 105100 100 90 80 95 70 90 60 85 50 80 40 30 75 20 70 2012 2005 2006 2007 2008 2009 2010 2011 University of Michigan Consumer Confidence Conference Board Consumer Confidence NFIB Small Business Optimism
  17. 17. Manufactured Durable Goods (in Billions of Dollars) $250 $230 $210 $190 $170 $150 $130 2011 2005 2006 2007 2008 2009 2010 2012 New Orders ShipmentsSource: U.S. Census Bureau
  18. 18. Industrial Production/ Capacity Utilization % Industrial Production 105 100 95 90 85 80 75 70 65 60 2005 2006 2007 2008 2009 2010 2012 2011 Industrial Production Capacity UtilizationSource: Federal Reserve Board
  19. 19. Percent % Changes in Manufacturing Production, 2012 2.5 2 1.5 1 0.5 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec -0.5 -1 -1.5 Manufacturing Durable Goods Nondurable GoodsSource: Federal Reserve Board
  20. 20. ISM Manufacturing Indices 70.0 60.0 50.0 40.0 30.0 20.0 Purchasing Managers Index New Orders Index Employment Index Inventories IndexSource: Institute for Supply Management
  21. 21. Index for all but Regional Federal Reserve Bank Chicago (Growth >0) Manufacturing & Business Surveys Chicago Index (2007=100) 40.0 100 98 30.0 96 20.0 94 10.0 92 90 0.0 88 -10.0 86 84 -20.0 82 -30.0 80 Dallas Kansas City New York Philadelphia Richmond ChicagoSource: Regional Federal Reserve Banks
  22. 22. Producer Price Index Percent Year-Over-Year Percentage Changes for Each Month 8% 7% 6% 5% 4% 3% 2% 1% 0% 2011 2010 2012 PPI - Finished Goods PPI - Finished Goods Less Food & EnergySource: Bureau of Labor Statistics
  23. 23. Monthly Changes in Employment, 2012 (Thousands of Employees) 300 275 259 250 192 200 181 161 143 137 155 150 132 100 87 68 52 42 45 50 30 18 25 10 13 7 7 5 -13 -16 0 Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec -50 Nonfarm Payrolls ManufacturingSource: Bureau of Labor Statistics
  24. 24. Millions of Workers Employment Situation Unemployment Rate 14 11% 13 10% 12 9% 11 8% 10 7% 9 6% 8 7 5% 6 4% Durable Goods Nondurable Goods Unemployment RateSource: Bureau of Labor Statistics
  25. 25. Manufacturing Sectors with the Largest Net Employment Gains YTD, in Thousands of Employees (December 2009 to December 2012) Transportation Equipment 174.3 Fabricated Metal Products 151.7 Motor Vehicles and Parts 137.8 Machinery 129.7 Primary Metals 58.3 Plastics and Rubber Products 42.7 Beverages and Tobacco Products 21.0 Semiconductors and Electronic Components 19.2 Electrical Equipment and Appliances 15.4 Miscellaneous Manufacturing 11.7 Food Manufacturing 8.6 Petroleum and Coal Products 6.0 Chemicals 5.5 Computer and Peripheral Equipment 5.2 Computer and Electronic Products 2.1 Leather and Allied Products 1.9Source: Bureau of Labor Statistics
  26. 26. Top 20 States for Manufacturing Job Creation, December 2009 to October 2012 (in Thousands of Workers) Michigan 64.0 Indiana 49.4 Texas 46.9 Ohio 43.7 Illinois 43.3 Washington 32.4 Wisconsin 23.4 Iowa 20.3 South Carolina 18.7 Tennessee 16.4 Oklahoma 15.7 Georgia 15.6 Minnesota 13.0 Pennsylvania 12.0 Kentucky 11.0 Colorado 9.0 Utah 7.5 Oregon 7.1 Kansas 7.0 North Carolina 6.5Source: Bureau of Labor Statistics
  27. 27. Manufacturing Employment Growth (December 2007 = 100) 105 100 95 90 85 80 75 Nonfarm Payrolls Manufacturing Durable Goods Nondurable GoodsSource: Bureau of Labor Statistics
  28. 28. Manufacturing Job Hires & Separations (January 2007 to November 2012) 550 500 450 400 350 300 250 200 150 100 50 2011 2007 2008 2009 2010 2012 Job Openings Hires SeparationsSource: Bureau of Labor Statistics
  29. 29. Growth in Output per Hour for Manufacturing & Nonfarm Businesses (1987=100) 290 270 250 230 210 190 170 150 130 110 90 2011 1990 1987 1993 1996 1999 2002 2005 2008 Manufacturing Durable Goods Nondurable Goods Nonfarm BusinessSource: Bureau of Labor Statistics
  30. 30. Percentage Changes in Manufacturing Productivity & Unit Labor Costs 13% 11.8% 10.2% 9.0% 7.8% 8.2% 7.5% 8% 6.8% 5.5% 5.5% 5.2% 5.5% 5.5% 4.8% 3.9% 3.1% 3.0% 3.2% 3% 1.5% 1.1% 1.2% 0.7% -0.4% 0.7% 0.1% -0.7% -0.7% Q1:2010 Q2:2010 Q3:2010 Q4:2010 Q1:2011 Q2:2011 Q3:2011 Q4:2011 Q1:2012 Q2:2012 Q3:2012 -2% -0.3% -1.5% -1.9% -3.6% -4.8% -7% -6.6% -8.8% -12% Output Per Hour for All Persons Output Unit Labor CostsSource: Bureau of Labor Statistics
  31. 31. Federal Government Receipts & Expenditures as a % of Gross Domestic Product, 1947 to Present 28% 26% 24.2% 24% 22% 20% 18% 16% 14% 17.2% 12% 10% 1947 80 Federal Receipts as a % of GDP Federal Expenditures as a % of GDPSource: Bureau of Economic Analysis
  32. 32. Federal Mandatory Spending, 2011-2022 (in Trillions of Dollars) $4.5 $4.0 $3.5 $3.0 $2.5 $2.0 $1.5 $1.0 $0.5 $0.0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Social Security Medicare, Net of Receipts Total Mandatory Spending MedicaidSource: Congressional Budget Office, November 2012
  33. 33. Questions? Dr. Chad Moutray Chief EconomistNational Association of Manufacturers cmoutray@nam.org (202) 637-3148
  34. 34. Primary Drivers of Future Growth, Fourth Quarter 2012 Stronger domestic economy, sales for our products 61.9% New product development 48.9% Increased efficiencies in the production process 48.6% Increased international sales 40.8% Recent mergers or acquisitions 10.6% Other 6.4%Source: NAM/Industry Week Survey of ManufacturersNote: Respondents were able to check all that apply. Therefore, responses exceed 100 percent.
  35. 35. Percent Pricing Pressures 2.5 2.0 1.5 1.0 0.5 0.0 2010 2012 2011 -0.5 -1.0 -1.5 PPI - Manufactured Finished Goods PPI - Finished Goods PPI - Finished Goods Less Food & EnergySource: Bureau of Labor Statistics
  36. 36. Net % of Lending Standard and Borrowing Demand Respondents For Commercial & Industrial Loans 35 31 28.1 27.3 25 21.8 21.8 20 19.7 16.4 13.5 15.1 15 10.5 10.5 8.8 9.1 9.6 9.5 7.1 7.8 6.9 7.9 7.6 7.6 5.5 7.1 5.9 6.2 5.6 5.8 4.9 4.5 5 1.8 1.9 1.8 0 0 -5 Q1:2010 Q2:2010 Q3:2010 Q4:2010 Q1:2011 Q2:2011 Q3:2011 Q4:2011 Q1:2012 Q2:2012 Q3:2012 Q4:2012 -1.9 -3.7 -3.6 -5.4 -6.2 -7.1 -7 -9.3 -15 -15.7 -18.8 -21.4 -25 -25.5 -29.6 -35 Easing of standards for large & medium-sized borrowers Easing of standards for small borrowers Stronger demand from large & medium-sized borrowers Stronger demand from small borrowersSource: Federal Reserve Board of Governors
  37. 37. Manufacturing Value-Added Per Worker United States $118,419 Japan $92,960 United Kingdom $84,565 Republic of Korea $76,346 Canada $71,529 France $63,992 Germany $60,842 Italy $56,208 Spain $51,576 Mexico $28,226 India $28,051 Brazil $14,105 China $13,266Source: United Nations, Bureau of Labor Statistics, International Labor Organization
  38. 38. Manufacturing and Business R&D Information 13% Professional, Scientifi c & Technical Services 14% Manufacturing 67% Other Nonmanufacturing Businesses 6%Source: National Science Foundation
  39. 39. Manufacturing’s Multiplier Effect Indirect Economic Activity Generated by $1 of Sector GDP Manufacturing $1.35 Agriculture, Forestry, Fishing, and Hunting $1.20 Construction $0.97 Transportation and Warehousing $0.95 Information $0.88 Arts, Entertainment, Recreation, Accommodation, and Food… $0.84 Mining $0.82 Government $0.74 Other Services, Except Government $0.67 Educational Services, Health Care, and Social Assistance $0.66 Finance, Insurance, Real Estate, Rental, and Leasing $0.63 Wholesale Trade $0.58 Professional and Business Services $0.55 Retail Trade $0.55 Utilities $0.52Source: Bureau of Economic Analysis, 2010 Annual Input-Output Tables
  40. 40. Average Private Sector Value-Added Contributions to Real GDP, 1998-2011 Manufacturing 12.7% Real estate, rental, and leasing 12.5% Professional and business services 11.6% Finance and insurance 7.9% Education and healthcare 7.7% Retail trade 6.6% Wholesale trade 5.8% Information 4.5% Construction 4.4%Arts, entertainment, recreation, accommodation… 3.8% Transportation and warehousing 2.9% Other Services 2.6% Utilities 1.8% Mining 1.4% Agriculture 1.0%Source: U.S. Department of Commerce
  41. 41. Global Manufacturing Output U.S. Still Dominates Manufacturing Worldwide, with China Close Behind 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 United States China (World Bank) Japan Germany Republic of Korea Italy United Kingdom France India MexicoSource: United Nations Statistics Division, with China data from the World Bank.
  42. 42. U.S. Manufacturing Relative to GDP of the 15 Largest Nations $16.000000 $14.000000 $12.000000 $10.000000 $8.000000 $6.000000 $4.000000 $1.8 Trillion $2.000000 $0.000000Source: Bureau of Economic Analysis, International Monetary Fund (2011 Data)
  43. 43. Distribution of U.S. Exports Services 30% Agriculture 6% Manufacturing 60% Other 4%Source: U.S. Department of Commerce Source: U.S. Department of Commerce (2007)
  44. 44. Manufactured Goods Trade Balance for FTA & FTA Countries, in Billions of Dollars $100 $38.28 $8.87 $17.60 $14.61 $0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 -$100 -$200 -$300 -$319.27 -$400 -$412.01 -$441.94 -$500 -$466.04 -$600 FTA Countries Non-FTA CountriesSource: U.S. Department of Commerce
  45. 45. Examining Defense Sequestration Alone  Over 1 million private sector jobs, including 130,000 in manufacturing, will be lost in 2014.  GDP will be almost 1 percent lower by 2014.  Total job losses increase the unemployment rate by 0.7 percent.  The largest job losses will occur in: – California (↓ 148,400) – Virginia (↓ 114,900) – Texas (↓ 109,000) – Florida (↓ 56,600)Source: “Defense Spending Cuts: The Impact on Economic Growth and Jobs” (June 2012)

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