The Manufacturing Economic Update forecasts a recession in 2013, with negative GDP growth and an unemployment rate exceeding 9%. Additionally, over 1 million private sector jobs, including 130,000 in manufacturing, are expected to be lost by 2014 due to defense spending cuts. Challenges for manufacturing businesses include uncertainties over the political climate, rising costs, and a weaker domestic economy.

1. THE MANUFACTURING
ECONOMIC UPDATE
Dr. Chad Moutray
Chief Economist
National Association of Manufacturers
Updated October 10, 2012

2. Real Gross Domestic Product
(Chained 2005 Dollars)
6% 6%
Forecast
4% 4%
2% 2%
0% 0%
-2% -2%
-4% Real GDP Forecast: -4%
↑ 1.8% (2011)
-6% ↑ 1.9% (2012) -6%
-8% ↑ 2.1% (2013) – No Fiscal Cliff -8%
↓ 0.5% (2013) – Fiscal Cliff
-10% -10%
Source: Bureau of Economic Analysis, NAM calculations using Moody’s Analytics simulation model

3. Assuming There Is a Fiscal Cliff
 There will be a recession in 2013, with negative real
GDP in the first half of the year.
 The unemployment rate will increase to over 9 percent
by mid-2013.
 Industrial production will slow to a near-standstill in
2013.
 Manufacturing employment will decline by at least
300,000 in 2013.
Source: NAM calculations using Moody’s Analytics simulation model

4. 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)

5. Manufacturing Business Outlook
100%
89.1% 88.7%
90% 86.4%
86.1%
84.8% 83.1%
81.9% 80.2%
78.4% 78.5%
80%
74.0% 73.1%
71.6%
69.6% 69.2%
70%
65.4%
60%
52.8%
47.6% 46.3%
50%
40%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Q1:11 Q2:11 Q3:11 Q4:11 Q1:12 Q2:12 Q3:12
Source: NAM/Industry Week Survey of Manufacturers
Note: Percentage of respondents who characterized the current business outlook at somewhat or very positive. Percentages
are annual averages. Q4:2010 and Q1:2011 data are imputed from comparable data using a regression model.

6. Regressing NAM/IndustryWeek Data
to Predict Future Industrial Production
105
100
95
90
85
80
75
Industrial Production Industrial Production (Predicted)
Prediction for Industrial Production Q1:2013
↑ 4.1 % Y-O-Y
But ↓ 1.2% from Q3:2012

7. 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
-1
-2
Sales Investment Employment
Avg. 12-Mo. Growth Rates:
Source: NAM/Industry Week Survey of Manufacturers Sales: ↑ 2.5%
Note: Expected growth rates are annual averages. Investment: ↑ 1.2%
Employment: ↑ 0.7%

8. Primary Current Business Challenges,
Third Quarter 2012
Uncertainties related to the political climate (e.g., fiscal
abyss, pending budget cuts, etc.)
78.7%
Rising healthcare/insurance costs 69.4%
Unfavorable business climate (e.g., taxes, regulation, etc.) 62.4%
Weaker domestic economy, sales for our products to U.S.
customers
60.7%
Rising energy and raw material costs for our products 39.9%
Attracting and retaining a quality workforce 39.5%
Weaker global growth, slower export sales 33.7%
Challenges with access to capital or other forms of financing 7.0%
Other 3.9%
Source: NAM/Industry Week Survey of Manufacturers
Note: Respondents were able to check all that apply. Therefore, responses exceed 100 percent.

9. Primary Drivers of Future Growth,
Third Quarter 2012
Stronger domestic economy, sales for our products 60.6%
New product development 56.1%
Increased efficiencies in the production process 51.3%
Increased international sales 42.5%
Recent mergers or acquisitions 11.8%
Other 8.0%
Source: NAM/Industry Week Survey of Manufacturers
Note: Respondents were able to check all that apply. Therefore, responses exceed 100 percent.

10. Monthly Business and Consumer
Consumer NFIB Small
Confidence Indices Sentiment Surveys Business Index
120 110
110 105
100
100
90
80 95
70 90
60 85
50
80
40
30 75
20 70
2010
2005
2006
2007
2008
2009
2012
2011
University of Michigan Consumer Confidence Conference Board Consumer Confidence
NFIB Small Business Optimism

11. Percentage Growth in Real GDP and
Contributions to Real GDP of Goods and Services
5.0%
4.0%
4.1%
3.0%
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%
0.7%
0.4%
0.5%
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%
0.0%
0.0%
Q1:2010 Q2:2010 Q3:2010 Q4:2010 Q1:2011 Q2:2011 Q3:2011 Q4:2011 Q1:2012 Q2:2012
-1.0%
Real GDP Durable Goods Nondurable Goods Services
Source: Bureau of Economic Analysis

12. 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
2011
2010
2012
-0.5 0.0
Personal Income Personal Spending Savings Rate
Source: Bureau of Economic Analysis

13. Manufactured Durable Goods
(in Billions of Dollars)
$260
$240
$220
$200
$180
$160
$140
$120
2011
2005
2006
2007
2008
2009
2010
2012
New Orders Shipments
Source: U.S. Census Bureau

14. 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 Utilization
Source: Federal Reserve Board

15. % Changes in Manufacturing Production,
Percent 2011-2012
2
1.5
1
0.5
0
-0.5
-1
-1.5
Manufacturing Durable Goods Nondurable Goods
Source: Federal Reserve Board

16. ISM Manufacturing Indices
70.0
60.0
50.0
40.0
30.0
20.0
Purchasing Managers Index New Orders Index
Employment Index Inventories Index
Source: Institute for Supply Management

17. Index for all but Regional Federal Reserve Bank
Chicago
(Growth >0) Manufacturing & Business Surveys Chicago Index
(2007=100)
50.0 105
40.0 100
30.0 95
20.0 90
10.0 85
0.0 80
2011
2010
2012
-10.0 75
-20.0 70
-30.0 65
Dallas Kansas City New York Philadelphia Richmond Chicago
Source: Regional Federal Reserve Banks

18. 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 & Energy
Source: Bureau of Labor Statistics

19. Monthly Changes in Employment
(Thousands of Employees)
300
275 259
246 251
250
223
220
202
200 181
157
150 143 142
110 112 114
96
100 84 85 87
68
52 54 52 42
37 45
50
26 28 30 28 30
12 13 7 18
8 3 9 3 10
-3 -22 -16
0
-50
Nonfarm Payrolls Manufacturing
Source: Bureau of Labor Statistics

20. 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 Rate
Source: Bureau of Labor Statistics

21. Manufacturing Sectors with the Largest Net
Employment Gains YTD, in Thousands of Employees
(December 2009 to September 2012)
Transportation Equipment 155.2
Fabricated Metal Products 149.8
Machinery 129.4
Motor Vehicles and Parts 124.7
Primary Metals 57.8
Plastics and Rubber Products 37.3
Semiconductors and Electronic Components 22.3
Electrical Equipment and Appliances 17.1
Beverages and Tobacco Products 16.4
Food Manufacturing 15.7
Miscellaneous Manufacturing 9.9
Chemicals 5.5
Computer and Peripheral Equipment 5.3
Computer and Electronic Products 4.7
Petroleum and Coal Products 2.3
Leather and Allied Products 1.4
Source: Bureau of Labor Statistics

22. Top 20 States for Manufacturing Job Creation,
December 2009 to August 2012
(in Thousands of Workers)
Michigan 65.2
Ohio 52.1
Indiana 47.6
Texas 45.9
Illinois 44.9
Washington 31.2
Wisconsin 22.5
Iowa 19.6
Minnesota 16.9
Tennessee 15.9
Oklahoma 15.9
South Carolina 15.7
Pennsylvania 13.5
Missouri 13.3
Kentucky 12.9
Georgia 11.4
Oregon 8.7
Colorado 8.1
Utah 7.3
Kansas 6.9
Source: Bureau of Labor Statistics

23. Manufacturing Employment Growth
(December 2007 = 100)
105
100
95
90
85
80
75
Nonfarm Payrolls Manufacturing Durable Goods Nondurable Goods
Source: Bureau of Labor Statistics

24. Manufacturing Job Hires & Separations
(January 2007 to August 2012)
550
500
450
400
350
300
250
200
150
100
50
2011
2007
2008
2009
2010
2012
Job Openings Hires Separations
Source: Bureau of Labor Statistics

25. Growth in Output per Hour for
Manufacturing & Nonfarm Businesses
(1987=100)
290
270
250
230
210
190
170
150
130
110
90
1990
1987
1993
1996
1999
2002
2005
2008
2011
Manufacturing Durable Goods Nondurable Goods Nonfarm Business
Source: Bureau of Labor Statistics

26. Percentage Changes in Manufacturing
Productivity & Unit Labor Costs
13% 11.8%
10.1%
7.8% 8.2%
8% 6.8%
5.5% 5.5% 5.2% 5.5% 5.5%
4.8% 7.5%
3.9%
3.1% 3.0%
3% 1.5% 1.5%
1.2%
0.7% 0.7% 0.8%
0.1%
-0.4%
Q1:2010 Q2:2010 Q3:2010 Q4:2010 Q1:2011 Q2:2011 Q3:2011 Q4:2011 Q1:2012 Q2:2012
-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 Costs
Source: Bureau of Labor Statistics

27. % Growth of Manufactured Goods Exports
25.0% 23.8%
20.1%
20.0%
16.7% 17.2%
15.9%
15.0% 14.2%
13.0% 12.7%
10.8%
9.5%
10.0% 9.0%
6.3% 6.2%
5.7%
5.0%
0.0%
Canada Mexico FTA Europe Asia South TOTAL
America
Annual Change, 2011 vs. 2010 Year-to-Date, Q2:2012 vs. Q2:2011
Source: U.S. Department of Commerce

28. 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
2012
2005
2006
2007
2008
2009
2010
Housing Starts Housing Permits NAHB Housing Market Index
Source: U.S. Census Bureau, National Association of Home Builders

29. 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 GDP
Source: Bureau of Economic Analysis

30. Questions?
Dr. Chad Moutray
Chief Economist
National Association of Manufacturers
cmoutray@nam.org
(202) 637-3148

31. # of Mfg. Industries (19) Manufacturing Production 1 month IP change (%)
5%
16
11 3%
6
1%
1
-4 -1%
-9
-3%
-14
-19 -5%
Number of Mfg Industries Increasing Number of Mfg Industries Decreasing
Percent Change in Mfg Production
Source: Federal Reserve Board

32. 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
5.5 7.1 5.9 6.2
5.6 5.8 4.9
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
-1.9 Q2:2012 Q3:2012
-3.7 -3.6 -5.4
-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 borrowers
Source: Federal Reserve Board of Governors

33. 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 $13,266
Source: United Nations, Bureau of Labor Statistics, International Labor Organization

34. Manufacturing and Business R&D
Information
13%
Professional, Scientifi
c & Technical
Services
14%
Manufacturing
67%
Other
Nonmanufacturing
Businesses
6%
Source: National Science Foundation

35. 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 $0.52
Source: Bureau of Economic Analysis, 2010 Annual Input-Output Tables

36. 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

37. 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
United States China (World Bank) Japan Germany
Republic of Korea Italy United Kingdom France
India Mexico
Source: United Nations Statistics Division, with China data from the World Bank.

38. U.S. Manufacturing Relative to GDP
of the 15 Largest Nations
$16
$14
$12
$10
$8
$6
$4 $1.8 Trillion
$2
$0
Source: Bureau of Economic Analysis, International Monetary Fund (2011 Data)

39. 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)

40. 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 Countries
Source: U.S. Department of Commerce