40.5 (Down from 45.8 in September)

Transcription

1 Manufacturing Outlook PERCENTAGE OF RESPONDENTS POSITIVE IN THEIR OWN COMPANY S OUTLOOK 59.6% (Down from 67.3% in September) Small Manufacturers: 74.3% (Up from 64.6%) Medium-Sized Manufacturers: 54.7% (Down from 69.9%) Large Manufacturers: 56.5% (Down from 64.8%) MANUFACTURING OUTLOOK INDEX 40.5 (Down from 45.8 in September) Expected Growth Rate Over the Next 12 Months 1.4% SALES (Down from 2.0% in September) 1.4% PRODUCTION (Down from 2.0% in September) 0.02% EXPORTS (Up from a decline of 0.1% in September) 0.1% CAPITAL INVESTMENT (Down from 0.7% in September) 0.3% PRICES (Down from 0.5% in September) 0.3% FULL-TIME EMPLOYMENT (No change from September) 1.1% INVENTORIES (Down from a decline of 0.7% in September) 1.5% EMPLOYEE WAGES (No change from September) 8.0% HEALTH INSURANCE COSTS (Down from 8.7% in September)

2 Summary For much of this year, manufacturers have wrestled with softer growth in demand and output. The sector continues to expand, but at a pace that remains weaker than desired. This slowdown can be seen in a variety of economic indicators. Manufacturing production has decelerated from 4.3 percent on a year-over-year basis in January to 1.9 percent in October, with employment remaining relatively flat over that time frame. Sentiment surveys have also reflected a diminished outlook, with the Institute for Supply Management s Manufacturing Purchasing Managers Index downshifting from 57.6 in November 2014 to 48.6 in the latest survey, contracting for the first time in three years. In addition, several of the regional Federal Reserve Banks have indicated declining activity in recent data, including the Dallas, New York and Richmond districts. There are a number of headwinds that have held manufacturing back year-to-date, including a stronger U.S. dollar, economic weaknesses in key export markets and reduced commodity prices. These problems have somewhat offset other, more encouraging signs in the macroeconomy, including rebounds in housing, modest growth in consumer and business spending and progress in the overall labor market. The unemployment rate, for instance, has fallen to 5.0 percent, matching its lowest level since April 2008, and real GDP is expected to grow 2.5 percent in Such progress will likely lead the Federal Open Market Committee to raise short-term rates at its December meeting. Nevertheless, manufacturers have mixed opinions on this issue, as noted later in this report, particularly in light of ongoing weaknesses in the sector. The latest National Association of Manufacturers (NAM) quarterly survey provides more clues about these challenges. In this survey, 59.6 percent of manufacturers were either somewhat or very positive about their own company s outlook, representing the fourth consecutive easing in sentiment, down from 91.2 percent one year ago (Figure 1). That represents a significant decline in outlook over a short period of time. The current figure was the lowest since the fourth quarter of 2012, when manufacturers were worried about the fiscal cliff. Moreover, it remained below the historical average of roughly 73.5 percent. As a result, the NAM Manufacturing Outlook Index dropped from 45.8 in September to 40.5 in this report (Figure 2). Figure 1: Manufacturing Business Outlook by Quarter, % 83.1% 86.1% 85.9% 87.3% 91.2% 88.5% 69.2% 76.1% 78.1% 72.3% 70.1% 76.3% 67.3% 59.6% 51.8% 2012:1 2012:2 2012:3 2012:4 2013:1 2013:2 2013:3 2013:4 2014:1 2014:2 2014:3 2014:4 2015:1 2015:2 2015:3 2015:4 Percentage of respondents who characterized the current business outlook as somewhat or very positive.

3 Despite the decline in the headline outlook number, small manufacturers (those with fewer than 50 employees) were more upbeat in this survey. The percentage of respondents who were positive in their outlook rose from 64.6 percent in September to 74.3 percent in December. That was an interesting finding, particularly when the outlook decreased for both medium-sized (those with between 50 and 499 employees) and larger firms (those with 500 or more employees). The sharpest decline in December was seen in medium-sized manufacturing respondents, down from 69.9 percent to 54.7 percent. One explanation for this observation would be the export intensity of those completing the survey, with smaller respondents less likely to be engaged in trade. Of those companies that anticipated increased exports over the next 12 months, 75.4 percent were positive in their outlook in this survey. In contrast, the percentage of respondents who were positive fell to 61.7 percent for those expecting their exports to remain the same and to 39.1 percent for those predicting decreased exports over the next year. Overall, respondents expect exports to grow by just 0.02 percent over the next 12 months, essentially predicting no growth in Along those lines, 57.9 percent said that the recent slowdown in global growth had negatively impacted their international sales (Figure 7). Figure 2: NAM Manufacturing Outlook Index, :1 2012:2 2012:3 2012:4 2013:1 2013:2 2013:3 2013:4 2014:1 2014:2 2014:3 2014:4 2015:1 2015:2 2015:3 2015:4 Source: National Association of Manufacturers. NAM Manufacturing Outlook Index Small Firms Medium-Sized Firms Large Firms Other measures have also eased significantly across the year. For instance, manufacturers expect sales to grow 1.4 percent over the next 12 months, down significantly from the 4.5 percent pace in December 2014 (Figure 3). To illustrate the easing in the sales outlook, roughly one-quarter of respondents said they anticipate sales growth of 5.0 percent or more over the next year, or half of the level who reported the same thing in March. Small and medium-sized firms were more optimistic about demand over the coming year than their larger counterparts, anticipating 1.5 percent growth in sales versus 1.0 percent, respectively. As stated earlier, exports were likely a factor in this result. Production numbers were comparable, also expecting 1.4 percent growth over the next 12 months, down from 2.0 percent in September s survey. Anxieties in the economic outlook also weighed heavily on manufacturers willingness to add new workers or to invest in new capital equipment, both of which were anticipated to grow ever so slightly in 2016, according to this latest report. Employment and capital spending are predicted to grow just 0.3 percent and 0.1 percent, respectively, over the next 12 months, well below the 2.0 percent and 2.3 percent rates observed last year.

4 Forty-eight percent of all manufacturers completing the survey expect no changes in employment levels over the next 12 months, with 28.8 percent predicting increases. These results varied widely by firm size, with small and medium-sized entities expecting hiring growth of 0.7 percent in 2016, but large firms seeing declines of 1.0 percent. Regarding compensation, respondents see wages increasing 1.5 percent, unchanged from the previous report. Figure 3: Expected Growth of Manufacturing Sales, Investment and Employment, % 4% 3% 2% 1% 0% Q1:2014 Q2:2014 Q3:2014 Q4:2014 Q1:2015 Q2:2015 Q3:2015 Q4:2015 Sales Investment Employment Note: Expected growth rates are annual averages. The deceleration in capital spending plans echoes what we see on the hiring front. One-quarter of respondents in this survey expect investment spending to decline in the next 12 months, up from 14.2 percent who said the same thing one year ago. Moreover, much like the employment numbers, it is the larger firms that are pulling back the most. Large manufacturers anticipate capital spending decreases of 0.7 percent in 2016, compared to an expected gain of 0.3 percent for their small and medium-sized counterparts. The bottom line, however, is that capital spending plans have definitely stalled overall a development that we hope turns around moving forward. Meanwhile, manufacturers expect their inventories to decrease by 1.1 percent over the next 12 months, declining for the third straight quarter. Nearly 38 percent anticipate declining inventory stocks, with 14.7 percent predicting increases. There is a silver lining from declining inventory stocks. If new orders pick up significantly, production would have to accelerate substantially to match the increased demand. The top business challenge was an unfavorable business climate, cited by 77.3 percent of manufacturing respondents (Figure 4). Indeed, manufacturers continue to be frustrated with the lack of comprehensive tax reform and with a perceived regulatory assault on their businesses. Many respondents noted their concerns on these issues. Along those lines, 81.2 percent said the United States was on the wrong track, up from 73.4 who said the same thing six months ago, with just 6.0 percent feeling that we are headed in the right direction. The remainder were unsure.

5 Figure 4: Primary Current Business Challenges, Fourth Quarter, 2015 Unfavorable business climate (e.g., taxes, regulations) Rising health care/insurance costs 77.3% 72.2% Weaker domestic economy and sales for our products Attracting and retaining a quality workforce Strengthened U.S. dollar relative to other currencies Weaker global growth and slower export sales 56.9% 52.8% 49.8% 42.1% Rising raw material costs for our products Challenges with access to capital 4.3% 13.0% Note: Respondents were able to check more than one response. Therefore, responses exceed 100 percent. Figure 5: Predicted Manufacturing Production (North American Industry Classification System) Prediction for Manufacturing Production Q2:2016 Essentially Flat Growth Over Next Two Quarters Manufacturing Production Manufacturing Production (Predicted) Note: Industrial production is predicted two quarters in advance by regressing NAM Manufacturers Outlook Survey data as one of the independent variables, with data stretching back to Q4:1997. Other explanatory variables include current values for housing permits, the interest rate spread, personal consumption and the S&P 500.

6 Rising health care and insurance costs were also a major concern, cited by 72.2 percent as a primary challenge. Manufacturers see health insurance costs increasing 8.0 percent over the next 12 months. More specifically, 72.4 percent expect their premiums to increase by at least 5 percent on average in the next year, with 37.4 percent predicting costs to rise by at least 10 percent. Small and medium-sized firms anticipate premiums to jump faster in the next year than large manufacturers do, at 8.6 percent and 6.5 percent, respectively. Finally, while manufacturers have very modest expectations about sales and output growth over the next year, the current data suggest relatively flat growth in production over the next two quarters (Figure 5). This finding comes from a regression model that explains 90 percent of the variation in manufacturing production since the NAM Manufacturers Outlook Survey began in the fourth quarter of In addition to the business outlook figure from this survey, the model includes current values for housing permits, the interest rate spread, personal consumption and the S&P 500. Special Questions Monetary Policy Conventional wisdom now holds that the Federal Reserve will begin to normalize monetary policy at its December Federal Open Market Committee (FOMC) meeting. The FOMC ended its quantitative easing program in October 2014, and the next step will be for it to start raising short-term rates. The federal funds rate has been essentially zero since the beginning of the financial crisis, and with improvements in the economy, there has been increased pressure on the Federal Reserve to take its foot off of the accelerator a bit to reflect that economic progress. Along those lines, Federal Reserve Chair Janet Yellen has said that the FOMC would like to begin the process of raising rates likely by 25 basis points by year s end. Figure 6: Which of the Following Statements Regarding the Federal Reserve s Possible Normalization of Rates Would Be True for Your Firm? 12.7% 55.2% 32.1% The FOMC s actions stem from improvements in the overall U.S. economy, and it is time for the Federal Reserve to take its foot off of the accelerator a little to reflect that progress. There are still sufficient weaknesses in the U.S. economy, even with recent progress. As such, the Federal Reserve should not be in a hurry to raise rates. It should wait until 2016 to start doing so. I have no opinion. For the second straight survey, we asked manufacturers what the Federal Reserve should do from their perspective. Given the current headwinds in the economy, 55.2 percent felt that the FOMC should be patient when it comes to raising short-term rates, with the Federal Reserve waiting until 2016 to increase the federal

7 funds rate. That would give the Federal Reserve more time to evaluate incoming data to ensure sufficient progress. In contrast, 32.1 percent said it was time for the Federal Reserve to adjust rates given recent improvements in the U.S. economy. On the one hand, there was a slight shift in perceptions that the FOMC should act this year, up from 23.5 percent in September. Yet, the majority of respondents continue to hope for better data before the Federal Reserve moves on short-term rates. More than anything, this likely speaks to the current concerns in the economic outlook, as noted earlier. International Issues One of the larger drags in the overall economy this year has been the strength of the U.S. dollar and sluggish growth abroad. Looking just at foreign exchange rates, for instance, the dollar has appreciated 25 percent against major currencies since June 2014, making it more difficult for companies to sell their products overseas. With that in mind, manufacturers were asked about the impact of such headwinds on their international demand, and 57.9 percent of respondents said the global slowdown had significantly or somewhat negatively impacted their exports (Figure 7). Just more than one-fifth of respondents said they do not export products, with the remainder experiencing no impact (16.9 percent) or improvements in sales despite recent strength in the dollar (4.4 percent). Figure 7: How Has the Recent Slowdown in Global Growth Affected Your Company s International Sales or Exports? 4.4% 20.7% 16.9% 17.6% 40.3% It has had a significant negative impact on our company s export sales. It has had a somewhat negative impact on our company s export sales. It has had no impact on our company s export sales. Our company s export sales have improved over the past 12 months despite strength in the U.S. dollar. We do not export products overseas. Note: Respondents were able to check more than one response. Therefore, responses exceed 100 percent. Get-Out-the-Vote Efforts Manufacturers are looking at the various legislative positions of prospective candidates, hoping they will embrace pro-growth policies. The NAM plans to work with our members to get them fully engaged in the process of promoting pro-manufacturing candidates, and to accomplish this, we have set up our Election Center. The Election Center was designed with input from our members and offers resources designed to make it easy to participate in get-out-the-vote (GOTV) activities, with the intent of educating their workforce on the policy issues that matter to their company s success. As the NAM s political programs have grown, we are constantly looking for feedback from our members on how they utilize our GOTV programs so that we can continue to make our resources as useful as possible. To that end, we asked our members about these initiatives, and it is clear there is a lot of work to do to get

8 manufacturers to be more fully engaged in the election process with their employees. Of those answering the survey, 36.8 percent did not participate in GOTV activities with their workforce, and 24.1 percent were undecided (Figure 8). Of those companies that did engage, one-fifth provided flexible leave or time off to participate in elections, with a similar percentage distributing resources such as flyers, pamphlets, s and registration information. In addition, nearly 16 percent hosted meet and greets with candidates, while 12.8 percent utilized the NAM Election Center and other NAM resources and tools. Figure 8: What Are You Doing to Promote GOTV Efforts, Education and Participation for Employees at Your Company? We are not participating in get-out-the-vote activities. 36.8% Giving employees flexible leave or time off to participate in local, state and national elections. 20.7% Providing resources such as flyers, pamphlets, s and registration information. 19.9% Hosting candidate "meet and greets," town halls or other events to connect employees with candidates. 15.8% Connecting employees to the NAM Election Center and other NAM resources and tools. 12.8% Undecided 24.1% Note: Respondents were able to check more than one response. Therefore, responses exceed 100 percent. We wanted to have a little fun in this survey and asked manufacturers which presidential candidate they would most like to have a beer with. The winner was Marco Rubio, who was cited by 24.0 percent (Figure 9). This was followed by Donald Trump (16.3 percent), Ben Carson (13.4 percent), Chris Christie (12.6 percent), Jeb Bush (7.3 percent), John Kasich (6.9 percent), Carly Fiorina (4.9 percent) and Ted Cruz (4.9 percent). Figure 9: Which of the Following Presidential Candidates Would You Most Like to Have a Beer With? Marco Rubio Donald Trump Ben Carson Chris Christie Jeb Bush John Kasich Carly Fiorina Ted Cruz Rand Paul Hillary Clinton Bernie Sanders Rick Santorum Lindsey Graham Martin O'Malley Bobby Jindal Mike Huckabee George Pataki Jim Gilmore 7.3% 6.9% 4.9% 4.9% 2.4% 2.4% 2.0% 0.8% 0.8% 0.4% 0.4% 0.4% 0.0% 0.0% 16.3% 13.4% 12.6% 24.0%

9 Note This survey has been conducted quarterly since 1997, with the NAM membership submitting this quarter s responses from November 13 to November 30. In total, 301 manufacturers from all parts of the country, in a wide variety of manufacturing sectors and in varying size classifications responded this quarter. Aggregated survey responses appear below. The next survey is expected to be released on Wednesday, March 9, Sample Comments on Primary Challenges Facing Manufacturers American iron and steel requirements of the Clean Water Act. (Fabricated metal products) Corporate taxation rates in the United States reduce our competitiveness. Lack of certainty in R&D investment tax credits. (Electronics equipment) Decreasing raw material costs and [our ability to pass along those costs in the selling price]. (Fabricated metal products) Finding and keeping a good workforce is a serious problem. Hard to find employees who can pass a drug screen [and show up on time] is also a big problem. (Machinery) High levels of competitive imports. (Primary metals) Hiring dependable people. (Fabricated metal products) Inability for federal government to govern and excessive presidential executive orders regarding labor, work rules and labor policy. (Furniture and related products) Increase in minimum wage. New York state regulations regarding piecework for sheltered workshops. (Paper and paper products) Sequestration. (Computer and electronic products) Unfair trading practices. (Wood, plastics and rubber products) Survey Responses 1. How would you characterize the business outlook for your firm right now? a. a. Very positive 9.3% b. b. Somewhat positive 50.3% c. c. Somewhat negative 35.0% d. d. Very negative 5.3% Percentage that is either somewhat or very positive in their outlook = 59.6%

10 2. Over the next year, what do you expect to happen with your company s overall sales? a. Increase more than 10 percent 7.0% b. Increase 5 to 10 percent 18.3% c. Increase up to 5 percent 23.6% d. Stay about the same 30.9% e. Decrease up to 5 percent 7.0% f. Decrease 5 to 10 percent 10.0% g. Decrease more than 10 percent 3.3% Average expected increase in sales consistent with these responses = 1.4% 3. Over the next year, what do you expect to happen with your company s overall production levels? a. Increase more than 10 percent 8.3% b. Increase 5 to 10 percent 16.0% c. Increase up to 5 percent 24.7% d. Stay about the same 29.3% e. Decrease up to 5 percent 9.7% f. Decrease 5 to 10 percent 8.0% g. Decrease more than 10 percent 4.0% Average expected increase in production consistent with these responses = 1.4% 4. Over the next year, what do you expect to happen with the level of exports from your company? a. Increase more than 5 percent 9.1% b. Increase 3 to 5 percent 5.4% c. Increase up to 3 percent 8.8% d. Stay about the same 53.4% e. Decrease up to 3 percent 9.8% f. Decrease 3 to 5 percent 4.1% g. Decrease more than 5 percent 9.5% Average expected increase in exports consistent with these responses = 0.02% 5. Over the next year, what do you expect to happen with prices on your company s overall product line? a. Increase more than 10 percent 1.3% b. Increase 5 to 10 percent 1.7% c. Increase up to 5 percent 24.1% d. Stay about the same 58.2% e. Decrease up to 5 percent 11.7% f. Decrease 5 to 10 percent 2.0% g. Decrease more than 10 percent 1.0% Average expected increase in prices consistent with these responses = 0.3%

11 6. Over the next year, what are your company s capital investment plans? a. Increase more than 10 percent 8.0% b. Increase 5 to 10 percent 9.0% c. Increase up to 5 percent 15.4% d. Stay about the same 42.5% e. Decrease up to 5 percent 7.4% f. Decrease 5 to 10 percent 7.0% g. Decrease more than 10 percent 10.7% Average expected increase in capital investments consistent with these responses = 0.1% 7. Over the next year, what are your inventory plans? a. Increase more than 10 percent 1.7% b. Increase 5 to 10 percent 4.3% c. Increase up to 5 percent 8.7% d. Stay about the same 47.5% e. Decrease up to 5 percent 23.4% f. Decrease 5 to 10 percent 8.7% g. Decrease more than 10 percent 5.7% Average expected increase in inventories consistent with these responses = -1.1% 8. Over the next year, what do you expect in terms of full-time employment in your company? a. Increase more than 10 percent 2.4% b. Increase 5 to 10 percent 8.8% c. Increase up to 5 percent 17.6% d. Stay about the same 48.0% e. Decrease up to 5 percent 16.2% f. Decrease 5 to 10 percent 4.4% g. Decrease more than 10 percent 2.7% Average expected increase in full-time employment consistent with these responses = 0.3% 9. Over the next year, what do you expect to happen to employee wages (excluding nonwage compensation, such as benefits) in your company? a. Increase more than 5 percent 1.7% b. Increase 3 to 5 percent 14.7% c. Increase up to 3 percent 60.7% d. Stay about the same 19.3% e. Decrease up to 3 percent 2.3% f. Decrease 3 to 5 percent none g. Decrease more than 5 percent 1.3% Average expected increase in employee wages consistent with these responses = 1.5%

12 10. Over the next year, what do you expect to happen to health insurance costs for your company? a. Increase 15.0 percent or more 13.7% b. Increase 10.0 to 14.9 percent 23.7% c. Increase 5.0 to 9.9 percent 35.0% d. Increase less than 5.0 percent 16.0% e. No change 6.7% f. Decrease less than 5.0 percent 2.0% g. Decrease 5.0 percent or more 0.3% h. Uncertain 2.7% Average expected increase in health insurance costs consistent with these responses = 8.0% 11. Do you think the United States is headed in the right direction, or is our country on the wrong track? a. Right direction 6.0% b. Wrong track 81.2% c. Unsure 12.8% 12. What are the biggest challenges you are facing right now? (Check all that apply.) a. Weaker domestic economy and sales for our products to U.S. customers 56.9% b. Weaker global growth and slower export sales 42.1% c. Strengthened U.S. dollar relative to other currencies 49.8% d. Challenges with access to capital or other forms of financing 4.3% e. Unfavorable business climate (e.g., taxes, regulations) 77.3% f. Increased raw material costs 13.0% g. Rising health care/insurance costs 72.2% h. Attracting and retaining a quality workforce 52.8% 13. What is your company s primary industrial classification? a. Chemicals 4.7% b. Computer and electronic products 2.0% c. Electrical equipment and appliances 4.4% d. Fabricated metal products 31.5% e. Food manufacturing 3.0% f. Furniture and related products 1.7% g. Machinery 9.1% h. Nonmetallic mineral products 1.7% i. Paper and paper products 2.3% j. Petroleum and coal products 1.3% k. Plastics and rubber products 9.4% l. Primary metals 5.7% m. Transportation equipment 3.7% n. Wood products 2.7% o. Other 16.8%

13 14. What is your firm size (e.g., the parent company, not your establishment)? a. Fewer than 50 employees 22.6% b. 50 to 499 employees 54.2% c. 500 or more employees 23.2% Special Questions Monetary Policy 15. The Federal Open Market Committee (FOMC) of the Federal Reserve is likely to begin raising short-term interest rates by the end of this year. Which of the following statements would be true for your firm regarding this action? a. The FOMC s actions stem from improvements in the overall U.S. economy, and it is time for the Federal Reserve to take its foot off of the accelerator a little to reflect that progress. 32.1% b. There are still sufficient weaknesses in the U.S. economy, even with recent progress. As such, the Federal Reserve should not be in a hurry to raise rates. It should wait until 2016 to start doing so. 55.2% c. I have no opinion. 12.7% International Issues 16. How has the recent slowdown in global growth affected your company s international sales/exports? a. It has had a significant negative impact on our company s export sales. 17.6% b. It has had a somewhat negative impact on our company s export sales. 40.3% c. It has had no impact on our company s export sales. 16.9% d. Our company s export sales have improved over the past 12 months despite strength in the U.S. dollar. 4.4% e. We do not export products overseas. 20.7% Get-Out-the-Vote Efforts 17. What are you doing to promote get-out-the-vote efforts, education and participation for employees at your company? (Check all that apply.) a. Providing resources such as flyers, pamphlets, s and registration information 19.9% b. Connecting employees to the NAM Election Center and other NAM resources and tools 12.8% c. Hosting candidate meet and greets, town halls or other events to connect employees with candidates 15.8% d. Giving employees flexible leave or time off to participate in local, state and national elections 20.7% e. We are not participating in get-out-the-vote activities 36.8% f. Undecided 24.1%

14 Bonus Question 18. Which of the following presidential candidates would you most like to have a beer with? (List is alphabetical by last name. One vote only.) a. Jeb Bush 7.3% b. Ben Carson 13.4% c. Chris Christie 12.6% d. Hillary Clinton 2.4% e. Ted Cruz 4.9% f. Carly Fiorina 4.9% g. Jim Gilmore none h. Lindsey Graham 0.8% i. Mike Huckabee 0.4% j. Bobby Jindal 0.4% k. John Kasich 6.9% l. Martin O Malley 0.4% m. George Pataki none n. Rand Paul 2.4% o. Marco Rubio 24.0% p. Bernie Sanders 2.0% q. Rick Santorum 0.8% r. Donald Trump 16.3%