United States: Peeking Behind The Curtain: Macroeconomic Insight Into Manufacturing

Last Updated: April 9 2015
Article by Nicholas E. Williams

Last week, Dr. Chad Moutray, Chief Economist for the National Association of Manufacturers ("NAM"), visited Foley & Lardner's Chicago office and shared a macroeconomic update on the manufacturing industry. His comments and charts (he's an economist, of course he had charts) provided insight into the current state and bright future of American manufacturing. NAM's membership agrees because 88% of members surveyed were optimistic as of the end of the first quarter of 2015. Still, Dr. Moutray did not shy away from some significant challenges and uncertainties facing the industry. We are grateful to Dr. Moutray for the time he spent with us, and we wanted to share some of the highlights with you.

Strong Performances & Continued Growth

Common industry metrics support, or perhaps evoke, the general optimism. Last year, the U.S. GDP increased roughly 2.4%, and Dr. Moutray forecasts a 2.8% GDP growth for 2015. For example, over the past 12 months, manufacturing sales, investment, and employment rose an average of 4.3%, 2.3%, and 1.9%, respectively. American manufacturers have added approximately 17,000 jobs per month since January 2014. Moutray expects this to continue through 2015.

Manufacturing employment levels nevertheless remain approximately 10% below pre-recessionary levels. And only 8,000 new manufacturing jobs were added in February 2015. Dr. Moutray suggested certain headwinds, discussed below, were to blame.

While overall sales have increased, retail sales growth rate declined recently (since August 2015). Dr. Moutray pointed out this decline is deceptive. Retail sales include gasoline, which of course has experienced a substantial price drop in the same timeframe. So the decreased dollar amount does not accurately reflect the change in volume.

Further, confidence appears to be rising for both consumers and investors. In fact, manufacturing construction spending increased sharply, by approximately $10 billion, over the latter half of 2014. While the numbers show promise, manufacturers must be wary of certain challenges.

Macroeconomic Challenges

Dr. Moutray identified several macroeconomic headwinds currently pushing against manufacturers.

  • The strengthening US dollar makes American-made goods relatively more expensive in foreign markets, thereby depressing export-levels.
  • Declining energy prices likewise decrease the demand for certain manufactured products in certain foreign economies. For example, our exports to Canada and Brazil, economies heavily dependent on the energy market, decreased last year.
  • Though confidence levels are rising, consumer anxiety remains.
  • And most significantly in the last few months, weather substantially impacted the industry. In particular, winter storms in the Midwest and Northeast cripple the consumption of manufactured goods. For example, housing construction and improvement, industries intertwined with manufacturing, dwindled in late 2014 and early 2015 due to winter storms.

NAM members identified healthcare and insurance costs as their number one challenge. NAM survey respondents also noted taxes and regulation, the skills gap, and the strengthening dollar as top challenges.

The International Trade Outlook

The rising GDP but falling net exports struck me as particularly interesting. Dr. Moutray explained that consumer spending and business investment most significantly impact American GDP. But net exports disproportionately affect manufacturers. A strong dollar, generally speaking, encourages foreign imports into America and discourages American exports to foreign markets. Though 2014 ended with an all-time high for American exports, the export growth rate is slowing. Dr. Moutray expects export-levels to remain somewhat flat for the next year at least. Last year, the U.S. stopped quantitative easing, while other countries are just beginning to incorporate quantitative easing into their monetary policy. Dr. Moutray explained that trend, in part, explains the dollar's resurgence and suggests it will remain strong.

A couple issues before Congress this year, trade promotion authority and the Export-Import ("Exim") Bank reauthorization, also will affect American exports. In particular, the trade promotion authority impacts the President's authority to negotiate international trade agreements, such as the Trans-Pacific Partnership or the Transatlantic Trade and Investment Partnership.

Thank you again to Dr. Moutray for swinging by Foley!  If you are interested in future economic updates from Dr. Moutray, shoot him an e-mail at cmoutray@nam.org or follow him on Twitter @ChadMoutray.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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