Weekly Industry Crib Sheet: Manufacturing Regulations May Cost $500 Billion
Credit: Kathrin Tausch
Credit: Kathrin Tausch

Plus: Durable Goods Orders Stagnant, Small Business Bankruptcies Down and Jobless Claims Rise.


Durable Goods Orders Weak in July

New orders for manufactured durable goods rose 4.2 percent in July, following a 1.6 percent gain in June, according to a report from the United States Department of Commerce. However, excluding the often volatile transportation category, new orders actually fell 0.4 percent last month, on the heels of a revised 2.7 percent decline in June, which marked the low point for the year.

The overall value of durable goods orders last month increased by $9.4 billion to a total of $230.7 billion, technically the third consecutive month of growth. The gain was almost entirely driven by transportation equipment, which rose 14.1 percent in July due to a 53.9 percent surge in demand for aircraft and parts. Meanwhile, machinery orders fell 3.6 percent, electrical equipment and appliances dropped 2.1 percent and fabricated metal products inched down 0.4 percent.

“The decline in orders for big-ticket items outside the transportation sector provides further evidence of a broad slowdown in the U.S. economy,” MarketWatch notes. “Companies are receiving fewer orders for expensive goods at home and finding it tougher to market their wares in overseas markets such as Europe and China that are slowing.”

Orders for core capital goods, which serve as a key gauge of business investment plans, decreased 3.4 percent in July, the steepest decline since November. Moreover, the June reading for core capital goods demand was revised down to a 2.7 percent decrease.

“The slowdown in manufacturing could encourage the Federal Reserve to step up its efforts to stimulate the economy,” the Associated Press reports. “At the Fed’s last meeting, policymakers signaled that they were moving closer to launching another round of bond-buying, according to minutes released Wednesday. The goal would be to lower longer-term interest rates to encourage more borrowing and spending.”

Manufacturing Regulations May Cost $500 Billion in Lost Output

U.S. manufacturers are being dramatically affected by increases in the volume and cost of compliance with federal regulations, which could hinder long-term economic prospects, according to a new report commissioned by the Manufacturers Alliance for Productivity and Innovation (MAPI).

Rising costs of major regulations have outpaced growth in the manufacturing sector and the U.S. economy in general, the report found. Since 1998, the inflation-adjusted cost of compliance for major manufacturing-related regulations grew by an annualized rate of 7.6 percent, compared to 0.4 percent annual growth in manufacturing output and 2.2 percent growth in inflation-adjusted U.S. gross domestic product.

“U.S. manufacturers as a group face an estimated 2,183 unique regulations put in place between 1981 and April of 2012,” the Wall Street Journal’s Real Time Economics blog reports. “In 2012, major regulations could cut the total value of shipments by U.S. manufacturers by up to $500 billion, calculated in 2010 dollars.”

Major regulations (those with estimated compliance costs in excess of $100 million) could cut economic output this year by between $200 billion to $500 billion in 2010 dollars, and reduce manufacturing output by up to 6 percent over the next decade, the MAPI report claims. The Environmental Protection Agency accounts for the largest number of regulatory measures imposed on manufacturing, with a total of 972 regulations, including 122 major regulations.

“A vibrant manufacturing sector is essential to growing the economy,” MAPI President and CEO Stephen Gold said in an announcement of the results. “We understand the important role regulation can play in promoting health and safety, but there also needs to be a more rational approach to our regulatory system. If policymakers want American manufacturers to be more competitive and to invest more in this country, they need to ensure that federal regulations are better coordinated and streamlined to minimize costs.”

Small Business Bankruptcies Drop

Small business bankruptcies shrank in the second quarter of 2012 by nearly 17 percent, marking the fourth consecutive quarter of improvement, according to a recent report from Equifax. Only two of the 15 largest metropolitan areas in the U.S. reported an increase in Chapter 7, 11 and 13 filings, while all others experienced declines exceeding 25 percent.

Small business bankruptcy claims topped out in the second quarter of 2009. In June, there was a 36 percent drop in filings from 2010 to 2012, according to Inc.com. If the numbers maintain a downward trend, the number of bankruptcies will drop a further 20 percent through the end of the year. That reduction would return small business bankruptcy filing statistics to pre-recession levels.

“The shrinking number of small business bankruptcies is not surprising,” Amy Crews Cutts, chief economist at Equifax, said in a statement. “Small business owners are still steadfastly deleveraging, bringing their debts, assets and cash flows into better alignment; couple that with promising signals in small business lending, and business owners are better positioned to stay afloat.”

In the report, commercial entities of fewer than 100 employees are considered small businesses. The data is based primarily on government figures for bankruptcy filings.

Jobless Claims Rise Again

New initial jobless claims increased in the latest week reported, indicating slow progress in the labor market recovery. According to the U.S. Department of Labor, seasonally adjusted unemployment claims for the week ending August 18 rose by 4,000 to a total of 372,000, a five-week high. The four-week moving average, which provides a more accurate long-term picture, climbed by 3,750 to 368,000.

“Rising first-time jobless claims are often considered a sign of more layoffs in the economy,” CNNMoney explains. “The number has risen for the last two weeks, but overall, a four-week moving average shows claims in August are down slightly from in mid-July.”

Despite the increase, the weekly unemployment figures were slightly better than expected, as economists polled by MarketWatch had forecast claims would rise to 369,000.

Claims data fluctuated widely in July due to changes in seasonal auto plant shutdowns, which gave a distorted view of labor market conditions. As week-to-week volatility stabilizes, a clearer picture of the hiring prospects and job creation should emerge.

 

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Comments:
  • Aditya
    August 28, 2012

    Interesting thoughts on manufacturing in the US. I work for McGladrey and there’s an annual report about the State of Manufacturing on the website ” http://bit.ly/IzVhuU “, with related information you may find useful.


  • Gabriel Gheorghiu
    September 13, 2012

    interesting that no one mentions the positive impact regulations have on society and the environment. not surprising though…


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