Weekly Industry Crib Sheet: Obama Finalizes New Fuel-Efficiency Standards
Credit: Steve Jurvetson
Credit: Steve Jurvetson

Plus: U.S. GDP Growth Revised Upward, Factory Orders Increase and Carbon Reduction Plans Underperform.


U.S. Economy Grew Faster than Expected

The United States economy grew a slightly faster pace in the second quarter of 2012 than initially reported, with the nation’s gross domestic product (GDP) expanding 1.7 percent from April to June rather than the 1.5 percent increase originally reported, according to the U.S. Department of Commerce.

The upward revision reflected an increase in consumer spending in service-related industries, higher exports and stronger residential and non-residential fixed investment. Despite the gain, GDP growth decelerated in the second quarter from the first quarter, which saw a 2 percent growth rate.

“The big story as it relates to manufacturing is that activity slowed to a near-crawl. In the first quarter, the consumption of goods contributed 1.11 of the 2 percent growth in real GDP, or 55.5 percent of the total. The consumption of durable goods – particularly in motor vehicles – represented 0.85 percent of this, and as such, they helped to propel the economy forward,” the National Association of Manufacturers notes. “In the second quarter, though, there was no contribution from durable goods consumption, with reduced motor vehicle and furnishings spending.”

At the current rate, the U.S. economy isn’t expanding fast enough to produce significant job growth in the near-term future. Economists estimate that GDP has to reach at least a 3 percent annual growth rate to improve the labor market, according to CNNMoney. The national unemployment rate has remained above 8 percent for the past 42 months.

Obama Finalizes New Auto Mileage Standards

The White House recently announced new vehicle fuel-efficiency standards, which will take effect by 2025, drawing approval from both environmentalists and auto industry professionals.

The rules, issued by the U.S. Department of Transportation and the U.S. Environmental Protection Agency, will establish a national fleet-wide fuel efficiency average of 54.5 miles per gallon. As of the end of 2011, the fuel efficiency standard for combined city and highway driving is set at 28.6 miles per gallon.

The Obama administration claims that consumers will save $1.7 trillion over the span of the program, while the standards will save 12 billion barrels of oil and eliminate 6 billion metric tons of carbon dioxide pollution.

Big auto companies such as Ford, Chrysler and General Motors have expressed support for the standards. “Customers want higher fuel efficiency in their cars and trucks, and GM is going to give it to them,” Greg Martin, General Motors’ executive director for communications, told the Washington Post. “We expect the rules to be tough, but we have a strong history of innovation, and we’ll do our best to meet them.”

Phyllis Cuttino, director of the Pew Environment Group’s clean-energy program, said the acceptance of fuel-efficiency standards and the new regulations “gives [her] hope for energy policy in this country.”

However, critics point out that the new standards will raise the cost of a new car, cutting many consumers out of the auto market, and that proposed savings in gas costs are much lower than officially stated. Under the new regulations, known as the Corporate Average Fuel Economy (CAFE), automakers don’t need to increase fuel standards as high as 54.5 mpg, and can pay for the difference with credits for selling natural gas and electric vehicles or other offsets, CBS News notes.

Factory Orders Hit Yearly High

New orders for U.S. manufactured goods increased 2.8 percent in July, following a 0.5 percent drop in June and marking the largest monthly gain since July 2011, according to the U.S. Department of Commerce. The total value of new orders rose by $12.9 billion to a total of $478.6 billion for the month.

New orders for manufactured durable goods, up three consecutive months, increased 4.1 percent to $230.5 billion. Transportation equipment had the largest gain, surging 14.4 percent to $80.6 billion. Excluding the often volatile transportation category, new orders rose 0.7 percent in July. Orders for primary metals rose 2.9 percent, industrial machinery demand climbed 3.5 percent and material handling equipment orders increased 3.3 percent.

Despite these gains, core capital goods orders, a key gauge for business investment plans, dropped 4 percent in July, the largest decline in eight months. This indicates that many companies remain cautious with their spending.

“The worry is that businesses have begun to scale back their plans to expand and modernize in the face of spreading economic weakness in Europe and such major U.S. export markets as China, Brazil and India,” the Associated Press reports. “Europe’s financial crisis has pushed many countries in that region into recession, a development that threatens exports of U.S. goods.”

Consumer Confidence Weakens

The Conference Board’s Consumer Confidence Index fell 4.8 points to 60.6 in August, offsetting the improvement in July and marking the fifth month of falling confidence in the last six months. The August reading was also the lowest since November 2011.

“Rising gasoline prices, a jobless rate that’s been above 8 percent since the start of 2009 and limited income gains are keeping consumers glum,” Bloomberg News explains. “Persistent pessimism raises the risk of a pullback in household purchases that account for about 70 percent of the world’s biggest economy.”

The percentage of consumers expecting business conditions to improve over the next six months dropped to 16.5 percent in August from 19 percent in July, while those anticipating business conditions will worsen increased to 17.7 percent from 15.1 percent. Those who expect there to be more jobs in the months ahead fell to 15.4 percent from 17.6 percent, while those anticipating fewer jobs rose to 23.4 percent from 20.6 percent. Despite the poorer short-term outlook, consumers see present conditions as relatively stable.

“Consumers were more apprehensive about business and employment prospects, but more optimistic about their financial prospects despite rising inflation expectations,” Lynn Franco, director of economic indicators at the Conference Board, said. “Consumers’ assessment of current conditions was virtually unchanged, suggesting no significant pickup or deterioration in the pace of growth.”

Carbon Efficiency Efforts Falling Short

Carbon emissions from electricity generation remain a global problem, growing by 13.6 percent between 2004 and 2009 despite efforts to improve energy efficiency. The increase has largely been driven by increasing energy consumption in developing nations, according to the Center for Global Development (CGD).

The CGD’s database highlights a global divide in energy consumption rates: although there was a slight decline (-1.3 percent) in the amount of CO2 generated per unit of power in the developing world, that number was outpaced by a 34 percent increase in consumption, “leading to a nearly 33 percent increase in power sector CO2 emissions between 2004 and 2009.”

Developed countries, however, reported a higher decline in carbon intensity (-5.5 percent) and a lower pace of growth in electricity consumption (2.7 percent). Declining emissions from power generation were attributed to the U.S., United Kingdom, Germany and Italy.

“The impacts of climate change are hitting poor people in the developing world first and worst,” CGD President Nancy Birdsall said in a release. “While the rich countries have been emitting at high levels for much longer and thus must bear primary responsibility, the new CARMA [Carbon Monitoring for Action] data remind us that emissions are indeed a global problem.”

The data also show that while companies in the developing world account for seven out of the top 10 carbon-dioxide emitters, China’s state-owned power companies account for five of the top seven, with China, the U.S. and India ranking as the top three countries for power-plant emissions.

 

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