Weekly Industry Crib Sheet: U.S. Files Auto Dispute with China
Credit: Pedorafende
Credit: Pedorafende

Plus: Leading Indicators Fall, Jobless Claims Rise, Blow Molding Industry Expands and Obesity-Related Diseases Incur Serious Business Costs.


Leading Economic Indicators Drop

The index of leading economic indicators for the United States edged down in August, marking the second decline in three months, although overall growth continues. The Conference Board’s Leading Economic Index (LEI) for the U.S. declined 0.1 percent last month to 95.7, following a 0.5 percent increase in July and a 0.5 percent decrease in June.

“The weakness in August came from declines in manufacturing orders, consumer confidence and average weekly manufacturing hours,” the Associated Press explains. “Hiring has languished this year, and the unemployment rate remains elevated at 8.1 percent. U.S. manufacturing, which had helped pulled the economy out of the Great Recession three years ago, has weakened. Factories have been hurt by a decline in consumer spending and slower global growth that has cut demand for exports.”

The LEI is a weighted gauge of 10 indicators designed to track business cycle peaks and troughs. Six of the 10 indicators contracted in August, led by new orders for manufacturers, consumers’ expectations, manufacturing hours, jobless claims, building permits and manufacturers’ new orders for consumer goods and materials.

Meanwhile, positive contributions came from the interest-rate spread, stock prices, manufacturers’ new orders for core capital goods and the leading-credit index. Meanwhile, the Coincident Index, which measure current economic conditions, increased 0.1 percent in August.

“The economy continues to be buffeted by strong headwinds domestically and internationally. As a result, the pace of growth is unlikely to change much in the coming months,” Ken Goldstein, an economist at the Conference Board, noted. “Weak domestic demand continues to be a major drag on the economy.”

U.S. Files Dispute against China over Autos

The U.S. has filed a request for dispute settlement consultations with the the World Trade Organization regarding China’s subsidizing of its exports of autos and auto parts, the New York Times reports. The U.S. government characterizes these subsidies as unfair according to WTO regulations, while Chinese officials have denied the subsidies exist.

“The Obama Administration is committed to protecting the rights of nearly 800,000 American workers in our $350 billion auto and auto parts manufacturing sector. We insist upon having a level playing field on which our world-class manufacturers can compete. Today we are continuing to make it clear to our trading partners that we will fight to support each job here at home that this sector supports,” U.S. Trade Representative Ron Kirk said in a statement. “Export subsidies are prohibited under WTO rules because they are unfair and severely distort international trade. China expressly agreed to eliminate all export subsidies when it joined the WTO in 2001. China benefits from international trade rules and must in turn live up to its international obligations.”

Chinese officials have not commented on the filing, but “have denied in general that they subsidize exports,” the Times notes.

Auto industry experts are in disagreement over how much impact Chinese imports have had on the U.S. auto market, as some point to the general slowdown of the global economy in 2009 as the major factor in the loss of U.S. auto and auto parts jobs and factory closings.

The U.S. complaint accuses China of providing at least $1 billion in “export base” subsidies for autos and auto parts between 2009 and 2011. The subsidies are thought to provide support to up to 60 percent of Chinese auto exporters, netting them an unfair advantage in foreign markets where U.S. and Chinese automakers are in competition.

Jobless Claims Inch Downward

New initial jobless claims fell in the latest week reported, indicating modest improvement in labor market conditions, although national unemployment remains at an elevated level, according to the U.S. Department of Labor. Seasonally adjusted unemployment claims for the week ending September 15 dropped to 382,000, a decrease of 3,000 from the previous week’s upwardly revised total.

The jobless claims results were worse than expected, as economists polled by Bloomberg News had a median forecast of 375,000 for the week. Meanwhile, the four-week moving average, which provides a clearer long-term picture, increased by 2,000 to 377,750.

“Applications for unemployment benefits have shown little movement since early spring, suggesting a continuation of lackluster job creation. The U.S. has barely added enough jobs over the past six months to keep up with growth in the working-age population,” MarketWatch notes. “With weekly claims stuck near the 380,000 mark, employment growth in September probably won’t look much better than it did in August. Last month, the U.S. added 96,000 jobs, the government estimated.”

The weak hiring rate is attributed to a broader slowdown in the U.S. economy, which has been negatively affected by deceleration in manufacturing and contraction in key export markets, including Europe and China.

Blow Molding Industry to Grow through 2017 

Following a robust rebound from recession in 2010 and 2011, the blow molding machinery market is expected to see modest growth through 2017, according to a new report by research firm IBISWorld.

The report forecasts the blow molding machinery manufacturing industry will experience 3.7 percent annual growth over the next five years, including 1.1 percent growth in 2012, to reach $469.6 million. Despite a considerable drop in profits following the recession and subsequent record corporate profits in 2010 and 2011, companies have changed their investing focus away from industrial machinery.

“Falling consumer spending [in 2009] affected the sales of downstream industry products, such as plastic bottles, which forced those industries to cut back on investing in new blow molding machinery,” Dale Schmidt, an IBISWorld industry analyst, said in a statement. “In addition, because companies typically take out loans to purchase industrial machinery, tightened lending during the recession made it more difficult for businesses to acquire loans.”

Additionally, international trade has had a greater influence on the blow molding machinery market, as exports “have contributed about 80 percent of industry revenue” since 2007, with Germany and Canada ranking among the largest export markets. Imports of blow molding machinery have also increased from countries including South Korea, Taiwan, Singapore and China.

Furthermore, IBISWorld predicts the rising cost of steel and plastic resin will pose an obstacle to companies looking to invest in industrial machinery in coming years. However, the firm notes that technological advancements will aid blow molding equipment manufacturers as they adopt more automation and efficiency principles, reducing labor costs to stay competitive.

Weight-Related Conditions Hinder Economic Growth

Health care costs are expected to increase considerably over the next 20 years, and much of the added expense will derive from a surge in obesity-related illnesses, which will take a severe toll on American businesses and economic growth, new research shows.

According to a recent report from the Trust for America’s Health (TFAH), the medical costs associated with preventable obesity-related diseases in the U.S. will increase between $48 billion and $66 billion by 2030, and the loss in economic activity could reach between $390 billion and $580 billion annually. The current cost total is estimated at $147 billion to nearly $210 billion per year.

“For the first time, the annual report includes an analysis that forecasts 2030 adult obesity rates in each state and the likely resulting rise in obesity-related disease rates and health care costs,” the TFAH explains. “By contrast, the analysis also shows that states could prevent obesity-related diseases and dramatically reduce health care costs if they reduced the average body mass index of their residents by just 5 percent by 2030.”

If current rates continue, by 2030 obesity rates would rise above 60 percent in 13 states, above 50 percent in 39 states and above 44 percent in all 50 states. A 5 percent reduction in average body mass index nationwide could save individual states between 6.5 percent and 7.9 percent in health care costs per year.

 

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