Weekly Industry Crib Sheet: Manufacturers Struggle with Mounting Health Care Costs

Plus:
Wholesale Prices Increase
Small Business Optimism Improves
U.S. Hits “Electricity Gap”
Jobless Claims Fall


Nearly three quarters of U.S. manufacturers said that rising health care and insurance costs were their primary concerns in 2013, in response to a recent survey conducted by the National Association of Manufacturers (NAM) and IndustryWeek.

Of the 366 surveyed manufacturers, 74 percent cited rising health care and insurance costs as their most important challenge in 2013, followed by 72.1 percent who were concerned about the shaky political climate in Washington, and 67.7 percent who identified taxes and regulations as a major hurdle.

“During the election last year, all eyes were on manufacturing, and now we have entered a pivotal year for manufacturers as they try to grow and create jobs to lead our economy,” NAM Chief Economist Chad Moutray said. “This quarter’s survey shows manufacturers need action to address their concerns over rising health care costs, the political climate, and taxes and regulation.

“It is difficult for manufacturers to gain the certainty needed to hire when Washington continues to move from one crisis to the next with no real solutions to our long-term fiscal problems. For us to see strong manufacturing growth in 2013, we need pro-growth policies from Washington to address these challenges to get our entire economy running on all cylinders,” Moutray concluded.

Wholesale Prices Increase

U.S. producer prices increased significantly in February due to a sharp rise in the cost of energy, which drove up prices for wholesale goods across a range of industries, although experts predict these effects will soon subside.

According to the latest producer price index from the U.S. Department of Labor, finished goods prices climbed 0.7 percent last month, following a 0.2 percent increase in January and a 0.3 percent decline in December. Manufacturers’ prices for intermediate goods rose 1.3 percent, while the crude goods index fell 0.3 percent.

Last month’s increase was almost entirely driven by a 3 percent surge in energy costs, which rose for the first time in five months. Gasoline prices rose 7.2 percent, the sharpest increase since September 2012, while home heating oil prices climbed 9.7 percent, marking the fastest single-month rise since October 2010.

“Higher wholesale costs can translate into rising prices of consumer goods and services, but it usually takes a sustained increase. Slow global growth has generally constrained wholesale prices over the past few years except for occasional spikes in energy costs,” MarketWatch notes. “Gasoline prices leveled off in early March, however, and economists believe energy costs could recede in the next few months.”

Meanwhile, core wholesale prices, which exclude the volatile food and energy categories, climbed a more modest 0.2 percent in February. On an annual basis, the core index rose 1.7 percent for the 12 months ending February, indicating relatively low long-term inflationary pressure.

Small Business Optimism Improves

Confidence among U.S. small businesses improved in February for the third consecutive month, as business owners overcame uncertainty about fiscal policy changes and voiced plans to invest in new equipment and inventory.

The optimism index from the National Federation of Independent Businesses (NFIB) rose to 90.8 in February, up from 88.9 in January. The gain was led by a 6 percentage-point increase in the number of small businesses planning to raise stockpiles, while those planning to make capital expenditures in the next three to six months climbed 4 percentage points, the sharpest advance since January 2007.

“The improvement in sentiment came even as small businesses braced for about $85 billion in across the board government spending cuts that started to take hold on March 1,” Reuters reports. “A two percent payroll tax cut expired on January 1 and tax rates for wealthy Americans went up.”

Despite the overall improvement, looming economic risks are weighing on the small business outlook. Eighteen percent of small business owners cited weak sales at their top problem, while the earnings index remained unchanged from January, standing at a net negative 26 percent.

“The Index gained almost 2 points last month; that was good news,” NFIB chief economist Bill Dunkelberg noted. “But, until owners’ forecast for the economy improves substantially, there will be little boost to hiring and spending from the small business half of the economy.”

U.S. Hitting an “Electricity Gap”

New research on electricity usage across the U.S. reveals a severe disparity in energy consumption, with the largest homes using more than double the amount of electricity than average-sized American homes.

According to energy research firm Opower, while electricity usage is more equally distributed than income, there is still a significant electricity gap between the top 1 percent of households – which take in approximately 20 percent of U.S. income – and the rest of the nation. Based on data from 8.57 million homes with natural-gas heating systems, the report shows that the top 1 percent of homes consume four times as much electricity than the average household.

The findings also indicate that larger households, e.g., 6,400 square-foot “mega-homes,” use 2.5 times more electricity than average homes. Yet among households of the same square footage, energy use can vary by as much as six times.

“This wide degree of variation suggests that while home size can serve as a rough predictor for usage, other factors – such as income, occupancy, climate, construction features, and especially behavior – are also important drivers,” according to Opower.

Other major findings suggest that the heaviest electricity users are not necessarily less energy efficient. For example, while electric car owners may use more electricity per year, their environmental impact will be smaller than owners of gasoline vehicles. Additionally, the statistics show that the disparity between energy usage in air versus land transportation may actually be wider than in differing household sizes.

Jobless Claims Fall

New initial jobless claims fell sharply in the latest week reported, marking the third consecutive weekly improvement in employment conditions. According to the U.S. Department of Labor, seasonally adjusted unemployment insurance claims for the week ending March 9 dropped to 332,000, a decrease of 10,000 from the previous week’s total.

In addition, the four-week moving average, which smoothes out volatility and provides a more accurate long-term picture, fell by 2,750 to 346,750 for the week, hitting a five-year low.

The latest weekly improvement came as a surprise to experts, as economists polled by Reuters had forecast jobless claims to increase to 350,000. However, the strong labor market performance may be due to a steep reduction in lay-offs rather than a pick-up in hiring.

“During the height of the recession, weekly claims for unemployment benefits had surged to over 660,000, but now they’re hovering back around pre-recession levels,” CNN Money reports. “Meanwhile, about 3 million people filed for their second week or more of unemployment benefits two weeks ago, the most recent data available.”

 

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