Over the past several months, encouraging news on multiple fronts has suggested that the end of the national recession is in view. Economic conditions both domestically and abroad appear to be on the mend, while housing conditions, which led the U.S. into the recession, have begun to improve. Meanwhile, new orders for capital goods are on the upswing.

Much of the industrial recovery hinges on the pace of consumer indebtedness, which has been slow so far. The Conference Board's latest nationwide Consumer Confidence Index indicates that U.S. consumer confidence rose from 47.4 points in July to 54.1 in August, reaching its highest level in eight months. Consumers' outlook on economic conditions also improved slightly.

While consumer confidence has been on the upswing in recent months, it has yet to surpass the level of September 2008 — when the financial crisis erupted — and is still 49 percent lower than it was two years ago, according to the National Association of Manufacturers (NAM).

Even though manufacturers are also seemingly more optimistic about the economy due to indications that we may be in the early stages of recovery, there is significant cause for caution.

In a statement announcing its recently released Labor Day 2009: The Manufacturing Report, NAM says that "a recovery would be negatively impacted if Congress and the Administration enact policies that discourage investment, hamper flexibility or raise the costs of doing business in the United States."

Although the U.S. is still very competitive worldwide, the country's weaknesses on the global market are becoming of higher concern. After several years at the top of the World Economic Forum's annual global competitiveness rankings, the latest findings (released this week) show that the U.S. has dropped from the No. 1 position.

The NAM report highlights, among other issues, the importance of "engagement with the global economy to lower overseas trade barriers and improve our nation's competitiveness." Noting that the manufacturing sector accounts for 61 percent of U.S. exports, the report urges the government to "take positive action in five areas to improve U.S. global competitiveness and enhance manufacturers' ability to sell U.S. products to customers abroad."

The five recommended measures areas are:

• Increase efforts to ensure that major currencies will be free of government manipulation and that markets will set their values;
• Approve pending U.S. trade promotion agreements with Colombia, Panama and Korea, eliminating tariffs and reducing other trade barriers;
• Modernize unilateral export controls to focus on protecting truly sensitive products and technologies;
• Negotiate a World Trade Organization (WTO) Doha Round agreement that reduces foreign trade barriers and generates new trade flows; and
• Negotiate trade promotion agreements with other significant trading partners that open markets so U.S. exporters can have increased access to those markets.

"The outcomes of major policy debates currently taking place in Washington will likely have a significant impact on both the pace and the duration of the next expansion as well as the long-term competitiveness of the U.S. economy and manufacturing sector in particular," NAM states.

Among some of the NAM report's key points relating to policy and long-term competitiveness:

• Health Care — According to NAM, needed changes to the current health care system include 1) aggressive delivery reform; 2) maximizing pooling; 3) increased access to transparent and meaningful health information; 4) legal liability reform; 5) promotion of wellness and prevention programs; and 6) the implementation of health information technology.
• Climate Change — "Sensible and responsible" federal climate change policies must be established both to reduce greenhouse gas emissions and maintain a competitive playing field for American companies.
• R&D Tax Credit — Manufacturers claim 70 percent of all research and development tax credits in the U.S. Yet the current federal R&D tax credit, meant to spur research, ranks No. 17 among the 21 Organization for Economic Co-operation and Development (OECD) countries offering R&D tax incentives. In the 1980s, the U.S. R&D tax incentive ranked No. 1.
• Business Tax Increases — "New spending and tax relief provisions increase the chances that American businesses {particularly small manufacturers] could be hit by significant tax increases in the near future," NAM states.

The report goes on to address a surtax included in legislation introduced in the House of Representatives this year to pay for health care. "For a small manufacturer with $2 million in taxable income, the new surtax would result in a $63,000 tax increase," the report claims. "This tax increase would cost taxpayers $544 billion over 10 years."

NAM expects an upturn in manufacturing productivity to "gradually build over the next year and transition to stronger growth in the 2011-2014 period." The report also projects that by 2014 the manufacturing sector will regain more than 40 percent of the jobs lost during the current downturn. NAM makes clear, however, that this outlook does not take into consideration the economic implications of future policy changes.

"There are grounds for optimism, but there is even greater reason for caution," NAM President John Engler said in a statement. "A recovery could stall out or even shift into reverse if Congress and the Administration enact policies that increase the burden on businesses and make us less competitive in the global economy."

Resources

Labor Day 2009: The Manufacturing Report
National Association of Manufacturers, Sept. 3, 2009

NAM Labor Day Report Shows Prospects for a Manufacturing Recovery
National Association of Manufacturers, Sept. 3, 2009

The Conference Board Consumer Confidence Index Bounces Back
The Conference Board, Aug. 25, 2009

Latest Group Outlook Survey [...] Indicates Manufacturers Becoming Optimistic about Economy
Prime Advantage, Sept. 2, 2009

The Global Competitiveness Report 2009-2010
World Economic Forum, Sept. 8, 2009

Switzerland Replaces United States at Top of Competitiveness Rankings
World Economic Forum, Sept. 8, 2009