Industry Crib Sheet

Industry Crib Sheet: Obama Makes More Manufacturing Moves

Nov 03, 2014

Plus: Consumer Spending Is Stagnant Going Into Fourth Quarter; and Economy Expands at a Steady 3.5% Clip in the Third Quarter

President Obama has initiated notable pro-manufacturing policies over the last three years. Credit: Pete Souza, White House President Obama has initiated notable pro-manufacturing policies over the last three years. Credit: Pete Souza, White House

President Barack Obama last week announced his latest round of pro-manufacturing initiatives that will pump more than $530 million into bolstering advanced technology innovation, job creation, and aid for small manufacturers. Part of the efforts is an anticipated $100 million grant competition to raise manufacturing apprenticeships across the country.

The Defense, Energy, and Agriculture departments and NASA will receive a total of $300 million to push the commercialization of advanced sensors, composites and bio-materials, and digital technologies. The Energy Department and NASA also will work alongside the National Science Foundation (NSF) to create new infrastructure for advanced manufacturing research, testing, and support. This will include facilities that reinforce academia-industry partnerships and give small manufacturers access to tools and test proving grounds.

The National Institute of Standards and Technology Manufacturing Extension Partnership (NIST MEP) will get $130 million to upgrade its research centers with innovation assistance services for small manufacturers.

The new directives are based on recommendations the Advanced Manufacturing Partnership (AMP) Steering Committee made in a newly completed report, which identified three so-called "key pillars" of enabling innovation, securing a talent pipeline, and improving the business climate for U.S. manufacturers. The more than half-billion dollar investments will support manufacturing technologies with applications across a wide range of industries, push workforce training programs forward, and encourage small manufacturers to innovate and bring new products to market, the White House said in a statement.

Over the past three years, the Obama administration has placed top priority on manufacturing as a creator of long-term economic growth, focusing particularly on aiding advanced manufacturing development and job training. Making good on an announcement he made earlier this year, Obama has green-lighted the Labor Department to start the $100 million American Apprenticeships Grant Competition, aimed at creating new apprenticeship models and aligning them with manufacturing sector needs while scaling up those that prove to work. In tandem with the initiative, Dow, Alcoa, and Siemens have launched new apprenticeship pilot programs and developed a "how-to" guide for other employers looking to use apprenticeships.

Among the administration's plans for revitalizing the manufacturing workforce pipeline are public relations efforts by additional federal agencies. The Commerce Department participated in this year's National Manufacturing Day for the first time in an official capacity, helping to draw record participants. It will continue to partner with industry organizers of the annual promotion next year. The Education Department has begun developing a national campaign to inform educators, students, and their families of the value of manufacturing careers and education pathways in technical fields.

Small business advancement now appears to be the latest target of the administration's pro-manufacturing efforts. The Energy Department plans to reach more small manufacturers by offering access to "technology testbeds" equipped with cutting-edge tools for technology demonstration. An existing model for these efforts is the Manufacturing Demonstration Facility located at Oak Ridge National Laboratory, in Oak Ridge, Tenn.

NIST MEP, in similar fashion, is being instructed to help small manufacturers gain access to advanced technologies, new markets, and growth capital. The agency has testbeds at 50 research facilities across the country to test new technologies, enabling manufacturers to investigate novel products and processes. NIST MEP will get $130 million over five years to fund its effort.

The Obama administration so far has deployed nearly $1 billion to strengthen manufacturing curriculum at community colleges and nearly $2 billion in federal investments in advanced manufacturing research and development, up by more than 34 percent from $1.4 billion in 2011. It also continues to expand the National Network for Manufacturing Innovation, which now has established four public-private advanced research and development institutes. Two more are undergoing a selection process, and two more competitions are expected to be announced by the end of the year.

Consumer Spending Is Stagnant Going Into Fourth Quarter 

U.S. personal income growth slowed down in September while Americans continued their tight rein over household outlays, in the latest sign of suppressed consumer spending conditions following a tepid retail sales report for the same month. However, economists remained almost defiant in expecting that the best pace of jobs growth and the lowest gasoline prices in years, combined with a seven-year high in consumer confidence, will lift the holiday shopping season and fourth-quarter spending.

The Commerce Department said personal spending fell 0.2 percent in September, the first decline since January, after a 0.5 percent rise in August. Incomes climbed 0.2 percent in September, the smallest increase this year, following a 0.3 percent increase the previous month. The September figures fell short of economists' forecasts of a 0.1 percent spending rise and a 0.3 percent increase in wages and salaries. Meanwhile, a separate Commerce Department report showed September core retail sales, which excluded purchases of food, tumbled 0.4 percent after a 0.6 percent gain in August.

Poor register activity at stores and shopping malls and weak household expenditures put consumer spending on a disappointingly soft growth track going into the fourth quarter. The Commerce Department said in its third-quarter economic report (see story below) that consumer spending, which accounts for 70 percent of all U.S. economic activity, slipped to a 1.8 percent annualized growth rate after expanding 2.5 percent in the April-through-June period.

"The quarter ended on relatively soft footing from a spending perspective, however [sic] consumer fundamentals remain fairly sound," Tom Porcelli, RBC Capital Markets' chief economist, remarked in a Bloomberg report.

Among those fundamentals are strong payroll gains this year and the lowest unemployment rate since the recession, at 5.9 percent. U.S. employers added 248,000 jobs in September, while the labor market has averaged 227,000 new jobs per month through September, according to the Labor Department.

However, bigger paychecks have continued to elude Americans, even though analysts have anticipated wage and salary increases to gain momentum as a result of a tightening employment market from hiring growth. As a result, disposable income in September saw just a 0.1 percent uptick, the Commerce Department said.

Until higher salary prospects become a reality, economists are counting on the lowest prices at gas pumps since 2010 to fuel discretionary shopping by Americans. "You've got more money in consumers' pockets because of lower gasoline prices," Nariman Behravesh, IHS' chief economist, told Bloomberg, adding that better household finances and "very good jobs growth" will put consumer spending on a momentum growth track to the end of the year.

Still, consumer sentiment and buying activity remain divergent. In September, furniture and home furnishing stores saw receipts fall 0.8 percent, as did sales at car dealerships. Clothing stores tumbled 1.2 percent, and department stores fared slightly better, as sales levels went unchanged in September after a 0.3 percent slip in August.

This preceded an October Thomson Reuters/University of Michigan consumer sentiment index of 86.9, a 2.3 point rise over the previous month and the highest reading since 2007, indicating Americans are feeling good about their buying power.

Ian Shepherdson at Pantheon Marcoeconomics said the next few months would "see spending pick up strongly as people start to spend their windfall from falling gas prices."

Economy Expands at a Steady 3.5% Clip in the Third Quarter

The U.S. economy grew at a solid 3.5 percent annualized rate in the third quarter, supported by a surge in federal and defense spending and a smaller trade deficit owing to a contraction in imports. The nation's gross domestic product from July through September beat economists' 3 percent growth forecast in spite of a falloff in private inventories and investment, lackluster consumer spending, and continued housing market struggles.

Following a 4.6 percent second-quarter expansion, the economy posted its best back-to-back quarterly GDP readings in more than a decade. The 4.6 percent measure for the April-through-June period went unchanged from an earlier estimate, the Commerce Department report showed.

The third-quarter initial estimate, which is subject to additional revisions as more data flow in to the department, validated the Federal Reserve's reasoning behind ending its long-running economic stimulus program a day before the report's release. Fed officials view that the economy and job market are on solid enough footing to stop its buying of bonds in the financial markets.

The nation still faces economic headwinds as it marches into the fourth quarter, however. Consumer spending, the biggest part of the U.S. economy, grew only 1.8 percent for the three-month period prior to October, a 0.7 percent slower pace than the previous quarter. Lower consumer demand was also reflected in a 2.4 percent decline in imports of foreign goods over the period.

U.S. businesses will need Americans to pick up the pace of their purchases to offset a slowdown in global growth, which could sap demand for American goods in overseas markets. "If the labor market continues to get better, that's the primary support to consumer spending," said Brian Jones, a senior U.S. economist at Societe Generale, told Bloomberg.

Despite strong hiring by employers this year, slow wage growth continues to suppress momentum in household expenditures as well as home buying. Residential investment grew just 1.8 percent in the third quarter, following an 8.8 percent second-quarter expansion. This paled in comparison to the 11.2 percent rate over the same three-month span in 2013. The housing market, after turning negative at the end of last year, has had an up-and-down 2014, with the pace of new home construction barely outpacing last year.

Businesses also slowed down in the third quarter, as gross private domestic investment plummeted to just 1 percent growth from 19.1 percent in the second quarter, which was over-inflated as a result of a buildup from a weather-affected first quarter. Still, inventories fell, as did investments in equipment and other capital assets, from the second quarter.

These subtractions to GDP were overcome by the largest gain in government spending in five years, however. Federal expenditures grew 10 percent, and military spending shot up 16 percent, resulting in a 4.6 percent climb in third-quarter expenditures among national agencies.

The nation's trade gap narrowed to $409.9 billion from $460.4 billion in the second quarter as imports dropped, reflecting fewer purchases of foreign oil and consumer goods. The smaller deficit added 1.3 percentage points to GDP, the most since the second quarter of 2009. Exports held up at a 7.8 percent growth pace, compared to a progress of 11.1 percent in the second quarter.

Analysts are widely predicting growth of around 3 percent for the rest of the year. Manufacturing is expected to be positively impact GDP again in the October-through-December period, though it could be challenged by sagging conditions in the Eurozone and China, affecting exports. A manufacturing index published by Markit Economics showed a three-month low in export orders in October that slowed manufacturing momentum. The Institute for Supply Management releases its October manufacturing index today, while new reports on factory orders and trade are expected on Tuesday.

Manufacturing expanded at a steady 3.5 percent clip in the third quarter, according to the Fed's most recent industrial production data.