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U.S. Registries – Linking buyers and sellers across North America

US Manufacturing Building Boom Roars Along

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While big numbers of retirees or soon-to-be retirees are helping drive the call for a new influx of manufacturing workers, they aren’t the only reason for the urgency. U.S. manufacturers continue to announce expansions or new builds across the country and that growth means more workforce needs. Here is a look at where some of that manufacturing building growth is occurring.

The widely trumpeted growth surge in U.S. manufacturing is showing up in both new and expanded manufacturing facilities across the nation. Some factories have opened, others have been announced and even more are still raising the roof or extending their walls.

 

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Jack Ma: Time for manufacturing to undergo ‘new’ transformation

Having rolled out its “new retail” strategy, Alibaba Group now has set its sights on helping the manufacturing industry transform and prepare for upcoming threats and opportunities the market will face.

“New manufacturing” would see traditional business-to-consumer manufacturers transition to deliver experiences and more personalised services, driven by consumer expectations, said Alibaba’s co-founder and executive chairman Jack Ma, who was speaking Wednesday at the Chinese vendor’s computing conference here.
While new retail was a melding of offline and online consumer experiences, new manufacturing was a culmination of manufacturing and services industries, Ma said.

The adoption of IT and digital transformation addressed the need for standardisation, scalability, and flexibility. However, as long as processes could be standardised, he noted, machines could replace the need for humans to perform such tasks.

This underscored the need to focus on delivering customer experiences, something which machines would not be able to fulfil and would require the work of humans, he said, adding that Alibaba aimed to help the manufacturing industry reform.

Ma said: “New retail seeks to redefine the retail sector. Today, I’d like to talk about new manufacturing because it will soon bring a wave of threats and opportunities to the manufacturing industry in China, and around the world. We must be prepared, both mentally and in every way possible.”

Factories today were expected to be able to produce a wide variety of products, and at scale, he said. To effectively meet such demands, the manufacturing industry would need the key tools that new retail required, including data analytics, cloud, artificial intelligence, and Internet of Things (IoT).

“Data analysts and algorithm engineers of the future will not be working in-house at internet companies, but in manufacturing facilities instead,” he added.

US trade confrontation requires 20-year defense

He reiterated a prediction he made earlier this week at Alibaba’s investors meetup here, when he described the trade war as “a mess” that could potentially drag on for two decades. He said the move was the US government’s attempts to curtail China’s increasing economic clout, just as the former did against Japan during the 1980s.

He urged Chinese enterprises, in particular SMBs, to be prepared should the trade war stretch 20 years.

Highlighting the need to leverage the latest technology and new ideas, Ma said great enterprises operating today would have experienced and survived tough market environments. Innovators would prevail, he added.

Based in Singapore, Eileen Yu reported for ZDNet from The Computing Conference 2018 in Hangzhou, China, on the invitation of Alibaba Group.

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Manufacturing Led Workforce Development is the key to Resolving the Skills Gap Crisis

It is a great, but terrifying time to be a manufacturer in the United States. New manufacturing plants are popping up and existing manufacturers are pushing their capacity to the limit. The big issue that remains however, is the skills gap. Retiring baby boomers are vacating skilled manufacturing jobs. To complicate matters our culture tends to emphasize academics more than job happiness. Anyone involved in manufacturing knows it can be an extremely rewarding field to work in and many great jobs do not require a four year degree to perform. There should be no shame for an individual who would prefer to build things and work with their hands while contributing to an incredible economic powerhouse. That’s not to say that manufacturing is just a blue collar paradise. There are jobs of every shape, size and technical qualification and modern manufacturing is a far cry from the dark dirty factories of the past. If you spend a little time with these hard working talented people, you will see how passionate they are about their jobs, communities and making quality products.

M33333anufacturer Led Solutions

In recent years, a number of manufacturers have organized to address the skills gap directly in their own communities. They do this by working directly with educators. We don’t see real change without the efforts of these people, they are the answer to this problem and they need our support. These are just some examples from here in California, but initiatives and groups like them are forming all over the country:

  • Grow Manufacturing Initiative
  • San Joaquin Manufacturing Alliance
  • Sacramento Valley Manufacturing Initiative

Grow Manufacturing Iniative

In Northern California, centered in Chico, CA. Manufacturers organized to form GMI and they have made a real impact in the communities they service. They have been very successful in aligning the skills being taught with the needs of local manufacturers. They host an annual manufacturing expo as well as train the trainer (educators) events. Bill Gaines of Transfer Flow was also instrumental in inspiring the formation of the Sacramento Valley Manufacturing Initiative.

San Joaquin Manufacturing Alliance

In the Central Valley, centered around Fresno, CA. Manufacturers organized to form SJVMA. They have achieved great results in addressing the needs of manufacturers for a skilled workforce and have formed a sizable organization that also includes an annual manufacturing summit that attracts hundreds of participants, vendors and sponsors. Mike Betts of Betts Manufacturing is incredibly passionate and dedicated a tremendous amount of his own time and resources to helping establish and make SJVMA a viable and effective organization.

Sacramento Valley Manufacturing Initiative

In the greater Sacramento Area, manufacturers including Harris and Bruno, Tri Tool, Snowline Engineering, Garner Products, Siemens, JL Haley, TechnicFMC, Zi Machine, and Blue Diamond Growers along with some affiliates including Managed Solutions formed SVMI in 2018. The group has already hosted train the trainer events, factory tours and established a dedicated and passionate board of directors. They recently launched their website, and will be working hard to meet the work force demands of manufacturers in the area for years to come.

 

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U.S. Manufacturing Activity Surged in June

WASHINGTOim-15555N—American factory activity accelerated for the second straight month in June, signaling momentum in the U.S. manufacturing sector.

The Institute for Supply Management on Monday said its manufacturing index rose to 60.2 in June from 58.7 in May. Numbers above 50 indicate activity is expanding across the manufacturing sector, while numbers below 50 signal contraction. Economists surveyed by The Wall Street Journal had expected a 58.1 reading for June.

The index in February hit 60.8, its highest level since May 2004, before easing in March and April. It picked up in May and again in June.

Broader economic growth appeared to pick up in the just-completed second quarter after a modest slowdown in the early months of 2018. The unemployment rate declined below 4% this spring and forecasters expect solid growth this year, supported by recent tax cuts and strong consumer sentiment.

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FDI & Reshoring Lead to U.S. Manufacturing Growth

An improving business climate, including tax cuts and elimination of onerous regulations, bodes well for manufacturing in the United States.

 

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During the first quarter of 2018, U.S. manufacturing is riding a wave of 19 consecutive months of growth. This manufacturing growth is largely attributed to improving global economies and robust business investment.

According to the Reshoring Initiative, reshoring and foreign direct investment (FDI) together grew by more than 10 percent in 2016, adding 77,000 jobs and surpassing the rate of offshoring jobs by 27,000. In 2017, reshoring and FDI job announcements soared adding over 171,000 jobs. The jobs equal 90 percent of the total U.S. manufacturing jobs added in 2017. Already, the preliminary data for 2018 is at least as strong as 2017.

An Inviting Destination for Business
The American industrial sector is flourishing, with the United States continuing to be the largest receiver of FDI in the world. A number of factors are contributing to U.S. manufacturing’s rapid growth:

  • Manufacturers want to expand in the U.S. because of its abundance of natural resources. In particular, rebounding oil prices have spurred more drilling and investment.
  • The U.S. has high labor standards, encouraging a high-quality, safe working environment. Manufacturers are responding to increasing scrutiny of production practices. In addition, manufacturers are pushing training programs and partnering with colleges and universities to create a more competitive workforce. At the same time, states and communities are integrating job training programs as part of their incentive packages to attract manufacturers’ investment.
  • The Tax Cuts and Jobs Act, which reduced the corporate tax rate from 35 percent to 21 percent, has created investment opportunities for businesses, and the manufacturing industry has already experienced positive results.
  • The American consumer continues to be a draw for manufacturers. Consumer spending is a significant driver of a strong economy. As SelectUSA points out, the U.S. offers the largest consumer market on earth with a GDP of $18 trillion and 325 million people.Manufacturers prefer to be near these consumers.
  • The trusted business climate in the U.S. allows businesses to operate in a secure and stable environment.

Companies are finding a wealth of opportunity in the U.S. marketplace. Champion Petfoods, based in Canada, invested in the U.S. economy with a new world-class facility featuring custom-designed kitchens to reach its fastest-growing market — American consumers — as well as select export markets. The DogStar® Kitchens operation is the company’s first manufacturing facility to be located outside Canada.

“Kentucky stood out for its rich agricultural heritage, enabling Champion Petfoods to further our mandate of sourcing fresh regional ingredients through local supply chain partners,” said Frank Burdzy, president and CEO of Champion Petfoods.

Italian-based Sofidel Group, one of the world’s leading manufacturers in paper production for sanitary and household use, broke ground in Circleville, Ohio, in 2016 to build its first integrated plant on U.S. soil, representing the largest private sector investment in Circleville in decades.

“The U.S. market is a key market for our group, because it is the first in the world in terms of per capita consumption in the tissue sector,” explained Luigi Lazzareschi, CEO of Sofidel Group.

Sofidel also recently announced a project in Oklahoma that will include two tissue technology machines producing a total output of 120,000 metric tons a year. This will create some 300 jobs. Both the Ohio and Oklahoma Sofidel facilities are expected to boost the economy for years to come.

Progress in Regulatory Environment
Regulation has significantly influenced manufacturing investment in the United States, but the landscape has improved in the last year. While manufacturers recognize the need for effective legislation, the environment shouldn’t be burdensome.

In January 2017, President Trump told business leaders he planned to cut federal regulations by 75 percent or more. Federal department and agency heads were told there would be a hold on all rules, with the exception of emergencies, to allow a thorough review and approval process. This was quickly followed by the signing of an Executive Order declaring that for every new regulation issued, two would need to be removed. The order was contested in arbitration, but the complaint was recently dismissed, pushing the regulatory reform movement forward.

The administration has touted the withdrawal or delay of some 1,579 regulatory actions from the fall of 2016 to the fall of 2017, according to the Office of Information and Regulatory Affairs. Furthermore, agencies hope to finalize three deregulatory actions for every new governing rule in fiscal 2018.

An executive directive was also issued calling for executive departments to accelerate reviews and approvals of proposals to build and expand manufacturing facilities in hopes of advancing U.S. industry. This action led to a report from the Commerce Department identifying some 20 regulations in need of reform, based on information from manufacturers and industry influencers.

“The current onerous and lengthy processes and inadequately designed rules add to an already overwhelming amount of government waste,”Commerce Secretary Wilbur Ross said in a release. “This report is an important step in correcting the status quo and promoting, instead of shackling, American manufacturing.”

The report found three major themes, including:

  • Overlap, duplication, and lack of coordination between states and the Environmental Protection Agency (EPA)
  • Uncertainty related to the permitting process.
  • Inconsistency in application and enforcement.

In an effort to address these concerns, each federal agency’s Regulatory Reform Taskforce must deliver an action plan to the president responding to the permitting and regulatory problems found in the Commerce Department’s report.

Additionally, an annual forum will be held both for regulators and manufacturers to assess the regulatory landscape. The Commerce Department plans to work with Congress to use the already streamlined permitting procedures established in the Fixing America’s Surface Transportation Act (FAST Act) on other legislation pertaining to manufacturing projects. This should increase projects’ speed to market.

Historically, the EPA has been the source of many of the regulations affecting industrial production. The Clean Power Plan was intended to drastically reduce greenhouse gas emissions from the power sector by 2030. Many companies spoke out against its threats to jobs and manufacturers’ access to affordable energy. The Trump administration has proposed a plan to repeal the act in order to alleviate its negative impact on the industrial sector. However, the EPA intends to develop a replacement plan that will take the sector’s concerns into consideration, while also accommodating concerns about negative environmental effects.

The current onerous and lengthy processes and inadequately designed rules add to an already overwhelming amount of government waste.Wilbur Ross, Commerce SecretaryMore recently, the EPA issued a guidance memorandum to improve the air permitting process for manufacturers working to increase efficiency by building or modifying facilities such as power plants and refineries. In April, the agency determined through its Midterm Evaluation process that the current greenhouse gas emissions standards for 2022 to 2025 model year cars and light trucks are not appropriate and need to be revised. The goal of this development is to set a national standard for greenhouse gas emissions that allows automakers to manufacture vehicles that consumers want and can afford, without compromising environmental impact or safety.

Promise Ahead
Manufacturers, both foreign and domestic, have maintained that regulatory burdens hinder new investment and expansion. Facing nearly 300,000 restrictions on manufacturing operations from federal regulations, according to the National Association of Manufacturers, businesses welcome the recent changes. While much progress has been made, further action is needed to continue to improve investment into the U.S.

Multiple bills have been introduced, with some being partially passed, that seek to increase transparency, expand effective oversight and, most importantly, mitigate overregulation and encourage manufacturing investment. This activity, coupled with growing awareness of manufacturers’ needs, sets the United States apart as an even more enticing destination for business.

“An increase in ‘Made in America’ strengthens the U.S. manufacturing sector,” said Harry Moser, founder of the Reshoring Initiative. “For every manufacturing job added through ‘Made in America,’ somewhere else another one to five jobs are created. As more products are made here, it becomes possible to fill ecosystem niches that had hollowed out from offshoring. As those niches are filled, upstream and downstream sectors expand.”

 

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NFIB Small Business Economic Trends

NFIB Small Business Economic Trends – March

 

Embargoed Tuesday, May 8 at 6 a.m.

 

(Based on 1554 respondents to the April survey of a random sample of

NFIB’s member firms, surveyed through 4/29/18)

 

 

Overview

 

The Index of Small Business Optimism increased slightly in April to 104.8, a gain of 0.1 points. The Index has been higher only 20 times out of the last 433 surveys.

 

  • Labor quality remained the #1 problem for the fourth straight month.
  • Reports of improved earnings trends were the highest in survey history.
  • Reports of compensation increases held at the highest level since 2000.
  • Reported job creation posted another solid gain.

 

Hiring plans remained strong, as did reports of actual net increases in employment over the past few months.  Reports of labor quality as a top business problem remained at record levels.  Reports of capital outlays rebounded to strong levels after a minor decline in March.  There appears to be more interest in credit to support spending, but not strong.  Cash flows from solid profit trends and tax cuts are supporting higher spending and hiring without debt, boosting this recovery to the second longest expansion in history.

 

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Small Business Optimism and Ten Components

                                                                   

[Column 1 is the current reading, column 2 the change from the prior month, column 3 the percent of the total change in the Index accounted for by each component; “*” means the percent <0.5% or not a meaningful calculation.  Index is based to the average value in 1986, components are not. The term “net” means that the percent of owners giving an unfavorable answer has been subtracted from the percent of owners giving a positive or favorable response.  For some questions, there is no “unfavorable” response category]

 

LABOR MARKETS

 

Reports of employment gains remain strong among small businesses, inconsistent with the BLS report for March employment gains.  The increase in new business establishments is running well ahead of eliminations, a real boost to new employment.  Owners reported adding a net 0.28 workers per firm on average, the third highest reading since 2006 (down from 0.36 workers reported last month, the highest since 2006).

 

Sixteen percent (up 2 points) reported increasing employment an average of 2.7 workers per firm and 9 percent (unchanged) reported reducing employment an average of 2.5 workers per firm (seasonally adjusted).

 

 

Fifty-seven percent reported hiring or trying to hire (up 4 points), but 50 percent (88 percent of those hiring or trying to hire) reported few or no qualified applicants for the positions they were trying to fill.  Twenty-two percent of owners cited the difficulty of finding qualified workers as their Single Most Important Business Problem (up 1 point), exceeding the percentage citing taxes or regulations.  Shortages of qualified workers are clearly holding back economic growth.

 

 

Thirty-five percent of all owners reported job openings they could not fill in the current period, unchanged and tied with March 2018, July and October 2017 for the highest reading since November 2000.  Twelve percent reported using temporary workers, up 2 points.  Reports of job openings were most frequent in construction (48 percent) and manufacturing (48 percent).  The inability of construction firms to organize teams is slowing the construction of new homes at all levels.

 

 

A seasonally-adjusted net 16 percent plan to create new jobs, down 4 points from March but historically strong.  Not seasonally adjusted, 27 percent plan to increase total employment at their firm (down 3 points), and 3 percent plan reductions (up 1 point).  In some industries, nearly half the firms have unfilled openings, especially severe in construction and manufacturing.

 

Labor markets are very tight, for both skilled and unskilled workers. The strong demand indicated by the NFIB data anticipates an unemployment rate below 4 percent.  Expected real sales volumes and reports of positive sales trends were very good and growth has been solid, leaving labor demand historically very strong.

 

 

CAPITAL SPENDING

 

Sixty-one percent reported capital outlays, up 3 points.  Of those making expenditures, 43 percent reported spending on new equipment (up 4 points), 27 percent acquired vehicles (up 3 points), and 16 percent improved or expanded facilities (unchanged).  Five percent acquired new buildings or land for expansion (down 3 points) and 15 percent spent money for new fixtures and furniture (up 3 points).  Non-residential fixed investment has grown at a better than 6 percent rate for the past 5 quarters (compared to under 1 percent in 2015 and 2016) and small business has made a major contribution.

 

 

Twenty-nine percent plan capital outlays in the next few months, up 3 points.  Plans were most frequent in manufacturing (38 percent) where additional capacity and productivity-enhancing investments are needed and construction (32 percent) where labor-saving investments are needed to increase the number of housing starts and completions.  Hiring difficulties will lead firms to engage in more training and adopt more labor saving technology to support growth and serve growing numbers of customers.

 

 

SALES  

 

A net 8 percent of all owners (seasonally adjusted) reported higher nominal sales in the past three months compared to the prior three months, unchanged and the fifth consecutive strong month.  After a blow-out holiday season, consumer spending slowed in the first quarter according to the Bureau of Economic Analysis, contributing to a weaker first quarter GDP number.  On Main Street, there was no slowdown in reports of improving sales trends.  Customers (consumers and other businesses) turned out in numbers that rivaled performances turned in all year and March data indicated that the consumer is back, which will boost the second estimate of first quarter growth.

 

 

 

The net percent of owners expecting higher real sales volumes rose 1 point to a net 21 percent of owners.  Fifty-nine percent of construction firms and 56 percent of manufacturing firms expect higher real sales volumes in the coming months.  Wages and salaries grew by about $3,000 per family last year (about 40 percent better than 2016) and will be boosted by the tax cuts this year.  Consumer sentiment has remained solid, anticipating continued good spending in the coming months.

 

 

INVENTORIES:

 

The net percent of owners reporting inventory increases rose 1 percentage point to a net 4 percent (seasonally adjusted), positive and extending a four month run of substantial inventory building (a boost to GDP growth).

 

 

The net percent of owners viewing current inventory stocks as “too low” (a positive number means more think stocks are too low than too high, a positive for inventory building) improved 2 points to a negative 4 percent.  The build in inventory is clearly not excessive in the minds of owners expecting continued strong sales.

 

 

The net percent of owners planning to build inventories was unchanged at 1 percent, the eighteenth positive reading in the past 19 months.  This has been very supportive of GDP growth over that period.

 

INFLATION:

 

The net percent of owners raising average selling prices fell 2 points to a net 14 percent seasonally adjusted, breaking a steady march to higher levels that started in November of 2016.  The Federal Reserve’s target of 2 percent inflation (based on the headline Personal Consumption Deflator) has not been reached, but it is close.  But, if Main Street slows the frequency of its price hikes, reaching the goal will become more difficult.  Unadjusted, 9 percent of owners reported reducing their average selling prices in the past three months (up 1 point), and 26 percent reported price increases (unchanged).

 

 

 

Seasonally adjusted, a net 22 percent plan price hikes (down 3 points).  With reports of increased compensation running high, there is more pressure to pass these costs on in higher selling prices, although tax cuts and growing operating profits alleviate some of this pressure.  Still, as the gap between the percent raising compensation and raising prices closes, more of these costs will be passed on to customers.  The NFIB data predict a PCE inflation rate of 2.1 percent in the months ahead.

 

 

COMPENSATION AND EARNINGS:

 

Reports of higher worker compensation were unchanged at a net 33 percent, the highest reading since 2000.  Although government reports of wage and salary gains remain historically low, they are the best in a long time, and don’t include benefits.  Historically wage gains were larger, but that was in environments with much higher inflation.  Plans to raise compensation rose 2 points to a net 21 percent,  but below its recent peak of 24 percent in January.

 

Owners complain at record rates of labor quality issues, with 88 percent of those hiring or trying to hire reporting few or no qualified applicants for their open positions.  Twenty-two percent (up 1 point) selected “finding qualified labor” as their top business problem, more than cited taxes, weak sales, or the cost of regulations as their top challenge.

 

 

The frequency of reports of positive profit trends improved 3 percentage point to a net negative 1 percent reporting quarter on quarter profit improvements, the best reading in the survey’s 45 year history.  Although the new tax law will impact profits this year, much of the current improvement is due to gains in operating profits and stronger sales.  Sales gains from stronger growth fall to the bottom line before costs such as rising labor costs catch up.  Overall, the new tax law and the strong economy are very supportive of profit improvements.

 

CREDIT MARKETS:

 

Four percent of owners reported that all their borrowing needs were not satisfied, unchanged and historically low.  Thirty-two percent reported all credit needs met (up 1 point) and 50 percent said they were not interested in a loan, up 3 points but one of the lowest readings since 2010.  Only 2 percent reported that financing was their top business problem compared to 18 percent citing taxes, 13 percent citing regulations and red tape, and 22 percent the availability of qualified labor.  Weak sales garnered 8 percent of the vote, down 3 points and only 3 points above the 45 year record low reading.  Five percent reported loans “harder to get”, historically low.  In short, credit availability and cost are not issues and haven’t been for many years, even with the Federal Reserve raising interest rates.

 

 

Thirty-one percent of all owners reported borrowing on a regular basis (down 1 point).  The average rate paid on short maturity loans was up 30 basis points at 6.4 percent, rates are rising gradually with Fed policy moves.  In anticipation of the Federal Reserve rate hikes, borrowers have increased their demand for fixed rate loans with longer maturities.

 

As the Federal Reserve moves away from its focus on keeping rates low, more firms are reporting changes in the interest rates they pay.  For those experiencing a rate increase, not a happy event, but not an impediment to borrowers who now see much higher rates of return on investments in a growing economy with lower tax rates.  Bigger picture, it is important to be returning the job of capital allocation to markets and interest rates, and not Federal Reserve policy. We have twice experienced in recent times the cost of interest rate suppression, “too low for too long”.

 

 

 

 

THE LARGER PERSPECTIVE:

 

GDP growth for the first quarter came in at 2.3 percent, considerably shy of the 2.9 percent “guess” by the New York Federal Reserve but well above the Atlanta Fed’s 2 percent “guess.”  Most observers feel the economy was much stronger in the first quarter of 2018, although consumers did slow spending considerably in January and February after their holiday binge.  March has come in better, and that will show up in the second “guess”. After the cold weather pause, it appears consumer spending is back on track.  Business invesment grew just above a 6 percent rate, 1.5 points faster than the average in this recovery.  Small business capital spending has picked up the pace.  GDP growth for the first quarter will likely be revised up at the next “guess,” as consumers were back spending in March and exports grew substantially while imports (a negative for GDP arithmetic) slowed.

 

Federal Reserve policy now revolves around two issues. First, will inflation finally hit the Federal Reserve’s 2 percent target? Second, will they raise rates even faster if economic growth runs at 3 percent or better (as even the CBO forecasts) and inflation starts to pick up?  Removing the “punch bowl” just when the party is really hopping is a habit (and responsibility) of the Fed.  Currently the Fed plans two more rate hikes this year, but if inflation finally starts to run, more are possible – unless the Fed decides to let the economy “run hot” with more inflation.  Inflation pressures on Main Street remain “moderate” and indeed fell back a bit in April.

 

Overall, the outlook remains very positive.  Forecasters have the growth pace near 3 percent, even with the weak start in the first quarter (which will likely be revised up).  The main impediment to growth will be the short supply of labor, which plagues all industries but especially manufacturing and housing.  House prices are rising sharply but are not directly included in the inflation measures.  Housing starts are still running below the estimated 1.5 million needed based on demographics.  This pressure will show up in rents and ultimately in the PCE inflation measure.  That said, 2018 will be a “happy new year”.

 

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NFIB began surveys of its membership in October 1973.  Surveys were conducted in the first month of each quarter through 1985 when monthly surveys were instituted.  The first month in each quarter is based on between 1,200 and 2,000 respondents, while the following two monthly surveys contain between 400 and 900 respondents.  The term “net percent” means that the percent of owners giving an unfavorable response has been subtracted fromthe percent giving a favorable response.  If, for example, 20 percent reported that they were going to increase the number of workers at the firm and 5 percent reported an intention to reduce the number of workers, the “net percent” would be 20 percent – 5 percent  or a net 15 percent planning to expand

 

 

 

employment.  These figures are seasonally adjusted unless noted.  The graphs show quarterly data (first survey month in each quarter), updated when available by subsequent monthly surveys.

 

 

 

 

 

 

                                                                                                                 

 

 

 

 

 

 

 

 

 

Small Business Optimism and Ten Components

                                                                   

[Column 1 is the current reading, column 2 the change from the prior month, column 3 the percent of the total change in the Index accounted for by each component; “*” means the percent <0.5% or not a meaningful calculation.  Index is based to the average value in 1986, components are not. The term “net” means that the percent of owners giving an unfavorable answer has been subtracted from the percent of owners giving a positive or favorable response.  For some questions, there is no “unfavorable” response category]

 

LABOR MARKETS

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US adds a modest 164,000 jobs; unemployment down to 3.9%

U.S. employers stepped up hiring modestly in April, and the unemployment rate fell to 3.9 percent, evidence of the economy’s resilience amid the recent stock market chaos and anxieties about a possible trade war.

Job growth amounted to a decent 164,000 last month, up from an upwardly revised 135,000 in March, the Labor Department said Friday. The unemployment rate fell after having held at 4.1 percent for the prior six months largely because fewer people were searching for jobs.

The gains reflect an economy that has been steadily expanding for almost nine years, gradually putting more people to work after the country endured the worst financial meltdown since the Great Depression in the 1930s.

Many employers say it’s become difficult to find qualified workers. Even so, they haven’t significantly bumped up pay in most industries. Average hourly earnings rose 2.6 percent from a year ago.

The overall unemployment rate remained, as in recent months, the lowest since December 2000. The rate for African-Americans — 6.6 percent — is the lowest on record since 1972.

Many economists say the unemployment rate is now so low that wage growth should begin to climb this summer, since employers will face more pressure to boost pay in order to hire workers.

“It’s just not sustainable for average pay growth to be so low in a labor market this tight,” said Andrew Chamberlain, chief economist at the jobs site Glassdoor.

An encouraging sign for the economy is that the pace of hiring has yet to be disrupted by dramatic global market swings, a recent pickup in inflation or the risk that the tariffs being pushed by President Donald Trump could provoke a trade war. Over the past three months, monthly job growth has averaged 208,000.

Much of the economy’s durability is due, in fact, to the healthy job market. The increase in people earning paychecks has bolstered demand for housing, even though fewer properties are being listed for sale. Consumer confidence has improved over the past year. And more people are shopping, with retail sales having picked up in March after three monthly declines.

Manufacturers added 24,000 workers last month, a sign that possible tariffs on steel, aluminum and Chinese goods haven’t altered hiring plans at most U.S. factories. Restaurants and hotels hired a net 18,000. The health care and social assistance sector added 29,300 jobs and the construction industry 17,000.

The monthly jobs reports have yet to show a consistent surge in average annual wage growth. Even so, workers in the private sector during the first three months of 2018 enjoyed their sharpest average income growth in 11 years, the Labor Department said last week in a separate report on compensation.

That pay growth suggests that some of the momentum from the slow but steady recovery from the 2008 financial crisis is spreading to more people after it had disproportionately benefited the nation’s wealthiest areas and highest earners.

With qualified job applicants harder to find in many industries, employers have become less and less likely to shed employees. The four-week moving average for people applying for first-time unemployment benefits has reached its lowest level since 1973.

The trend reflects a decline in mass layoffs. Many companies expect the economy to keep expanding, especially after a dose of stimulus from tax cuts signed into law by Trump that have also increased the federal budget deficit.

Inflation has shown signs of accelerating slightly, eroding some of the potential wage growth. Consumer prices rose at a year-over-year pace of 2.4 percent in March, the sharpest annual increase in 12 months. The Federal Reserve has an annual inflation target of 2 percent, and investors expect the Fed to raise rates at least twice more this year, after an earlier rate hike in March, to keep inflation from climbing too far above that target.

The home market, a critical component of the U.S. economy, has been a beneficiary of the steady job growth. The National Association of Realtors said that homes sold at a solid annual pace of 5.6 million in March, even though the number of houses for sale has plunged. As a result, average home prices are rising at more than twice the pace of wages.

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NFIB Small Business Economic Trends

NFIB Small Business Economic Trends – February

 

Embargoed Tuesday, March 13 at 6 a.m.

 

(Based on 642 respondents to the February survey of a random sample of

NFIB’s member firms, surveyed through 2/28/18)

 

 

Overview

 

The Index of Small Business Optimism increased 0.7 points in February, rising to 107.6, the second highest level in its 45-year history, second only to the 108.0 reading in 1983.  February results produced several mentionable accomplishments:

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  • Taxes received the fewest votes as the #1 business problem since 2006.
  • Reports of few qualified workers remained the #1 problem, highest since 2000.
  • Reports of improved earnings trends were the highest since 1987.
  • Inventory investment was the strongest since 2000, fueling GDP growth.
  • Reports of actual capital outlays rose to the highest level since 2004.
  • Reports of compensation increases held at the highest level since 2000.

 

The net percent of owners reporting higher selling prices continued to inch upward, reaching the highest level since 2014.  Job creation posted another solid gain, hiring plans remained strong, and reports of labor quality as a top business problem reached record levels.  Borrowing activity was flat, even though capital spending increased substantially, likely financed by improved profits instead of debt.  Overall, the small business sector is very encouraged by the economic policies of the administration and the strength of the economy, willing to invest more and hire more if workers can be found to fill their open positions.

 

 

Small Business Optimism and Ten Components

 

                                                                     

 [Column 1 is the current reading, column 2 the change from the prior month, column 3 the percent of the total change in the Index accounted for by each component; “*” means the percent <0.5% or not a meaningful calculation.  Index is based to the average value in 1986, components are not. The term “net” means that the percent of owners giving an unfavorable answer has been subtracted from the percent of owners giving a positive or favorable response.  For some questions, there is no “unfavorable” response category]

 

LABOR MARKETS

 

Job creation remained solid in the small business sector as owners reported a seasonally adjusted average employment change per firm of 0.22 workers, a strong showing and a repeat of last month.  Fourteen percent (up 1 point) reported increasing employment an average of 2.0 workers per firm and 10 percent (up 1 point) reported reducing employment an average of 3.5 workers per firm (seasonally adjusted).

 

 

Fifty-two percent reported hiring or trying to hire (down 3 points), but 47 percent (90 percent of those hiring or trying to hire) reported few or no qualified applicants for the positions they were trying to fill.  Twenty-two percent of owners cited the difficulty of finding qualified workers as their Single Most Important Business Problem (unchanged), exceeding the percentage citing taxes or the cost of regulation.  Construction and transportation are the industries most affected with 37 percent of owners in each industry claiming labor quality as their top problem.

 

 

Thirty-four percent of all owners reported job openings they could not fill in the current period, unchanged from January.  Fifteen percent reported using temporary workers, up 3 points and the highest reading since November 2016.  Reports of job openings were most frequent in construction (49 percent), manufacturing (32 percent) and non-professional services (37 percent).  Labor shortages are serious and slowing the growth in output and employment.

 

 

A seasonally adjusted net 18 percent plan to create new jobs, down 2 points from January but at historically high levels.  Not seasonally adjusted, 27 percent plan to increase employment at their firm (up 2 points), and 3 percent plan reductions (unchanged).  Hiring plans were strongest in construction (net 33 percent), manufacturing (net 26 percent), transportation and communication (net 30 percent) and professional services (net 26 percent).  Historically an exceptionally strong outlook for job creation.  The availability of qualified workers will undoubtedly moderate actual job growth.

 

 

Labor markets are very tight, for both skilled and unskilled workers. To address this problem, a net 22 percent plan to raise worker compensation, historically high. Thirty-one percent reported raising compensation to attract or retain employees, the highest since December 2000, the peak of the last expansion.  Only an increase in the size of the labor force can provide relief from the impact of labor shortages.  Firms will be hiring workers with less than the desired skill levels, forcing them to invest more in training.

 

 

CAPITAL SPENDING

 

Sixty-six percent reported capital outlays, up 5 points from January and the highest reading since 2004.  Of those making expenditures, 45 percent reported spending on new equipment (up 1 point), 30 percent acquired vehicles (up 2 points), and 15 percent improved or expanded facilities (down 1 point).  Six percent acquired new buildings or land for expansion (unchanged) and 15 percent spent money for new fixtures and furniture (up 2 points).

 

 

Twenty-nine percent plan capital outlays in the next few months, unchanged from January.  Plans were most frequent in construction (35 percent), professional services (37 percent), and manufacturing (39 percent).  Improvements in productivity depend crucially on investment spending in the labor intensive small business sector.  Improved earnings trends and lower taxes increase the pool of capital available for firms to invest in their businesses.  About half of the firms making capital expenditures focused on equipment, most though are upgraded versions of equipment already in use, not necessarily major “hi-tech” switches.

 

 

SALES  

 

A net 8 percent of all owners (seasonally adjusted) reported higher nominal sales in the past three months compared to the prior three months, a 3 point gain following two prior months of strong readings.  Consumer spending continues to provide solid support to economic growth.

 

 

The net percent of owners expecting higher real sales volumes rose 3 points, to a net 28 percent of owners, one of the best readings since 2007.  Positive expectations surged to over 30 points in December 2016, after the election and have remained historically high since then, reaching 34 percent in November 2017.  Very positive sales expectations are undoubtedly behind the continued strength in hiring plans and capital investment plans.

 

 

 

 

INVENTORIES:

 

The net percent of owners reporting inventory increases rose 3 percentage points to a net 7 percent (seasonally adjusted) on top of a 6 point rise in January.  Inventory stocks are building in anticipation of strong sales, at the strongest pace since January 2000.  This is very supportive of GDP and employment growth.

 

 

The net percent of owners viewing current inventory stocks as “too low” (positive number means more think stocks are too low than too high, a positive for inventory building) was a net negative 3 percent, 2 points better than January.  With historically high numbers of owners reporting inventory building, stocks may be able to keep up with growing sales.  If not, more owners will start reporting current stocks as “too low”.

 

 

However, the net percent of owners planning to add to inventory rose a point from January to a net 4 percent – a solid number.  Plans averaged 4 percent in the last six months of 2017 as firms geared up for increasing demand.  Inventory investment was a major contributor to the growth in GDP in the second half of last year, and it appears that this momentum will continue into the first quarter.

 

 

INFLATION:

 

The net percent of owners raising average selling prices rose 2 points to a net 13 percent seasonally adjusted, after a 3 point increase in January.  This is the highest reading since July 2014.  Gradually, the Federal Reserve may be getting its wish for more inflation.  Unadjusted, 9 percent of owners reported reducing their average selling prices in the past three months (unchanged), and 22 percent reported price increases (up 3 points after a 4 point gain last month).  Still far short of the record 67 percent of owners raising selling prices in 1974.  That was inflation!

 

 

 

Seasonally adjusted, a net 24 percent plan price hikes (up 1 point), although far fewer will report actually doing so in the following months.  This is the highest reading since 2008.  With reports of increased compensation running high, there is more pressure to pass these costs on in higher selling prices, although the tax cut and growing operating profits alleviate some of this pressure.

 

COMPENSATION AND EARNINGS:

 

Reports of higher worker compensation remained at a net 31 percent, the highest reading since 2000 and among the highest in survey history.  The Federal Reserve is hoping this will result in inflation as owners pass these costs on in the form of higher selling prices, but to date, their wish has not been granted yet.  Tight labor markets are historically associated with high percentages of owners raising worker compensation.

 

Owners complain at record rates of labor quality issues, with 90 percent of those hiring or trying to hire reporting few or no qualified applicants for their open positions.  Twenty-two percent (unchanged) selected “finding qualified labor” as their top business problem, more than cited taxes, weak sales or the cost of regulations as their top challenge. This is the highest reading since 2000.

 

Plans to raise compensation fell 2 points to a net 22 percent but still among the highest readings since 2000.  Small firms are raising compensation to attract and keep the employees they need.

 

 

 

The frequency of reports of positive profit trends improved one percentage point to a net negative 3 percent reporting quarter on quarter profit improvements, the best reading since 1987.  This followed an 11 point improvement in January.  Although the new tax law will impact profits this year, much of the current improvement is due to gains in operating profits and stronger sales.  Small business owners have lived with austerity for eight years, their costs were well under control and the recent surge in sales bolsters the bottom line first before costs catch up.

 

CREDIT MARKETS:

 

Two percent of owners reported that all their borrowing needs were not satisfied, down 1 point and at the record low. Thirty-two percent reported all credit needs met (up 1 point) and 51 percent said they were not interested in a loan, down a point.  Only 2 percent reported that financing was their top business problem compared to 15 percent citing taxes, 15 percent citing regulations and red tape, and 22 percent the availability of qualified labor.  Weak sales garnered 11 percent of the vote.  Three percent reported loans “harder to get’, unchanged and at historic lows.  In short, credit availability and cost are not issues and haven’t been for many years.  Loan demand has not returned to its pre-recession levels.

 

 

 

 

Thirty-one percent of all owners reported borrowing on a regular basis (unchanged).  The average rate paid on short maturity loans was down 20 basis points at 5.7 percent.  If the Federal Reserve raises rates the anticipated three times this year, variable rate loan costs will respond immediately, although longer term rates are not likely to reflect the full hike.  Overall, loan demand remains steady, even with cheap money.  Small businesses have been restructuring over the past ten years and profit trends are improving, leaving owners in a good position to borrow once they need financing beyond the resources provided by their firm’s operations.

 

THE LARGER PERSPECTIVE:

 

Growth in the fourth quarter was revised down to 2.5% after 3.2% in the third.  This is misleading because consumer spending grew at 3.8 percent, and this is 70 percent of GDP.  Business investment grew 6.6 percent.  However, the mathematics of GDP subtract from spending all demand that is satisfied with inventory made in prior periods (GDP measure output in the current period).  Thus, 0.7 percent was deducted from the growth rate.  Additional reductions resulted from a rise in imports (spending money on goods made in other countries does not increase our GDP).  All that to say that underlying spending in the economy was much stronger than our GDP math indicated.

 

The Federal Reserve is expected to raise rates again at the March meeting, the first of three expected raises for the year.  It also continues to let some of its $4 trillion dollar portfolio mature without reinvesting the proceeds.  This reduces the demand for bonds, putting upward pressure on interest rates.  On top of this, the Treasury will be selling a lot of bonds to finance the deficit, which imposes additional pressure on rates.  Rising rates will, of course, not be a positive force for equity prices or asset prices in general.  Interest rates on variable price loans will rise.  Less clear is the impact on long term rates, but they are likely to ease higher.

 

The small business sector is on fire.  The pickup in capital spending is a very favorable sign, as capital spending (crucial for improved productivity) fell way behind from 2009 to 2016.  Improved capital spending  signals increased confidence in the future of the economy.   Hiring is excellent and would be stronger if the labor market were not so tight.  This is and will be a major constraint on growth.  Inventory investment is strong and will add to GDP this quarter, hopefully it will be purchased later in the year by customers.  Inflationary pressures from Main Street are minimal although reported hikes in average selling prices have been edging up.  After years of small businesses sitting on the sidelines and not benefiting from the so called recovery, Main Street is again on fire.

 

===================================================

NFIB began surveys of its membership in October 1973.  Surveys were conducted in the first month of each quarter through 1985 when monthly surveys were instituted.  The first month in each quarter is based on between 1,200 and 2,000 respondents, while the following two monthly surveys contain between 400 and 900 respondents.  The term “net percent” means that the percent of owners giving an unfavorable response has been subtracted from the percent giving a favorable response.  If, for example, 20 percent reported that they were going to increase the number of workers at the firm and 5 percent reported an intention to reduce the number of workers, the “net percent” would be 20 percent – 5 percent  or a net 15 percent planning to expand employment.  These figures are seasonally adjusted unless noted.  The graphs show quarterly data (first survey month in each quarter), updated when available by subsequent monthly surveys.

 

 

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US Manufacturing Stays Strong in November

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The manufacturing sector continued to grow at an above-average rate in November, as the impact of back-to-back hurricanes over the summer recedes, according to an industry survey released on Dec. 1.

Output spiked and employment remains strong to produce “a really strong report” on the sector, the Institute for Supply Management (ISM) said.

The ISM’s purchasing managers index slowed to 58.2% from 58.7% in October, but remained well above the average for the past year, with 14 of the 18 industries surveyed reporting growth.

However, the decline actually reflects an improvement in conditions following the hurricanes, as transportation issues from storms are being overcome, Timothy Fiore, chair of ISM’s Manufacturing Business Survey Committee, explained.

The supplier deliveries index fell nearly five points to 56.5%, which indicates shipments are speeding up.

Manufacturers expected to see three months of transportation difficulties in the wake of the hurricanes — especially Hurricane Harvey’s hit to the key chemical and oil production facilities in Houston — as well as six months of impacts on prices, Fiore said.

He noted that only 5% of comments from the manufacturers surveyed mentioned the hurricanes, down sharply from the prior two months.

The report showed a three-point jump in the production index to 63.9%, and a more than half-point rise in new orders to 64%, while employment slipped a tenth to a still-strong 59.7%.

The only industries reporting contraction were wood and petroleum and coal.

Fiore said industries reported that “price pressures continue,” with 16 of the 18 sectors surveyed reporting increases. The price index slipped three points to 65.5%.

The comments from the companies surveyed indicate a strong surge into 2018, with many noting they are not seeing the usual year-end slowdown in orders.

“We are just coming off a record sales year. We expect to continue in 2018 robust activity,” one manufacturing firm said.

Meanwhile, a metal producer noted, “We are seeing steady, consistent demand for end of year. We usually see a slowdown, which we haven’t seen yet.”

Copyright Agence France-Presse, 2017

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IIoT ( Industrial Internet of Things)

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The IIoT is part of a larger concept known as the Internet of Things (IoT). The IoT is a network of intelligent computers, devices, and objects that collect and share huge amounts of data. The collected data is sent to a central Cloud-based service where it is aggregated with other data and then shared with end users in a helpful way. The IoT will increase automation in homes, schools, stores, and in many industries.

The application of the IoT to the manufacturing industry is called the IIoT (or Industrial Internet or Industry 4.0). The IIoT will revolutionize manufacturing by enabling the acquisition and accessibility of far greater amounts of data, at far greater speeds, and far more efficiently than before. A number of innovative companies have started to implement the IIoT by leveraging intelligent, connected devices in their factories.

What are the Benefits of IIoT?

The IIoT can greatly improve connectivity, efficiency, scalability, time savings, and cost savings for industrial organizations. Companies are already benefitting from the IIoT through cost savings due to predictive maintenance, improved safety, and other operational efficiencies. IIoT networks of intelligent devices allow industrial organizations to break open data silos and connect all of their people, data, and processes from the factory floor to the executive offices. Business leaders can use IIoT data to get a full and accurate view of how their enterprise is doing, which will help them make better decisions.

IIoT Protocols

One of the issues encountered in the transition to the IIoT is the fact that different edge-of-network devices have historically used different protocols for sending and receiving data. While there are a number of different communication protocols currently in use, such as OPC-UA, the Message Queueing Telemetry Transport (MQTT) transfer protocol is quickly emerging as the standard for IIoT, due to its lightweight overhead, publish/subscribe model, and bidirectional capabilities. You can read more about MQTT here.

Challenges of the IIoT

Interoperability and security are probably the two biggest challenges surrounding the implementation of IIoT. As technology writer Margaret Rouse observes, “A major concern surrounding the Industrial IoT is interoperability between devices and machines that use different protocols and have different architectures.” Ignition is an excellent solution for this since it is cross-platform and built on open-source, IT-standard technologies.

Companies need to know that their data is secure. The proliferation of sensors and other smart, connected devices has resulted in a parallel explosion in security vulnerabilities. This is another factor in the rise of MQTT since it is a very secure IIoT protocol.

The Future of the IIoT

The IIoT is widely considered to be one of the primary trends affecting industrial businesses today and in the future. Industries are pushing to modernize systems and equipment to meet new regulations, to keep up with increasing market speed and volatility, and to deal with disruptive technologies. Businesses that have embraced the IIoT have seen significant improvements to safety, efficiency, and profitability, and it is expected that this trend will continue as IIoT technologies are more widely adopted.

The Ignition IIoT solution greatly improves connectivity, efficiency, scalability, time savings, and cost savings for industrial organizations. It can unite the people and systems on the plant floor with those at the enterprise level. It can also allow enterprises to get the most value from their system without being constrained by technological and economic limitations. For these reasons and more, Ignition offers the ideal platform for bringing the power of the IIoT into your enterprise.

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