THE MANUFACTURING ECONOMIC UPDATE

Dr. Chad MoutrayChief Economist

National Association of Manufacturers

Updated January 17, 2013

Strengths in the Economy in 2012, Which are Expected to Continue Going into 2013

A Recovering Housing Market

Historically Low Interest Rates

Modest Growth in Consumer Spending

Growth in Exports, Albeit at a Slower Pace

Lower Energy Costs, Aided by Shale Exploration

Increased Signs of Reshoring, Improved Global Competitiveness

2005 2006 2007 2008 2009 2010 2011 2012 20130

500

1,000

1,500

2,000

2,500

0

10

20

30

40

50

60

70

80

Housing Market Situation

Housing Starts Housing PermitsNAHB Housing Market Index

NAHB Housing Market Index

Housing Starts, Permits (in thou-sands of units)

Source: U.S. Census Bureau, National Association of Home Builders

2

3

4

5

6

7

8

9Average 30-Year Fixed Mortgage

Rates

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Percent

Source: Freddie Mac

Q1:2010 Q2:2010 Q3:2010 Q4:2010 Q1:2011 Q2:2011 Q3:2011 Q4:2011 Q1:2012 Q2:2012 Q3:2012

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

2.3

%

2.2

% 2.6

%

2.4

%

0.1

%

2.5

%

1.3

%

4.1

%

2.0

%

1.3

%

3.1

%

0.4

% 0.7

%

0.5

% 1.1

%

0.5

%

-0.2

%

0.4

% 1.0

%

0.9

%

0.0

%

0.7

%

0.8

%

0.0

% 0.4

% 0.7

%

0.7

%

-0.1

%

-0.1

%

0.3

%

0.3

%

0.1

%

0.2

%0.5

% 1.1

%

0.9

%

1.1

%

1.0

%

0.9

%

0.9

%

0.2

% 0.6

% 1.0

%

0.3

%

Percentage Growth in Real GDP andContributions to Real GDP of Goods and

Services

Real GDP Durable Goods Nondurable Goods Services

Source: Bureau of Economic Analysis

2010 2011 2012

-0.5

0

0.5

1

1.5

2

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Personal Income and Spending

Personal Income Personal Spending Savings Rate

Personal Income/Spending (% Change)

Savings RatePercentage

Source: Bureau of Economic Analysis

Canada Mexico FTA Europe Asia South America

TOTAL0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

13.0%

20.1%

16.7% 17.2%

10.8%

23.8%

15.9%

4.6%

10.7%

7.4%

2.7% 3.0%

13.8%

6.6%

% Growth of Manufactured Goods Exports

Annual Change, 2011 vs. 2010 Year-to-Date, Q3:2012 vs. Q3:2011

Source: U.S. Department of Commerce

Canada Mexico China Japan United Kingdom

Germany Brazil Netherlands South Korea Hong Kong40.0

42.0

44.0

46.0

48.0

50.0

52.0

54.0

56.0

58.0

50.4

57.1

51.5

45.0

51.4

46.0

51.1

49.650.1

51.7

Purchasing Managers’ Indices for the Top 10 Export Markets for U.S. Manufactured

Goods(December 2012)

Note:Eurozone PMI: 46.1

Source: Markit

2007 2008 2009 2010 2011 2012 2013

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

Real Gross Domestic Product(Chained 2005 Dollars)

Real GDP Forecast:↑ 2.0% (2011)↑ 2.0% (2012)

↑ 2.0% (2013)

Forecast

Source: Bureau of Economic Analysis, NAM calculations using Moody’s Analytics simulation model

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Q1:12 Q2:12 Q3:12 Q4:1240%

50%

60%

70%

80%

90%

100%

78.4%

52.8%

71.6%69.6%

89.1%

86.1%84.8%

74.0%

47.6% 46.3%

73.1%

78.5%

88.7%

83.1%

69.2%

51.8%

Manufacturing Business Outlook

Source: NAM/Industry Week Survey of ManufacturersNote: Percentage of respondents who characterized the current business outlook at somewhat or very positive. Percentages are annual averages. Q4:2010 and Q1:2011 data are imputed from comparable data using a regression model.

199819992000200120022003200420052006200720082009201020112012201375

80

85

90

95

100

105

Regressing NAM/IndustryWeek Datato Predict Future Industrial Production

Industrial Production Industrial Production (Predicted)

Prediction for Industrial Production Q2:2013

↑ 0.1 % Y-O-YBut ↓ 2.0% from Q4:2012

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Q1:12 Q2:12 Q3:12 Q4:12

-2

-1

0

1

2

3

4

5

6

Expected Growth of Manufacturing Sales, Investment, and Employment

Sales Investment Employment

Percent

Source: NAM/Industry Week Survey of ManufacturersNote: Expected growth rates are annual averages.

Avg. 12-Mo. Growth Rates:

Sales: ↑ 1.0%Investment: ↓ 0.6%

Employment: ↓ 0.4%

Source: NAM/Industry Week Survey of ManufacturersNote: Respondents were able to check all that apply. Therefore, responses exceed 100 percent.

Other

Challenges with access to capital or other forms of financing

Weaker global growth, slower export sales

Attracting and retaining a quality workforce

Rising energy and raw material costs for our products

Weaker domestic economy, sales for our products to U.S. customers

Unfavorable business climate (e.g., taxes, regulation, etc.)

Rising healthcare/insurance costs

Uncertainties related to the political climate (e.g., fiscal abyss, pending budget cuts, etc.)

2.5%

8.4%

33.9%

38.7%

39.6%

67.6%

74.7%

79.0%

84.2%

Primary Current Business Chal-lenges,

Fourth Quarter 2012

Source: NAM Survey for Member Focus (February 2013)Note: Respondents were able to check all that apply. Therefore, responses exceed 100 percent.

Uncertain

No changes in employment, business investment, or outlook

Reduce employment or stop hiring

Reduce or slow down business investment

Reduce your business outlook for 2013

13.4%

16.7%

39.0%

49.7%

62.5%

Special Question: “Has the inability of the nation to address the long-term budget issues caused

you to do any of the following?”

Source: NAM/Industry Week Survey of ManufacturersNote: Respondents were able to check all that apply. Therefore, responses exceed 100 percent.

Other

Expanding economic opportunities with more trade agreements

Addressing the "skills gap" facing manufacturers

Implementing a true "all-of-the-above" energy policy

Controlling rising health care costs

Passing comprehensive tax reform

Averting the fiscal abyss and budget sequestration

Reducing the regulatory burden on manufacturers and other businesses

Slowing the growth of entitlement spending

Finding a long-term federal budget deal that tackles the deficit/debt

4.5%

22.0%

30.4%

48.8%

67.6%

68.7%

75.5%

76.4%

82.1%

88.7%

Special Question: “What do you see as the most pressing priorities for the Obama Administration,

113th Congress?”

2005 2006 2007 2008 2009 2010 2011 201220

30

40

50

60

70

80

90

100

110

120

70

75

80

85

90

95

100

105

110

Monthly Business and Consumer Sentiment Surveys

University of Michigan Consumer Confidence Conference Board Consumer ConfidenceNFIB Small Business Optimism

Consumer Confidence Indices

NFIB Small Business Index

2005 2006 2007 2008 2009 2010 2011 2012$130

$150

$170

$190

$210

$230

$250

Manufactured Durable Goods(in Billions of Dollars)

New Orders Shipments

Source: U.S. Census Bureau

2005 2006 2007 2008 2009 2010 2011 201260

65

70

75

80

85

90

95

100

105Industrial Production

Industrial Production Capacity Utilization

Industrial Production/Capacity Utilization %

Source: Federal Reserve Board

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

-1.5

-1

-0.5

0

0.5

1

1.5

2

2.5

% Changes in Manufacturing Production, 2012

Manufacturing Durable Goods Nondurable Goods

Percent

Source: Federal Reserve Board

2008 2009 2010 2011 201220.0

30.0

40.0

50.0

60.0

70.0

ISM Manufacturing Indices

Purchasing Managers Index New Orders Index Employment IndexInventories Index

Source: Institute for Supply Management

2011 2012 2013

-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

80

82

84

86

88

90

92

94

96

98

100

Regional Federal Reserve Bank Manufacturing & Business Surveys

Dallas Kansas City New YorkPhiladelphia Richmond Chicago

Index for all but Chicago(Growth >0)

Chicago Index(2007=100)

Source: Regional Federal Reserve Banks

2010 2011 20120%

1%

2%

3%

4%

5%

6%

7%

8%

Producer Price IndexYear-Over-Year Percentage Changes

for Each Month

PPI - Finished Goods PPI - Finished Goods Less Food & Energy

Percent

Source: Bureau of Labor Statistics

Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec

-50

0

50

100

150

200

250

300275

259

143

6887

45

181

192

132

137161 155

52

30

42

10 13 718

-13 -16

7 525

Monthly Changes in Employment, 2012(Thousands of Employees)

Nonfarm Payrolls Manufacturing

Source: Bureau of Labor Statistics

2008 2009 2010 2011 20126

7

8

9

10

11

12

13

14

4%

5%

6%

7%

8%

9%

10%

11%Employment Situation

Durable Goods Nondurable Goods Unemployment Rate

Millionsof Workers

Unemployment Rate

Source: Bureau of Labor Statistics

Leather and Allied Products

Computer and Electronic Products

Computer and Peripheral Equipment

Chemicals

Petroleum and Coal Products

Food Manufacturing

Miscellaneous Manufacturing

Electrical Equipment and Appliances

Semiconductors and Electronic Components

Beverages and Tobacco Products

Plastics and Rubber Products

Primary Metals

Machinery

Motor Vehicles and Parts

Fabricated Metal Products

Transportation Equipment

1.9

2.1

5.2

5.5

6.0

8.6

11.7

15.4

19.2

21.0

42.7

58.3

129.7137.8

151.7

174.3

Manufacturing Sectors with the Largest Net Employment Gains YTD, in Thousands of

Employees(December 2009 to December 2012)

Source: Bureau of Labor Statistics

North Carolina

Oregon

Colorado

Pennsylvania

Georgia

Tennessee

Iowa

Washington

Ohio

Indiana

6.57.07.17.5

9.011.012.013.0

15.615.716.4

18.720.3

23.432.4

43.343.7

46.949.4

64.0

Top 20 States for Manufacturing Job Creation,

December 2009 to October 2012(in Thousands of Workers)

Source: Bureau of Labor Statistics

2008 2009 2010 2011 201275

80

85

90

95

100

105

Manufacturing Employment Growth(December 2007 = 100)

Nonfarm Payrolls ManufacturingDurable Goods Nondurable Goods

Source: Bureau of Labor Statistics

Source: Bureau of Labor Statistics

2007 2008 2009 2010 2011 201250

100

150

200

250

300

350

400

450

500

550

Manufacturing Job Hires & Sepa-rations

(January 2007 to November 2012)

Job Openings Hires Separations

1987 1990 1993 1996 1999 2002 2005 2008 201190

110

130

150

170

190

210

230

250

270

290

Growth in Output per Hour for Man-ufacturing & Nonfarm Businesses

(1987=100)

Manufacturing Durable GoodsNondurable Goods Nonfarm Business

Source: Bureau of Labor Statistics

Q1:2010 Q2:2010 Q3:2010 Q4:2010 Q1:2011 Q2:2011 Q3:2011 Q4:2011 Q1:2012 Q2:2012 Q3:2012

-12%

-7%

-2%

3%

8%

13%

4.8%

8.2%

1.5%

3.9%3.0%

-1.9%

5.5%

0.7%

5.5%

0.1%

-0.7%

7.8%

11.8%

5.5%

3.1%

6.8%

0.7%

5.2%5.5%

10.2%

1.2%

-0.7%

-8.8%

-3.6%

-0.3%

-1.5%

7.5%

-0.4%

-4.8%

-6.6%

1.1%

9.0%

3.2%

Percentage Changes in Manufactur-ing Productivity & Unit Labor Costs

Output Per Hour for All Persons Output Unit Labor Costs

Source: Bureau of Labor Statistics

1947 50 55 60 65 70 75 80 85 90 95 2000 05 10 1210%

12%

14%

16%

18%

20%

22%

24%

26%

28%

Federal Government Receipts & Expen-ditures as a % of Gross Domestic Prod-

uct, 1947 to Present

Federal Receipts as a % of GDP Federal Expenditures as a % of GDP

24.2%

17.2%

Source: Bureau of Economic Analysis

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

$4.5

Federal Mandatory Spending, 2011-2022(in Trillions of Dollars)

Social Security Medicare, Net of ReceiptsTotal Mandatory Spending Medicaid

Source: Congressional Budget Office, November 2012

Questions?

Dr. Chad MoutrayChief Economist

National Association of Manufacturers

cmoutray@nam.org

(202) 637-3148

Other

Recent mergers or acquisitions

Increased international sales

Increased efficiencies in the production process

New product development

Stronger domestic economy, sales for our products

6.4%

10.6%

40.8%

48.6%

48.9%

61.9%

Primary Drivers of Future Growth, Fourth Quarter 2012

Source: NAM/Industry Week Survey of ManufacturersNote: Respondents were able to check all that apply. Therefore, responses exceed 100 percent.

2010 2011 2012

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

Pricing Pressures

PPI - Manufactured Finished Goods PPI - Finished GoodsPPI - Finished Goods Less Food & Energy

Percent

Source: Bureau of Labor Statistics

Q1:2010

Q2:2010

Q3:2010

Q4:2010

Q1:2011

Q2:2011

Q3:2011

Q4:2011

Q1:2012

Q2:2012

Q3:2012

Q4:2012

-35

-25

-15

-5

5

15

25

35

5.57.1

8.8 10.5 10.5

16.4

21.8

5.9

-5.4

6.99.5

7.6

-3.7

0

9.17.1

1.9

13.5

7.86.2

-1.9

1.84.9

7.6

-25.5

-7.1

1.8

-7

28.1 27.3

20

-15.7

19.7

31

7.9

-6.2

-29.6

-9.3

-3.6

-21.4

5.6

9.6

5.8

-18.8

15.1

21.8

0

4.5

Lending Standard and Borrowing Demand

For Commercial & Industrial Loans

Easing of standards for large & medium-sized borrowers Easing of standards for small borrowers

Stronger demand from large & medium-sized borrowers Stronger demand from small borrowers

Net % of Re-spondents

Source: Federal Reserve Board of Governors

China

Brazil

India

Mexico

Spain

Italy

Germany

France

Canada

Republic of Korea

United Kingdom

Japan

United States

$13,266

$14,105

$28,051

$28,226

$51,576

$56,208

$60,842

$63,992

$71,529

$76,346

$84,565

$92,960

$118,419

Manufacturing Value-Added Per Worker

Source: United Nations, Bureau of Labor Statistics, International Labor Organization

Manufacturing67%

Information13%

Professional, Scien-tific & Technical

Services14%

Other Nonmanu-facturing Busi-

nesses6%

Manufacturing and Business R&D

Source: National Science Foundation

Utilities

Retail Trade

Professional and Business Services

Wholesale Trade

Finance, Insurance, Real Estate, Rental, and Leasing

Educational Services, Health Care, and Social Assistance

Other Services, Except Government

Government

Mining

Arts, Entertainment, Recreation, Accommodation, and Food Services

Information

Transportation and Warehousing

Construction

Agriculture, Forestry, Fishing, and Hunting

Manufacturing

$0.52

$0.55

$0.55

$0.58

$0.63

$0.66

$0.67

$0.74

$0.82

$0.84

$0.88

$0.95

$0.97

$1.20

$1.35

Manufacturing’s Multiplier EffectIndirect Economic Activity Generated

by $1 of Sector GDP

Source: Bureau of Economic Analysis, 2010 Annual Input-Output Tables

Agriculture

Mining

Utilities

Other Services

Transportation and warehousing

Arts, entertainment, recreation, accommodation, and food services

Construction

Information

Wholesale trade

Retail trade

Education and healthcare

Finance and insurance

Professional and business services

Real estate, rental, and leasing

Manufacturing

1.0%

1.4%

1.8%

2.6%

2.9%

3.8%

4.4%

4.5%

5.8%

6.6%

7.7%

7.9%

11.6%

12.5%

12.7%

Average Private Sector Value-Added Contributions to Real GDP, 1998-2011

Source: U.S. Department of Commerce

2001 2002 2003 2004 2005 2006 2007 2008 2009 20100.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Global Manufacturing OutputU.S. Still Dominates Manufacturing

Worldwide, with China Close Behind

United States China (World Bank) Japan Germany Republic of Korea Italy

United Kingdom France India Mexico

Source: United Nations Statistics Division, with China data from the World Bank.

Unite

d St

ates

China

Japa

n

Germ

any

Fran

ce

Brazil

Unite

d King

dom

Italy

Russia

U.S. M

anuf

actu

ring

India

Canad

a

Austra

lia

Spain

Mex

ico$0.000000

$2.000000

$4.000000

$6.000000

$8.000000

$10.000000

$12.000000

$14.000000

$16.000000

U.S. Manufacturing Relative to GDP of the 15 Largest Nations

$1.8 Trillion

Source: Bureau of Economic Analysis, International Monetary Fund (2011 Data)

Manufacturing60%

Services30%

Agriculture6%

Other4%

Source: U.S. Department of Commerce (2007)

Distribution of U.S. Exports

Source: U.S. Department of Commerce

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

-$600

-$500

-$400

-$300

-$200

-$100

$0

$100$8.87 $17.60 $14.61

$38.28

-$466.04

-$319.27

-$412.01-$441.94

Manufactured Goods Trade Balancefor FTA & FTA Countries, in Billions of Dol-

lars

FTA Countries Non-FTA Countries

Source: U.S. Department of Commerce

Examining Defense Sequestration Alone

Over 1 million private sector jobs, including 130,000 in manufacturing, will be lost in 2014.

GDP will be almost 1 percent lower by 2014.

Total job losses increase the unemployment rate by 0.7 percent.

The largest job losses will occur in:– California (↓ 148,400)– Virginia (↓ 114,900)– Texas (↓ 109,000)– Florida (↓ 56,600)

Source: “Defense Spending Cuts: The Impact on Economic Growth and Jobs” (June 2012)