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|The Advocate - October 2017|
The Advocate - October 2017
The Advocate is tailored for NWPCA members and affiliates, and provides the latest information on what’s happening with the public policy issues and meetings that have the potential to impact you - or are impacting the day-to-day tasks and operations of the pallet industry. These government affairs updates strive to "Give you a heads-up, while you're putting the hammer down.”
On Monday, October 2, 2017, by invitation of the President, NWPCA attended a White House event for a ceremonial ‘cutting of the Red Tape’ ceremony. Highlighting the administration's efforts to eliminate what Trump sees as burdensome government regulation of private businesses. Vice President Pence spoke to the group, as the President was preparing to address the country after the Las Vegas incident. Secretaries Chao, Perdue, and Perry attended the event. Also in attendance was U.S. Representative Virginia Foxx (N. Carolina-5th) who recently visited Pallet Resources of NC Inc. for a mill tour.
The event “highlighted the president's broader initiatives on regulatory reform," a senior administration official told reporters on the following Friday, and shows that "the regulatory burden is being lifted, that agencies are working hard at accomplishing the president's directives, and that this is making a difference both to the economy and to job creation."
Pence did not announce any new initiatives, merely emphasized what's already being done. Later in the day, 10 federal agencies held breakout sessions to discuss specific actions they're taking to roll back regulations. NWPCA’s Vice President of Advocacy and External Affairs Patrick Atagi attended the event held by Secretary of Agriculture Sonny Perdue at the US Department of Agriculture and joined a select group of attendees.
Trump, like scores of Republicans before him, campaigned for president on a promise to reduce government regulation on businesses. Since taking office, Trump has largely followed through, either withdrawing or delaying more than 800 proposed regulations in just his first five months, according to the Associated Press. He has also issued a moratorium on new regulations, and a number of executive orders designed to hinder the regulatory rule-making process.
Naomi Rao, administrator of the Office of Information and Regulatory Affairs, said that federal agencies are also ahead of schedule in their quest to fulfill one of Trump's signature campaign promises: To eliminate two existing regulations for every new rule his administration enacted. "We are making good on that promise at OIRA," Rao said. "So far, we've finalized four new regulatory rulemakings, and 10 deregulatory rulemakings." The results have been "quite remarkable," she said.
The Trump administration’s decision to halt federal payments to health insurers could leave them exposed to a big financial squeeze for at least the rest of 2017, but it may be difficult for the companies to immediately yank their plans from the Affordable Care Act’s exchanges. Under the contract that many signed for 2017 plans with the federal exchange, insurers do have the right to pull out of cost-sharing payments that cover health-care costs of low-income ACA enrollees. But other laws, both at the federal and state level, may slow or block their exit.
The federal cost-sharing payments don’t go directly to the consumers who benefit from them. Instead, insurers effectively advance the money, making sure that people eligible for the subsidies don’t have to pay their full deductibles. Then, the insurers are supposed to be reimbursed by federal payments. But if the federal money doesn’t flow, the law forces the insurers to keep covering out-of-pocket charges on behalf of the low-income enrollees anyway. That money comes out of the insurers’ pockets and, companies say, could lead to severe financial losses.
Cost sharing payments are for subsidies that help people who buy health plans through the health law’s exchanges and whose income is between 100% and 250% of the federal poverty level. The federal poverty level is around $12,000 for a single person. The subsidies reduce out-of-pocket costs such as deductibles for these people, potentially saving them thousands of dollars when they need health care. Under the ACA, the federal government is supposed to pay for the subsidies, at a cost estimated at around $7 billion this year.
Last night, Senate Republicans voted to approve the 2018 fiscal budget that will help provide a path to passing tax cuts later this year, or in 2018. The budget’s passage is a key first step for Republicans that will allow them to seek to approve tax reform legislation via a process call reconciliation, allowing them to approve the bill with a simple majority as opposed to the Senate’s typical 60-vote threshold.
Now that the resolution passed, it still needs to get approved by the House, which passed a slightly different version that included a requirement for $10 billion cut in agriculture spending. The House is expected to give up on that cut, which would mean that the House and Senate Agriculture committees can start a new farm bill without the need to reduce its spending.
Trump reassures on Renewable Fuel Standard. Reports that President Trump has directed EPA not to lower biofuel usage requirements has buoyed the industry’s supporters. EPA Administrator Scott Pruitt met Tuesday with five Midwest senators. And this week he and President Trump both talked by phone with Iowa Governor Kim Reynolds. The governor said that the discussions were constructive and positive.
Related industry constituents became alarmed when EPA recently announced that it was seeking public input on the possibility of lowering the renewable volume obligations (RVOs).
Food for Peace under scrutiny. Congressional investigators are making the case to Congress that requirements for shipping food aid on U.S. ships is wasting money that could be spent on more food.
An official from the Government Accountability Office will testify before the Senate Foreign Relations Committee on a 2015 study that found the “cargo preference” rule increased the overall cost of shipping food by 23 percent, or $107 million. That was even after Congress lowered the cargo preference requirement from 75 percent to 50 percent.
GAO also says that Congress has done nothing to clarify an issue that has allowed USAID to ship more food on foreign-flagged vessels than USDA does. The agencies have differing interpretations of the cargo preference rules.
Another witness at the hearing, Cornell University economist Chris Barrett, will argued that Congress should relax both the cargo preference rule as well as the separate requirement for U.S.-grown commodities.“The myth is that these statutory restrictions generate benefits in the form of enhanced military readiness or significant gains for farmers or mariners. They don’t. The reality is that they cost lives needlessly,” Barrett said.
Is NAFTA dead? That was the question put to White House spokeswoman Sarah Huckabee Sanders this week after the rocky ending to the fourth round of the NAFTA negotiations. “Not yet,” she told reporters. “But as the President said, it's a bad deal and he wants to make sure that we have a deal that benefits American workers.”
Sanders said the administration would push forward with the negotiations, “and if we can’t get there then we'll let you know what the changes are.”
The next round is scheduled to be held next month in Mexico City, but the target for completing the talks has been pushed to next spring. “I think it’s undoubtable that we are nervous,” a Mexican official said yesterday. Héctor Padilla Gutiérrez, rural development secretary for the Mexican state of Jalisco, was one of many Mexican, Canadian and U.S. state and provincial officials meeting this week for the the National Association of State Departments of Agriculture’s annual Tri-National Agricultural Accord.
Officials from all three countries emphasized the benefits of the 23-year-old NAFTA for agricultural trade.
Links to business articles
US Department of Transportation – Freight Facts and Figures
(Snapshot of the volume of freight flows in the United States; the extent, condition, and performance of the physical network over which freight moves.)
Economic Data – by Chad Moutray, Ph.D., CBE Chief Economist for NAM
We are already starting to see the impacts from Hurricanes Harvey and Irma in the economic data. For our sector, manufacturing production fell 0.3 percent in August, and the Federal Reserve estimates reduced output by 0.75 percent in August. Beyond weather, we have seen a lot of volatility in manufacturing production since the spring—essentially seesawing from month to month since March. Yet, even with that weakness, the longer-term trend for output among manufacturers has been encouraging. Over the course of the past 12 months, manufacturing production has risen 1.5 percent. In the larger economy, total industrial production fell by 0.9 percent in August, its first decline since January. All three subcomponents of industrial production were lower for the month. In addition to manufacturing, mining (down 0.8 percent) and utilities activity (down 5.5 percent) were also sharply reduced. Industrial production has also increased by 1.5 percent year-over-year.
Consumers have also reacted to the devastating storms in Florida and Texas, with many participants in the latest University of Michigan and Thomson Reuters survey citing the hurricanes in their responses. As a result, the Index of Consumer Sentiment declined from 96.8 in August to 95.3 in September, with Americans less positive in their perceptions about future conditions. Interestingly, their views of the current economy rose to their highest level since 2000, and overall, the headline index continues to reflect a more enthusiastic assessment of economic conditions, especially relative to the views seen last year.
For the most part, American consumers have been more willing to open their pocketbooks this year than last, with spending helping to prop up the U.S. economy. Nonetheless, there has been a bit more caution on the part of the consumer in the past few months than we might have expected, and in the most recent data, Hurricane Harvey also likely played a role. Retail spending was down 0.2 percent in August. Sales have risen 3.2 percent over the past 12 months, but the year-over-year rate has drifted lower since peaking at 5.6 percent in January. Excluding motor vehicles, retail sales increased 3.6 percent year-over-year in August, up from 2.4 percent in June but down from 5.4 percent in January.
There were a number of signs of reassurance about the economy. The Empire State Manufacturing Survey continued to reflect strong growth in the sector in September. The composite index of general business conditions remained highly elevated despite easing from 25.2 in August, its highest level in nearly three years, to 24.4 in September, with faster expansions for new orders, shipments and employment. Manufacturers in the New York Federal Reserve Bank’s district remained upbeat about the next six months. More than 55 percent of those completing the survey predict better new orders over the next 6 months, with 26.0 percent and 32.5 percent anticipating increased hiring and capital spending, respectively. Technology spending also picked up. In a similar manner, the National Federation of Independent Business (NFIB) said that the Small Business Optimism Index edged up from 105.2 in July to 105.3 in August, its highest level since February.
Meanwhile, the Bureau of Labor Statistics said total manufacturing hires in July was the highest since December 2007, the first official month of the Great Recession. The sector hired 341,000 workers in July, up from 324,000 in June. At the same time, total separations—including layoffs, quits and retirements—also increased, up from 315,000 to 321,000. The level of separations was the highest since June 2009, which coincidently was the last official month of the recession. As a result, net hiring (or hires minus separations) was 20,000 in July, up from 9,000 in June, its strongest monthly pace since December 2014. Job openings in the manufacturing sector remained highly elevated at 390,000 in July, but postings for nonfarm payroll businesses reached a new all-time high at 6,170,000. It was only the second time in the survey’s 17-year history that job openings have exceeded 6 million. That should bode well for additional hiring moving forward nationally.
The highlight this week will be the Federal Reserve. Inflationary pressures have decelerated since the spring months, even with higher energy costs pushing up consumer and producer prices in August. Therefore, the Federal Open Market Committee is not expected to raise short-term interest rates at its September 19–20 meeting, with a hike now more likely at its December 12–13 meeting, but participants will likely vote to start the process of normalizing its balance sheet. Other highlights for the week include new data on housing starts and permits, leading indicators and manufacturing surveys from the IHS Markit and the Philadelphia Federal Reserve Bank.
Manufacturers' Outlook NAM (National Association of Manufacturers)
In the latest NAM Manufacturers’ Outlook Survey, the historically high levels of optimism that manufacturers in the United States expressed during the first two quarters of 2017 continued unabated through the third quarter. In March, 93.3 percent of respondents felt positive about their own company’s outlook, an all-time high in the survey’s 20-year history. That dropped slightly in the second quarter to 89.5 percent, then rose a bit again in the third quarter to 89.8 percent. As a result, this year we have seen the highest consecutive three-quarter average—90.9 percent having a positive outlook for their company—in the survey’s history.
As a sign that improvements in the global economy have had a positive impact (especially when combined with a weaker U.S. dollar), export expectations rose once again in the latest data. Respondents predict 1.3 percent growth in exports on average over the next 12 months, up from 1.1 percent in the prior survey and the highest rate in three years. Other data were also encouraging, including sales and production growth that are expected to increase 4.5 percent over the next year. Hiring and capital spending plans were also promising, albeit with both pulling back from multiyear highs in the previous release. Full-time employment in manufacturing is predicted to grow by an average of 2.2 percent over the next 12 months, whereas capital spending was seen rising 2.7 percent over that time frame.
There were also encouraging signs about activity in reports from the Dallas, Kansas City and Richmond Federal Reserve Banks. In each case, manufacturing respondents were the most upbeat that we have seen them since the beginning of the year. Perhaps more importantly, they also remained very positive about the next six months in all three regions. Beyond sentiment surveys, new durable goods orders increased 1.7 percent in August, bouncing back somewhat after dropping 6.8 percent in July. The data have been highly volatile over the past three months, mostly on large swings in nondefense aircraft and parts orders. The long-term picture reflects robust growth over the past 12 months. In fact, new durable goods have risen 5.1 percent since August 2016.
Consumer confidence pulled back slightly in September, both in the Conference Board and University of Michigan surveys. Hurricane damage might have been a factor in ebbing some confidence in the data. With that said, Americans continue to be significantly more optimistic today than at this point last year, with improved perceptions about income and labor market growth. Along those lines, personal spending increased 0.1 percent in August, slowing from a gain of 0.3 percent in July. Despite some easing, consumers have continued to spend at relatively healthy rates overall. Indeed, personal spending has increased 3.9 percent over the past 12 months. For its part, the saving rate was unchanged at 3.6 percent in August, and it also continued to indicate accelerated spending, down from a saving rate of 4.9 percent one year ago.
Meanwhile, the second revision to real GDP growth for the second quarter changed slightly from its last estimate. The Bureau of Economic Analysis upped its estimate of growth in the U.S. economy in the second quarter from 3.0 percent to 3.1 percent. I continue to anticipate 2.2 percent growth for 2017 as a whole. However, Hurricanes Harvey, Irma and Maria will impact forecasts for the third and fourth quarters. We expect 2.3 percent growth in the third quarter, with weather reducing overall output by at least 0.5 percent in the current quarter. However, fourth-quarter growth will be better than predicted originally as cleanup efforts continue in Florida, Texas and the Caribbean. I estimate 3.0 percent growth in the fourth quarter—at least for now.
Manufacturers have seen robust job growth this year, averaging 17,222 new jobs per month since December. Analysts will be looking for signs of continued strong hiring growth in new employment data out this Friday. Tightness in the labor market has corresponded with improvements in the economic outlook, and manufacturers will get an update on sentiment with September’s figures from the Institute for Supply Management’s Manufacturing Purchasing Managers’ Index released this morning. The survey is expected to show continued strong growth in new orders, output and employment. Other highlights this week include new data on construction spending, factory orders and shipments and international trade.