Economic Data and Growth

Manufacturers are increasingly worried about the future of trade and rising raw material costs, according to the Q1 2025 NAM Manufacturers’ Outlook Survey.
 
What’s going on: In the most recent survey, conducted from Feb. 11 to Feb. 28, trade uncertainties moved to the top of the list of manufacturers’ concerns—with 76.2% of respondents citing them as their primary worry. Increased raw material costs came in second, cited by 62.3% of those surveyed.

• In fact, manufacturers expect prices on their companies’ product lines to go up by 3.6% in the next year, an increase from 2.3% in Q4 2024 and the highest since Q3 2022, when inflation was more than 8%.
• Manufacturers also anticipate the cost of raw materials and other inputs to rise 5.5% in the next year, the highest expected rate of increase since Q2 2022, when inflation was between 8% and 9%.
• Manufacturers foresee export sales to increase just 0.1% in the next year. That’s the lowest anticipated rise since Q2 2020 at the height of the COVID-19 pandemic.
• In addition, the percentage of manufacturers with a positive outlook for their company inched down from the last quarter, to 69.7% from 70.9%.

Taxes: Manufacturers also feel strongly that their businesses need the “rocket fuel” of the tax reform extension. If Congress fails to extend pro-manufacturing provisions of the Tax Cuts and Jobs Act of 2017:

• 69.35% of respondents said they would delay capital equipment purchases;
• 45.23% would delay hiring;
• 44.72% would pause operations expansions;
• 41.71% would limit R&D investment; and
• 40.20% would curb employee wages or benefits increases.

Our take: “The pressure of increased costs, trade instability and sluggish demand is dampening the sector’s momentum, making it more difficult for manufacturers to plan, invest and hire,” NAM President and CEO Jay Timmons wrote in a social post Thursday.

• “We are calling for a comprehensive manufacturing strategy that includes a commonsense trade policy in addition to making President Trump’s 2017 tax reforms permanent and more competitive, securing regulatory certainty, expediting permitting reform to unleash American energy dominance and key manufacturing projects and increasing the talent pool.”

In his first address to Congress in his second term, President Trump made it clear that tariffs are not just a temporary tool, but a fixture of his administration’s trade policy. The president discussed his vision for an “America First” strategy, which includes the tariffs that went into effect Tuesday and last month.

In his words: “Deals are being made,” he said. “That’s a combination of the election win and tariffs. It’s a beautiful word, isn’t it?”

• “If you don’t make your product in America … you will pay a tariff and, in some cases, a rather large one. Other countries have used tariffs against us for decades, and now it’s our turn to start using them against those other countries.”
• “On average [according to the president], the European Union, China, Brazil, India, Mexico and Canada … and countless other nations charge us tremendously higher tariffs than we charge them. It’s very unfair.”
• “[On April 2,] reciprocal tariffs kick in, and whatever they tariff us, other countries, we will tariff them…If they do nonmonetary tariffs to keep us out of their market, then we will do nonmonetary barriers to keep them out of our market.”

On Canada and Mexico: “[W]e have very large deficits with both of them. … We pay subsidies to Canada and to Mexico of hundreds of billions of dollars. And the United States will not be doing that any longer. We are not going to do it any longer.”

• “Tariffs are about making America rich again and making America great again, and it is happening, and it will happen rather quickly. There will be a little disturbance, but we are OK with that.”

The NAM’s take: Ahead of the speech, NAM President and CEO Jay Timmons pointed out in a statement that manufacturers—especially those with thin margins—are already feeling the pressure from new tariffs. “The stakes couldn’t be higher for manufacturers right now,” he said. The NAM highlighted some examples after the tariffs went into effect yesterday from both small and large manufacturers:

• A power-engineering manufacturer faces $25 million in additional costs from the Mexico tariffs alone, impacting the ability to supply U.S. utilities and industrial customers.
• A major consumer goods manufacturer is looking at $231 million new costs from tariffs from Mexico and Canada.
• A small copper manufacturer was forced to turn back 388,000 pounds of copper at the Canadian border when tariffs took effect, with future imports costing an extra $50,000 per truckload.

Comprehensive manufacturing strategy: “To mitigate the adverse effects of today’s tariffs,” Timmons said, “President Trump and Congress [need] to implement a comprehensive manufacturing strategy that would create predictability and certainty to invest, plan and hire.”

• That strategy should include making President Trump’s 2017 tax reforms permanent and more competitive, securing regulatory certainty, expediting permitting reform to unleash American energy dominance and key manufacturing projects, increasing the talent pool and implementing a commonsense trade policy, Timmons added.
• In recent weeks, including with the NAM State of Manufacturing Address, Timmons has been raising the alarm on the need to move now on preserving and extending the 2017 tax reforms in the face of the uncertainty and price pressures.

The bottom line: “Building things in America only works if we can sell them around the world,” said Timmons. He added this morning: “That’s why we’re urging President Trump and Congress to provide greater predictability with a phase-in period for manufacturers to adjust to new trade realities, while also establishing clear exemptions for critical inputs, enabling reciprocity in manufacturing trade.”

• “President Trump can make American manufacturing greater than ever before by negotiating a ‘zero for zero’ tariffs manufacturing trade deal with our major trading partners,” Timmons said.

Developing: This morning on Bloomberg TV, Commerce Secretary Howard Lutnick hinted publicly that he has heard the NAM and the industry’s urging for relief from tariffs on Canadian and Mexican imports for products that comply with the U.S.–Mexico–Canada Agreement—a signature achievement of President Trump’s first term.

The NFIB Small Business Optimism Index rose 2.2 points in October to 93.7, marking the 34th consecutive month below the 50-year average of 98. Meanwhile, the Uncertainty Index rose seven points to 110, the highest reading ever recorded. This high level of uncertainty is making small business owners hesitant to invest in capital and inventory, with 54% of owners reporting capital outlays in October and a net 9% of owners reporting inventory reductions compared to gains. However, uncertainty is expected to fall with the election over.

Although price increases have slowed in recent months, inflation is the top concern for small business owners, with 23% identifying higher input and labor costs as their primary issue. Filling job openings continues to be a top issue for small businesses. In October, 35% of small business owners reported jobs they could not fill, up 1% from September.

A net 26% of small business owners planned price hikes in October, up 1% from the month prior. A net 31% of small business owners reported raising compensation, down one point from September and the lowest reading since April 2021. Following the Federal Reserve’s September interest rate cut, a net 5% of owners reported paying a higher rate on their most recent loan, down 7 points from September and the lowest reading since January 2022. Profitability remained under pressure, mainly due to weaker sales.

The outlook for general business conditions remains negative but has improved significantly from earlier in the year. While small business owners are still facing unprecedented economic adversity, owners remain hopeful as they head toward the holiday season.

Manufacturing activity in New York state grew significantly across most indices in November, with the headline general business conditions index rising 43.1 points to 31.2, the highest reading since December 2021. The new orders index increased to 28.0, rising 38.2 points, and the shipments index grew 35.2 points to 32.5, reflecting sharp increases in both. Unfilled orders fell to -10.3, while inventories improved from -7.5 to 1.0. Delivery times lengthened slightly, while supply worsened to -4.1.

Despite the sharp increase in business activity, employment decreased slightly, with the index for the number of employees falling to 0.9 from 4.1. The average employee workweek improved some, from 4.7 to 6.1, signaling a slight increase in hours worked. Input and selling price diverged, as reflected in the prices paid index falling 1.2 points to 27.8 and the prices received index moving up 1.6 points to 12.4, which means some cost improvement for manufacturers that have been operating in a weakened pricing environment.

Although expectations for future business activity decreased 5.5 points to 33.2 after the previous month’s index hit a multiyear high (38.7), firms continue to feel optimistic about the future. The capital spending index also continued to increase, rising 3.7 points to 13.4 in November.

Industrial production fell 0.3% in October after declining 0.5% in September. The decline in October was influenced significantly by the strike of Boeing workers, with a smaller impact from the lingering effects of two hurricanes. Manufacturing output decreased 0.5%, with aerospace and miscellaneous transportation equipment dropping a dramatic 5.8%. At 102.3% of its 2017 average, total industrial production in October was down 0.3% from the same month last year. Capacity utilization fell to 77.1%, 2.6 percentage points below its long-term average from 1972 to 2023, but was up 1.2% from the same month last year.

In October, major market groups saw mixed results. Among consumer goods, the production of durables decreased 1.4%. On the other hand, the index for nondurables increased 0.4%, with growth in both energy and nonenergy goods. The business equipment index declined 2.7% in October, weighed down by the sharp 13.9% drop in the production of transit equipment, affected for a second month by the strike.

Durable goods manufacturing decreased 1.2%. Apart from the large drop in aerospace and miscellaneous transportation equipment, declines occurred in primary metals (down 3.3%), motor vehicles and parts (down 3.1%) and furniture and related products (down 1.1%), with slight declines in numerous other durable industry groups. Nondurable goods manufacturing, on the other hand, inched up 0.1% in October, with the largest gain in petroleum and coal products (up 0.9%) and the largest drop in printing and support (down 2.6%).

Manufacturing capacity utilization decreased 0.5% to 76.2%, which is 2.1 percentage points below the long-term average.

The Producer Price Index for final demand (also known as wholesale prices) increased 0.2% in October, after rising 0.1% in September. Over the past year, the final demand index rose 2.4% on an unadjusted basis, an increase from the 1.9% over-the-year increase in September. Prices for final demand excluding foods, energy and trade services inched up 0.3%, after rising 0.1% in September.

In October, prices for final demand services increased 0.3%, while prices for final demand goods rose just 0.1%. Although both food (-0.2%) and energy (-0.3%) prices declined, a 0.3% increase in prices of other goods more than offset those decreases. The largest underlying increase was a 0.5% rise in transportation and warehousing services prices, while prices for both trade services and other services increased slightly.

Prices within intermediate demand rose 0.5% in October, following two consecutive monthly declines. Processed goods for intermediate demand increased 0.5%, with prices for processed energy goods leading the increase. On the other hand, over the 12 months ending in October, prices for processed goods for intermediate demand fell 1.2%.

Meanwhile, prices for unprocessed goods for intermediate demand moved up 4.1% in October, after declining 1.8% in September. The increase was driven by a 9.9% rise in unprocessed energy materials. Meanwhile, unprocessed foodstuffs and feedstuffs prices edged up just 0.4%, and nonfood materials less energy prices increased 2.1%. Over the 12 months ending in October, prices for unprocessed goods for intermediate demand fell 2.9%.

Consumer prices rose 0.2% over the month and 2.6% over the year in October, in line with consensus expectations but higher than the 2.4% over-the-year increase in September. Core CPI, which excludes more volatile energy and food prices, stayed at a 3.3% over-the-year increase and remains higher than overall CPI.

Shelter increased 0.4% over the month and 4.9% over the year in October, accounting for more than 65% of the yearly increase of the all-items index. On the other hand, food price increases have slowed considerably, rising 0.2% over the month and 2.1% over the year in October. Prices for transportation services also remain high, rising 0.4% over the month and 8.2% over the year, with motor vehicle insurance increasing 14.0% over the year.

Energy costs, which were flat over the month, fell 4.9% over the year in October, helping to restrain the headline inflation rate. This decline is due partly to energy prices being somewhat elevated in October 2023. While energy commodity prices are down over the year, electricity prices are up 4.5%.

Although the over-the-year headline rate ticked up from the previous month, markets are still anticipating a 25-basis-point rate cut at the Federal Open Market Committee’s next meeting in December. However, slowing progress on inflation might upend the Federal Reserve’s previous easing plans for 2025, pointing to the possibility of the FOMC’s interest rate target being cut at a slower pace.

Inflation rose again last month (The Wall Street Journal, subscription).

What’s going on: The consumer price index increased 0.2% in October, the fourth consecutive increase (Bureau of Labor Statistics).

• “[P]rices were up 2.6% from a year earlier, in line with economists’ expectations. Core inflation, at 3.3%, also matched forecasts,” according to the Journal.

The details: Shelter prices rose 0.4% in October, accounting for more than half the increases overall (BLS).

• Food prices inched up 0.2%, while energy prices were unchanged after having declined 1.9% in September.

What it means: The news strengthened investor confidence that the Federal Reserve will cut rates in December for the third time this year in an effort to hit its 2% inflation goal, the Journal reports.

• “The October CPI report will likely support the notion that the last mile of inflation’s journey back to target will be the hardest,” Wells Fargo economists wrote in a memo to clients (USA Today).

Manufacturer sentiment fell in the third quarter of this year, according to the NAM’s Q3 2024 Manufacturers’ Outlook Survey, out Wednesday.

What’s going on: Results of the survey, which was conducted Sept. 5–20, reflect “preelection uncertainty,” NAM President and CEO Jay Timmons said—but also larger economic concerns.

• “The good news is that there is something we can do about it,” said Timmons. “We will work with lawmakers from both parties to halt the looming tax increases in 2025; address the risk of higher tariffs; restore balance to regulations; achieve permitting and energy security; and ease labor shortages and supply chain disruptions.”

Key findings: Notable data points from the survey include the following:

• Some 62.9% of respondents reported feeling either somewhat or very positive about their business’s outlook, a decline from 71.9% in Q2.
• A weaker domestic economy was the top business challenge for those surveyed, with 68.4% of respondents citing it.
• Nearly nine out of 10 manufacturers surveyed agreed that Congress should act before the end of 2025 to prevent scheduled tax increases on manufacturers.
• The overwhelming majority—92.3%—said the corporate tax rate should remain at or below 21%, with more than 71% saying a higher rate would have a negative impact on their businesses.
• More than 72% said they support congressional action to lower health care costs through the reform of pharmacy benefit managers.

The last word: “When policymakers take action to create a more competitive business climate for manufacturers, we can sustain America’s manufacturing resurgence—and strengthen our can-do spirit,” Timmons said.

• “This administration and Congress—and the next administration and Congress—should take this to heart, put aside politics, personality and process and focus on the right policies to strengthen the foundation of the American economy.”

Washington, D.C. – The National Association of Manufacturers released its Manufacturers’ Outlook Survey for Q3 2024, which, reflecting overall uncertainty across several challenges, shows a drop in manufacturing sentiment in the third quarter.

“The preelection uncertainty explains in part the drop in optimism, but economic pressures and policy threats are also at play. The good news is that there is something we can do about it,” said NAM President and CEO Jay Timmons. “We will work with lawmakers from both parties to halt the looming tax increases in 2025; address the risk of higher tariffs; restore balance to regulations; achieve permitting and energy security; and ease labor shortages and supply chain disruptions.

“Manufacturers are the backbone of the U.S. economy, creating jobs, investing in our communities and developing products that make life better for everyone. When policymakers take action to create a more competitive business climate for manufacturers, we can sustain America’s manufacturing resurgence—and strengthen our can-do spirit.

“This administration and Congress—and the next administration and Congress—should take this to heart, put aside politics, personality and process and focus on the right policies to strengthen the foundation of the American economy.”

Select Survey Findings:

• The NAM conducted the Q3 2024 Manufacturers’ Outlook Survey Sept. 5–20. In Q3, 62.9% of respondents felt either somewhat or very positive about their company’s outlook, falling from 71.9% in the second quarter. The average over the past four quarters is 67.4%.
• A weaker domestic economy was cited as manufacturers’ top concern in Q3 2024, with 68.4% claiming it is their primary challenge. This was followed by rising health care costs (62.9%) and an unfavorable business climate (60.5%). Attracting and retaining a quality workforce now ranks as the fourth-highest concern, after remaining at the top of this list since Q4 2017.
• Manufacturers want Congress to prevent tax increases. Nearly 9 out of 10 respondents agree that Congress should act before the end of 2025 to prevent scheduled tax increases on manufacturers. The 20% pass-through deduction, individual tax rates and the estate tax exemption threshold are scheduled to expire or become less competitive at the end of 2025.
• Tax increases will harm growth in manufacturing in the United States, with 92.3% of manufacturers contending that the corporate rate should remain at or below 21%. If the corporate rate is increased from 21% to 28%, more than 71% of respondents said this increased tax burden will impact their business negatively.
• Lawmakers need to act to address health care costs for manufacturing workers. More than 72% of respondents support congressional action to reduce health care costs by reforming pharmacy benefit managers, while less than 6% oppose and 21.7% are uncertain.

The NAM releases these results to the public each quarter. Further information on the survey is available here.

-NAM-

The National Association of Manufacturers is the largest manufacturing association in the United States, representing small and large manufacturers in every industrial sector and in all 50 states. Manufacturing employs nearly 13 million men and women, contributes $2.91 trillion to the U.S. economy annually and accounts for 53% of private-sector research and development. The NAM is the powerful voice of the manufacturing community and the leading advocate for a policy agenda that helps manufacturers compete in the global economy and create jobs across the United States. For more information about the NAM or to follow us on Twitter and Facebook, please visit www.nam.org.