2014: Off to a running start
Construction, manufacturing jobs on the rise.
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| Photo credit: ©istockphoto.com/wgfimages |
Two simultaneous revelations right after the first of the year have magnified our predictions of industrial manufacturing and construction expansion, as the first quarter of 2014 gets off and running.
- The ADP monthly analysis of December employment revealed 48,000 new construction and 19,000 new manufacturing jobs posted. These numbers exceed any pluses in these sectors since the end of the Great Recession and likely since the first of the new millennium.
- According to the “2014 Global Industrial Outlook,” published by Industrial Info Resources, the U.S. industrial manufacturing sector is expected to initiate a record $10 billion in construction starts in the first quarter of 2014. The report notes that 254 capital and maintenance manufacturing industry projects, worth an estimated $9.94 billion, are already in their initial stages.
While the revamped automotive manufacturing sector has been the surprise success story in the wake of the recession, the broad spectrum of transportation is expected to jump out in front as both pipeline infrastructure for oil and gas, as well as upgrading of an out-dated electric distribution system, will at least lay the groundwork for ongoing development this year.
Even general heavy industrial manufacturing will see some significant spending during the first quarter of 2014, as major subsectors such as the chemical industry move foreign-based facilities back to the United States, driven by the availability of cheap natural gas.
Industrial Info Resources estimates that record spending will reach its peak during the second and third quarters of this year, which should eventually set the stage for an even stronger 2015.
While the re-birth of multifaceted transportation, the continuation of fracking energy development and the revival of U.S.-based heavy industrial manufacturing will get little support from federal governmental agencies, there will likely be less opposition from the Environmental Protection Agency and other federal regulators, restrained by the politics of the 2014 mid-term elections.
While no specific action will be taken to reduce unemployment, the very intensity of new construction, as well as industrial, commercial and residential maintenance and repair activities will likely bring the Labor Department’s unemployment index down below 7%. Even the more accurate labor participation performance index is expected to jump off its 63% plus base, where it rests today.
Consumer confidence uncertain
Despite a better-than-expected Conference Board consumer confidence report late in December, a stark improvement over the previous year’s end indications, consumer attitudes as 2014 progresses are still a big question mark at this point. While the U.S. public, as a whole, was relieved with the passage of a year-end Congressional agreement, ending the partial government shutdown, the following concerns loom heavily over upcoming developments:
1.Obamacare is manifesting a disturbing lack of positive development.
2.Unemployment, despite nominal improvement in the latter months of 2013, is continuing its overhang. While technological improvements continue to lessen the need for hands-on labor, both on the shop floor and back office, the move by small businesses to greater dependence on part-time workers will greatly impinge on an already weak employment scenario.
3.Supplemental taxes on investment income, new product taxes, such as those on medical devices, and elimination of deductions, especially dear to family businesses, are all an outgrowth of the need for additional funds to undergird the multi-billions to support the greater government involvement in U.S. health care.
4.Although general inflation will not rear its ugly head in the foreseeable future, the monetary impact of higher interest rates, prompted by an improving economy and tighter financial regulations, will stiffen the cost and availability of such expenditures as mortgages, business and personal loans, and the rising prices impacted by selected U.S. manufactured and imported goods.
Despite the general economic improvement that has heartened much of the American public lately, the cold water of reality will likely temper further optimism. This will be the result of such strictures affecting the overwhelming public view, reflecting anxiety with these new hurdles.
Monetary and economic inflation
Recently a torrent of questions directed to me asked whether the occurrence of higher U.S. Treasury debt yields and commercial interest rates necessarily trumpeted a new forthcoming inflation wave. My answer: Such simultaneity is not a joint happening, as economic history has proven.
Unquestionably, monetary and compound interest rates are bouncing back from all-time traditional lows reached two years ago in the wake of the financial recession. A good example is the U.S. Treasury’s 10-year note, which descended to 1.9%, and has since bounced back to the 3% level, which is still relatively low in historical terms. This has been mitigated by the Federal Reserve Board’s tapering of its latest quantitative easing, lowering its monthly Treasury auction and mortgage-based debenture involvement by a slight amount from $85 billion to $75 billion.
Major banks are meeting or exceeding their reserve requirements, for which these financial institutions are paid bonus points by the Fed (25 cents on the dollar). This has immeasurably strengthened these banks and reversed the huge losses of Fannie Mae and Freddie Mac, which had previously incurred legendary losses as the big banks’ historical “insurance policy” backup for failed mortgages.
While the Federal Reserve’s current inventories have increased to more than $4 trillion, Vice Chairman Janet Yellen likely will be faced with an eventual reversal of the Fed’s low-interest rate policy. As the economy improves, such economic betterment is a main target of today’s Federal Reserve activities.
The U.S. Central Bank has successfully achieved its objective of keeping interest rates low, encouraging the stock markets as well as employment-improving activities. This laudable objective restricted its activities to lowering and/or raising interest rates.
However, the current cost rise of U.S. interest rates are a slow rebound from all-time lows. Economic inflation requires a reversal of today’s surplus unemployment, the greater use of dormant monetary capital and a shortage of global commodities, with strained demand. Today’s U.S. economy is still closer to disinflation, since overall slack is still abundant.
While economic improvement is a near certainty in 2014, the overall inflationary spirals of the 1970s and early 1980s are nowhere to be seen. They are also not on the horizon for the developed and developing global nations.
Credit managers’ glum outlook
In contrast to most of the tidings of optimism relating to the U.S.’s 2014 economic panorama, the National Association of Credit Managers, with a membership of 15,000 credit and financial professionals worldwide, is looking for a disappointing downturn as the new year unfolds. The December index report was especially pessimistic, diving from 54.7 to 49.7, indicating a contraction in total revenues generated.
This stark 2014 outlook is not necessarily at odds with the much more optimistic projections. There are several reasons for the current lack of credit demand.
After a relatively strong third quarter, distributors and retailers stocked up to service substantial holiday inventories and project completions for 2013’s year end. The many with whom I’ve been in contact indicated a hiatus in further orders due to the new year’s uncertainties. These have been inspired by Obamacare, new taxes and a potential new government shutdown, once the U.S. Treasury debt ceiling confronts Congress before the end of 2014’s first quarter.
The growing confusion of the nationwide health-care insurance muddle and the possibility of full-time employee cutbacks into part-time workers prevents business’ personnel commitment to the many projects looming on the horizon.
The first instigation of the Federal Reserve Board tapering, especially if it expands quickly, will force commercial rates up accordingly. These will inhibit overall business loans and mortgage applications for those still interested in owning residences, rather than renting or leasing. Even the shrinking of long-term mortgages desired by a lessening segment of the population will be increasingly tougher to get. That is not only because of rising rates but by a much more rigorous quality standard by financial institutions demanding a squeaky-clean asset and annual income presentation by borrowers.
On the broad scale of business and industry, the major U.S. banks are sitting on a record amount of a trillion dollar reserve, well over the amount required by the Federal Reserve Board. America’s industrial and commercial enterprises combined add another $2 trillion to this amount, which has primarily been spent on maintenance, upgrading on-site and the basic necessities of transacting everyday business. This has minimized the need for borrowing the traditional funds for acquisitions and product line expansion.
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