Download - MAPI’s Outlook on the Manufacturing Economy
MAPI’s Outlook on the Manufacturing Economy
byThomas J. Duesterberg
President and Chief Executive OfficerManufacturers Alliance/MAPI
to theSteel Manufacturers Association
Annual Board of Directors MeetingLongboat Key Club
Longboat Key, FloridaFebruary 13, 2004
Celebrating our 70th anniversary
Over 450 member companies representing well over $2 trillion in annual sales
Leading economic research organization for manufacturers
Highly acclaimed network of over 1,500 senior executives in 24 functional-oriented Councils which meet twice a year; special topical meetings as member needs arise
Member-driven research, including benchmarking surveys, management studies, leading indicators for manufacturing sector, and policy analysis
Just-released book—U.S. Manufacturing: The Engine for Growth in a Global Economy
About the
U.S. Exports and Imports, 1960-2003(Percent of GDP)
Source: U.S. Department of Commerce
0
2
4
6
8
10
12
14
1619
60
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
Imports
Exports
Exports Imports 1990 2002 1990 2002 Canada 21.1 24.6 18.1 19.1 European Union 26.3 22.0 20.0 20.6 Japan 12.3 7.9 18.2 11.1 Other Advanced Economies 3.4 3.2 2.4 2.0 Total Advanced 63.1 57.6 58.7 52.7 Mexico 7.2 14.9 6.0 12.3 China 1.2 3.4 3.1 11.4 Southeast Asia 9.4 11.1 15.8 13.8 Other Developing Economies 12.0 7.6 11.3 4.3 Total Developing 29.9 37.0 36.1 41.7 Unclassified 7 5.4 5.2 5.6
Geographic Distribution of U.S. Exportsand Imports, 1990 and 2002
(Percent of total)
Source: World Trade Organization (1990) and U.S. Bureau of the Census (2002)Note: Southeast Asia includes Taiwan, South Korea, Hong Kong, Singapore, Malaysia, Philippines, Thailand, and Indonesia.
U.S. Productivity Growth, 1992-2003(Percent growth per year)
0
1
2
3
4
5
6
7
8
9
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
Source: U.S. Department of Labor
Durable Goods
Manufacturing
Overall Business
Average Annual ManufacturingProductivity Growth, 1990-2002
(Thousands of employees)
Sources: Estevão and Lach, U.S. Bureau of Labor Statistics, U.S. Bureau of Economic Analysis, and author’s calculations
Dollars Per HourAverage Annual Percent Change
1990 2002 1990-2002
Reported 31.40 49.90 3.8
Corrected for outsourcing 31.10 47.20 3.5
1990 1995 1997 1999 2001 2002
U.S. 100.0 100.0 100.0 100.0 100.0 100.0
European Union 84.8 90.4 89.7 88.1 88.9 86.9
Japan 70.7 73.0 74.3 74.3 74.0 72.5
East Asia (4)
35.6
43.1
45.7
46.4
48.9
SE Asia (4) 11.7 14.7 14.6 12.8 13.1
China 6.3 8.2 8.8 9.4 9.0
South Asia 6.1 6.8 7.0 7.1 7.3
Productivity in Developing and Developed Economies
Levels of GDP per hour worked, 1990-2002, U.S. = 100
East Asia: Korea, Taiwan, Hong Kong, SingaporeSoutheast Asia: Malaysia, Indonesia, Thailand, PhilippinesSouth Asia: India, Bangladesh, Sri Lanka, Pakistan
Source: The Conference Board
60
70
80
90
100
110
120
130
140
150
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
Index (1990 = 100)
Export Price Index
Consumer Price Index
Producer Price Index
Producer Price Index for Manufacturing Industries and Export Price Index for
Industrial Supplies, 1990-2003
Source: U.S. Bureau of Labor Statistics Note: 2003 reflects data through September.
In millions of
dollars
As percent of total corporate
cash flow
As percent of manufacturing
output 1990 169,469 37.2 16.3 1991 152,544 32.2 14.6 1992 156,937 30.7 14.5 1993 166,462 30.9 14.7 1994 205,249 33.8 16.8 1995 234,362 34.7 18.2 1996 241,834 33.9 18.4 1997 257,725 33.3 18.7 1998 225,528 30.9 15.8 1999 245,950 30.4 16.6 2000 231,573 30.0 15.2 2001 198,239 25.3 13.9
U.S. Manufacturing Cash Flow, 1990-2001
Source: U.S. Bureau of Economic Analysis, U.S. Department of CommerceNote: Cash flow is defined as the sum of undistributed profits and depreciation allowances.
0
10
20
30
40
50
60
70
UnitedStates
Canada Mexico Japan China Germany UnitedKingdom
SouthKorea
Taiw an France
1997 2003
Percent
Statutory Corporate Tax Rates for the United States and Its Nine Largest
Trading Partners, 1997 and 2003
Source: KPMG Corporate Tax Rate Survey
Statutory corporate tax rate
(percent)
Difference from U.S.
(percentage points)
United States 40.0 — Canada 36.6 -3.4 Mexico 34.0 -6.0 Japan 42.0 2.0 China 25.0 -15.0 Germany 39.6 -0.4 United Kingdom 30.0 -10.0 South Korea 29.7 -10.3 Taiwan 25.0 -15.0 France 34.3 -5.7 Trade-weighted average of above countries -5.6
Burden of the Corporate Tax Rates on U.S. Manufacturing’s Raw Cost Competitiveness Relative
to the Nine Largest U.S. Trading Partners, 2003
Source: Chart 6 and author’s calculations
Employment Cost Index, Manufacturing Workers, 1993-2003
0
1
2
3
4
5
6
7
8
9
10
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Wages & Salaries
Benefits
Percent change, quarter to year ago
Source: U.S. Department of Labor, Bureau of Labor Statistics
Benefits as a Percentage of Total Compensation for Manufacturing Production Workers, United
States and Its Nine Largest Trading Partners, 2001
Sources: U.S. Bureau of Labor Statistics and “The Labor Market Dynamic in Post-Reform China: History, Evidence, and Implications,” Manufacturers Alliance/MAPI, ER-561e, September 2003Note: China data include health benefits only.
Benefits as
percent of total compensation
Percentage point
difference from U.S.
United States 20.6 Canada 15.8 -4.8 Mexico 11.2 -9.4 Japan 11.2 -9.4 China 8.0 -12.6 Germany 24.2 3.6 United Kingdom 15.5 -5.1 South Korea 29.6 9.0 Taiwan 9.1 -11.5 France 31.3 10.7 Trade-weighted average of above countries -5.5
0
2
4
6
8
10
12
14
16
UnitedStates
Canada Mexico Japan China Germany UnitedKingdom
SouthKorea
Taiw an France
publicly-funded privately-funded
Percent of GDP
Publicly and Privately Funded Health Care Expenditures in the United States and Its Nine
Largest Trading Partners, 2001
Source: Organization for Economic Cooperation and Development and World BankNotes: Data for China reflects total health expenditure; no public-private disaggregation is available. Data for Taiwan date from 1996 and are taken from Eva Liu and Joseph Lee, “Health Care Expenditure and Financing in Taiwan,” Hong Kong Provisional Legislative Council Secretariat report, June 1998.
Cost of Tort Litigation, United States andIts Nine Largest Trading Partners, 2000
Tort costs as percent
of GDP
Manufacturing tort costs as percent of
manufacturing output
Percentage
point difference from U.S.
United States 2.0 4.5* —
Canada 0.8 1.4* -3.1* Mexico N/A 0.6* -3.9* Japan 0.8 1.2* -3.3* China N/A 0.6* -3.9* Germany 1.3 3.8* -0.7* United Kingdom 0.6 1.1* -3.4* South Korea N/A 0.6* -3.9* Taiwan N/A 0.6* -3.9* France 0.8 3.2* -1.3* Trade-weighted average of above countries -3.2
Source: Tillinghast-Towers Perrin and author’s calculations* For countries lacking data (Mexico, China, South Korea, and Taiwan), this analysis conservatively assumes that their relative manufacturing tort costs are equal to half that of the United Kingdom, the lowest of all countries with available data.
U.S. Federal Budget Outlays for RegulatoryActivities, 1990-2003
Millions of Dollars 1990 2003
Percent change
Social regulation Consumer safety 2,205 4,324 96.1 Transportation 1,996 9,034 352.6 TSA 0 4,756 N/A Transportation excluding TSA 1,996 4,278 114.3 Workplace safety 1,158 1,471 27.0 Environment 4,812 6,493 34.9 Energy 560 677 20.9
Economic regulation Finance and banking 1,574 1,792 13.9 Industry-specific regulation 574 813 41.6 General business 859 2,260 163.1
TOTAL 13,739 26,864 95.5 TOTAL excluding TSA 13,739 22,108 60.9
Source: Mercatus Center and Weidenbaum Center
Manufacturing Compliance Costs Associated With U.S. Regulations Compliance Activities,
1992 and 1997(Expressed in constant 2000 dollars)
Source: W. Mark Crain and Thomas D. Hopkins, “The Impact of Regulatory Costs on Small Firms,” Office of Advocacy, Small Business Administration, October 2001, Table 9A.
Total cost, 1997
($billions) Per-employee
cost, 1997
Environmental 69 3,691
Economic 48 2,553
Workplace 16 838
Tax compliance 15 822
Total 147 7,904
Cost of Pollution Abatement, United States and Its Nine Largest Trading Partners, Late 1990s
Pollution
abatement costs as
percent of GDP
Manufacturing pollution
abatement costs as percent of
manufacturing output
Percentage point difference
from U.S.
United States 1.6 7.6* — Canada 1.1 4.8* -2.8* Mexico 0.8 3.1* -4.5* Japan 1.4 5.3* -2.3* China N/A 1.6* 6.1* Germany 1.5 5.2* -2.4* United Kingdom 1.0 4.7* -3.0* South Korea 1.7 4.3* -3.3* Taiwan N/A 1.6* 6.1* France 1.4 6.1* -1.5* Trade-weighted average of above countries -3.5*
Source: Organization for Economic Cooperation and DevelopmentNote: As in Table 9, the analysis conservatively assumes that countries with missing data (China and Taiwan) bear a pollution abatement burden equal to half the lowest value of other trading partners (in this case, Mexico).
Natural Gas Prices in the United States and Its NineLargest Trading Partners, 1994–2001
(Dollars per million British thermal units)
1994 2001 Percent change
United States $2.87 $4.83 68.3 Canada 1.98 2.74 38.4 Mexico 2.01 4.12 105.0 Japan 11.75 10.24 -12.8 China N/A N/A N/A Germany 4.65 4.74 1.9 United Kingdom 3.57 3.37 -5.6 South Korea N/A N/A N/A Taiwan 7.11 7.27 2.3 France 3.57 4.71 31.9
Source: U.S. Energy Information Administration
United States
Average of nine partners Canada Mexico Japan China Germany
United Kingdom
South Korea Taiwan France
Raw cost index 24.30 19.30
27.57 8.11
16.92
5.34 29.60
28.30
23.96
16.41
26.50
Difference relative to U.S. costs in percent
Corporate tax rate – -5.6% -3.4% -6.0% 2.0%
-15.0% -0.4% -10.0%
-10.3% -15.0% -5.7%
Employee benefits – -5.5% -4.8% -9.4% -9.4%
-12.6% 3.6% -5.1% 9.0% -11.5% 10.7%
Tort costs – -3.2% -3.1% N/A -3.3% N/A -0.7% -3.4% N/A N/A -1.3% Natural
gas costs – -0.5% -6.0% -2.3% 12.5% -2.3% 0.6% 2.1% 4.1% 15.3% -4.2% Pollution
abatement – -3.5% -2.8% N/A -2.3% N/A -2.4% -3.0% N/A N/A -1.5%
Manufacturing production costs relative to the United States accounting for differences in overhead costs (dollars per hour)
Effective cost index 24.30 16.02
22.46 6.19
16.64
3.50 29.77
23.14
22.67
12.85
25.77
Source: Author’s calculations based on data in subsequent tables and chartsNote: Data for tort costs and regulatory compliance costs are limited to the industrialized partners. Conservative assumptions have been made in estimating the missing values, as described in later sections. Thus, the absence of these data likely understates the overall cost advantage of U.S. trading partners.
Effect of Key “Overhead Costs” on Raw Cost Indexof Nine Largest U.S. Trading Partners, 2002
(U.S. dollars per hour)
Economic Growth is More Balanced
-20
-15
-10
-5
0
5
10
15
20
25
00-I
00-I
I
00-I
II
00-I
V
01-I
01-I
I
01-I
II
01-I
V
02-I
02-I
I
02-I
II
02-I
V
03-I
03-I
I
03-I
II
03-I
V
ConsumptionNon-Residential InvestmentExportsGovernment
Growth in Major Spending Categories of GDP(Percent change at annual rate)
-10
-8
-6
-4
-2
0
2
4
6
8
10
90 I
90 I
II91
I91
III
92 I
92 I
II93
I93
III
94 I
94 I
II95
I95
III
96 I
96 I
II97
I97
III
98 I
98 I
II99
I99
III
00 I
00 I
II01
I01
III
02 I
02 I
II03
I03
III
04 I
04 I
II05
I05
III
Source: U.S. Department of Commerce-BEA, Federal Reserve Board
Manufacturing Production
GDP
Total Economy and Manufacturing Growth(Quarter-to-quarter percentage change at annual rate)
Job Growth Returns
-800
-600
-400
-200
0
200
400
600
800
1000
1200
89-I
90-I
91-I
92-I
93-I
94-I
95-I
96-I
97-I
98-I
99-I
00-I
01-I
02-I
03-I
04-I
05-I
Source: U.S. Department of Labor
Net Change in Non-Farm Jobs(Thousands of jobs)
Oil Price Rise This Year, Fall in 2005
0
5
10
15
20
25
30
35
89-I
90-I
91-I
92-I
93-I
94-I
95-I
96-I
97-I
98-I
99-I
00-I
01-I
02-I
03-I
04-I
05-I
Average Refiner Acquisition Cost of Crude Oil(Dollars per barrel)
Manufacturers Alliance Business Outlook Index(Percent)
Sentiment Indicators are Signaling Growth
20
30
40
50
60
70
80
Sep
-91
Mar
-92
Sep
-92
Mar
-93
Sep
-93
Mar
-94
Sep
-94
Mar
-95
Sep
-95
Mar
-96
Sep
-96
Mar
-97
Sep
-97
Mar
-98
Sep
-98
Mar
-99
Sep
-99
Mar
-00
Sep
-00
Mar
-01
Sep
-01
Mar
-02
Sep
-02
Mar
-03
Sep
-03
After-Tax Corporate Profits(Four-quarter percent change)
Improved profitability promote businessinvestment growth
-30
-20
-10
0
10
20
30
40
89-I
90-I
91-I
92-I
93-I
94-I
95-I
96-I
97-I
98-I
99-I
00-I
01-I
02-I
03-I
04-I
05-I
-15
-10
-5
0
5
10
15
20
93
-I
94
-I
95
-I
96
-I
97
-I
98
-I
99
-I
00
-I
01
-I
02
-I
03
-I
04
-I
05
-I
Imports
ExportsSource: U.S. Department of Commerce-Census
Inflation-Adjusted U.S. Trade(Year to year percent change)
0.4
0.5
0.6
0.7
0.8
0.9
1
1.1
1.2
93
-I
94
-I
95
-I
96
-I
97
-I
98
-I
99
-I
00
-I
01
-I
02
-I
03
-I0
4-I
05
-I
Value of the DollarWeighted Currencies 2000=100
Source: Federal Reserve Board
Trade Balance Worsens Despite Dollar Decline
Industrial countries
Developing countries
0
2
4
6
8
%oya
JPMorgan global real GDP
70 75 80 85 90 95 00
Global Growth Surpassing 1990s Average
Source: JPMorgan
Actual Forecast
Inflation Adjusted--(% Chg.) 2003 2004 2005
GDP 3.1 4.9 3.4 Consumption 3.1 3.8 3.5 Durables 7.4 6.7 2.6 Nondurables 3.7 4.1 4.0 Services 2.0 3.1 3.4 Equipment & Software 5.2 13.0 8.4 Information Processing Equipment 13.7 14.1 8.0 Industrial Equipment -3.9 6.3 9.3 Transportation equipment -10.0 15.8 12.8 Structures -4.7 2.8 11.3 Residential 7.6 3.8 -5.6 Exports 1.9 11.6 13.2 Imports 3.7 7.7 6.8 Federal Government 8.7 5.2 1.0 State & Local Government 0.6 1.0 2.0
Source: Manufacturers Alliance/MAPI simulation of the Global Insight model, Jan. 30
Economic Forecast
Actual Forecast
Prices--(% Chg.) 2003 2004 2005 Consumer Prices 2.3 1.6 1.4 Core CPI (Excl. Food & Energy) 1.5 1.6 1.9 Producer Prices, Finished Goods 3.2 1.3 0.0 Business Activity Nonfarm Inven. Chg. (Bil. 2000 $) $4.8 $78.8 $76.7 Light Vehicle Sales (Mil. units, saar) 16.7 17.2 17.0 Housing Starts (Mil. units, saar) 1.850 1.849 1.669 Current Account Balance (Bil. $) -$550 -$591 -$598 Federal Surplus (Unified, FY, bil. $) -$426 -$508 -$413
Labor Unemployment Rate (%) 6.0 5.5 5.2
Industrial Activity--(% Chg.) Manufacturing Production – SIC Based 0.4 6.1 6.0 Computers & Electronic Products 14.1 20.4 16.3 All Less Computers, Communications Equipment, & Semiconductors -0.9 3.4 3.3 Factory Operating Rate – SIC Based 73.4 77.1 78.3
Source: Manufacturers Alliance/MAPI simulation of the Global Insight model, Jan. 30
Economic Forecast
Manufacturers Alliance/MAPI Industrial Production Forecast
2004-2005 2003 2004 2005 Total 0.4 5.5 5.3 Mining 0.4 1.6 0.6 Utilities 5.7 2.6 -3.8 All Manufacturing – NAICS 0.2 6.3 6.1 Durable Goods 2.1 9.0 7.8 Nondurable Goods -2.1 2.3 3.1 All Less Comp., Commun., & Chips -0.9 3.4 3.3 Food -1.0 1.2 2.5 Textile Mills -11.1 -1.5 -2.4 Textile Product Mills -2.0 2.2 -1.1 Apparel -11.8 -2.3 -1.4 Logging -8.8 -5.6 -5.0 Wood Products -1.8 -0.3 -4.3 Furniture & Related Products -2.1 2.6 1.4 Paper & Products -1.2 2.3 2.6 Petroleum & Coal Products 0.6 2.3 3.1 Chemicals 0.3 4.9 4.6 Rubber & Plastics Products -1.0 3.4 3.7 Tires -4.3 2.7 2.3 Glass & Glass Products -0.3 1.9 5.5 Cement 3.1 4.1 5.8
2003 2004 2005 Primary Metals -1.8 6.7 4.4 Iron & Steel Products 0.3 7.0 3.8 Nonferrous Metals -4.2 4.5 3.9 Fabricated Metal Products -2.7 3.5 4.2 Machinery 0.0 7.2 5.2 Engines & Turbines -6.7 3.6 7.1 Agricultural & Construction Equip. 2.3 7.0 4.0 Metalworking Machinery -2.8 4.0 4.0 Industrial Machinery 0.4 10.2 6.2 HVAC Equipment 2.5 3.0 4.3 Computers & Electronic Products 14.1 20.4 16.3 Computer & Peripheral Equip. 17.4 22.9 21.1 Communications Equipment 6.3 6.5 14.6 Semicond. & Other Components 28.8 39.4 19.7 Nav., Measuring, Control Eq. 5.0 4.9 4.1 Elec. Eq., Appliances, & Component -2.8 4.6 3.6 Transportation Equipment 0.3 3.1 1.3 Motor Vehicles & Parts 2.0 3.9 0.9 Automobiles -8.8 3.3 -4.5 Light Truck & Utility Vehicles 9.4 2.9 2.1 Heavy Duty Trucks -1.2 15.4 18.9 Aerospace Products & Parts -5.4 -1.1 1.8 Rrd. Eq., Ships, Boats & Other 4.5 8.1 2.8
Manufacturers Alliance/MAPI Industrial Production Forecast
2004-2005