- The personal consumption expenditures deflator rose 0.2% in October. The core PCE deflator, which excludes food and energy prices, inched up 0.1%. Over the past 12 months, the PCE deflator has risen 1.3%, or 1.6% year-over-year for core inflation. For 10 consecutive months, or in every month so far in 2019, the core PCE deflator has remained below the Federal Reserve’s stated goal of 2.0% core inflation.
- With core inflation running below the Federal Reserve’s target, FOMC policymakers are more concerned with keeping the economic recovery moving at this point than with inflationary pressures. With that said, the Federal Reserve has communicated its intentions, including in a speech by Federal Reserve Chair Jerome Powell last week, to hit the pause button on future moves until it can assess the impacts of the three rate cuts made at the past three FOMC meetings. Additional decreases in the federal funds rate would likely come only if the economy weakens further.
- The U.S. economy grew 2.1% at the annual rate in the third quarter, up from the previous estimate of 1.9%. Consumer spending, government expenditures, the housing market and inventories were bright spots, with drags coming from net exports and nonresidential fixed investment. It was the second consecutive quarter with reduced business spending, with firms anxious about slowing global growth and trade uncertainties.
- However, consumers have helped to prop up the economy. In the latest data, personal spending increased 0.3% in October, with a solid 3.7% gain year-over-year. Personal incomes were flat for the month, pushing the saving rate down to 7.8%. Nonetheless, Americans have saved more this year than last.
- Consumer confidence fell to a five-month low in November, according to the Conference Board, but sentiment remains high overall.
- New durable goods orders rose 0.6% in October, bouncing back somewhat after falling 1.4% in September and pointing to some possible stabilization in the sector. Yet, the sector remains challenged in general, down 0.7% over the past 12 months. Core capital goods—a proxy for capital spending in the U.S. economy—increased 1.2% in October, but on a year-over-year basis, this figure has decreased 0.8%.
- Manufacturing surveys from the Dallas and Richmond Federal Reserve Banks both reported contracting activity in November, but respondents felt cautiously positive in their outlook for the next six months.
- New single-family home sales pulled back somewhat, down 0.7% in October, but that was off from an upwardly revised September figure, which was the best since July 2007. The data remain encouraging—a sign that homebuyers have reacted favorably to reduced mortgage rates and a better outlook. Indeed, new single-family home sales have jumped 31.6% over the past 12 months, up from 557,000 units in October 2018.
NAM: Monday Economic Report
- New housing starts rose 3.8%, up to an annualized 1,314,000 units in October. Over the past 12 months, new residential construction has increased 8.5%, with single-family housing starts jumping 8.2% since October 2018. This suggests that homebuyers continue to respond positively to lower mortgage rates, with the overall housing market bouncing back after being in the doldrums over much of the past year. Homebuilder optimism also reflects that positivity.
- Indeed, housing permits rose 5.0% in the latest report, up to 1,461,000 units at the annual rate in October, the fastest pace since May 2007. The headline number was buoyed by strong growth in single-family permitting, up to 909,000 units, a rate not seen since August 2007. Overall, new residential construction permits have soared 14.1% year-over-year, which should signal healthy growth for the housing sector moving forward.
- Existing home sales rose 1.9% to an annualized 5.46 million units in October, with single-family activity up 2.1% for the month. Sales have risen a healthy 4.6% over the past 12 months. National Association of Realtors Chief Economist Lawrence Yun anticipates sales continuing to rise in the coming months, especially with lower mortgage rates and strong income growth.
- The IHS Markit Flash U.S. Manufacturing PMI improved in November for the third consecutive month to the best reading since April, led by stronger expansions for new orders, output, employment and exports. Along those lines, manufacturing activity in the Philadelphia Federal Reserve Bank’s district expanded for the ninth straight month, with respondents very positive in their outlook for the next six months.
- In contrast, the Kansas City Fed’s manufacturing survey contracted for the fifth consecutive month in November, reflecting weaknesses in the sector and the sample comments citing frustrations about trade uncertainties and the continuing challenges with finding talent.
- Meanwhile, the IHS Markit Flash Eurozone Manufacturing PMI also improved, rising from 45.9 in October to 46.6 in November, a three-month high. The index for future output increased to the best reading since June (55.0), with cautious optimism for growth in production over the next six months. With that said, it was the 10th consecutive monthly contraction in European manufacturing activity, led by Germany, which has seen declines in every month so far this year.
- The Index of Consumer Sentiment improved for the third straight month, according to the University of Michigan and Thomson Reuters. Moreover, the headline measure rose from 95.5 in October to 96.8 in November, which was well above the preliminary estimate of 95.7. Americans felt more upbeat about their outlook for the coming months, but this was offset somewhat by a weaker assessment of the current economy, with respondents citing political and trade uncertainties.
“Missouri Viewpoints” hosts AIM president McCarty to discuss Missouri manufacturing
The Missouri Viewpoints program, hosted by Mike Ferguson and syndicated statewide, recently interviewed Ray McCarty, president and CEO of Associated Industries of Missouri (AIM) regarding manufacturing.
Specifically, McCarty talked about a new initiative led by AIM, Missouri Enterprise, Governor Mike Parson’s administration, university officials and more, to establish a manufacturing policy in Missouri, the “Manufacturing Policy Academy.”
Funding for the Manufacturing Policy Academy has been provided by the National Institute for Standards and Technology (NIST). The goal: to provide a sustainable manufacturing policy in Missouri.
McCarty talked about the effort, along with manufacturing incentives and the importance of manufacturing to Missouri’s economy in this short video (courtesy of Missouri Viewpoints).
NAM: Monday Economic Report
- Manufacturing production declined 0.6% in October, extending the 0.5% loss in September and falling for the seventh time year to date. The latest decrease was led by a sharp decline in motor vehicles and parts production, down 7.1% and negatively impacted by the strike at General Motors. Excluding motor vehicles and parts, manufacturing production fell 0.2% for the second straight month.
- With that said, the November manufacturing production data will likely reflect a rebound in both motor vehicle and parts production and in the headline indices, with the GM strike now settled.
- Overall, the data continue to reflect struggles in the manufacturing sector related to weaker global growth and trade uncertainties. Manufacturing production has fallen 1.5% over the past 12 months, for instance, declining on a year-over-year basis for the fourth consecutive month.
- Meanwhile, total industrial production also declined, down 0.8% in October on reduced manufacturing, mining and utilities output. Industrial production has fallen 1.1% over the past 12 months, and total capacity utilization declined from 77.5% to 76.7%, the lowest since September 2017.
- For its part, manufacturing activity in the New York Federal Reserve Bank’s district expanded for the fifth straight month in November, although at a slower pace, with survey respondents positive in their outlook for the next six months.
- Retail sales increased 0.3% in October, bouncing back from the 0.3% decline in September, with a modest 3.1% rise over the past 12 months. In addition, spending grew 3.7% year-over-year with motor vehicles and gasoline station sales excluded. As such, consumer spending has continued to be a bright spot in the economy over the past year, even as it has also been clear that Americans have slowed their spending year to date.
- Federal Reserve Chair Jerome Powell testified before Congress that the Federal Open Market Committee is likely to pause before making additional moves as it assesses incoming data. After reducing short-term interest rates three times over the course of the past three meetings, the FOMC sees “the current stance of monetary policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook of moderate economic growth, a strong labor market and inflation near our symmetric 2 percent objective.”
- On that note, the Federal Reserve’s preferred measure of inflation is the personal consumption expenditures deflator, and using that indicator, core price growth has remained below the FOMC’s stated goal of 2% for nine straight months, up 1.3% year-over-year in September.
- Similarly, producer prices for final demand goods and services have decelerated significantly in recent months, up just 1.0% year-over-year in October and the lowest since September 2016. In addition, core producer prices have grown 1.5% year-over-year, the slowest pace since October 2016.
- In contrast, consumer prices rose 0.4% in October, the fastest monthly pace since March, with 1.8% growth year-over-year. At the same time, core inflation (which excludes food and energy) increased 0.2% in October, with 2.3% growth over the past 12 months.
NAM: Global Manufacturing Economic Update
- The J.P. Morgan Global Manufacturing PMI contracted for the sixth straight month, albeit with some continued stabilization. The headline index inched up from 49.7 in September to 49.8 in October, continuing to improve from July’s reading (49.3), which was the lowest since October 2012.
- For its part, the IHS Markit U.S. Manufacturing PMI improved to 51.3 in October, inching up for the second straight month after falling to 50.3 in August, its worst reading since September 2009. That survey offers some basis for cautious optimism that the market will shift in the right direction. With that said, a competing and perhaps more well-known survey, ISM® Manufacturing Purchasing Managers’ Index®, contracted for its third straight month in October.
- Half of the top 12 markets for U.S.-manufactured goods experienced a contraction in manufacturing activity in their economies in October, representing slight progress from seven in September. Mexico expanded very slightly for the first time since April, led by stronger demand and employment. Encouragingly, the IHS Markit Emerging Markets Manufacturing PMI expanded for the fourth straight month, remaining at 51.0 in October.
- Nonetheless, the worldwide IHS Markit PMIs continued to reflect ongoing weaknesses in the global economy. This was especially the case in Germany and Hong Kong, the two economies with the lowest PMI readings (42.1 and 39.3, respectively). As one might imagine, Hong Kong’s lowest reading since November 2008 was largely related to political unrest but also due to slowing global activity.
- The IHS Markit Eurozone Manufacturing PMI improved slightly after falling to its lowest point in nearly seven years, up from 45.7 in September to 45.9 in October. Nonetheless, it contracted for the ninth straight month, highlighting ongoing challenges on the continent. Real GDP slowed to 1.1% year-over-year in the third quarter, the weakest pace since the fourth quarter of 2013.
- The Caixin China General Manufacturing PMI surprisingly rebounded for the third month in a row to the strongest reading since February 2017. In contrast, the official manufacturing PMI data from the National Bureau of Statistics of China remained in negative territory for the sixth straight month, pulling back from 49.8 in September to 49.3 in October. Overall, real GDP grew 6.2% year-over-year in the second quarter, down from 6.4% in the first quarter. That was the slowest pace of growth in China since the first quarter of 1992, illustrating how much its economy has decelerated. For instance, industrial production rose 4.7% year-over-year in October, down from 5.8% in September.
- In non-seasonally adjusted data, U.S.-manufactured goods exports totaled $845.19 billion through the first nine months of 2019, down 2.86% from $870.05 billion for the same period in 2018. This suggests that international demand for U.S.-manufactured goods has weakened in the first three quarters of this year after experiencing better data in both 2017 and 2018.
- With less than 20 working days left in the current session of Congress, manufacturers are pressing for quick action on two key legislative trade priorities:
- Passage of the U.S.-Mexico-Canada Agreement
- Passage of a long-term and robust reauthorization of the U.S. Export-Import Bank
- Manufacturers are also focused on other important trade issues, including:
- Promoting concrete movement on U.S.–China bilateral trade agreement negotiations to correct market distortions, while also addressing challenging tariffs and retaliation
- Participating in the next Miscellaneous Tariff Bill process to eliminate unnecessary border tariffs on manufacturers
- Promoting a continuation of the World Trade Organization’s moratorium on taxes involving electronic commerce
- Congressional action on sanctions
- Ongoing activity involving India, the European Union and U.K.
NAM: Monday Economic Report
- U.S. consumer credit outstanding rose 2.8% in September, slowing from the 6.7% and 5.2% gains in July and August, respectively. Revolving credit (including credit cards and other credit lines) fell for the second consecutive month. This could suggest some hesitance on Americans’ willingness to incur more credit card debt.
- Over the past 12 months, consumer credit outstanding has increased 3.0%, with revolving and nonrevolving credit up 1.9% and 3.4% year-over-year, respectively. The year-over-year pace of revolving credit activity registered the lowest reading in one year, down from 2.3% in the prior release.
- The Index of Consumer Sentiment edged higher for the third straight month, up from 95.5 in October to 95.7 in November on a positive outlook for the coming months, according to preliminary data from the University of Michigan and Thomson Reuters. This was offset somewhat by a weaker assessment of the current economy, with respondents citing political and trade uncertainties, but consumers have been encouraged by strong job and wage gains.
- New orders for manufactured goods have fallen 3.5% since September 2018, declining 0.9% with transportation equipment excluded. Core capital goods orders—a proxy for capital spending in the U.S. economy—declined 0.6% in September, with a decrease of 1.0% year-over-year. The data continue to highlight weaknesses in the manufacturing sector, with global softness and trade uncertainties weighing on activity.
- The U.S. trade deficit decreased to $52.45 billion in September, the lowest level since April, with goods imports falling by more than goods exports. In non-seasonally adjusted data, U.S.-manufactured goods exports have fallen 2.86% through the first three quarters of the year relative to the same period last year, with international demand pulling back after stronger data in 2017 and 2018.
- As a sign of how energy dynamics have shifted dramatically in recent years, real imports in 2012 dollars of petroleum were the lowest since the series began in 1994, and the real petroleum trade deficit was also an all-time low at $4.39 billion in September.
- There were 469,000 job openings in the manufacturing sector in September. Despite some easing recently, manufacturing job postings have remained elevated, averaging 485,000 year to date, including the all-time high reached in June (515,000). There continued to be more job openings (7,024,000) than the number of people looking for work (5,769,000)—a feat that has occurred now for 16 straight months.
- Manufacturing labor productivity inched down 0.1% at the annual rate in the third quarter, extending the 2.4% decline in the second quarter. With that said, output in the sector rose 1.1% in the third quarter, ending two straight quarters of declines, with a similar trend for the number of hours worked, which increased 1.3%. Unit labor costs for manufacturers rose 3.6%.
Janette Lohman named ‘Influential Woman in Tax Law’ by Law360
Thompson Coburn partner and AIM Tax Committee member Janette Lohman has been named among Law360 Tax Authority’s first-ever “Influential Women in Tax Law” list, for accomplishments including being the second-youngest and first female Director of the Missouri Department of Revenue and later successfully battling the agency over a consolidated return requirement. The list profiles 14 women in tax law, “spotlighting attorneys who have provided outstanding service to their clients and the public, changing the dynamics at their workplaces while they did so.”
Janette told Law360 that her key to success is “just outworking everyone” — while maintaining a positive attitude. “I just worked really hard,” she said. “And for heaven’s sake, I have had a really exciting life.”
After working together for nearly a decade, Thompson Coburn partner Matt Landwehr described Janette as “the Mount Rushmore of state and local tax (SALT) lawyers in the U.S.” due to her vast network of colleagues and knowledge of SALT issues. Matt said Janette has earned that network by ensuring everyone is treated equally and with respect. “I think that’s part of why she’s been so successful, [because] it’s not like she’s doing it for some sort of gain; it’s who she is.” Matt said. “She can relate to anybody on any level … and that sets her apart from other people who may not have that ability to make that person they’re interacting with feel like they’re the most important person in the world.”
Ray McCarty, president and CEO of Associated Industries of Missouri said, “I served as a legislative liaison when Janette was Director of Revenue and we have worked together in the private sector since we both left the DOR. All of us in the tax community are happy for Janette receiving this well-deserved recognition. She works tirelessly on behalf of her clients and works for the greater good through associations such as AIM,” he said.
Janette shared with Law360 a business development strategy from very early in her career that she has continued to this day. After moving from the Department of Revenue into private practice, Janette realized she had to start from scratch to build a client base. During her first year of practice, she identified six people who helped her, and sent them chocolate during the Thanksgiving holiday, but it has evolved into the now famous holiday turkey cookies. According to Law360, “The next year, the list grew to 20, followed by 40, 100, and now the list is over 1,400 people, but each box of cookies still comes with a handwritten note.” Never one to procrastinate, Janette begins writing the notes as early as September.
“As my practice grew, there were a lot of people who helped me along the way, and I remembered all of them and what every one of them did,” she said.
Janette has over 30 years’ experience practicing in all areas of state and local taxation, including representing clients before state and local taxing authorities in corporate and personal income, sales/use, ad valorem and municipal tax and license fee controversies. She currently serves as the President of the Institute for Professionals in Taxation and as the IPT’s liaison to the American Bar Association Executive Committee’s Taxation Section.
Voice of Missouri Business at COST 50th Annual Meeting
Ray McCarty, president and CEO of Associated Industries of Missouri was a panelist at the 50th Annual Meeting of the Council on State Taxation (COST) in Washington, DC, on October 25, 2019.
McCarty participated in a panel with tax leaders from other Midwest states, including the Kansas Chamber, Minnesota Chamber of Commerce, Ohio Chamber of Commerce, Taxpayers’ Federation of Illinois, Iowa Taxpayers Association, Illinois Chamber of Commerce Tax Institute and Indiana Chamber of Commerce.
McCarty discussed the passage of several key tax provisions in the 2019 session, including a provision to prevent a tax increase on some corporations due to a deduction limitation in the federal tax code, a provision that changes the three year statute of limitations for filing a sales/use tax refund to ten years, and the failure of the state to pass legislation addressing internet sales made by companies outside Missouri to Missouri customers in the wake of the Wayfair case. Missouri is one of three states with a sales/use tax that failed to address the Wayfair decision during the 2019 session.
“We would like to thank COST for weighing in on the interest deduction limitation issue by sending letters and providing critical information we used to prevent a tax increase on Missouri corporations,” said McCarty.
NAM: Monday Economic Report
- The U.S. economy grew 1.9% at the annual rate in the third quarter. The consumer continued to help prop up economic growth, with personal consumption expenditures up a modest 2.9% at the annual rate for the quarter. Residential fixed investment rose a solid 5.1% in the third quarter, the first positive reading for the housing market since the fourth quarter of 2017.
- Business spending served as a drag on economic growth for the second consecutive quarter, with businesses pulling back on investments in equipment and structures in light of global headwinds and ongoing trade uncertainties. Nonresidential fixed investment declined 1.0% and 3.0% in each of the past two reports, respectively.
- For the year, I continue to estimate 2.3% growth for 2019, slowing to 1.8% growth in 2020. There are obviously strong cases to be made for both upside and downside risks in that outlook, at least for now.
- The Institute for Supply Management® reported that manufacturing activity contracted for the third straight month, stabilizing somewhat on slower declines in new orders and employment. Exports rebounded in October, but production declined to the worst reading since April 2009.
- In addition, manufacturing employment fell by 36,000 workers in October, extending the loss of 5,000 workers in September and the largest monthly decline in the sector in 10 years. Yet, the decrease stemmed largely from the effects of the GM strike, which has now been settled. Motor vehicles and parts employment plummeted by 41,600 in October, and a rebound in the November data would be expected.
- In the larger economy, nonfarm payrolls increased by 128,000 in October, beating the consensus expectation of around 85,000. The unemployment rate inched up from 3.5%, the lowest since December 1969, to 3.6%. Still, the labor market remains quite tight, and manufacturers and other businesses continue to cite an inability to find talent as a top concern.
- Personal income and spending rose 0.3% and 0.2% in September, respectively. Personal consumption expenditures have been one of the stronger elements in the economy (see above), rising 3.9% year-over-year. Meanwhile, manufacturing wages and salaries were $920.7 billion in September, up by a healthy 3.8% since September 2018.
- As expected, the Federal Open Market Committee voted to reduce short-term interest rates by 25 basis points after its Oct. 29–30 meeting—its third cut in rates this year. The Federal Reserve is committed to taking steps to help prolong the economic recovery. With that said, future moves are contingent on incoming data, and the expectation is that the FOMC will hit the pause button for now. Indeed, I do not anticipate another cut in the target federal funds rate in 2020 at this point, unless economic conditions weaken further
Manufacturing policy for Missouri
October 31, 2019 – Missouri is one of a few states chosen for support in developing a state manufacturing policy. A listening session was held at the offices of Associated Industries of Missouri yesterday to discuss the policy and allow manufacturers and manufacturing advocates to offer ideas and suggestions.
The move to establish a manufacturing policy in the states originated in and is being driven by the National Institute of Standards and Technology (NIST) through the Manufacturing Extension Partnership (MEP). Missouri Enterprise serves as Missouri’s MEP center. Along with representatives of Governor Mike Parson’s office and key legislators, the Missouri Department of Economic Development, Missouri Enterprise, Associated Industries of Missouri, the University of Missouri system, The Missouri Economic Development Council, the St. Louis Economic Development Partnership, private manufacturers and many other economic development and manufacturing advocates are leading the effort.
Senator Mike Cierpiot, Chairman of the Senate Economic Development Committee, was present at the hearing, as well as many manufacturers and thought leaders from across Missouri.
“I remember when the state and federal governments were not interested in ‘chasing smokestacks’ and they ceded manufacturing to other countries,” said Ray McCarty, president and CEO of Associated Industries of Missouri. “Now, that trend has reversed and, thanks to the leadership of President Trump and Governor Mike Parson, American and Missouri manufacturing is rebounding in importance. We need to use this opportunity to set the table for future generations and ensure manufacturing remains a priority regardless of changes in political leadership,” he said.
Attendance at this first listening session was at capacity and many were turned away, but the group plans to hold future listening sessions to gather as many ideas as possible.
A leadership team will consider the ideas offered at the forum as they move forward in establishing goals over the coming year. We will continue to update you on the progress of this effort.
Associated Industries of Missouri 
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