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MANUFACTURING UPDATE

- August 2015 -

1. LATEST POLICY ==================================

Vice President Biden Announces New Integrated Photonics Manufacturing Innovation Hub in Rochester, New York Vice President Biden announced that the Research Foundation for the State University of New York (RF SUNY) will lead a new Manufacturing Innovation Institute to secure U.S. leadership in manufacturing integrated photonics. These emerging technologies have the potential to transform many industries—from creating “needleless” tests for medical conditions like diabetes, to increasing the carrying capacity of broadband communications ten times over. The Manufacturing Innovation Institute for Integrated Photonics is the sixth of nine such public-private partnerships to boost advanced manufacturing, foster American innovation, and attract and create jobs that strengthen the middle class. After a decade of decline in the 2000s, when 40 percent of all large factories closed their doors, American manufacturing is adding jobs at its fastest rate in decades, with nearly 900,000 new manufacturing jobs created since February 2010. Manufacturing production is up by almost a third since the recession and the number of factories across the United States is growing for the first time since the 1990s. Today’s new action is the kind of investment we need to build on this progress, creating the foundation for American manufacturing leadership for years to come. More: White House Release

Key Senate Committee Passes Bipartisan Bill from Coons, Roberts, Schumer to Spur Private Research and Development Today, the U.S. Senate Finance Committee unanimously passed bipartisan legislation to allow startup companies and small businesses to access the successful Research and Development Tax Credit. The Innovators Job Creation Act would help startups and other small companies take advantage of valuable R&D tax credits that are currently unavailable to them. The legislation, led by U.S. Senators Chris Coons (D-Del.), Pat Roberts (R-Kan.), and Chuck Schumer (D-N.Y.), now heads to the full Senate for consideration. More: Coons Release

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U.S. Secretary of Commerce Penny Pritzker Announces Designation of 12 New Manufacturing Communities Under the Investing in Manufacturing Communities Partnership Program U.S. Secretary of Commerce Penny Pritzker announced 12 new communities that have received designations under the Obama Administration’s Investing in Manufacturing Communities Partnership (IMCP) initiative. In May 2014, Secretary Pritzker announced the first 12 communities to receive the designation under this U.S. Commerce Department-led program, which is designed to accelerate the resurgence of manufacturing in communities nationwide by supporting the development of long-term economic development strategies. More: Economic Development Administration Senate Passes Baldwin, Kaine, Portman Career Readiness Amendment The Senate has unanimously passed an amendment to the Every Child Achieves Act of 2015 introduced by U.S. Senators Tammy Baldwin (D-WI), Tim Kaine (D-VA), and Rob Portman (R-OH) to help ensure students are ready for postsecondary education and the workforce. The amendment encourages states to create work-based learning opportunities through partnerships with businesses that allow students to earn industry-recognized credentials and credit for postsecondary education. By incorporating career readiness indicators into their state accountability systems, states will have the opportunity to recognize schools that are successfully preparing students for postsecondary education and the workforce through tools like technical skills training and college credits. The amendment strengthens the Career Ready Act, which was incorporated into the Every Child Achieves Act of 2015 after being introduced by Baldwin, Kaine, and Portman earlier this year. More: Baldwin Release

Booker, Gillibrand, Murray, Coons, Peters Introduce Bill to Scale-Up Investments for Small Advanced Manufacturing Businesses Washington, DC - U.S. Sens. Cory Booker (D-NJ), Kirsten Gillibrand (D-NY), Patty Murray (D-WA), Chris Coons (D-DE), and Gary Peters (D-MI) today introduced the Scale-Up Manufacturing Investment Company (SUMIC) Act of 2015, legislation that increases access to capital for entrepreneurs looking to scale-up and commercialize their advanced manufacturing innovations. Lack of access to capital pushes emerging manufacturing entrepreneurs to move their advanced manufacturing technologies abroad to other nations that provide financing opportunities for small businesses looking to commercialize their innovations. Not only does this migration drain the United States of innovative manufacturing capabilities, it also causes us to lose out on high-paying, high-skilled manufacturing jobs that accompany the commercialization of new ideas. We must do more to keep these jobs and opportunities for innovation here at home. The SUMIC Act creates a program that allows private investment firms to leverage funds provided by the government to help emerging manufacturers commercialize their products. The program, modeled on the Small Business Administration’s (SBA) Small Business Investment Companies (SBIC) program, would allow approved participating investment firms to invest in securities and issue debentures to raise capital that would then be invested into emerging manufacturers’ businesses. Any fees, interest, and profits received from the debentures and securities investments would offset the costs of the program. More: Booker Release

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Reed Seeks to Extend Cost-Effective, Job-Saving Layoff Prevention Act In an effort to ensure employers can maintain a skilled workforce, and help workers keep their jobs during a temporary business decline, U.S. Senator Jack Reed introduced the Layoff Prevention Extension Act of 2015, a bill to extend the financing and grant provisions for the successful “work sharing” law Reed authored as part of the Middle Class Tax Relief and Job Creation Act of 2012. As a result of Senator Reed’s efforts, an estimated $500 million in federal funding was made available to help states adopt or expand a short-term compensation program alternative to layoffs. The concept of “work sharing” is simple: it helps people who are currently employed, but in danger of being laid off, to keep their jobs during a business slow down or market shift. By giving struggling companies the flexibility to reduce hours instead of their workforce, work sharing programs prevent layoffs and help employers save money on rehiring costs. Employees who participate in work sharing keep their jobs -- along with health and retirement benefits -- and receive a portion of unemployment insurance benefits to make up for lost wages when their hours are reduced. More: Reed Release

Kaine Introduces Jobs Act to Expand Pell Grants for Workforce Training Programs U.S. Senator Tim Kaine, co-chair of the Senate Career and Technical Education (CTE) Caucus, introduced the Jumpstart Our Businesses By Supporting Students (JOBS) Act, legislation that would amend the Higher Education Act by expanding Pell Grant eligibility to students enrolled in short-term job training programs. Under current law, Pell Grants - needs-based grants for low-income and working students— can only be applied toward programs that are over 600 clock hours or at least 15 weeks in length, even though many job training programs are shorter term. The JOBS Act would expand Pell Grant eligibility to students enrolled in high-quality job training programs that are at least 8 weeks in length and lead to industry-recognized credentials and certificates. According to the U.S. Chamber of Commerce, 3.7 million U.S. jobs are currently vacant because of a shortage of qualified workers. The JOBS Act would address this shortage by helping workers afford the skills training and credentials that are in high-demand in today’s job market. More: Kaine Release

Peters-Alexander-Stabenow Vehicle Innovation Act Advances in Senate Bipartisan legislation introduced by U.S. Senators Gary Peters (D-MI), Lamar Alexander (R-TN) and Debbie Stabenow (D-MI) advanced in the Senate today when it was included in the Energy Policy Modernization Act of 2015 approved by the Senate Energy and Natural Resources Committee. The Vehicle Innovation Act (VIA) promotes investments in research and development of clean vehicle and advanced safety technologies that will create more fuel-efficient vehicles, reduce our nation’s dependence on foreign oil and support American auto manufacturers. More: Peters Release

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Senate, House leaders introduce bipartisan, bicameral bill to protect trade secrets Senate Judiciary Committee members Chris Coons, D-Del., Orrin Hatch, R-Utah, Jeff Flake, R-Ariz., Sheldon Whitehouse, D-R.I., Thom Tillis, R-N.C., together with Senator Tammy Baldwin, D-Wisc. and House Members Rep. Doug Collins, R-Ga., and Jerrold Nadler, D-N.Y., today introduced bipartisan, bicameral legislation Wednesday to help combat the loss of hundreds of billions of dollars each year in the United States to the theft of corporate trade secrets. The Defend Trade Secrets Act would empower companies to protect their trade secrets in federal court by creating a federal private right-of-action. More: Coons Release

2. OTHER NEWS

A Critique of CRS’s “U.S. Manufacturing in International Perspective” The future of the U.S. economy depends in part on the health of U.S. manufacturing. Unfortunately, over the last 15 years the U.S. manufacturing sector has declined significantly compared to those of competitor nations. In the face of this decline, congressional action is needed more than ever to reduce the effective corporate tax rate; to boost investment incentives, including for R&D; to better enforce trade rules globally; and to support manufacturing innovation and workforce development. More: Information Technology and Innovation Foundation

China's Currency Creep: The country's devaluation of the yuan poses potential problems for the rest of the world, including the U.S. When China devalued its yuan currency by nearly 2 percent Tuesday, the country's central bank suggested it was merely a one-time adjustment that wasn't cause for greater concern. But Beijing came out swinging as the week progressed, first with a 1.6 percent cut on Wednesday followed by another 1.1 percent devaluation on Thursday, leading to China's biggest three-day currency drop in decades. The moves set the stage for international trade and currency battles and plenty of headaches for the U.S., which may get the short end of the economic stick from China's fiscal finessing More: U.S. News and World Report

Negotiators hope to wrap up Trans-Pacific Partnership talks this month After a disappointing round of talks ended last week in Hawaii without resolution, negotiators of the 12-nation Trans-Pacific Partnership are hoping to meet later this month to try again to wrap up one of the world's biggest free-trade agreements. More: LA Times

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US Industrial Output Rises on Strong Auto Production U.S. industrial production rose in July, with a strong gain in automobile manufacturing offsetting lower output from utilities, the Federal Reserve reported Friday. Industrial output increased 0.6% in July, far above the revised 0.1% gain in June. Output of motor vehicles and parts jumped 10.6%. Gains elsewhere in manufacturing rose 0.1%. The strength in autos compensated for a 1.0% drop in the index for utilities. Manufacturing, accounting for about three quarters of total industrial output, has been under pressure from tepid consumer spending and a stronger dollar weighing on exports. More: Industry Week

A New Look at Apprenticeships as a Path to the Middle Class With its gleaming classrooms, sports teams and even a pep squad, the Apprentice School that serves the enormous Navy shipyard here bears little resemblance to a traditional vocational education program. And that is exactly the point. While the cheerleaders may double as trainee pipe fitters, electricians and insulators, on weekends they’re no different from college students anywhere as they shout for the Apprentice School Builders on the sidelines. But instead of accumulating tens of thousands of dollars in student debt, Apprentice School students are paid an annual salary of $54,000 by the final year of the four-year program, and upon graduation are guaranteed a job with Huntington Ingalls Industries, the military contractor that owns Newport News Shipbuilding. More: New York Times

Manufacturing Job Loss: Trade, Not Productivity, Is the Culprit The United States lost 5 million manufacturing jobs between January 2000 and December 2014. There is a widespread misperception that rapid productivity growth is the primary cause of continuing manufacturing job losses over the past 15 years. Instead, as this report shows, job losses can be traced to growing trade deficits in manufacturing products prior to the Great Recession and then the massive output collapse during the Great Recession. More: Economic Policy Institute

FCA CEO, Union Agree That Two-Tier Wages Should Go Fiat Chrysler CEO Sergio Marchionne and United Auto Workers President Dennis Williams agree on at least one thing: getting rid of the two-tier wages for hourly workers in the company's U.S. plants. Marchionne and Williams formally opened bargaining a new four-year contract for FCA's 35,700 workers Tuesday. The current contract expires in September. More: Manufacturing.net

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3. SECTOR DATA ==================================

Purchasing Managers’ Index (PMI) The July PMI was 52.7 percent, a decrease of 0.8 percentage points below the June reading of 53.5. The PMI is a widely watched measure of aggregate manufacturing strength. PMI is based on a survey that asks purchasing managers if Inventories, Supplier Deliveries, Employment, Production, and New Orders have gone up or down that month. Results above 50 indicate growth. For May, Inventories read 49.5 (-3.5% on February), Supplier Deliveries read 48.9 (+0.1%), Employment read 52.7 (-2.8%), Production read 56 (+2.0%), and New Orders read 56.5 (+0.5%). This data is in chart form below.

More: Institute for Supply Management

Employment Preliminary estimates by the Bureau of Labor Statistics show that manufacturing employment was up 15,000 in July, at a seasonally adjusted 12.35 million. The below chart shows the total number of manufacturing employees over the last ten years in millions of workers, as well as the month-on-month change in manufacturing employment for the last six months (in thousands). Both numbers are seasonally adjusted.

56.5

56

52.7

48.9

49.5

52.7

New orders

Production

Employment

Supplierdeliveries

Inventories

PMI

Change on prior month

-0.8

-3.5

+0.1

-2.8

+2.0

+0.5

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More: Bureau of Labor Statistics

Federal Reserve Data The Fed publishes monthly data on industrial production and capacity utilization. Industrial production is represented as an index where the 2007 level equals 100. Capacity utilization is shown as percent of capacity. The chart below shows these measures for the last six months.

More: Fed In addition to the Fed’s national data, six of the twelve Federal Reserve regional branches publish monthly updates on manufacturing conditions in their region. Because each branch uses different questions and methodology, interregional comparisons are not suggested. New York Fed (NY state, 12 northern NJ counties, and Fairfield County in CT) “The August 2015 Empire State Manufacturing Survey indicates that business activity declined for New York manufacturers. The headline general business conditions index tumbled nineteen points to -14.9, its lowest level since 2009 More: NY Fed

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12

13

14

15

'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15

Man

ufa

ctu

rin

g em

plo

yees

, mill

ion

s

+3 +6 0 +6 +2 +15

Feb Mar Apr May Jun Jul

Month-on-month change, thousands

105.7

76.2

60

70

80

90

100

100

102

104

106

Feb Mar April May June July

Man

ufactu

ring cap

acity u

tilization

(%)

Man

ufa

ctu

rin

g p

rod

uct

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Manufacturing productionManufacturing capacity utilization

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Philadelphia Fed (eastern PA, southern NJ, and DE) “[M]anufacturing activity in the region increased in August, according to firms responding to this month’s Manufacturing Business Outlook Survey. The indicators for general activity are holding fairly steady and suggest modest growth.” More: Philadelphia Fed Richmond Fed (DC, MD, NC, SC, Virginia & most of WV) “[M]anufacturing activity slowed in August, according to the most recent survey by the Federal Reserve Bank of Richmond. Shipments and order backlogs decreased, while new orders flattened this month. More: Richmond Fed Chicago Fed (southern WI, IA, northern IL, northern IN, and southern MI) The Chicago Fed Midwest Manufacturing Index is currently suspended, while it undergoes a process of data and methodology revision. The next release is preliminarily scheduled for fall of 2015. More: Chicago Fed Kansas City Fed (western MO, NE, KS, OK, WY, CO & northern NM) “[Manufacturing activity declined again in July but less so than in previous months.” More: Kansas City Fed Dallas Fed (TX, northern LA and southern NM) “Texas factory activity declined slightly in July… The production index, a key measure of state manufacturing conditions, remained negative but rose for a second month in a row to -1.9, suggesting further moderation in the decline in manufacturing output.” More: Dallas Fed

U.S. Manufacturing Technology Orders (USMTO) June U.S. manufacturing technology orders totaled $355.43 million, up 4.6% from May’s 339.86 million but down 13.2% when compared to June 2014. “This monthly boost in orders is good news at face value, but belies an overall sense of concern in U.S. manufacturing,” said AMT President Douglas K. Woods. “There was noteworthy activity in the aerospace, off road/highway construction, automotive, and contract machining industries. But if not for a dozen or so standout orders from those industries, it could have been another down month. Economic uncertainty both here and internationally continues to cause concern and hesitation to invest in capital equipment, yet opportunities remain within several core industry sectors. These numbers and all data in this report are based on the totals of actual data reported by companies participating in the USMTO program. The chart below shows year-over-year change and total June 2015 orders on a national and regional basis. Fields marked “n/a” denote where, due to changes in the make-up of survey participants, an accurate reflection of the data is not available.

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More: Association for Manufacturing Technology

4. ABOUT THIS NEWSLETTER ================================== This update is provided by the Office of U.S. Senator Chris Coons on behalf of the Manufacturing Jobs for America initiative. For more information, visit coons.senate.gov/manufacturing or email Riley_Ohlson@coons.senate.gov.

n/a

-38.7

-18.8

-31.4

n/a

25.0

-1.0

West

South Central

North Central-West

North Central-East

Southeast

Northeast

Total 355.4

77.1

37.2

80.9

68.1

35.6

56.6

Year-over-yearchange (%)

Juneorders ($m)