Manufacturers Nervous About Economy, Ask Feds To ‘Wait’ On Interest Rates

Although two-thirds of manufacturers polled remain positive about the current business climate, economic and policy challenges continue to curb their optimism going forward, according to The National Association of Manufacturers’ (NAM) third quarter manufacturing outlook survey.

Close to 80% of manufacturers continue to cite an unfavorable business climate as the top business challenge, and roughly 64% believe there are still sufficient weaknesses in the U.S. economy, and, as such, the Federal Reserve should wait until the beginning of the year to raise interest rates.

“The global economic climate continues to pose challenges to manufacturers,” said NAM Chief Economist Chad Moutray. “This latest survey highlights the anxiety manufacturers continue to feel in the face of headwinds like the strong dollar and weaker growth in key international markets. The Federal Reserve has said that it is data-dependent, and manufacturers in this survey have cited a preference for the Federal Open Market Committee to wait until these headwinds die down a bit before beginning the process of raising short-term interest rates.”

Other key survey findings include the following:

· Manufacturers are not as optimistic as they were in the beginning of the year. The NAM Manufacturing Outlook Index is 45.6, down from 51.8 in June. In addition, 67.3% of respondents are positive in their own company’s outlook (down from 76.3% in June).
· Sales, production and employment growth slowed in the third quarter. Manufacturers expect sales to grow by two percent over the next 12 months, down from 4.5% in December and 2.7% in June. Similarly, production numbers are down 2.8% from June, and employment growth has slowed from two percent in December, to 0.8% in June, to 0.3% now.
· The expiration of key tax extenders is a factor in the deceleration of capital spending. More than 60% of respondents feel that enhanced Section 179 and/or 50% first-year expensing is either mildly or extremely important to their company’s investment decisions.

A full analysis of the NAM survey is available here.