A monthly round-up of the MAPI resources available to NFPA members through NFPA's membership in MAPI.
Issues in Brief
Reforming Taxation of U.S. Multinationals
Recent hearings of the Senate Finance and the House Ways and Means Committees have focused attention on the U.S. corporate tax rate and options for reforming corporate taxation. A recent report by Deloitte offers a reminder that the statutory corporate tax rate in the United States is the highest among "industrialized" countries (tying with the rate in Argentina).
Downgrade = Downhill?
On August 5, Standard & Poor's (S&P) Rating Services reduced the U.S. credit rating from AAA to AA+ and put a negative outlook on this rating. The downgrade has implications for longer-term interest rates, the cost of government borrowing, the value of the dollar, China's holding of U.S. debt, inflation, and stock market volatility. Ultimately, the downgrade is a warning about the consequences faced by the United States if it does not get its fiscal house in order.
Consequences of the D.C. Court of Appeals Decision Vacating the Sec’s Proxy Access Rule
In July 2011, a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit issued a decision vacating the Securities and Exchange Commission's (SEC) proxy access rule. As adopted, the proxy access rule at issue in this case would enable a shareholder or group of shareholders of a publicly traded company, upon satisfying certain share ownership eligibility conditions, to require the company to include on its corporate ballot the names of shareholder nominees along with the management nominees they are contesting for director positions.
The rule would significantly change the current process for electing directors, where dissident shareholders seeking to elect their own candidates must distribute to other shareholders separate ballots of nominees in competition with management ballots, and solicit votes. The court held that the SEC acted arbitrarily and capriciously for failing to adequately assess the economic effects of the rule. It is unlikely that the SEC will pursue further judicial review. Instead, it will probably restart the proxy access rulemaking in an effort to satisfy the court's numerous criticisms. It is highly doubtful, however, that the SEC could have a final rule in place for the 2012 proxy season.
Weak Growth Continues but Risks are Rising
presented by Cliff Waldman, Economist, Manufacturers Alliance/MAPI
Global Economist Cliff Waldman presents MAPI's updated forecast of U.S. economic and manufacturing growth for 2011 and 2012. After discussing rising uncertainties in the global economic environment that have largely been generated by debt-related crises in the U.S. and the Eurozone, he turns to the weak and troublesome recent data in the United States. In explaining MAPI's new forecast, he offers an assessment of the risk of a new U.S. recession. The audiovisual presentation takes approximately 13 minutes to view.
U.S. and Chinese Trade Imbalances in Manufactures Surge
The U.S. global trade deficit in manufactures rose by 21 percent to $213 billion in the first half of 2011, compared with 2010, while the Chinese surplus soared by 27 percent to $280 billion. These trade imbalances are back to the very high pre-recession levels of 2008.
This report presents the cyclical course of the trade imbalances from 2008 to 2011. It also examines the longer-term restructuring of Chinese exports from labor- to investment-intensive high-tech industries, more directly competitive with U.S. exports, and concludes with commentary on the economic impact and policy implications of this increasingly unbalanced trade relationship between the two largest exporting nations.
China Manufacturing Outlook 2011-2012: Expansion Continues but at a More Moderate Pace
After posting an impressive growth rate of 10.3 percent in 2010, China's economy expanded at the strong though moderate rate of 9.6 percent in the first half of 2011. The main driver of the growth continues to be domestic demand, especially in investment. The inflation pressure has become more broad-based and has spread to categories other than food. The faster than expected growth, combined with rising inflation, has generated worries of overheating, and prompted authorities to further tighten monetary and fiscal policy.
Encouragingly, there are some recent signs of moderation in economic activities. In response to the strong start to the year, MAPI raised its forecast for China's industrial growth in 2011. Manufacturing sales revenue is expected to grow 24 percent in 2011 rather than the previous forecast of 19 percent, and will increase an additional 20 percent in 2012.
Analysis on Industrial Production: Motor Vehicles, Utilities Lead Increase
Don Norman, Economist for the Manufacturers Alliance/MAPI, regarding the industrial production report for July 2011:
"The Federal Reserve reported that total industrial production in July increased by 0.9 percent and manufacturing production rose by 0.6 percent," Norman said. "Further, the growth in manufacturing output in both May and June were revised upward. July's increase in the industrial production index was the largest increase since December 2010. For manufacturing, the increase was the largest since March 2011. The rise in manufacturing production was led by a 5.2 percent jump in motor vehicle production. This jump, in part, reflects the easing of supply chain problems associated with the earthquake and tsunami in Japan. Excluding the increase in motor vehicle production, manufacturing production increased by 0.3 percent. The increase in overall industrial production index also reflects a 2.8 percent increase in output by utilities in response to the heat wave impacting much of the country.
"While motor vehicle production and output from utilities account for much of the improvement in the industrial production index, the expansion of manufacturing production was fairly widespread, with 14 of the 20 major manufacturing industries showing improvement from June to July," Norman added. "The growth of manufacturing production has decelerated this year, reflecting the marked slowdown in the economic recovery during the first seven months of 2011, but it clearly continues to expand and will likely outpace growth in GDP this year and next."
Analysis on Durable Goods: Orders Rose 'Exceptionally Strong' 4 Percent
Daniel J. Meckstroth, Ph.D., Chief Economist and Director of Research, offers analysis on the July 2011 durable goods report.
"The U.S. Census Bureau reported that durable goods orders rose an exceptionally strong 4 percent in July. More than all of the overall dollar increase in July orders, however, came from the transportation equipment industry," Meckstroth said. "The auto parts supply chain has ramped back up from the March 2011 Japanese tsunami, and foreign and domestic nameplate manufacturers have increased their production schedules. For example, motor vehicle and parts new orders grew 11.5 percent in July. In the very volatile order books for aerospace business, commercial aircraft and parts orders increased 43.4 percent in July. Outside the transportation sector, orders for primary metals surged (reflecting the motor vehicle orders), but orders in most other capital goods industries declined.
"Nondefense capital goods orders excluding aircraft, a good proxy for equipment activity in the economy, declined 1.5 percent in July," he added. "Fortunately, nondefense capital goods orders excluding aircraft are up 11.8 percent year-to-date in 2011 compared to last year. The statistics show that capital equipment purchases are inherently choppy and experience spurts and setbacks. Nevertheless, business equipment spending is growing much faster than the general economy and is contributing to a rebalancing of the U.S. economy toward more investment and exports as a driver of growth and less dependency on consumer spending and housing."
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