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IMA Executive News & Views Blog

Industry Insights from BKD CPAs & Advisors: Manufacturing in the United States

By John Mather, BKD CPAs & Advisors, an IMA member company . . .

The U.S. manufacturing industry contributes $2.17 trillion annually to the U.S. economy, making it the world’s ninth-largest economy. In addition, U.S. manufacturing directly accounts for more than 12 million jobs and indirectly for an additional 6 million.

Despite challenges, the economic data continues to show slow and modest growth and cautiously optimistic consumer confidence levels.

Economic Conditions

Data from the National Association of Manufacturers, retail sales, consumer confidence and the Producer Price Index (PPI) indicates a strengthening economy. In addition, the Associated Press (AP) reports the National Association of Home Builders/Wells Fargo Housing Market Index for January 2017 held steady at 67—more than 50 shows positive sentiment—which has been more than 60 for the last five months. Recent AP reports have stated this is “reflecting an overall optimistic outlook for the new-home market even as the pace of sales has slowed recently.” The homebuilding industry is important for manufacturing, as it increases demand of manufactured products.

The Commerce Department reported retail sales rose 3.3 percent in December 2016 from December 2015. The Labor Department also reported a 0.7 percent rise in PPI for final demand in December 2016. Certain outlets are attributing increases in retail sales to gains in online shopping. The latest government data indicates the economy appears to be strengthening. Various opinion polls show consumer confidence continues to be high, and economists say consumer-confidence numbers continue to exceed expectations.

U.S. manufacturing continues to face strong headwinds and challenges.

Ongoing Challenges

Challenges to U.S. manufacturing aren’t new; unfortunately, they’re ongoing and continue to dampen growth and business opportunities to expand operations.

Tax policy – The U.S. continues to have a statutory tax rate higher than any other competitive country in the global economy. This has been subject to an ongoing debate discussed during the presidential election and now in Congress. Although the statutory tax rate is recognized as a growth impediment and competitive disadvantage, and President Trump has promised tax reform, it’s unlikely an agreement with a clear strategy and vision for changes will be consummated in the near term. To provide a more competitive landscape, tax reform is needed. Both corporate and individual rates need to be considered in this analysis, as the majority of U.S. manufacturers are pass-through entities that pay income taxes at individual rates.

Labor force – There’s a significant need for skilled labor, yet most manufacturers continue to report difficulty finding employees. Our culture has pushed the younger work force to universities versus trade schools. As such, trade schools are experiencing high placement of graduates but not enough enrollments to meet labor demands. In addition, employers continue to struggle to adhere to the Patient Protection and Affordable Care Act and Family and Medical Leave Act of 1993 requirements, and recent challenges to overtime pay are looming. Public sentiment and cultural philosophies play an important role in these issues. Quelling the idea that high school graduates have to pursue a traditional college education and encouraging trade learning would be beneficial. In today’s economy, too many college graduates struggle to find jobs within their field and have considerable student loans.

Regulation – It’s estimated the cost of U.S. Federal Regulations is greater than $300 billion annually. The question isn’t whether regulation is needed to protect our environment, it’s how much regulation is needed. Manufacturers continue to work toward achieving the right regulation balance. Reasonable regulations and oversight are needed, while overreaching rules, inspections and burdensome compliance requirements need to be remedied.

Placing importance on U.S. manufacturing and its growth will benefit everyone. The signs of slow growth exist, and manufacturers believe the future is positive.

Contact your BKD advisor for more information.

Source: BKD CPA’s and Advisors