Special Washington Report: Manufacturers see positive trends setting stage for economic expansion

Other stories below: General Assembly pays tribute to community college system.... Hoyle pushes bill to cut red tape on environmental permits.... Additional authority for local health boards denied....  House panel struggles over locating new psychiatric hospital.... Legislative Actions .... Consultant suggests consolidating three community colleges.... .Wilmington road projects added to highway improvement plan.... Officials see positive signs in higher jobless rate.... Names in the News.... NCCBI News....



NCCBI Research
Has state spending really declined? By how much?
Gov. Mike Easley and the General Assembly have dealt repeatedly with tax revenue shortfalls over the past two years, and stories about state budget cuts have dominated the newspapers. But much of this information has been incomplete or conveyed piecemeal. Can we really know how close to the bone state government has been cut? Has spending been cut at all?

We have some of those answers, but first, ask yourself this question: What’s your understanding of how much the state operating budget, excluding transportation, has decreased or increased since fiscal 2000-‘01, when the economic downturn began? Once you’ve got that number in mind, read on to learn the facts.

Let’s compare state spending as it stood in fiscal 2000-’01 with the budget proposal submitted by the governor to the General Assembly earlier this spring. The House and Senate each have adopted their own budgets since then, and conferees are trying to resolve differences between their separate plans. But in the overall scheme of things, the differences between their budgets and the plan proposed by the governor are relatively minor  -- a difference of $100 million or so out of $15 billion. That being the case, we’ll use the governor’s budget for fiscal 2003-’04 as the point of comparison with actual spending in fiscal 2000-’01. This analysis shows that over that three-year period:

Overall state spending is up 8 percent. The state’s operating budget in 2003-‘04 would be $15 billion under Easley’s plan compared to $13.82 billion in 2000-’01.

Budgets for most big state agencies are down 8 percent. Budgets for large state agencies like the departments of Administration, Environment and Natural Resources and Commerce, would drop from $712 million in fiscal 2000 to $653 million in the year beginning July 1.

But spending by the biggest agency is up 24 percent. Spending by the Department of Health and Human Services, which administers the Medicaid program, was $2.95 billion in fiscal 2000 compared to $3.7 billion in the governor’s budget proposal. Interestingly, while HHS spending has soared, the number of employees in the department has fallen from 9,649 to 8,902, a 7.7 percent decline.

Total state government jobs are up 1.7 percent. There were 226,462 General Fund-supported positions in state government in fiscal 2000. That number would grow to 230,283 next fiscal year.

Excluding education, however, state jobs are down 4.5 percent. Excluding the public schools, community colleges and state universities, General Fund-supported positions dropped from 46,383 to 44,280.

Many agencies have had job cuts of 10 percent or more. Juvenile Justice, Crime Control and Public Safety, Labor, Agriculture, State Budget and Management, Secretary of State, and the Governor’s Office would have personnel reductions of more than 10 percent over the three-year period. Excluding the Department of Public Instruction, only the General Assembly, the Department of Insurance and the Administrative Office of the Courts would experience an increase in staffing over the three years of 6.4 percent, 5.2 percent and 0.1 percent, respectively.

Spending on education has grown by 5 percent. The operating budget for education (public schools, community colleges and state universities) has grown from $8.24 billion in fiscal 2000 to $8.65 billion in the governor’s budget for next year.

  State jobs in education are up 3 percent. There were 180,000 state jobs in education in fiscal 2000 and about 186,000 proposed in the governor’s budget for next year. However, the administrative arms of public instruction and community colleges would be reduced by a combined 11.4 percent during that period.

From those numbers, it’s clear that the state government spending spree of the recent past has stopped (see chart above). For example, in the modern history of North Carolina you can probably count on one hand the number of times major state agencies had smaller budgets and fewer employees that they did three years earlier, as will be the case next fiscal year. But whether the slowdown and the cuts have gotten to the bone probably depends on where you’re sitting.

Were your perceptions about the budget on target? The correct answers to the questions are D, A, and B. We would like to hear how you feel about state spending and budget cuts through our web site, where we’re conducting a poll on the subject. Take a few seconds to make your voice heard by clicking on http://www.nccbi.org/ncbest. NCBEST is the education and research arm of NCCBI. 

General Assembly pays tribute to community college system
Pausing to recognize the 40^th anniversary of the founding of the North Carolina Community College System (NCCCS) in 1963, the House and Senate on Tuesday paid tribute to the visionaries who created the colleges and unanimously passed resolutions marking the event. Senate Majority Leader Tony Rand introduced the resolution, S. 1024 N.C. Community College System 40th Anniversary/Honor Creator, and praised the individuals who were instrumental in the development of the system.  “It is phenomenal beyond capacity to think of the debt we owe,” he said. “North Carolina is a better place, our people better educated and better prepared because of community colleges.”

Other comments from the floor by legislators:
Sen. Charlie Albertson: “Without a vision, people will perish.  He credited Dr. Dallas Herring as a visionary who was instrumental in the development of the NCCCS.
Sen. William Purcell: “I can think of no entity that has done more for our rural areas than our community colleges.”
Sen. Walter Dalton: Individuals who initially opposed the idea, fearing it would cost too much, “were wrong and admitted it twenty years later. I thank the forefathers. It was money well spent and continues to pay dividends.”
Rep. Marion McLawhorn:  “We have a challenge as legislators to keep (the system’s open door) vision alive.”
Co-Speaker Richard Morgan: “As our state’s economic needs have changed, our community colleges have been there to ensure that our workers would have new job skills they need.”
Rep. Alex Warner: “Community colleges continue to do more and more with less and less. They head and shoulders try to do the best they can.”
Rep. Douglas Yongue: “We get more bang for the buck out of the Community College System.”


Environmental permits bill advances in Senate
The Senate Committee on Agriculture, Environment and Natural Resources met twice this week to hear testimony on S. 945 Timely Environmental Permit Process before giving it a favorable report on Thursday. The legislation, sponsored by Sen. David Hoyle (D-Gaston) and strongly supported by NCCBI, Manufacturers and Chemical Industry Council of North Carolina and the N.C. Economic Developers Association, would allow an industry to begin construction on a new facility or expansion of an existing facility before a final permit was issued by the Department of Environment and Natural Resources Division of Air Quality. If passed, this bill would restore what had been the practice of the department prior to an Attorney General’s ruling in 2001. Since the AG’s advisory opinion, businesses have been required to obtain their air quality permits before beginning construction. NCCBI and other proponents of the bill have urged lawmakers to make the change in the law noting that it would save businesses time and would aid economic development.

In testimony before the committee, NCCBI’s Leslie Bevacqua noted that the bill “does not change any air quality standard, does not allow a facility to operate without meeting all state and federal requirements and without receiving all needed permits. This bill is about economic development,” Bevacqua said,  “and about allowing businesses to move forward on projects in a timely, cost effective way.”

John Peterson, executive director of the N.C. Economic Developers Association, said that the legislation would have a direct impact on creating new jobs in the state. Preston Howard, president of the MCIC, gave several examples of types of industries that would benefit from this change in the law. Representatives of the Sierra Club, the Conservation Council and environmental activist continue to oppose the bill even though it has no negative impact on air quality. The bill now goes to the Senate Committee on Finance.

Additional authority for local health boards denied
After hearing testimony from representatives of business, agribusiness and local health boards, the House Committee on Health gave an unfavorable report to legislation that would have given local boards of health additional authority to adopt more stringent rules governing business and industry. H 1094 Local Health Departments introduced by Rep. Carolyn Justice (R-Pender) would have overturned a recent NC Supreme Court ruling denying local health board this additional authority. The bill, as originally introduced, appeared to be directed specifically at hog farms, but the implications of the bill were much broader. The bill would have allowed local regulations to be more stringent than state or federal regulations, “unless expressly prohibited by statute”. A committee substitute presented to the committee on Thursday struck the language focused directly on animal operations and made it clear that the bill, if adopted, could set up an opportunity for a multitude of different regulations in all 100 counties and could affect any industry. Speakers opposing the bill noted that consistency in any regulatory program is important for all business and industry and that layers of regulations at the federal, state and local levels are unnecessary. The regulatory program on hog farms adopted previously by the General Assembly and administered by the Department of Environment Health and Natural Resources is considered one of the most comprehensive in the country. No other state requires that all hog farms above 250 head of animals be permitted and expected. After several parliamentary moves in the House committee, opponents of the bill were successful in giving the bill an unfavorable report.

House panel struggles over locating new psychiatric hospital
The House Finance Committee on Wednesday voted 24-8 in favor of locating the state’s new 430-bed, $110 million psychiatric hospital in Butner, in Granville County. The action came a day after the committee rejected competing sites in Chatham and Wake counties. The committee amended and favorably reported H. 684 Psychiatric Hospital Bonds, an act to provide a statutory framework for the financing of capital facilities by the state and to authorize the issuance of special indebtedness to finance the construction of a new psychiatric hospital to be located in Butner. The new facility will replace Dorothea Dix Hospital in Raleigh and John Umstead Hospital in Butner. The legislation calls for the project to be financed with certificates of participation, which do not require voter approval. The bill will now be considered by the full House.

Legislative Actions

The Senate gave third-reading approval Thursday to legislation allowing Charlotte-Mecklenburg police to use a camera system to catch speeders. H. 562 (Alexander) Charlotte Photo Speed Measuring Systems would allow police to use the cameras in 14 major traffic routes in and around Charlotte. Violator would be fined $50, but would receive no driver's license or insurance points. The citations would be sent through the mail. The legislation would allow the cameras for a three-year pilot program. While several cities now use cameras to catch drivers running red lights, this would be the first use of the devices to catch speeders. The bill now goes back to the House for concurrence in amendments.

The Senate gave unanimous approval Tuesday to a bill that makes several changes in state election laws, steps necessary to bring North Carolina into compliance with new federal statutes. The measure, H. 842 (Michaux) Help America Vote Act Compliance, now returns to the House for concurrence in amendments. Among other things, the federal Help America Vote Act, which Congress passed last year, requires states to abolish punch-card ballots and lever voting machines by 2006 and provide better access to ballots for the disabled. The state agreed to phase out punch cards two years ago. The state will get $68 million from the federal government through 2005 to replace punch-cards at 280 precincts and make other changes in voting procedures.

  H. 805 Initiatives to Address Teacher Shortages on Thursday was re-referred from House Rules to the Subcommittee on Pre-School, Elementary and Secondary Education. The bill, which is supported by NCCBI and the Education: Everybody's Business Coalition, is aimed at boosting efforts to recruit and retain public school teachers in North Carolina. The bill includes a salary increase for beginning teachers; a provision to make the transition more reasonable for qualified out-of-state teachers; initiatives to increase the number of students in teacher training programs; a tax credit for teachers; and a provision to align the state's lateral entry program with the requirements of the No Child Left Behind Act of 2001. The subcommittee heard overwhelmingly positive testimony from educators, school administrators and business leaders. Discussion of the bill is expected to continue next week.

The Senate voted 29-16 on second-reading Thursday for legislation allowing drivers to turn left at a red light after amending the bill to satisfy advocates for the blind. H. 147 Left Turn On Red now specifies that a driver making a left or a right turn on red who fails to yield for a pedestrian will get four points instead of three on their drivers license.

The House Science and Technology Committee on Wednesday favorably reported S. 622 Promote E-Commerce & E-Government, a measure that would make it easier to file documents electronically with the state, particularly those requiring attested signatures.

The Senate Commerce Committee on Tuesday favorably reported H. 339 Life and Health Insurance Omnibus, H. 892 Workers Comp./Interstate Carrier Drivers, H. 994 Public Works, H. 999 Toner/Inkjet Cartridges, and H. 1182 OSHA Technical Changes/Fatality.

The Senate on Wednesday gave second- and third-reading approval to H. 1181 Workplace Safety/Reinspections, and the measure was enrolled. The bill requires the reinspection by OSHA of workplaces where willful serious violations have been found.

The House gave third-reading approval Wednesday to S. 439 (Clodfelter) Omnibus Employment Security Commission Changes and returned the bill to the Senate for concurrence in amendments.

The House Judiciary I Committee on Tuesday favorably reported S. 925 Strengthen Security Fraud Enforcement Laws.

The House Financial Institutions Committee on Tuesday favorably reported S. 676 Revise the Banking Laws of North Carolina.

The House on Thursday concurred with Senate amendments to H. 357 (Barnhart) No Credit Card Number on Receipts and the measure was enrolled.

State Government
Consultant suggest consolidating three community colleges
A consultant hired by the State Board of Community Colleges and the Legislative Education Oversight Committee has determined that the state could save $2 million a year by consolidating the three community colleges with enrollment under 1,000: Montgomery, Pamlico, and Roanoke-Chowan.  Dr. Kent Caruthers of MGT of America suggested they could each be merged with larger, nearby campuses.  Caruthers said the current policy of providing a base allotment of $1.56 million for each college and an enrollment allotment of $1,093 per each full time equivalent  (FTE) student above 750 FTE does not place enough consideration on headcount enrollment as a measure of workload. He recommended that the base allotment per college be reduced to $1 million and that there be an enrollment allotment that is based on a simple average of blending FTE and headcount of approximately $434 per “blended student.” He also said the state should increase funding for community colleges that operate multiple campuses or off-campus centers. The Governor’s Commission to Promote Government Efficiency and Savings on State Spending recommended in its report that the state “explore community college consolidation.”

Wilmington road projects added to highway improvement plan
Five new highway projects in the Wilmington area were added to the state's Transportation Improvement Plan. In announcing the additions Tuesday, Gov. Mike Easley said the projects would improve safety and mobility throughout Wilmington and improve access to Wilmington International Airport. "To ensure continued economic growth for the entire region, we must provide convenient access to every destination in the city,” Easley said. “These projects provide a comprehensive vision for greater Wilmington that complements the regional plan I announced for Southeastern North Carolina last month."

The projects were added to the Transportation Improvement Plan based on feedback from local officials and citizens as part of the N.C. Department of Transportation's public involvement process. The TIP is the department's seven-year blueprint for statewide transportation projects, including bicycles, public transportation, rail, aviation and highways. The state Board of Transportation is expected to approve the 2004-2010 TIP at its monthly meeting on Thursday.

A color copy of a map of the projects can be found at www.ncdot.org/news.  The projects are:

Blue Clay Road Interchange with I-140 (Wilmington Bypass): Build an interchange at Blue Clay Road and the Wilmington Bypass to improve access to the Wilmington International Airport and the newly developing north campus of Cape Fear Community College. This project is scheduled for planning and environmental studies.

Military Cutoff Road Extension: Extend Military Cutoff Road from Market Street to the Wilmington Bypass. This project will increase mobility in the area by providing an additional north-south thoroughfare through Wilmington and improving access to the northeastern part of the city. It will also improve safety along heavily-congested Market Street. This project is scheduled for a feasibility study to begin this summer.

Independence Boulevard Extension: Extend Independence Boulevard from Randall Parkway to the Martin Luther King Jr. Parkway with interchanges at Princess Place Drive and the MLK Parkway. This project will improve mobility through the area by providing a direct north-south route linking Oleander Drive (U.S. 76) and the parkway. It also will provide better access to the northern part of the city. Right-of-way acquisition is scheduled to begin in 2009.

Wrightsville Avenue at Independence Boulevard: Wrightsville Avenue will be widened to provide an additional through lane in each direction at the intersection of Independence Boulevard. This project will help relieve congestion and improve safety for the many residents who live around this heavily-traveled intersection. Right-of-way acquisition is scheduled for 2005 with construction in 2006.

Village Road: Widen Village Road to multiple lanes from Navassa Road to Lanvale Road, reducing congestion and improving safety in this rapidly growing area. This project is scheduled for planning and environmental studies.

Officials see positive signs in higher jobless rate
North Carolina’s seasonally adjusted unemployment rate rose to 6.4 percent in April from 6.0 percent in March, due primarily to growth in the state’s labor force, which increased by 18,086 people over the month, the Employment Security Commission said. This increase indicates that long-term unemployed workers who had stopped looking for work have begun to re-enter the workforce, along with students seeking employment during the summer or upon graduation, according to the ESC. North Carolina’s total labor force was 4,173,290 in April. Total non-farm employment fell by 3,300 jobs over the month. Unemployment rates fell in 45 counties in April, rose in 42 others and were unchanged in 13. In April, 94,019 initial claims for unemployment insurance were filed statewide, compared with 76,724 in March — an increase of 17,295. More than 69 percent of these claimants were attached to a company payroll and were expected to return to work within 30-60 days. Industries with the highest numbers of initial claimants in April were textile mill products, 16,950; furniture and fixtures, 9,927; construction-special trade contractors and heavy construction other than building construction-contractors totaled 16,828; and business services, 5,116. Unemployment rates in metro areas in April, were:

Asheville, 3.9 percent, unchanged
Charlotte/Gastonia/RockHill, NC/SC, 5.8 percent, unchanged
Fayetteville, 5.1 percent, down from 5.4 percent
Goldsboro, 5.5 percent, up from 5.4 percent
Greensboro/Winston-Salem/High Point, 5.8 percent, up from 5.7 percent
Greenville, 6.2 percent, unchanged
Hickory/Morganton/Lenoir, 8.1 percent, up from 7.9 percent
Jacksonville, 5.7 percent, down from 5.8 percent
Raleigh/Durham/Chapel Hill, 4.6 percent, unchanged
Rocky Mount, 9.0 percent, up from 8.9 percent
Wilmington, 5.4 percent, down from 5.6 percent

Crime commission hands out $28 million in grants
The Governor's Crime Commission has awarded more than $28.2 million in federal grant money to local government agencies and community groups to help victims of domestic violence and at-risk youth, and to provide law enforcement officers and the courts with resources they need to protect North Carolina citizens. Gov. Mike Easley, in announcing the grants, said he had directed that more than $13.5 million of the grant money go to support domestic violence shelters and service providers in 90 counties, including family violence prevention programs and bilingual victim assistance projects. Another $4.5 million will be used in the state’s juvenile justice system to help steer at-risk youth away from further criminal activity. This year’s funds will be disbursed among 307 local and state agencies in North Carolina.

Eleven counties prepare to implement half-cent sales tax
The last counties to implement the additional half-cent sales tax will do so on July 1. They are Cabarrus, Henderson, Moore, Rockingham, Caswell, Johnston, New Hanover, Stanly, Clay, Macon and Pamlico. After July 1, the extra half-cent sales tax for local needs will be effective statewide.

Names in the News
Legislature confirms appointment of three to Board of Education
The House and Senate on Tuesday confirmed three appointments made by Gov. Mike Easley to the state Board of Education. Reappointed were Kathy Taft of Greenville, a part-time instructor at East Carolina University, and John A. Tate III of Charlotte, a senior vice president at Wachovia Bank.  Appointed to the board was Robert Thomas Speed of Boone, an attorney. All three will serve eight-year terms on the 13-member panel.

State Agriculture Commissioner Meg Scott Phipps said she will resign today. She told the Raleigh newspaper she would deliver a resignation letter to Gov. Mike Easley. Easley will appoint a successor. There was much speculation that he would appoint Alice Graham Underhill of New Bern, a former legislator and daughter of former Agriculture Commissioner Jim Graham. She announced earlier this week that she would be a candidate for the Democratic nomination for Commissioner of Agriculture and Consumer Services. Underhill, a law librarian, served on the House Agriculture Committee during her one term in office.

Gov. Mike Easley and most members of the Council of State endorsed Sen. John Edward’s presidential bid. The list of endorsements released Thursday included all Council of State members except Labor Commissioner Cherie Berry, who is a Republican, and Agriculture Commissioner Meg Scott Phipps, who is a Democrat and is resigning.

John Merritt, Gov. Mike Easley's senior assistant for policy and communications who was brought in a year ago to help smooth the governor’s ties to Democratic Party stalwarts, is leaving the administration at the end of the month. There’s no word on a possible successor in that role.

Takcus Nesbit was named communications director for Lt. Gov. Beverly Perdue, replacing Derek Chernow. Nesbit is a graduate of Duke University and the UNC Law School.


NCCBI News
Causby receives prestigious education award
Dr. Jim Causby, superintendent of the Johnston County Public Schools and a member of the NCCBI Board of Directors, is the third recipient of the Jay Robinson Leadership Award. Co-sponsored by the Public School Forum of North Carolina and Wachovia, the award was presented to Causby on Monday during ceremonies at the Crabtree Marriott Hotel in Raleigh. NCCBI President Phil Kirk chairs the awards committee and presented the award to the veteran school superintendent who is retiring at the end of the year. The honor comes with a $5,000 gift.

Other members of the awards committee are Barbara Allen, Gene Arnold, Gerry Hancock, Catherine Lough, Dr. Tom McNeel (the 2002 award winner), Leigh McNairy, Peggy Smith, and Rep. Doug Yongue. The other finalists were Dr. Marsha Bledsoe, superintendent of the Surry County Schools; Dr. Tom Burnham, superintendent of the Henderson County Schools; Dr. John Fries, executive regional superintendent, Charlotte-Mecklenburg Schools; Dr. Dick Jones, superintendent of Watauga County Schools, and Tannis Nelson, president of the North Carolina PTA.

The award is named for the late Jay Robinson, whose career as an education leader in North Carolina spanned 50 years. He was a coach, teacher, principal, and superintendent in the public schools, in addition to serving as vice president of public affairs and special projects for the UNC System and as chairman of the State Board of Education.

Among the quotes included in the letters recommending Causby for the award, Kirk read, "His vision of the possible makes everyone aware of the need. He describes the pathway to meeting the needs, and then delivers the end results with humility and grace. While achievement has soared under his leadership, so has morale. Difficult issues are handled with fairness and principled common sense. He will not tolerate poor performance, yet maintains the dignity of those who do not measure up to the high standards he expects. He exhibits the qualities of a 'warm, loving brick wall.'" Another compared him to Robinson in this way: "He leads with a drive for all under his charge to be successful and he leads with his 'mountain' swagger just as Dr. Robinson led in a 'country' manner.

Dr. Sam Houston, chair of the Public School Forum of North Carolina, presided over the ceremony and also presented an award to Kirk, who recently retired as chairman of the State Board of Education. The award read, in part, "In recognition of your remarkable and successful five-and-one-half years as chairman of the State Board of Education. Acknowledging that your extraordinary leadership and your dedication to the children of North Carolina have made our State a much better place to live.…"  Houston and John Dornan, president of the Public School Forum of North Carolina, signed the award.

Economic Development Committee hears updates on legislation
The NCCBI Economic Development Committee met Thursday to discuss legislation, and potential legislation, that could impact economic growth in North Carolina. Don Hobart, legal counsel and liaison with the N.C. Department of Commerce, provided an update on issues that the department is working on during this legislative session. Stephanie McGarrah, policy analyst and Economic Development Board liaison with the Commerce Department, provided information on the board's strategic plan. Watts Carr, chair of the Economic Development Board's recruitment and retention committee, distributed a list of his committee's recommendations for economic recovery in North Carolina. Steve Meehan, a consultant for NCBEST, gave an update on the initiative and recent findings of a study that focuses on the tax burden in the state and how it compares with other states. NCBEST is an arm of NCCBI designed to increase public awareness about the importance of having efficient government operations and policies and programs favorable to job creation. Updates on NCBEST can be attained through the website: www.nccbi.org/ncbest.   

Education Committee hears briefings on funding issues
Representatives from various levels of education in North Carolina provided updates to the NCCBI Education Committee on Monday. All the speakers said that as state leaders struggle with the current budget crisis, education advocates are having to work even harder for funding.  Speakers from the different areas of education were Linda Suggs, legislative director for the State Board of Education; Suzanne Williams, assistant to the president for government relations with the N.C. Community College System; J.B. Milliken, senior vice president for university affairs with the University of North Carolina; Andy Willis, assistant to the chancellor for external affairs at N.C. State University; and Tim McDowell, director of government relations for N.C. Independent Colleges and Universities. Myra Best, director of the NC Network, provided an update on the Business and Education Technology Alliance and legislation proposed by Lt. Gov. Beverly Perdue related to teacher recruitment and retention. Leslie Bevacqua, NCCBI vice president of governmental affairs, provided an overview of other legislative issues that NCCBI is working on in the area of education, including a bill supporting a constitutional amendment to make the Superintendent of Public Instruction an appointed position. The bill is currently in the House Rules Committee and is a top priority for the Education: Everybody’s Business Coalition, which Bevacqua chairs.


IBM gives magazine subscriptions to site selection consultants
IBM and NCCBI have joined together in a partnership to provide a one-year subscription to the NORTH CAROLINA magazine to approximately 250 site selection consultants from across the country. In a letter signed by Barry Eveland, Vice President of Operations for IBM, and Phil Kirk, President of NCCBI and Publisher of the North Carolina magazine, they wrote, "We believe there will be a lot of interesting news coming out of North Carolina over the next year on economic incentives. We want you to be among the first to know when these policy initiatives emerge."


Washington Watch

Manufacturers see positive trends
setting stage for economic expansion
A report by the National Association of Manufacturers on the state of the economy concedes that the economic picture remains overcast. But an informal survey of NAM members suggests a clear upward trend in orders. A full 40 percent of respondents reported increasing orders in May and only 24 percent reported falling orders. “Though the current economic picture is decidedly mixed, a variety of positive trends are setting the stage for stronger economic growth later this year that will include an improvement in manufacturing,” said Jerry Jasinowski, president of the National Association of Manufacturers.

”Manufacturing production has been on the decline since last August, capital spending declined in the first quarter, unemployment rose to 6 percent and global growth is sluggish,” Jasinowski said. “All this paints a mixed picture of the economic landscape consistent with GDP growth less than 2 percent in the first half of the year and a manufacturing sector that remains stalled.”

But reports of increased orders spread a ray of light over the economic scene. “This is a significant improvement from a similar NAM survey in April when 56 percent of responding NAM member companies reported declining orders for the month,” said NAM chief economist David Huether. “For June, 43 percent expect orders to increase while those expecting lower orders declined to just 12 percent. This signals that conditions are gradually improving in manufacturing and conform to our outlook that manufacturing production should begin to recover in the third quarter.”

“Among the most positive forces for manufacturing recovery is improving liquidity and credit conditions,” Jasinowski said. “The prime rate is down over 50 percent since 2000, the premium on corporate bonds over Treasuries is at the lowest level in more than a year, and bank standards for lending have eased significantly. The number of banks tightening credit for small businesses has dropped from 42 percent a year ago to 13 percent today.

“Second, the tax cut bill signed by the president provides substantial incentives that encourage business investment as well as consumption that will increase economic growth in the latter half of 2003 by half a percent,” Jasinowski said. “With the acceleration of the child tax credit, marriage penalty relief and the individual rate cuts, consumer spending will increase by 2.9 percent in the second half versus 2.6 percent without the tax legislation. For businesses, the increase in the expensing limit along with the 50 percent first-year depreciation deduction for capital purchases will accelerate the recovery in business equipment spending. With the new tax legislation, investments in equipment and software will increase at an annual rate of 11 percent in the second half of 2003 compared to 8 percent without it.

“Third is the year-long depreciation of the dollar which has declined by 13 percent against the currencies of our major trading partners,” Jasinowski said. “Together with an increase in GDP growth overseas, the lower dollar will accelerate export growth in the second half of 2003 to 7.5 percent after nearly stagnating in the first half of the year. Over the next year, the more competitive U.S. exchange rate could improve the trade balance by $100 billion.

“Finally, to replenish stocks used up in the spring conflict in Iraq, defense spending will increase at an annual rate of 25 percent in the second and third quarters, and account for 1 percent of overall GDP growth during this time,” Jasinowski said. “However, this source of growth is temporary. In the fourth quarter, defense spending will add little to GDP growth and the acceleration we anticipate will be driven by a recovery in investment and exports.”

“Together, these forces will get the investment recovery that began in 2002 back on track, stimulate exports, and boost consumers’ spending power,” Jasinowski concluded. “As a result, we anticipate that GDP growth will accelerate from 1.7 percent in the first half to 3.9 percent in the second half.”


Corporate profits show robust growth
Corporate profits in America increased $7.9 billion in the first quarter after rising a strong $25.1 billion in the final quarter of last year, according to a report by the Bureau of Economic Analysis. Profits before tax with inventory valuation adjustment is the best available measure of industry profits because estimates of the capital consumption adjustment by industry do not exist. This measure effects the inventory-accounting and depreciation-accounting practices used for federal income tax returns. According to this measure, both domestic profits of financial corporations and domestic profits of nonfinancial corporations increased, the BEA report said. Profits before tax increased $24.6 billion in the first quarter, compared with an increase of $26.4 billion in the fourth. Profits tax liability increased $12.7 billion in the first quarter, compared with an increase of $7.7 billion in the fourth. Profits after tax increased $11.9 billion, compared with an increase of $18.7 billion. Dividends increased $7.3 billion, compared with an increase of $6.6 billion; undistributed profits increased $4.6 billion, compared with an increase of $12.1 billion.