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Wells Fargo Reports: U.S. Economy Flexes Muscles With Surge in Production

Wells_Fargo_Securities_logoIndustrial production surged 1.3 percent in November as October’s initially reported decline was reversed to a slight gain. Manufacturing was the key driver with big gains this month and an upward revision in October.
Strong Report with Broad-Based Gains
The 1.3 percent increase in industrial production for November is the largest monthly pop in more than four years. It comes on the heels of an upward revision that moved last month from a slight decline to a slight gain in output. Manufacturing production was up 1.1 percent on the month with broad-based support. After three straight monthly declines for motor vehicles and parts, that series staged a comeback in November with a 5.1 percent monthly increase. But even excluding autos, manufacturing output was still up 0.9 percent.
The Weather Outside is Frightful
Over 50 percent of the lower-48 was blanketed in snow in November (including more than five feet in parts of Buffalo, NY). It was the largest snow-cover on record for the month of November. With wintry weather showing up in fall, it comes as little surprise that utilities output jumped 5.1 percent on the month.
What About Oil?
Oil prices ended November at roughly $66/barrel, but the average price for the month was still over $75/barrel (WTI crude). The much lower price environment for oil and other commodity prices will eventually cause equipment investment to slow in industries related to oil extraction, in our view. However, we have maintained that production would still hold up in the near term. Mining output fell in November, but oil was not to blame. Crude production was unchanged in November (in fact, it was up 1.1 percent before seasonal adjustment). “Other” mining (coal, metal ore, other minerals) was down 0.5 percent.
Empire Index: A Warning Shot or Just a Misfire?
In a separate report, the New York Federal Reserve’s Empire State manufacturing index unexpectedly slipped to negative territory in December. With all the discussion in financial markets about the impact of lower oil prices, it may feel like this miss is a warning that the factory sector is retrenching. We are not convinced that is what the numbers are telling us. The big movers among the subcomponents sound more like a supply chain disruption than a sudden shift in attitudes because of oil. Unfilled orders were off 24.0 points, delivery times were off 14.6 points and inventories were down 11.5 points. What about prices? How is the input cost side of production shifting? After 10.6 in November, prices paid came in at 10.4 in December, so no significant change. Prices received on the other hand, went from 0.0 last month to 6.3 in December. Still, the miss here in December should not be discounted completely; we will watch other regional Fed survey data for December with greater-than-usual interest.IP_12152014IP_12152014

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Two-Thirds of the Economic Benefits and Jobs Created By Road & Transit Investment Occur in Non-Construction Sectors, New Study Finds

Two-thirds of the economic benefits and jobs created by federal highway and transit investment occur in non-construction sectors, according to a new analysis from IHS Inc. (NYSE: IHS), a leading global source of critical information and insight. The study also finds that every dollar invested through the federal Highway Trust Fund (HTF) in state highway, bridge and public transit infrastructure programs returns 74 cents in tax revenue.

The report, “Transportation Infrastructure Investment: Macroeconomic and Industry Contribution of Federal Highway and Mass Transit Program,” reveals that 70 percent of the economic benefits, or value- added, of federal HTF investments in transportation improvements occur in non-construction sectors of the economy. Among the sectors that benefit the most are service industries such as business, education, health and leisure, and hospitality.

The study also finds that 62 percent of the jobs created from federal highway and mass transit investments are outside the construction industry. Over one-third of all jobs created are also in service industries like business, education, health and leisure, and hospitality.

“The study shows that investment in transportation infrastructure has a positive impact on every major sector of the U.S. economy. These far reaching economic benefits contribute to economic growth by improving the nation’s capital stock, which enables increased economic activity,” said Karen Campbell, a senior consultant at IHS, who produced the report with Bob Brodesky, a transportation expert and senior manager in the IHS Industry Consulting Group.

Current federal highway and public transit investment, which is about $50 billion annually, generates an average $31 billion in personal income tax receipts per year and $6 billion in federal corporate tax receipts per year due to increased economic activity, according to the analysis. This amounts to 74 cents returned on every dollar invested 

IHS notes that current levels of federal investment on highway and public transit spending contribute nearly one percent to the U.S Gross Domestic Product (GDP), the measure of goods and services produced by the economy. Among the other economic benefits:

  • Every $1 in federal highway and mass transit investment increases the nation’s GDP between $1.80-$2.00
  • Current federal transportation spending contributes on average $410 to real income per household each year

IHS also studied the resulting impacts from five percent annual increases in federal highway and transit investment from 2014-2019, and found the added investment would create:

  • Between 78,000 and 122,000 new jobs by 2019 (includes direct, indirect, and induced jobs);
  • An annual average increase of $40 in real household income each year;
  • An additional $9.6 billion in real GDP for the U.S. economy by 2019; and
  • On average an additional $4.9 billion per year in federal, state and local government

“Federal transportation spending expands the capital stock of the U.S. economy, drives the production and delivery of goods and services, and positively affects business and household incomes,” the study’s authors write. “It also enhances the transportation system’s operational capacity by reducing travel times and costs. This results in greater accessibility for individuals, households and businesses, more efficient delivery of goods and services, improved lifestyles, and standards of living, and safer roadways.”

The members of the Transportation Construction Coalition (TCC), which commissioned the study, said they would send it to all congressional offices to help them better understand the urgency for a permanent solution for the Highway Trust Fund well before May 2015, when funding for the highway and transit program will once again be in jeopardy for the sixth time since 2008. The TCC is issuing this report ahead of the upcoming congressional recess, when many coalition members will be meeting with their elected officials at home. 

Select Comments & Reactions to the Dec. 10 IHS Study:

Transportation Infrastructure Investment: Macroeconomic and Industry Contribution of Federal Highway and Mass Transit Projects

“The TCC study is a wake-up call to lawmakers who have had their heads in the sand on this issue for far too long. The evidence is clear; the condition of our roads, bridges and transit systems significantly impacts every sector of our economy. We call on Congress to summon the political courage necessary to strengthen the Highway Trust Fund in a way that delivers long-term certainty to transportation planning and opens on ramps to job creation in this country.

Tens of thousands of Operating Engineers depend on these investments for their livelihoods. It is time for Congress to do its work, so that we can do our work building America’s transportation system.”

James T. Callahan, general president, International Union of Operating Engineers

“Our nation’s surface transportation network is in distress, and this study confirms that fact. Chronic underinvestment plagues every mode of transportation and is having a detrimental impact on our ability to compete globally. Congress must get to work and enact a robustly-funded, long-term surface transportation bill – and base the funding on a user-fee principle indexed for inflation. This may be the best way to resolve once and for all the devastating economic impacts that inadequate funding has had on our economy, jobs and the safety of our roads and bridges.”

Thomas J. Gibson, president & CEO, American Iron and Steel Institute

“This report echoes what civil engineers have been warning for years: if we fail to make the investment in our aging transportation infrastructure, our economy will suffer. Our transportation system is the backbone of the economy, and it drives growth in sectors beyond construction. Roads and transit received D grades and bridges received a C+ in the 2013 Report Card for America’s Infrastructure. The low grades are holding our economy back. This report should serve as further incentive for our Congressional leaders to fix the Trust Fund.”

Robert D. Stevens, P.E., Ph.D., president, American Society of Civil Engineers

“The new study echoes what Congress, stakeholders and the American people already know—surface transportation investment drives economic growth and job creation. The time is long overdue for policymakers to put aside partisan differences and provide the resources to rebuild our crumbling infrastructure. Congress must use the TCC study, as well as the countless other reports detailing highway and transit infrastructure investment’s broad economic impact, to build support for immediate and decisive action to invest in surface transportation projects.”

Brian P. McGuire, president & CEO, Associated Equipment Distributors

“A strong transportation network benefits every sector of our economy, and is essential to the prosperity of businesses and households. NECA urges members of Congress to heed the findings of this report, and to make a sound investment in our nation by enacting a robust, long-term transportation bill.”

John Grau, chief executive officer, National Electrical Contractors Association

“This report demonstrates how the benefits from investments in transportation infrastructure extend well beyond the equipment manufacturing sector. For many Americans, this is a pocketbook issue; today’s report shows that federal highway and transit investment supports hundreds of thousands of jobs and contributes $410 per year on average to every household’s real income. That’s why AEM is so proud to join with the TCC coalition to support continued, sustainable investment in our highway and transit infrastructure to help create shared opportunity.”

Dennis Slater, president, Association of Equipment Manufacturers 

“The importance of a long-term, robust and dedicated funding stream not only will keep our economy growing, but will provide the needed transportation infrastructure for businesses to be competitive and for American citizens the quality of roads and bridges they deserve. The Concrete Reinforcing Steel Institute firmly believes in the federal government’s role in planning and delivering transportation services and projects for a 21st transportation system. CRSI supports the passage of a comprehensive, visionary, multi-year reauthorization of surface transportation programs to improve our bridges and pavements, increase mobility and reliability, safety and sustainability.

Bob Risser, president & CEO, Concrete Reinforcing Steel Institute

“While there is strong bipartisan support for the crucial infrastructure upgrades, stopgap measures are not a cost- effective way to improve our most valuable national assets – our roads, highways and bridges. Our nation’s surface transportation infrastructure underpins the economy is essential to growth and prosperity. Congress must come up with a long-term funding solution as states and localities are hesitant to start new projects or finish existing ones out of fear that the federal government won’t meet its funding obligations.”

Mike Johnson, president & CEO, National Stone, Sand and Gravel Association

“What this report makes clear is that our entire economy benefits from federal investments in highway and transit projects. But that economic activity and those jobs are at risk if Congress and the Obama administration can’t figure out a way to pay to get our roads, bridges and transit systems back up to a state of good repair and to meet future travel and shipping needs.”

Stephen E. Sandherr, chief executive officer, Associated General Contractors of America & co-chair of the Transportation Construction Coalition

“What makes this study different is that it focuses on the outcomes of federal-level highway and transit investment and measures its significant impact on every sector of the U.S. economy. This is one policy area where Congress’ involvement could actually yield meaningful and long-lasting economic results for hundreds of industries and millions of households. Our message for the new Congress is simple: Find a permanent solution for the Highway Trust Fund early next year so that state governments have the resources they need to make strategic and economically-beneficial transportation investments.”

Pete Ruane, president & CEO, American Road & Transportation Builders Association & co-chair of the Transportation Construction Coalition

“Good infrastructure is exceedingly important to manufacturers and as the condition of infrastructure has deteriorated over time and spending levels have dipped – awareness has increased among manufacturers and concern over the quality and condition of infrastructure is mounting. Infrastructure is deteriorating due to age and we are not keeping up with the demands placed on the system. Status quo funding levels will not even begin to tackle the problems and address backlogs. The TCC study offers yet another well-researched body of evidence that current approaches are not enough to grow our economy at home and go head-to-head with our competitors abroad.”

Chad Moutray, chief economist, National Association of Manufacturers

 For a copy of the IHS report, Transportation Infrastructure Investment: Macroeconomic and Industry Contribution of Federal Highway and Mass Transit Program, go to www.transportationconstructioncoalition.org.

EXECUTIVE SUMMARY

Federal transportation spending expands the capital stock of the US economy, drives the production and delivery of goods and services, and positively affects business and household incomes. It also enhances the transportation system’s operational capacity by reducing travel times and costs. This results in greater accessibility for individuals, households and businesses, more efficient delivery of goods and services, improved life styles and standards of living, and safer roadways.

IHS used two models to evaluate the macro and micro economic effects of Highway Trust Fund spending. Both showed the availability of funds delivered to state and local governments have far-reaching indirect effects – for every $1 of federal transportation investment returns between $1.80 – $2.00 of additional real goods and services produced in the economy.

Macroeconomic results revealed that current levels of federal spending on highway and mass transit contributes nearly 1% to the US production of goods and services. The current level of funding contributes on average 614,000 jobs per year over the 2014-2019 time period and adds an average of $410 to each US household’s real income each year. A 5% increase in annual spending through 2019 would result in an average of 59,400 additional jobs per year and an annual average increase of $40 in real household income. Federal spending also produces indirect benefits and induces growth in key economic sectors. The sector that experiences the largest benefit, in terms of jobs created, is the Business and Professional Services sector. The Trade, Transportation and Utilities sector, which includes wholesale and retail companies, is a close second.

In summary, over the 2014 to 2019 time frame:

 Infrastructure spending has an amplified impact on the economy. It leads to overall productivity enhancements and creates jobs.

 Every $1 in federal highway and mass transit investment returns between $1.80 – $2.00 in goods and services produced.

 Current federal transportation spending contributes on average $410 to real income per households each year (which is comparable to a month’s worth of groceries).1

 Current federal transportation spending supports an average of 614,000 employees each year in all sectors of the economy. It catalyzes dynamic effects of greater productivity, more efficient delivery of goods and services, and higher wages and salaries.

 For every 3 construction job created, 5 jobs are created in other sectors of the economy.

 Current federal transportation spending generates $31 billion in federal personal tax receipts per year and $6 billion in federal corporate tax receipts per year on average. Current federal spending also generates higher revenue for state and local budgets, which are, on average, $21.7 billion higher each year than they would be without the Federal Highway Program.

 Five percent annual increases in federal spending would create:

o Between 78,000 and 122,000 new jobs by 2019 (includes direct, indirect, and induced jobs).

o An additional $40 in real household income each year.

o An additional $9.6 billion in real value to the US economy by 2019.

o On average an additional $4.9 billion per year in federal, state and local government revenue, which covers more than 50% of the annual spending needed to cover the backlog in highway and bridge capital expenditures.2

Clearly, transportation infrastructure investment is critical to the economic wellbeing of the US.

For a copy of the IHS report, Transportation Infrastructure Investment: Macroeconomic and Industry Contribution of Federal Highway and Mass Transit Program, go to www.transportationconstructioncoalition.org

Liebherr Construction Equipment Co. opens a Western US spare parts depot

LiebherrLiebherr shapes its global, local and regional spare parts distribution and logistics to support its rapid growth and exceed customer-service expectations around the world.

Several positive developments that have a strong impact in the fulfilment and distribution of Earthmoving Liebherr spare parts globally and within the United States have been announced in the last months by the Liebherr Group.

In October of this year, the Liebherr Group gave a glimpse into the progress of its new spare parts and logistics center in Kirchdorf, Germany. The new state-of-the-art facility to begin operations in early 2015, is expected to serve as its global logistics hub for earthmoving spare parts. The investment value for the first stage of construction is in excess of 143 million US Dollars and covers an area in excess of 505,000 ft2. A large part of the investment has gone into implementing highly automated warehouse equipment and software that will enable the logistics center to employ leading-edge performance standards. The new warehouse solutions will allow the group to handle higher volumes of spare parts, reduce turn-around times and guarantee order accuracy for Liebherr customers around the world.

Additionally, the Liebherr Group is continuing a significant investment in building improvements, machinery, tools and infrastructure to expand the factory and enhance the warehouse facility at their Newport News, Virginia (USA) location. These renovations are part of the $45.4 million investment as announced earlier this year by Liebherr Mining Equipment Newport News Co. The Newport News location serves as the headquarters and central warehouse for the Liebherr Mining Division and for four other operating Liebherr companies; Liebherr Construction Equipment Company among one them. Major warehouse overhauls include; the implementation of a sophisticated Warehouse Management System (WMS) and wide range of process-improvement initiatives consisting of a new racking system adding additional locations and increased load-bearing capability, over 100,000 ft2 of new epoxy floor to facilitate the heavy traffic and movement of material, and eight new additional loading docks to speed up the traffic and help with the flow of trucks loading and unloading materials at the facility.

“The new WMS offers a multitude of functions that will optimize the overall logistics and support the daily operations of the facility… it will provide a transparent work flow and enhance the visibility of the activities at each of the warehouse terminals; from receiving thru shipping, in addition to providing inventory accuracy.” said Martin Seitz, WMS Project Coordinator at Liebherr Mining Equipment Co.

Furthermore, this month, Liebherr Construction Equipment Co. headquartered in Newport News, VA and responsible for the sales and distribution of the full line of Liebherr earthmoving and material handling equipment in the United States, announced the opening of a new spare parts facility located in Visalia, California. The new depot is expected to begin operations in early 2015. The facility will support Western US Distribution with localized parts warehousing. The National Parts Distribution Center in Newport News, Virginia along with its new distribution center in California, will help expedite parts orders, improve operational efficiency and minimize transit time while increasing customer support.

“The opening of the new spare parts and logistics center in Germany along with the expansion and overhaul of our Newport News operations, and the opening of the parts depot in the western United States, is part of Liebherr’s ongoing commitment to better serve our customers not just throughout the world but also throughout the United States. This represents a significant step forward in our customer support” said Peter Mayr, President of Liebherr Construction Equipment Co., adding “We continue to invest in our operations to ensure we provide our dealer network and customers with the exceptional support they expect from Liebherr.”