We All Get a Break When Congress Goes on Break

The economy shows its first signs of life during a Congressional recess — hardly a coincidence.

We haven't been overwhelmed with a plethora of good news this year, but I was cautiously optimistic last month when I read the best headline of the summer: “Congress Goes on Vacation Entire Month of August.” Nothing could be better news to U.S. manufacturers than to hear that Washington would be on holiday. As we've seen time and again, the country's industrial base tends to do much better when the government just gets out of the way.

And so it came to pass:

  • The National Association of Manufacturers' Labor Day report indicates the manufacturing sector saw some improvement over the summer (which, to put it into medical terms, means the patient was upgraded from DOA to critical). NAM projects a gradual upturn in manufacturing production into 2010, with more significant growth coming between the 2011-2014 period. However, John Engler, NAM's president, cautions that “a recovery could stall out or even shift into reverse if Congress and the Administration enact policies that increase the burden on businesses and make us less competitive in the global economy.” He pointedly requests that Congress and the Obama Administration “reject the policies that would stop the nation's progress toward recovery.”

  • According to the Manufacturers Alliance/MAPI, the U.S. economy has bottomed out, and we should see a 1.9% gain in the third quarter and a 2.5% increase in the fourth quarter. For all of 2009, MAPI economists see inflation-adjusted GDP declining 2.7% but rising 2.1% in 2010, and by 3.2% in 2011. “A swing from cutting inventory in 2009 to adding inventory in 2010 and 2011 has the impact of boosting production,” observes Daniel Meckstroth, chief economist of MAPI.

  • PricewaterhouseCoopers, which tracks the mood of industrial manufacturers, says pessimism about the state of the economy has dropped to 18%, an improvement of 37 points from the previous quarter. Optimism, meanwhile, is up to 43%, a 27-point gain. There is one wee little catch, though: “Despite a slightly more optimistic view of the economy for the next 12 months, industrial manufacturers are still very concerned about lack of future demand,” notes PwC partner Barry Misthal.

  • That concern is echoed in a survey from buying consortium Prime Advantage, which indicates that the top external concern facing small and mid-sized manufacturers is customer demand (58% of respondents). “With inventories lean and reflective of demand, many manufacturers waited to replenish stock until as late as possible, but these results indicate that the recovery is starting to gain traction across a broad spectrum of our economy and that new orders are coming in,” explains Louise O'Sullivan, president and founder of Prime Advantage. As far as getting any help from the government, a mere 12% of respondents say they've seen an increase in business this year stemming from the American Recovery and Reinvestment Act, while only 33% expect to see an increase in 2010 or later from the so-called “economic stimulus” program. On the plus side, 80% expect revenues for the second half of 2009 to either stay the same or increase.

None of these economic reports come right out and say it, but I suspect that at least part of the reason that manufacturing has had even an extremely modest uptick lately has been due to Congress and the Administration paying very little attention to the manufacturing sector lately. The only industry anybody in government is focusing on right now is the healthcare industry, leaving the goods-producing and distributing areas of the economy pretty much alone (pending regulatory issues notwithstanding).

There's no doubt that any major changes to the U.S. healthcare system will have profound and potentially deleterious impacts on all companies, and perhaps the insurance companies should point to manufacturing's mini-resurgence during the summer as evidence that the economy tends to do its best work when the government has the least to do with it.

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