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Wednesday, July 30, 2014

How the Fiscal Cliff Deal Will Impact Manufacturers

In this file photo, the House of Representatives voting board reveals members’ votes. The House on Tuesday voted to approve a final fiscal cliff deal, which the president is soon expected to sign. Credit: House.gov

A last-ditch deal to avert the fiscal cliff passed the House of Representatives late Tuesday evening and President Barack Obama is expected to sign the compromise into law shortly. As the country takes a collective sigh of relief, here is a closer look at the deal to see just how manufacturers fared.

As reported today by Machining Journal sister publication Industry Market Trends, the fiscal cliff deal passed Tuesday has several elements that should benefit manufacturers. Legislators extended the Bush-era tax cuts for small businesses making below $400,000 a year, which is a healthy cross-section of U.S. manufacturing companies. Further, the R&D tax credit was extended for companies conducting research and development.

The deal also saved a wind industry tax credit that had been scheduled to expire on Dec. 31, which the American Wind Energy Association (AWEA) expects to “save up to 37,000 jobs at 500 factories in the U.S.,” although some wind energy companies have already scaled back on expenditures and staffing in fear the tax credit would end, according to Technology Review.

Although months of buildup to the fiscal cliff had industry professionals and manufacturing executives predicting dire business implications, the Institute for Supply Management’s (ISM) manufacturing index released Wednesday showed better-than-expected growth in December after a three-year low reported in November. The 50.7 percent score slightly beat economists’ predictions of a 50.5 score, with 50 representing the dividing line between expansion and contraction, Businessweek reported.

Noted Businessweek, “Sustained growth in the U.S., in part due to a housing rebound, and steadying overseas markets are helping underpin factory orders and keeping manufacturing from faltering.” However, following the last-second fiscal cliff deal and the new, positive growth figures, manufacturers are expected to take a bit of time to settle fears about the economy and help the industry grow in earnest.

“We finished the year on an uptick, but there isn’t a firm rebirth of confidence on the part of businesses,” Wells Fargo economist Tim Quinlan told Businessweek. “We could face a little bit of a bumpy period before turning to slow growth in manufacturing.”

Of primary concern in the coming weeks and months is the vote to raise the debt ceiling. On Dec. 31, the U.S. hit the upper limit on how much money it can borrow, and the new Congress, which takes its seat on Thursday, will vote on raising the debt ceiling in late February or early March, as well as automatic spending cuts that were delayed by the deal passed Tuesday.

Additionally, the European economic crisis and slowdowns in Asia are top concerns for 2013, as noted by a biannual survey of Pittsburgh-area manufacturers. Despite these worries, surveyed manufacturers overall expect a positive 2013, with 93 percent anticipating increased revenues in the coming year.

However, many provisions of the fiscal cliff deal will upset manufacturers. Many had called for entitlement reform, which the fiscal cliff deal did not end up covering. Indeed, in response to the deal, the Manufacturing Executive tweeted an open letter it had sent to the president and congressional leaders about the fiscal cliff in mid-December. Included in the letter was a point to allow extended unemployment benefits to expire, which the deal yesterday actually retained. The reasoning was that it would encourage more qualified workers to seek employment sooner rather than waiting for benefits to run out.

Brian Lane

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