Manufacturers both upbeat and gloomy, thanks to Washington

An employee works at a plant where they fabricate steel tubing
An employee works at a plant where they fabricate steel tubing Los Angeles Times/MCT

Manufacturers are more upbeat about their own companies’ prospects than at any time in almost a decade. Yet about three-quarters of them also feel the country is on the wrong track.

The seeming contradiction is found in the latest National Association of Manufacturers/IndustryWeek quarterly survey to be released Monday, a copy of which was obtained by McClatchy in advance.

The survey of manufacturers small, medium and large found that more than 91 percent of them were positive about the outlook for their own company. That’s the first time since late 2005 that more than 90 percent of respondents were positive in their outlook, and only the fourth time since the survey began in 1997.

The optimism doesn’t extend, however, much beyond their own circumstances.

Nearly 73 percent of respondents felt the nation was on the wrong track. Only 9 percent said they felt the nation was on the right track. The rest weren’t sure.

Chad Moutray, chief economist for the manufacturer’s group, said the explanation is simple. “Frustration with Washington,” he said.

There’s budget brinksmanship, expired tax deductions that aren’t restored until weeks before the year ends, threats to default on government debt, the partial shutdown of the federal government in 2013 and now a threat of another shutdown.

“You just have to look over the last couple of years, that constant crisis mode,” said Moutray. “Are we going to have a budget, or not?”

That may get better, or worse, when Republicans take the helm of both the House of Representatives and the Senate.

“To the extent that there is optimism for the next Congress, now you have both the House and Senate controlled by one party. They will hopefully find some common ground,” said Moutray.

The most talked about area of common ground is lowering the corporate tax rate, at 35 percent one of the highest in the developed world, on paper at least. Few corporations actually pay that, having carved out or taken advantage of loopholes to lower what they actually pay, called their effective tax rate.

Leaders of the Business Roundtable met publicly Wednesday with President Barack Obama and pressed him to push ahead on a revamp of the corporate tax code.

“The more we invest, the more we hire, the more middle-income wages grow,” said Randall Stephenson, the CEO of telecom giant AT&T. “And as we think about what are those things that will drive business investment . . . tax reform. And to us there’s no single factor that could be more important.”

Obama responded that he and Republicans aren’t far apart conceptually and that he was open to corporate tax deal. But he put the onus on manufacturers and other corporations to speak in a single voice to eliminate loopholes that many of them now enjoy in favor of a lower tax rate without special-interest deductions.

“If we are in fact going to accomplish revenue-neutral corporate tax reform that substantially lowers the corporate rate, then we have to go after some deductions that people are very comfortable with,” the president said, throwing down a challenge to corporate leaders. “And there are going to be some winners and there are going to be some losers in the short term.”

The quarterly survey from the manufacturers’ group, conducted Nov. 13-26 and gauging the next four month of business, pointed to rising health care costs and regulatory burdens as major challenges.

That helps explain the dour national outlook. More than 77 percent of respondents cited health care costs, followed by 63 percent citing an unfavorable business climate.

Forty percent of the companies said their employee benefit costs would rise by 5 percent to 10 percent in 2015. About a third of companies expected health insurance costs of 10 percent to 14.9 percent, and an equal number expected an increase between 5 percent and 9.9 percent. The average expected increase across all respondents was 9.5 percent.

That’s a striking number given what the nation actually spends on health care. The national average spending on health care rose by 3.6 percent in 2013, the government said last week, to $2.9 trillion. That’s the slowest rate of growth since record keeping began in 1960.

The number reflects health care spending as a percentage of the total economy. The actual cost of insurance plans and cost to employees is rising at a faster rate, in part because the Affordable Care Act, shorthanded as Obamacare, requires more extensive coverage that also costs more to provide.

Less than 2 percent of the companies surveyed by the manufacturers’ group said they were no longer providing insurance to employees. But 38 percent said they would increase their employees’ share of the premiums paid, and 42 percent said they’d raise employee co-pays and deductibles.

The survey had 317 respondents from across the wide spectrum of manufacturing. About half of them were medium-sized companies with 50 to 499 employees. More than a quarter were companies with fewer than 50 employees and just under a quarter had more than 500 employees.