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Manufacturing Benefits from Trump's Deregulation Agenda

February 13, 2019

The performance of the first two years of the Trump administration appears to have met with this sector’s general approval.

True to President Donald Trump’s campaign promise to reduce the federal government’s regulatory burden on the nation’s manufacturers, the performance of the first two years of the Trump administration appears to have met with this sector’s general approval. In its quarterly Manufacturers Outlook Survey, the National Association of Manufacturers (NAM) reports for December 2018 that its “Manufacturers Optimism” level averaged 88.7 percent, up from 64.3 percent in 2016, or a 37.9 percent increase over the past 24 months.

On average for 2018, 92.4 percent of manufacturers surveyed reported a positive outlook for their firms -- the highest level recorded in the 20-year history of the survey (surpassing the 2017 average of 91.8 percent). Moreover, NAMs Manufacturing Outlook Index for the fourth quarter of 2018 was at 59.2 percent, the ninth-straight quarter in which the Outlook exceeded the survey’s historical average (i.e., index readings above 50.0 percent). How much of this manufacturing optimism is attributable to the Trump administration’s two-year-long efforts at federal regulatory reform?

One leading indicator can be found in a deeper analysis of the past 30-month series of quarterly NAM Outlook surveys. In the 2016 third quarter survey (the last quarter before the presidential election), under the topic “Primary Current Business Challenges,” members’ ranked “Unfavorable business climate, e.g., taxes, regulation” (73.6 percent) second behind the top ranked “Rising health care/insurance costs” (74.8 percent). In the most recent 2018 fourth quarter survey, the category of “Unfavorable business climate” (18.5 percent) plummeted to number eight in the rankings. “Attracting and retaining a quality workforce” (68.2 percent) is sitting in the number-one position among “Primary Current Business Challenges,” followed closely by “Increased raw material costs” (65.1 percent). “Trade Uncertainties” (60.4 percent) occupied the number-three position. Remarkably, within the 28-month period since Trump’s election, the category of “Unfavorable business climate, e.g., taxes, regulation” has declined by more than 55 percent.

Since Trump’s election, the business climate (taxes, regulations) is “no longer the concern that it once was.” In addition, after the passage of comprehensive tax cuts in December 2017, manufacturers are planning to keep their promise to hire new workers and reward existing employees, reports NAM. According to an April 2018 NAM survey of its membership, 77 percent of manufacturers plan to increase hiring, 72 percent plan to increase wages, and 86 percent had plans to increase investments.

However, as growth in the U.S. economy continues and manufacturers create more jobs in a thriving sector, the industry may have as many as 2.4 million jobs to fill between now and 2028, as reported in Deloitte’s and The Manufacturing Institute’s fifth skills gap study, released in 2018. The study further purports that the lack of qualified talent could have caused the United States to lose $48 billion in manufacturing GDP in 2018, with this GDP loss expected to grow to $454 billion by 2028.

The U.S. Bureau of Labor Statistics calculates the manufacturing sector has created nearly a half-million new jobs over the past two years, with 12,351,000 employed in December 2016, and 12,842,000 (preliminary) employed in December 2018.

Source: Office of Information and Regulatory Affairs

In addition, in the first two years of the Trump administration, the results ofregulatory reviews undertaken by the White House’s Office of Information and Regulatory Affairs (OIRA) (see Figure 1 above) show significantly fewer new “major” rules and dramatically fewer “minor” rules approved than during the previous three administrations over a comparative two-year period in the first term. Compared to the Obama administration, the Trump administration has approved 42.1 percent fewer new “major” rules (i.e., having an economic impact of $100 million or more, or meets other criteria specified by the OIRA administrator) and 61.3 percent fewer new “minor” rules during its first two years in office. From December 23, 2018, OIRA has been conducting actions that are deemed “excepted activity” under the partial federal government shutdown.

Source: Office of Information and Regulatory Affairs

Moreover, focusing on the four executive branch agencies that can significantly impact the manufacturing sector (see Figure 2 above), Agriculture (“food processing”), Commerce (“international trade”), and Environmental Protection (EPA) and Labor (“social regulation”), the OIRA data reveal similar results for the first two years between the Trump administration’s regulatory review performance and the previous three administrations. For example, the Trump administration has approved 55.7 percent fewer “major” rules and 49.1 percent fewer “minor” rules than the Obama administration during its first 24 months in office.

In addition, the OIRA’s most current Unified Agenda of Regulatory and Deregulatory Actions has agencies continuing their painstaking efforts to identify ineffective regulations for revision and repeal across a variety of industry sectors. Furthermore, federal agencies have proposed actions that streamline infrastructure development, promote emerging technologies, and provide regulatory relief for small businesses. The “bottom line” is that in its first two years in office, the Trump administration is delivering on its promises to reduce the regulatory burden on the U.S. manufacturing sector, and the number and cost of new major and minor regulations will be, in comparison to recent presidential administrations, significantly lower. The major challenge for American manufacturers in an expanding U.S. economy, however, is to find (and retain) sufficient employees to fill the skilled positions needed to keep operating at capacity.

[Originally Published at American Thinker]

Author
Thomas A. Hemphill is a Professor of Strategy, Innovation and Public Policy in the School of Management, University of Michigan-Flint.
thomashe@umflint.edu