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Manufacturing activity in the Fifth District remained sluggish in October. The Fifth Federal Reserve District consists of Virginia, Maryland, the Carolinas, the District of Columbia and most of West Virginia. Although it remained negative, the composite manufacturing index improved from -21 in September to -14 in October. Among its components, shipments increased from -18 to -8, new orders rose from -23 to -17 and employment improved from -22 to -17. The vendor lead time index increased from -4 in September to 6 in October, and firms continued to report declining backlogs. Companies also grew slightly less pessimistic about local business conditions, but the index remained in negative territory. The average growth rate of prices paid decreased in October, while the rate of prices received increased slightly.

Expectations for future shipments and new orders both increased further into positive territory, suggesting that firms still anticipate improvement in these areas over the next six months. Expectations for backlogs improved and became positive. Meanwhile the outlook for future local business conditions improved dramatically, rising from -6 to 21. Firms continue to exhibit a more cautious approach to equipment and software spending, as expectations remained negative. Similarly, spending on capital expenditures declined further into negative territory. In sum, businesses in the Fifth District remain optimistic about consumer demand improving in the near future but remain cautious about their own expenditures.

Manufacturer sentiment fell in the third quarter of this year, according to the 51�Թ���’s , out Wednesday.

What’s going on: Results of the survey, which was conducted Sept. 5–20, reflect “preelection uncertainty,” 51�Թ��� President and CEO Jay Timmons —but also larger economic concerns.

• “The good news is that there is something we can do about it,” said Timmons. “We will work with lawmakers from both parties to halt the looming tax increases in 2025; address the risk of higher tariffs; restore balance to regulations; achieve permitting and energy security; and ease labor shortages and supply chain disruptions.”

Key findings: Notable data points from the survey include the following:

• Some 62.9% of respondents reported feeling either somewhat or very positive about their business’s outlook, a decline from 71.9% in Q2.
• A weaker domestic economy was the top business challenge for those surveyed, with 68.4% of respondents citing it.
• Nearly nine out of 10 manufacturers surveyed agreed that Congress should act before the end of 2025 to prevent scheduled tax increases on manufacturers.
• The overwhelming majority—92.3%—said the corporate tax rate should remain at or below 21%, with more than 71% saying a higher rate would have a negative impact on their businesses.
• More than 72% said they support congressional action to lower health care costs through the of pharmacy benefit managers.

The last word: “When policymakers take action to create a more competitive business climate for manufacturers, we can sustain America’s manufacturing resurgence—and strengthen our can-do spirit,” Timmons said.

• “This administration and Congress—and the next administration and Congress—should take this to heart, put aside politics, personality and process and focus on the right policies to strengthen the foundation of the American economy.”

Building permits fell 2.9% in September and are 5.7% lower than September 2023. Permits for single-family homes were 0.3% higher than August but were down 1.2% in the past year. Permits for buildings with five or more units plummeted 10.8% from August and are down a significant 17.4% in the past year.

In September, housing starts decreased 0.5% over the month and 0.7% over the year. On the other hand, starts for single-family homes were up 2.7% from August and 5.5% from September 2023. Meanwhile, starts for buildings with five or more units declined 4.5% from August and were down a dramatic 15.7% from September 2023.

Housing completions in September were down 5.7% from August but up a significant 14.6% from September 2023. Single-family home completions were down 2.7% from August to 1 million but up 1.6% over the year. Completions for buildings with five or more units dropped 8.7% over the month but were 41.9% higher than September 2023.

U.S. import prices declined 0.4% in September, following a 0.2% decrease in August. This is the largest one-month drop since a 0.7% decline in December 2023. Over the past year, import prices have edged down slightly (down 0.1%). U.S. export prices fell 0.7% in September, extending the 0.9% decline in August. While nonagricultural export prices contributed to the decrease (down 0.9%), agricultural export prices rose 0.6%. Over the past year, export prices fell 2.1%.

Fuel import prices decreased 7.0% in September, after declining 2.9% in August. Over the past year, fuel import prices have fallen 17.3%, the largest 12-month drop since August 2023. While petroleum prices declined a significant 16.7% over the year in September, natural gas prices fell an even more dramatic 57.4%.

Nonfuel import prices ticked up 0.1% for the third straight month in September. Higher prices for nonfuel industrial supplies and materials, consumer goods and automotive vehicles in September more than offset lower prices for foods, feeds and beverages.

After declining 2.1% in August, agricultural export prices advanced 0.6% in September. Over the past 12 months, agricultural export prices dropped 5.3%. On the other hand, nonagricultural export prices decreased 0.9% in September, with lower prices for nonagricultural industrial supplies and materials and automotive vehicles more than offsetting higher prices for capital goods, consumer goods and nonagricultural foods. Over the past year, nonagricultural export prices fell 1.8%, the largest annual decrease since December 2023.

In October, Philadelphia’s regional manufacturing activity expanded overall. The index for current general business activity rose from 1.7 to 10.3. More than 24% of firms reported increased activity this month, while 14% reported decreases and nearly 57% reported no change. The indexes for new orders and shipments also increased and turned positive. On the other hand, firms reported a decrease in employment after rising last month, with the employment index falling back into negative territory at -2.2.

Both price indexes edged down but continue to indicate overall increases in prices. The prices paid index declined from 34.0 to 29.7 but remains at an elevated level that reflects the notable portion of firms experiencing higher input costs. The prices received index also fell and remained significantly lower than the prices paid index at 17.9, exhibiting how manufacturers are eating a portion of those higher costs paid.

Looking ahead, most future indicators increased. The index for future general business activity rose markedly to 36.7, indicating growing optimism among firms. A higher proportion of firms still expected increases in activity. Additionally, the new orders, shipments and future employment indexes also rose. On another positive note, the future prices paid index decreased, while the future prices received increased. On the other hand, the future capital expenditures index moved down slightly.

Manufacturing activity in New York state retreated in October after rising in September, with the headline general business conditions index falling 23.4 points to -11. The new orders index dropped 19.6 points to -10.2, after climbing to a multiyear high last month, while the shipments index fell 20.6 points to -2.7, exhibiting a decline in both orders and shipments. Unfilled orders edged down to a slightly negative reading of -2.2, while inventories shrank from 0 to -7.5, indicating inventories are in decline again. Delivery times were somewhat shorter, while supply availability deteriorated slightly.

Despite the decline in business activity, employment increased, with the index for the number of employees rising 9.8 points to 4.1. The average employee workweek also improved some, signaling a slight increase in hours worked. Input and selling price increases remained modest, as reflected in the prices paid index rising 5.8 points to 29.0 and the prices received index moving up 3.4 points to 10.8. Since prices paid continue to increase at a faster pace than prices received, manufacturers still face rising costs while operating in a weakened pricing environment.

Despite weak business conditions in October, firms felt much more optimistic about the future. The future business activity index rose 8.1 points to 38.7, a multiyear high, with nearly 55% of respondents expecting conditions to improve over the next six months. The capital spending index also reversed its losses from September, rising to 9.7 in October.

Industrial production fell 0.3% in September after advancing 0.3% in August. The decline in September was influenced significantly by the strike of Boeing workers and the effects of two hurricanes. Manufacturing output decreased 0.4%, with aerospace and miscellaneous transportation equipment dropping a dramatic 8.3%. At 102.6% of its 2017 average, total industrial production in September was down 0.6% from the same month last year. Capacity utilization edged down to 77.5%, 2.2 percentage points below its long-term average from 1972 to 2023.but was up 1.2% from the same month last year.

In September, major market groups saw mixed results. Among consumer goods, the production of durables decreased 0.7%. On the other hand, the index for nondurables increased 0.5%, helped by a 1.7% rise in energy goods. The business equipment index declined 3.5% in September, weighed down by the sharp 14.2% drop in the production of transit equipment, largely affected by the strike.

Durable goods manufacturing decreased 1.0%. Apart from the dramatic drop in aerospace and miscellaneous transportation equipment, declines occurred in motor vehicles and parts (down 1.5%), furniture and related products (down 1.5%) and electrical equipment, appliances and components (down 1.4%), with slight declines in numerous other durable industry groups. Nondurable goods manufacturing, on the other hand, increased 0.2% in September, with the largest gains in petroleum and coal products (up 1.8%) and printing and support (up 1.0%).

Manufacturing capacity utilization decreased 0.4% to 76.7%, which is 1.6 percentage points below the long-term average.

The 51�Թ��� recently talked to Sen. James Lankford (R-OK) to learn what he and his colleagues on the Senate Finance committee are focused on as critical provisions of the Tax Cuts and Jobs Act are set to expire next year. Here’s the full interview:

51�Թ���: Senator Lankford, Congress is facing a “Tax Armageddon” next year, as crucial provisions from 2017’s Tax Cuts and Jobs Act are set to expire. As a member of the Senate Finance committee, what is your focus moving into next year’s debate?

Sen. Lankford: Extending the TCJA is crucial for American families and it creates certainty for businesses, particularly those policies encouraging investment and innovation. Failure to act will result in a tax increase for most American households and 96% of businesses. For greater predictability, Congress should push for as many permanent pro-growth policies as possible. One such policy is the full expensing of new investments, which allows businesses to deduct the cost of machinery and equipment in the year they are purchased. This measure has significantly incentivized capital investment, leading to job creation and economic expansion.

51�Թ���: The 2017 tax reform package implemented full expensing for capital equipment purchases, which manufacturers overwhelmingly utilized in the years following. However, full expensing began to phase out in 2023 and will be completely eliminated from the tax code in 2027. What are you doing to protect this crucial policy?

Sen. Lankford: For the past 20 years, under Republican and Democratic administrations, bonus depreciation has been an essential element of good business tax policy. Bonus depreciation acknowledges that business expenses are not business profits, so they should not be taxed as profits. The 2017 tax bill expanded on that nonpartisan tax policy by allowing businesses to depreciate 100% of their capital and equipment during the purchase year, instead of over years and years of tax returns. That change doesn’t alter how much tax a business can deduct; it simply changes when they can deduct it. With 100% depreciation, a business can deduct its tax in a single year, instead of over several years. That allows a business to invest more capital, hire new employees faster and expand their business. My ALIGN Act will make bonus depreciation a permanent and predictable tax policy for our businesses and manufacturers, and it will encourage economic growth for decades to come.

51�Թ���: As a Senator who was there during the Tax Cuts and Jobs Act, you know how impactful the legislation was for manufacturers to be able to compete on a global level. As we get closer to next year, what are you hearing from stakeholders on the need for pro-growth tax policy so American businesses can engage and grow around the world?

Sen. Lankford: I have connected with Oklahoma businesses—both large and small—to discuss tax policies that affect them and how we can ensure our tax system provides certainty while keeping the U.S. competitive internationally. We must not lose sight of how a competitive tax code drives American investment, which, in turn, strengthens our economic and national security. The TCJA struck a competitive balance with a 21% corporate tax rate and a 20% rate for pass-through businesses.

Some are calling for an increase in the corporate rate to 28%. However, the average corporate tax rate in the EU is 21.3%, with a global average of 23% across 181 jurisdictions. China has a corporate tax rate of 25%, with a reduced 15% rate for new sectors. Moreover, China has significantly expanded its R&D deduction, while the U.S. is shrinking ours. We should reverse the decline of our R&D deduction and permanently encourage businesses of all sizes to remain innovative here in America.

As the Senator from Oklahoma, I’m keenly aware of the connection between a competitive tax code and energy security. As we work to strengthen our national security, now is not the time to target American oil and gas producers. Looking ahead to 2025, I will fight to protect the current treatment of intangible drilling costs (IDCs) in the tax code. IDCs allow oil and natural gas companies to recover these costs more quickly, freeing up funds for reinvestment in development. This not only creates more jobs but also enhances our energy security and keeps energy prices low for American families.

51�Թ���: Thank you, Senator. What else can 51�Թ��� members do to stay engaged and be a resource for you going into next year?

Sen. Lankford: I encourage everyone to regularly communicate with their congressional delegation about the impacts a lapse in the TCJA would have on their businesses and communities. For example, full expensing drives investments in sectors ranging from rural broadband and agriculture to energy security and manufacturing. These investments directly boost local economic output, create jobs, and enhance the competitiveness of communities in the market. It’s important to share this story as Congress works on a tax bill in 2025.

Rep. Glenn Grothman (R-WI) visited Wisconsin Aluminum Foundry in Manitowoc, Wisconsin, as part of a series of facility visits from key members of Congress organized by the 51�Թ���. Rep. Grothman, representing a district with one of the largest percentages of its workforce employed in manufacturing, emphasized the importance of key tax policies that keep manufacturers competitive on a global scale.

During the visit, Rep. Grothman toured the facility with Wisconsin Aluminum Foundry CEO Sachin Shivaram and held a roundtable discussion with company and union leadership. Representatives from Wisconsin Manufacturers & Commerce also participated in discussions about the challenges facing manufacturers.

Innovation and R&D: Shivaram showcased the Foundry’s advanced aluminum and bronze casting capabilities during the tour. He also expressed concern about changes in R&D tax treatment, which have increased the cost of innovation.

• “R&D is essential to the future of our business,” said Shivaram, stressing that restoring full R&D expensing is crucial for manufacturers like Wisconsin Aluminum Foundry. With the expiration of first-year R&D expensing in 2022, the burden of financing R&D has become a major obstacle for small and medium-sized manufacturers.
• Rep. Grothman, who strongly supports restoring full R&D expensing, said, “Manufacturers need every incentive to innovate and grow. If we want to maintain our competitive edge, we need to ensure that tax policy encourages, not discourages, investment in R&D.”

Preserving tax reforms: The roundtable addressed the importance of preserving the 2017 Tax Cuts and Jobs Act, which benefited manufacturers by lowering the corporate tax rate and providing a 20% pass-through deduction for small businesses. These provisions are set to expire in 2025, creating uncertainty for manufacturers.

• Rep. Grothman pointed to Wisconsin’s manufacturing and agriculture credit as a model for federal tax policy going forward. The MAC, which substantially reduces state taxes on manufacturing income, has proven effective in supporting Wisconsin’s manufacturers.
• “We should look at expanding these kinds of targeted incentives nationwide,” Rep. Grothman said, noting that a similar approach at the federal level could bolster U.S. manufacturing and global competitiveness.

The local view: WMC President and CEO Kurt Bauer echoed the concerns about the expiration of the 2017 tax reforms.

• “If these tax provisions are allowed to expire, it would put significant strain on Wisconsin’s manufacturers,” Bauer said. “The ability to reinvest in equipment, innovation and workers is crucial for maintaining our global competitiveness, and losing these tax incentives would make that much harder.”

Workforce development: The roundtable also covered workforce development, a critical issue for an industry facing a shortage of skilled workers.

• Shivaram, who chairs the Governor’s Council on Workforce Investment, stressed the importance of expanding access to skills-based education and apprenticeship programs to meet the needs of modern manufacturing. “We need policies that help us train and retain the workforce of the future,” he said.
• Rep. Grothman echoed this sentiment, pledging to support federal workforce development initiatives that prepare workers for careers in advanced manufacturing. “A skilled labor force is the foundation of manufacturing’s future,” he said.

Closing thoughts: “It is critical that tax policy continue to support manufacturers, who are the backbone of our economy,” said Rep. Grothman. “If we allow tax reform to expire, it would result in devastating tax increases—stalling job creation and innovation. It’s on us in Congress to work together to preserve tax reform and encourage investment, protect jobs and keep American manufacturers competitive on the global stage.”

As Congress faces the looming expiration of key provisions from the 2017 Tax Cuts and Jobs Act, Sen. James Lankford (R-OK) emphasizes the urgency of extending these policies to safeguard American businesses and families from tax increases.

Ensuring certainty: Sen. Lankford underscored the importance of creating predictability for businesses by making pro-growth policies permanent. “Extending the TCJA is crucial for American families, and it creates certainty for businesses, particularly those policies encouraging investment and innovation,” he told the 51�Թ��� in a recent conversation. “Failure to act will result in a tax increase for most American households and 96% of businesses. For greater predictability, Congress should push for as many permanent pro-growth policies as possible.”

One policy Sen. Lankford is particularly focused on preserving is full expensing for capital investments, which allows businesses to immediately deduct the cost of machinery and equipment. This measure, he said, has fueled capital investment and accelerated job creation.

Protecting full expensing with the ALIGN Act: Full expensing has been a bipartisan tool in tax policy for two decades, Sen. Lankford points out, highlighting that the TCJA allowed businesses to deduct 100% of capital expenses in the year of purchase. His ALIGN Act aims to make full expensing a permanent fixture in the tax code, fostering long-term economic growth.

• “That change doesn’t alter how much tax a business can deduct; it simply changes when they can deduct it. With 100% depreciation, a business can deduct its tax in a single year, instead of over several years. That allows a business to invest more capital, hire new employees faster and expand their business.”

Global competitiveness and energy security: Drawing from conversations with Oklahoma businesses, Sen. Lankford stressed that keeping the U.S. tax code competitive is critical. While some push for a corporate tax increase, he warned this would undermine America’s global position.

• “The average corporate tax rate in the EU is 21.3%, with a global average of 23% across 181 jurisdictions. China has a corporate tax rate of 25%, with a reduced 15% rate for new sectors. Moreover, China has significantly expanded its R&D deduction, while the U.S. is shrinking ours. We should reverse the decline of our R&D deduction and permanently encourage businesses of all sizes to remain innovative here in America.”

The final word: “I encourage everyone to regularly communicate with their congressional delegation about the impacts a lapse in the TCJA would have on their businesses and communities,” Sen. Lankford said. “It’s important to share this story as Congress works on a tax bill in 2025.”

Read the full interview with Sen. Lankford .