PAGE 16 | MONDAY, AUGUST 26, 2013
BUSINESS MONDAY
THE DAILY PRESS | www.ashlandwi.com
Spearheading effort through summit
Wal-Mart pushes 'Made in America' ANNE D’INNOCENZIO Associated Press
MIKE SCHNEIDER Associated Press
ORLANDO, Fla. (AP) — Wal-Mart Stores Inc. spearheaded an effort Thursday to bring together retailers, suppliers and government officials so they can figure out how to bring more manufacturing jobs to the United States. The world’s largest retailer hosted its first two-day U.S. Manufacturing Summit in Orlando, hoping to capitalize on the company’s recent commitment to drive more manufacturing in the U.S. The “made in the USA” campaign could boost Wal-Mart’s image, which is constantly under attack by labor-backed groups who have criticized the retail behemoth as a destroyer of U.S. jobs rather than a creator. The goal of the summit was to start “connecting the dots” with a dialogue among the 500 manufacturers, officials from three dozen states, eight governors and U.S. Commerce Secretary Penny Pritzker at the conference, said Bill Simon, president and CEO of the company’s U.S. division. “It could be difficult for one at a time, all of us on our own,” Simon said. “The best way to overcome the challenges is to talk to one another.” The summit comes seven months after the Bentonville, Ark.-based discounter pledged that it planned to buy $50 billion more U.S.-made goods over the next decade. Tha is the equivalent of just more than 10 percent of what Wal-Mart will sell at retail this year. Wal-Mart said that if other merchants do the same, it would mean an additional $500 billion in Americanmade goods over the next decade. Several companies were quick to get into the spirit at the summit. Kevin Toomey, president and CEO of Kayser-Roth Corp., a North Carolina-based legwear manufacturer, said his company would create over 100 jobs with a $30 million investment, and sock manufacturer Renfro Corp. announced a $10 million investment would bring 195 U.S. jobs. Jeff Immelt, chairman and CEO of General Electric Corp., announced that the company would be bringing 150 manufacturing jobs to plants in Illinois and Ohio where high-efficient lighting will be built. The $30 million investment will be at plants in Circleville, Ohio; Bucyrus, Ohio; and Mattoon, Ill. “We wanted to be a part of this,” Immelt said. “This is a first step.” To be sure, even if Wal-Mart is successful in getting key retailers and suppliers on board, experts say it will not rejuvenate the U.S. manufacturing industry. But the movement could help stem the tide of jobs flowing to China and elsewhere that has been occurring in the last two decades. Some experts are skeptical, pointing out that WalMart led the migration of manufacturing jobs overseas in search of the cheapest labor, veering away from the principles of its late founder Sam Walton, who espoused buying American-made goods. In fact, Burt Flickinger III, president of retail consultancy Strategic Resource Group, says what will be brought back will only be a fraction of business sent overseas. “It’s a very positive PR move for the company,” Flickinger said. “But it took two decades to unwind the American manufacturing base, and it will take two decades to bring it back.”
AP Photo/Phelan M. Ebenhack
Wal-Mart U.S. President and CEO Bill Simon addresses attendees of the Wal-Mart U.S. Manufacturing Summit in Orlando, Fla., Thursday, Aug. 22. This is not the first time that Wal-Mart has pledged a made-in-America campaign. It pushed a similar program in the mid-1990s that fizzled because it could not get enough low-priced goods to sell to its low-income shoppers. But executives vow its efforts this time around go well beyond a marketing campaign and involve dissecting each of its 1,300 product categories, from bath towels to gadgets, to determine which can be made here. It is also reaching out to state and local officials to work with suppliers to explore rebates, training and other programs to attract U.S. makers. Additionally, the discounter also says it is changing the way it does business with suppliers, giving multi-year commitments for basic goods where it makes sense, instead of season-by-season ordering. Rebuilding U.S. manufacturing jobs is resonating even more these days. The nation’s unemployment rate of 7.4 percent, while now at a 4 1/2-year low, is still well above the 5 percent to 6 percent typical of a healthy economy. Meanwhile, Wal-Mart and other major retailers have been under fire for not doing a better job monitoring worker safety in factories overseas. That pressure increased after a factory collapse this past spring in Bangladesh, killing 1,129 people. That was the deadliest incident in the history of the garment industry. But what could really propel the movement this time around is pure economics: Labor costs are rising in Asia, while oil and transportation costs are high and increasingly uncertain. Rising wages have erased some of the competitive advantages China had in manufacturing, Wal-Mart’s Simon said, and manufacturing jobs offer a path into the U.S. middle class. “We think we can map out opportunities and put some systems in place and commit to this for the long term,” Simon said. “There’s nothing less than the future of our country at stake here.” Wal-Mart said several manufacturers had told executives privately they had defined “tipping points”
at which making goods overseas will no longer make sense. Wal-Mart says it does not believe that its customers should pay any more for made-in-America goods and is focusing on working with suppliers to make sure the prices are in line with what shoppers want to pay. “It’s an economic advantage when you have the wind in your back, instead of having the wind in your face,” said Hal Sirkin, a senior partner and managing director at the Boston Consulting Group and an expert on manufacturing. He is serving as a consultant to Wal-Mart. He believes that the movement could create 100,000 more jobs in the next decade. Wal-Mart, with more than 4,000 stores in the United States and about $460 billion in total sales, has proven that it has the clout to get other suppliers and merchants on board. For example, in 2009, Wal-Mart created a coalition among stores, suppliers, government, nonprofit organizations and academic experts for a sustainability index that measures whether goods were made in a responsible way and whether the materials are safe. Wal-Mart has said that items made, sourced or grown in the United States account for about twothirds of the company’s spending on products for its U.S. business, according to data given by suppliers. But analysts say that much of its clothing, home furnishings and consumer electronics are made elsewhere. One company to sign up is Sleep Studio, which is now working with Wal-Mart to produce memory foam mattress toppers. Before, all of the discounter’s toppers were produced by manufacturers overseas. This year, 20 percent will be made in the United States. CEO Michael Rothbard said Wal-Mart worked with the company to streamline the costs, eliminating $10 from the price tag. The New York-based company has factories in California and Georgia. “The selling process was really intense,” Rothbard said. “We had to convince them our products offered unique benefits, and that we could meet their needs.”
Jump in mortgage rates hurts US sales of new homes CHRISTOPHER S. RUGABER AP Economics Writer
WASHINGTON (AP) — Americans cut back sharply in July on their purchases of new homes, a sign that higher mortgage rates may slow the housing recovery. U.S. sales of newly built homes dropped 13.4 percent to a seasonally adjusted annual rate of 394,000, the Commerce Department said Friday. That’s the lowest in nine months. And sales fell from a rate of 455,000 in June, which was revised down from a previously reported 497,000. The housing rebound that began last year has helped drive economic growth and create more construction jobs. But mortgage rates have climbed a full percentage point since May. The increase has begun to steal some momentum from the market. Sales of new homes are still up 7 percent in the 12 months ending in July. Yet the annual pace remains well below the 700,000 that is consistent with a healthy market. July’s drop “may mark an uh-oh kind of moment for the housing recovery,” said Mark Vitner, an economist at Wells Fargo Securities. Homebuilder stocks declined sharply Friday, even as overall market indexes rose. Shares of Toll Brothers Inc., D.R. Horton Inc. and Lennar Corp. – three of the nation’s largest builders – all fell more than 3 percent in afternoon trading. And major homebuilders’ shares have been dropping steadily since late May. The slide began after Federal Reserve Chairman Ben Bernanke first signaled that the Fed might reduce its bond purchases later this year. The bond purchases have helped keep mortgage rates and other borrowing costs low. The average rate on a 30-year mortgage reached 4.58 percent this week, according to Freddie Mac. That is up from 3.35 percent in early May and the highest in two years. The impact on would-be buyers’ finances is significant. Take someone who locked in the early May rate on a $200,000 mortgage. They would have a monthly payment of around $875. But the same mortgage at last week’s average rate would cost $1,025 a month. The difference adds up to $150 more each month – or $54,000 over the lifetime of a 30-year loan. The monthly figures do not include taxes, insurance or initial down payments. Potential buyers appear to have noticed that financ-
AP Photo/Mike Groll
In this July 9 file photo, a construction worker drills on the roof of a new home in New Paltz, N.Y. The Commerce Department reported on new-home sales for July on Friday. ing a home purchase has become more expensive. The number of Americans applying for mortgages to buy homes has plummeted 16 percent since the end of April. And builders began work on the fewest singlefamily homes in eight months in July. Still, mortgage rates remain low by historical standards. The same $200,000 loan would cost a buyer $1,330 a month at a 7 percent rate, the average since 1985. Most economists expect the housing recovery will continue, albeit at a slower pace. “We’ve been spoiled by low rates,” said Greg McBride, senior financial analyst at Bankrate.com. “People are gnashing their teeth now over a rate we had never seen four years ago.” He notes that, based on their figures dating back to 1985, rates on the 30year loan had never sunk below 5 percent until 2010. The impact of higher mortgage rates has surfaced in the new-home market faster than the re-sale market because the new-home sales are measured when contracts are signed. Higher rates may have also caused potential buyers to cancel some purchases of new homes. Vitner says that may explain why sales were revised down in May and June. Most of the revisions occurred in sales of homes not yet under construction. Buyers don’t need
mortgages until construction begins. Sales of previously occupied homes reached a nearly four-year high last month. But that report measured completed sales, which typically reflects mortgage rates locked in a month or two earlier. The jump likely reflected a rush by home buyers to lock in lower rates. Next week, a measure of contract signings in July will be released. Many economists expect that will drop. Fed officials are closely watching the impact of higher mortgage rates on the housing recovery. The drop in sales could strengthen the hand of those Fed members who want to delay reducing the bond purchases. Though new homes represent only a fraction of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to data from the homebuilders association. “The spike in mortgage rates is slowing the pace of improvement,” Dan Greenhaus, chief global strategist for BTIG, an institutional brokerage, said in an email. “Given the speed at which housing was improving, and the growing talk of a renewed bubble, some moderation, assuming it doesn’t materially worsen, is not a terrible outcome.”