http://www.nytimes.com/2012/09/05/business/economy/us-factory-output-shrinks.html?_r=1&ref=business
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"The optimist looks at a glass and says the glass is half full. A pessimist looks at a glass and says it's half empty. An engineer looks at a glass and says that the glass is twice as big as it needs to be." (John C. Maxwell)
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So, factory activity in the U.S. shrank for the third consecutive month in August as new orders, production and employment all fell.
The Institute for Supply Management (ISM) said its index of manufacturing activity ticked down to 49.6 points. That's down from July and the lowest reading in three years. A reading below 50 indicates contraction.
The ISM index is very closely watched in manufacturing (it's a trade group of purchasing managers) as an indicator of where the economy is going. China's version of this indicator is doing the same thing. The ISM survey showed that factories kept hiring in July but at a slower pace.
This would probably be consistent with a 1.7% GDP growth rate for the most recent U.S. quarter and totally inconsistent with anything one might call a "recovery."
I am reminded of Alan Greenspan's now famous statement in the face of the impending worldwide financial crisis: "The financial markets are self-policing." Certainly Greenspan is the most famous central banker of the last 50 years but Paul Volcker has been the most influential. Right up to today, as Congress fills in the blanks of Dodd-Frank with important language to "clarify" the "Volcker Rule," Paul Volcker has the distinction of being appointed as Federal Reserve Chairman by both Jimmy Carter and Ronald Reagan - two people who, at that time, couldn't agree on what time it was!
Volcker's biography, just published, is reviewed in the current "Economist" ("The Triumph of Persistence" - William Silber). The review itself is worthy of note.
What we do about GDP growth at "stall speed" involves priming the pump to get demand going again. Volcker knows that but he probably understands that U.S. companies are reluctant to invest in this economy not knowing what the tax and regulatory environment will be. This is something that politicians don't get.
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Not sure about manufacturing's future. Joseph E. Stiglitz is a liberal economist, and he does not foresee a return of manufacturing. The service economy is supposed to be more profitable. Moving manufacturing overseas decreases prices of goods yet decreases long term employment and increases long term unemployment benefits utilization. This line of reasoning contains an entourage of assumptions but describes an incontrovertible economic pattern that manifests clearly in our current economic environment. Big picture: for one job moved overseas, how many jobs does the U.S. gain?
ReplyDeleteEven bigger picture: robots steadily will gain more supply chain responsibilities. Steadily, companies could automate entire manufacturing processes for products. The DoD puts millions of dollars into developing technology to manufacture prototypes. This could lead to a workforce that creates/maintains robots to build/alter robots that manufacture products as designs and processes change. Perhaps these will replace factories overseas in the future.
Sadly, I think US does not talk about the environmental effects of factories in China. I keep reading about horrible disfigurements and diseases onset by polluted drinking water or residential as well as arable land. China's loose regulatory environment gives companies the opportunity to decrease costs by sidestepping processes that ensure worker and environmental safety. Furthermore, lets not forget the stories about working environments in Chinese factories. Frequent readers of the New York Times must have read the stories about the Apple factories and US decline in manufacturing dominance. Therefore, you must calculate costs of increasing manufacturing i the U.S. U.S. companies cannot tap dance around regulations and working conditions like Chinese companies.
China's ISM equivalent likely decreases due to their own bubble. China experienced their own financial perfect storm. Remember the WSJ articles about empty skyscrapers in China? Basically, Chinese banks lent out too much money, which financed unneeded real estate. Sounds familiar? I don't care to bother with the details. What can we do, right? China will likely follow a similar set of events as the US, until demographics kick in. Who knows what kind of mess Chinese demographics will create... Then again, China enforces the relatively opposite tax and regulatory environment of the U.S.
Maybe American politicians interpret constituent attitudes as favoring ever changing intricacy inflating taxation and regulation policies. As a nation... as a people, we are still growing. We are going to fail many more times before figuring out how all of this should work. A microscopic portion of the world foresaw the financial crisis. I am sure a microscopic portion of the world will always maintain superior insight. Of course, many of them will turn their insight into financial gain while others will try to sound alarms. Perhaps we should familiarize ourselves with these insightful minds. Then, we can at least minimize the costs of our personal or corporate strategy missing the trajectory of regulations, taxation, and everyday, or once in a century, human error.