Manufacturing Growth Is An Illusion Of Monetary Stimulus

Econophile's picture

This article originally appeared in the Daily Capitalist.


The following is a quick analysis of current data releases related to industrial production, both manufacturing and services. These numbers, especially manufacturing, are key indicators of the health of the economy.

The services industry, which accounts for about 90% of the U.S. economy, continued to slide in June, according to the latest ISM report. The Index slipped 1.3 points to 53.3. Rather than spending a thousand words on this, here is the picture:

Since the Index peaked in March of this year, the last four months have declined.

On the manufacturing side, factory orders for May, were more positive, but still not showing strong growth:

According to the Census Bureau:

New orders for manufactured goods in May, up two of the last three months, increased $3.5 billion or 0.8 percent to $445.3 billion ... This followed a 0.9 percent April decrease. Excluding  transportation, new orders increased 0.2 percent. Shipments, up eight of the last nine months, increased $0.4 billion or 0.1 percent to $443.9 billion. This followed a 0.4 percent April decrease. Unfilled orders, up thirteen of the last fourteen months, increased $7.7 billion or 0.9 percent to $860.9 billion. This followed a 0.6 percent April increase. The unfilled orders-to-shipments ratio was 6.12, up from 6.11 in April. Inventories, up nineteen of the last twenty months, increased $4.5 billion or 0.8 percent to $593.0 billion. This was at the highest level since the series was first published on a NAICS basis in 1992 and followed a 1.5 percent April increase. The inventories-to-shipments ratio was 1.34, up from 1.33 in April.

This data is consistent with the Chicago PMI (up 4.5 points) but that must be considered with the N.Y. and Philadelphia May manufacturing reports:

Durable goods orders have been weak:

Which means that while there are some brighter spots, on the whole, industrial output is still rather weak:

 I put a lot of emphasis on the manufacturing sector, because I believe capital investment in manufacturing is what will lead the economy out of a recession. At this point I see a lot of manufacturing improvement but ... whether it is a result of real organic capital formation to expand production or mostly as a result of a cheap dollar which favors exporters is important. At this point I believe manufacturing growth is from a cheap dollar, which would explain weak industrial production as a whole.

One of the interesting things in the just released manufacturing report is that computers as a category declined 3.1% in May, reflecting a trend since Q1 2011. If there has been one thing that has driven real organic growth in the past two years, it has been corporate spending on technology to achieve greater efficiencies. As we have seen, it has been efficiencies, not demand, that have been behind the growth of corporate profits (other than for multinational exporters). Whereas the fact that machinery such as construction equipment, mining equipment, and power generating turbines and the like grew 2% in May, activities that are not especially strong in the U.S., would tend to support the cheap dollar-export thesis.

This chart shows computer shipments as an historical trend:


You can see a strong expansion beginning in Q1 2009 and then declining in Q1 2011. If computer related equipment manufacturing is dropping off, then I would say the drive for efficiencies is done, and until demand picks up, manufacturing, as well as services will continue to stagnate. 

It is too soon to call a definite trend with these numbers.

My bet is that manufacturing is stagnating because of a lack of "real" investment. Which means manufacturing growth is not so organic as it is export related, which is entirely based on the "advantage" of a cheap dollar. This would help explain why industrial production is declining.

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Bartanist's picture

The company I work fo supplies materials for electronic and semiconductor assembly. Can anyone provide me with any circuit board or component that goes into a computer that is made in the US? I can't think of anything.

As far as I know, everything Apple is made in Asia at the same types of subcontracting companies that make everything PC and the fact that it is 3X the price seemingly has nothing to do with cost.

blindman's picture

financialization is not about alternate means of production
but about stripping assets and their value to be used as
the basis for further shadow financialization, which is then used
to procure further assets through imbalances in leverage at local
levels. that is , we are doomed under this doomed economic model, by design
and needs of the shadow financial power usurpation scheme.
support it at your peril.
[KR162] Keiser Report – Europe’s Neo-Feudalism
Posted on July 7, 2011 by stacyherbert| 7 Comments
We interview Michael Hudson!
europe's neo-feudalism is global neo-financial-feudalism where all assets,
property and persons are commodified and leveraged, like sheep who exist
for and at the pleasure of the new market maker, the new lords of man.
i am anxious to see it destroy itself and will be happy to do my part to help.

doesmybuttlookfatinthis's picture

Just more confirmation that like GM, Inventories are being pumped up and manufacturers are stuffing their supply chains to their distributors (dealerships) till they are about to burst. Prepare for major rebates coming from the producers.

rsnoble's picture

I had a mfg defect when I went thru the Mcdonald's drivethru tonight.  I will call the plant mgr shortly to get a replacement.

ebworthen's picture


I saw a Dell commercial for the first time in a long time yesterday on T.V., talking up the company, not advertising a product.  What does this mean?  They are hurting.

Delivery pizza prices and revenues - down.

# of people on food stamps and demand at food banks up.

$9 Trillion of stimulus spending past two years.

This is a paper mache recovery, two years of cotton candy spinning using debt, nothing more.


sasebo's picture

What does all this prove? That the panjandra are a bunch of knuckle heads who know very little about running a country & it's economy.

SwingForce's picture

Computer PRICES have been dropping off a cliff, unless you overspend 3x on Apples.  Unit demand does not have to be down, uh, is this called deflation?

Michael's picture

"Which means manufacturing growth is not so organic as it is export related,"

Which means manufacturing growth is not so organic as it is Government Spending Related.

There, fixed it for ya.

Bartanist's picture

Yes, our main exports are: food, lumber, military equipment, commercial passenger jets and DEBT.

... very little else and if it were not for the fact that the US government has bloated its payrolls, it would be very clear that the growth was completely from government spending on things ... but the government spending on people fogs the issue.... any my guess is that most of what the government buys is imported anyway.

Michael's picture

It's the government spending on military weapons and weapons of mass destruction.

How much money are we spending on producing and maintaining our nukes every year?

rufusbird's picture

good points! Is there a good analysis of what the manufacturing numbers would look like without any defense,  military, or war related activities?