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What the Heck Is Happening to US Manufacturing?
Wolf Richter www.wolfstreet.com www.amazon.com/author/wolfrichter
Despite President Obama’s emphatic assurances in the State of the Union Address that “our economy is growing and creating jobs at the fastest pace since 1999,” there have recently been some uncomfortable squiggles, so to speak.
The collapse in the prices of oil, natural gas, and natural-gas liquids has started to make its imprint on the largest hydrocarbon producer in the world, namely the US of A. Oilfield layoffs and project cancellations are raining down on the oil patch on a daily basis. Suppliers are hit too. Many energy stocks are in the process of evisceration. Energy junk bonds are in a rout.
But consumers love it – those who aren’t losing their jobs over it – because they spend less on fuel. Consumers are voters. So politicians love it because voters love it. Hence, it’s good for the economy. I get that.
These sorts of squiggles have been worming their way into national numbers. For example, Markit’s Services PMI for December dropped to 53.3, down for the sixth month in a row, after having peaked in June. This was “not just a one-month wobble,” the report said, as the economy “lost significant growth momentum at the close of the year.” But it remained above 50, the dividing line between expansion and contraction. It’s still an expansion, and “growth is merely slowing from an unusually powerful rate rather than stalling.”
The Manufacturing PMI for December fell to 53.9, down for the fourth month in a row, from the peak in August. Production volumes rose at the weakest pace in 11 months. Same song: Still a “solid expansion,” but at a slower pace. Turns out, “uncertainty towards the global economic outlook had contributed to slower production growth and softer new business gains during recent months.”
The ISM Purchasing Managers Index fell sharply in December, down for the second months in a row, but still in expansion mode. Other indicators piled on as well: on a national basis, the economy seems to be humming along and expanding, but at a slowing pace.
Then comes along the Southeast manufacturing PMI, by the Kennesaw State University Econometric Center, that the Atlanta Fed uses. It covers Alabama, Georgia, Florida, Louisiana, Mississippi, and Tennessee. And in December, it plunged 12.7 points to 45.6.
Below 50. Not “slowing growth,” but an outright contraction. Decembers can be crummy in the Southeast, and these kinds of indices can be volatile, but this was the worst month since December of crisis-year 2009.
And it was crummy across all sub-indices:
- New orders plunged a breath-taking 27 points to 34, blowing with some panache through the magic 50-point mark. Orders essentially evaporated; a harbinger for what might happen next.
- Production dove 19.8 points to 40, a steep contraction.
- Employment dropped 10.6 points to 54, remaining in expansionary mode.
- Supply deliveries fell 7.3 points to 50, the flat line.
- Finished inventory edged up 1.2 points, also to 50.
- Commodity prices dropped 10.4 points to 42, in contraction.
Oil and gas weren’t the only commodities that were down. In December, the Commodity Research Bureau’s all commodities price index fell to 446, the lowest level since 2010 (chart), and down 22.6% from the index’s peak in April 2011. So there are some demand issues lurking somewhere.
But ironically, the Atlanta Fed emphasized that, despite the worst contraction since 2009 in the manufacturing index, “optimism rose in December.” Concerning their expectations for production over the next three to six months, 66% of survey participants “expected production to be higher going forward.”
These “survey participants” are company executives. They’re paid to be optimistic. They have to forecast growth. No executive wants to manage a decline. This bias has infected all these kinds of surveys of executives.
The Empire State Manufacturing Index, for example, always shows a much higher value for expected activity in the future than current activity. In December, the index for current activity (blue line in the chart below) was 9.9, where zero is the dividing line between expansion and contraction. In November, it had been below zero – in contraction mode – for the first time since polar-vortex January 2013. So these aren’t exactly heady times.
But the expectation index was almost 50! The highest since January 2012. Current activity, a measure of reality, has never ever made it anywhere near that level. These folks expect an expansion of a blistering pace, even as reality is bumping along the bottom of an expansion. Note how expectations (black line) dipped into the negative only twice since the survey began in 2001, and only for the briefest moment, and only barely: on 9/11 and during the Financial Crisis. These folks are truly blind optimists, bordering on delusional, at least when it comes to these types of surveys!
Even the New York Fed, which publishes the index, noted: “As has been the case for much of the past year, indexes for the six-month outlook pointed to widespread optimism about future conditions” – conditions that somehow never get anywhere near reality. And the Atlanta Fed’s optimistic group, which is expecting production “to be higher going forward,” is likely to fall into the same category.
So the Atlanta Fed scratched its head about the plunge in manufacturing activity in the Southeast and came up with two very plausible reasons, neither of which is going away anytime soon: “Maybe the strong dollar is reducing manufacturing exports, or maybe the fall in oil prices is affecting production activity.”
Or maybe both, in addition to a slew of other factors. Because these aren’t exactly rosy times.
And now, years of wondrous Wall-Street engineering in the oil and gas sector dissolve into messy reality. Read… Money Dries Up for Oil & Gas, Layoffs Spread, Write-Offs Start
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German companies are mostly family owned, no sharholders that want quarterly dividends.
They also have a very good apprentice system and they make boring things like pumps and motors that actually work and that people
want and need.
"Economists" make me laugh.
instead of look ing at laem charts.
Just get out there into the real world and see how many factories have closed and how many new ones have opened.
Ask the factory owners and managers what they are doing.
Are they importing more stuff, are they using more automation, are they hiring or firing.
Then come back and write a real artilce and tell us.
WHAT U.S. manufacturing???.
Daddy ...what's manufacturing ?
Happening? Happened? Gone. Well, something to do with exporting production to other countries to circumvent environmental regulations and avoid paying a fair wage for labor. And oh yah the Walmart and other large combines buying 'stuff' from places that make it cheaper so one layer removed from but still avoiding paying American Workers fair wages, maintaining production here, following environmental law. All the while destroying the class of workers that buys all this stuff which is now inevitably crappier, as cheaper more effictient production combines with crappier product cause its cheaper and rolls the inventory better. And oh yes taking your profits off shore to avoid taxes and say doing stock buybacks to look pretty on the quarterly bullshit assessment of corporation schedule and not investing in anything like production in the united states.
Also and not unimportant centralizing sales of stuff into mega stores undercutting specialized business with a supermarket approach manned by incompetent workers that encourage you to lift the warehouse inventory yourself and offer most products by internet anyway so you don't even need to go to their stores and hence destroying local communities and business until no one in the country has any life at all.
Amen.
What is happening. What rock have you been hiding under?
If you convert the US into a third world economy, through corruption, regulation, and bad economic and tax practice, then yes, capital flees.
Leaving the US a third world state that can only make money by exporting crops and resources.
The US is also very good at exporting death around the planet.
Happening? Happened? Gone. Well, something to do with exporting production to other countries to circumvent environmental regulations and avoid paying a fair wage for labor. And oh yah the Walmart and other large combines buying 'stuff' from places that make it cheaper so one layer removed from but still avoiding paying American Workers fair wages, maintaining production here, following environmental law. All the while destroying the class of workers that buys all this stuff which is now inevitably crappier, as cheaper more effictient production combines with crappier product cause its cheaper and rolls the inventory better. And oh yes taking your profits off shore to avoid taxes and say doing stock buybacks to look pretty on the quarterly bullshit assessment of corporation schedule and not investing in anything like production in the united states.
Also and not unimportant centralizing sales of stuff into mega stores undercutting specialized business with a supermarket approach manned by incompetent workers that encourage you to lift the warehouse inventory yourself and offer most products by internet anyway so you don't even need to go to their stores and hence destroying local communities and business until no one in the country has any life at all.
Amen.
What is happening. What rock have you been hiding under?
" I believe that banking institutions are more dangerous to our liberties than standing armies . . . If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] . . . will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered . . . The issuing power should be taken from the banks and restored to the people, to whom it properly belongs." -- Thomas Jefferson -- The Debate Over The Re Charter Of The Bank Bill, (1809)
That sounds like the rantings of some tea-bagger or somethin'
I thought 45% ALL Investment since 1945 had been in the Oil Industry in which case it is a major Accelerator in the economy and a major source of hi-tech engineering. It obviously keeps some of the core producer sectors such as steel, electronics and drill-bits and ships going
Slick gone blown, signed NAFTA
It went West, young man. Way west, like SE Asia, along with the jobs.
Luckily, we can just print worthless dollars to pay for everything, like all the imported goods we depend on. For now . . .
Slick gone blown, signed NAFTA
Clearly, we need to get off the planet. Staying here on Earth is d00m.
Tens of thousands of regulations. Every single line of regulation has a cost of compliance. It is basically a tax. Manufacturing in the USA is approaching impossible. The progs and big government types are ensuring that the US will no longer be a leader in industry.
Been to China. Not much in the way of enforcing regulations ... and guess what? Can't breathe the air or drink the water or eat the food.
Pollution control will eventually catch up. The air in American cities was pretty toxic for some decades as well.
but you can abort as many viable babies as you want.
Congrats.
The middle class needs the good paying manufacturing jobs back from overseas. Every 1 manufacturing job indirectly creates 5 service jobs. We will never see a REAL economic recovery until we create more good paying manufacturing jobs.
Keep in mind we in the USA don't have protectionist policies like other countries have. We used to have a foreign import tariff from 1776-1981 which protected US domestric manufacturing by making foreign goods more expensive.
Then Ronald Reagan got rid of the import tariff by executive order, and it opened up the floodgates to manufacturing jobs going to China. Sadly no President since Reagan reversed this.
So the reality is Ronald Reagan destroyed the US manufacturing sector starting in the 1980s !
It was a long term plan by the Oligarchy; it started with nixon's "normalizing relations" with Communist China; then on to the World Trade Authority, and finally Clinton signing the "most favored nation" status for China; which was the nail in your coffin. You were sold to the Chinese for the amusement and profit of the multinational corps. and a few ultra-wealthys; ie; Bilderburgers.
The jobs are not coming back and the ratio you mention is toast with the convergence of Robotics, Software and Communications (RSC). The race to the bottom re labour costs is over. The next wave will be based on a converged RSC and I guess the Chinese will rapidly adopt this trend. There is no ‘framework’ in the US to support the innovation and turn those billions spent on innovation into competitive products and services. The US is what I call an ‘MBA’ economy – the main drivers are ‘financialisation’ and ‘debt’. No value, no sense, no idea really.
Actually it was Bush 1 that accelerated the decline. Under Reagan a project called ‘Socrates’ was put in place to address why US manufacturing was in decline. It spawned a very clever information platform that was used to defeat the Soviets by getting them to overheat their economy. After that it could have been used to turn the US into a Germany on steroids. Bush 1 killed it when he became president. So Bush 1 and all presidents since and both parties have opened up the floodgates – an estimated 8m jobs lost and 50,000 manufacturing lost. You your final comment about Reagan is totally wrong.
RSC is a factor - but it will take a while before every last tribe member in Africa has a tv and a Tesla, so the consume, borrow cycle has a way to go.
My long term view is that (increasingly more products produced using less labor) will result in a smaller percentage of the population working followed by deflation. There was probably a sweet spot at some point in the past when limited technology supported the more demand , more jobs cycle, but I believe we've peaked and the slide has begun. Just try to imagine 3D printer capabilities 50 years from now.
The governments will probably react by "inventing" jobs through additional regulations etc to try to pick up the slack, the thinking being decreases in Govt productivity offsets the increases in industrial productivity.
Sadly you don't have a clue.
you are correct; and nexus is a Kool-aid drinker; too bad; lot of that going aroiund. For Nexus; you were sold to China, idiot; by and for the multinational corps.
The comment is correct.
Seriously, 95% of all technical innovation in the fields you cite has been done right here in the USA. China is good at copying, innovation not so much.
Meh, who cares who destroyed it? It has been destroyed. Wouldn't it be grand if American corporations at least had to pay the US minimum wage with o/t to all of its overseas slave labor pools? That would be some funny shit.
What the heck is happening to US manufacturing? I'll tell ya'.
I'm in manufacturing.
I'm in Georgia (US).
This ain't related to the oil patch; The KSU data doesn't include it.
DEMAND IS DOWN! It has been for some time- this isn't news to anyone on the front lines.
Hung out my own shingle 11 years ago. At that time, I didn't know what the ISM's PMI was. Since I've been watching, I wonder if these Purchasing Managers are on a different planet. There's no fucking way that mfg. has expanded - at all - since 2009.
Worked at a packaging company as a temp last week. I noticed that a lot of the raw goods came from Europe. By the end of the week, the plant was noticeably slower as "runs" were completed. I finished a run on Monday and was sent home early. Got a call later that day that the plant had "slowed considerably" and that I need not return until called. Either there's a big slowdown coming or I'm the worst packager ever.
The lowest price gas in my area is at Costco. $1.61 a gallon, self serve regular.
Something very bad is coming.
Very bad I'm affraid.
Am I to understand that some here think manufacturers would create tons of jobs if only taxes/regs were lower? Ha Ha Ha. Don't you understand globalization?
"Corporations don't create jobs, don't you know?" Hillary Clinton said that so it must be true!
I'm with Hillary! .....NOT!
Stupid Entitlement minded bee-ahtch! Just what merika needs, another inexperienced, useless, plutocratic sycophant....God help us....Please!
My opinion is that lower taxes and fewer regulations comprise a necessary, but not sufficient, part of the conditions needed for US manufacturing to recover. Other factors would have to change also.
Props for reminding them once again, what the real problem is. And no, they don't understand globalization.
I live in Maryland. This is a very popular route, so others can confirm.
If you drive north, on Rt301 towards Delaware, you'll go about 25 miles without so much as an apple stand. Nothing. Zip. Zilch. Nada.
Cross over the Delaware line into Middletown. Same geography. The land isn't "special". And it's like another world. Businesses , tractor stores, every restaurant known, gas stations, HD, WM, Lowes, Amazon distribution facility. House, apartments, condos. Life and commerce.
The ONLY difference.
Maryland 6% sales tax. 6-10% income tax
Delaware 0 sales tax, 0 state income tax.
Edit; only a moron would invest on the "Maryland " side.
Citizens of Delaware should be forever grateful that they have Joe Biden to thank for their prosperity.
Delaware's income tax is not 0%. I paid 6.5% when I lived there.
I stand corrected . I am positive about sales tax ( personal experience) and am going by folks I know who have moved from Md to De and said taxes are nothing compared to Md.
AAAaaand apparently people still believe that tripe. The wattage is getting very dim in US of A.
Dim, Dimmer, Dimmest. "The Lights are going out all over Europe"---Edward R. Murrow on the family radio when Hitler Lightening Conquered Norway, Holland, and France. The lights are going out all over America, and our Fascists Live Here. Aren't we clever.
The lights are getting dimmer in just about every country where Western Civilization once reigned.
The shining city on a hill has lost its luster.
It was British Foreign Secretary, Earl Grey of Fallodon who said that in 1914
Thank You. I'll try to remember the correct attribution.
Will a crash in manufacturing trump ECB money printing ... time will tell
No worries, its just a sucking sound....
Does printing money count in the Manuf. PMI?
Everytime I see your screen name I remember shooting in DCM matches with my Springfield -06; when I was 16-17 years old. 1000yds. at Camp Pendlelton with iron sights; very amusing. keep the faith, brother. When I joined the Army; they were delighted; just what they wanted and all trained up already; "I love the smell of burning crap cans in the morning".