This page has been archived and commenting is disabled.
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
»
- advertisements -
Fact checking in progress... compiling results... answer as follows:
Premise 1: Someone has to make the paper.
Crane & Co., based in Dalton, Massachusetts, is a manufacturer of cotton-based paper products used in the printing of national currencies, passports and banknotes as well as for social stationery. Crane remains the predominant supplier of paper for use in U.S. currency (Federal Reserve Notes).
So the answer is yes.
Premise 2: Someone has to make the ink.
Swiss company called SICPA (Société Industrielle et Commerciale de Produits pour l'Agriculture)
So the answer is yes again, but not towards the U.S.'s manufacturing PMI.
Actually, no. Nobody has to make the paper any more in the future.There is no law of nature that requires old bills and coins to be replaced with new ones. A fixed amount of bills and coins in circulation can put a damper on the inflation of fiat.
If the manufacture of new bills stopped, the bankers would gradually lose their grip as more and more people did trade in cash.
The state would never tolerate a cashless society.
I get great pleasure out of using cash. The computer tells the cashier how much change to give, but unless it has an automated coin dispenser the cashier has to figure out how to add coins to get, for instance, the 46 cents change due. I've seen some truly dumbfounded looks on cashiers' faces.
What I like about cash is that it requires hand-to-hand contact at some point along its way. I can look the person in the eyes when I take it or give it. I can also notice if the guy in front of me is shifty or straight.
Cash has no other redeeming feature to me and thankfully, that feature is shared by non-fiat money too.
Actually no. Electronic transfers make paper obsolete. Replaced by zeros and ones'
Agreed.
The credit card companies are sending out cards with microchips now installed.... Car keys are obsolete….
Integrate.
Nobody is forcing you to use credit cards.
The deep state can NOT operate without cash. Therefore, there will NEVER be a cashless state. Gamble accordingly. People on the street will continue to use cash and coins ---- likely out of sheer ignorance which will not be such a bad thing for the rest of us.
AFTER the shit hits the fan, who the hell is going to be using electronic transactions???? On a long enough time scale, people who work will avoid electronic transactions out of necessity and or convenience.
Using a credit card or a debit card (or any other fancy technology that can vanish with the flick of a switch) will eventually become suspect in the future economy. In God We Trust, everybody else pays cash.
Hooray for the FRN, backed by the full faith and credit of 1) no one, or 2) an organization currently $18,000,000,000,000 in debt.
Nice one. pretty funny, alright.
What the fuck is happening to US Manufacturing ?----"Annnd, it's gone."
US Manufacturing = prison construction
weapons brainwashed-minds
check this, as rig counts tell no lies...
https://www.dmr.nd.gov/oilgas/riglist.asp
down 30 from a year ago
US Manufacturing? What the hell is that? Like assembling burgers?
US manufacturing, that's the thing we import all the illegal aliens for so we can pay them less than the minimum wage.
Those with no loyalty to America used international trade agreements to outsource manufacturing to cheaper and/or more 'tax efficient' locations. To make matters worse they're using H1B visas to undermine the employment prospects of the American worker.
Of course if you didn't buy the cheap crap made in China they wouldn't be making it in China. Don't blame the companies for doing what you insist that they do - reduce the price. Now go pay $125 for that toaster made in the USA, under USA government regulations, when you can also buy one for $12 made in China.
Sorry, but you really don't get it. There is no toaster made in the USA. When I got out of HIgh School China was a country full of starving peasant rice farmers; they could still be starving peasant rice farmers. It was our Government that was purchased and opened free trade with China, and the multinationals who invested in China to do the manufacturing there. Don't blame the victim, please. the government did it to you; you didn't do it to yourself. If we still made out own toasters and shoes and undershirts and socks and pants, etc. etc. these .gov regulations would not exist, because the manufacturers lobbys would not allow them to exit Congress. When I graduated from High School, in 1960, we exported shoes to China. For Real. We bought nothing from them. Nothing. Nor is there any reason at all why we should;; except for the greed freaks who hired congress and Nixon and Clinton to engineer our collapse.
i bought a chinese toaster. It burned out in 6 months. I threw it away, went to Goodwill and bought a toaster made in the seventies and it still works great.
that was 12 years ago...most Chinese shit is crap, whether it is intentional or not is up for debate. Most products are manufactured with deliberate failure points to guarantee and end of product life. If its made too good it last too long and screws up manufacturing.
How come they can build a nuclear warhead that last 50 years but can't make a toaster that lasts a year? engineering designs...
From the country that just celebrated National Cheese day: “American Cheese” is neither American nor cheese.
Discuss amongst yourselves.
http://www.organicauthority.com/mojo-foods/american-cheese-neither-american-nor-cheese.html
Dem dere Gren Bay fans wid cheesehead hats sez yore rong on american cheese points :)
As a personal index, I keep my eye on Northwest Indiana.
The steel plants there went through the initial phase of the bust with not as much damage as one would expect, and the local parasites are always crowing about how strong things are there.
It is a relatively small, and compact area, so very easy to track.
The past few years, the unions have forced wage increases that have will speed the area's demise when the time comes.
Already many towns, and school districts are claiming poverty.
When the plants start laying off again, and some of the supporting industries also, I will know that the worm is all that is left in the bottle.
The banksters need to repay us.
Paying the workers a living wage is not the problem and will not cause the demise of anything; especially the specialized steel products industry in NW Indiana, These plants produce .gov spec. steel and high spec. vacuum melt, etc. that can't be realistically imported from China. We aren't going to make our tank guns out of steel that comes from China.
Yes, its like the corrogated index. There is very little in commerce that isn't shipped in a corrugated box. If corrogate production is up, the economy is improving. If it is down, it is not. Simple way to track the economy. And of course the towns are claiming poverty. They are not being run with the interest of the people they serve in mind, rather in the interest of the people who manage it. Budgets are written based on how much was spent, not how much is truly needed based on painstaking calculation of what the essential needs are. People are hired to do work that others want to have done but are unwilling to do or pay for themselves. Laws and regulations are passed to force people into or out of personal behavior just for reasons of taste and preference. Who knew it would be so expensive bossing everyone around?
Yes, they need to repay us. But sadly they never will, because they don't need to. Find another strategy. Repetition won't work in this case. Destroy the banksters.
"Yes, they need to repay us. But sadly they never will, because they don't need to. Find another strategy. Repetition won't work in this case. Destroy the banksters."
Depends on how one defines "repay."
My guillotine and I define it as, "Gold, silver, and/or heads."
The banksters need to repay us.
Ah, the dunes. My son is working on getting a co-op for the summer in that area.
The Dunes are nice, but the beaches get much nicer as you head north into Michigan. And they are much less crowded.
NW Indiana has gary, a place forgotten so long ago. Just for shit and giggles I'm going to have a beer in the downtown area and see what it is like, someday.
Hey, I looked up that part of the country, are you near those sand-dune areas in the state park? It looks beautiful up there.
NorthWEST bugs, take a look at that "peninsula" that sticks out into Lake Michigan. It is a hundred years of slag from the furnaces in Indiana Harbor.
T'ain't pretty on the west side
- Ned
Yupper Doodles...here's that same old problem again and it's everywhere...people confuse virtual world values with real world values and we get those entirely googy whacked out perceptions we have to live with...
http://ducknetweb.blogspot.fr/2014/03/virtual-worlds-real-world-we-have....
The White House email bot said it all today..my tweet:) So there you go with a little twist of satire here, but what's in quotes, they did say:) You have to take some satire and relate it back to the real world when you can:)
MedicalQuack Aha! @WhiteHouse said it, we're virtual:) email bot "Welcome to 2nd-Annual Big Block of Cheese Day, our virtual White House Open House"
Our modern regulatory regime is killing the people who build stuff one rule at a time with big business writing the rules to kill any small business that might eventually compete with them.
If you can't go global, get out of the game.
Yo its 2015 not 1985. Wake up or go back to sleep.
In EU there were reports of auto manufacturers and others moving plants to the US because of cheap energy ....well Wolf sort of disposes of that argument...
Same thing that's been happening to US manufacturing since about 1991, if not 1961.
Thanks for asking.
NAFTA, GATT, WTO, + regulations + regulations etc.
All of these regulations have the force of law but were not passed (in the affirmative) by the Congress as law. They get written by the "Beltway Bandits", submitted to and promulgated by the various agencies into the Federal Register, after which the Congress has a 60 day window to negate them. Congress must vote in the affirmative to pass law, not in the negative. Also, the Congress cannot assign to others what it's assigned to do by the Constitution as it is a violation of the Principle of Non-Delegation. All of these regs are illegal, but they have a warehouse full of nukes and we just have peashooters and they want to take them away. Executive Orders were originally used to run the affairs of the Executive Branch. Obviously any which are issued affecting anything outside of the executive are clearly illegal.
How is it that Germany can have a humming manufacturing sector even with higher wages, higher taxes, more regulations, and tons of unions ??
Everything the GOP says is bad Germany does.. Yet somehow Germany is prosperus and successful.
Is 20% of Germany's population illegal alien like in the US? Nope....a lot less overhead.
Les:
Germany's manufacturing ended up getting "subsidized" by the PIGS after all parties involved abandoned their own currencies and adopted the Euro.
Well if you were dealing with 80 million ethnic Germans, 92% of the demographics! the smartest motherfuckers to ever grace the planet! you could pull that shit off.
Here, if you pull a cart, you know punks will fight each other to jump on your cart for a free ride. That includes your "leaders" .
That's why.
99% in Germany know how to read. Herein merica, where we probably spend double per student, well, you know.
Read n between I the g lines g and you'll e figure r out a big s part of the problem.
Do they have black people and 'mexheekans in Germany?
And d is o a g big f part o of o the d solution.
Please, don't confuse the forest with trees
Then when the time comes, we negate them if the Senate did not vote on them.
Anyone who has ever work at managment level knows what a nightmare it has become to do manafacturing in the USA. From entitled employees who think twitter posting is a computer skill to insane regulations, taxes, fees. healthcare etc.. It is just easier to send an order to China and wait for a container than to deal with the BS.
Italy is even worse:
http://www.wsj.com/articles/SB10001424052702304898704577478111174204768
the top 0.1% now control all the "chokepoints" in finance, shipping, realestate/landlord, courts, utilites, regulation and taxation, insurance etc.
they have become too stupidly greedy for anyone to deal with them-and any one who does-and does so successfully so as to become percieved as "beating" them financially, why they get a dose of FREEDOM! courtesy of the anglo-american military enforcement arm.
In the USSR in the '80's workers used to say "they pretend to pay us, and we pretend to work."
Maybe if they were paid even less they wouldn't pretend so hard?
Jeffrey Sachs and Goldman brought the USSR spores back to the USA
and the CIA/OSS brought back the NAZI spores from Germany - via operation paperclip et al.
America is long gone, we live in a car up on blocks and listen to the radio and pretend we are cruising through the world.
Greenshoots and ongoing recovery, the king is dead, long live the king. we pretend until we can't hide the bleeding then we blame the foe de jour.