This page has been archived and commenting is disabled.
Goldman Says The US Manufacturing Decline Is "Contained"
A few weeks ago, William Blair analyst Ryan Merkel asked a question on Fastenal’s Q3 call that newly-minted CEO Dan Florness did not appreciate. Here’s the exchange:
Merkel: Then just lastly, Fastenal growing zero percent here in September and in a non-recessionary environment, it’s pretty surprising, I think, for a lot of us.
Florness: The industrial environment is in a recession - I don’t care what anybody says, because nobody knows that market better than we do. You know, we touch 250,000 active customers a month.
Roger that, Mr. Florness.
Of course it’s not just the fact that 32 of Fastenal’s top 100 customers are seeing top line declines of more than 10% that leads us and others to suggest that the US may already be in a recession. Indeed, it’s not even the fact that 17 of those 32 are grappling with declines of 25% or more. Rather, the evidence is everywhere. Take bellwether Caterpillar for instance, which is in the midst of a truly historic sales slump that’s now entering its 35th month.
And so, while the likes of Dan Florness remain extremely concerned about the current industrial environment, one person who isn't concerned about potential spillover effects into the “rest” of the US economy is Goldman’s David Mericle, whose last name is not to be confused with “miracle”, although as you can see from the excerpts below, that’s precisely what Dave seems to be banking on.
First, the bad news:
We continue to see the underlying pace of economy-wide growth as moderately above-trend. But manufacturing surveys and recent earnings reports suggest that the manufacturing sector might be following the energy sector into contraction. The large gap between the manufacturing and non-manufacturing sectors that opened at the beginning of this year has widened in recent months, raising concerns that the more foreign-exposed manufacturing sector could become a channel through which weaker global growth affects the US economy.
The sharp contraction in the energy sector has contributed to the slowdown in industrial production (IP). The left panel of Exhibit 2 shows that the deceleration of IP is less severe when energy-related categories are excluded, and we have also found evidence that an additional 0.4pp of the slowdown is due to spillovers to other industries from drilling. Nevertheless, accounting for these contributions still leaves a substantial slowdown.
The good news, however, is that "this time is always, always different" - apparently:
US states vary in the manufacturing intensity of their economies, though the variation in the mining share (which includes energy) is much larger. We find that the loss of 1 manufacturing job has been associated historically with the loss of 1.5-2 jobs outside of the mining and manufacturing sectors.
But how large have spillovers from the recent slowdown been? To find out, we compare state-level employment growth outside of the manufacturing and mining sectors over the last year to three other state-level measures: (1) the manufacturing share of total payroll employment, (2) manufacturing earnings as a share of total earnings from the personal income report, and (3) exports originating in the state as a share of GDP. We do not find evidence of negative spillovers using any of these three variables, and the same holds for the manufacturing share of state GDP and growth rate of manufacturing employment over the last year.
Goldman's conclusion: "...while the slowdown in manufacturing is genuine and history suggests it will likely lead to some negative spillovers, the recent data do not show evidence of such spillovers yet."
Fair enough, but we would once again note that things seem to be deteriorating rapidly and it very well could be that the knock-on effects simply haven't materialized yet. For instance, consider the following and draw your own conclusions as to where the manufacturing sector is headed (from late last month):
With 14,600 manufacturing jobs lost in August, this was the worst month for the US manufacturing sector since January 2010.
Where this data becomes more disturbing, and where it can be seen in full context, is when clustering the monthlies into full year buckets. It is here that the full impact of what is now clearly at least a manufacturing, if not yet service, recession can be witnessed.
As the chart below shows, according to ADP, for the first time this decade, the US hasn't created a single manufacturing job for the entire year. In fact, it has lost some 6,600 jobs.
In other words, maybe - just maybe- Goldman is simply looking for "spillovers" prematurely. That is, if Fastenal's Dan Florness is correct, we've entered a definitive recession for the industrial environment and as the charts shown above clearly demonstrate, things took a decisive turn for the worst in September.
So we'll take a wait and see approach here, as we wait to hear from ADP again on November 4 and as we look towards the October NFP print but we're willing to bet that Goldman may be revising their upbeat assessment in the months ahead. Then again, who cares? It's all about waiters and bartenders these days...
»
- 6827 reads
- Printer-friendly version
- Send to friend
- advertisements -
If Goldman ever speaks the truth, it is only by accident
Contained - the point where it can go no lower.
I'd beware a couple analysts named Blair and Merkel.
WTF subprime auto dead? Need to find another bubble.
I'm offering 100-to-1 odds Goldman greedy fucking thieves are shorting US manufacturing.
Any takers?
You mean just like the (omnipotent) Fed said that the housing crisis was contained in 2007?
In other news, colostomy patient is celebrate remission of colon cancer.
Goldman is like the Corexit of the oil spill world.
The spill still happened, but Corexit makes it appear to go away.
Until you see the hidden damage that comes to light years later.
Goldman - making money from hiding the truth for generations.
Top manufacturing jobs added...survey says "manufacturing burgers and drinks".
it is much easier to manipulate the service sector statistics than manufacturing where there are fewer players to track - waiters and bartender jobs by the restaurant community reporting is not reliable - numbers are made up
Contained....yeah, by China.
Eat my shorts!
Don'y worry, they will.
Hahahahahahahaha
LHaHCL (Loud Heinous and Hysterical Crackling Laughter)- is the Signature of the Insane
http://verbewarp.blogspot.com.au/2015/10/its-not-economy-stupid-its-econ...
Hahahahahahacracklehahaha
and trustees in bankruptcy.
'
'
'
BS.
Wait until the robots and automation really get geared up in a couple of years.
•?•
V-V
Goldman says manufacturing declined in contained. So...now we know we're fucked.
"Mission Accomplished"
Did i just wake up in 2007? Sounds like we're about to crest.
Contained, all right.
It's contained in a CASKET.
How do you know when a Goldman banker is lying.
His lips are moving.
At this time of year in '07, we were being told everything besides housing was doing "just fine".
The idiots at the corporate America company I worked for at the time said the same thing, right into the Spring of '08. From my perspective, things started to look bad in January of '08 (high-end power tools manufacturing).They kept hiring (!) right into July, and kept the "everything is fine" meme going up until about that point.
That August, the entire organization reported to the conference room, only to be told that "oops, uh, we over-hired in the last 6 months".
Imagine how bad it really is out there, right now, with a lot of the same ignorant fools running a lot of companies, but with years of ZIRP and money printing papering over the bad numbers which should be on their books.
The full retard mode is just about everywhere in this economy. It'll be ugly when things fall apart.
What this really means is that we are going to lose even more manufacturing jobs, have more plant closings, offshoring and create even more bartending/serving jobs.
Agreed SSQ except I thnk we have reached peak bartending jobs. Unless someone is opening new bars or new customers come along the waitstaff figures are just turnover by now with perhaps a last gasp for the christmas trade.
deleted
When you have to drill down through data to find out what it is like for Americans to be underpaid and yet considered fully employed and used as a statistic to show positive growth, you know they have been reaching for a very long time.
What I find idisturbing is what happens to Americas GDP when you take the hogwash financial market out of the equation.
If artificially raising stock prices is t printing money then I do not know what is. Not only are we awash in cash, were awash in many overpriced commodities - I.e. Financial instruments .
If 5 trillion government bonds can be sold on the basis of negative growth it only means they are using those bonds as collateral for other loans of high ratios to invest elsewhere...I.e. The share market.
Frankly perhaps the interest rate rise Yelin is wanting could in effect pull back the share market and force that cash to go elsewhere - where is the question .
Paul Eberhart sure is glad for folks like goldman. pauleberhart.com