"But It's Only A Manufacturing Recession, What's The Big Deal" - Here's The Answer

Tyler Durden's picture

Despite the services economy starting to turn down towards manufacturing's inevitable recessionary prints, there remains a hope-strewn crowd of status-quo face-savers desperately clinging to the linear-thinking "but manufacturing is only 12% of economic output and thus is no longer a good bellwether for the overall economy" narrative. Here is why they are wrong not to worry...


On the left below, we see the mainstream media's perspective on why a collapse in manufacturing "doesn't matter" and you should buy moar stocks.

On the right below, we see why it does... especially since the "doesn't matter" narrative is used only to justify buying moar stocks...

h/t @Spruce_gum


Which explains why this is happening!!

Self-destructing The Fed's very own wealth-creation scheme.

While it is hoped that the economy can continue to expand on the back of the "service" sector alone, history suggests that "manufacturing" continues to play a much more important dynamic that it is given credit for.

The decline in imports, surging inventories, and weak durable goods all suggest the economy is weaker than headlines, or the financial markets, currently suggest. And in fact, services are starting to follow...


Of course, as we previously concluded, while recessions are "needed," public opinion is generally quite simple in regard to recession: upswings are generally welcomed, recessions are to be avoided. The “Austrians” are however at odds with this general consensus — we regard recessions as healthy and necessary. Economic downturns only correct the aberrations and excesses of a boom. The benefits of recessions include:

  • Sclerotic structures in the labor market are broken up and labor costs decline.
  • Productivity and competitiveness increase.
  • Misallocations are corrected and unprofitable investments abandoned, written off, or liquidated.
  • Government mismanagement of the economy is exposed.
  • Investors and entrepreneurs who were taking too great risks suffer losses and prices adjust to reflect consumer preferences.
  • Recessions also allow a restructuring of production processes.

At the end of the corrective process, the foundation for a renewed upswing is more stable and healthy. We thus see deflationary corrections as a precondition for growth in prosperity that is sustainable in the long term. Ludwig von Mises understood this when he observed:

The return to monetary stability does not generate a crisis. It only brings to light the malinvestments and other mistakes that were made under the hallucination of the illusory prosperity created by the easy money.

However, in addition to leading to true temporary hardship for the malinvestment-affected areas of the economy, an economic recession in the near future would represent a harsh loss of face for central bankers. Their controversial monetary policy measures were justified as an appropriate means to nurse the economy back to health. That is, their efforts to end or avoid helpful recessions were claimed to contribute to the eagerly awaited self-sustaining recovery.

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stant's picture

King dalla , until it ain't

Lore's picture

You don't need to be "Austrian" or study economics.  It's trivially obvious to anyone who is intellectually honest.  A healthy economy is one where you make real stuff and sell it to a real customer.  That's it.  And that shows you just how much of the present "economy" is pathological snake oil. 

Stuck on Zero's picture

So true Lore. And when this new product hits the shelves the economy is going to explode: http://www.theonion.com/video/sony-releases-new-stupid-piece-of-shit-tha....


Father Thyme's picture
Father Thyme (not verified) Stuck on Zero Jan 24, 2016 10:33 AM

you make real stuff

Robots make real stuff. (fify)

Dear Striking Fast-Food Workers: Meet The Machine That Just Put You Out Of A Job

Robots Made Fast-Food Workers Obsolete: Now They Are Coming After These 791,200 Jobs

Chinese Company Replaces Humans With Robots, Production Skyrockets, Mistakes Disappear


Oldwood's picture

So now we are going to pretend we have no choice but to purchase stuff made by robots....like we pretended we had no choice but to buy Chinese or Mexican or even borrow money for that matter? Fuck we deserve what we get!

Government needs you to pay taxes's picture

But with a 38% corporate tax rate in the US, rest assured, the robots will be set to work overseas.

Oldwood's picture

We keep saying there is no choice...but there is always a choice and it is almost always the one with positive long run advantage that has the highest immediate cost....a cost we have demonstrated again and again that we will not pay. Our liberty suffers of the same blight, the cost is always too high to pay, and only gets more expensive every day that goes by. We will wait until no jobs remain before we finally wake the fuck up. As it has always been, only WE can save ourselves, by our actions, our choices and our willingness to accept reality rather than evade it. Buy local or at least buy from the production of your own economy, but DO NOT buy anything produced outside your economy unless there is no other choice, CHOICE, CHOICE.

Kayman's picture

ZIRP subsidizes capital (robots) over labor. Labor doesn't stand a chance.

Canadian Renegade's picture

Yup, easy for a giant Corp to finance million dollar robots when they only have to pay 1-2% interest. Try that at 10% and all of a sudden employees don't look so bad.

Everyman's picture

Probably the best and most succinct response I have read on ANY financial/political/economic blog or site.

Real stuff and real customers.  Brilliant!


Laplacian2003's picture

I love the simplicity of the statement as it is just common sense.  But it also underlies what has happened in this country partcularly to major manufacturers as common sense long ago got thrown out the window.  Take for example my employer, a long running successful chemical company.  Ten years ago, the company was run by engineers and people who actually understood the products being made.  It isn't rocket science to know that you have to bring in more money than you spend to be successful.  Flash forward to today, and our executive team is largely financial and professional consultant types who have no idea what we make, nor do they care.  They run our business as if we are just a bunch of numbers on a spreadsheet.  Consequently we have no strategy, and our internal manufacturing and R&D capabilities are on the verge of collapse.  Unfortunately, if you look at most manufacturing in the US, it is the same story.   We have "financialized" everything in this country and it will eventually be our downfall....


nidaar's picture

Nah, it's easier to kill others and plunder their stuff. Worked so well for pharoahs, ceasars, khans, sultans, czars...

OldPhart's picture

We're still pretty strong in mining and ready mix manufacturing; not as strong as we'd like, but since the 74% fall from 2006 to 2007, we've maintained about 2% increase per year.  Also, we bought out weaker competitors in new markets.  The companies I oversee went from 22 to fifty, then Friday, 52...53 in March (I'm told in my mushroom role.)

Steel fabrication has been continually profitable since 2007, aggregate sales have maintained the entire company, Ready Mix has been all over the place, positive and negative, since 2007.  Logistics, hauling rock and powder, has been consistently profitable.  Recycle has been modestly profitable.  Residential rentals have been highly profitable throughout.  Retail steel was profitable up until about five years ago, when it rolled over HARD.   We fired a 35 year VP over Retail Steel. 

Two weeks ago, after the latest casualty in this area was let go, I did some in depth research and found that my ass was smoked.  So much had been blown up in there...you wouldn't tell the difference between bacon.  I was told everything was LIFO, but digging through the computers and reports, I found that it's on a, not so accurate, average cost.  And the price of steel has dropped damn near as hard as oil.  That means our old inventory is over valued by about $4 million.  And there's no way to show any sort of profit until that loss is recognized and dealt with. 

Now, to hook to your comment, once the King Dalla dies, we'll have about a million pounds of steel that will skyrocket in price in SDR basis.  We will have cement and flyash inventories that will skyrocket in value, shop inventory (for vehicle/equipment repairs that will skyrocket, fuel inventories that would normally skyrocket doing whatever will happen in the fuel market, and replacement/additions will cost dearly.

So, once King Dollah is dead...so is EVERYTHING else in the US.

NoPension's picture

A good steel supplier sits on a lot of shapes and sizes. It doesn't fly off the rack, like grocery store, right? So you have to mark to market every period? I'm not an accountant, and don't know all the tricks.
What happens if the price doubles?

Everyman's picture

Commodities take a LONG time to recover.  That is because of the "production" tail at the end before production shuts down completely.

Father Thyme's picture
Father Thyme (not verified) NoPension Jan 24, 2016 10:44 AM

Great Lakes tonnage was down 10%.


Soo Locks close with Great Lakes shipping down about 10 percent

carlnpa's picture

I work with one of the major steel companies in PA, they are in deep shit.

I work with one of the major cement companies in mining and production, they are in deep shit.

I work with a number of foundries, and construction vehicle suppliers, and heavy ag equipment manufacturers.

They are all in deep shit.  Severe capital controls, delayed pms, fix only if broken, and late late bill payment.

I have been heavy industrial engineering for almost 30 years and have never seen anything like I am seeing now.

I'll throw one more out there.  We also row crop 49 acres in corn, wheat, beans.  Another ysear like this past one and many farmers are done, very low commodity prices and very high seed and chemical prices.

It almost appears that ALL the productive tangible production in our society is being DELIBERATELY destroyed.

Good luck wih a service only based society, therre will be a few very rich and many very poor.  It won't last long,

Government needs you to pay taxes's picture

Farmers are getting squeezed HARD.  I speak with them all the time.  They have all levered up to buy the outrageously expensive ag equipment, and the prices for their produce have been hammered by more than 50% (corn, cotton, wheat).  Now, farmers had it really good from about 2010-2014.  But I dont think they saved enough during that period to pay off their equipment/land notes or prepare them for the long hard times ahead.  If you are a farmer with debt, you are in TROUBLE.  The best place to be is farmer without debt.  That way, when the deflation gives way to hyperinflation (and that might take years), you've got the means to feed your family plus produce enough to barter for the items you need.

Oldwood's picture

Our reality is that the bulk of all commerce is for shit we don't need. It is driven by marketing and continual indoctrinations that tell us our happiness must come from our purchasing power, be it derived from hard labor or a credit card. As our productivity falls, so will our discretionary purchases diminish, creating a downward spiral of weakening demand. Like it or not, manufacturing, while producing a lot of crap, also produces our food and shelter and medicine. The stuff that keeps us alive. These declining manufacturing numbers tell me that our ability to support ourselves is declining as well.

They have been telling us for years that buying imports was a good thing, at the same time as we have seen our employment base erroded away. If we are so stupid, so blind as to not be able to see that we are eating ou own limbs in this, what possible hope do we have?

Is our only hope to have a benevolent dictator that shelters us from the harm of our own actions by lying to us until it is too late to awaken?

If we could only resist the lies. If we could only resist destroying those who would attempt to waken us.

Kayman's picture

Government and Services are parasitical. They need warm blood- private incomes- or they die.

LocalBoy's picture

I have watched the cement conglomerates buying smaller, private, ready mix producers for the past several years. Rumor has it the cement producers are allocating the market among themselves. The smaller producers were not weaker competition, they were just simply competition. 

Cognitive Dissonance's picture

Damn! You mean we are being lied to again?

<Whatever happened to the fourth estate>?

trueFacts's picture

thanks.  that is a truly excellent link.  kindly forward any other links that offer such clarity and scholarly insight on topics economics/finance/industry.

Kayman's picture


Investigative Journalism has become an oxymoron- heavy on the moron.

I need more asshats's picture

Stocks are undervalued if you compare them to Americas future. Great things are going to happen for America!

monk27's picture

Sure, dude ! But you forgot your pills...

SunRise's picture

I thought he may have overdosed.

JRobby's picture

Either way, that path ends badly

Once convinced that a manufactured chemical substance will change your life, you are over.

Tall Tom's picture

Once convinced that a manufactured chemical substance will change your life, you are over.


But manufactured chemical substances do change your life. At times they can be life savers.


Where would we be without the advent of the antibiotics? Where would we be without plastics?


Where would we be without refined Petroleum products?


We would not be typing on the computer without the chemical doping of synthetic silicon crystals.


We would be living in a pre industrial agraian society. Life would not be anything like it is today without manufactured chemical substances.


But just like guns chemical substances can be misused and abused.


The lesson is that you do not blame inert objects that have no volition.


And generally a drug addict's life is over BEFORE he ever abuses the substance.


He uses because he is mentally ill in the first place. The drugs actually do not make him "high". The drugs make them feel adequate as they feel inadequate before ever taking the damn shit in the first place.


There are two types of crazies...Those who are using drugs and those who need to be using drugs.


Drug use does not cause craziness. You have the cart before the horse if you really think that.


Craziness is the cause of drug use.


You have to be crazy to put that crap in your body.

The Merovingian's picture

Excellent, channeling a little MDB.  I respect that.  Love the hat!

Bearwagon's picture

Even reminds me a bit of "RoboTrader" ....  ;)

Janet Shalom Bernanke's picture

The Fed would rather try to save face than to do what is right for the country.  But it is more than just saving face -- they have created a monstrous problem now, and they know the unwinding of it will devastate the country.

Thus the reason why a cartel like the Fed should not exist in the first place.

When enough of the public wakes up to the extent of the destruction this gang has done to the country and world at large, the public will demand that justice be done, and this gang be defanged and made to account for their crimes.


Janet Yellen and other Fed members, you should research history, and you will see that crimes on the scale of yours will always lead to prosecution.

You think you can hide behind your so-called authority according to the law,  When the public outcry becomes loud enough, the justice system will find some charges to pin on you.

If you have been manipulating markets such as crude oil and S&P 500 futures which I believe is highly likely,  which is illegal, eventually there will be a full and complete audit, and your accomplices in these crimes will implicate you.    Look at the punishment Bernard Madoff received (150 years in prison) after causing a few billion in damages to his clients finances.  Your crimes are many orders of magnitude worse, and far reaching -- so your punishment should be orders of magnitudes higher than Madoff's.


JRobby's picture

All part of the plan

No "face saving" going on for some time now.

Kayman's picture

Without the implicit backing of the nation's treasury, there would be no Fed.

CoolClo's picture

"When enough of the public wakes up to the extent of the destruction this gang has done to the country and world at large, the public will demand that justice be done, and this gang be defanged and made to account for their crimes."


The Sheeple will never wake up, slumber is one of their traits..

Squid Viscous's picture

burger flippers need burger eaters...?

will email my thesis to Mr. Yellen monday a.m. don't want to disturb his sabbath.

Donald J. Trump's picture

Didn't they re-classify burger flippers as manufacturing?

Janet Shalom Bernanke's picture

People still make burgers?  I thought the politicians said burger cooking was included in the jobs that "Americans don't want to do", just after the Burger-Bot Burger production machines came on the scene.

Kayman's picture


You just don't get the concept of a "Service" economy. Set up a Wendys across the street from a McDonalds and have the employees eat in each others restaurants. Eventually a hospital will move in and Government, seeking taxing opportunities will magically appear.

Nothing to it. 

Dragon HAwk's picture

If Americans knew their Accounting and Economics as good as they know their Sports and their I Shit..

  we and They would be in a lot better Shape

steelrules's picture

"It is well enough that people of the nation do not understand
our banking and monetary system, for if they did,
I believe there would be a revolution before tomorrow morning." - Henry Ford

JRobby's picture

Dragon, you completely nailed it!


I need more asshats's picture

Wait to they start putting horny pills in the municipal water supplies. America baby boom part II.

But first we need a little war to guarantee the completion of Greater israle.

Then it's time to fuck. Ask Janet she'll tell you.

OldPhart's picture

No amount of horny pills will make me fuck that guy, Yellen.

[re:  State Farms Jake]