Tag Archives: Manufacturing

A China Trade Deal Just Finalizes the Divorce, from Charles Hugh Smith

Commercially, the Chinese and US will be going their separate ways. From Charles Hugh Smith at oftwominds.com:

Each party will continue to extract whatever benefits they can from the other, but the leaving is already well underway.

Beneath the euphoric hoopla of a trade deal with China is the cold reality that the divorce has already happened and any trade deal just signs the decree. The divorce of China and the U.S. was mutual; each had used up whatever benefits the tense marriage had offered, and each is looking forward to no longer being dependent on the other.

Any trade deal is like closing the barn door months after the horses left.Corporate America’s supply chains are already leaving China for lower cost, friendlier countries, and for its part China has already made its intentions to escape the grip of the U.S. dollar abundantly clear.

Indeed, China has clearly stated its plan to move up the value chain globally and rely more on its domestic consumers to fuel growth rather than exports, which have been weakening for some time (see chart below).

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The Obama Film American Factory Backfires, by Peter C. Earle

The Obamas’ first film had the opposite effect on at least one viewer than what was intended. From Peter C. Earle at aier.org:

Higher Ground, the production company founded by Michelle and Barack Obama, has released the first of a planned seven-film series on Friday. American Factory chronicles the opening of a Chinese factory near Dayton, Ohio, where a GM plant closed in 2008. It’s reasonable to suppose that the point was to alarm us about the wiles of global capitalism. Oddly, the film might have the opposite effect on many viewers. It certainly did for me.

The documentary opens with a prayer on the day the plant closes as tearful workers see the last vehicle come off of the production line. A few years later, Fuyao Glass announced its intent to open a glass-production facility in the shuttered facility. One of our first glimpses is of a question and answer as American employees of the Chinese firm speak about the goals of the firm to prospective employees: they plan to employ several thousand people in all capacities, but mostly blue-collar work of the type that disappeared when the local GM plant shut down. One prospect asks if this will be a union shop. No, he is told. The plan is to be non-union.

Perhaps because of their proximity to widespread unemployment, everyone who heard that answer nods in agreement. This new factory is the only game in town, and the best news most of these out-of-work machinists and factory hands have heard in years.

Initially, most of the senior managers are Americans, but alongside the American workers are a group of Chinese workers. Also initially, most of the U.S. workers are deeply appreciative of the new opportunity. We follow one who, since the closing of the GM plan, has been reduced to living in her sister’s basement. Others have been out of work for some time, barely getting by on part-time work and odd jobs.

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China really is to blame for millions of lost U.S. manufacturing jobs, new study finds, by Jeffry Bartash

Maybe Trump was on to something. He did win an election, after all. From Jeffry Bartash at marketwatch.com:

Many economists have long blamed automation as main culprit

iStockphoto
Robots are not to blame for the loss of millions of U.S. manufacturing jobs.

Millions of Americans who lost manufacturing jobs during the 2000s have long ”known” China was to blame, not robots. And many helped elect Donald Trump as president because of his insistence that China was at fault.

Evidently many academics who’ve studied the issue are finally drawing the same conclusion.

For years economists have viewed the increased role of automation in the computer age as the chief culprit for some 6 million lost jobs from 1999 to 2010 — one-third of all U.S. manufacturing employment. Firms adopted new technologies to boost production, the thinking goes, and put workers out of the job in the process. Plants could make more stuff with fewer people.

In the past several years fresh thinking by economists such as David Autor of MIT has challenged that view. The latest research to poke holes in the theory of automation-is-to-blame is from Susan Houseman of the Upjohn Institute.

Academic research tends to be dry and complicated, but Houseman’s findings boil down to this: The government for decades has vastly overestimated the growth of productivity in the American manufacturing sector. It’s been growing no faster, really, than the rest of the economy.

What that means is, the adoption of technology is not the chief reason why millions of working-class Americans lost their jobs in a vast region stretching from the mouth of the Mississippi river to the shores of the Great Lakes. Nor was it inevitable.

Autor and now Houseman contend the introduction of China into the global trading system is root cause of the job losses.

Put another way, President Bill Clinton and political leaders who succeeded him accepted the risk that the U.S. would suffer short-term economic harm from opening the U.S. to Chinese exports in hopes of long-run gains of a more stable China.

To continue reading: China really is to blame for millions of lost U.S. manufacturing jobs, new study finds

Make America Competitive Again, by Robert Gore

US manufacturing output may well attain new highs, but manufacturing employment probably won’t.

After World War II, US industry and manufacturing reigned supreme. Most other countries’ industrial infrastructure had been destroyed and their economies were in ruins. Detroit and its car companies were emblematic of the time. General Motors was the world’s largest corporation, the big three dominated the US and many export markets, workers in their unionized workforces made wages that could sustain a family in middle class comfort, and Detroit was the third largest American city. This was the halcyon period that commentators invoke when they talk of a “rebirth” of US factories and restoration of manufacturing jobs.

But can there be a rebirth of something that never died? While the number of manufacturing jobs has been in a long-term decline, the output of manufactured products has not. U.S. factories produce twice as many goods as they did in 1984 with one-third fewer workers (“Opinion: Think nothing is made in America? Output has doubled in three decades,” Marketwatch, 3/28/16). Output, a substantial portion of which is exported, is close to the all-time high it reached just before the financial crisis and at 36 percent of US GDP is the largest sector of the US economy. Notwithstanding shuttered factories that have moved to lower wage jurisdictions (sometimes outside, sometimes inside the US, mostly the south), America’s industrial capacity is as high as ever.

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However, by the late 1960s the auto industry had a target on its back, for reasons that have general applicability. While a middle class lifestyle for assembly line work is great for the employee, it’s an opportunity for the employer’s competitors. If they can get the same work from the same number of workers at lower wages or fewer workers at the same or lower wages, or if they substitute capital for labor and automate, they can offer the same or better products at a lower price. The auto industry at first dismissed the competitive threat from Japanese car companies, but by the 1970s they were losing market share, especially in lower-end economy cars.

The mercantilist policies of the Japanese government undoubtedly helped their car companies, at the expense of the rest of Japan. At the government’s behest, its industrial conglomerates borrowed at preferential rates. Smaller, entrepreneurial firms could only access credit at much higher rates. Floating exchange rates allowed Japan to depreciate its currency, reducing citizens’ purchasing power, to further game the terms of trade for the car companies and other exporters. American car makers did not have reciprocal access to the Japanese market because of often hidden trade barriers. They complained loudly to Washington, and the Reagan administration got the Japanese to agree to “voluntary” trade restrictions. In response, the Japanese car companies brought their factories to the US, set up non-unionized shops offering about half of unionized wages, found plenty of takers, and continued to gain market share.

Nobody pines for the glory days of the 1870s when half the American workforce was agricultural. Now 2 to 3 percent of the workforce produces multiple amounts of the crops produced back then for the same reason two-thirds the manufacturing labor force produces twice as many goods as it did in 1984: increased productivity. Competition drives that productivity; the requirement to do more with less is relentless, especially when international trade means that competition is global. We are not moving to a post industrial society any more than we have moved to a post agricultural one. People still need food and manufactured goods, but the number of workers required to generate either will continue to shrink, as it has for decades.

Mercantilist governments like Japan’s depreciate their currencies, suppress interest rates, and restrict access to their home markets, screwing most of their citizens for the benefit of favored export industries. Take a look at how those policies have worked out. Its stock market topped just as Japan was supposedly going to take over the world at the end of 1989 (its main averages are still less than half of what they were then), and it has had multiple recessions since. It staggers under the developed world’s highest government debt load (as a percentage of GDP) and huge private debt, with an aging population and well below replacement birthrate. As debt continues to grow and opportunities dwindle, the Japanese are foregoing children.

China, whose mercantilist policies provoke Donald Trump’s wrath, is due a reckoning as well. Its credit outstanding has gone from $500 billion to over $30 trillion in three decades, a sixty-fold expansion. Much of its miraculous growth has been the same kind of “growth” you get when you run up your credit card. Because of its one-child policy, its demographics are almost as ugly as Japan’s. It has to cheapen the yuan to keep the export machine humming, but that’s spurring capital flight. It has gone beyond the point where a yuan’s worth of credit buys more than a yuan’s worth of output, but if it turns the credit spigot off or even raises interest rates, it tanks its economy, financial system, and housing market. The next few years should demonstrate that the brilliant bureaucrats in Beijing are no more brilliant than their counterparts in Washington, London, Brussels, or any other apparatchik-infested burg.

Trump’s recent Carrier deal is mercantilism: tax Indiana’s taxpayers to preserve Carrier jobs. His proposed 35 percent tax on American companies that move factories to foreign nations and then export to the US market is more of the same. He may keep US companies in the US, but the competition is global. Unless he’s going to impose across-the-board tariffs—more mercantilism—nothing stops foreign companies from availing themselves of the lower labor rates denied US companies and exporting to the US market.

No matter what tariffs and other trade barriers Donald Trump and team enact, in the face of relentless automation the halcyon days of manufacturing employment aren’t coming back. There will also always be competitors, including American companies, who actually compete, who drive productivity gains that both destroy and create jobs. If Trump wants to ensure that US companies and workers lead the pack, he has to make America competitive again. Counterproductive mercantilist gestures won’t do it. He has to tackle multiple Augean stables befouled by the government he will soon lead. It shall indeed be a Herculean task.

Next: Making America Competitive Again

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From An Industrial Economy To A Paper Economy – The Stunning Decline Of Manufacturing In America, by Michael Snyder

Trump is right about one thing: the sad story of the decline of American manufacturing. From Michael Snyder at theeconomiccollapseblog.com:

Why does it seem like almost everything is made in China these days? Yesterday I was looking at some pencils that we had laying around the house and I noticed that they had been manufactured in China. I remarked to my wife that it was such a shame that they don’t make pencils in the United States anymore. At another point during the day, I turned over my television remote and I noticed that it also had “Made In China” engraved on it. It is still Labor Day as I write this article, and so I think that it is quite appropriate to write about our transition from an industrial economy to a paper economy today. Since the year 2000, the United States has lost five million manufacturing jobs even though our population has grown substantially since that time. Manufacturing in America is in a state of stunning decline, our economic infrastructure is being absolutely gutted, and our formerly great manufacturing cities are in an advanced state of decay. We consume far more wealth than we produce, and the only way that we are able to do this is by taking on massive amounts of debt. But is our debt-based paper economy sustainable in the long run?

Back in 1960, 24 percent of all American workers worked in manufacturing. Today, that number has shriveled all the way down to just 8 percent. CNN is calling it “the Great Shift”…

In 1960, about one in four American workers had a job in manufacturing. Today fewer than one in 10 are employed in the sector, according to government data.

Call it the Great Shift. Workers transitioned from the fields to the factories. Now they are moving from factories to service counters and health care centers. The fastest growing jobs in America now are nurses, personal care aides, cooks, waiters, retail salespersons and operations managers.

No wonder the middle class is shrinking so rapidly. There aren’t too many cooks, waiters or retail salespersons that can support a middle class family.

Since the turn of the century, we have lost more than 50,000 manufacturing facilities. Meanwhile, tens of thousands of gleaming new factories have been erected in places like China.

Does anyone else see something wrong with this picture?

At this point, the total number of government employees in the United States exceeds the total number of manufacturing employees by almost 10 million…

Government employees in the United States outnumber manufacturing employees by 9,932,000, according to data released today by the Bureau of Labor Statistics.

Federal, state and local government employed 22,213,000 people in August, while the manufacturing sector employed 12,281,000.

The BLS has published seasonally-adjusted month-by-month employment data for both government and manufacturing going back to 1939. For half a century—from January 1939 through July 1989—manufacturing employment always exceeded government employment in the United States, according to these numbers.

You might be thinking that government jobs are “good jobs”, but the truth is that they don’t produce wealth. Government employees are really good at pushing paper around and telling other people what to do, but in most instances they don’t actually make anything.

To continue reading: From An Industrial Economy To A Paper Economy – The Stunning Decline Of Manufacturing In America

There Are 9.93 Million More Government Workers Than Manufacturing Workers

An interesting chart from Anthony B. Sanders at davidstockmanscontracorner.com:

The August jobs report was filled with some interest factoids, like there are now 9.93 million government workers than there are manufacturing workers.

That is a ratio of 1.81 government workers for every manufacturing worker.

Such was not always the case. But a variety of factors such as labor cost differentials, EPA regulations and taxes had led to manufacturing jobs to be sent overseas.

Now a 1.81 government to manufacturing employment ratio is called OVERHEAD. And you wonder why high paying manufacturing jobs are fleeing to other countries?

http://davidstockmanscontracorner.com/there-are-9-93-million-more-government-workers-than-manufacturing-workers/

What Rail Freight Volume just Said about China, by Wolf Richter

The Chinese economy is slowing down, although their economic statistics are so unreliable that it’s impossible to say how much. From Wolf Richter at wolfstreet.com:

Mandating top-down economic growth is not enough.

The Chinese government is getting nervous about the numbers and is insisting, top-down, on obtaining economic growth of 6.5% to 7% this year, one way or the other.

China’s cabinet has sent inspectors fanning out to provinces across the country to “keep economic growth within a reasonable range and ensure the main objectives and tasks of this year’s economic and social development will be completed,” according to Xinhua news agency, cited by Reuters. Because, apparently not all of China was playing along….

Some regions and government departments are not coordinating their policies well and some officials are lazy in their work, Xinhua said.

These inspectors, in addition to keeping up the pressure on growth, are also supposed to make sure that major policy measures are implemented along with “supply-side structural reforms” – cutting, for example, the massive and destructive overcapacity in the steel and coal sectors and the power generation sector. And these inspectors also supposed to support investment projects and innovations.

The government must have taking a good look at the rail freight data and is getting desperate, and it’s going to force official growth to happen, because the rail freight data, one of the key gauges of the goods producing economy, is dismal and contradicts the official growth story.

The National Development and Reform Commission (NDRC) said Monday that rail freight volume in July dropped 5.8% from a year ago, to 263 million tons of cargo. For the first seven months, rail freight volume plunged 7.3% year-over-year.

But 2015 was already a terrible year.

Volume of rail freight traffic, as measured by metric tons of cargo transported and the distance traveled in kilometers, had plunged 13.4% from 2014, to 2.38 trillion ton-kilometers, according to Statista. And in 2014, rail freight volume had fallen 5.8% from 2013:

Note how freight volume plateaued in 2011, 2012, and 2013 before entering the decline phase. With 2015 freight volume down nearly to the level of 2007, freight volume for 2016 is shaping up to be considerably lower still – and has a chance of setting a decade low.

That doesn’t speak of growth in the goods-producing sector, or even of stagnation. That speaks of an ongoing sharp multi-year decline with hues of depression in certain areas of the goods-producing economy.

While some areas of the goods-producing economy are still growing, such as the production of autos and automotive components, with heavily incentivized auto sales likely to hit another record this year, other areas are in a steep decline, exports are weak, the construction sector is wobbling….

These losses in the goods-producing economy are now to be overcome by gains in the service sector as part of the great transition, and the service sector is growing, but it’s going to have to hustle to get even close. So maybe it’s just easier for all these local officials who submit economic growth numbers to the central government to do a little fudging.

And manufacturing has another challenge: the Great Equalizer has arrived. Read… Why China’s Multi-Decade Manufacturing Miracle is Over

http://wolfstreet.com/2016/08/30/what-rail-freight-volume-just-said-about-china/

Why Manufacturing Matters, by Erico Matias Tavares

From Erico Matias Tavares of Sinclair & Co. at linkedin.com:

A few weeks ago we penned an article on Open Source Ecology, an exciting new manufacturing concept developed by Dr. Marcin Jakubowski and his colleagues. Given its potential to create a multitude of self-reliant jobs and bring about a true manufacturing renaissance in much of the developed world, we thought that it would generate a lot of interest.

But boy were we wrong. Out of all the 77 articles that we have published since 2014 it got the lowest readings… EVER!

Now, we don’t consider ourselves to be any literary geniuses (nor we publish for “hits”), but we could never imagine that a title containing the word “manufacturing” could be so off-putting. We assume that for many of our dear readers, who for the most part live in Western countries, manufacturing is just an afterthought. The future and all the cool stuff is in services right?

Well, if this is the reason, we really need to think about how we approach manufacturing.

This is a personal topic for us. We started our career at General Electric (GE), at the time under the leadership of the legendary Jack Welch. As part of his broader risk management strategy, he bestowed an important oversight role on the finance function. Accordingly even us glorified “bean counters” were required to develop a deep understanding of our business, and particularly so in the manufacturing divisions. We even had to become conversant in Six Sigma, the art of business process improvement.

While we were busy trying to figure out the nuts and bolts of our job (literally), something else was happening at GE: Welch was transforming the company from a manufacturing giant into a services oriented powerhouse.

The core manufacturing divisions began moving into higher-margin aftersales (like maintenance contracts). More significantly, the financial services subsidiary leveraged the group’s top notch credit rating to fund an aggressive growth strategy, quickly becoming the primary source of earnings growth for the consolidated company. Consumer finance, lease providers and a plethora of other financial services companies were being acquired all over the world at breakneck speed.

Meanwhile, entire manufacturing facilities were being shut down in the US, earning the dynamic CEO the nickname “Neutron Jack” (everybody was gone when he came around, only the buildings remained).

GE turned out to be a leading indicator for the entire US economy. The same forces of globalization that were propelling Welch’s financial results were exposing other American manufacturers to cutthroat competition from emerging markets. As a consequence, they had to move upscale or offshore, or go out of business altogether.

To continue reading: Why Manufacturing Matters

“But It’s Only A Manufacturing Recession, What’s The Big Deal” – Here’s The Answer, by Tyler Durden

From Tyler Durden at zerohedge.com:

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.

http://www.zerohedge.com/news/2016-01-23/its-only-manufacturing-recession-whats-big-deal-heres-answer

The “Real Stuff” Economy Is Falling Apart, by John Rubino

From John Rubino at DollarCollaps.com via theburningplatform.com:

Each month one or two high-profile government reports show the US is growing, adding jobs and generally recovering from the Great Recession. But it’s not clear how that can be, when the part of the economy that makes and moves real things keeps shrinking. Here’s a chart, published recently by Zero Hedge, showing that US manufacturing has been contracting for the past year:

Meanwhile, the companies that move physical things around are falling hard:

Railroad stocks drop after companies give downbeat outlooks

Railroad stocks dropped sharply Wednesday, after both Kansas City Southern and CSX Corp. provided downbeat outlooks for the current quarter at an analyst conference.

The sector’s decline helped pull the Dow Jones Transportation Average, down 2.1%, much more than the 0.9% decline in the Dow Jones Industrial Average. Kansas City Southern’s stock was the biggest loser in the group, tumbling 7.1% on volume that was more than double the full-day average, according to FactSet.

To continue reading: The “Real Stuff Economy Is Falling Apart”