Manufacturing Tuesday: Week of 01.05.2009

It's the start of the new calendar year, the start of a new Presidential administration (well on the 20th actually), and of course the start of the first business quarter. We got in some disturbing, ok that's putting it mildly, some crappy manufacturing news from the gang at ISM. The steel industry, in hopes of restoring some business, initiates a new campaign. Arizona & Michigan are starting a green jobs plans. All this, but first...

The Numbers!

This week's Numbers section actually will also be one our leader story. The latest from the Institute of Supply Management's Manufacturing Survey came in at below what folks were figuring. Now to those new to all this, the ISM Manufacturing Survey is a study of 300 manufacturing firms; the numbers are registered as an index, anything above 50 means expansion in manufacturing, below 50 the opposite.

The latest ISM Manufacturing Survey figure. for the month of December, came in at 32.4. Consensus was for 35, yet both numbers would continue the index's downtrend. The previous month's (November's) was 36.

December's latest broke new records, or I should say retreaded to levels not seen in literally decades! There are other components to the index, mini indexes you could say, one particular is known as the Prices Paid. This, as you probably have guessed, is what manufacturers are costing for materials and other such things for production.

The ISM Prices Index registered 18 percent in December compared to 25.5 percent in November, indicating manufacturers are paying lower prices on average when compared to November. This is the lowest reading for the index since June 1949 when it registered 10.6 percent. While 2 percent of respondents reported paying higher prices and 66 percent reported paying lower prices, 32 percent of supply executives reported paying the same prices as the preceding month. A Prices Index above 47.4 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Index of Manufacturers Prices.

- excerpt from the ISM's latest survey report, ISM, 2009.

So you may be asking, why make a big deal about lower costs? Isn't that good for everyone? Not necessarily in this case. While normally lower costs are often linked to higher profit margins, significant drops in prices could also reflect a general drop in demand. Also the drop in material costs reflect a drop in those manufacturer's or distributor's profit (or even into loss territory). Suppliers can only drop their prices so far until the very health or survival of those companies come into question. It's all about balance, or as I like to say, economic zen! The month of December, for all sorts of businesses, was horrible.

And things are not looking any better for their customers, as inventory for them is building up. Many of you who own businesses know that, unless theirs a big demand for that product, inventory build ups aren't good. The latest from ISM, their Customers Inventory index, reported an increase. Oddly enough, ISM also reported that Manufacturers Inventory dropped. This could be that companies know customers won't be buying as much and have already cut back on production. Though it only is for November, today's Factor Orders (located below) should cast some light on the manufacturer's situation, as a confirmation of sorts.

WASHINGTON (AFP) — US manufacturing contracted for the fifth consecutive month in December to a 1980 low amid a sharp Asian slowdown and deepening recession in the world's biggest economy, a survey showed Friday.

The Institute of Supply Management (ISM) said its key manufacturing index dropped 3.8 percentage points from November to 32.4 percent, far below the 50 percent level that separates expansion and contraction.

It was below the economists' consensus estimate of 35.4 percent and, according to the institute, the lowest reading since June 1980, when the index hit 30.3 percent.

- excerpt from "US manufacturing slumps to 1980 low: ISM", Agence France Presse, 2009.

Today we also saw the release of November's Factory Orders. This is an economic indicator that measures the dollar level of new orders. Basically, you see if new orders are growing or declining.

For the month of November (this is a lagging indicator), we saw new orders for durable and non-durable goods produced in our factories drop 4.6%. This was below the consensus of a drop of 2.5%. Still, November is an improvement over the previous one from October, where Factory Orders fell 5.1%. As noted above, business customers are not purchasing as much because they currently have an inventory situation that is not conducive to the level of demand. Also, November was at the height of the fear cycle that was goosed up by the media (not that fear wasn't warranted).

Demand for nondurable goods, items such as food, paper and petroleum products, dropped by 7.4 percent in November following a 3.8 percent decline in October. The declines for nondurable goods reflect falling demand and a big drop in prices, particularly for energy products.

The declines in November were led by a 37.7 percent plunge in demand for commercial aircraft, an extremely volatile series. Boeing Co. has been seeking to resume normal operations following the interruptions caused by a strike last year.

- excerpt from "Factory orders drop more than expected in Nov.", Businessweek, 2009.

One industry, which has in the past weighed heavily on the indicator, has been the automobile sector. Recently motor vehicle sales reported another major drop. According to a Wall Street article, sales of cars and light trucks dropped 36% for 2008. I suspect when December's Factory Orders comes out, we'll see this in the report.

For the month, sales of cars and light trucks fell 36% to 896,124 vehicles, according to Autodata Corp, a Woodcliff Lake, N.J., research firm. That is an improvement over both November and October; still, it was the fourth month in a row that sales failed to exceed one million vehicles.

For the full year, U.S. auto sales declined 18% to 13.24 million vehicles -- the lowest total since 1992, Autodata said.

- excerpt and graphic from "Auto Makers Close Books on Awful Year, Face More Ills ", Wall Street Journal, 2009.

Steel Industry: Please, when rebuilding infrastructure, buy American.

In 2007 Interstate 35W, a major bridge in the Minneapolis area collapsed, destroying scores of cars, over 60 injured and at last count 7 dead. The trajedy, along with the recent Katrina disaster, highlighted the physical decay of America's commons that help the economy. The bridge symbolized decades of non-investment and poor planning in favor of tax cuts and other financial mismanagement. It caste a light on the dire financial situation municipalities and states faced as a result of "Reganonmics." The bottom line we rested on our industrial laurels.

President Obama now wants to reboot the current state of our commons. From our roads to even broadband, the President wants to take us from America 1.0 to an America 2.0. The domestic steel industry knows this, and wants in on the action. Yet, given all the money that will be allocated to all these projects, our tax money could actually go to steel (and other industrial material) that will come from abroad. That is why everyone from the American Iron and Steel Institute to companies like Nucor want a "buy America clause" in those programs.

WASHINGTON (Reuters) – The ailing U.S. steel industry is pressing President-elect Barack Obama for a public works plan that could be worth $1 trillion over two years to boost flagging demand for U.S.-made steel, the New York Times reported in Friday's editions.

Daniel DiMicco, chairman and chief executive of Nucor Corp, a giant steel maker, told the paper the industry was asking the incoming administration to "deal with the worst economic slowdown in our lifetime through a recovery program that has in every provision a 'buy America' clause."

Since September, U.S. steel output has plunged about 50 percent to its lowest point since the 1980s, largely because construction and auto production have fallen sharply.

The fall-off in production of appliances, machinery and other electrical equipment has also reduced steel orders, sending the price of a ton of steel down by half since late summer.

Industry executives are "adding their voices to pleas for a huge public investment program of up to $1 trillion over two years," the Times reported.
- excerpt from "U.S. steel industry urges "buy America" recovery plan", Reuters, 2009.

I had pointed this article out to a free trader friend of mine, and she quickly pointed out that to make such a demand by the government would be a violation of WTO rules. I spent much of Monday and today (hence the delay in publishing this) looking such a rule. I have yet to find anything like that. But let's assume for a moment my friend is correct and that we foolishly signed on to some rule that bans us from having preferences towards a domestic source of steel or what have you. Well one need only look to our trading partners to also find cases of "preferential treatment." We need to gather evidence, just in case. So if we're hauled before some WTO tribunal, we can point to evidence from others. Frankly, given the precarious nature of the economy, let alone free trade and any Doha rounds, the WTO's not going to "burn their bridges."

Frankly, infrastructure projects' goals have always meant jobs, and in this case it should mean American jobs. You can't tell me, say in Canada, that highway construction jobs there shouldn't benefit Canadians. It's their tax dollars, they deserve those jobs, and we deserve to have our public works money go to our workers! Now if you read on in that Reuters article, you'll notice a comment from the head of Arcelor Mittal USA. The are a multinational steel outfit with plants from here to Africa. Now their US division wants in on the public works goodie bag. I say fine, but it should come with strings, and this is strings really that should apply to any company who wants in.

1) All while don't produce all of the original raw material like iron or aluminum that would go into those products, the end products or components should be made here. If aluminum (which if my memory of high school science is right, is bauxite) is to be shipped from say Australia or Russia, then let the industrial product be made here.

2) None of this fancy ass accounting gimmicks where the costs are declared outside the country to avoid taxes.

3) No outsourcing of workers, like you see our tech companies abuse the H1 B visas. I'll be damned if my tax money is going to go to a company who opts to bring in foreign workers to do the job.

4) Organized labor or some group is going to have to deal with the illegal immigrants who are exploited. Here in Chicago, well at least were I live, I have these immigrant entrepreneurs (mainly White central Europeans) who own construction outfits, nothing big, brag all the time how they hire only illegal immigrants from Mexico for dirt wages. I'm sorry, but that's modern day slavery in my opinion. And I'm sure isn't just these folks taking advantage of the surplus labor, I've seen major construction companies in the past housing boom utilize the same hiring tactics.

5) Minority contracting, if there ever was a good way to live the fortunes of inner cities, it's this. While a certain portion gets set aside, often the bigger "game" gets rigged towards the same big names. There needs to be hiring and investment programs in the inner cities where we see folks in those areas getting hired and budding entrapaneuers getting contracts.

6) Inner cities cannot be left out. You know, this past Summer there was a something of a "to do" about AT&T and others ignoring low income areas when it came to broadband product rollout. You had, literally, poor burbs (For example) surrounded by middle and richer suburbs get things like U-verse or even just faster packages of friggin' DSL. You literally had pockets of no product offerings. Now you may say "big deal, business has a right to pick it's markets." Not when they get my tax dollars to lay down the infrastructure to sell that product! I could go on about prices, but that's getting off topic. Oh, and the same goes for schools, inner city schools as well as low-income suburban schools deserve equal access to high speed internet.

There are other things, but I think you get the idea. So I bravo on pushing for a "Buy American clause". Saying that, we should also make sure we can verify that it's "American". And if, when we try to rebuild our roads, or our bridges, or even installing alternative energy platforms, if we cannot find a domestic source that we put the capital forward to encourage one.

Seeding the Grand Canyon State with Green jobs

There's a race now on, I can smell it, for the eco version of Silicon Valley. In Arizona, several initiatives are taking ground to create a green industry what the computer industry did for larger western neighbor. The Arizona Republic has an interesting piece on projects from groups ranging from the state's chamber of commerce to a university are doing.

The Greater Phoenix Economic Council, an economic development group, says a growth in green companies, especially solar, is among the best ways to diversify the state's economy and reduce its reliance on housing construction.

Arizona State University's new School of Sustainability has about 400 undergraduate and graduate students and expects to grow to 1,500 to 2,000 in four years, said Director Charles Redman.

Brigitte Bavousett, a Chandler resident who last month received the first ASU master's degree in sustainability, has held several jobs as a consultant while still a student. She senses a big future in sustainability, an overarching and developing career that includes environmental protection, minimizing wastes and maximizing the use of resources, especially people.


The GreenSummit Expo and Conference was so successful in 2007 that it was expanded in September and drew about 100 vendors. There's a new Phoenix chapter of the Arizona Green Chamber of Commerce, which drew about 400 people to its inaugural event Nov. 18.

A Green Collar Career Fair and Expo is planned Tuesday. Anne Marie Sonnier, job developer at Arizona Women's Education and Employment Inc., said one goal is to educate people that green jobs don't just mean installing solar panels or weatherizing houses but could include working in finance, human resources or some other section for a green company.

- excerpts from "Arizona hoping green initiatives will blossom into new jobs", Arizona Republic, 2009

I've been out to Arizona a dozen times, a good chunk of the fam' live out there. If there's one thing that state's got, it's sunlight! Now it makes total sense to take advantage of this. Lay the seeds for future solar energy development. Put money into not only solar collecting panels, but transmission systems. Just imagine, just for a moment if we pull this off, that state could become one of the nation's "batteries." Screw petroleum, we got mother nature's gift from the skys! What's going on here, and other green projects is one of those things where every nickel you spend comes back dressed up as a quarter!

BUT WAIT! Michigan too is getting on the act! Watch out AZ!

Red, Green and Blue is reporting that Governor Granholm has signed two job training bills. With the state's largest industry, autos, taking a dive, it makes sense to diversify. We've reported in the past on the green collar stuff going on in Wolverine state .

The jobs produced by the new training programs will not necessarily “green collar,” because they will vary depending on local market needs. But the emphasis Gov. Granholm has been putting on building the state’s clean energy manufacturing sector, for example, is creating new jobs in the state’s budding wind turbine manufacturing industry that require specific types of knowledge, skills, and abilities.

- excerpt from "Michigan Gov. Granholm Signs Bill for Green Collar Job Training (sort of)", Red Green & Blue, 2008.

This past weekend I was fortunate enough to talk to a friend of my father's who was an engineer like my old man. In all honesty he wanted to talk to my father but he wasn't home, and the man knew wind turbines so I picked his brain! Now Ronald, that's his name, now retired worked on wind turbines going back over 25 years. From what I can gather, we have a lot of catching up to do. According to him, he said had we bothered to put the right amount of money into this back in the 80s, we could have had wind farms generating over a quarter of this country's electricity. Now that may be, Strandid Wind and Jerome a Paris are better experts on this than I, so if they're reading this please chime in.

In regards to Grandholm's two bills, I hope it's a start. Frankly, as President Obama initiates his infrastructure plan towards an America 2.0, we need to concentrate on states hard hit by free trade. Now I'm not saying we should ignore other areas, please don't think that. But got areas hurting and then we got areas hurting. I've made it no secret that I think one of the keys to success for this country is to revitalize the inner city. No, I'm not saying plant wind farms in the city, but what about factories to build such things?

Cross posted from Venomopolis and Economic Populist




I've read that manufacturing is in a global depression and without a revamp, kiss any recovery Goodbye.

GM may not need more loans

They just announced they might be ok.

This is hard to believe.

I had left out a lot of stories for this week

One wasGM's new plant in China, 'Man' Tuesday' got to big, had to pair it down. Here's a tidbit from that article.


c. 17, 2008 -- Beleaguered automaker General Motors opened up a new joint venture manufacturing plant in northeast China on Dec. 17 which will begin churning out up to 150,000 vehicles annually beginning next year. The joint venture plant in Shenyang city will mass produce the compact Chevrolet Cruze from the second quarter of 2009.

So they just announced they're OK? By any chance did they get the money yet?  I read that they were getting the cash on the 16th of January.  Something don't smell right.


Reporting that GM did indeed get some TARP money this past December.  So yeah, I guess NOW they don't need it.  But they are making some crazy assumptions, mainly that if the economy holds up, they won't need the cash.  Now, Robert, I ask you, do you think that they really think the economy will hold up this year? 



WTO rules on domestic content

I had discussions with an economist named Ronald Steenblik, who nows works for the OECD, I believe, so he can't comment and post as much. But from what I understand, IF a country subsidizes an industry, it CANNOT demand domestic content for that industry -- UNLESS it's "general infrastructure". So if the US poured hundreds of billions into trains, as general infrastructure, or roads, it would be fine. If it's not subsidized, then you can demand domestic content, I think. There are domestic content laws concerning subway cars in NY, which are made by Kawasaki and Alsthom, but assembled in NY, for instance. Hope this helps (maybe Steenblik has a public email, you could ask him).

JR on Grist


is that just for the United States? ;)

Because EE's (emerging economies) seem to be able to do that and China has state subsidized everything.

But I believe EE's have special status, so why China and India have EE status at this point is ridiculous and either the rules of EEs need to change or they need to be kicked out from EE status.

I don't know, but it's certainly for the US

U.S. vs. WTO

They seem to rule against the U.S. at every turn. How does that compare to EU's Airbus, heavily subsidized, domestic production. I can think of hundreds of similar examples.

I don't have all of the cases or rulings but it seems the rules only apply to the United States and when the U.S. does bring up a case, which with Bush II was rare, we lose.

Does Airbus have domestic content rules?

There's another weird problem here -- what if the company is owned by the government? And the government-owned business just happens to buy all of their stuff from the country the government controls? It may be that the WTO couldn't do anything, because, after all, it's the sacred "management's right" of decision-making. But I'm just speculating, although if a government-owned entity could "decide" to only buy within the country, it would be a strong argument for government-ownership, ironically enough -- and assuming we shouldn't just eliminate the WTO altogether.

The best defense of the WTO seems to be that they ensure that countries don't discriminate against a specific country. That is, if you're going to apply a regulation on some country's imports, you have to apply it to all country's imports. But it does seem that the WTO extends itself past discriminatory behavior.

JR on Grist

Yet another reason why the WTO

Should be renamed the World Traitor's Organization. Such an opinion, to me, is outright treason against a country's taxpayers, and is nothing more than theft of tax receipts directly by the corporate members of the WTO.

Maximum jobs, not maximum profits.