Tag Archives: manufacturing

The Job Probably Didn’t Go To China

The U.S. has lost 5 million factory jobs since 2000. And trade has indeed claimed production jobs – in particular when China joined the World Trade Organization in 2001. Nevertheless, there was no downturn in U.S. manufacturing output. As a matter of fact, U.S. production has been growing over the last decades. From 2006 to 2013, “manufacturing grew by 17.6%, or at roughly 2.2% per year,” according to a report from Ball State University. The study reports as well that trade accounted for 13% of the lost U.S. factory jobs, but 88% of the jobs were taken by robots and other factors at home.  [Fortune 11/8/16] (emphasis added)

For all the palaver expended, and rhetoric spewed – 88% of the manufacturing jobs lost in the US were lost to “robots and other factors.”  The Ball State University study (pdf 2015) clarifies:

“Three factors have contributed to changes in manufacturing employment in recent years: Productivity, trade, and domestic demand. Overwhelmingly, the largest impact is productivity. Almost 88 percent of job losses in manufacturing in recent years can be attributable to productivity growth, and the long-term changes to manufacturing employment are mostly linked to the productivity of American factories. Growing demand for manufacturing goods in the U.S. has offset some of those job losses, but the effect is modest, accounting for a 1.2 percent increase in jobs beyond what we would expect if consumer demand for domestically manufactured goods was flat.” 

For “productivity” read Robotics and technological changes to production.  If any workers had cause to complain – they might be Chinese, since a factory opened in Dongguan which is fully automated.  However, since it takes Homo Sapiens to develop ideas about how to improve processes and products, the robots alone can’t take over manufacturing.  So, get ready for a new word: Cobotics.

“Cobotics is rapidly gaining momentum, and successful implementations to date have focused largely on specific ergonomically challenging tasks within the aerospace and automotive industries. But these applications will expand as automation developers introduce more sophisticated sensors and more adaptable, highly functional robotic equipment that will let humans and machines interact deftly on the factory floor.” [PWC.com]

Robotics, cobotics… both are associated with new processes in manufacturing; processes which have direct impacts on the number of people hired by manufacturing firms, and the training required for those who are hired.  Thus, before ranting about the Chinese – it’s important to remind ourselves that manufacturing no longer means smoke stacks and simple assembly lines.  It’s 3-D printing, robotics, cobotics and other “productivity” factors as well.

If the job of wrenching the Wadjets to the Widgets has been taken over by the Gimcrack Special 300A, how to increase employment in the manufacturing sector? We might want to start with DEMAND. Demand for civilian aircraft (Boeing specifically) helped a 4.8% increase in durable goods manufacturing in 2016. [WSJ]  However, since most people aren’t inclined to purchase their mode of transportation from Boeing, let’s consider something more realistic – automobiles.

“And while new-car prices continue to rise, the underlying demand has softened.“We don’t have a lot of pent-up demand now like we did coming out of the economic crisis,” said Bryan Bezold, an economist for Ford Motor.

Ford was among several automakers that posted sharp reductions in sales during August compared with 2015. General Motors, the nation’s largest automaker, said that it sold 256,000 vehicles during the month, which represented a drop of 5.2 percent.

G.M. has taken some criticism on Wall Street for scaling back on less profitable sales to rental-car companies and other corporate fleets. Instead, the company has focused on retail sales to consumers, which generally produce healthier profits-per-vehicle.” [NYT]

What softens “underlying demand?” The obvious response is that people will not buy what they cannot afford.   However, they may be induced to buy what they can’t afford if the financing is sold along with the vehicle. [ADM] Someone has been selling something since 1976 – granted the downward spike during recessions, witness the FRED trends in vehicle sales.

Auto Sales 2016 FRED Which probably has something to do with the trends in financing vehicles, also conveniently calculated and graphed by FRED for Finance Rates on Consumer Installment Loans at Commercial Banks: (New autos, 48 month loan)

Auto Finance Rates FRED

It certainly is easier to see one’s way clear to signing the loan agreement if the rate isn’t the 17.05% it was in 1982, and it’s closer to the 4.25% in April 2016.  And, as a nation we’ve been borrowing, as reported by the NYFRB:

Household Debt 2016

The fly in this ointment is the reported default rate – indicating people who bought, on credit, that which they ultimately could not afford. Again, from the NYFRB:

Loan Default Rates 2016 So far, so good.  For a look at the compilations on household debt between 2015 and 2016 the NYFRB has that information here.  What’s the point?

If we are looking for factors which impinge on the consumer purchases of durable manufactured goods, like cars and trucks, it’s prudent to look at what other forms of indebtedness are also at play in household finances.  Mortgage debt is still the first draw on the households in this country, however, student loan debt was the only form of household debt that continued to increase through the Great Recession and now has the second largest balance after mortgage debt. [NYFR]

While it would be nice to discuss manufacturing policy in terms of imports, exports, and employment – if we maintain that people will not buy what they cannot afford, and if mortgage and student debts hold priority in household bookkeeping, then it isn’t too difficult to see where at least some of the “underlying softness” in such markets as motor vehicles might reside.

Further, as consumer indebtedness increases financial institutions have more fodder for the securitization market, a positive prospect for the financial markets. However, as we learned in 2007-08 there is a limit to the burden the American consumer can bear.

Those manufacturing jobs aren’t just disappearing into China and Mexico, they’re disappearing literally into the waiting “arms” of the Gizmo 9870B robot; and, if demand doesn’t increase above the rather paltry level noted above, then all the credit rate drops in the world won’t keep already overburdened consumers from “softening their demand.” 

Wait. Watch.

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Filed under Economy, manufacturing

Distracted to Distraction?

carnival barker What are there? Some 412 days until the next general election, and the broadcast media is behaving like that is going to happen any moment? Perhaps we might call the campaign thus far, as presented by the beltway media and associated punditry, “The Click Bait Campaign?”  There are as many explanations for why the campaign appearances and speeches by Democratic candidates (Clinton, Sanders, etc.) aren’t getting the press coverage garnered by the Republican Clown Car as there are Punditatti to express them.  But while the press-gangs muse about whether Secretary Clinton is seen as “reliable,” or if Senator Sanders is perceived as “electable,” of if candidate Fiorina is “crisp and effective”… or if candidate Trump is “serious”… we’re missing some issues that deserve far more attention than the National ADHD click bait coverage is giving us.  Here’s what I’m waiting to hear more about.

The national economy.  The candidate who can convince me that he or she understands the shape of the American economy is probably the one who will get my vote.  Surely someone can clarify and amplify the changes in the U.S. economy in the past forty years:

“Previously, income grew more or less in step with household wealth. From 1962 to 1966, a period of low inflation and robust economic growth, real private sector wages rose 27.5 percent while real net worth increased 23.6 percent, according to Bloomberg News calculations based on government data. In the five-year period ending in 1996, real net worth gained 15.6 percent while private wages grew 11.3 percent. More recently, the gap between household net worth and wage growth has widened. From 2001 to 2005, the value of household assets minus liabilities rose 16.6 percent after inflation. Private sector wages rose just 2.7 percent.” [Bloomberg 2006]

Thus we  have an hour-glass economy, [Salmon, Reuters] one in which the wealth is concentrated at the upper end of the scale, and more occupations continue fall into the low-income levels. [Salon]  Senator Sanders has made continuous reference to the Income Inequality Gap, [Sanders] and Secretary Clinton has made this topic part of her repertoire on the campaign trail. [WSJ]

By February 2015 someone on the Republican side of the aisle noticed the Income Inequality gap (hour glass economy) [NYT] and Senator Marco Rubio attempted to slot into the issue by suggesting expanding the Child Tax Credit and cutting the tax brackets from seven to two (15% and 35%) unfortunately there’s no suggestion as to how to pay for this. Nor does he specify how to pay for expanding tax credits to childless adults; put simply, his arithmetic doesn’t work.  [NYT]  And, then there’s the rather tired Republican “promise” to create “flex funds” – another way of expressing the block grant anti-poverty programs proposal which lends itself nicely to eventual (and predictable) cuts to the grants by Congress.  In short, there’s nothing much new here: Credit Card Conservatism, and cuts to anti-poverty programs.  Meanwhile, we have the Limping Middle Class.

Perhaps we need a What To Watch For List?

  • Which candidates are speaking of a taxation system which rewards work and not just wealth?
  • Which candidates are addressing the decline in middle class income jobs in this country?
  • Which candidates are advocating equal pay for equal work? And/or an increase in funding for child care?
  • Which candidates are proposing an increase in the federal minimum wage?
  • Which candidates are suggesting we need to address the restoration of the manufacturing sector in this country?
  • Which candidates are supportive of workers’ rights to organize and form unions to bring more balance with multi-national corporations?
  • Which candidates are advocating funding for the improvement and maintenance of our national infrastructure?

It may be difficult to listen for these points since the media seems intent on speculating about the “electoral” effect of what candidates are proposing instead of explaining or clarifying the implications of their policy positions.  Meanwhile the media focuses on “Abortion!” or the “Planned Parenthood” hoax videos – the “Email,” the “Islamists!” the Whatever Will Get The Clicks of the Day.  A little over 412 days from now Americans will vote, and we’ll probably cast ballots based on the issue that is and remains the top American concern: It’s the Economy Stupid. Or, It’s the Stupid Economy.

Recommended: Robert Reich, “The Limping Middle Class,” New York Times, 9/03/11.  Danny Vinik, “Marco Rubio…”, New Republic, 1/14/15. Brendan Nyham, “Why Republicans are suddenly talking about economic inequality,” New York Times, 2/13/15.  Andrew Leonard, “The Hour Glass Economy,” Salon, 9/13/15.  Future of Jobs, “In an Hourglass Economy,” transcript, Marketplace.org, 8/2011. Bernard Starr, “Corporations Plan for a Post Middle Class America,” Business, Huffington Post, 4/6/12.  Mollie Reilly, “Thomas Piketty calls out Republican hypocrisy on income inequality,” Huffington Post, 3/11/15.

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Filed under Economy, elections

Floss to Gold? Asking Better Economic Questions

While Nevada sits with an 11.6% statewide unemployment rate, an 11.8% rate in the Las Vegas Metropolitan Area, an 11.5% rate in the Reno-Sparks area, an 11.7% rate in Carson City and environs, (Elko County micro area is at 6.1%) [DETR] the national debate over jobs and economic policy gets waged in Sound Bites and Furious Advertising.  Everyone feels “our pain,” but there are two very different ideological positions for dealing with it.

The General Policies

The Romney Campaign summarizes the candidate’s Job Creation formula as follows: “His plan seeks to reduce taxes, spending, regulation, and government programs. It seeks to increase trade, energy production, human capital, and labor flexibility. It relinquishes power to the states instead of claiming to have the solution to every problem.”  [Romney]

The categories on the Obama website promote the President’s interest in  (1) Investing in American manufacturing and innovation, including doubling the tax deduction for domestic advanced technology manufacturing from 9% to 18%, and offering a 20% tax credit against expenses incurred in relocating jobs back to the United States;  (2) cutting taxes for small businesses and streamlining the patent process; and (3) restraining the excesses of the Financial Sector and curbing practices on Wall Street that leave American taxpayers holding the bag for financial sector errors in judgment.

Both campaigns are heavy on tax cuts, but diverge from that point.  Both campaigns place the jobs category in a wider economic framework.  The frames are very different.  Romney’s summation is a classic compilation of conservative notions all predicated on the assumption that government is the problem.   Obama’s summation is a centrist amalgam of tax policy and consumer protections.

Bush 2.0

The Romney proposals are little more than Bush Redux, the Trickle Down Theory of economic growth.  As noted previously:

“We should also bear in mind that what Governor Romney is calling a “job creation” proposal would more accurately be labeled a tax reduction plan which he hopes might could would should in some idealized ideological world of Trickle Down economics produce the job growth we want IF it works — we’re still waiting for the tax reductions on corporations and wealthy individuals to work from the last round. [DB 7/9/12]

Governor Romney also hits all the correct notes in the stump speeches about small businesses, but once again it’s with a philosophy which assumes that if the yachts are rising, with the tide or not, then everyone’s boat will float a bit higher.  [DB 7/10/12]

When the components of the Gross Domestic Product were discussed in terms of what kinds of economic growth would we need to convince firms to add more employees we found there volatility in private economic investment, negatives in government spending, and the overall GDP muddling along.  [DB 7/10/12]

Simplistic prescriptions like “cutting regulations,” and “increasing labor flexibility” from the Romney camp should be looked as as closely as the proposal to fast track the Trans-Pacific Partnership — or, NAFTA on steroids. [DB 7/9/12]

He Did It Too!

One of the weaker arguments made by the Romney campaign is that the Obama Administration has been derelict in its duty to protect American jobs.   The first charge was “he did it too.” From the former Massachusetts Governor campaigning in Colorado:

“It is interesting that when it comes to outsourcing that this president has been outsourcing a good deal of American jobs himself by putting money into energy companies — solar and wind energy companies that end up making their products outside the United States,” Romney said. “If there’s an outsourcer-in-chief, it’s the president of the United States, not the guy who’s running to replace him.”  [CNN]

First, there’s an interesting split here.  The former Massachusetts Governor is speaking only of the products used to transform solar and wind energy into electric power — not the power itself.   It would be nice if the Chinese didn’t manipulate their currency, and it would be well if there were more American manufacturers of solar and wind energy components.  It would be nicer still if the U.S. were not so dependent on fossil fuels to produce electrical power.

Secondly, the slap at solar and wind technologies implies that Governor Romney is firmly in the Fossil Fuel camp, and the attempt to equate renewable energy with off shoring jobs is a rhetorical trick, not necessarily the explication of any policy not already associated with the Bush Administration.

The second charge was a bit more nuanced, but not much:

“In addition to Priebus’ event, Romney’s campaign is also pointing to a new story in The Washington Post that details criticism of Obama for allowing domestic jobs to shift overseas. “American jobs have been shifting to low-wage countries for years, and the trend has continued during Obama’s presidency,” states the article, published online Monday night.”  [CNN]

Now, why would “jobs shift to low wage countries” for years?  Any reference to tariffs is asking for an immediate torrent of “Protectionism!”  And, an obvious question to ask at this juncture is whether trade agreements promote economic growth or “high productivity poverty?”

Any globalized corporation seeking to reduce its labor costs is going to locate plants in regions with a competent labor supply and a local infrastructure capable of supplying energy needs and providing adequate transportation and distribution for products.  “If only labor costs could be reduced, and union contract  requirements be eliminated — then we would have prosperity,” cry the manufacturers.  The numbers don’t seem to validate this contention.

If unionization and hourly compensation costs are the down fall  of economic growth, then why is Germany seven places above the United States?  However, as long as Chinese workers are comfortable with monthly compensation of $636, or workers in India will accept wages averaging $295/mo. or Pakistan’s labor force averages $255/mo. [BBC] then manufacturers who seek low hourly compensation costs will “shift jobs to …..” and there won’t be much any chief executive can do about it.

Asking Better Questions

A better question is how to replace manufacturing jobs for clothing or textiles — already long gone — with new manufacturing in new technologies.  We can ante-up to create new firms, or in the worst scenario, throw up both hands and allow the Germans and the Chinese to take the field.

We can get entangled in small arguments about whether Ralph Lauren, Inc. should have clad our Olympic team in Chinese manufactured clothing, or we can ask whether we want “Buy American” provisions in government procurement processes.   Conservatives, such as Governor Romney,  have generally been opposed to Buy American legislation.  [OF]

We can spew and sputter about backing start up loans to individual niche market solar panel manufacturers — or, we can ask how we might best coordinate the efforts of our manufacturing and higher education resources toward creating energy technology for the 22nd century.

We can bash unions, create more “right not to work” states, and restrict workers’ capacity to bargain for wages, hours, and working conditions; or we can focus more attention on retraining employees for modern jobs.  We can grouse about environmental regulations to abate air and water pollution, or we can put additional effort into devising and manufacturing the best quality filtration systems on the planet.

In short, we can cut taxes and regulations until every cow in the Intermountain West comes home — but until we broaden our focus from a narrow view of what is good for the financial markets to a wider perspective including what it will require to advance our manufacturing capabilities, we’re still going to be stumbling in the sagebrush trying to transform “high productivity poverty” floss into “high employment opportunity” gold.

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Filed under 2012 election, Bush, Bush Administration, Nevada economy, Nevada politics, Obama, Romney

The Super Duper Dud Committee: Financialism On Display

The proverbial cat has been out of the clichéd bag for at least one news cycle (or in modern broadcasting practice 24 minutes).  The Super Committee fumbled.  Honestly, it should never have been given the ball — but, since The Deficit” has become the Hyper-Issue for the Republican Party there probably wasn’t a way to avoid this national drama.   The drama, however, has masked some fundamental issues that do need some daylight.

(1) The Deficit/Debt Issue is a genuine concern being discussed in an disingenuous way.   We have incurred debt — that’s the real issue here because a budget deficit is merely predictive of debt accumulation — but the sources of the indebtedness aren’t being given the media limelight.

We are currently involved in two military operations, only one of which looks to be winding down in real time.  These are expensive now in terms of operational expenses, and will continue to add costs as veterans return and we incur expenses for their medical, educational, and economic needs. Broadcast media reporting generally informs us about the strategy, end-game options, and operations in the field, but rarely explores how much this might be costing us on an annual basis, much less what the total expenses might be in the long run.

We have a tax structure that rewards non-work, i.e. the accumulation of capital gains, taxed at 15% and penalizes real work by taxing it at a higher rate, 35%.   The lowest the top bracket has ever been came during the 1988 and 1989 tax years (28%), to be increased to 31% in 1990.  It has stood at 35% since 2003.  [TPC] Again, broadcast media let’s us know that we are  “taxed to death” but rarely provides any historical context or economic analysis.  The present system rewards those who play the Wall Street Casino games by taxing their income at 15% while those engaged in what most people would call “work” in the higher paid professions are paying 35%.  The broadcast media has also been remiss in not providing the context of tax payments — we are paying the lowest actual taxes since Eisenhower was in the Oval Office.

“… Republicans insisted on expanding President Bush’s tax giveaways to millionaires, an approach that would have made our deficit problems bigger, not smaller, while increasing the gap between the top one percent of taxpayers and everyone else.  Democrats are open to reforming our tax code, but we will not go along with efforts to provide even more giveaways to millionaires at the expense of the middle class.” [Reid e-mail]

We are allowing a segment of our economic system to borrow at what is essentially Zero % thus exacerbating the financial volatility which produces Booms, Bubbles, and Blunders, which in turn create Depressions and Recessions.  Depressions and Recessions create budget deficits and add to the debt by bringing into play the automatic stabilizers.  Banks are borrowing from the Federal Reserve for practically nothing, and lending the money out at 4% for home mortgages.  If a person can’t make a profit under these circumstances when could they?

However, the profits aren’t perceived as part of a long range plan for banking sector strength.  Unfortunately, the Financialists have captured the game and the profits are only as positive as they contribute to the aura of short term stock price increases.   As long as there are sufficient gains to make those stock-option values in compensation packages increase everyone is happy.   To test this proposition: Try to find a “business news” channel doing much more than reporting on “the markets,” pitching a stock, or speculating on quarterly earnings reports.  This short term vision produces short term volatility, and volatility means more booms and busts — i.e. it will be more likely we experience recessions and their impact on our federal spending needs.

At this point it may be of interest to note that some of those who have been the most vocal about our terrible-horrible-no-good debt have been the same folks who are buying that debt in the form of Treasuries — for safety.  Those would be the same folks who would benefit if Treasuries had higher yields, i.e. if the government had to pay out more (higher interest) to borrow money.

There’s nothing like a little xenophobia to add to the confusion.  OMG, The Chinese Are Coming.  At the end of 2010 approximately 53% of our public debt was owed to ourselves.   Thus 47% of the debt is held by foreigners with China holding 9.8%, Japan holding 9.6%, and the British with 5.1%. [CSM] To hear some breathlessly tell us over our “entertainment centers” a person might think the Chinese had all 47%.   A bit more information, and a bit less hysteria is in order.

(2) Our economic system is fraught with unanswered questions about our long range goals.   If we continue to hew towards short term financialist questions we aren’t going to get any substantive economic answers.   For example, if we adopt the drama about short term indebtedness could we get better solutions for long term infrastructure planning?

We have an electrical grid some components of which are from the early 20th century.  We have highways falling into oceans. We have at least one bridge upon which a crowd of protesters was advised not to stand because the structure was considered unable to withstand their weight — and we are talking about people here — not heavily loaded eighteen wheelers.  Infrastructure investment is a job creator.  People with jobs pay taxes.  Tax revenue reduces debts.

If we could avoid some of the financialist frenzy could we speak rationally about our social safety net programs?  No, Social Security is NOT going broke and if we want to “fix” anything there’s an easy formula for extending the program — simply increase the income cap which currently stands at $106,800.  Income over that level is not subject to the payroll taxes, but could be if the 1% could be convinced the sky wouldn’t fall.

Medicare is another matter, but no one seems to have the gumption to talk about how allowing DHHS to negotiate for prescription drug costs would reduce program expenses.  No one seems willing to engage in serious discussions about how to reduce medical care program costs, perhaps because doing so brings forth histrionic cries about Death Panels.

For that matter, the information most citizens receive does not incorporate the obvious:  Wall Street, having blown through the mutual fund enthusiasm, and in pain because of its shenanigans during the Tech and Housing Bubbles, is looking for a new source of income to feed the Casino games, and retirement accounts, and/or health savings accounts would be a lovely new pot to play with.  Little wonder the Super Committee didn’t work as Republican Wall Street Warriors tried to “reform” social safety net programs with the interests of the Street Casino Operators in mind.

“Instead, Republicans relentlessly sought to end Medicare as we know it by privatizing the program and putting seniors and future generations at the mercy of insurance companies.” [Reid e-mail]

Of course the Financialists want to privatize Medicare — health insurance companies make money two ways (a) by collecting premiums, and (b) by investing.  If the Financialists could have their way, there would be no 85% limit and health insurance corporations could use premiums collected for investments and CEO compensation, and there would be a pot of new money available from the investment side of their revenue stream.

What we aren’t getting is a rational discussion of how to reduce health care costs, or how to prevent a generation of the elderly from falling into abject poverty.  If health care costs could be rationally reduced companies could be more profitable, and if the elderly can be assured of reliable retirement income they’d be more likely to spend money.  Both of these factors could be economically beneficial in the long run.

And, what we aren’t getting is a clear vision of manufacturing policy in the United States.   From the Department of Commerce:

“U.S. factories and their workers struggled during the recession, but signs now point in the opposite direction, with the manufacturing industry leading the economic recovery.  In terms of jobs, gains so far have been modest. Over the past year, about 200,000 jobs have been added back to payrolls – a terrific increase, but still just a fraction of the more than 2 million jobs lost during the recession and the roughly 3.5 million jobs lost under the previous administration in the years leading up to the recession. “

Ouch. “Modest gain” seems a bit optimistic.  Once again, manufacturing creates jobs, people with jobs pay taxes, and tax revenues reduce debts.

Face Meet Palm, Chicken Meet Home Roost

So, the Financialists, having made their point about the ultra-high absolute importance of The National Debt in order to provide a rationale (however tenuous) for privatizing government services for the benefit of the Wall Street Casino, have watched the Chicken Come Home To Roost in the form of “sequestering.”  Senate Majority Leader Reid commented:

“Make no mistake: we will achieve the more than $2 trillion in deficit reduction we agreed to in August. The sequester was designed to be painful, and it is. But that is the commitment to fiscal responsibility that both parties made to the American people. In the absence of a balanced plan that would reduce the deficit by at least as much, I will oppose any efforts to change or roll back the sequester.

“With millions of Americans out of work, we must stay focused on creating jobs. Economists have estimated that failing to extend the payroll tax cuts for the middle class and provide support to Americans who continue to look for jobs in this tough economy could plunge us back into a recession. Democrats will continue to pursue these kinds of common-sense, bipartisan proposals to put Americans back to work. In the weeks ahead, I hope the fear of the Tea Party and millionaire lobbyists like Grover Norquist will not prevent Republicans from forging common-sense compromises with Democrats to get our economy back on track.”

Norquist’s Wall Street Warriors may have “gotten what they wanted” in the first act of the Great Debt Drama — they may not much care for the denouement.

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