U.S. manufacturing strengthens further in October
Let the wheels of industry turn! Confirming this journal’s expectation, the ISM index of change in U.S. manufacturing activity has risen to a robust 55.7 for October.
Except to the (maybe considerable) extent to which Congress might interfere, the Economic Nationalist knows no reason the present U.S. industrial recovery should not prove the strongest since 1973.
November 11th, 2009 at 10:03 pm
So what are we manufacturing these days, Howard? I don’t really see evidence of much at all. Even though I am retired, I try to stay up with what is going on in machine building which was my field, and I just see less and less.
I am wrapping up a small consulting job right now for a company that builds components for web-handling systems (printing presses, sheet plastic processes, etc.). I was in their factory about 10 days ago, and it looked like a ghost town. They showed me huge areas of floor space that they have idled where they are no longer doing the actual manufacturing of parts — they are just assembling parts now. They have everything made elsewhere. The machinery was still there — they have not sold it yet, but they will just as soon as they can. They want to be just an assembly operation. That is exactly the story I get at the John Deere plant here in the town where I live. They don’t actually make much of anything at all; they just bolt stuff together. Nobody cuts gears, nobody does milling machine work, none of that stuff any more — they send it all out, much of it off shore. To my mind, this is not real manufacturing any more, but rather just a final assembly operation. Somebody else is doing all the work where the value is.
November 11th, 2009 at 11:52 pm
Dr.D:
I wish that I could have visited the factory with you. It sounds interesting.
Your observations are important and, moreover, broadly typical. You are entirely right in my view, and in fact you accurately paint the bigger picture of U.S. industrial decline. We no longer do the kinds of manufacturing we ought. Nor do I believe that the incipient U.S. industrial advance will carry on more than a few years if Congress does not rediscover the old wisdom of a sound industrial policy, anchored preferably by renewed tariffs.
When I suggest that the present industrial boom might prove the strongest since 1973, well, when you think of what has happened since 1973, am I suggesting so much? Had I said “since 1963″ or “since 1933,” I would have been badly wrong, but when the standard of comparison regards only the years since 1973, the standard is rather low.
What has happened, would you not agree, is that we have so devastated our industry that the leanest, fittest have survived. The devastation is bad, but bad somewhat in the way that the Thirty Years’ War was bad in 17th-century Germany, where it killed a third of the population but left the strong, fit, cunning and hardy to breed the fearsome German armies of the three centuries that followed.
Or, alternately, consider a veteran Civil War regiment, reduced from an initial strength of 1000 to 300 battle-hardened troops. You’d rather have the 1000, could you get them, but if you can only get 300 then these are the 300 you’d want.
Ought we to have devastated our own industry? Of course not, but we did it and, since we must suffer the heavy consequences, we might as well enjoy the perverse advantages that come with them. Our remaining industry is once again the most productive in the world, which is to say that an American worker produces more in an hour of labor than even a Japanese worker does. This advantage will not last, but it is the advantage of the present hour.
The present confluence of circumstances has not occurred since 1973: (a) much idle capacity; (b) easy money; (c) weakened, relatively compliant organized labor; (d) a somewhat weakened dollar; (e) strong military and naval defense demand; and (f) an oversupply of young engineers, both domestic and H1B-imported. Please observe that I do not praise most of these trends—particularly, the unnecessary weakening of the dollar is bad and the present wars ought to have ended years ago—but taken together they cannot help but to stimulate industry relatively over the short term.
This was my only point. Last year, when industry was down, I said that I thought that something very like this would happen. Maybe I had the right reasons and maybe the wrong: this you must judge. But, anyway, the prediction seemed to bear out and I wanted to draw attention to the fact.
Now what we need is more Congressmen who prefer tariffs to income taxes.
The insightful remark is appreciated. Moreover, the evocative picture you paint from your recent visits to factory floors adds much needed color to my otherwise sterile analytical remarks. Like you, I used to have cause to spend time on factory floors, but it is now seven years since I have stood on one, so I needed the imagery you provide.
Howard
November 12th, 2009 at 12:20 am
P.S. In listing the confluence of favorable industrial circumstances, I forgot (g) a huge supply of dollars held in reserve overseas, which foreign central bankers now prefer to draw down. Foreigners must buy something with these dollars. They will buy U.S. land and securities if they have no other choice, but in many cases they will take U.S. manufactured goods, even expensive ones, if they can get them. —HJH
November 12th, 2009 at 5:49 pm
One of my former students, a mid-career mechanical engineer, is currently looking for a new position. I was initially very concerned when I heard this because I thought this would be a very bad time to be looking. He tells me he is not too concerned. He is getting a fair number of interview calls and expects to find a new position without too much trouble because there seems to be a fair demand for machine desing engineers.
This supports what you have said above, Howard. Apparently, in the short run, we are still in business. Just how long it will last is another matter altogether.