U.S. Manufacturing - Again

U.S. Manufacturing - Again

An article Sunday titled 'Who Said Manufacturing Is Dead?' discusses the Institute for Supply Management ('ISM') that was due (and was reported) yesterday (September 1).  The author says there has been a high correlation between the ISM monthly reported number and the S&P 500 over the past two years - and produces a chart in support of that.  Apparently the ISM index stood at 52.8 one year ago, was reported at 55.5 for July, and according to Econoday, will have to drop to the '42' area for overall U.S. GDP to 'go negative'.  While I find all this interesting, I am much more interested in long-term well considered prognostications than I am in month/month statistics.  I commented on the article Sunday as follows:

It seems to me there is a disconnect in the thinking of many between U.S. manufacturing and U.S. unemployment. To be clear, I don't think with technological change introductions that result in higher productivity - and often more permanent unemployment - that U.S. manufacturing for export de facto has to deteriorate from here. In fact, it might strengthen. That is good for the U.S.

However, as I see it, U.S. manufacturing for domestic consumption invariably will have to suffer if the U.S. unemployment rate does not drop as a result of meaningful job creation at continuing 'comparatively high hourly labor rates'. If U.S. unemployment worsens from here or U.S. average labor rates paid to those with jobs deteriorate - and I think there is a real chance of both of those things occurring in tandem - then it seems to me U.S. domestic manufacturing will have to retract over time.

My comment received neither 'thumbs-ups' or 'thumbs-downs' - which I find curious, as my comment was neither long nor complicated, in circumstances where I see it as somewhat contentious.

As reported in an article today titled 'So How'd You Like That ISM Number?' the August ISM number came in yesterday morning at 56.3.  The U.S. markets reacted very positively - the Dow was up 255 points (2.5%) yesterday.  Karl Denniger, the article's author, says that in light of other prevailing economic factors he is not 'impressed' by the ISM August number viewed in isolation - or at least that is how I read what he says.  If you are an equities investor you can read the article by clicking here.  I commented on it as follows:

Good for you, Mr. Denniger. I for one agree with you, and think you ought not 'to be impressed' with yesterday's market performance.

The people whose livelihoods are more dependent on 'good markets' than on 'bad markets' strike me as being 'cheerleaders looking for lifelines' - much like swimmers 10 feet under water with 9 foot straws who expend energy 'kicking themselves upward' every time they need to take a breath. I continue to believe there is a disconnect between the U.S. equity markets and the U.S. 'real economy', and continue to think those same swimmers eventually have to run out of the energy necessary to 'kick themselves upward to take a breath' - and that what will happen then is self-evident.

I have always been a believer in the English saying 'one swallow does not a summer make'.  I continue to be dumbfounded at the volatility that appears in the markets on single pieces of news that might as easily be restated or reversed in a month or less.  Last Wednesday morning (August 25) I questioned a long-experienced Investment Advisor with a 'big book' on his views as to why the U.S. markets rose significantly on the opening that morning (by about 140 points in the first half-hour of trading) in the face of unexpected very negative news on July U.S. Existing Home Sales.  If you haven't read it to date, you can read my August 25 e-mail on those Existing Home Sales by clicking here.

The Investment Advisor's immediate, and I mean immediate, comment was 'the market had already anticipated that bad news'.  As I saw it from the many articles I read earlier that morning, everyone else 'but the market' - where the market is in theory 'everybody' - was either as a minimum 'surprised by the news', or 'shocked by it'.  So much for the efficient market theory, notwithstanding at least one Investment Advisor seemed (at least initially) to believe in that theory on that particular morning.  Here is what I consider a 'scary thought for the day' that I pose only to reinforce my believe in the importance of my 'think for yourself' and 'take as much responsibility as you can for your own investments' mantras:  the Investment Advisor I was speaking with clearly is 'up-scale' - that said, what can the 'down-scale' ones be thinking?

A second article this morning titled 'ISM Soars Past Expectations, Easing Recession Fears' expresses an element of skepticism with respect to the significance of the importance of the August ISM number.  I commented on this article as well as follows:

While I hope to be proven wrong, I think that "too remain a bit skeptical" will prove to be an serious understatement in the context of U.S. economic recovery. I believe this to be particularly the case if one factors in 'manufacturing jobs' and not just 'manufacturing' which, in a world of technological productivity improvements, I think to be quite different things.

I think the point I make in the comment about the difference between 'manufacturing jobs' and 'manufacturing' is an important one, and suggest readers think about it carefully and reach their own conclusions as to whether they agree with me or not.

On September 8, 2009 I set out my views with respect to Manufacturing and Manufacturing Job Losses in a Blog Post titled 'The Importance of Manufacturing Job Losses in Developed Countries'.  If you are interested in reading that Post you can access it by clicking here.  My views have not changed in the intervening 12 months.

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