US Manufacturing has remained rather resilient in the last few years and has recovered nicely from the depths of the recession. Some tend to think that manufacturing in the US is somehow gone but the US is still the leading manufacturing country in the world. A good portion of manufacturing requiring large labor forces has been outsourced yet many of the higher end manufacturing functions are still within this country. High level technology, engineering, medical devices, and other such industries are still doing very well in this country. This kind of manufacturing data although positive for overall growth trends does not do much for those out of work. If we look at actual manufacturing data we are very close to contracting. Clearly this has been a very slow recovery. The chart below highlights this and any figure below 50 signifies a contraction:
The above is showing slow growth in US manufacturing.
Now that the election is over we can go back to cat food and automobile commercials. After all, we need to get you consumers out of your house to blow money on Black Friday after you blow out your intestines on Thanksgiving. The fiscal cliff is the given name of the impending fiscal collapse of our government. Okay, that might be a bit extreme but we do have some gigantic challenges ahead. The country is in deep debt. I mean we have over $16 trillion in our national debt and are looking at trillion dollar deficits (that is, spending more than we make for many years to come). So what options are on the table? Given the massive costs in programs like Medicare that will see a big boost in costs courtesy of the fiscal wave of baby boomers, a perfect storm is arising. Ultimately we are going to have to cross this bridge very carefully.
Taxes and cuts are in the future. Unless we can get GDP to increase and create household income growth then we are destined to muddle through. Over half of the S&P 500 companies make a sizeable portion of their profits abroad (and many have increased abroad in other countries). As a mature economy, it is hard to expect massive GDP growth. This is typical. With an older population and a younger less affluent population, some hard decisions will need to be made.
The tension between Japan and China is taking a big toll on Japan’s industrial production. There is underlying problems inherent in Japan courtesy of massive debt but also the unfavorable demographics that Japan will be experiencing. So of course the solution from Japan’s central bank is simply to go into more quantitative easing as if this has improved their economy over the last two decades. “WSJ: – The central bank’s policy board decided Tuesday to increase the BOJ’s asset purchases to ¥91 trillion ($1.14 trillion) from ¥80 trillion, and to introduce a new lending facility designed to stimulate loans by banks. The fresh measures marked the first time since May 2003 that the BOJ has taken easing steps two months in a row. The bank said it took action to keep Japan’s economic policy on the path “to sustainable growth with price stability.”
The BOJ also downgraded its assessment of the economy, noting declines in both exports and output, key drivers of the country’s economic growth. “Japan’s economy has been weakening somewhat,” it said in a statement, compared with its previous description of economic activity as “leveling off more or less.”
Not exactly a positive looking trend.