The ISM manufacturing index slipped below 50, but as the chart above suggests, that is still consistent with an economy that is growing at a modest 2% pace. Moreover, some of the weakness was undoubtedly Sandy-related, and should be reversed in coming months.
The Eurozone economy is still shrinking, but manufacturing conditions have improved somewhat on the margin in recent months. This is not a picture of strength, of course, but it does appear to rule out a free-fall.
After being a significant drag on the economy for most of the past six years, construction is now a bright spot. Residential construction is up at a very impressive 33% rate in the past six months, and has risen almost 20% in the past year. It's only a small part of the overall economy (2.6%), but this is a very welcome development. At this rate, residential construction could be adding one-half to one percentage point to annual GDP growth for the foreseeable future.
It's also encouraging that industrial commodity prices have been strong in the past month, as this chart of the CRB Raw Industrial Spot Commodity Index shows. At the very least this suggests that global economic activity is firming, and that provides important support for the U.S. economy. This index is comprised of hides, tallow, copper scrap, lead scrap, steel scrap, zinc, tin, burlap, cotton, print cloth, wool tops, rosin, and rubber, and as such is not likely to be driven by speculative activity.
Auto sales, to be reported later today, are likely to show renewed strength in the aftermath of the Sandy disruption, with a gain of at least 10% over the past year.
The manufacturing sector should be getting smaller rather than larger as profits rise -- profits from manufacturing should be chasing competitive advantage -- in other words, higher profits should be used to accelerate the transfer of US manufacturing to cheap labor facilities in Asia -- the more profits that are reinvested into those transfers, the sooner all US manufacturing can be repositioned overseas -- Apple Computer is the model for the future -- at this point, all consumer electronics manufacturing has exited the US and is now performed in Asia where labor is high quality, abundant, and cheap -- let's hope that US companies can accelerate the transfer of US manufacturing overseas in order to exploit the availability of high quality cheap labor, and thus further increase profit margins, and ultimately dividends.
ReplyDeleteAuto sales blowing expectations today.
ReplyDeleteWhat do you see as the long term impact on US manufacturing of the increasingly abundant supply of cheap domestic natural gas? Could that possibly lessen the overseas manufacturing advantage for some industries, and tied in with more robitics mean the return of manufacturing to the US?
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