Manufacturing

China's Manufacturing Could Outstrip the US Sooner Than Expected

08/03/2009 by Research Reloaded

We often forget that the US is still the largest manufacturer in the world even though the percentage of people working in manfucaturing has shrunk. It's made possible by leveraging each manufacturing worker with tons of high tech capital equipemt (ie. machines). And just to quell the people who bemoan more efficient manufacturing as a threat to jobs, it actually means that our manufacturing workers can earn substantially more than say China because each man can create much more value due to the higher amount of machinery leveraged to his manual labor.

If you want manufacturing workers to earn high salaries, they will need to have lots of machinery backing them up. Physical strength only creates so much value (almost none) without the help of machines. Anyhow, it appears that the recent downturn in US manufacturing plus the effects of Chinese government stimulus (it's grow employment at all costs to avoid social unrest), means that China could overtake the US as the world's largest manufacturer sooner than expected.

US Manufacturing - New Orders Switch to Growth

06/10/2009 by Research Reloaded

In terms of the state of manufacturing in a downturn, Caterpillar (CAT) had a striking quote in their last earnings call.

And generally speaking, if you go back to the '80s, close to half the world's manufacturers didn't make it through that downturn successfully. And the strongest got stronger, and we were one of those. I would expect that we will strengthen our position going through this downturn.”

The state of the ISM

The ISM's PMI hit some nasty lows in the 80's downturn, which were recently hit again in January during the current downturn, before seeing a rebound to the recent level of 42.8%, which still implies contraction, just less than before. Now, is the above Caterpillar quote correct, was it really almost half of manufacturers that ran into serious trouble? It would seem that this time around, things haven't been so bad. But feel free to enlighten me.

Interesting inflection point for New Orders

Most recently, if we look at the latest ISM report released June 1st, we see that there has been an interesting inflection point. New Orders growth went positive, continuing its improvement since December 2008, but rather shrinking by smaller amounts, it is now growing. Customer inventories have also continued a 2-month drop, which is a positive for future manufacturing orders.

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