Worldwide Manufacturing Plummets
By Justin Gardner | Related entries in Economy, The World
First, the US numbers…
In the United States on Friday, a crucial measure of manufacturing activity fell to the lowest level in 28 years in December. The Institute for Supply Management, a trade group of purchasing executives, said its manufacturing index was 32.4 in December down from 36.2 in November.“Manufacturing activity continued to decline at a rapid rate during the month of December,†said Norbert J. Ore, chairman of the Institute for Supply Management Manufacturing Business Survey Committee. This index was at the lowest reading since June 1980 when it was 30.3 percent.
Then, the rest of the world…
Australia’s manufacturing index showed a seventh month of contraction, and a similar survey in India showed activity down for a second month in December. In South Korea, December data showed exports plummeted 17.4 percent from a year earlier.President Lee Myung-bak of South Korea pledged on Friday that the government would go into “emergency†mode to pull the country out of its economic crisis.
And in Singapore, the economy shrank 12.5 percent in the last quarter of 2008 from the previous period, prompting the trade and industry ministry to lower its growth forecast for 2009. The ministry now expects Singapore’s economy to shrink up to 2 percent, with only 1 percent growth at best. Previously, it had expected up to 2 percent growth.
And with consumer demand rapidly shrinking due to economic worries, these numbers will only get worse before they get better.
Why?
Well, the busiest time for manufacturers is the one leading up to the holiday season. If those numbers went down during that period, there’s little doubt they’ll continue to drop because people will be tightening their belts even further after their x-mas spending.
What’s more, my guess is that people are going to start saving a lot more of their paychecks because they’re worried about their jobs. This isn’t necessarily a bad thing for each individual, but the net effect is it drives demand down even further, which will drive manufacturing down, and that means we’ll continue to see prices deflate.
At least that’s my best guess based on the data I’ve seen the past few months.
What’s your take on it?
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January 3rd, 2009 at 9:53 am
John Maynard Keynes called it “The Paradox of Thrift”. The basic premise is that if we do what’s best for us financially on a personal level during tough economic times – then we create what is worse for us financially on a national/global level. Less consumer buying causes companies to shrink, people lose jobs, causing even less buying, companies shrink more…..etc., etc.
January 3rd, 2009 at 11:27 am
My take:
1) Short the dollar
2) Get out of US equities, if you haven’t already
3) Forget about the bond market
(don’t let a 2-3 year artificial bubble fool you, this “stimulus” is really a long-term poision pill…we are entering a 10-15 bear market that is only elongated by the massive inflation potential of unconscionable fiat money production.)
What should I do?
1) commodities, particularly precious metals (can do this through various vehicles, but I like ETFs/ETNs and check out the Perth Mint
http://www.perthmint.com.au/investment.aspx
2) foreign equities (consult someone who knows what they are doing in that arena.
Have fun tooting this 1 trillion stimilus package Justin, anyone with a brain and income should get the F*&^ out of the US to invest.
Also read, Peter D. Schiff’s “The Little Book of Bull Moves in Bear Markets”.
January 3rd, 2009 at 12:49 pm
They’re worried about their jobs
They have no jobs.
January 3rd, 2009 at 1:23 pm
Gold – it will hit $2,000 per oz at some point in the not too distant future (2-4 years) – the ETF’s are great – when it hits $2k short it and buy oil. I would avoid foreign equities at all costs right now – they are usually ADR’s and you pay a handling charge on the back end – their currencies will go up as ours drops through the floor. If you have a long term horizon (10-15 years plus) small and mid-cap US companies are the best buy (and there are many excellent investment vehicles specializing in small and mid-cap’s for your 401K money). Small and mid-cap stocks are cheap currently, their products are cheap to export (and getting cheaper), and more and more products will be manufactured here since it is politically important to keep these jobs as part of our domestic economy (expect favorable changes in trade laws as well as domestic tax subsidies for exporters). I haven’t been this bullish on the US economy in a long time. As much as things suck (and they truly do) the fundamentals aren’t bad. Where have I heard that before? Globally, I would hate to be India or China right now, their consumer to manufacturing economies are largely reliant on US and European customers for their high profit margins. They are subject to the devistating manufacturing cycles of boom and bust we used to see here – basically they work for us – not a bad spot to be in as the global economy melts down.
January 3rd, 2009 at 2:43 pm
Terence, put down the crack pipe. I wouldn’t touch any “growth” stocks for the next 5 years – particularly small caps. If you’re dedicated to idiocy, at least find a US equities with a divident yield of 5% or over.
I agree ADR’s aren’t the best, that is why you should buy foreign equities directly if that is your thing. Again, find a broker with experience on/in developed foreign markets exchanges. I just don’t understand — how is it that gold hits “2000/oz” but small caps are where its at?? That makes no since to me. You’re admitting a huge hedge against inflation and that isn’t exactly congruent with highly-speculative small-cap equities which generally need lots of liquidity and access to healthy capital.
The only way Terence you can assess the “fundamentals” is to mark asset values to the price of gold to establish relative value. If you do that we’ve seen a 40% in value since 2000. But hey, if you want to invest in US small caps, by all means, lets see if the capital markets follow your lead — go get’em bull — maybe you should start your own bank, but I don’t think many FDIC regulators would appreciate the analysis above.
Whatever, in 5 years tell me how it turned out for you. Btw, I do think that Obama & the Dems stimulus plan will pull things out for about 2-4 years, after that someone has to pay the band and that is the part of the story that no one to hear about.
January 3rd, 2009 at 3:39 pm
Those guys are the enemy – I’ve done well despite their help this past 12 months. If you have a long term view and will be buying anyway through payroll deductions – you’ll accumulate huge positions at a relatively low cost average, and when things turn around (5,6,7,8, years on) the run up will be quick and overlooked by many. It’s a GD fire sale out there right now. Mark to market works great for companies like GE, BofA, even GM – but difficult with small and middies for the exact capital reasons you mentioned. There is still business being done, and there are still companies growing – and most of them are not in the $2 billion plus a year column but much smaller. Of course there is risk with small and middies – but that is where the best payoff is when this thing turns around – and it will turn around. By the way I gave up crack a long time ago.
January 3rd, 2009 at 3:52 pm
Buy “ATK” Terrence, its a defense contractor that makes .223 bullets & artillery — watching the Isrealis beat the shit out of Gaza on TV– that’s a US equity you can believe in. (Full disclosue: I’m way long on it.)