Asian Trade/IP Meldown: Biblical in Scope?

by Dollars and Sense

These numbers are simply astonishing. Two discussions. First, Brad Setser leads off by quoting from The Economist:

"many of Asia's tiger economies seem to have been hit harder than their spendthrift Western counterparts. In the fourth quarter of 2008, GDP probably fell by an average annualised rate of around 15% in Hong Kong, Singapore, South Korea and Taiwan; their exports slumped more than 50% at an annualised rate....

In the fourth quarter of 2008, real GDP fell by an annualised rate of 21% in South Korea and 17% in Singapore, leaving output in both countries 3-4% lower than a year earlier. Singapore's government has admitted the economy may contract by as much as 5% this year, its deepest recession since independence in 1965. In comparison, China's growth of 6.8% in the year to the fourth quarter sounds robust, but seasonally adjusted estimates suggest output stagnated during the last three months.

Asia's richer giant, Japan, has yet to report its GDP figures, but exports fell by 35% in the 12 months to December. In the same period, Taiwan's dropped by 42% and industrial production was down by a stunning 32%, worse than the biggest annual fall in America during the Depression."

Read the rest of the post

And from Yves Smith, who refers to points made by Frank Veneroso:

1)The Japanese industrial production data and METI forecast was bad beyond all imagining. Industrial production might fall by 1/3 in the 12 months ending in January. It could fall in a mere four months between November and February by more than half the U.S. Great Depression decline which took almost four years.

2) Nothing like this has ever happened to a major industrial nation to my knowledge --not even during the 1929--1933 Great Contraction.

3) The trade weighted yen is by far the strongest currency in the world. Japan is losing competitiveness fast. Given the lags in trade matters will get worse.

4) The insane trader community continues to push the yen up as a safe haven. It is all so detached from reality I suppose they could take it higher.

Read the rest of the post

This is really, really scary stuff. Lord knows what lies ahead....

Labels: Asia Times, Brad Setser, exports, financial crisis, Frank Veneroso, manufacturing, Trade, Yves Smith

 

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2/02/2009 09:00:00 PM 0 comments links to this post

 

Manufacturing Lowest In 28 Years

by Dollars and Sense

From the Washington Post

U.S. manufacturing fell sharply in December and reports from abroad showed the same for plants in Europe and Asia, as businesses cut production and slashed product orders in response to the global recession.

The Institute for Supply Management's index of industrial production slipped by 3.8 percentage points in December compared with the month before, to the lowest level since 1980.

The private group's survey of purchasing executives provides a rough guide to whether manufacturing companies are expanding output and receiving increased numbers of orders, or seeing their business decline. The index for December stood at 32.4, compared with 36.2 in November. An index above 50 indicates that manufacturing activity is expanding, while a reading below 50 indicates a decline.

It is the fifth consecutive month that the group's measure of industrial production has stalled, a result consistent with declining consumer demand and economic weakness throughout the United States.

The decline was both deep and broad, the ISM reported: None of the industries covered in the survey reported an expansion in their business, and the drop registered not just in the institute's index of production, but also in its measures of employment, prices and backlogged orders. The group's index of new orders and prices showed them at their lowest levels since the late 1940s.

Rest of article.

Labels: manufacturing

 

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1/02/2009 02:57:00 PM 0 comments links to this post

 

Dollars & Sense not surprised by falling markets

by Dollars & Sense

This morning, the New York Times is aflutter about sharp dips in global stock markets and a new report on the decline of U.S. manufacturing. Dollars & Sense has been following the economic developments that led to this situation for years. Excerpts from the NYT and links to Dollars & Sense coverage below.

In the lead NYT story, Global Markets Fall Again on Fears About U.S. Economy, Keith Bradsher and Martin Fackler report:

Stock markets fell sharply across most of Asia again today and continued declining in Europe as investors worried about weakness in the American economy.

The stocks of Asian companies that export to the United States, such as the Sony Corporation, suffered particularly heavy losses today following a report on Tuesday from the Commerce Department that orders for cars, washing machines and other durable goods dropped 8 percent in January.

"There is a worry that U.S. consumption could slow substantially..." the chief Asia economist in the Hong Kong offices of Credit Suisse, Tao Dong, said.

In Floyd Norris and Jeremy W. Peters' Wall St. Tumble Adds to Worries About Economies, Stuart Hoffman, chief economist of PNC Financial, adds that, since "global markets have been strong for years, 'We've had this 'What me worry?' mentality. And this is a little bit of a wake-up call.'"

In January 2006, Dollars & Sense on the fragility of world markets' dependence on the dollar and the health of the U.S. economy:

It's what lies behind the slide of the dollar that has even many mainstream economists spooked: an unprecedented current account deficit—the difference between the country's income and its consumption and investment spending. The current account deficit, which primarily reflects the huge gap between the amount the United States imports and the amount it exports, is the best indicator of where the country stands in its financial relationship with the rest of the world. (Dollar Anxiety: The advantages of imperial finance have propped up the U.S. economy—but they may not last. By John Miller, in Dollars & Sense Jan/Feb 2006.)

In his NYT analysis A Recession That Arrived on Cats' Paws, David Leonhardt writes:

The nation's manufacturing sector managed to slip into a recession with almost nobody seeming to notice. Well, until yesterday.

Wall Street was caught off guard when the Commerce Department reported yesterday morning that orders for durable goods ... plunged almost 8 percent last month. That's a big number, but it really shouldn't have come as too much of a surprise. In two of the last three months, the manufacturing sector has shrunk, according to surveys by the Institute for Supply Management that have been out for weeks.

But the new report seemed to focus investors' attention on the problems in manufacturing and became one more reason for people to sell stocks.

Dollars & Sense wasn't surprised, given our coverage of recent declines in the U.S. manufacturing sector. In the Mar/Apr 2004 issue of Dollars & Sense, John Miller wrote:

By 2000 ... manufacturing had already hit the skids. Industrial production fell steadily, contributing to a general excess of industrial capacity. Today, capacity utilization rates still hover at about 75%, and the manufacturing sector has shed jobs for some 42 straight months. (High and Dry: The Economic Recovery Fails to Deliver)

And in January 2003, Ellen Frank answered Dollars & Sense reader Lane Smith's questions about the effects of NAFTA on the U.S. economy:

Since the North American Free Trade Agreement (NAFTA) between the United States, Mexico, and Canada went into effect, trade within North America has increased dramatically.

NAFTA's effects on employment, on the other hand, are hotly debated. Clinton administration officials estimated in the late 1990s that expanded trade in North America had created over 300,000 new U.S. jobs. Economic Policy Institute (EPI) economists Robert Scott and Jesse Rothstein contend, however, that such claims amount to "trying to balance a checkbook by counting the deposits and not the withdrawals."

Employment in virtually all U.S. manufacturing industries has declined since NAFTA went into effect. (Doctor Dollar, Dollars & Sense Jan/Feb 2003.)

In the NYT, David Leonhardt continues:

Is the entire United States economy in danger of going the way of the manufacturing sector? Is it possible that we're headed for a real recession?

The forecasters at the Economic Cycle Research Institute in New York, who have accurately predicted each of the last three recessions, argue that the current slowdown won't amount to much more than a lull. Lakshman Achuthan, the institute's managing director ... thought the odds of a recession over the next year were less than 20 percent. ... [t]he chief United States economist at High Frequency Economics, who's more bearish than most forecasters right now ... still puts the odds at only 30 percent.

But for all the attention that formal recessions get on Wall Street, they are not really the benchmark that matters to most people. A significant slowdown that falls short of a recession can do a lot of damage to stock prices, profits and wages.

Only in the last few months, for example, has the current expansion grown strong enough to give most American workers pay increases that outpace inflation. Those raises would be endangered if the economy were to slow from last year's growth rate of 3.4 percent to even 2 percent.

Dollars & Sense on how the U.S. economy has spent years stiffing wage-earners:

The current economic recovery has done less to raise wages and more to pump up profits than any of the eight other recoveries since World War II. No wonder inequality continues to worsen, and most people still doubt that the economic turnaround will ever benefit them.(Slow Wage Growth But Soaring Profits in the Current Recovery. By John Miller, in Dollars & Sense Sep/Oct 2004.)

Also in March 2004's High and Dry: The Economic Recovery Fails to Deliver, John Miller discusses the causes behind today's turmoil: "Tax cuts, home sales, mortgage refinancing fueled by low interest rates, and Iraq-driven military spending—not self-sustaining job and wage growth—fueled the ... growth spurt."

For the best (and most prescient) economic news and analysis, reports on economic justice activism, primers on economic topics, and critiques of the mainstream media's coverage of the economy, subscribe to Dollars & Sense.

Labels: dollar, durable goods, manufacturing, recession, stock market, wages

 

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2/28/2007 09:29:00 AM 0 comments