Manufacturing Is A Declining Industry

[JEast]

Great panel discussion with Richard Koo and Bruce Greenwald on what the world economy is facing.  Richard Koo's 'Balance Sheet Recession' and Bruce Greenwald's 'Decline of Manufacturing'.  I have been in the Balance Sheet Recession camp since Richard's book was first published in 2003, but Bruce makes a compelling argument that is persuasive (or maybe I am falling into the narrative fallacy).

 

Found via http://www.valueinvestingworld.com

 

Cheers

JEast

[Green King]

That was fun thx.

 

[beerbaron]

Very interesting debate.

 

In my opinion Koo's has a better statistical proof, Greenwald has a "This time it's different" approach where aggregate demand is slowing. I don't think aggregate demand is slowing globally, a lot of people on this planet still don't have a car.

 

BeerBaron

[colinwalt]

Interesting article on how manufacturing is actually starting to come back to the US.... and as someone who's had to manage outsourced projects, all I can say is that it's about bloody time someone realized the bean-counters can't see past a P&L statement!

 

http://www.theatlantic.com/magazine/archive/2012/12/the-insourcing-boom/309166/

[oddballstocks]

Nothing to add except anecdotal evidence that manufacturing is returning.  My brother works as a project manager for an industrial company in the Rust Belt.  Business is stronger than its ever been, both domestic and overseas.  They can't hire enough people, and everyone's working crazy hours. 

 

Their biggest competitor is in the UK, and it's cheaper for clients to buy in Dollars than in Pounds.  US companies also have the advantage of cheap gas right now.  A friend of mine works for Alcoa, he's been working on some project to refit their plants for natural gas instead of whatever they run on now.  He said the cost savings is mind boggling.

[Guest longinvestor]

Interesting article on how manufacturing is actually starting to come back to the US.... and as someone who's had to manage outsourced projects, all I can say is that it's about bloody time someone realized the bean-counters can't see past a P&L statement!

 

http://www.theatlantic.com/magazine/archive/2012/12/the-insourcing-boom/309166/

 

A certain type of manufacturing is likely (& should ) to come back. High Mix-Low volume with short product life cycles, specs chosen by customer at POS &  with very short lead times, high shipping costs (bulky, non-nesting) are some of the prime reasons manufacturing should come back. No better example than Toyota. They have required their key suppliers to set up shop locally as they have expanded globally.  Yes, bean counters go after variable labor cost which often is <10%. The world is clearly moving to ever higher (&custom) mix. Accounting folks are often stuck in 19th and early 20th century paradigms. However, longer term, more manufactured product will be consumed in Asia and that is a good reason to outsource.

[txlaw]

I highly recommend watching this series:

 

http://www.pbs.org/america-revealed/episode/4/

 

IMO, Bruce Greenwald is dead wrong on the decline of manufacturing.  Manufacturing has continued to grow in the US but has changed in nature.  The nat gas revolution and the robotics revolution, not to mention the advent of the 3d printing era, will mean that manufacturing continues to grow but changes in nature.

 

Fun factoid for you pulp producer fans (ABH shareholders, I'm looking at you), in the video we get to see that the US ships more containers of paper to the world than anything else by far.  There's even a shot of paper made by ABH at 6:07. ;D

[rogermunibond]

I'm a big fan of America Revealed too.  Great 4-part series.

 

I think the paper product export was recycled paper/cardboard.  Much of which ends up back here as packaging for the goods we import.

[txlaw]

I'm a big fan of America Revealed too.  Great 4-part series.

 

I think the paper product export was recycled paper/cardboard.  Much of which ends up back here as packaging for the goods we import.

 

That's exactly right about the recycled paper/cardboard.  That's what it was.

[cpan]

 

I don't think Bruce was talking about decline of manufacturing.  Instead, I think he was saying that productivity gain in manufacturing has outran demand and as a result there is unemployment.  Manufacturing is doing what farming did where instead of 1 person farming 1 family plot, you have a few person farming hundreds of acres.  The equivalent would be 1 person installing a windshield of a car vs. a few person would assemble the whole line of cars.  It will be interesting if Bruce's theory is correct.  If it is correct, then we are in a world of hurt since I am not sure service economy can scale as well as manufacturing.

[JEast]

Correct cpan.  The decline in manufacturing is the decline in people employed, not that manufacturing will disappear, and is equivalent to the agriculture analogy that was identified in the talk.  My take-a-way point was that we need to quit worrying about getting manufacturing jobs back because they are not coming back just like the farming jobs never came back.  Of course we produce more food now than in the 1920s and we will manufacture more in 2020s than we did in the 1960s, just not with as many people.

 

Cheers

JEast