Skip to comments.The Great Comeback No One Will Believe
Posted on 02/29/2012 7:21:49 PM PST by blam
The Great Comeback No One Will Believe
By Chris Mayer
02/29/12 Gaithersburg, Maryland Something surprising stirs in the US economy. Something no mainstream pundit wouldve dared predict. Something most people probably wont believe.
US manufacturing is staging a comeback.
Caterpillar, the worlds largest maker of earth-moving equipment, gave us some tangible confirmation in the latest earnings roundup. Based on the business it sees, Cat expects US construction spending will increase in 2012 for the first time since 2004. And Eaton, another large industrial, followed that up by saying it expects its markets to grow faster in the US in 2012 than anywhere else. If it plays out that way, it would be the first time since the mid-2000s that the US led the way.
These are the first robins of spring. Forget the official data. This is real economics. As hard as it may be to believe, US manufacturing is coming back. There are other clues.
A new report by Cushman & Wakefield, a commercial real estate services firm, points out that new leases for industrial property returned to levels not seen since prior to the 2008-09 recession. Tenants signed new leases for 306 million square feet, up 14% from a year ago and the most space signed since 2007.
What drives leases for industrial space? Let Jim Dieter, an EVP at Cushman & Wakefield answer: Manufacturing is the main driver within the industrial landscape. Busy factories mean more rail and truck flow. It means fuller warehouses. It means looking for more space.
How to explain this? Isnt China eating Americas lunch?
I found a recent paper by Reynders, McVeigh Capital Management that points to a few reasons for the sudden revival that jibe with what Ive heard from the companies themselves. The report is called Workforce Rising: Why US Manufacturing Is Poised For a Comeback.
One is that the wage gap is shrinking. It isnt that much cheaper to move to, say, China anymore. The nearby chart nicely sums up whats happening. As wages have gone gonzo in China, its wage edge melts away. US manufacturing wages were 22 times that of Chinas in 2005. Today, that wage gap is under 10 times and likely will be under five by 2015. (See the chart below.)
Transportation costs figure into this too and cut further into Chinas advantage. As the price of oil has stayed north of $100 a barrel, the cost to ship anything is high. As author Jeff Rubin says, With every dollar increase in the price of the bunker fuel that powers the containerships that ply the Pacific, Chinas wage advantage becomes less and less important.
So those are two reasons for the manufacturing revival in the US. There are two more compelling reasons that have to do with whats in the ground. Lets start with one of my favorites: water.
In a world where fresh water is scarce, such as in China and India, the US remains water-rich by comparison. Around the world, Many regions are already approaching peak water, a condition under which usage rates surpass the natural rate of replenishment, the authors write. Importantly for the manufacturing sector, the US is home to the largest reserves of water on the planet.
People in the US tend to ignore this lucky circumstance. Manufacturers dont. They use lots of water to make everything from jet engines to minivans.
In addition to water, the US has plenty of cheap natural gas. As weve talked about before, this is bringing back firms that use natural gas to make things. The McVeigh report notes how Nucor began building a $750-million plant in Louisiana. It plans to superheat natural gas and mix it with scrap iron and iron ore pellets to make steel. If you burn natural gas, you want to be in the US.
Even the automakers are coming back. GM will invest $2.5 billion in US factories. Until recently, that money was going to Mexico. Ford signed a new contract that calls for $16 billion in US investments and 12,000 new jobs by 2015. The foreign automakers are coming too. Mercedes plans to spend $2.4 billion by 2014 to expand an Alabama plant that will add 1,400 jobs. You get the idea.
I like this whole story because it will surprise a lot of people and, hence, has some value as a contrarian observation. In September 2010 (letter No. 79), I wrote a letter with the headline The USA Still a Nation of Builders. The main point, as I wrote then, was to leave you with a different perception of American manufacturers. They are not like dinosaurs on their way to extinction. In fact, some of them are great investments. I showed a number of ways in which US manufacturers were doing quite well.
The thesis landed with a thud. It was mostly ignored. If anything, I heard people tell me how it couldnt be so. Nevertheless, I urged my subscribers at Capital & Crisis to buy Globe (NASDAQ:GSM), a low-cost US manufacturer, which went on to double.
A lot of investors will miss the opportunity to cash in on this rebound in American manufacturing, simply because the idea is so counter to what they think they know. When its obvious to everyone whats going on, of course, it will no longer be a worthwhile investment theme. But for now, US manufacturers get little respect and offer a good pool of potential investment ideas.
My friend (a shipping broker) tells me that equipment going to South America is booming. He's getting high dollar to ship there these days. He said speedy delivery was more important than price.
So? I'm still paying $3.80 per gallon. This is not comforting.
Wednesday, February 29, 2012
The Fed said in its report, known as the Beige Book said that all 12 of its banking districts reported some level of growth in January and the first half of February.
Manufacturing output rose in all districts. Auto manufacturing, steel makers and other metal producers all reported solid growth.
Home sales increased in at least half of the districts.
The Beige Book is released eight times a year. The findings from each of the Fed's regional bank districts are all anecdotal; there are no numbers.
I urged my subscribers at Capital & Crisis to buy ...
All I had to see to know the entire article was BS. “My friend (a shipping broker)....”, more of the sell. Save your bucks and invest in pixie dust .... you’ll probably get better returns!
What we have lost in the interim is the vertically integrated infrastructure that won WWII. We have pieces in place, but we need the continuity from the mines to the steel mills and the machine shops; from the farms to the railheads to the ports. From the cottonfields to the fabric mills to the seamstresses to the retail outlet. Too many pieces of the puzzle have disappeared, atrophied, outsourced or been denigrated as beneath us.
Self-sufficiency and security start with vertical integration; then we move to strategic alliance with like-minded freedom-loving countries next to fill the gaps (rare minerals, safe passage, etc.)
Lastly we negotiate with unfriendlies to accomplish goals.
The Beige Book is released eight times a year. The findings from each of the Fed’s regional bank districts are all anecdotal; there are no numbers.
Note the “there are no numbers.” part of the statements ... kind of hard to prove or disprove without numbers, but I would lean towards “disprove” based upon the sterling past performance of the FED and the Food Stamp President’s administration.
Something surprising stirs in the US economy. Something no mainstream pundit would've dared predict. Something most people probably won't believe. US manufacturing is staging a comebackApropos of nothing, a lot of journalists get paid off in illegal narcotics.
I spoke to my niece in MN today. The Caterpillar plant there is expanding and is so short on workers that they’ve added a bus route to bring in workers.
Right! That’s why durable goods dropped 4 percent last month./
I have nothing to sell nor an axe to grind.
I'm a retired chip-maker from Texas.
I try to present all sides of the news...
My friend owns a shipping brokerage company.
It’s the US vs China wage chart that gets me. I wish they’d continued it out about another ten years, i wanted to see where the Chinese wages go to infinity.
The wage gap is getting smaller, true, but US regulations, legal and political environment still substantially hinder investment in manufacturing.
Could be they KNOW a new President is on the way.
Or, could be The Great Comeback to put OB in the position as the comeback kid.
The US entered the 1980's as the biggest machine tool builder in the world and exited number 5, behind such industrial powerhouses as Italy.
Whatever it is, OBAMA is still a one termer.
If the markets anticipate an Obama win, they will stall out. They are counting on a Republican Congress and a reasonable chance of a Republican president. That will lead to a booming energy industry which lead the economic recovery, reduce our balance of payments, strengthen the dollar, and restore the US as the world’s manufacturing leader. Thus more foreign companies will build plants here. It’s all good— if we get rid of Obama.
I predicted this to a friend of mine.
After all the money that has been pumped into the system we should expect some sign of a recovery...the long term problems remain-undealt with, so....it's temporary.
The MSM (state run media) have begun pounding the drum for Obama.
We'll be overwhelmed with feel-good, recovery stories before the election.