Free Republic
Browse · Search
News/Activism
Topics · Post Article

Skip to comments.

The Great Comeback No One Will Believe
The Daily Reckoning ^ | 2-29-2012 | Chris Mayer

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 would’ve dared predict. Something most people probably won’t believe.

US manufacturing is staging a comeback.

Caterpillar, the world’s 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? Isn’t China eating America’s 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 I’ve 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 isn’t that much cheaper to move to, say, China anymore. The nearby chart nicely sums up what’s happening. As wages have gone gonzo in China, its wage edge melts away. US manufacturing wages were 22 times that of China’s 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 China’s 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, China’s 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 what’s in the ground. Let’s 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 don’t. 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 we’ve 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 couldn’t 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 it’s obvious to everyone what’s 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.


TOPICS: News/Current Events
KEYWORDS: economy; rebound; recovery
I'm a pessimist...but, there are some positive indicators that can't be ignored.

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.

1 posted on 02/29/2012 7:21:56 PM PST by blam
[ Post Reply | Private Reply | View Replies]

To: blam
“With every dollar increase in the price of the bunker fuel that powers the containerships that ply the Pacific, China’s wage advantage becomes less and less important.”

So? I'm still paying $3.80 per gallon. This is not comforting.

2 posted on 02/29/2012 7:28:13 PM PST by edpc (Wilby 2012)
[ Post Reply | Private Reply | To 1 | View Replies]

To: blam
Fed: All Areas Of The Country Show Growth

Wednesday, February 29, 2012
Robert Wenzel

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.

3 posted on 02/29/2012 7:35:39 PM PST by blam
[ Post Reply | Private Reply | To 1 | View Replies]

To: blam

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!


4 posted on 02/29/2012 7:38:42 PM PST by RetiredTexasVet (There's a pill for just about everything ... except stupid!)
[ Post Reply | Private Reply | To 1 | View Replies]

To: blam

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.


5 posted on 02/29/2012 7:40:52 PM PST by One Name (Go to the enemy's home court and smoke his ass.)
[ Post Reply | Private Reply | To 1 | View Replies]

To: blam

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.


6 posted on 02/29/2012 7:42:47 PM PST by RetiredTexasVet (There's a pill for just about everything ... except stupid!)
[ Post Reply | Private Reply | To 1 | View Replies]

To: AdmSmith; AnonymousConservative; Berosus; bigheadfred; Bockscar; ColdOne; Convert from ECUSA; ...

Thanks blam.
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 comeback
Apropos of nothing, a lot of journalists get paid off in illegal narcotics.


7 posted on 02/29/2012 7:42:55 PM PST by SunkenCiv (FReep this FReepathon!)
[ Post Reply | Private Reply | View Replies]

To: blam

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.


8 posted on 02/29/2012 7:46:40 PM PST by Balding_Eagle (Liberals, at their core, are aggressive & dangerous to everyone around them,)
[ Post Reply | Private Reply | To 1 | View Replies]

To: blam

Right! That’s why durable goods dropped 4 percent last month./


9 posted on 02/29/2012 7:51:05 PM PST by gunsmithkat (There is no such thing as Too Many Guns)
[ Post Reply | Private Reply | To 1 | View Replies]

To: edpc
"So? I'm still paying $3.80 per gallon. This is not comforting."

U.S. Energy Story No One's Telling

10 posted on 02/29/2012 7:53:30 PM PST by blam
[ Post Reply | Private Reply | To 2 | View Replies]

To: RetiredTexasVet
"All I had to see to know the entire article was BS. “My friend (a shipping broker)....”, more of the sell."

Huh?

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.

11 posted on 02/29/2012 8:06:44 PM PST by blam
[ Post Reply | Private Reply | To 4 | View Replies]

To: blam

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.


12 posted on 02/29/2012 8:20:49 PM PST by gusopol3
[ Post Reply | Private Reply | To 11 | View Replies]

To: blam

The wage gap is getting smaller, true, but US regulations, legal and political environment still substantially hinder investment in manufacturing.


13 posted on 02/29/2012 8:38:36 PM PST by grumpygresh (Democrats delenda est; zero sera dans l'enfer bientot.)
[ Post Reply | Private Reply | To 1 | View Replies]

To: blam
Plentiful supplies of natural gas growing from hydraulic fracturing makes economics of large industrial facilities compelling. The rule of law in the US compared to the corruption and bribery of competing countries further support the case for capital intensive industries. Imagine the combination of plentiful natural gas at very low cost and a squeak by change of POTUS to a GOP’r. It is just as Newt Gingrich has said, the economic recovery/boom begins on the night of November 6, 2012.
14 posted on 02/29/2012 8:45:12 PM PST by sefarkas (Why vote Democrat Lite?)
[ Post Reply | Private Reply | To 1 | View Replies]

To: blam

Could be they KNOW a new President is on the way.


15 posted on 02/29/2012 9:03:41 PM PST by annieokie
[ Post Reply | Private Reply | To 1 | View Replies]

To: annieokie
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.

16 posted on 02/29/2012 9:37:36 PM PST by stars & stripes forever (Blessed is the nation whose God is the Lord!)
[ Post Reply | Private Reply | To 15 | View Replies]

To: One Name
What we have lost in the interim is the vertically integrated infrastructure that won WWII.

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.

17 posted on 02/29/2012 9:40:32 PM PST by Last Dakotan
[ Post Reply | Private Reply | To 5 | View Replies]

To: stars & stripes forever
That was another theory that came to mind, and actually I think yours is the most correct. This has the smell of a manufactured recovery.

Whatever it is, OBAMA is still a one termer.

18 posted on 02/29/2012 9:42:23 PM PST by annieokie
[ Post Reply | Private Reply | To 16 | View Replies]

To: sefarkas

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.


19 posted on 02/29/2012 9:45:27 PM PST by Surfscoter (Surfscoter)
[ Post Reply | Private Reply | To 14 | View Replies]

To: annieokie
"This has the smell of a manufactured recovery."

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.

20 posted on 03/01/2012 6:14:30 AM PST by blam
[ Post Reply | Private Reply | To 18 | View Replies]

To: blam

I think they are going to find it a lot harder to talk the economy up, than it was to talk it down.


21 posted on 03/01/2012 6:16:15 AM PST by zeugma (Those of us who work for a living are outnumbered by those who vote for a living.)
[ Post Reply | Private Reply | To 1 | View Replies]

To: zeugma; annieokie
"I think they are going to find it a lot harder to talk the economy up, than it was to talk it down. "

Here are the feel-good stories on the front page of the Business Insider presently:

Initial Jobless Claims Beat Expectations At 351K

CNBC's New Star Kelly Evans Reveals A Brand New Bullish Economic Indicator

Two Of Our Biggest Fears For The Economy Are Disappearing

February Retail Sales Are SMASHING Expectations, Target Stores Up 7.0%

Chrysler's February Sales Surge 40%, CRUSHING Expectations

The Associated Press is doing the same. It's become a 'full-court-press' to get Obama elected.

22 posted on 03/01/2012 7:01:27 AM PST by blam
[ Post Reply | Private Reply | To 21 | View Replies]

To: zeugma; blam
They really can't talk the economy up, it is blowing smoke up......

People out of jobs,homes, no gas to travel, no food, misery knows the truth and they vote.

That bstard in the WH is out come Jan 2013, and Congress should begin to treat him as a LAME DUCK.

23 posted on 03/01/2012 8:41:48 AM PST by annieokie
[ Post Reply | Private Reply | To 21 | View Replies]

To: blam
They can SPIN until the cows come home, it won't do any good.

People are miserable, and MISERY VOTES.

If anyone of us are haveing a hard time, and we all know some of these people, they are miserable and leaning on NO hope. Promises at this late date is not going to help them, BUT they can hang in there until the election with our help. If they are miserable so are the rest of us who have to know how they are trying to make ends meet.

MISERY VOTES, and this time Misery will vote the BSTARD out.

No way will they be able to improve the MISERY INDEX quick enough for them.

24 posted on 03/01/2012 8:58:05 AM PST by annieokie
[ Post Reply | Private Reply | To 22 | View Replies]

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.

Free Republic
Browse · Search
News/Activism
Topics · Post Article

FreeRepublic, LLC, PO BOX 9771, FRESNO, CA 93794
FreeRepublic.com is powered by software copyright 2000-2008 John Robinson