Posted on 06/29/2003 4:38:58 AM PDT by sarcasm
Airlines these days fill little more than half the seats on their planes, leaving hundreds of the world's aircraft sitting idle.
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America's automakers have the capacity to build 2 million more cars each year than people buy.
And in 2001 and 2002, the nation's paper-making heartland - concentrated in Wisconsin - decommissioned 104 paper-milling machines, each the length of a football field.
From greasy tool-making machinery to high-speed fiber-optic data lines, the United States has mothballed more industrial equipment this year than it has since 1982.
The shuttered offices and factories - some mutely awaiting an upturn and others closed for good - are a legacy of the longest economic expansion in post-World War II America. The giddy years of the late '90s,before the boom abruptly turned to a bust, left the economy saddled with more capacity than the marketplace can absorb.
And in the view of economists, the years of over-investment are now impeding a broad-based economic revival.
"If you have 26 percent of the capacity of the economy sitting idle, it is hard to sell to your board or your bank that you need to invest in new capacity," said Charles W. McMillion, chief economist of MBG Information Service, a forecasting firm in Washington, D.C.
An excess of office space, computer networks and assembly lines has prolonged a stumbling on-again, off-again recovery. An essential driver of any rebound, economists say, is a willingness of companies to fork out money for new factories, equipment and workers.
But those big-ticket investments have yet to materialize. And firms that cannot justify new capacity because they already preside over idled factories also are hard-pressed to justify adding jobs.
Just as disconcerting, the overall glut of industrial capacity has worsened, not improved. In April and May, the latest months for which data are available, the rate of capacity utilization turned down again, this time dipping to 74.3% - the lowest in the current economic cycle, according the Federal Reserve.
The over-capacity is so severe in part because so many industries over-invested on such a grand scale - including airlines, telecommunications and automakers, McMillion said.
Even in the recession of 1991, which was compounded by the first Persian Gulf War, the nation never took more than a fifth of its productive capacity out of commission. The latest reading is approaching the severity of the 1982 recession, when only 71% of the nation's production was in use.
In good years, U.S. industry keeps some 82% to 83% of its plants up and running.
"We had to add capacity," said Kristian Talvitie, a spokesman for Plexus Corp. in Neenah, one of the state's technology leaders. The maker of high-end networking and data-communications equipment rode a breathtaking boom that carried its annual sales to more than $1 billion by 2001 from $416 million in 1998. It projected even higher growth into 2002.
"It was a period of optimism," Talvitie said.
But in the gut-wrenching technology downturn that followed, 23-year-old Plexus last year announced that it would close its maiden factory in Neenah, an 84,000-square-foot plant that once employed 400 people. Within a matter of months, it also announced the closure of manufacturing sites in San Diego, and Richmond, Ky., as well as its "new product introduction" complex in Minneapolis.
The most massive accumulation of overcapacity in more than two decades has confounded policy-makers.
The Federal Reserve Bank, which cut its interest rates last week to 45-year lows, so far has been unable to revive activity even as the cost of borrowing approaches zero.
And President Bush, who successfully steered the biggest and then the third-biggest tax-reduction packages in history through Congress, has injected an unprecedented dose of stimulants into an unresponsive economy.
Government reports reveal hopeful patches of revival, meaning that the catalysts from the White House and Fed have begun to work.
But the nation would need to defy economic gravity to generate an expansive rebound as long as supply outstrips demand, economists say. And many caution that the nation needs to finish sweating off the excesses of the bonanza of the 90s before a recovery takes hold.
"This recovery may be characterized by slower growth than past recoveries largely because of the overhang of excess capacity and its impact on overall business investment," said Scott Anderson, senior economist in Minneapolis at Wells Fargo & Co.
On the north side of Milwaukee, the cavernous 150-acre Tower Automotive Inc. auto-parts works sits more than half empty - a testament to a global auto industry that can produce 20 million more vehicles each year than the world will buy. By the end of the year, only a quarter of the 3.1 million-square-foot plant will show signs of life.
Already the company has cut nearly 2,500 jobs in Milwaukee since Tower acquired the plant in 1997, said Tower Automotive spokesman Paul Omoldt. By December, after the next round of cuts, the plant will employ 560.
With the global economy unable to support so many automakers, the industry is abuzz with speculation that the roster of big-name auto companies will shrink within the next decade.
Nowhere is the glut more pronounced than in the feast-and-famine world of technology.
According to the Federal Reserve, producers of telecommunications gear currently operate at 50% of capacity. Industrywide, the electronics industries in the United States took out 27% of the square-footage of their production facilities, leaving gaping holes in the once-bustling business corridors of Silicon Valley.
Plexus in Neenah, which maintains a diverse portfolio of businesses that include non-Internet industries such as medical equipment and automated-teller machines, took out 7%, said Plexus' Talvitie.
"We had grown our capacity to handle revenue in excess of $1 billion, and then the downturn hit," Talvitie said. Analysts said it is unlikely that Plexus will exceed $800 million in full-year sales.
Old-line makers of durable machinery operate at only 67% of productive capacity. The figure is only 65% for producers of semiconductors and electronic components.
Midwest Air Group, which owns Midwest Airlines and its commuter partner Midwest Connect, is feeling the downdraft that has blindsided airlines and aerospace companies alike.
Oak Creek-based Midwest has since cut unprofitable routes and the frequency of flights, reducing its flight capacity by nearly 21% in May. It furloughed 13% of its workers. The airline ended 2002 with a loss of $10.5 million.
According to the International Air Transport Association, a Geneva, Switzerland-based industry trade group that represents the world's carriers, airlines on average fill only half the seats on their total fleet. In response, airlines have grounded an estimated 500 to 800 unneeded jets, many of them parked in the deserts of Arizona. By taking planes out of service, airlines on average now fill 64% of the seats on their active fleet, said IATA spokesman William Gaillard.
Wisconsin, which is the nation's leading paper-making state, has steadily reduced paper capacity throughout the downturn.
In Wisconsin Rapids, the North American division of the big Finnish paper-making group Stora Enso Oyj last year halted production on two of its paper-making machines in the state, each the size of a factory unto itself. That cut 145,000 tons, or 5%, of its capacity. This year, it said it would take a third Wisconsin plant out of use. Stora, which has most of its paper mills in Wisconsin, now employs 5,200, down from its peak employment of 7,200 in 1997.
Stora's situation is little different from the entire paper industry. According to the American Forest and Paper Association, the nation's paper producers shut down 40 paper mills and 104 machines in 2001 and 2002, bringing overall capacity back to where it was in 1994.
"We are spending money to improve existing machinery," said Stora spokesman Scott Deitz, "but we are not adding capacity."
Is that why the Federal Reserve cut interest rates again? Seems like they're not convinced that the turn is at hand.
Is that why the Federal Reserve cut interest rates again? Seems like they're not convinced that the turn is at hand.
Cutting interest rates won't cut the mustard. We need another 15 million illegals (consumers) to come pouring across our borders. (/sarcasm)
We've reached the flat part of the demand-price curve and the Federal Reserve knows it but has to look like its doing something.
There are a couple of options - increase foreign consumption (however much of the oversupply is global). Or allow for contraction. Neither will be implemented because of the political considerations.
Actually this isn't a bad idea - we do need to sell outside of the domestic market. Whether we sell to them there or they come here it would help with the oversupply problem.
Or we can invest in new businesses that will either use the excess capacity as it is or convert to something that can be used.
That could be done - though I would wonder why existing concerns can't find anything to be done with their excess capacity.
the peaceniks are happy to try to grow their own food, protest and vote for whichever Dimocrat sounds the most socialist to them.
Where's Algore when we need a new "internet?"
You just defined the Dean presidential campaign agenda. The ultimate question is, will the socialist democrats have the opportunity to ruin this nation? If given the chance, they most surely will do just that.
Richard W.
I noticed a reference in one scenario in the article to capacity receeding back to 1994 levels. I recall a very strong political shift in 1994 that gave rise to "The Contract With America," and a change to the entire political landscape from D.C., all the way down to local elective offices. (or maybe it was the other way around)
The excesses of the Hitlery Clinton power grab for government control one seventh of the entire economy, the excesses of the EnvironMental Communutty and the excesses of the ATF/FBI at Ruby Ridge and Waco as well as the economic slump made life in America very painful and threatening and finally woke folks up to vote a stop to 30 years of liberal excess.
Your perception and perspective are right on target and I have believed that the cyclical repetition of history is also quite similar to 1982 when the Dow was at 712, waiting for the Reagan Tax Cuts after the "Stagflation" of Jimmy Carters inept administration. Look what happened immediately after these two periods of correction in our economic/market history.
In 1994, folks said they'd had enough of the no growth nimbyism, pseudo environmentalism and manufactured fear of the media and I sense this break-out mentality is about to manifest it'self again in 2004. People are weary of the liberal drum-beat of negativity and it's about dang time!!!
I've flown on airliners over 10 times since 4/1/2003 and each time I've flown, the flight has been full or near full. The only exception was a quick hop from LAX to Las Vegas when the SouthWest airlines (not asking for bailout money) airplane was about 1/3 full.
The 1992 to present data series are adequate to show this clearly. Compare M3 growth with velocity of money and NASDAQ prices. What has happened is no suprise whatever.
Anyone interested and without a political axe to grind could not have missed it developing. (I am an amateur and saw it as obvious.)
M3 growth had to have been slowed in 1992-93. The "boom" had to be aborted. The Clinton clique would never have allowed this to happen. George Bush cannot allow the existing situation to persist, but everything he does to try to expand the economy now will cause increased long term problems.
A decrease in government spending, taxing and borrowing of over 50% would fix things. Of course, unemployment would hit 40%, and George would be impeached. Ah, dilemmas.
When I vote in these MoveOn things, I vote for someone who could actually beat Dean. I fear Dean could be another Jimmy Carter type with a great utopian and moralistic vision, a sense of right vs. wrong, and a real contrast to GWB and his administration and global interactions. I really don't want to risk another Jimmy Carter-type President.
Would Dean win as presidential candidate? Probably not, unless he pulls in an awful lot of non-voters. It's just not worth the risk.
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Economy
This recovery may be characterized by slower growth . . . largely because of the overhang of excess capacity and its impact on overall business