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."
There's absolutely NO WAY.
His idea of a pressing political issue, on the minds of all Americans, is honoring gay marriages from Canada.
He's a fruit loop who will be back to peddling colidal silver by November of next year.
"Observe that economic depressions are not caused by the collapse in the money stock (as suggested by Milton Friedman), but come in response to a shrinking pool of real funding on account of previous of loose money. Consequently, even if the central bank were to be successful in preventing the fall of the money stock, this would not be able to prevent a depression if the pool of real funding is declining. Also, even if loose monetary polices were to succeed in lifting prices and inflationary expectations (as suggested by Paul Krugman), this would not revive the economy as long as real funding is declining."
"Again, note that contrary to popular thinking, depressions are not caused by tight monetary policies, but are rather the result of previous loose monetary policies. On the contrary, a tighter monetary stance arrests the depletion of the pool of real funding and thereby lays the foundations for economic recovery. Furthermore, the tighter stance reveals the damage that was done to the capital structure by previous monetary policies."
Does a Falling Money Stock Cause Economic Depression?
Richard W.
Just trying to cheer everybody up...
Coats-America, the last factory in my County in Western North Carolina is now boxing up all their machines and sending them to Mexico. The other two plants closed down earlier this year.
If enough businesspeople got rid of their means of production, it would help the "capacity-factor" statistic, no?
Do they count as exports?
They're at the top of my list.
GW is playing a complicated political game.
We went into Iraq to secure the second largest oil reserve in the world because we need the oil for our economic recovery. We will reap the benefits instead of the French, Germans and Russians.
As long as oil is $30/bbl our economy will remain stagnated.
GW will do it the same way that Ronald Reagan did it.
The tax cuts are cosmetic. The real answer is dropping the price of energy.
Ronald Reagan did it in 1985 when he convinced the Saudis to open the taps and lower the price of oil to $11./bb, and he destroyed the "Evil Empire" in the process.
Saudi doesn't have the power it did in 1985. OPEC will never allow the price of oil to get that low again; therefore, we had to have another source of plentiful oil - Iraq.
We're sitting on it, and we will produce it as fast as possible.
At the same time GW realizes that the economy may not turn around in time to assure him the election in 2004; hence, the pandering to the Hispanic vote and the acceptance of hundreds of thousands of illegals who are flooding this country.
In doing so he has the side benefit of millions of dollars of campaign funds from the mega corporations who depend on cheap labor.
I had no idea that this oil price business was not common knowledge. I mean, what do people fight over? What they don't want? Give me a break.
I'm staying with Dr. Frank Shostak on this one. Excessive liquidity and easy money cause misallocation of funds and excess capacity. Bubble economics. Once the bubble can no longer be sustained, recession and possible deflationary depression follow. All Greenspan is doing now is pumping more alcohol into the drunk rather than letting him go through the necessary detox period. Like the drunks internal system, the quick fix will eventually fail with horrid consequences.
Richard W.
Yes, it is, but most people think we "grew" ourselves out of the economic slump in the mid-80s without recognizing what we used as food for that growth.
The economy will turn around when the price of oil hits $20./bbl or less.
I had hoped that Greenspan would eventually come to his senses and do the right thing. That doesn't appear to be the case. It isn't politically acceptable (remember the warning of Jim Bunning to Greenspan) and now, it may even be too late.
Richard W.
THAT index is, IMHO, the most useful Economic Index there is. It is considered to be a coincident indicator, meaning it gives the current state of the Economy.
It is really a collection from 51 Newspapers in different parts of the country...and the individual time series charts relative performance of the Economy.
Unfortunately, the details are 'premium content', and only shared with Conference Board subscribers.
Freidman himself refuted it a week or so ago I believe.
Richard W.
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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