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."
I, with you, couldn't care less if homosexuals are allowed to do what they want in private (you put it more graphically and more inflammatorily). I DO care when the mechanism of that tolerance involves stripping the last vestiges of the right of a state to make its own laws, the same as Roe v. Wade. It's bad law. I'll go farther: it should be legal for homosexuals to do what they want in private (IMO); but the change needs to be made in the laws, not by unvoted upon Amendment to the Constitution.
The comment about Michigan is not worth replying to, except to say that Michigan letting "a few blacks into law school" is one of the poorest summaries of the issues that I've read.
You are right in your last sentence: it will have to get a lot worse. I believe it will, sooner rather than later.
America is screwed...
That is my thinking also however I will allow that our leaders have a fundamental belief that a tyrant should not be permitted to brutally control and abuse an entire population. Admittedly though it is a lot easier to turn a blind eye to Rawanda and other non essential places. The point is if gasoline and diesel and home heating oil drops by 40% in the US that then is the best tax cut W could ever give us, and Congress cant vote on it to screw it up.....
Not so at all. See:
Your point: it is an insignificant number. But, I see from your profile that you are almost as old as I. I know that in 30 years or so you've seen the camel's nose in the tent many, many times in many, many areas that have grown to fill up the tent. My tolerance for those noses is ended--the damned things should be smacked ASAP. I think that the problem comes from thinking it is a small thing--forgetting the principle--and ignoring it until too late. It has happened with firearms, with affirmative action, with highway fund appropriations and seatbelts, with smoking, and with everything else in American life. The idea of diversity for its own sake and without regard for merit has metastasized throughout our institutions, public and private, and is destroying us, IMO. This frog is saying the water is too hot--let's turn the heat off.
One other thing, then to a company barbecue: if you pose your objection to my argument with state's rights, i.e., Michigan can do what it wants, then I am with you totally, provided that all states can do it the way that they want.
Wasn't the internet invented in the 1960's? It wasn't until the PC market hit critical mass with an attractive price point that it took off. The invention we need is already out there.
Why didn't established companies add any net jobs during the Reagan economic expansion that lasted 17 years? I look at our problem as excess resources, rather than excess capacity. Leftists look at the problem as excess capacity, because they don't want to have the government cut back for the sake of allowing the private sector to keep more of its resources. Austrian economists look at the problem as excess capacity, because they love to pick at the remains left by human misery.
I know that! LOL!
Are you thinking of a specific "new invention" or, are you speculating?
from the FT Friedman article: After a long pause, he agrees: "You form a philosophy at a certain stage and for the rest of your life it dominates. On the big issues of policy I don't think there is anything I've changed my mind about."
Anyway, thanks for the links.
Let's just home the nation isn't in the mood for breakfast, come election day. (metaphorically speaking)
But here's the problem - that no one seems to want to exploit these resources via taking out loans to develop these resources into something more useful. There has to be an economic message in that the expected long term return is much less than the cost, i.e. that it isn't profitable to convert the excess capacity into something useful and with interest rates as low as they are that's troubling.
And why in the world would I be interested in World Com bonds, of all things?
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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