Posted on 07/04/2003 8:03:34 PM PDT by Willie Green
For education and discussion only. Not for commercial use.
MILWAUKEE, Wis. - (KRT) - Airlines these days fill little more than half the seats on their planes, leaving hundreds of the world's aircraft sitting idle.
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 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 percent - 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 percent of the nation's production was in use.
In good years, U.S. industry keeps some 82 percent to 83 percent 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, Wis., 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.
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 percent of capacity. Industrywide, the electronics industries in the United States took out 27 percent of the square-footage of their production facilities, leaving gaping holes in the once-bustling business corridors of Silicon Valley.
Old-line makers of durable machinery operate at only 67 percent of productive capacity. The figure is only 65 percent 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, Wis.-based Midwest has since cut unprofitable routes and the frequency of flights, reducing its flight capacity by nearly 21 percent in May. It furloughed 13 percent 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 percent 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 percent, 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."
Factline: Import Nation
Alan Tonelson
Thursday, June 26, 2003
U.S. TRADE TRENDS
Imports as share of U.S. manufactures market*, 1992 – 17.81%
Imports as share of U.S. manufactures market**, 2001 – 28.09%
*SIC codes 22-39 and 3X
** NAICS codes 313-339
(Sources: Calculated from Trade Dataweb, U.S. International Trade Commission, http://dataweb.usitc.gov and Value of Product Shipments, 2001 and 1996, both at Annual Survey of Manufactures, U.S. Census Bureau, U.S. Department of Commerce, http://www.census.gov/prod/2003pubs/m01as-2.pdf and http://www.census.gov/prod/3/98pubs/m96-as2.pdf, respectively)
I agree with your assessment of damage to the U.S. but the average manufacturing wage in China is 46 cents an hour. That is hardly a transfer of middle class comfort. The movement of manufacturing to China and other dirt-poor countries is not making them richer but it is taking Americans on a path downward toward levels of third-world poverty.
Americans cannot generate a demand for manufactured goods because they don't have the income to buy more than a hot dog. They are unemployed in increasing numbers.
There would be a severe disruption in the production pipeline if capacity were actually shut down, moved offshore, reinstalled and started back up again. What is more frequently done is to build new capacity offshore (sometimes using "used" equipment) then getting it up and running before phasing out the domestic supply.
So while part of the current underutilization may be attributable to the current downturn in the economy, much of it is also attributable to a loss of market share to imports. They likely represent many, many facilities for which I'll have the sad opportunity to post "jobs lost" threads in the months ahead.
Coming at you like a freight train.
This time around we had good enough sense to not raise tarrifs sky-high & shrink the money supply. Today is what 1931-32 would have looked like if they had not been so inept back then.
The only growth around here is government!!! The only solution offered by Demonicrats is suffocation (No Growth/Nimby's) They try to call it preservation!!!
Really like your screen name.
I'm not Pollyanna by a long chalk, but the **old** assumptions of the American economy are no longer valid, haven't been for some time, and (if possible, given the state of the American non-education system) continuous adaptation had better become the modus operandi of the American citizen. The more quickly that this can be accomplished in broad, the better for both the citizen and the nation.
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