Why U.S. Economy Shrugs Off Stalling Manufacturing

Investors Busniness Daily ^ | 10/01/2015 | JED GRAHAM

[expat_panama]

The manufacturing sector continued to cool in September, registering the slowest growth in more than two years as economic weakness around the globe and a stronger dollar hit exports.

But the lack of momentum, outside the auto sector, hasn't kept the rest of the economy from chugging along. Autos zipped out of showrooms last month at the fastest rate since July 2005.

The Institute for Supply Management's U.S. factory gauge slid 0.9 point last month to 50.2 — just above the 50 neutral level. Exports were the weakest link in a sluggish report, contracting at a rate that matches the worst level in three years. The export index hasn't been any lower than this since April 2009.

Yet the lackluster pace of the globally exposed factory sector stands out in contrast to solid domestic consumer spending and rebounding construction.

Who Needs Factories?

Unless the global economy and financial markets look especially fragile, it won't keep the Federal Reserve from starting to normalize interest rates later this year.

The economy is likely to grow 2.5%-3% in the second half of the year, propelled by the consumer, with an assist from construction and business investment, said Harm Bandholz, chief U.S. economist at UniCredit Research.

"In this environment, the Fed will likely begin to raise interest rates (by 25bp) at the December FOMC meeting," Bandholz said.

Because manufacturing represents only about 12% of economic activity, he said that the ISM would have to fall to about 43 before a recession is in the cards.

ADP's jobs report on Wednesday underscored that the economy can grow respectably ...

[HiTech RedNeck]

People will never agree on the optimum for everything, but there comes a point where the system has become hidebound.

[ROCKLOBSTER]

all rely one way or another on the work of engineers

Well maybe, but many use truck drivers instead.

[HiTech RedNeck]

Well, train engineers too lol!

[ROCKLOBSTER]

The communists (RATs) are doing their level best to stamp out small business, and hence the middle class.

[expat_panama]

all wealth is created by engineers and their services and companies

Most of the economy is made up of small business.

There are links w/ hard numbers on this if it would make any difference to anyone, but most employment's provided by seven figure+ corps w/ more than 100 employees.    We're hearing too much from lefties trying to downplay the role of big business whenever we talk about good stuff.

[ROCKLOBSTER]

but most employment's provided by seven figure+ corps w/ more than 100 employees.

Well?

If it's less than 500, it's a small business.

We're hearing too much from lefties trying to downplay the role of big business whenever we talk about good stuff.

You did not define big business, but rather made my point.

[mrsmith]

Good example for my point that only manufacture creates wealth.
If the trades work for a manufacturer they create wealth: a new >$X house is created out of <$x worth of cost.
If the trades do repair work for a consumer then NO wealth is created. In that case the present wealth is only preserved or allocated more efficiently.
Which is a fine thing! The homeowner or landlord can spend or invest that saved wealth on something ‘better’ instead but no new wealth was created.
(if the job is an improvement for a sale then the ‘consumer’ is ‘manufacturing’, good for him.)

If an economy doesn’t create new wealth it’s growth is very difficult.
Efficiencies free up the wealth to ‘do’ more, but efficiency is always limited.

[ROCKLOBSTER]

If the trades do repair work for a consumer then NO wealth is created.

Really? You mean they give him the materials and work for free?

[ROCKLOBSTER]

If the trades do repair work for a consumer then NO wealth is created.

Yeah? And when they completely build a house as I was implying?

[expat_panama]

Most of the economy is made up of small business.

most employment's provided by seven figure+ corps w/ more than 100 employees. 

If it's less than 500, it's a small business...  ...You did not define big business

Let's not go around in circles here.  You brought up the term and at the time having a definition was not important to you.   I did not use the term because there are just too many definitions used:

A local bakery that employs 10 people is an example of a small busines
Read more at http://www.yourdictionary.com/small-business#tUcPqlIfWKZJWw5J.99

Typically, a small business employs fewer than 100 workers and has revenues of less than $25 million. Webster's New World Finance and Investment Dictionary Copyright © 2010

Business Size definitions (https://en.wikipedia.org/wiki/Small_business)

	AUS	US	EU
Small	<15	<250	<50

We might consider that a CEO of a $multi-million corporation w/ 499 economists, doctors, and engineers would be in a different ball game as mom'n'pop and their grocery store.

[expat_panama]

If the trades do repair work for a consumer then NO wealth is created.

Really?

Huh.  I'd have thot that someone who dug up a pile of rust at a junk yard and restored it into a $30k mint condition Model T was creating a lot of wealth.

[ROCKLOBSTER]

Let's not go around in circles here.

OK, let's cut right to the chase.

You brought up the term and at the time having a definition was not important to you.

That's because I thought everyone knew what it meant.

I did not use the term because there are just too many definitions used

Really? Well then, let's just stick to the one that actually means something.

>> The most widely used, and SBA-endorsed, sizing criteria for small businesses is the following - the business must have no more than 500 employees for most manufacturing and mining industries, and no more than $7 million in average annual receipts for most nonmanufacturing industries. <<

Straight from the SBA's....whatever.

Next question.

[ROCKLOBSTER]

They did. And so does anyone else that converts the sweat of their brow into something of value. (wealth)

The entity in the above graph that does NOT create any wealth, is in fact...government.

[ROCKLOBSTER]

someone who dug up a pile of rust at a junk yard and restored it into a $30k mint condition Model T

And actually that's impossible. You have to discover and maybe dust off a perfect-condition article, in order for it to be in "mint condition".

[expat_panama]

...that does NOT create any wealth, is in fact...government...

That's true, and neither does religion and this is the way we want it because we need all three --commerce, government, and religion-- respectively, for creating wealth, for maintaining sovereign order, and for a giving us standard of good to leading our lives.  We sure don't want the best police force money can buy, we don't want the church to pass laws for the entire population, and only a fool says he's found inner meaning is willing to live his life for either his bank accounts or his party chairman.

[TheTimeOfMan]

Services only count in so much as they support ‘manufacturing’. And manufacturing in the sense I am using it is any tangible good. So a farmer is a manufacturer of food. The electric company manufactures electricity. Most govt. is parasitic. Software companies support manufacturing in that they (usually) make the process more efficient. Services may or may not indirectly support manufacturing efficiency and so may or may not produce real wealth. Most services do even if they only create more free time for workers as this (to a point) co-relates to increased worker productivity while on the job.

It is not a traditional way of looking at economic sectors.

Bottom line - we cannot continue to consume at a higher rate than we produce real things that we can trade with other people for real things.