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Finance: the Downscaling of America
Reuters ^ | July 5, 2003 | Linda Stern

Posted on 07/05/2003 11:36:42 AM PDT by sarcasm

WASHINGTON (Reuters) - When mutual fund powerhouse Fidelity Investments wants new ideas, one of the places it goes is Inferential Focus, a quirky New York prognosticating firm.

In their efforts to predict the future, the company's staff of seven, led by President Charlie Hess, read 350 publications on a regular basis. They ignore most of the noise -- surveys, prognostications, formal speeches and staged events -- and look for actual occurrences that can point to changes in American society, which can then be spun off into investable ideas.

What they are finding now is this: We're going down. Downwardly mobile, that is.

Even though the worst of the bear market might be behind us, the American middle class will continue to lose ground and the American consumer will continue to be squeezed for some time to come, said Hess and Gail Eisenkraft, one of his partners, in a recent interview.

They find that to be true at both middle and upper levels of the income spectrum. That has implications for the way we all spend and invest our money.

It's no secret that the U.S. has been on a rich-get-richer, poor-get-poorer track for several years. Most recently, the Labor Department said that the top 5 percent of America's wealthiest households earned 22.4 percent of national income in 2001, the most recent year for the compilation of these figures. That is its highest share since figures were first collected in 1967.

The lowest class, meanwhile, earned its smallest share, 3.5 percent. The middle section is slipping too.

Middle income households, which in 2001 earned between $33,315 and $53,000, earn 14.6 percent of American income every year. That's another 35-year low. Hess and Eisenkraft now say that this slump is spreading to the better-off, who are starting to act more like the less-well-off.

There are specific economic forces that will continue to hold the middle class down, says Hess.

Here are some of the events and trends that he sees working together to create a middle-class slide: the export of technical jobs and the continued unemployment of many American tech workers; the squeeze on state economies that will result in higher state taxes, fewer state services, and higher-priced state educations; the triple threat of high health-care costs, high debt burdens and continued weak stock prices and battered portfolios.

As a result, even the upper-middle class is starting to downscale spending habits and life style.

'We're seeing those pressures converge on the reasonably affluent household,'' says Hess.

More resourceful parents are sending their children to community colleges for the first year or two of higher education, just to save money. Everyone is shopping discount.

``The Dollar Store near Beverly Hills has shown more growth than any other Dollar Store in the country,'' Eisenkraft notes.

Maybe that's not all a bad thing. Perhaps if everyone is worrying about their money, they will spend less on empty status items, and nobody will have to be ashamed of being budget conscious. It might even be considered cool to shop the sales.

What, besides handwringing, can a squeezed middle-class person do?

Shop down and invest like everybody else is shopping down, suggests Hess. ``We are talking to our investor clients about the many plays that might result from the search for cheaper upscale and cheaper downscale.''

You can live well and spend less by nailing down a 15-year mortgage instead of a 30-year mortgage while rates are low; by buying used cars instead of new, and by looking for freshman-year college bargains, Hess suggests.

You can make money in the market on this trend by buying companies that sell used cars, good clothes at a discount, product manufactured homes or quality items at commodity prices, like the big warehouse stores.

Look, too, at for-profit trade schools that could benefit once middle-class students realize they are graduating college with tens of thousands of dollars in debts and no solid job prospects to speak of, suggests Eisenkraft. That's just one more way of investing in the downscaling of America, so that even if you're down, you can be up, at least a little.


TOPICS: Business/Economy; News/Current Events
KEYWORDS: catholiclist
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To: sarcasm
Why U.S. Manufacturing Won't Die - by Clare Ansberry

Staff Reporter of The Wall Street Journal - 7-3-03

What role will U.S. manufacturing play in the national and global economies in the coming years? What jobs will be left for American workers?

It's more than an academic question for many company owners. Stan Donnelly, who owns Donnelly Custom Manufacturing Co. in Minnesota, is studying Mandarin in case he has to move his machines to China. Already, he buys molds from China to make his custom-designed plastic parts. To date, Mr. Donnelly has been able to keep production of those parts in the U.S. But as his customers increasingly demand lower prices, he wonders if he will one day need to move production to Asia as well.

Many experts believe that the pattern of past years will continue -- that low-skilled jobs making lower-value, mass-produced items will keep migrating to countries where labor is plentiful and cheap, while manufacturing in industrial nations, such as the U.S., Japan and Western Europe, will center on complex, value-added products and systems. Demand for more sophisticated luxury cars and ever-more elaborate communication systems will keep fueling highly automated machinery and processes. Many of those higher-margin, technology-intensive production will remain in the U.S., and should help keep jobs here becoming steadily better, safer and higher paid than in earlier generations.

Other jobs serving certain protected markets, like medical instruments that are carefully monitored and require collaboration between doctors, hospitals and producers, should also remain, as will those involved with making something big and bulky, like kitchen cabinets that are costly to ship, or perishable items like frozen food and bread.

"There's not enough boats in the world to bring all that Americans want into the U.S.," says W.R. Timken Jr., chairman of the century-old maker of bearings as small as marbles or big enough for a person to walk through. His company has operations all over the world, but still needs plants in the U.S. to make bearings for cars, trucks, helicopters and X-ray machines made here.

Demand will also escalate for basic goods like washing machines, cars and telephones in parts of the world where many people have never had them before. That will keep global assembly lines humming, as well as fueling demand for ever-more automated systems to operate them more efficiently.

In short, demand for manufacturing will remain robust for both the developed and developing world, concluded a two-year study by the Manufacturers Alliance, a public policy and business research group in Arlington, Va. "Every industry has certain pieces of manufacturing that will shift abroad, but also pieces that will remain in the U.S. because they embody high technology within that product," says Daniel Meckstroth, chief economist with the Manufacturers Alliance. "Over time it will evolve."

That isn't to say higher-skilled jobs won't also move overseas eventually. Already work forces in some developing nations are upgrading their skills and winning contracts to produce higher-end products. At the same time, the wage gap will continue to narrow as workers in developing nations grow more prosperous and develop a taste for a better standard of living.

So, what is likely to pull manufacturing overseas in coming decades? Cheap and available energy. Signs of such a trend are already here: Aluminum producer Alcoa Inc. is building a smelter in Iceland because of cheap hydroelectric power. The same plentiful power has attracted interest from Russian Aluminum and Alcan.

What will ensure U.S. manufacturing's future is innovation, just as it has in the past. A sheet of glass made by Pittsburgh-based PPG Industries Inc. is now self-cleaning, its coating breaks down and loosens organic dirt, which means less work for cleaning-averse consumers. The average car contains between 200 and 300 types of steel designed to be lighter for better fuel efficiency, yet strong enough to protect a passenger. In a decade, there will be yet more composite materials.

Beyond automobiles, even clothes and computers will be increasingly customized. It will require tremendous flexibility to innovate and get a product to the market quickly, as well as to integrate new technology and processes.

The U.S. will undoubtedly continue to lose jobs in areas like textiles, where both labor and materials are plentiful overseas. But positions in computer and mathematical occupations are expected to increase 29% in the coming decade.

Other hot jobs are expected to focus on industrial automation equipment, such as robotics. The U.S. Department of Labor projects that those jobs will grow faster than the economy as a whole and, in particular, even exceed growth in manufacturing. Toys and sporting goods, drugs, garden machinery, motor vehicles, metal coating and screw machine products, bolts and rivets industries are all in the top 25% manufacturing industries for both productivity growth and job growth, the Labor Department says.

In fact, U.S. manufacturers are increasingly worried about a serious projected shortage in skilled machinists and other factory workers.

That kind of demand will continue to make blue-collar life not only better, but also more critical to the health of the nation's economy. As Mr. Donnelly, the owner of the small Minnesota manufacturer, notes, a brilliant idea is worthless unless it can be made into something tangible and distributed. "That is what drives the economy and wealth of a society," he says.

Write to Clare Ansberry at clare.ansberry@wsj.com


81 posted on 07/05/2003 8:58:47 PM PDT by Matchett-PI (Marxist DemocRATS, Nader-Greens, and Religious KOOKS = a clear and present danger to our Freedoms.)
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To: sarcasm
I notice that you aren't disputing the validity of the statement.

I'm a living, breathing refutation of this tripe.

Check it. I hold an MS in Information Systems (University of Texas at Dallas). I got laid off from my software development job in September of 2001. Went from making $84,600/year to $0 just like that.

Then I began a company that focused on small- and mid-sized companies to handle their IT infrastructures (if they didn't have a budget for their own IT department). That went well for a year. Then Comp-USA and Geeks on Wheels got involved in that market. A sole-proprietorship with only one employee can't compete with entities like that. So I was out of business.

Next, I went for an associate position at a local Ford dealership. Eleven months later, I'm over its fleet department.

I'm very blessed. Thought you thought.

One may not be responsible for getting knocked down. But he or she is responsible if he or she remains down. I'm no different or better than anyone else. If I could, so could anyone. That's if they wanted it and didn't waste time complaining.

And that's that, ya heard?

82 posted on 07/05/2003 9:03:28 PM PDT by rdb3 (Nerve-racking since 0413hrs on XII-XXII-MCMLXXI)
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To: rdb3
Anecdotal evidence doesn't negate the truth of the statement. The facts are HERE.
83 posted on 07/05/2003 9:09:42 PM PDT by sarcasm (Tancredo 2004)
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To: sarcasm
What you've "proved" is that some tiny segments of our population have seen real wage declines.

That's all fine and well to prove, but what you haven't proved is that the **average** of all salaries and wages for everyone has declined in real terms.

Nor can you.

84 posted on 07/05/2003 9:14:43 PM PDT by Southack (Media bias means that Castro won't be punished for Cuban war crimes against Black Angolans in Africa)
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To: sarcasm
Anecdotal evidence doesn't negate the truth of the statement.

Like I said, I personally refute your entire argument. If I could...

85 posted on 07/05/2003 9:19:53 PM PDT by rdb3 (Nerve-racking since 0413hrs on XII-XXII-MCMLXXI)
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To: Southack
You're trying to put words in my mouth there, Hack. Where exactly did I make that statement? BTW, thanks for the retraction.
86 posted on 07/05/2003 9:22:07 PM PDT by sarcasm (Tancredo 2004)
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To: rdb3
The experience of one person cannot refute statistics- that's why it's called anecdotal evidence.
87 posted on 07/05/2003 9:26:17 PM PDT by sarcasm (Tancredo 2004)
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To: Maximilian
Virtually every western nation is facing a social security crisis because there are not enough young people to support the retirees.

So you seem to think the major function of the next generation of Americans is to be the slaves of the retired? We're facing a social security crisis because politicians have fostered this idiot Ponzi scheme and it must inevitably fail. Short of a never ending exponential increase in population the Social Security system was BOUND to fail. Blaming responsible child bearing practices of limited family size ( by the way how many kids I have is MY buisness) is ridiculous.
88 posted on 07/05/2003 11:22:20 PM PDT by Kozak (" No mans life liberty or property is safe when the legislature is in session." Mark Twain)
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To: sarcasm
The real problem is that an adult male used to be able to drop out of high school and could possibly find a job that paid an adequate wage. But now, there is no place in the economy for those individuals.
Should they commit mass suicide?

People used to be able to get good jobs out of high school for two main reasons:

  1. High schools used to teach literacy, math, shop, etc. The pace was kept at what would be challenging for the smarter kids, and the ones who couldn't deal with it could drop out. Now the pace is kept at the level of the slowest, so everybody can get a "diploma" that means nothing

  2. A business's personnel dept could take an applicant, give him a 10 minute written test to check if he knew how to read, write, and do math, and make a quick decision on whether he was worth hiring. Now such tests will bring a lawsuit from EEOC if they flunk more blacks than whites. So businesses have to get around that by demanding a college degree to fill any position that requires that the person knows how to read. As the college diploma becomes as worthless as the HS diploma, businesses will demand grad degrees. Where the insanity will collapse, I don't know.
If the US is to survive, we need to dump all the PC crap. We're no longer wealthy enough to afford it
89 posted on 07/06/2003 4:06:34 AM PDT by SauronOfMordor (Java/C++/Unix/Web Developer looking for next gig)
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To: rdb3; Southack
"True to form, Reuters publishes left-wing class warfare talking points. And FR's resident doom-and-gloomers lap it up like thirsty canines."

No, not the "doom and gloomers", it's the remnants of the Buchanan Brigade anti-free traders that are "lapping it up".
90 posted on 07/06/2003 4:55:49 AM PDT by DugwayDuke
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To: Southack
Your post is somewhere between dope-smoking and utterly ridiculous.

One PAYS 15.6% minimum--getting it back is not assured. State and Local taxes: well, you just sort of ignore them.

Your shameless promotion of WalMart (spend it NOW, NOW, NOW) is utterly idiotic. Velocity peaks are usually associated with desperate cashflow situations, not "economic patriotism."

Finally, your suggest that we skew Tax Freedom Day to reflect the lowest tax havens is preposterous.

Up to this point in time your arguments had some merit. Did you drink your dinner???
91 posted on 07/06/2003 6:02:41 AM PDT by ninenot (Joe McCarthy was RIGHT, but Drank Too Much)
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To: sarcasm; Maximilian
See my post #91 and South/#76

I think Southack has lost his mind.
92 posted on 07/06/2003 6:05:56 AM PDT by ninenot (Joe McCarthy was RIGHT, but Drank Too Much)
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To: GaConfed; sarcasm
The education lobby [ secondary & university level ] has nearly all Americans under the ether. The bill is now due & over-large-it compares only to the bloated cost of medical care. Alternative education is a far better option than alternative medicine.

With two young graduates ( one post grad ) we now consider high tech trade school as more reasonable for the third child. I plan to join him there. The retirement gravy-train is about to go away.
93 posted on 07/06/2003 6:11:13 AM PDT by GatekeeperBookman
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To: ninenot
He's desperately trying to prove that the economy is wonderful - even though the evidence clearly contradicts his position.
94 posted on 07/06/2003 6:11:24 AM PDT by sarcasm (Tancredo 2004)
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To: Southack
Your figures are most interesting & thanks for the quick documentation-but what of the TAX BURDEN?

The real tax load has outstriped us all. The growth of gov ( & such as the bloat of medical, legal & education costs ) has pulled us all down. We may not pedal fast enough to keep up.
95 posted on 07/06/2003 6:15:06 AM PDT by GatekeeperBookman
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To: zuggerlee
cost of living

What COLA for the tax load???
96 posted on 07/06/2003 6:16:53 AM PDT by GatekeeperBookman
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To: sarcasm
Worsening Job Prospects for White Males
45 posted on 07/05/2003 3:20 PM PDT by sarcasm (Tancredo 2004

Having just ensconsed my daughter in law school, I find all we encounter who agree that she is far luckier than my two sons. Pity we could not have adjusted their skin color at conception. We have first hand damage from this new tax-the diversity tax on ordinary folk.

Atlas is tensing his muscles & shrugging.
97 posted on 07/06/2003 6:20:46 AM PDT by GatekeeperBookman
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Comment #98 Removed by Moderator

To: GatekeeperBookman
Seems that others want to go in the opposite direction.
99 posted on 07/06/2003 6:26:26 AM PDT by sarcasm (Tancredo 2004)
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Comment #100 Removed by Moderator


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