It seems the market is "secretly" excited about a "surprise" FED rate cut of 50bp that is scheduled for Thursday afternoon. Gold and the Dollar do not seem to agree at this point. It will be inetersting.
Hopefully, we can continue to live beyond our means, take on ever increasing debts, and spend away our assets on consumption. If we can only delay reckoning day a little longer....
Historically, when income growth has remained healthy, so has household spending. Big negative swings usually have come only in response to peculiarly disturbing events.
And yet during the periods in 2005 and 2006 when real incomes were declining outright, consumers kept right on spending blissfully ignoring their declining buying power.
Something unusual has broken the relationship between real incomes and consumer spending.
Oh yes indeed America needs shills like Berry to tell homeowners to borrow against rapidly decreasing assets ( their homes ) so the BIG USA financial ponzi scheme can continue.
You did a good job refuting this moron, but I don't know why you even bother to give him air time. There's 50 people on this board who have a better grasp of economics. It's getting embarrassing to read a lot of the MSM. You can't tell the idiots from the shills. But I think Berry is transparently both.
Anonymous, I think it's interesting to read differing views. Obviously I've been thinking about the impact of declining MEW on consumption, and this article gave me a starting point to write some more about this issue.
jg, sorry for using logic! I was attracted to this article because the typo jumped off the page at me. Weird how that happens.
But it is unreasonable to expect these more risk adverse homeowners will suddenly change their habits and start borrowing against their homes.
Exactly. My house has been paid off since 1999 and I'm in my mid-40's. There's no way I'd get a home equity loan or HELOC unless I was facing some huge medical bills.
What a goofball Berry is, giving toxic counsel to the sheeple. When times get tough, I hope he gets tarred and feathered for his stupid 'Rah, rah' comments.
The good news is that Americans are PROPERLY cautious and gun-shy, per the latest consumer confidence readings.
Thanks for responding to this CR. It's always interesting to see other points view and whether or not they fit into my mental framework and, more significantly, how they withstand your scrutiny.
Poor analyses such as this by Berry have been the norm for the last year or two...
Well, If value of household real estate is $23,193B and 1/3 of home owners do not have any mortgages, then we can say that roughly 1/3 of the above value is equity for that 1/3 home owners who have 100% equity. That would leave $23193B X 2/3= $15462B value left for the other 2/3 home owners, which mean that equity for the 2/3 homowners is $15462 B - $10145B = $ 5317B.
2/3 homeowners is roughly 67 million housholds, that means each of those 2/3 homeowners have equity of $5317B / 67 Million = $79,300. Well, that is not much.
Who is John Berry?!
Just the official unofficial spokesperson of the Fed.
I tend to think that Wall Street and the finance industry could be in a bubble that could burst in a manner similar to the dot.com industry, simply due to the explosive growth in the hedge fund industry since the early 90s which has been built on binge borrowing in the same way the housing bubble was built-up.
I suspect there are a lot of scared people on Wall Street, and Berry could be one of them.
I saw scared people in the dot.com industry saying lots of crazy things during 2000-2001 that sound eerily similar to some things I'm hearing today.
What we are seeing is the old ant and grasshopper story. A sizable chunk of home owners went whole hog to cash out MEW. Others bought during the bubble but did nothing really silly. Then there's the real conservative folks, and tin foil hat wearers, like myself who saved, paid off debt and basically got ready for the coming storm. The last two groups already know better than to do MEW, and the first group is completely maxed out.
I'm also thinking that there will be no recession. We can easily prevent recession by redefining GDP. I'm surprised no one has thought of this yet.
And we've been seeing that 1/3 ownership number for quite a while, is it possible it could have changed somehow and not be reflected? I seem to remember that number from ten years ago.
Serfdom is the socio-economic status of peasants under feudalism, and specifically relates to Manorialism. It was a condition of bondage or modified slavery seen primarily during the Middle Ages in Europe. Serfdom was the enforced labour of serfs on the fields of landowners, in return for protection and the right to work on their leased fields.
Basically, the borrowers that have been doing all the MEW are the same ones that will no longer be able to, because they are MAXED out and under water. Those are the very same consumers that COF reported are appearing on their growing delinquency list.
All the puzzle pieces are fitting together nicely. The PPI & CPI readings should be next to fall into place.
My house has been paid off since 1999 and I'm in my mid-40's. There's no way I'd get a home equity loan or HELOC unless I was facing some huge medical bills.
You are almost exactly describing me.
Further, I have not been in the stock market since 2004 (not that it hurt me, since I owned precious metals in two of those years). I'm planning my life around the idea that I may never be in the stock market again. I'm 100% in saver/hoarder mode and there is nothing Ben Bernanke can do to stop the combination. He can make me save less by making me hoard more, or he can make me save more by making me hoard less. He can't actually make me take on more risk or buy things I don't "need" though. In fact, the more he tries the more risk averse I will become. I will bend like a string if he attempts to push me (to nearly quote the popular saying).
If the economy does well, I'll be keeping up with inflation anyway (which is all I really need). This is the outcome I'm actually rooting for.
If the economy does poorly, then I doubt I'll be severely punished by avoiding risk. This is the outcome I'm preparing for.
To those who think my cash sitting on the sidelines (much of it in TIPS and I-Bonds) is coming back into the stock market at anywhere near these valuations, I've got news for them. That's wishful/hopeful thinking. I don't "need" the stock market nearly as much as some seem to think I do.
Now picture the person who is in their mid-50's and approaching retirement. At what point do they join us in their risk aversion? At what point do they determine they've made enough? October 9, 2007? Who knows!
"Big negative swings usually have come only in response to peculiarly disturbing events."
Am I the only one who thinks it is a "peculiarly disturbing event" when balancing your checkbook is considered bad for the country while torturing people is considered good for the country?
I have in-law-relatives who are likely insolvent, and yet they still have credit cards today. It appears their credit card company is happy to have them, despite the fact that they could never pay back the principal, and probably have trouble with the minimum payment (the lovely fees...oh, the fees...and the ability to rachet up the interest charges)...I don't see any sign that these credit card companies want to actually kill their golden goose...they seem content to "work it out", keep the cash flowing, and book the negatively amortizing debt as "profit".
Something would have to happen to kill that co-dependent relationship, before a recession will arrive in full force.
"there are still huge paper gains in place" that homeowners can continue to borrow against.
Ummmm, no. First off the top 10% of those gains are already gone. Second very few banks are going to go past the the 80% CLTV and none past the 90% CLTV point anymore. Then there are all the serial refis and serial repurchasers who now all need to get below the magical 80% before they can resume their consumptive lifestyles. In the mean time all those stick-n-the mud careful types are going to stand pat on their equity cushion rather than pay the higher rates.
The paper gains are almost irrelevant compared to the societal and institutional inhibitions now facing prospective MEW.
Nobody has mentioned the fact that already many of those who still have theoretical equity can no longer qualify (for refinancing or heloc) due to the more stringent lending standards.
One question: when Freddie and the Fed calculate MEW, do they take into account 2nd liens? I'd imagine the lack of 2nd lien re-fi availability will make itself felt on consumer spending in 4q.
I still think it is likely we avoid a recession barring an exogenous shock. The question I am thinking about more and more is $90+ oil that shock and has it already happened. Hmmmm.
What a goofball Berry is, giving toxic counsel to the sheeple. When times get tough, I hope he gets tarred and feathered for his stupid 'Rah, rah' comments.
This irks me a little. The contention that Berry is recommending this to the unwashed masses is pretty far-fetched. "Britney" gets a lot more airtime than "Berry" with most folks.
Who, exactly, is his intended audience? Also, does he really think that the people who are likely to read what he says are that stupid?
Oh yeah, Q3 GDP could actually come in over 5%? Now I am the eternal optimist around here and I do think the declining dollar has likely had a huge impact and that productivity gains are always happening around us...but 5.4%?????????
Does anybody know when this year's Wall Street bonuses are calculated and set? Has it already occurred or is November part of the calculation? If bonuses haven't been "vested" already, my guess is the stock market might react negatively as soon as they are.
Here's how Wall St. Bonuses are gnerally, but not everywhere, timed. Compensation year runs from October 1 to the following September 30. Allocations determined in November, announced in December and Paid in January.
Well the economy simply refuses to decline per all the bearish predictions. I am beginning to think they are missing something somewhere. I find it difficult to believe that so many people would be bullish or at least not bearish, if there were nothing to be bullish about.
I think Berry is guilty of a sin that some of us on this blog get accused of - obsessing about housing as the be-all end-all of the economy.
He ignores other effects, like the credit crunch. I'm sure that there is still some equity in a lot of peoples homes left to tap, but how many banks are giving out HELOC's like free lollipops today vs. 2004?
Plus we are in year 5 of an expansion that seems a bit long in the tooth. Even without all the housing headwinds, we were due for a slowdown IMO.
There is some truth in this article, though it is not completely accurate. I am one of those who's bunker is paid off. Though I do not borrow against it, it leaves me more of my take home to purchase k rations, constantine wire and claymores... Things that help the economy!
There's no way I'd get a home equity loan or HELOC unless I was facing some huge medical bills.
bofiz
Don't tell Big Brother that!! Have you gotten your government-approved seratia-infected flu shot, yet? C'mon, everybody's doin' it.
BTW, when W was debating Kerry he proclaimed the greatness of the FDA in stopping the contaminated flu shots. The only problem is that the American owned lab in England was cleared by the FDA; and the British Board of Health stepped in to shut down the Chiron produced infected flu shots.
Do you think Big Brother was planning a mass infection?
Anyone for a flu shot?
Free randomized government flu shots for the richest .1%. Who's with me?
Risk averse? Bah, that should get those HELOC's flowing again, eh?
I'm looking forward to those imminent government-approved bird flu shots. Those should be the charm.
The other thing is that many retirees have a LOT of equity in their homes and aren't about to do some foolish thing like taking on large debt.
I'm retired and although my house isn't paid for it is worth about 5 times what I do owe on it (even with a good discount applied) and no way am I interested in any kind of debt. Credit cards included.
Oh yeah, Q3 GDP could actually come in over 5%? Now I am the eternal optimist around here and I do think the declining dollar has likely had a huge impact and that productivity gains are always happening around us...but 5.4%?????????
Banker | 11.13.07 - 8:39 pm | #
5% plus wouldn't surprise me - I had a business contact tell me they are having the second best year in their company's history - goin' back before the depression. Basic mfg company too in the heart of rust belt... but non-automotive and non-housing related (again think equipment for infrastructure & production & distribution of commodities).
And a big chunk of it is the dollar getting more competitive combined with on going productivity gains.
There are major dark cloud though - societal mostly - I look at my kids & their peers and wonder how many of them want to work in that environment? And my kids grew up in a Midwestern working class neighborhood... we aren't talking suburban NYC or the OC.
I've got news for them. That's wishful/hopeful thinking. I don't "need" the stock market nearly as much as some seem to think I do.
Now picture the person who is in their mid-50's and approaching retirement. At what point do they join us in their risk aversion? At what point do they determine they've made enough? October 9, 2007? Who knows!
I'm in my early fifties. Spent the spring and early summer dollar cost averaging out of the market. Made a similar move in Dec 1998. I was an investor, not a gambler. These markets are broke. They're running like the hedgie d'jour. Whatever they chose to bubble up.
I'll wait to see if the medicine gets doled out. If and when it does, then maybe we can invest again.
In the meantime, I'll use debt as a tool if I feel like. I'll also build liquidity and my hoards. I, like you, will watch and see how this all plays out.
Will an economist here correct this if wrong, please. But it seems to me that the biggest gains in exports are for goods manufactured elsewhere (Nike shoes, iPods, etc). So those goods manufactured not in the USA, are sold to someone who is not in the USA, but it counts as revenue to the American company who 'made' it. The iPod selling in Japan, for instance.
Do those gains fully count as American revenues into the GDP?
If so, that implies that the vast majority of gains from lower dollar exports are going to the owner-class (shareholders) rather than to any American labor (workers).
I would appreciate if someone would clarify this for me. Thanks in advance.
a few bits from Feldstein's speech at Jackson Hole:
"A massive amount of such refinancing and equity withdrawal occurred. In 2005, 40 percent of existing mortgages were refinanced. The Flow of Funds data imply that
mortgage equity withdrawals between 1997 and 2006 totaled more than $9 trillion, an amount equal to more than 90 percent of disposable personal income in 2006."
9 Trillion dollars, how much MEW is really left, and 40% refinanced in 05 and probably many went from a fixed to ARM with teaser rates.
Berry is drinking kool air.
Will an economist here correct this if wrong, please. But it seems to me that the biggest gains in exports are for goods manufactured elsewhere (Nike shoes, iPods, etc). So those goods manufactured not in the USA, are sold to someone who is not in the USA, but it counts as revenue to the American company who 'made' it. The iPod selling in Japan, for instance.
dotcommunist: I'm not an economist, nor do I play one on TV, but I read something similar to this recently. Basically, the premise was that the GDP was overstated by a large amount because profits for large US corporations who do a lot of their operations outside of the US were being counted as part of the GDP. There was also the influence of outsourcing overstating GDP as well as I recall.
The other issue is will a resurgence in manufacturing bring significant employment? If wages increase, then automation increases and employment decreases. If wages don't increase, then there is no real effect. Marginal numbers of folks get employed, but the numbers does not diminish the supply of labor.
But it seems to me that the biggest gains in exports are for goods manufactured elsewhere (Nike shoes, iPods, etc). So those goods manufactured not in the USA, are sold to someone who is not in the USA, but it counts as revenue to the American company who 'made' it. The iPod selling in Japan, for instance.
No that doesn't count, Here's a wikipedia comment that may help clarify things:
GDP concerns itself with where the output is produced and not who produced it. Meanwhile, GNP (or GNI - Gross National Income) is a measure of the accrual of income or the value of the output, produced by the "nationals" of a region. GNP concerns itself with who "owns" the production. If we take the USA as an example again, GNP measures the value of output produced by American firms, regardless of where the firms are located. This compares to GDP which is concerned with where the production takes place and not if the company is an American firm or not.
CD, isn't there one mechanism whereby the amount of household "expenditure" would automatically increase: upwards adjustments of option-ARMs (without increases in actual payments), leading to fake increases of "income" by the lenders, and further acceleration of the increase of household debt?
This auto-borrowing against any remaining house's value (if you can call an amount up to 125% of the initial loan 'value') might drive the statistics for a while.
So those goods manufactured not in the USA, are sold to someone who is not in the USA, but it counts as revenue to the American company who 'made' it. The iPod selling in Japan, for instance.
Do those gains fully count as American revenues into the GDP?
Does the article below address this.
Posted it few days back.
"Why?" asks Mr. Bosworth in a working paper written with Susan Collins of the Gerald Ford School of Public Policy in Ann Arbor, Mich., and a graduate student, Gabriel Chodorow-Reich.
One-third of the gap in the return on investments can be attributed to US corporations reporting "extra" income in low tax jurisdictions of their foreign affiliates, the National Bureau of Economic Research paper finds. For example, Microsoft sells its software in foreign countries from an affiliate in Ireland after making some changes in the software, says Bosworth. There, it pays only a 10 percent tax on its corporate profits, rather than the 38 percent corporate rate in the US. Other US firms set up affiliates in such tax havens as Barbados, the Bahamas, and Bermuda.
Pick your shock - how long since the last one - it's the price to perfection problem, everything has to go exactly right to avoid a recession IMNSHO, one real hiccup (which likely already occurred in one form or another)...
If the 5% is a good number can the economy really go from that to a dead stop in the next quarter? Seems awfully unlikely to me. Of course this may end up like the first half of the year where you really had to put two quarters together to get a good feel. (5%+1.5%)/2=3.2ish. Maybe, but still seems a bit high to me.
Do those gains fully count as American revenues into the GDP?
No they don't. Likewise Toyota's value added output in USA count toward US GDP. In the past when they counted GNP I think that was so... then US profits overseas counted as 'National Product'... but not even sure of that.
The switch to 'Domestic Product' came about as companies when truly multi-national... I mean is Haliburton American? Is Electrolux European?
Color that clown clueless - was reading a great piece earlier today that clears the air on that $3/gallon canard - lower income folks spend 12%+ of income on gasoline, while middle/upper are 1%+ of income for gasoline...
If the 5% is a good number can the economy really go from that to a dead stop in the next quarter?
I don't see it... but realize GNP is stuff produced not necessarily profits produced. So it is quite conceivable we could see a lot of mayhem on Wall Street tanking the dollar 'causing weld shops to explode with business.
I don't buy the conventional view of 'decoupling' but I also can see how we still have unintended consequences form the credit crunch & dollar decline... with not all of those surprises being negative. I've been stunned by how much activity I've seen lately in commodity related equipment mfg'ing right now. Granted alot of that is local to great plains & rust belt but last I knew they still included us in the USA...
it seems to me that the continuing export ramp up offsetting a slowing US economy is completely dependent on decoupling, particularly with respect to high demand for commodity extraction equipment.
The other issue is will a resurgence in manufacturing bring significant employment? If wages increase, then automation increases and employment decreases. If wages don't increase, then there is no real effect. Marginal numbers of folks get employed, but the numbers does not diminish the supply of labor.
I wonder the same thing... but a lot of these products are messy low volume high dollar items. I mean how do you automate a factory making generators for power plants? But each one costs many millions of dollars.
You run CNC machining centers but still people write the code, do the set ups, check the dimensions, run lab work on the material and expedite, expedite, expedite.
Then there are all the support folks - some in-house some out-sourced vendors. And their white collar support too...
If you recall my bitch from Monster Tech Forum days I said when you lose a mfg'ing job overseas it takes 8-10 support jobs with it, they just don't all go at once. Well if & when the reverse happens it too snowballs.
The dollar is a huge part of all this, as big or bigger an issue than the labor cost differentials - I've been saying that since about forever if you recall. I'm not saying we're out of the woods but this is positive news.
it seems to me that the continuing export ramp up offsetting a slowing US economy is completely dependent on decoupling, particularly with respect to high demand for commodity extraction equipment.
Yes and no. I'm not a big believer in decoupling if that means US tanks and ROW acts like nothing happens... they will feel the pinch, especially those whose only trick was to sell US consumer products.
But I don't believe the rest of the world is going back to dirt floor factories and mud huts if we have a recession. So demand for energy & metals and food is going to continue to rise with or without a US recession.
So I don't see a big drop in demand for infrastructure related equipment to do all this processing MORE efficiently & economically.
Did anyone catch that Buffett rumor today, suggesting he was going to rescue the monoline insurers LOL! Every time there's Buffett rumor it attracts the boneheads that like throwing money away... it's OK to short.
Asuming there is a resurgence in manufacturing does the US still have the resources to staff such an increase? I know lots of people are looking for jobs but those you'd want to/need to hire - ummm, are they still around? Still available? Or has the US drifeted too far away from mfg/prod to come back?
Is this a use it or lose it ability? Obviously, I know very little about mfg. In fact, I've never even been in a plant of any type. But can US mfg really compete after being out in the cold so long?
When I was doing hiring for a small manufacturer in the early nineties, we had serious problem with mostly young men coming in who couldn't do trig and algebra to understand the engineering problems to run the lathes. I doubt that situation has improved.
Hazard there are two issues - (1) are the skills out there in enough numbers and (2) will they still want to do the work?
I can't answer the second but I can answer the first and for the most part the answer is 'yes'... there are more than enough folks with sufficient skill that with a little training & encouragement we could staff up plenty fast.
I think the biggest problem is the second folks don't want to do it... there is no prestige or status in working in a factory... even when the factory is as clean or cleaner than a lot of offices - they have to be, you can't let dirt get in the product.
My wife does management work right on the factory floor - her 'office' is right next to the assembly area - her work environment is WAY cleaner than our house and it isn't bio-med or tech. That's the way most factories are today... even engine plants. They are clean, quiet and safe.
I get in a lot of dirty noisy old plants 'cause of all the metal working I'm involved with but that's a real exception to the rule now days.
The thing is nobody wants to go to a cocktail party and say I'm a technician running a camshaft cell - even though the guy is responsible for set up and basically self manages himself and has a couple million dollars of machinery & tooling under his direct control - it is cooler to tell folks you are the Sr. Manager of Cognitive Dissonance at Best Buy (returns)... even if you have no real control over anything and your annual budget is about as much as the technician processes in a week.
I think once people understand there is a future doing this stuff & it isn't completely mindless 'Rivethead' work then we'll be okay.
One of the things I believe that has helped 'modern mfg' perception is the out-sourcing of white collar and professionals... once folks realized nothing is completely safe then folks rethink everything.
But in short - the task of retooling & ramp up is manageable if done reasonably.
Of the Bloomberg columnists Berry is one of the most respected, so CR is not picking on just any old goof. Berry's point, that there is quite a cushion provided by home owners who have no mortgage debt seems pretty reasonable to me.
How reasonable is this:
You can't do a direct subtraction because the value of these paid-off homes is, on average, lower than the mortgaged 2/3. [subsequent post shows mortgaged means 208k vs mortgage free mean of 140k] But it is unreasonable to expect these more risk-averse homeowners will suddenly change their habits and start borrowing against their homes.
Are these people as different as the proverbial grasshoppers and ants? Berry makes no allowance for the thrifty nickel squeezin non-dancin ants and believes there is no reason to assume that should their income streams dry, there is nothing to prevent them from acting like those grasshoppers and turning on the MEW tap. CR believes these folks have not turned on the tap so far and not likely to dance up a storm to match their not-so-thrifty grasshopper counterparts. Hard to believe that with a weakening dollar and stagnant wages that some "ants" won't turn on the MEW taps, but even harder to believe that this will compensate for a larger number of grasshoppers who will no longer have that MEW tap.
Moreover, there is the falling price of houses and increasing mortgage rates putting a squeeze on that tap, no?
When I was doing hiring for a small manufacturer in the early nineties, we had serious problem with mostly young men coming in who couldn't do trig and algebra to understand the engineering problems to run the lathes. I doubt that situation has improved.
It hasn't but the machines are better and now if the kid can run a play station he can run the machines REAL WELL - the CAD files are turned directly into machine code & tool paths and downloaded directly into the machine. Even feeds and speeds...
The thing we'd ask the kid to do is INTERACT with the machine & the controller... think like the machine and listen/watch for hiccups. The kinda kid that's a gamer does REAL WELL at this. It isn't long and the two are almost 'married'.
Then provide simple QC/QA monitoring in cell in cycle and there is no reason the kid has to know trig.
Sorry if I find that a bit eerie. Sounds like...the Borg.
It is eerie... and they do know their machines. I make calls into plants like that where my parts go & are processed - they have a feel for what's going on like you wouldn't believe... one eye on the controller CRT and the other on the chips coming off the work piece. They know from the sound the spindles make... the groan from the increasing load... that the tools inserts are getting dull.
Its really pretty fun talking to these guys (and increasingly gals - I find about 30-40% are women nowadays... you wouldn't find one women in those plants when I started at this almost 30 years ago).
But the fact so much of the machine is now computer controlled means people with aptitude toward human-machine interface do quite well. The US has no shortage of these skills...
Of the Bloomberg columnists Berry is one of the most respected, so CR is not picking on just any old goof. Berry's point, that there is quite a cushion provided by home owners who have no mortgage debt seems pretty reasonable to me.
Berry (and you) completely miss the psychology of MEW, which is that people will most freely spend the equity they regard as an unexpected windfall. Conversely, they are less willing to spend when they start to feel poorer. It's about change in economic circumstances relative to plans and expectations, not just gross equity. Get out and talk to your neighbors.
Dryfly - what kind of wages to people make in these manufacturing positions? I read an LA Times article a few months ago about companies in Minnesota training young people and then paying them 100k to operate machinery. Could this be true?
Apart from all the typo corrections, if we bring this down to a personal level - Will consumer spending continue and will the economy not move into recession.
First we have to admit that the recent economic growth/expansion has been a consumer led event. Most say yes!
So, if we keep our eye on the consumer, does the consumer feel better or worse off today vs. yesterday. And, how does this indicate economic growth moving forward?
I might argue that the consumer on the whole is no better or worse off. Yes housing issues and mort. payments make life troublesome for some - but on the whole is it really worse?
My answer is yes. If it takes $3.10/gallon to fill the tank there is less disposable income. If pasta which used to cost $.99 a package now costs $1.59 it is less disposable income. If heating oil costs rize 40% it means less disposable income.
Lets look at the outlook. There is a lot of negative news on the housing front. The job front looks good but wages have lagged even core inflation. So, as a consumer do I feel good about the future or indifferent or pessimistic. I would argue consumers are at best indifferent or probably pessimistic.
I think consumers have less disposable income and are more aware of interesting times ahead. This leads me to conclude they will pull back spending.
Lets see spending can be cash or credit. MEW is declining. Credit card debit is rising and the amounts carried forward is increasing. New credit card apps might be increasing but credit card companies are screening the applicants. I think credit purchases will go through the roof this year but consumers will moderate thier behavior.
I am going to say that same store sales will increase modestly but that the portion of these sales will be made by credit. Retailers will/or have made their margins not on sales but rather on credit card costs and fees. I also think that retailers will face huge "returns" this year. Gift card purchases will increase - but the amount subscribed per card will decrease.
I think the consumer is tapped out but will try to save face and have a good time.
Dryfly - what kind of wages to people make in these manufacturing positions? I read an LA Times article a few months ago about companies in Minnesota training young people and then paying them 100k to operate machinery. Could this be true?
w | 11.14.07 - 12:11 am | #
Some of them yes - I'd believe that. That's only $45/hr to get to $100K (with a little OT maybe). But the 'kid' would be running some very sophisticated & expensive machinery.
Listen there are plants up here that mill out wing structures for Boeing, Grumman, etc. They will take an 8 foot long 2000 lb piece of very expensive wrought aluminum alloy and hog out more then 90% of the metal and do it DAMN FAST... final part completely hollowed out and weighing less than 200 lbs.
The spindles run at 20,000 RPM up to something like 50,000 rpm... the cutter heads are designed as much to 'pump chips' as optimize the cut - that's how much material they remove. Now you think you're going to put that equipment in the hands of some illegal earning minimum wage? Or ship that offshore and let any dirt floor factory do it? I don't think so.
Same thing will toolmakers - its a profession not a job. The pay is very good - usually over $100K for experienced workers.
Now rarely does a kid come out of tech school and step straight into one of those jobs at those wages... but $40/hr plus for skilled mfg tech & tool makers with experience? Those jobs are out there and usually go begging.
BTW - those guys will generally 'know trig'... the programs they go through are about a rigorous as many second tier engineering programs.
:::
Now are some of these jobs going offshore? Absolutely. But with the dollar coming back in line, fewer are and the economic advantage of wage arbitrage diminishes. There is no doubt about it.
Yea, the support and infrastructure are multiple of the factory jobs. And yea mass production may be overseas and high value low volume may be here. Does depend on the $ and government support.
As to status, that is a social thing all right, but all that really has to be done is to have the babes all love factory workers and the problem will solve itself.
Here in Alabama, we line up for factory work so a different situation down here.
Dryfly - Wow! My wife and I have been looking to move out of CA for a while now. We sold two houses (one for 1.5 mil) during the crazy run-up in house prices here and are renting now. The biggest impediment is wondering what I would do somewhere else as I have my own business and am very specialized. Being young I would need to do some kind of work but we have our retirement already set and could pay cash for a house. I read that article and thought hell I went through calculus in college how hard can these jobs be? Just show up on time, work hard and get along. Are these jobs hard on your body if you do them for 20 years? Besides, I am awesome at videogames.
Here in Alabama, we line up for factory work so a different situation down here.
And so they should - a number of those plants are as clean and safe as any anywhere in the world - and the pay isn't terrible (though not as high as rust belt now for a similar plant).
My guess though is in less than a generation the pay will be every bit as high at Kia as say Caterpillar with or without the UAW.
I read that article and thought hell I went through calculus in college how hard can these jobs be? Just show up on time, work hard and get along. Are these jobs hard on your body if you do them for 20 years? Besides, I am awesome at videogames.
Hard on the body? Maybe your heart... these jobs can be stressful.
Realize these guys are frequently running VERY expensive equipment working on very expensive product. The 'operators' are mostly left alone by management because the jobs are critical and technical and too many cooks spoil the soup. So the techs are expected to deliver without a 'boss' riding on their ass all the time. They are 'supervised' & 'supported' but not 'bossed'. If they don't deliver they are let go - the machines are too expensive to be misused.
Its when the schedules get tight... and they always seem to be tight around expensive machines (you can't afford to buy so many that they sit idle)... that you have to manage your time extremely well. And be 'machine smart'... different than book smart.
For example I had a bunch of tools that were made earlier this year - to win the order we had to promise delivery of the parts in 10 weeks for what would most times take 14-16 weeks without any screw ups... There was a big meeting and the project steps were laid out on time lines (Gantts) and the conclusion was we could make it but only if we worked around the clock and no screw ups, none. Realize the shop already had jobs going through it... so it wasn't like they were standing around waiting for something to do.
It turned the place into a madhouse - those techs literally worked around the clock, weekends and made it with a little time to spare. Their personal & family lives came second. They made VERY good money with all the OT... but too many of those projects will take a toll on your sanity.
So while I'd say 'yes' those jobs are out there and Minnesota has some of them - I'd look into it hard before making a big lifestyle change to chase it. Personally I'd do it in a heart beat - hell I did live that life as a chem engineer for awhile - but it isn't for everyone.
Do you have a link to the article - I think I know the program you are talking about but would like to see it to be sure.
The reason I asked the question re availability of resources in mfg is that all I have to do is look at my field (former, retired now) and see what has happened to it.
I am (or at least was) a mathematician. I worked in this field for 45 years, day and night and truly loved every day spent on the various research projects.
I graduated from a smaller university and there were around 10 people majoring in math at that time in my class. A couple went on to get their PhD, one became a writer, couple more went to law school, 3 of us went on to the actuary exams.
Last year at my college 2 (yes TWO) received a degree in math, 1 graduated in physics yet the place has 4 times as many students than it had 45 years ago.
From alumni bulletins I read the current students complain bitterly about the math dept and have absolutely no concept of math, science, endineering, research, development. Most of them seem quite happy taking watered down happy subjects w/o regards to learning anything worthwhile.
It was maybe 6 months ago in the LA Times. I cannot easily find the link on their site.
I remember that article because I thought it was interesting to have such high paying jobs available in manufacturing when all you hear about is how dead the industry is in America.
I hear what you say, yet I wonder.
Hazard | 11.14.07 - 1:32 am | #
Its a risk Hazard but I don't think its as acute as the MSM paints. There are special areas like robotics & automation & controls where what you describe could be a problem... and those areas are addressed by special training programs similar to the one w above referenced.
But most mfg involves a basic technical aptitude and some experience. The best way to learn that experience is work in mfg at a lower entry level... sort of a Catch 22 but with the dollar falling & boomers retiring (dying) I expect there to opportunity for young folks in mfg. More than they realize.
My wife is a classic example, she does mfg'ing support at the managerial level and her initial education was as an art major! It is a long story how she got there but suffice it to say they don't ALL have to study engineering to be successful in mfg.
I graduated in 1996. My university has one of the best undergraduate programs in my (obscure) field in the country. There was maybe 150-180 students in the program when I was there. Now is is just over 40 students.
In my job 40% of the work force is over 55 and only 17% is under 44 years old. These are very good paying jobs. Everyone is trying to hire, turn over is high and the experience level of employees is very low. I think that the secondary cost of not having enough labor is that current employees see very little need to develop themselves.
I think it was tool making. They mentioned how trainees had to take a lot of math and then were in charge of designing their own projects. They would setup the job themselves and make it with the equipment that included some type of CAD software. That is based on my poor memory though, so take it with a grain of salt.
w - well written. I think a lot of people in different fields are demoralized right now. That is a major failing of management. Leaders lead and we haven't had a lot of that in many organizations... too many of our 'leaders' have pillaged their own organizations not led them to greatness.
On toolmaking and CAD - my wife's journey into mfg started with CAD. Almost on a whim. But she doesn't do CAD much anymore - just works with it support of mfg.
There is one risk with toolmaking - and that is a lot of tools are now being made in China (figures). However the tools are brought back here and need to be adapted to the machines over here and sometimes altered to run right (frequently altered lets say)...
If you have a good all around education in ADDITION to toolmaking & can interface with management. Maybe even learn Mandarin on the side so as to be able to communicate better with people on both ends of the world... Do that and the world is your oyster.
The key thing is its not like we'll do mfg and China will stop now that the dollar is slumping... or if the dollar strengthens again we stop and they start up again... BOTH countries will be doing some of this - labor cost, productivity, skill sets available, currency, etc., will determine the relative amount & mix of what gets done where. Having multiple talents makes it a lot less likely you personally will get your legs cut out from under you in the future. I've been preaching that to my own kids since they were old enough to talk back at me - and man do they talk back.
Just to be fair to Berry, the 18 trillion wasn't a typo. It's owner's equity not homeowner's equity. He meant net worth including other assets besides housing like equities. 44% of the rise in net worth was housing related. Still, most of the equity wealth is concentrated in the top 10%, as most americans don't own stocks.
It seems the market is "secretly" excited about a "surprise" FED rate cut of 50bp that is scheduled for Thursday afternoon. Gold and the Dollar do not seem to agree at this point. It will be inetersting.
Hopefully, we can continue to live beyond our means, take on ever increasing debts, and spend away our assets on consumption. If we can only delay reckoning day a little longer....
And John Berry is who....??
Historically, when income growth has remained healthy, so has household spending. Big negative swings usually have come only in response to peculiarly disturbing events.
And yet during the periods in 2005 and 2006 when real incomes were declining outright, consumers kept right on spending blissfully ignoring their declining buying power.
Something unusual has broken the relationship between real incomes and consumer spending.
Somehow, "this time it's different".
Oh yes indeed America needs shills like Berry to tell homeowners to borrow against rapidly decreasing assets ( their homes ) so the BIG USA financial ponzi scheme can continue.
Massive DEBT is why US capitalism is teetering.
CR,
You did a good job refuting this moron, but I don't know why you even bother to give him air time. There's 50 people on this board who have a better grasp of economics. It's getting embarrassing to read a lot of the MSM. You can't tell the idiots from the shills. But I think Berry is transparently both.
Who is John Berry?!
Just the official unofficial spokesperson of the Fed.
Quit using data and logic, CR! It hurts!
All is well, sheeple. Borrow and spend, please.
Anonymous, I think it's interesting to read differing views. Obviously I've been thinking about the impact of declining MEW on consumption, and this article gave me a starting point to write some more about this issue.
jg, sorry for using logic! I was attracted to this article because the typo jumped off the page at me. Weird how that happens.
Best Wishes.
But it is unreasonable to expect these more risk adverse homeowners will suddenly change their habits and start borrowing against their homes.
Exactly. My house has been paid off since 1999 and I'm in my mid-40's. There's no way I'd get a home equity loan or HELOC unless I was facing some huge medical bills.
What a goofball Berry is, giving toxic counsel to the sheeple. When times get tough, I hope he gets tarred and feathered for his stupid 'Rah, rah' comments.
The good news is that Americans are PROPERLY cautious and gun-shy, per the latest consumer confidence readings.
Thanks for responding to this CR. It's always interesting to see other points view and whether or not they fit into my mental framework and, more significantly, how they withstand your scrutiny.
Poor analyses such as this by Berry have been the norm for the last year or two...
Well, If value of household real estate is $23,193B and 1/3 of home owners do not have any mortgages, then we can say that roughly 1/3 of the above value is equity for that 1/3 home owners who have 100% equity. That would leave $23193B X 2/3= $15462B value left for the other 2/3 home owners, which mean that equity for the 2/3 homowners is $15462 B - $10145B = $ 5317B.
2/3 homeowners is roughly 67 million housholds, that means each of those 2/3 homeowners have equity of $5317B / 67 Million = $79,300. Well, that is not much.
Who is John Berry?!
Just the official unofficial spokesperson of the Fed.
I tend to think that Wall Street and the finance industry could be in a bubble that could burst in a manner similar to the dot.com industry, simply due to the explosive growth in the hedge fund industry since the early 90s which has been built on binge borrowing in the same way the housing bubble was built-up.
I suspect there are a lot of scared people on Wall Street, and Berry could be one of them.
I saw scared people in the dot.com industry saying lots of crazy things during 2000-2001 that sound eerily similar to some things I'm hearing today.
CR, unless i'm losing my mind, 23.193 minus 10.145 equals 13.085.
am i losing my mind? or do you (in the dreaded glass house syndrome) have a typo as well?
What we are seeing is the old ant and grasshopper story. A sizable chunk of home owners went whole hog to cash out MEW. Others bought during the bubble but did nothing really silly. Then there's the real conservative folks, and tin foil hat wearers, like myself who saved, paid off debt and basically got ready for the coming storm. The last two groups already know better than to do MEW, and the first group is completely maxed out.
We'll see how busy the malls are next Friday.
Cheers,
I'm also thinking that there will be no recession. We can easily prevent recession by redefining GDP. I'm surprised no one has thought of this yet.
And we've been seeing that 1/3 ownership number for quite a while, is it possible it could have changed somehow and not be reflected? I seem to remember that number from ten years ago.
Serfdom is the socio-economic status of peasants under feudalism, and specifically relates to Manorialism. It was a condition of bondage or modified slavery seen primarily during the Middle Ages in Europe. Serfdom was the enforced labour of serfs on the fields of landowners, in return for protection and the right to work on their leased fields.
Berry is basically saying the same thing. Jeesh
Basically, the borrowers that have been doing all the MEW are the same ones that will no longer be able to, because they are MAXED out and under water. Those are the very same consumers that COF reported are appearing on their growing delinquency list.
All the puzzle pieces are fitting together nicely. The PPI & CPI readings should be next to fall into place.
howard, thanks. Yes, I too have a typo. The assets should be $20997.75 Billion.
Very funny ... it was the typo in Berry's piece that caught my eye, and then I make similar mistake (but I don't have an editor!).
Best Wishes.
According to the Fed's Flow of Funds report, the value of household real estate was $23,193 Billion ...
I've always wondered what methodology underlies their "value of household real estate" statistic. How far down is that figure from its bubble peak?
If home prices drop back to their pre-bubble ratio to incomes, there'll be about an $8-9 billion decrease in that figure.
CR I agree please always bring the other view and as always it was taken apart here. Berry parents wasted a lot of money on his education.
jo6pac
bofiz,
My house has been paid off since 1999 and I'm in my mid-40's. There's no way I'd get a home equity loan or HELOC unless I was facing some huge medical bills.
You are almost exactly describing me.
Further, I have not been in the stock market since 2004 (not that it hurt me, since I owned precious metals in two of those years). I'm planning my life around the idea that I may never be in the stock market again. I'm 100% in saver/hoarder mode and there is nothing Ben Bernanke can do to stop the combination. He can make me save less by making me hoard more, or he can make me save more by making me hoard less. He can't actually make me take on more risk or buy things I don't "need" though. In fact, the more he tries the more risk averse I will become. I will bend like a string if he attempts to push me (to nearly quote the popular saying).
If the economy does well, I'll be keeping up with inflation anyway (which is all I really need). This is the outcome I'm actually rooting for.
If the economy does poorly, then I doubt I'll be severely punished by avoiding risk. This is the outcome I'm preparing for.
To those who think my cash sitting on the sidelines (much of it in TIPS and I-Bonds) is coming back into the stock market at anywhere near these valuations, I've got news for them. That's wishful/hopeful thinking. I don't "need" the stock market nearly as much as some seem to think I do.
Now picture the person who is in their mid-50's and approaching retirement. At what point do they join us in their risk aversion? At what point do they determine they've made enough? October 9, 2007? Who knows!
CR, your unusual focus on data and logic is the reason you will never have a cable talk show.
Thank you for your sacrifice!
"Big negative swings usually have come only in response to peculiarly disturbing events."
Am I the only one who thinks it is a "peculiarly disturbing event" when balancing your checkbook is considered bad for the country while torturing people is considered good for the country?
I have in-law-relatives who are likely insolvent, and yet they still have credit cards today. It appears their credit card company is happy to have them, despite the fact that they could never pay back the principal, and probably have trouble with the minimum payment (the lovely fees...oh, the fees...and the ability to rachet up the interest charges)...I don't see any sign that these credit card companies want to actually kill their golden goose...they seem content to "work it out", keep the cash flowing, and book the negatively amortizing debt as "profit".
Something would have to happen to kill that co-dependent relationship, before a recession will arrive in full force.
"there are still huge paper gains in place" that homeowners can continue to borrow against.
Ummmm, no. First off the top 10% of those gains are already gone. Second very few banks are going to go past the the 80% CLTV and none past the 90% CLTV point anymore. Then there are all the serial refis and serial repurchasers who now all need to get below the magical 80% before they can resume their consumptive lifestyles. In the mean time all those stick-n-the mud careful types are going to stand pat on their equity cushion rather than pay the higher rates.
The paper gains are almost irrelevant compared to the societal and institutional inhibitions now facing prospective MEW.
I think this might kill the relationship: The Black Death broke the established social order to some degree and weakened serfdom.
Nobody has mentioned the fact that already many of those who still have theoretical equity can no longer qualify (for refinancing or heloc) due to the more stringent lending standards.
CR,
One question: when Freddie and the Fed calculate MEW, do they take into account 2nd liens? I'd imagine the lack of 2nd lien re-fi availability will make itself felt on consumer spending in 4q.
I still think it is likely we avoid a recession barring an exogenous shock. The question I am thinking about more and more is $90+ oil that shock and has it already happened. Hmmmm.
What a goofball Berry is, giving toxic counsel to the sheeple. When times get tough, I hope he gets tarred and feathered for his stupid 'Rah, rah' comments.
This irks me a little. The contention that Berry is recommending this to the unwashed masses is pretty far-fetched. "Britney" gets a lot more airtime than "Berry" with most folks.
Who, exactly, is his intended audience? Also, does he really think that the people who are likely to read what he says are that stupid?
Oh yeah, Q3 GDP could actually come in over 5%? Now I am the eternal optimist around here and I do think the declining dollar has likely had a huge impact and that productivity gains are always happening around us...but 5.4%?????????
Does anybody know when this year's Wall Street bonuses are calculated and set? Has it already occurred or is November part of the calculation? If bonuses haven't been "vested" already, my guess is the stock market might react negatively as soon as they are.
Berry- "Today $3 a gallon gasoline just isn't such a big deal."
It isn't if you're a well-paid Bloomberg columnist, who also happens to be the Fed's mouthpiece.
Conjure, by the way, thinks this piece is "funny as hell."
Elvis,
Here's how Wall St. Bonuses are gnerally, but not everywhere, timed. Compensation year runs from October 1 to the following September 30. Allocations determined in November, announced in December and Paid in January.
Well the economy simply refuses to decline per all the bearish predictions. I am beginning to think they are missing something somewhere. I find it difficult to believe that so many people would be bullish or at least not bearish, if there were nothing to be bullish about.
Banker,
Thanks. That's good to know.
Banker,
5.4% makes plenty of sense, everyone knows the revised GDP deflater will be -0.7% since prices of everything are falling all around us!
I think Berry is guilty of a sin that some of us on this blog get accused of - obsessing about housing as the be-all end-all of the economy.
He ignores other effects, like the credit crunch. I'm sure that there is still some equity in a lot of peoples homes left to tap, but how many banks are giving out HELOC's like free lollipops today vs. 2004?
Plus we are in year 5 of an expansion that seems a bit long in the tooth. Even without all the housing headwinds, we were due for a slowdown IMO.
There is some truth in this article, though it is not completely accurate. I am one of those who's bunker is paid off. Though I do not borrow against it, it leaves me more of my take home to purchase k rations, constantine wire and claymores... Things that help the economy!
There's no way I'd get a home equity loan or HELOC unless I was facing some huge medical bills.
bofiz
Don't tell Big Brother that!! Have you gotten your government-approved seratia-infected flu shot, yet? C'mon, everybody's doin' it.
BTW, when W was debating Kerry he proclaimed the greatness of the FDA in stopping the contaminated flu shots. The only problem is that the American owned lab in England was cleared by the FDA; and the British Board of Health stepped in to shut down the Chiron produced infected flu shots.
Do you think Big Brother was planning a mass infection?
Anyone for a flu shot?
Free randomized government flu shots for the richest .1%. Who's with me?
Risk averse? Bah, that should get those HELOC's flowing again, eh?
I'm looking forward to those imminent government-approved bird flu shots. Those should be the charm.
it was the typo in Berry's piece that caught my eye, and then I make similar mistake (but I don't have an editor!). - CR
Ummm ya you do - you have HUNDREDS of editors, LOL!!!
David Pearson, I use the Fed's MEW that includes 2nd and HELOC used. I'd have to check on the Fannie / Freddie numbers.
dryfly, very true!!! And very appreciated. Heck, that is how I met Tanta - she corrected one of my comments.
Best to all.
dotcommunist- "Free randomized government flu shots for the richest .1%. Who's with me?"
Conjure Bag- "Me, Me, Me! Vive la Revolucion! Liberte! Egalite! Fraternite! All that crap!"
sdtfs, I found the data at the Census Bureau (percent of owner occupied units with and without mortgages) and posted it in the next post.
It is slightly below 1/3 without a mortgage.
Best Wishes.
The other thing is that many retirees have a LOT of equity in their homes and aren't about to do some foolish thing like taking on large debt.
I'm retired and although my house isn't paid for it is worth about 5 times what I do owe on it (even with a good discount applied) and no way am I interested in any kind of debt. Credit cards included.
Oh yeah, Q3 GDP could actually come in over 5%? Now I am the eternal optimist around here and I do think the declining dollar has likely had a huge impact and that productivity gains are always happening around us...but 5.4%?????????
Banker | 11.13.07 - 8:39 pm | #
5% plus wouldn't surprise me - I had a business contact tell me they are having the second best year in their company's history - goin' back before the depression. Basic mfg company too in the heart of rust belt... but non-automotive and non-housing related (again think equipment for infrastructure & production & distribution of commodities).
And a big chunk of it is the dollar getting more competitive combined with on going productivity gains.
There are major dark cloud though - societal mostly - I look at my kids & their peers and wonder how many of them want to work in that environment? And my kids grew up in a Midwestern working class neighborhood... we aren't talking suburban NYC or the OC.
Stag Mark ...
I've got news for them. That's wishful/hopeful thinking. I don't "need" the stock market nearly as much as some seem to think I do.
Now picture the person who is in their mid-50's and approaching retirement. At what point do they join us in their risk aversion? At what point do they determine they've made enough? October 9, 2007? Who knows!
I'm in my early fifties. Spent the spring and early summer dollar cost averaging out of the market. Made a similar move in Dec 1998. I was an investor, not a gambler. These markets are broke. They're running like the hedgie d'jour. Whatever they chose to bubble up.
I'll wait to see if the medicine gets doled out. If and when it does, then maybe we can invest again.
In the meantime, I'll use debt as a tool if I feel like. I'll also build liquidity and my hoards. I, like you, will watch and see how this all plays out.
Oh yeah, Q3 GDP could actually come in over 5%?
Will an economist here correct this if wrong, please. But it seems to me that the biggest gains in exports are for goods manufactured elsewhere (Nike shoes, iPods, etc). So those goods manufactured not in the USA, are sold to someone who is not in the USA, but it counts as revenue to the American company who 'made' it. The iPod selling in Japan, for instance.
Do those gains fully count as American revenues into the GDP?
If so, that implies that the vast majority of gains from lower dollar exports are going to the owner-class (shareholders) rather than to any American labor (workers).
I would appreciate if someone would clarify this for me. Thanks in advance.
a few bits from Feldstein's speech at Jackson Hole:
"A massive amount of such refinancing and equity withdrawal occurred. In 2005, 40 percent of existing mortgages were refinanced. The Flow of Funds data imply that
mortgage equity withdrawals between 1997 and 2006 totaled more than $9 trillion, an amount equal to more than 90 percent of disposable personal income in 2006."
9 Trillion dollars, how much MEW is really left, and 40% refinanced in 05 and probably many went from a fixed to ARM with teaser rates.
Berry is drinking kool air.
Will an economist here correct this if wrong, please. But it seems to me that the biggest gains in exports are for goods manufactured elsewhere (Nike shoes, iPods, etc). So those goods manufactured not in the USA, are sold to someone who is not in the USA, but it counts as revenue to the American company who 'made' it. The iPod selling in Japan, for instance.
dotcommunist: I'm not an economist, nor do I play one on TV, but I read something similar to this recently. Basically, the premise was that the GDP was overstated by a large amount because profits for large US corporations who do a lot of their operations outside of the US were being counted as part of the GDP. There was also the influence of outsourcing overstating GDP as well as I recall.
dryfly
The other issue is will a resurgence in manufacturing bring significant employment? If wages increase, then automation increases and employment decreases. If wages don't increase, then there is no real effect. Marginal numbers of folks get employed, but the numbers does not diminish the supply of labor.
dotcommunist,
Because you asked politely:
But it seems to me that the biggest gains in exports are for goods manufactured elsewhere (Nike shoes, iPods, etc). So those goods manufactured not in the USA, are sold to someone who is not in the USA, but it counts as revenue to the American company who 'made' it. The iPod selling in Japan, for instance.
No that doesn't count, Here's a wikipedia comment that may help clarify things:
GDP concerns itself with where the output is produced and not who produced it. Meanwhile, GNP (or GNI - Gross National Income) is a measure of the accrual of income or the value of the output, produced by the "nationals" of a region. GNP concerns itself with who "owns" the production. If we take the USA as an example again, GNP measures the value of output produced by American firms, regardless of where the firms are located. This compares to GDP which is concerned with where the production takes place and not if the company is an American firm or not.
Gross domestic product - Wikipedia, the free encyclopedia
I hope that helps.
At what point do they determine they've made enough?
You can make enough?
Walmart had good numbers. Reminds me of past years where the Xmas sales exceeded expectations after pessimestic estimates.
CD, isn't there one mechanism whereby the amount of household "expenditure" would automatically increase: upwards adjustments of option-ARMs (without increases in actual payments), leading to fake increases of "income" by the lenders, and further acceleration of the increase of household debt?
This auto-borrowing against any remaining house's value (if you can call an amount up to 125% of the initial loan 'value') might drive the statistics for a while.
Oops, of course I meant "CR", not "CD"... hrad to beleive I proffread taht so mnay timmes...
dotcommunist | Homepage | 11.13.07 - 9:10 pm | #
Does the article below address this.
Posted it few days back.
The mystery of the missing $2.9 trillion
Economists scour the US to find out why we're more in debt than the Department of Commerce says we are.
http://www.csmonitor.com/2007/1029/p15s01-wmgn.html?page=2
Banker,
Pick your shock - how long since the last one - it's the price to perfection problem, everything has to go exactly right to avoid a recession IMNSHO, one real hiccup (which likely already occurred in one form or another)...
Dryfly,
If the 5% is a good number can the economy really go from that to a dead stop in the next quarter? Seems awfully unlikely to me. Of course this may end up like the first half of the year where you really had to put two quarters together to get a good feel. (5%+1.5%)/2=3.2ish. Maybe, but still seems a bit high to me.
Do those gains fully count as American revenues into the GDP?
No they don't. Likewise Toyota's value added output in USA count toward US GDP. In the past when they counted GNP I think that was so... then US profits overseas counted as 'National Product'... but not even sure of that.
The switch to 'Domestic Product' came about as companies when truly multi-national... I mean is Haliburton American? Is Electrolux European?
mp & Conjure,
Color that clown clueless - was reading a great piece earlier today that clears the air on that $3/gallon canard - lower income folks spend 12%+ of income on gasoline, while middle/upper are 1%+ of income for gasoline...
If the 5% is a good number can the economy really go from that to a dead stop in the next quarter?
I don't see it... but realize GNP is stuff produced not necessarily profits produced. So it is quite conceivable we could see a lot of mayhem on Wall Street tanking the dollar 'causing weld shops to explode with business.
I don't buy the conventional view of 'decoupling' but I also can see how we still have unintended consequences form the credit crunch & dollar decline... with not all of those surprises being negative. I've been stunned by how much activity I've seen lately in commodity related equipment mfg'ing right now. Granted alot of that is local to great plains & rust belt but last I knew they still included us in the USA...
dry,
it seems to me that the continuing export ramp up offsetting a slowing US economy is completely dependent on decoupling, particularly with respect to high demand for commodity extraction equipment.
I hope that helps.
Banker
Thanks, Banker. Ya see, those dogs and cats are going to get along just fine.
And thanks to all others, as well. I'm still dumbfounded on what exactly we're exporting, since even Caterpillar issued a warning.
The other issue is will a resurgence in manufacturing bring significant employment? If wages increase, then automation increases and employment decreases. If wages don't increase, then there is no real effect. Marginal numbers of folks get employed, but the numbers does not diminish the supply of labor.
I wonder the same thing... but a lot of these products are messy low volume high dollar items. I mean how do you automate a factory making generators for power plants? But each one costs many millions of dollars.
You run CNC machining centers but still people write the code, do the set ups, check the dimensions, run lab work on the material and expedite, expedite, expedite.
Then there are all the support folks - some in-house some out-sourced vendors. And their white collar support too...
If you recall my bitch from Monster Tech Forum days I said when you lose a mfg'ing job overseas it takes 8-10 support jobs with it, they just don't all go at once. Well if & when the reverse happens it too snowballs.
The dollar is a huge part of all this, as big or bigger an issue than the labor cost differentials - I've been saying that since about forever if you recall. I'm not saying we're out of the woods but this is positive news.
it seems to me that the continuing export ramp up offsetting a slowing US economy is completely dependent on decoupling, particularly with respect to high demand for commodity extraction equipment.
Yes and no. I'm not a big believer in decoupling if that means US tanks and ROW acts like nothing happens... they will feel the pinch, especially those whose only trick was to sell US consumer products.
But I don't believe the rest of the world is going back to dirt floor factories and mud huts if we have a recession. So demand for energy & metals and food is going to continue to rise with or without a US recession.
So I don't see a big drop in demand for infrastructure related equipment to do all this processing MORE efficiently & economically.
JMHO.
dotcommunist,
Here are Sept. 2007 us exports by category
http://www.census.gov/foreign-trade/Press-Release/current_press_release/exh7.pdf
Did anyone catch that Buffett rumor today, suggesting he was going to rescue the monoline insurers LOL! Every time there's Buffett rumor it attracts the boneheads that like throwing money away... it's OK to short.
Ditto on previous posts. I owe about 55K on the house, I'll dig into that equity.
dryfly
Asuming there is a resurgence in manufacturing does the US still have the resources to staff such an increase? I know lots of people are looking for jobs but those you'd want to/need to hire - ummm, are they still around? Still available? Or has the US drifeted too far away from mfg/prod to come back?
Is this a use it or lose it ability? Obviously, I know very little about mfg. In fact, I've never even been in a plant of any type. But can US mfg really compete after being out in the cold so long?
Hazard,
When I was doing hiring for a small manufacturer in the early nineties, we had serious problem with mostly young men coming in who couldn't do trig and algebra to understand the engineering problems to run the lathes. I doubt that situation has improved.
Cheers,
Hazard there are two issues - (1) are the skills out there in enough numbers and (2) will they still want to do the work?
I can't answer the second but I can answer the first and for the most part the answer is 'yes'... there are more than enough folks with sufficient skill that with a little training & encouragement we could staff up plenty fast.
I think the biggest problem is the second folks don't want to do it... there is no prestige or status in working in a factory... even when the factory is as clean or cleaner than a lot of offices - they have to be, you can't let dirt get in the product.
My wife does management work right on the factory floor - her 'office' is right next to the assembly area - her work environment is WAY cleaner than our house and it isn't bio-med or tech. That's the way most factories are today... even engine plants. They are clean, quiet and safe.
I get in a lot of dirty noisy old plants 'cause of all the metal working I'm involved with but that's a real exception to the rule now days.
The thing is nobody wants to go to a cocktail party and say I'm a technician running a camshaft cell - even though the guy is responsible for set up and basically self manages himself and has a couple million dollars of machinery & tooling under his direct control - it is cooler to tell folks you are the Sr. Manager of Cognitive Dissonance at Best Buy (returns)... even if you have no real control over anything and your annual budget is about as much as the technician processes in a week.
I think once people understand there is a future doing this stuff & it isn't completely mindless 'Rivethead' work then we'll be okay.
One of the things I believe that has helped 'modern mfg' perception is the out-sourcing of white collar and professionals... once folks realized nothing is completely safe then folks rethink everything.
But in short - the task of retooling & ramp up is manageable if done reasonably.
Of the Bloomberg columnists Berry is one of the most respected, so CR is not picking on just any old goof. Berry's point, that there is quite a cushion provided by home owners who have no mortgage debt seems pretty reasonable to me.
How reasonable is this:
Are these people as different as the proverbial grasshoppers and ants? Berry makes no allowance for the thrifty nickel squeezin non-dancin ants and believes there is no reason to assume that should their income streams dry, there is nothing to prevent them from acting like those grasshoppers and turning on the MEW tap. CR believes these folks have not turned on the tap so far and not likely to dance up a storm to match their not-so-thrifty grasshopper counterparts. Hard to believe that with a weakening dollar and stagnant wages that some "ants" won't turn on the MEW taps, but even harder to believe that this will compensate for a larger number of grasshoppers who will no longer have that MEW tap.
Moreover, there is the falling price of houses and increasing mortgage rates putting a squeeze on that tap, no?
When I was doing hiring for a small manufacturer in the early nineties, we had serious problem with mostly young men coming in who couldn't do trig and algebra to understand the engineering problems to run the lathes. I doubt that situation has improved.
It hasn't but the machines are better and now if the kid can run a play station he can run the machines REAL WELL - the CAD files are turned directly into machine code & tool paths and downloaded directly into the machine. Even feeds and speeds...
The thing we'd ask the kid to do is INTERACT with the machine & the controller... think like the machine and listen/watch for hiccups. The kinda kid that's a gamer does REAL WELL at this. It isn't long and the two are almost 'married'.
Then provide simple QC/QA monitoring in cell in cycle and there is no reason the kid has to know trig.
dryfly,
"It isn't long and the two are almost 'married'."
Sorry if I find that a bit eerie. Sounds like...the Borg.
Cheers,
Conjure Bag- "Me, Me, Me! Vive la Revolucion! Liberte! Egalite! Fraternite! All that crap!"
Conjure, we are counting on you to deliver that flu shot heard 'round the world.
Sorry if I find that a bit eerie. Sounds like...the Borg.
It is eerie... and they do know their machines. I make calls into plants like that where my parts go & are processed - they have a feel for what's going on like you wouldn't believe... one eye on the controller CRT and the other on the chips coming off the work piece. They know from the sound the spindles make... the groan from the increasing load... that the tools inserts are getting dull.
Its really pretty fun talking to these guys (and increasingly gals - I find about 30-40% are women nowadays... you wouldn't find one women in those plants when I started at this almost 30 years ago).
But the fact so much of the machine is now computer controlled means people with aptitude toward human-machine interface do quite well. The US has no shortage of these skills...
Berry (and you) completely miss the psychology of MEW, which is that people will most freely spend the equity they regard as an unexpected windfall. Conversely, they are less willing to spend when they start to feel poorer. It's about change in economic circumstances relative to plans and expectations, not just gross equity. Get out and talk to your neighbors.
Dryfly - what kind of wages to people make in these manufacturing positions? I read an LA Times article a few months ago about companies in Minnesota training young people and then paying them 100k to operate machinery. Could this be true?
Apart from all the typo corrections, if we bring this down to a personal level - Will consumer spending continue and will the economy not move into recession.
First we have to admit that the recent economic growth/expansion has been a consumer led event. Most say yes!
So, if we keep our eye on the consumer, does the consumer feel better or worse off today vs. yesterday. And, how does this indicate economic growth moving forward?
I might argue that the consumer on the whole is no better or worse off. Yes housing issues and mort. payments make life troublesome for some - but on the whole is it really worse?
My answer is yes. If it takes $3.10/gallon to fill the tank there is less disposable income. If pasta which used to cost $.99 a package now costs $1.59 it is less disposable income. If heating oil costs rize 40% it means less disposable income.
Lets look at the outlook. There is a lot of negative news on the housing front. The job front looks good but wages have lagged even core inflation. So, as a consumer do I feel good about the future or indifferent or pessimistic. I would argue consumers are at best indifferent or probably pessimistic.
I think consumers have less disposable income and are more aware of interesting times ahead. This leads me to conclude they will pull back spending.
Lets see spending can be cash or credit. MEW is declining. Credit card debit is rising and the amounts carried forward is increasing. New credit card apps might be increasing but credit card companies are screening the applicants. I think credit purchases will go through the roof this year but consumers will moderate thier behavior.
I am going to say that same store sales will increase modestly but that the portion of these sales will be made by credit. Retailers will/or have made their margins not on sales but rather on credit card costs and fees. I also think that retailers will face huge "returns" this year. Gift card purchases will increase - but the amount subscribed per card will decrease.
I think the consumer is tapped out but will try to save face and have a good time.
just my opinio
Dryfly - what kind of wages to people make in these manufacturing positions? I read an LA Times article a few months ago about companies in Minnesota training young people and then paying them 100k to operate machinery. Could this be true?
w | 11.14.07 - 12:11 am | #
Some of them yes - I'd believe that. That's only $45/hr to get to $100K (with a little OT maybe). But the 'kid' would be running some very sophisticated & expensive machinery.
Listen there are plants up here that mill out wing structures for Boeing, Grumman, etc. They will take an 8 foot long 2000 lb piece of very expensive wrought aluminum alloy and hog out more then 90% of the metal and do it DAMN FAST... final part completely hollowed out and weighing less than 200 lbs.
The spindles run at 20,000 RPM up to something like 50,000 rpm... the cutter heads are designed as much to 'pump chips' as optimize the cut - that's how much material they remove. Now you think you're going to put that equipment in the hands of some illegal earning minimum wage? Or ship that offshore and let any dirt floor factory do it? I don't think so.
Same thing will toolmakers - its a profession not a job. The pay is very good - usually over $100K for experienced workers.
Now rarely does a kid come out of tech school and step straight into one of those jobs at those wages... but $40/hr plus for skilled mfg tech & tool makers with experience? Those jobs are out there and usually go begging.
BTW - those guys will generally 'know trig'... the programs they go through are about a rigorous as many second tier engineering programs.
:::
Now are some of these jobs going offshore? Absolutely. But with the dollar coming back in line, fewer are and the economic advantage of wage arbitrage diminishes. There is no doubt about it.
dryfly
Yea, the support and infrastructure are multiple of the factory jobs. And yea mass production may be overseas and high value low volume may be here. Does depend on the $ and government support.
As to status, that is a social thing all right, but all that really has to be done is to have the babes all love factory workers and the problem will solve itself.
Here in Alabama, we line up for factory work so a different situation down here.
Dryfly - Wow! My wife and I have been looking to move out of CA for a while now. We sold two houses (one for 1.5 mil) during the crazy run-up in house prices here and are renting now. The biggest impediment is wondering what I would do somewhere else as I have my own business and am very specialized. Being young I would need to do some kind of work but we have our retirement already set and could pay cash for a house. I read that article and thought hell I went through calculus in college how hard can these jobs be? Just show up on time, work hard and get along. Are these jobs hard on your body if you do them for 20 years? Besides, I am awesome at videogames.
Here in Alabama, we line up for factory work so a different situation down here.
And so they should - a number of those plants are as clean and safe as any anywhere in the world - and the pay isn't terrible (though not as high as rust belt now for a similar plant).
My guess though is in less than a generation the pay will be every bit as high at Kia as say Caterpillar with or without the UAW.
I read that article and thought hell I went through calculus in college how hard can these jobs be? Just show up on time, work hard and get along. Are these jobs hard on your body if you do them for 20 years? Besides, I am awesome at videogames.
Hard on the body? Maybe your heart... these jobs can be stressful.
Realize these guys are frequently running VERY expensive equipment working on very expensive product. The 'operators' are mostly left alone by management because the jobs are critical and technical and too many cooks spoil the soup. So the techs are expected to deliver without a 'boss' riding on their ass all the time. They are 'supervised' & 'supported' but not 'bossed'. If they don't deliver they are let go - the machines are too expensive to be misused.
Its when the schedules get tight... and they always seem to be tight around expensive machines (you can't afford to buy so many that they sit idle)... that you have to manage your time extremely well. And be 'machine smart'... different than book smart.
For example I had a bunch of tools that were made earlier this year - to win the order we had to promise delivery of the parts in 10 weeks for what would most times take 14-16 weeks without any screw ups... There was a big meeting and the project steps were laid out on time lines (Gantts) and the conclusion was we could make it but only if we worked around the clock and no screw ups, none. Realize the shop already had jobs going through it... so it wasn't like they were standing around waiting for something to do.
It turned the place into a madhouse - those techs literally worked around the clock, weekends and made it with a little time to spare. Their personal & family lives came second. They made VERY good money with all the OT... but too many of those projects will take a toll on your sanity.
So while I'd say 'yes' those jobs are out there and Minnesota has some of them - I'd look into it hard before making a big lifestyle change to chase it. Personally I'd do it in a heart beat - hell I did live that life as a chem engineer for awhile - but it isn't for everyone.
Do you have a link to the article - I think I know the program you are talking about but would like to see it to be sure.
dryfly
The reason I asked the question re availability of resources in mfg is that all I have to do is look at my field (former, retired now) and see what has happened to it.
I am (or at least was) a mathematician. I worked in this field for 45 years, day and night and truly loved every day spent on the various research projects.
I graduated from a smaller university and there were around 10 people majoring in math at that time in my class. A couple went on to get their PhD, one became a writer, couple more went to law school, 3 of us went on to the actuary exams.
Last year at my college 2 (yes TWO) received a degree in math, 1 graduated in physics yet the place has 4 times as many students than it had 45 years ago.
From alumni bulletins I read the current students complain bitterly about the math dept and have absolutely no concept of math, science, endineering, research, development. Most of them seem quite happy taking watered down happy subjects w/o regards to learning anything worthwhile.
I hear what you say, yet I wonder.
It was maybe 6 months ago in the LA Times. I cannot easily find the link on their site.
I remember that article because I thought it was interesting to have such high paying jobs available in manufacturing when all you hear about is how dead the industry is in America.
I hear what you say, yet I wonder.
Hazard | 11.14.07 - 1:32 am | #
Its a risk Hazard but I don't think its as acute as the MSM paints. There are special areas like robotics & automation & controls where what you describe could be a problem... and those areas are addressed by special training programs similar to the one w above referenced.
But most mfg involves a basic technical aptitude and some experience. The best way to learn that experience is work in mfg at a lower entry level... sort of a Catch 22 but with the dollar falling & boomers retiring (dying) I expect there to opportunity for young folks in mfg. More than they realize.
My wife is a classic example, she does mfg'ing support at the managerial level and her initial education was as an art major! It is a long story how she got there but suffice it to say they don't ALL have to study engineering to be successful in mfg.
w - I'll keep my eye peeled too. Did they mention the industry?
I ask because all of those areas never seem to have enough talent...
Hazard,
I graduated in 1996. My university has one of the best undergraduate programs in my (obscure) field in the country. There was maybe 150-180 students in the program when I was there. Now is is just over 40 students.
In my job 40% of the work force is over 55 and only 17% is under 44 years old. These are very good paying jobs. Everyone is trying to hire, turn over is high and the experience level of employees is very low. I think that the secondary cost of not having enough labor is that current employees see very little need to develop themselves.
Dryfly,
I think it was tool making. They mentioned how trainees had to take a lot of math and then were in charge of designing their own projects. They would setup the job themselves and make it with the equipment that included some type of CAD software. That is based on my poor memory though, so take it with a grain of salt.
This may be the story, but it costs money to read more than the abstract.
The Nation; Factory Shift: Manufacturers Struggle to Fill Highly Paid Jobs
w - well written. I think a lot of people in different fields are demoralized right now. That is a major failing of management. Leaders lead and we haven't had a lot of that in many organizations... too many of our 'leaders' have pillaged their own organizations not led them to greatness.
On toolmaking and CAD - my wife's journey into mfg started with CAD. Almost on a whim. But she doesn't do CAD much anymore - just works with it support of mfg.
There is one risk with toolmaking - and that is a lot of tools are now being made in China (figures). However the tools are brought back here and need to be adapted to the machines over here and sometimes altered to run right (frequently altered lets say)...
If you have a good all around education in ADDITION to toolmaking & can interface with management. Maybe even learn Mandarin on the side so as to be able to communicate better with people on both ends of the world... Do that and the world is your oyster.
The key thing is its not like we'll do mfg and China will stop now that the dollar is slumping... or if the dollar strengthens again we stop and they start up again... BOTH countries will be doing some of this - labor cost, productivity, skill sets available, currency, etc., will determine the relative amount & mix of what gets done where. Having multiple talents makes it a lot less likely you personally will get your legs cut out from under you in the future. I've been preaching that to my own kids since they were old enough to talk back at me - and man do they talk back.
This may be the story, but it costs money to read more than the abstract.
ProQuest Archiver lati...ighly+Paid+Jobs
w | 11.14.07 - 2:07 am | #
I'll have to buy that - it looks like a good read. Thanks.
Just to be fair to Berry, the 18 trillion wasn't a typo. It's owner's equity not homeowner's equity. He meant net worth including other assets besides housing like equities. 44% of the rise in net worth was housing related. Still, most of the equity wealth is concentrated in the top 10%, as most americans don't own stocks.