Manufacturing Monday: Week of 11.24.08

Greetings folks, first day of the workweek, and welcome to another edition of Manufacturing Monday. I had planned to put this out earlier in the day, but had to deal with a turkey situation (hint: dogs); plus other holiday-related madness. So anyways, we got some good stuff for you today. First on our highlighted list is a story on GM's board. Then we got two industrial-esc jobs updates, first on coal then in green-collar world. Finally, I want to finish off today's edition with something special, a music video! No...not me singing, but a reader sent it to me and thought you should all see it. So a shout out to Amber for bringing this to my attention, you rock! And with that we go to...the Numbers!

The Numbers

I don't have to tell you it's pretty crappy out there. Now they've been talking "deflation", which basically is the constant downturn in prices. To be honest, I've been holding on to the idea that we're still in a stagflation era. That to me at least, the rate of depreciation of asset prices seemed to be exceeding those of costs. But folks like Bonddad and the gang at Economic Populist are starting to turn my feeble brain. Well, our indicator may or not prove who is right, but it is still showing an overall negative stance.

The Producer Price Index is the inflation (or deflation) gauge for companies on a basket of goods that go into their final product. As you can see above, the damn thing went down and hard. At first glance, one can say that we're in a period of deflation. But this is where my stupid brain puts on it's skeptic hat.

Please take a gander at those light gray lines, I know they're kinda hard to see. That is Core PPI, which is basically the PPI minus the cost of food and energy. You will notice that it has been in positive territory. We know that since mid-Summer, agricultural products and petroleum have been in a massive downtrend. For example, Soybeans have gone from a high of $16.50/bushel to $8.84. Oil's gone from a high of about $147 to today's close of $54.20. The largest component of that fall on that chart (which you can see on the July date on there) has to be agricultural and energy products. Please take a look at the chart below.

We could almost plot a line straight across the dips, going back from the October of 2006, a line that would have been pierced. Now things could back up, but everything is saying that that blue line is going lower. But once more I'm perplexed by those gray lines, which is the PPPI minus food and energy. Now in this chart which shows the change year over year, those lines are still in going uphill. Now at this point, my only suspicion is that the fall reflects commodity-based products, and not other goods for the time being. According to Econoday, prices for products like aviation still held firm. Yet you probably can guess that given the economic climate, producers of finished goods could face lower demand thus pressure to lower prices.

For the record, the Producer Price Index came in at a - 2.8% for the month of October. The figure came in below the - 1.7% consensus number. Core PPI, which is PPI excluding food and energy, didn't move, staying at the same positive .4% it held for the previous month.

If the piece from Bloomberg shows us, demand is dropping. And it could get worse.

Dow Chemical Co., the largest U.S. chemical maker, is among producers hurt by a drop in demand. The prices Dow charges for two of the most-used plastics, polyethylene and polypropylene, fell as much as 40 percent since September, giving up gains achieved since June, the company said. Midland, Michigan-based Dow is closing more factories as sales decline.

``This is as bad as we have ever seen it in our lifetimes,'' Chief Executive Officer Andrew Liveris said in a Nov. 13 interview. An increase in prices ``is probably going to be near impossible in the next three to six months.''

GM Board to Wagner: Bankruptcy IS an option!

Well talk about a kick in the nuts to my credibility, and from the Board of Directors at GM no less! After spending a week working an a series of articles on what could happen and why we should help the ailing auto "giants," one of them says otherwise. Well, not exactly otherwise, they still would like assistance. But apparently the folks at General Motors, well the Board of Directors specifically I should mention, think that they may have to consider what was once the "unthinkable."


The board, which in the past has publicly offered Mr. Wagoner its strong support, agrees that seeking government funding is the company's top priority. But it isn't willing to dismiss the possibility of a bankruptcy filing, say people familiar with the thinking of the board's outside directors.

In a statement provided to The Wall Street Journal on Friday, GM said the board had discussed bankruptcy but didn't view it as a "viable solution to the company's liquidity problems." The board "is committed to considering all options in light of circumstances as they may develop." A GM spokesman, Tony Cervone, said that management is considering doing everything in its power to avoid a filing.

- excerpt from: "Bankruptcy Is Option to GM Board", Wall Street Journal, 2008.

To me this shows that the Board is moving beyond using the workers as a means of securing support for assistance. Let's be honest, if all those jobs were not at stake, the automakers wouldn't even have my support let alone the Democrats like Carl Levin. Now traditionally, the Board of Directors are there to represent the shareholders and bondholders. Normally any bankruptcy filing makes the shares in a company worthless, there have been a few exceptions to this, but that's a rarity. Bankruptcy also tends to lead to the termination of employment for much of management.

One such possibility that has been bandied about is the idea of a prepackaged bankruptcy. That is bankruptcy with a lot of hand holding, where certain people keep their jobs (perhaps the Board), while the debts get settled. This has been heavily promoted by Republican representatives and Senators, like Bob Corker of Tennessee. Under a prepackaged bankruptcy, in theory, GM could remove Wagoner and management, keep the Board, eliminate it's deals with the UAW, and settle it's debts. It could then begin to find ways to lower its labor structures. This could take on the form of renegotiated deals with the UAW to even setting up new plants in non-union states (like in the South). Once again, this is all in the realm of speculation, and I could be wrong here.

Now much of what some of the Board may really have in mind is in the realm of pure speculation. All we can do is guess what they may really have in mind. The automakers were asked by Congress to return with a plan of action on the companies' part. The talk of going to "Plan B" puts Management and the Board, on some level, in a subtle conflict. For Wagoner and the workers on the lines sake, GM better have a good plan to pitch for Congress. I suspect that a similar situation may be going on at Ford as well.

Help Wanted in Coal Country

One hears about job losses in all parts of the country, from Philly to LA. We've talked about the situation with the carmakers, and how they're shedding jobs. Yet in direct contrast to all this, we get some good news. It seems that the coal industry is looking for a few good folks to start mining that black stuff.

Now a while ago, I wrote about how West Virginia was taking a big economic hit. The state had lost about 19,000 manufacturing jobs since 2000, and things are still looking grim. Yet despite all this, we're now seeing expansion in one of the region's oldest industries, coal mining.

Mining is one of only two areas of the private sector that added jobs in October -- the other was health care. While 7,000 new mining jobs are hardly enough to register in a national economy that shed 240,000 jobs last month, they make a difference in parts of the country like Appalachia that have historically felt the deepest pain during recessions.

Indeed, economists say demand for coal could help communities throughout Appalachia fare better than areas in California or Florida hurt by the housing bust, or parts of the Midwest hurt by auto-industry woes. Unemployment in West Virginia, the second-biggest coal-producing state behind Wyoming, was 4.7% in October, compared with 6.5% nationally.

- excerpt from: "Appalachia Is a Bright Spot as Coal Country Seeks Workers", Wall Street Journal, 2008.

Ironically, one of the reasons for a growth in coal has to do with the sinking economy and credit crunch. As companies find it still difficult to obtain credit, they cannot expand. The same applies to private utility companies, which are delaying moves towards other technology (like using nukes) until they can get the cash. The coal industry is also betting that the incoming Obama Administration will begin to look favorably to "clean coal" technology.

Green-collar work being loved by Wall Street?

The folks at the Atlanta Journal-Constitution are reporting that mainstream business is taking heart to green-collar work. Nothing makes a business owner's heart pounce with joy like increased profits and lowering of costs. And business folks are finding that going green does bring the latter and later the former!

The often used "going green could make you green" is proving more true and true each day. Faced with rising commodity and energy costs, as we all witnessed this past Summer, companies are looking for ways to cut costs. Entrepreneurs of the ecological-friendly variety are finding ways for businesses to just do that. This in turn has lead to a boom in a whole new field.

“Environmentalism used to be out of the mainstream. Now venture capitalists are putting one-third of their capital toward green technologies,” said Gayle Oliver-Plath, CEO of G3 Agency, a recruiting firm for green jobs, and founder of www.careereco.com. “They’ve woken up and seen that solving challenges like dwindling resources and changing climates is good for the economy and the planet.

“These problems are changing companies, spawning new companies and creating a ton of new business opportunities. We’re going to see a lot more green-collar jobs in the future.”

Oliver-Plath founded CareerEco, an online community where environmentally conscious companies, university researchers, government agencies, organizations and job seekers can exchange ideas and information.

“What we’re seeing is a great opportunity for capitalists and environmentalists to get on the same page,” she said.

-excerpt from "Green-collar workers on the rise", AJC.com, 2008

Holy crap you have no idea how pumped I am about this! Look, it's no big surprise I want to see a new industrial era for America. Why the hell should we allow all our jobs to go to places like China and their filthy factories? Gang, we can have a second Industrial Revolution, only this time it would be carrying a green banner! We can make things here again! We can do it in a way that doesn't poison the Earth!

There could be a whole new field of technology that would could develop here. The US could take the lead on this, and build upon it to make even more developments! On top of that, we just may have a President who may see this. Cost cutting through energy efficiency? My stars, that should only be the start!

Manufacturing Monday Music Television

My good friends, I want to leave you with a tune for your heart. A reader by the name of Amber sent me this. It's a YouTube video of a young lady singing about basically the subject of these columns. No, Manufacturing Monday wasn't the inspiration, she sang this long before hand. But I got to tell you, if I didn't do Manufacturing Monday, her song probably would've inspired me to do this column! Anyways, if it's ok with you all, I would love to share with you what Amber shared with me. So without further adieu, here's "Are we Gonna Make It In America" by Kathy Garrison.

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Comments

PPI

Whenever I glance at those charts I have that holy shit reaction.

Nice song, the stressed out look on the people's faces.

I noticed the Talking head for The Nation was on Larry King and mentioned that the United States must have a manufacturing strategy and the rest of these people just kind of looked like what?

It's amazing how people don't get how critical this is to the economy.

GM considering bankruptcy. I suspect more like they have no choice.

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Core vs. headline inflation

JV, if you do a google search, or just click on this link to a prior diary of mine, you will find out that "Core inflation" is actually a lagging indicator. It takes about a year for food and fuel price changes to feed through into the rest of the economy. So the core PPI is telling us that last spring's surge in commodity prices is feeding through into other prices.

Paradoxically, because "the cure for high prices, is high prices", core inflation also tends - weakly - to be a leading indicator of inflation about 2 - 3 years out. I say, "weakly", because all you can say is that in about 36 months, the headline rate is likely to be closer to today's core rate than today's headline rate.

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You know...

New Deal, I didn't think of that. You make a good point, my good man. See, I thought they were calculated together. Hrmm..so perhaps then we'll see Core go down then. The question is, by the same amount or less?

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They are calculated at the same time.

There are studies that show it takes about a year for changes in food and fuel prices to percolate through the economy (and thus, to have full affect on the "core"). There are also studies showing that the core number is a better predictor of the headline inflation number ~30 months out, than is the current headline number.

In response to your question, it suggests core should be lower, all things being equal, about a year from now. But far, far less in amount.

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We bail them out then they outsouced to India

Citigroup just signed a contract with Tata Consulting to outsource their Information Technology work for 1.2 billion. Guess American IT workers and programmers are not good enough for them. AIG is in the same process they are also negotiating with Tata.

Why bailout these greedy Anti-American companies?

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