What It Takes for a Small Manufacturer to Make It

It’s getting to be sink or swim time for small and medium-size manufacturers (SMMs). Those that keep seeing globalization as a threat, constantly retrench and try to slash prices to compete are probably going to lose their place in the supply chain in coming years. “Traditional supply chains are morphing under the pressure of a globalizing economy. Manufacturers adhering to old supply chain rules are putting their businesses in jeopardy by not adapting to new rules,” warns a new report by the Manufacturing Institute, the research arm of the National Association of Manufacturers.

Link to article:

http://kiplinger.com/businessresource/recommend/archive/2008/manufacturing-chain-nam.html?kipad_id=60

REVENUE BREAKDOWN – Obama’s Spending Spree

REVENUE BREAKDOWN – Obama’s Spending Spree

By Stephen Wellman
June 5, 2009

 

This will cover spending and tax revenues for the week starting June 1, 2009. It was a busy week for the US TREASURY and one of the highlights was Tim Geithner’s meeting in China. Laughing students aside, he had a tough act to sell! Yet he kept to the same script the US FED and US TREASURY have been saying for decades now their mantra of STRONG DOLLAR … STRONG DOLLAR. Its their mantra but not their practice.

BLS WAGES

BLS data for wages that was released on June 4th to NO FANFARE … The FANFARE that moved the DOW that day was for the small dip in unemployment claims. Meanwhile if you read the hidden details, like I do, you see that there has been some massive hour cuts for American workers for the Q1 2009. That reflects perfectly with my collapse scenario for the US PAYROLL WITHHOLDING TAX REVENUES. If workers work less hours then there will be less tax revenues. Even here in Hawaii Governor Lingle is making State employees take mandatory three day furloughs(no pay) every month in order to cut costs.

What stuck out was this report on the MANUFACTURING SECTOR:

Manufacturing

Productivity decreased at a 2.7 percent annual rate in the manufacturing sector during the first quarter of 2009, reflecting a 21.7 percent decrease in output and a 19.5 percent decrease in hours (tables A and 3). These were the largest-ever declines in the output and hours series, which begin with data for the second quarter of 1987. Over the last four quarters, manufacturing productivity fell 3.2 percent, the largest four-quarter decline in the series (tables A and 3). This contrasts with the 3.7 percent average annual increase from 2000 to 2007. In the durable goods manufacturing subsector, output declined 31.0 percent and hours fell 23.0 percent, yielding a productivity decline of 10.4 percent. In nondurable goods industries, productivity rose 1.9 percent as the decline in output of 11.6 percent was less than the 13.2 percent decline in hours.

Hourly compensation in manufacturing grew 13.4 percent during the first quarter of 2009, reflecting a 15.8 percent rise in durable goods industries and a 10.1 percent rise in the nondurable goods industries (seasonally-adjusted annual rates). Real hourly compensation, which takes into account changes in consumer prices, increased 16.1 percent for all manufacturing workers. Unit labor costs rose 16.6 percent in manufacturing during the first quarter of 2009, after increasing 17.1 percent in the fourth quarter of 2008. Over the last four quarters total manufacturing unit labor costs increased 12.0 percent, the largest increase in the series.

These moves represent the BIGGEST moves since 1987. So things are falling off a cliff for America’s manufacturing base. I have also reviewed this same info for the State Of California and it is confirmed. The biggest drops in payroll for California are Construction and Manufacturing. The reports don’t really say why, but I imagine it is due to closing doors or moving out! Interesting the two sectors which show the least decline in employment are mining and healthcare. Healthcare in California is stable.

So productivity decreases while wage costs increase. Hummmmm??? NEXT!

US TREASURY DAIIY STATEMENT

Well on June 3rd, 2009, the US TREASURY spent $22.332BIL USD on Social Security benefits in 24 hours. That put our SPEND RATE up to 6.00. The US TREASURY only took in $7.559BIL USD in tax revenues on June 3rd and out of that $7.449BIL was from US PAYROLL TAX REVENUES. How much tax did the US corporations pay? $52mil. Those rich people with their Estate taxes only paid in $3mil USD that day.

Here is the LINK to the US TREASURY DAILY STATEMENT for June 3, 2009.

So how much have we spent on Social Security for FY 2009 so far? Around $385.7BIL USD and how much on TARP? Around $321.4BIL USD … not much difference. But on UNCLASSIFIED we have spent way over what we spend on Social Security at $413.6BIL USD. Between OTHER and UNCLASSIFED we have spent a combined total of $1.777TRIL USD and the media is dead silent. There’s so much money in the system on a daily basis the US TREASURY can’t even line item it!

TRUST FUND IOUS IN LAYMAN’S TERMS

There has been much talk about how the US TREASURY “borrows” from the Social Security Trust Fund. If only that were the only Trust Fund they hand IOUs to!

On every US TREASURY DAILY STATEMENT is a term called GOVERNMENT ACCOUNT SERIES. First TABLE III-B refers you back to TABLE III-A where there is a breakdown of both “marketable”(bills, notes and bonds) and “nonmarketable”(intergovernment debt). As anyone with eyes can plainly see the vast majority of “debt” is in the “Government Account Series” line item in the “non-marketable” section of both TABLES III-A and III-B. Just think of that BIG number as the UNFUNDED LIABILITY number for US CONgress to borrow from the Social Security and Medicare Trust Funds and many other trust funds you probably have never heard of. This is the magic hocus-pocus of IOUs that are suppose to be repaid in our lifetime.

So this stuff is “ON-BUDGET” and “OFF-BUDGET”. The “OFF-BUDGET” debt did not start until 1937 during the Great Depression, under FDR, but it has steadily grown since then just like everything that BIG GOVERNMENT does. Once again both DEMS and REPS have been guilty of growing the gross DEBT; both are experts at fiscal irresponsibility.

Back to the Government Account Series. These are non-marketable securities, implicit debt, guaranteed by the US government. They are mainly TRUST FUNDS. This chart of TRUST FUNDS is from the Financial Management Service, a bureau of the US TREASURY. I think it is important to get a perspective on just how widespread this addiction to SPEND has become. It has infested all manners of solvent entities and turned them into IOU ridden wards of the state.

The following TABLE FD-3 is only reported monthly, so March 2009 is the last data point.

Here is the LINK to the website that publishes these tables. Click on “Federal Debt”.

You can see that the US government owes these Trust Funds a total of trillions.

I found this statement from the FMS … “Government account series (FD-2)—Certain trust fund statutes require the Secretary of the Treasury to apply monies held by these funds toward the issuance of nonmarketable special securities. These securities are sold directly by Treasury to a specific Government agency, trust fund, or account. Their rate is based on an average of market yields on outstanding Treasury obligations, and they may be redeemed at the option of the holder. Roughly 80 percent of these are issued to five holders: the Federal Old-Age and Survivors Insurance Trust Fund; the civil service retirement and disability fund; the Federal Hospital Insurance Trust Fund; the military retirement fund; and the Unemployment Trust Fund.”

The BIG FIVE!!

I’ll bet they are “special”! I just hope we never find out just how “special” they really are!

There are also “marketable bonds” as per Table III-B of the US TREASURY DAILY STATEMENT. Every BOND issued by companies or governments has a “Redemption Value” upon maturity whereby the company, or in this case the government, pays to redeem it.

So in the end should the US TREASURY count these securities or “IOUs” when they borrow from a multitude of Trust Funds? The idea is that these “IOUs” will be made good when they are due or “mature”. So in theory as these IOUs mature the government must print money to pay them if there are no tax revenues to cover them. I personally am not counting on getting any checks from Social Security by time I retire. I also doubt I am going to have Medicare, but instead some Third World version of UNIVERSAL HEALTHCARE that is tantamount to a Medicare default.

Just because all this is listed on the US TREASURY DAILY STATEMENT don’t get the idea that all these numbers add up and make sense … THEY DON’T! Try to add up the OTHER total with the breakdown that is listed for OTHER, it never adds up.

This is the stuff that the GAO has been complaining about for decades now and is the main reason that David Walker(former GAO Chief)quit.

So next time when you hear someone compare the US government to ENRON, you’ll know why. More to the point you’ll know where ENRON got all their ideas from! Yet the S&P gives out their AAA rating … AAA is virtually worthless in my opinion, but then again I am not CHINA or the millions of people out there sitting in cash on the sidelines using Treasuries or FDIC accounts. By the way the US government even borrows from a trust fund entitled “Deposit Insurance Fund”. Hummmmmm??? I wonder if that is related to the FDIC.

All this info is available to the public so feel free to do your own research. When was the last time any of this was discussed in the SITUATION ROOM or on SQUAWK BOX or on OPRAH? Nobody wants to know the real truth and even after going on 60 MINUTES, David Walker walked away completely convinced that the US CONgress is just that … a CON!

None of this data supports a STRONG DOLLAR POLICY. Strangely enough it all comes from the same entity that Tim Geithner heads, the US TREASURY.

Gold is the only durable hedge against this enormous monetary fraud of the irredeemable currency Ponzi scheme.

GOVERNMENT IS ONLY AS HONEST AS ITS MONEY …

U.S. Economics… China… Manufacturing… Dollar

Latest musings by Chuck Butler…

“Chinese assets are very safe,” Geithner said in response to a question after a speech at Peking University, where he studied Chinese as a student in the 1980s.

His answer drew loud laughter from his student audience, reflecting skepticism in China about the wisdom of a developing country accumulating a vast stockpile of foreign reserves instead of spending the money to raise living standards at home.

I guess I have more in common with a Chinese student than you would have thought, because I would have been laughing out loud too!

There’s a story running on the news wires this morning that the U.S. recession ended in May… Wait a minute! Did the ISM Manufacturing Index soar back to the expansion number of 50 in May? No… How does 42.8 sound? Now… We have to go back to January of 2008, when I kept writing about how the U.S. had entered a recession, although the Gov. officials (read dolts), and the NBER, the official recession caller, said otherwise… The reason I was so adamant about the recession at that time is that the ISM Manufacturing Index number slipped below 45, for the second consecutive month… My research over the years showed that any time that happened, the NBER would follow it up months later with a call that we had entered a recession!

So… “is this time going to be different?” I think NOT! And… By the by… That saying really gets my blood boiling, as it reminds of the dolts that kept saying that about 8 years ago!

And here’s how I view this manufacturing thing… First of all you have to deal with delays and such, but in a simplistic view… The dollar was strong through February, and the ISM Manufacturing Index was in a free fall… That makes sense, right? The cost of exports was increased, thus it affects manufacturing… But… The dollar began its current decline on March 1st… And by May, the ISM is recovering… Dollar down, manufacturing up… Want to have manufacturing a part of an economic recovery? Guess what needs to happen… Awww… You know the answer!

It’s All About The Money!

As I listen to the Wall Street pundits today, their latest line is about “the inevitable rally” that they claim is coming.  One guy went so far as to pronounce on TV that “the market is severely oversold”. Anything is possible in the stock market, because it’s driven as much by emotion as fundamentals, but I wouldn’t count on seeing a substantial uptick anytime soon.  Mostly I expect that recovery will be snail-slow, after further decline, and we’ll see DOW 4000 or 5000 much sooner than 8000. I also expect that there will be many more “surprises”.  Sure hope I’m wrong – but don’t think so.

 

With all the talk about the RESULTS of the economic downturn – manufacturing drops, real estate contraction, lost jobs, etc. – it’s hard to keep track of the CAUSE.  It’s all about the money!

 

The mess the financial institutions created has frozen liquidity.  Economies run on money.  Without credit, the whole thing comes to a screeching halt.  That’s where we are now.

 

I talked in an earlier article about one analysis which has 700 US banks in trouble, with 150 in danger of failing this year.  It’s common knowledge that Citi is in deep trouble, and apparently sliding by the day.  GE’s a mess. The rumor mill has JP Morgan in deep, deep trouble.  Who knows which finance house is next?  We can’t measure the full extent of the problem because it’s a state secret – the banks, the Fed & the government aren’t talking.  We can’t even find out who already got bailouts, or how much; because the government in its infinite wisdom has decided that the info. should be confidential.  We also know that overseas banks are in trouble, and the forex/derivatives/debt mess in Eastern Europe is threatening to spill over, bringing a whole new set of problems measurable in $ Trillions.  All these banks are intertwined.  If a big foreign bank goes, what will be the effect here in the US?

 

Here’s the problem.  Without credit we can’t do business and we’ll just continue to slide.  In order to get credit moving again, the government has to spend more money bailing-out the finance houses (the bailouts so far have had little positive effect).  I strongly suspect the problem is much bigger than the public is allowed to know, and it will really come down to a question of whether the government can “print” enough dollars to break the logjam without destroying the dollar in the process.  Then there’s the little problem of getting someone to buy all the government debt created in the process.  The foreign governments that have been financing us for years are in trouble too.  Even though our economies are all intertwined, someone might decide to follow a different path of self-interest.  If that happens, we’re in big trouble.  I can’t remember a time when our country was more vulnerable to foreign “blackmail” than now.

 

Until the credit logjam is resolved, all other questions of economic health are on hold.  We, and the world at large, will continue to decline.  Obama’s plans won’t do squat without a credit thaw.  The portion of his package dedicated to the finance mess is just a drop in the bucket – barely an opening gambit.

 

There are always business opportunities; in any economy.  I mentioned one I like in my last article.  But now is not a good time to buy into the “Wall Street propaganda”.  It’s dangerous out there, and declining daily.  Be very, very careful.

 

We just need to hope that our secretive government & Fed can get a handle on the liquidity freeze.  Once they do, we need to hope that inflation & taxes don’t eat up our remaining wealth.

 

Buy Gold.

Economic Update

There’s a lot of lip-flapping going on in attempts to sway public opinion, so I thought this is a good time to do a recap.

Ben Bernanke finally got something right when he said that the financial crisis is the key to economic recovery.  Our Treasury chief almost bowled me over too when he said that the recovery would be slower than previously expected.  I can’t believe both of these guys were candid.  That’s not exactly their normal modus operandi.

One estimate I saw this morning indicated that approximately 700 U.S. Banks are in trouble, and about 150 will likely fail this year.  I’d like to know how the government plans to throw enough money around to prevent that.  I think we’re probably talking about a problem here that can be measured in $ Trillions.  The government’s already thrown out hundreds of Billions, and liquidity’s still frozen.  Get the idea?

The Wall Street pundits got a positive day today, so now they’re hinting heavily that a bottom’s been reached.  Oh Please!  Until the liquidity crisis is resolved, corporate America is going nowhere.

Gold’s been going down for several days, so the nay-sayers have written its obituary.  Where else are people going to put their money?  T-Bills?  Good luck with that.  If you like no yield and an investment denominated in inflated, overprinted U.S. Dollars - be my guest.

Manufacturing showed a small sign of life, but real estate continues to slide down the tube.  Obama unveiled his housing plan, but now we learn that it will only help about 3 million homeowners.  A good start, but it leaves a lot of people out in the cold.

Obama’s recovery spending plan’s been analyzed, and disappointed people have pointed out that too much money goes to social programs while the infrastructure money is too small and only creates a limited number of short-term jobs. Not exactly a panacea.

Now there’s fresh talk about doing away with “Mark to Market”.  Good luck trying to assess the balance sheets of your stocks if that happens.  I won’t be at all surprised if they do it.  Our government seems inclined to dispense with any semblance of reality if it will mask the problems.  If it does happen, we’ll all pay a much higher price later.

Ah, I just saw a clip of the President touting stocks.  He thnks the P/E ratios look good if you take a “long-term” view.  How long Obama, 20 years?

Sorry if I sound a bit sarcastic, but the situation is simple to understand yet there’s so much smoke & mirrors being thrown around.  It makes me ill.

Now they’re saying an asteroid just missed the Earth.  I can think of a couple of banks I’d like to see it hit.

Lay low.  There’s more surprises coming.

Al Walsh, Owner/Founder

Walsh Enterprises, Business Advisors

Huntington Beach, Ca   http://www.awalsh.us