The Institute for Supply Management (ISM) reports that economic activity in the manufacturing sector contracted in December for the second consecutive month. The Wall Street Journal notes that “U.S. factories are in their worst slump since 2009.” Manufacturing accounts for about 12% of the U.S. economy, but its impact on middle-class employment and the U.S. balance of trade is even greater.
While U.S. manufacturing had declined before 2000, the precipitous drop, and its dire impact on the U.S. balance of trade and middle-class employment, had its origins in President Clinton’s allowing China to enter the World Trade Organization (WTO).
The Manufacturing News notes that “Since 2000, the trade deficit with China has surged by 173 percent, from $83 billion in 2000 to $227 billion in 2009. The United States has lost more than one-third of all its manufacturing jobs — 5.6 million; U.S. wages have declined; the country has suffered a financial meltdown; it has spent $14 trillion on economic stimulus, only to experience the highest unemployment rates in generations and annual federal budget deficits of more than $1 trillion.”
Speaking about the manufacturing sector, ISM’s chair Bradley J. Holcomb reported that “The December PMI® registered 48.2 percent, a decrease of 0.4 percentage point from the November reading of 48.6 percent. …The Employment Index registered 48.1 percent, 3.2 percentage points below the November reading of 51.3 percent. The Prices Index registered 33.5 percent, a decrease of 2 percentage points from the November reading of 35.5 percent, indicating lower raw materials prices for the 14th consecutive month. The New Export Orders Index registered 51 percent, up 3.5 percentage points from the November reading of 47.5 percent and the Imports Index registered 45.5 percent, down 3.5 percentage points from the November reading of 49 percent. As was the case in November, 10 out of 18 manufacturing industries reported contraction in December. Contraction in new orders, production, employment and raw materials inventories accounted for the overall softness in December.”
ISM reports that of the 18 manufacturing industries, six are reporting growth in December in the following order: Printing & Related Support Activities; Textile Mills; Paper Products; Miscellaneous Manufacturing; Chemical Products; and Food, Beverage & Tobacco Products. The 10 industries reporting contraction in December — listed in order — are: Apparel, Leather & Allied Products; Plastics & Rubber Products; Machinery; Primary Metals; Fabricated Metal Products; Transportation Equipment; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Wood Products; and Nonmetallic Mineral Products.
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“But there is another big factor that is not often mentioned and has a huge effect on both the manufacturing sector and jobs. That factor is the growing trade deficit which is really the ultimate determinant of job creation in the U.S.
“Dan Dimicco, chairman emeritus of Nucor Corporation…says in 2013, net trade subtracted about 3% from our economy (because imports exceeded exports). This shrinkage is cumulative, compounding year after year.” In the case of America we have had trade deficits for 39 years and it is now more than an $8 trillion debt. But why isn’t the government, Wall Street, multinational corporations, and many pundits and bloggers worried about the growing trade deficit? Why is the trade deficit largely ignored while everyone is more concerned about the federal deficit? Wall Street, the Multi-national corporations and the Obama Administration have adopted a policy of appeasement where foreign mercantilism seems to be irrelevant and attempts at balancing trade are ignored. It is as if the trade deficit is an open ended charge account that is simply an accounting summary that will never have to be paid back. All of our trading partners (competitors) understand trade deficits and they do something about them.”
The Federal Reserve Bank of Atlanta also issued disappointing news, noting that “The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2015 is 0.7 percent on January 4, down from 1.3 percent on December 23. The forecast for the contribution of net exports to fourth-quarter real GDP growth fell 0.1 percentage points to -0.4 percentage points on December 29 after the U.S. Census Bureau’s advance report on international trade in goods. “
Overall, according to the December report from the U.S. Census Bureau and the U.S. Bureau of Economic Analysis :
“The goods and services deficit for the whole U.S. economy was $43.9 billion in October, up $1.4 billion from $42.5 billion in September, revised. October exports were $184.1 billion, $2.7 billion less than September exports. October imports were $228.0 billion, $1.3 billion less than September imports. The October increase in the goods and services deficit reflected an increase in the goods deficit of $2.1 billion to $63.1 billion and an increase in the services surplus of $0.6 billion to $19.2 billion. Year-to-date, the goods and services deficit increased $22.2 billion, or 5.3 percent, from the same period in 2014. Exports decreased $84.7 billion or 4.3 percent. Imports decreased $62.5 billion or 2.6 percent.”