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The Times this morning has an ominous look at the state of manufacturing worldwide.
It uses a 129-year-old German plant to illustrate the plunging economy and how it’s feeding on itself.
That manufacturing is in decline is hardly surprising, but the depth and speed of the plunge are striking and, most worrisome for economists, a self-reinforcing trend not unlike the cascading bust that led to the Great Depression.
The numbers are gruesome:
In Europe, for example, where manufacturing accounts for nearly a fifth of gross domestic product, industrial production is down 12 percent from a year ago. In Brazil, it has fallen 15 percent; in Taiwan, a staggering 43 percent.
Even in China, which has become the workshop of the world, production growth has slowed, with exports falling more than 25 percent and millions of factory workers being laid off.
We’ve had a flash of optimism (or as I like to call it: a dead-cat bounce) lately in the stock market. Not so fast:
The pattern of manufacturing and trade ominously recalls how the financial crisis of 1929 grew into the Great Depression: tightening credit and consumer fear reduced demand for manufactured goods in one country after another, creating a downward spiral that reduced global trade.
“Plunging manufacturing suggests that as bad as things were in the fourth quarter, they are at least as bad now,” said Robert J. Barbera, chief economist at ITG, a New York research and trading business. “This is a classic adverse feedback loop. It won’t quickly correct itself.”
The worse news is trade has plunged more than manufacturing has. That would seem to signal that manufacturers are building up inventories and will have to cut production— and thus, jobs—even more sharply than they already have.
In fact, trade is shrinking even faster than production. Germany’s exports down are 20 percent from a year ago, Japan’s have plunged 46 percent, and in the United States, exports fell at an annualized rate of 23.6 percent in the fourth quarter of 2008.
The Times has an interesting stat on American manufacturing, which we tend to think of as almost marginalized:
“Manufacturing makes up about two-thirds of U.S. exports, and contributed more to G.D.P. growth over the last 20 years than any other sector of the U.S. economy,” said David Huether, chief economist for the National Association of Manufacturers in Washington. “Our share of global manufacturing output has remained steady at 20 to 23 percent over the past decade.”
And back to the German manufacturer, which has seen it all:
Mr. Welcker recalls family tales of trucks filled with cash to pay workers during the hyperinflation of the Weimar era, and how after G.I.’s crossed the Rhine in 1945 near where his factory stands today, “not one stone stood atop another.”
Today, he is thankful the situation is nothing like those days. “But the speed of the decline in orders,” he said, “is the worst we’ve ever seen.”
The Times should have noted that this company is probably worse off than other sectors since it seems to be heavily dependent on the health of the auto industry (it makes spark-plug-making machines), which is perhaps the segment of manufacturing under the most pressure. But that doesn’t mean it’s not a good angle.
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