Industrial Production
Industrial production was reported to have increased 0.2% in June as compared to – 0.1% declines in April and May. The entire gain was in mining and utilities as manufacturing output was unchanged.
The chart shows industrial production this cycle compared to other cycles. The old forecasting rule of thumb was that it took about a year from the bottom till industrial production surpassed its prior peak. You can see that on average this was a good rule in both mild and severe recessions. But this cycle some 19 months pass the bottom output is at 111.1 versus 120 at the peak. Despite all the talk of the rebound in manufacturing is clearly weak compared to historic norms and the thesis that manufacturing is returning to its old glory days is at best unproven.
I also calculate an estimate of monthly manufacturing productivity and according to that calculation productivity collapsed at an annual rate of -3.0% in the second quarter. The sharp drop in manfacturing productivity supports the idea that the drop in output caught firms by surprise and was due largely to supply chain disruptions after the Japanese disaster.
Even though industrial production is still about 10% below its prior peak firms are reporting that they are having trouble recruiting skilled labor. I wonder how much of the supposed shortage of skilled labor stems largely from American industry shifting its plants to places like Mississippi because the southern states have low taxes and cheap labor. If you move your plant to a low tax state firms you can save money, but there is no free lunch and you get what you pay for. If you move to Mississippi you have to draw your labor force largely from graduates of the Mississippi education system. If you want skilled labor that is able to do a little algebra and/or read a blue print, maybe you should leave your plant in states like Massachusetts or Washington where they
have higher taxes, but they also have good education systems.
I think the National Association of Manufacturers includes in the definition of skilled labor 1) being under the age of 35 and 2) no history of union membership. (NAM had a program for several years recruiting new workers 34 and under).
That and geography could be part of the problem.
Well, if today’s labor is too dumb to read a blueprint that should show up as declining or stagnant productivity figures. It doesn’t appear to have yet.
Hi Spencer:
Still quite a bit of constrained capacity out there in electronics and also assembly. Too many people wanting something right now as business has picked up. While better than 2010, we still are not seeing the shortening of lead times with some being out there 26+ weeks. If you did not have a forecast, you are not getting mosfets, etc. from the manufacturers and are being driven to the gray market. Three of my equipment orders were pushed back by weeks after the builder over booked orders.
It appears that no one wants to train labor anymore. People from Taylor-tucky did not show up in Detroit knowing how to assemble cars or how to read a print. They were trained by the OEMs and gradually worked up to more skilled postions. Yet GM has found a work force to build the smaller Sonic autos in a down sized plant. Overall, I agree with your analysis of manufacturing not being near its old self.
excellent read
Manufacturing has the compete against imports from mercantilist countries like China and Germany. This increases Aggregate Supply for the US, while at the same time indirectly depresses Aggregate Demand. This is because money is continually being taken out of the market, and put in banks, where it has to be borrowed, but since the American consumer is already deep in hock, it sits useless. See:
http://anamecon.blogspot.com/2010/04/effects-of-unbalanced-trade.html
As long as the situation continues, manufacturing wil have a tough time of it. If the US goes for austerity, US manufacturing will take a serious beating. The market will contract, but imports won’t so much.
Might want to consider the impact of H1b visas (or all visas) for lower waged skilled labor taking up the slack.
spencer – “Even though industrial production is still about 10% below its prior peak firms are reporting that they are having trouble recruiting skilled labor. I wonder how much of the supposed shortage of skilled labor stems largely from American industry shifting its plants to places like Mississippi because the southern states have low taxes and cheap labor. If you move your plant to a low tax state firms you can save money, but there is no free lunch and you get what you pay for. If you move to Mississippi you have to draw your labor force largely from graduates of the Mississippi education system. If you want skilled labor that is able to do a little algebra and/or read a blue print, maybe you should leave your plant in states like Massachusetts or Washington where they have higher taxes, but they also have good education systems.”
Significant advances in manufacturing automation and related support equipment which have occurred over the past four years most notably and prior to that time are driving the employee skills shortfall observed by industry. The scale of the problem is national and international. While the problem has been known for a few decades here in the USA, many states have failed to implement sufficient industry support programs to overcome the skills shortfall. Now, those educational and training needs are becoming more critical as automation advances moved forward quickly.
Apparently, you’re unaware that the southern states of the United States have engaged in extensive industry support and training programs tailored specifically to the needs of new industry. These initiatives have been underway for a long time and manufacturing site selection personnel are well aware of the support which has been and will be made available in support of industry needs whether on-site, locally, or regionally. Moreover, the southern states have actively promoted their 2-year college programs to accelerate the number of graduates attaining two-year degrees and vocational industry certifications. The southern states will have to deal with the advances in automation as will other states, but the southern states’ industry training programs are generally well positioned to support those needs as they occur.
The States of Massachusetts and Washington can not handle their existing middle skills level employment demands nor are those states projected to be able to do so in the future. Both states, like many other states, have serious K-12 and subsequent education/training problems that fail to support industry needs including manufacturing. Massachusetts and Washington have not been immune to such problems, and are below the national average in some measures of postsecondary education and industry support.
For obvious reasons, it is very unlikely that any site selection evaluators would consider locating new facilities in the States of Massachusetts or Washington. Such consideration would not make economic sense in light of overall location operating costs and lack of availability of middle skills. Employers are already paying a premium for employees with middle skills due to the known shortages in Massachusetts and Washington.
The following reports identify the middle skills employment problems in the States of Massachusetts and Washington.
State of Washington:
September 2010 – Washington State Workforce Training and Education Coordinating Board 2010 Employer Survey results
http://www.wtb.wa.gov/Documents/Tab7EmployerSurveyInitialResults.pdf
October […]
Employers *always* complain that there is too little skilled labour, just as the treasury always says that they have a strong dollar policy. They are just conventional phrases.
In the case of employers all it means is that they want to put on record that wages are too high, and a greater supply of immigrants is the right way to drive wages down.
If there is any substance to the shortage of skilled labor propaganda, as “save _the_rustbelt” hints there is always a shortage of perfect candidates: those with an ivy league degree, young but with a lot of experience, extensive skills in 5-10 different narrow specialties that match *exactly* what the employer wants that minute, and willing to work for a really low salary.
Agree, and any job/position above turning a wrench or soldering requires a “fit”.
Too often the “managers” don’t see what they want nor control how badly they get it. Most are now purchasing agents with no vendor quality.
The OEM contracts out their components then is caught surprised when the assembly don’t work.
They replaced engineering and manufacturing with the supply chain, ignoring the fact the supply chain is purchasing and logistics not manufacturing or quality.
Toyota is not so good, either.
spencer,
What do you think now?