Is this the light at the end of the tunnel, or the oncoming train…

Posted: October 4, 2011 in Economy, Jobs, Politics, Uncategorized

In the midst of all the doom and gloom out there, we are faced with contradictory news that kind of makes you wonder which way to turn to dodge the oncoming train.

Manufacturing – The Great Hope

Despite the unfortunate yet spectacular collapse of Solyndra, manufacturing as a whole actually grew in September.  According to Reuters (via Yahoo news), “(M)anufacturing grew more quickly in September as production and hiring increased, suggesting that factories would help keep the economy from slipping into a new recession.”  The Reuters article continues, citing the Institute for Supply Management’s index of factory activity rising from 50.6 to 51.6, where predictions had the index dropping to 50.5.  In particular, the auto industry is watching sales volume grow for most nameplates.  As reported by Autoblog, the largest slides for year over year by month were shown by Saab (which has been clinging to life support ever since the GM bankruptcy), and Toyota and Honda, both of whom are still working to ramp production levels back to normal after the Japanese earthquake, tsunami, and nuclear reactor meltdown back in March.  Combining its divisions, Chrysler actually managed to top Toyota and regain the #3 sales slot for September, behind Ford and GM.

But back to the Reuters article.  They noted that construction spending had also risen…1.4 percent in August due to state and local government building projects.  They also noted that small business borrowing in August rose to its highest levels since April 2008.  Ultimately, though, they acknowledged manufacturing’s 12% of GDP and 11% of non-farm employment, and the expectation that continued expansion combined with cash-rich businesses spending money on machinery and equipment would stave off a double-dip recession.  As I, and many others have noted in many diverse forums, the potential for manufacturing activity to generate indirect economic activity is great, and any serious job creating efforts must include substantial resources aimed at invigorating and expanding the manufacturing base in this country.

The Great Uncertainty

While the employment figures in the sector are very promising, there are still reasons to be concerned.  First, despite the uptick in manufacturing numbers, orders have declined for three straight months.  If manufacturing output doesn’t begin to grow, those recently hired may not have jobs for too much longer.  Second, the Euro Zone debt crisis isn’t going away.  Discussion regarding Greece has pretty much changed from “if there’s a bankruptcy” to “when there’s a bankruptcy.”  With much of the European banking industry tied up in either Greek government securities or in contributions to the European Financial Stability Facility, a Greek default could trigger a domino effect through first the Euro Zone, then Asia and the US.  Such a banking crisis would effectively be a repeat of the 2008-2009 fiscal meltdown in the US, and drive the world back into a credit crunch and an overall slowdown.  Bank stocks, in fact most global stocks are trading dangerously close to bear market levels.

Obama’s Jobs Bill

As expected, Republicans in the House of Representatives have declared Obama’s jobs bill DOA as a complete package.  As reported by Reuters, not only has the House stated that they would only pass portions of the bill, both Republicans and Democrats in the Senate have stated that the bill is likely to fail there, too.  Personally, I’m not thrilled about the proposed tax increases but the incentives and infrastructure programs appear to be sufficient to offset the likely negative impact of the tax increases.  In any respect, we’re pretty much as the last option before total meltdown and collapse.  With Asia and Europe teetering on their own cliff edges, anything that moves us back from our edge is not only good for the US economy but will likely have a calming effect on the global economy.  And in all honesty, public spending will further increase the national debt, at least in the short term.  Passing tax increases to boost revenue, even a small amount, will help ease credit concerns over our debt load.  Removing those concerns will add to the calm and stability, and maximize the ability to realize the full benefits from the actual economic stimulus activities.  Sadly, the weak link here will be our elected officials.  As I have stated before, our elected officials need to start looking past their own wants and needs and consider the needs of the country.  I think we’ve gotten close enough to the edge of the cliff that ideas solely from one side of the aisle or the other either will not be sufficient on their own, or won’t take hold quickly enough to avert a complete collapse of the economy.  Finding a middle ground where elements from both sides of the aisle can be implemented is what I see as the only way to provide the confidence to stabilize our economy.  And this stability is what will hopefully keep the rest of the global economy from falling into the abyss.

I’m hoping this is the light at the end of the tunnel, but with our elected officials unable to decide which way to steer, if it is the oncoming train then we’re pretty well screwed.

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