The Wall Street Journal reports that manufacturing tumbles globally:

(emphasis mine) [my comment]

JANUARY 3, 2009
Manufacturing Tumbles Globally
By KELLY EVANS and ROBERT GUY MATTHEWS

Manufacturing activity around the world fell sharply in December, suggesting that the U.S. recession will extend well into 2009, if not longer, and that unemployment will rise globally.

A broad index of change in U.S. manufacturing activity fell to its lowest level since June 1980, when the economy was on the verge of a severe double-dip recession, according to the Institute for Supply Management. Not one of the 18 industries surveyed reported growth, and some, such as wood products, have been in decline for more than two years.

New orders, a gauge of future activity, sank to the lowest index level since records began 60 years ago. Exports and production also sank, and employment levels declined. The downturn in demand for manufactured goods is prompting companies of all sizes to lay off workers, shut down plants and reduce production of machinery, steel, plastics and other basic components.

Separate surveys of manufacturing activity around the world released on Friday, the first business day of the new year, were also bleak. Manufacturing is a key component of a country's gross domestic product, and the data often serve as a barometer of future economic growth.

Nevertheless, on Friday, stock markets around the world shrugged off the manufacturing numbers, posting gains in Hong Kong, Seoul and Europe on light trading volume. The Dow Jones Industrial Average climbed 258.3 points, or 2.94%, to close at 9034.69. Some analysts say global weakness is already priced into shares [Yeah right! While hyperinflation may drive up the stock market's dollar value, its real value is heading down.], which in the U.S. just closed their worst year since 1931.

Manufacturing activity contracted in Germany, France, Italy and Spain, pushing the Markit Economics survey of euro-zone manufacturing last month to the lowest level in its 11-year history. In Russia, the VTB Bank Europe manufacturing index fell to its lowest level since it began in September 1997.

The data from Asia also looked grim. A survey by brokerage firm CLSA showed employment and output fell at a record clip in Chinese factories in December. Indian manufacturers cut jobs for the first time in the history of a survey by ABN AMRO Bank.

The simultaneous woes of manufacturing in rich countries and poor countries are something new in the global economy. In the past, weaknesses in U.S. and European manufacturing meant a windfall for developing economies, which took up the slack.

Hong Kong, which like the euro zone slipped into recession in the third quarter, saw manufacturing activity as surveyed by Markit decline for the sixth straight month. Earlier this week, Japan's Nomura/JMMA index of manufacturing sank to a new low, due to a reduction in overseas demand and the deteriorating global economy.

The spreading and deepening manufacturing slump has some experts worried that the global economy in 2009 won't fare much better than last year. [no kidding?] J.P. Morgan's global manufacturing index, released Friday and compiled from surveys in 19 countries, reached a new low in December, consistent with a "severe" 17% annualized contraction in global activity. J.P. Morgan estimates global output declined 4% in the last three months of 2008 compared to the previous quarter, reflecting reduced spending and available financing on autos, housing and capital equipment. [ie: reduced demand for capital and durable goods]

Manufacturers around the world have already begun layoffs to conserve cash and reduce production, but many more are expected this year.

The job cuts are coming across industries and borders. Nickent Golf, a golf-club manufacturer in the Los Angeles area, recently cut assembly workers in China and the U.S. to cope with falling demand. In Elbow Lake, Minn., Cosmos Enterprises Inc., which makes metal and plastic parts for manufacturers including car and farm-equipment makers, has cut capacity, and in October it laid off five machinists and one quality inspector. "What is 2009 going to bring? There's a scary thought," says sales manager Kelly Chandler.

The struggles of big steel companies are particularly troubling, because that industry's health is considered an early indicator of how other industries are faring. ArcelorMittal, U.S. Steel Corp. and AK Steel all have announced layoffs in the U.S. or Canada. In the U.S., mills that produce raw steel are working at only about 43% of capacity.

Gerdau Macsteel Inc., a specialty-steel maker, said it would eliminate 300 employees by Jan. 16 at its Jackson, Mich., plant, although it is unclear whether the layoffs will be permanent. The steelmaker has been hit especially hard because about 50% of its output goes into automotive applications. The U.S. shed some 1.9 million jobs in 2008, through November, and the unemployment rate, currently 6.7%, is expected to rise when the government reports December figures next Friday.

The surveys "underscore the depth of the global recession, which we believe will prove to be the worst in the post-war era," says Nigel Gault, an economist with IHS Global Insight. His firm estimates that U.S. gross domestic product declined at a 5.6% annualized rate in the fourth quarter. "With no evidence that the rate of contraction is moderating, we expect declines almost that large in the first quarter of 2009," he says. "The long-awaited fiscal-stimulus package cannot come soon enough."

In Germany, Europe's largest economy, machinery, equipment and auto makers are struggling. Volkswagen AG, Europe's largest car maker, said on Dec. 9 that waning sales may make it harder to reach growth targets for 2010. BMW and Mercedes-Benz both saw about 25% drops in November sales.

Unemployment across the euro zone hit 7.7% in October, its highest level in nearly two years. The rate is expected to continue rising this year. In December, European Central Bank staffers forecast the euro-zone economy will contract by about 0.5% in 2009. Many private-sector economists contend that prediction is too optimistic, arguing that the bloc could face its sharpest recession since World War II.

Sentiment is similar in Asia. Countries such as India and China, heralded for their rapid growth, are cooling as demand for their goods weakens. Chinese manufacturing activity in December posted its second lowest reading since 2004, when CLSA Asia-Pacific Markets began its survey. Both new orders and employment in China fell for the fifth month in a row. Indian employment and manufacturing activity in December fell to their lowest levels since the survey, jointly produced by ABN AMRO Bank and Markit Economics, began in 2005.

The global manufacturing decline could put pressure on governments to pull harder on monetary and fiscal levers [ie: bigger bailouts and more money printing]. The European Central Bank, in particular, has been criticized for failing to move rapidly enough, despite cutting its key rate by 1.75 percentage points since October, to its current 2.5% [at least they are trying to be responsible]. By contrast, the U.S. Federal Reserve has slashed its lending rate to near 0% [sounds to me like the WSJ is saying lashing our interest rates to 0% is something we should be proud of]. Investors are betting the ECB will lower its rate by another half percentage point to 2% at its next meeting on Jan. 15.

The International Monetary Fund's campaign to get countries to boost government spending by a total of 2% of global gross domestic product -- more than $1 trillion -- could get a lift as well. In the U.S., President-elect Obama has been talking of a stimulus plan of between $675 billion and $775 billion over two years [= hyperinflation], largely geared to construction spending [infrastructure projects, not new houses]. China has talked of greatly increasing spending, although some analysts say the numbers Beijing is using are inflated. European nations, more concerned about budget deficits, have been more reluctant to adopt such tactics [Concern over budget deficits actually influencing budget decisions? So un-American.].

My reaction: I have a couple of points and observations:

1) The manufacturing slowdown is NOT being spread evenly. This can be seen in these two charts which go with the article.

(50 is the dividing line between expansion and contraction)



US December ISM Index

(Source: Barron' s Econoday)


2) Notice the WSJ's choice of companies to highlight the manufacturing downturn:

• Nickent Golf, a golf-club manufacturer in the Los Angeles area
• Cosmos Enterprises Inc in Elbow Lake, Minnesota, which makes metal and plastic parts for car and farm-equipment makers
• Steel makers, which have 50% of their output going into automotive applications.