Tag Archives: economic data

Manufacturing Outlook and History In the USA and Globally

I write primarily about management improvement on this blog – which makes sense given the title. In the very early days I had more on investing, economic data, science, engineering and travel. Then I created three new blogs (Curious Cat Investment and Economics Blog, Curious Cat Science and Engineering Blog, Curious Cat Travel Photos blog) and that made this blog more focused.

Even so the lines of what fits where can be a bit fuzzy and I continue to write about manufacturing, and health care, with a focus on economic data, occasionally. And that is what I am doing today while touching on management related to manufacturing a bit.

As I have written before the story of manufacturing in the USA, and globally, is greatly increased quality of processes and output as well as greatly improved productivity over the last few decades. Manufacturing output also increased, including in the USA, as I have written consistently for a decade now. For example: (Top 10 Countries for Manufacturing Production from 1980 to 2010.

Still many people have the notion that USA manufacturing has been declining, which hasn’t been true, and certainly isn’t true now (the last couple of years have been especially strong and even the general public seems to realize the idea of the USA losing manufacturing is a myth).

Chart of Manufacturing Output fro 1992 to 2012 - USA, China, Japan and Germany

Based on data from the UN. See my blog post on my economics for more details on the data (to be posted next week).

The chart is impressive and illustrates the point I have been hammering home for years. The USA manufacturing base is growing and far from crumbling (job losses are deceiving as they are global and not an indication of a USA manufacturing decline). China’s manufacturing growth is incredible. China and the USA are far away the top 2 manufacturing countries. Japan and Germany make out the top 4 before a large gap which then is followed by a group of countries that are very close (Korea is 5th with less than half the production of Germany).

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Leading Manufacturing Countries from 2000 to 2010: China, USA…

chart showing leading manufacturing countries output from 2000-2010

Chart of manufacturing production by the top 10 manufacturing countries (2000 to 2010). The chart was created by the Curious Cat Economics Blog. You may use the chart with attribution. All data is shown in 2010 USD (United States Dollar).

Over the years I have been posting data on the manufacturing output of leading countries. In 2010 China finally overtook the USA to becoming the leading manufacturer (long after you would have thought listening to many news sources and political leaders). In a previous post on the Curious Cat Economics Blog I looked at the output of the top 10 manufacturing countries with a focus on 1980 to 2010.

In 1995 the USA was actually very close to losing the lead to Japan (though you wouldn’t think it looking at the recent data). I believe China will be different, I believe China is going to build on their lead. There has been some talk for several years of manufacturing moving out of China seeking lower cost countries. The data doesn’t support any decline in Chinese manufacturing (or significant moves away from China toward other South-East Asian countries). Indonesia has grown quickly (and is the largest SE Asian manufacturing country), but their total manufacturing output is less than China grew by per year for the last 5 years.

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Looking at Auto Manaufacturing in the USA

America’s Dirty War Against Manufacturing

Bob Lutz, the former head of GM, says it was neither uncompetitive wages nor unions that drove the Big Three into decline. It was a management with its eye focused on the bottom line and the short term.

That sentiment should be familiar to students of Deming (it is one of Deming’s 7 deadly diseases). It is sad that this bad management practices, short-term thinking, continues to do harm several decades later. Hopefully we can do better in the next few decades.

retiree health care and pensions — burdens that are borne by society, not manufacturing plants, in every other advanced country. That disparity, the result of policy decisions made in Washington rather than wages negotiated by the United Auto Workers, was the source of most of the labor-cost advantage enjoyed by foreign companies.

The excessive health care costs in the USA, another of Deming’s 7 deadly diseases, has continued to get worse every year since he classified it as one. The damage that the failed health care system in the USA does to the USA is enormous.

USA Spent $2.6 Trillion, $8,402 per person,17.9% of GDP on Medical Expenses in 2010

Total health expenditures in the USA in 2010 reached $2.6 trillion, $8,402 per person or 17.9% percent of GDP. All these are all time highs. Every year, for decades, health care costs have taken a larger and larger portion of the economic value created in the USA.

In 2009 the USA Spent Record $2.5 Trillion, $8,086 per person 17.6% of GDP on Medical Care.

USA health care spending grew 3.9% in 2010 following an increase of 3.8% in 2009. While those are the two slowest rates of growth in the 51 year history of the National Health Expenditure Accounts, they still outpaced both inflation and GDP growth. So yet again the health system expenses are taking a bigger portion of overall spending. This has been going on so long that the USA spends double what many other rich countries do on healthcare with no better results.

As a result of failing to address this issue for decades the problem is huge and will likely take decades to bring back just to a level where the burden on those in the USA, due to their broken health care system, is equal to the burden of other rich countries. Over 2 decades ago the failure in the health care system reached epidemic proportions but little has been done to deal with the systemic failures. Dr. Deming pointed to excessive health care cost, back then, as one of 7 deadly diseases facing American business. The fact that every year costs have increased more than GDP growth and outcome measures are no better than other rich countries shows the performance has been very poor. The disease is doing even more harm today.

Some good things have been done over the years, most notably by Don Berwick while at the Institute for Healthcare Improvement. He was effectively thrown out of office by the politicians recently. The same politicians that have through decades of such foolish acts contributed more than any other group to the broken health care system that burdens the USA today. In the last 10 years a significant amount of good work has also been done in “lean healthcare”: applying lean thinking to healthcare. But it is similar to the quote that a “bad system will beat a good person.” With all the bad systemic issues the efforts, good as they are, in lean healthcare are mainly improving around the edges. Of course, “around the edges” of a $2.6 Trillion dollar system can still be extremely valuable and important.

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Manufacturing Jobs Increasing for First Time Since 1998 in the USA

Surprise! Blue collar jobs are coming back

Manufacturing employment began its decline long before the recession, losing jobs every year since 1998. But since the start of this year, there’s been a 1.6% gain in manufacturing jobs — about twice the pace of growth in other private sector jobs.
…
The unemployment rate for manufacturing workers has also shown much greater improvement than for workers overall, dropping to 9.5% in August from 13% in December. That compares to a far more modest improvement to 9.6% from 10% for the overall labor force.
…
Gains so far have been concentrated in four industries — automotive, fabricated metals, primary metals and machinery

This is good news for the economy. I believe it is partially due to more companies rethinking off-shoring practices which are flawed and adopting lean manufacturing ideas. As I have written for years USA manufacturing output has continued to increase and still remains by far the largest manufacturer. China is making huge gains by growing their output dramatically (not by the USA’s output decreasing). Manufacturing employment in the USA (and everywhere else – including China) has been decreasing for 20 years. The main stories are not jobs moving but jobs being eliminated by productivity improvement and China growing manufacturing output not a decline in manufacturing output in the USA.

Taxes per Person by Country

I think that the idea that data lies is false, and that such a notion is commonly held a sign of lazy intellect. You can present data in different ways to focus on different aspects of a system. And you can make faulty assumptions based on data you look at.

It is true someone can just provide false data, that is an issue you have to consider when drawing conclusions from data. But often people just don’t think about what the data is really saying. Most often when people say data lies they just were misled because they didn’t think about what the data actually showed. When you examine data provided by someone else you need to make sure you understand what it is actually saying and if they are trying to support their position you may be wise to be clear they are not misleading you with their presentation of the data.

Here is some data from Greg Mankiw’s Blog. He wants to make his point that the USA is taxed more on par with Europe than some believe because he want to reduce current taxes. So he shows that while taxes as a percent of economic activity is low in the USA taxes per person is comparable to Europe.

Taxes/GDP x GDP/Person = Taxes/Person

France .461 x 33,744 = $15,556

Germany .406 x 34,219 = $13,893

UK .390 x 35,165 = $13,714

US .282 x 46,443 = $13,097

Canada .334 x 38,290 = $12,789

Italy .426 x 29,290 = $12,478

Spain .373 x 29,527 = $11,014

Japan .274 x 32,817 = $8,992

The USA is the 2nd lowest for percent of GDP taxes 28.2% v 27.4% for Japan. But in taxes per person toward the middle of the pack. France which has 46% taxes/GDP totals $15,556 in tax per person compared to $13,097 for the USA. Both measures of taxes are useful to know, in my opinion. Neither lies. Both have merit in providing a understanding of the system (the economies of countries).

The Biggest Manufacturing Countries in 2008 with Historical Data

Once again the USA was the leading country in manufacturing for 2008. And once again China grew their manufacturing output amazingly. In a change with recent trends Japan grew output significantly. Of course, the 2009 data is going to show the impact of a very severe worldwide recession.

Chart showing percent of output by top manufacturing countries from 1990 to 2008

Chart showing the percentage output of top manufacturing countries from 1990-2008 by Curious Cat Management Blog, Creative Commons Attribution.

The first chart shows the USA’s share of the manufacturing output, of the countries that manufactured over $185 billion in 2008, at 28.1% in 1990, 27.7% in 1995, 32% in 2000, 28% in 2005, 28% in 2006, 26% in 2007 and 24% in 2008. China’s share has grown from 4% in 1990, 6% in 1995, 10% in 2000, 13% in 2005, 14% in 2006, 16% in 2007 to 18% in 2008. Japan’s share has fallen from 22% in 1990 to 14% in 2008. The USA has about 4.5% of the world population, China about 20%. See Curious Cat Investment blog post” Data on the Largest Manufacturing Countries in 2008.

Even with just this data, it is obvious the belief in a decades long steep decline in USA manufacturing is not in evidence. And, in fact the USA’s output has grown substantially over this period. It has just grown more slowly than that of China (as has every other country), and so while output in the USA has grown the percentage with China has shrunk. The percentage of manufacturing output by the USA (excluding output from China) was 29.3% in 1990 and 29.6% in 2008. The second chart shows manufacturing output over time.

charts showing the top manufacturing countries output from 1990-2008

Chart showing the output of the top manufacturing countries from 1990-2008 by Curious Cat Management Blog, Creative Commons Attribution.

The 2008 China data is not provided for manufacturing alone (the latest UN Data, for global manufacturing, in billions of current USA dollars). The percentage of manufacturing (to manufacturing, mining and utilities) was 78% for 2005-2007 (I used 78% of the manufacturing, mining and utilities figure provided in the 2008 data). There is a good chance this overstates China manufacturing output in 2008 (due to very high commodity prices in 2008).

Hopefully these charts provide some evidence of what is really going on with global manufacturing and counteracts the hype, to some extent. Global economic data is not perfect. These figures are an attempt to capture the economic reality in the world but they are not a perfect proxy. This data is shown in 2008 USA dollars which is good in the sense that it shows all countries in the same light and we can compare the 1995 USA figure to 2005 without worrying about inflation. However foreign exchange fluctuations over time can show a country, for example, having a decline in manufacturing output in some year when in fact the output increased (just the decline against the USA dollar that year results in the data showing a decrease – which is accurate when measured in terms of USA dollars).

If the dollar declines substantially between when the 2008 data was calculated and the 2009 data is calculated that will give result in the data showing a substantial increase in those countries that had a currency strengthen against the USA dollar. At this time the Chinese Renminbi has not strengthened while most other currencies have – the Chinese government is retaining a peg to a specific exchange rate.

Korea (1.8% in 1990, 3% in 2008), Mexico (1.7% to 2.6%) and India (1.4% to 2.5%) were the only countries to increase their percentage of manufacturing output (other than China, of course, which grew from 3.9% to 18.5%).

Loan Default Rates Continue to Increase

chart of loan default rates 1998 to 2009

Chart showing loan default rates for real estate, consumer and agricultural loans for 1998 to 2009 by the Curious Cat Investing Economics Blog, Creative Commons Attribution, data from the Federal Reserve.

Default rates on commercial (up another 151 basis points) and residential (93 basis points) real estate continued to increase dramatically in the second quarter. Credit card default rates increased but only by 20 basis points.

Real estate default rates exploded in 2008, in the aftermath of the financial market meltdown. In the 4th quarter of 2007 residential default rates were 3.02% by the 4th quarter of 2008 they were 6.34% and in the 2nd quarter of this year they were 8.84% (582 basis points above the 4th quarter of 2007). Commercial real estate default rates were at 2.74% in the 4th quarter of 2007, 5.43% in the fourth quarter of 2008 and 7.91% in the 2nd quarter of 2009 (a 517 basis point increase).

Credit card default rates were much higher than real estate default rates for the last 10 years (the 4-5% range while real estate hovered above or below 2%). Now they are over 200 and 300 basis points bellow residential and commercial default rates respectively. From 4.8% in the 3rd quarter 2008 to 5.66% in the 4th and 6.5% in the 1st quarter of 2009.

Small steps to reduce the large consumer debt have been made recently: consumer debt declined a record $21.5 billion in July. Since April of 2008 consumer debt has been reduced by $70 billion in the USA. Unfortunately we still have $2.47 trillion or
$8,233 for every person (using 300 million as the total population).
Data from the Federal Reserve

Another Year of CEO’s Taking Hugely Excessive Pay

I continue to do my part to publicize the abusive CEO pay packages that the current crop of unethical CEO’s, and those sitting on corporate boards have supported (Tilting at Ludicrous CEO Pay 2008 – 2007 post on CEO pay abuses). It does seem there is more anger now at the looting these corrupt CEOs have engaged in; though far too many people seem to think the corruption is some isolated few CEO’s. The widespread failure of ethical standards by an enormous number CEO’s (those taking from corporate treasuries as though it was their own personal bank account) is the problem (not a few individuals). The looters certainly have littered their “courts” with apologists for their egregious behavior. Even with the large amounts they pay such lackeys I am surprised they find such willing apologists, in such large numbers.

2007 pay rank	Company	CEO	2008 Pay	2007 Pay	CEO % of 2008 Earnings	total employees
1	Motorola	Sanjay Jha	$104,400,000		company lost $4.2 billion	64,000
2	Oracle	Lawrence Ellison	$84,600,000	$61,200,000	1.5%	86,600
3	Walt Disney	Robert Iger	$51,100,000	$27,700,000	1.2%	150,000
4	American Express	Kenneth Chenault	$42,800,000	$50,100,000	1.6%	66,000
5	Citigroup	Vikram Pandit	$38,200,000		company lost $27.7 billion	322,800
6	Hewlett-Packard	Mark Hurd	$34,000,000	$26,000,000	7.4%	6,200
7	Calpine	Jack A. Fusco	$32,700,000		327%	2,000

This executive pay data is for 2008, from the New York Times article, Pay at the Top. Earnings and employee data for 2008 from Google Finance. I would not pay any of these guys 1% of what they were paid if I owned the company, myself.

These guys and their friends have created a culture where their looting is as accepted as the clothes the emperor is not wearing. We need to wake up and stop letting these people steal the bounty created by the employees, customers, community, suppliers, investors… They want a world where they can behave like nobility – taking whatever they want from the value created by others. And lately they have succeeded in creating such a world. They leave in their wake very weakened companies and societies.
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USA Spent $2.2 Trillion or $7,421 Per Person on Health Care in 2007

Health spending in the United States grew 6.1 percent in 2007, to $2.2 trillion or $7,421 per person.
For comparison the total GDP per person in China is $6,100. This continues the trend of health care spending taking an every increasing portion of the economic output (the economy grew by 4.8 percent in 2007). This brings health care spending to 16.2% of GDP (which is yet another, in a string of record high percentages of GDP spent on health care). In 2003 the total health care spending was 15.3 of GDP.

With the exception of prescription drugs (which grew at 1.4% in 2007, compared to the 3.5% in 2006), spending for most other health care services grew at about the same rate or faster than in 2006. Hospital spending, which accounts for about 30 percent of total health care spending, grew 7.3 percent in 2007, compared to 6.9 percent in 2006.

Spending growth for both nursing home and home health services accelerated in 2007 (4.8% v. 4.0%). Spending growth for freestanding home health care services increased to 11.3 percent. Total health care spending by public programs, such as Medicare and Medicaid, grew 6.4% in 2007 v. 8.2% in 2006. In comparison, health care spending by private sources grew 5.8% compared to 5.4%.

Private health insurance premiums grew 6.0 percent in 2007, the same rate as in 2006. Out-of-pocket spending grew 5.3 percent in 2007, an acceleration from 3.3 percent growth in 2006. Out-of-pocket spending accounted for 12.0 percent of national health spending in 2007. This share has been steadily declining both recently and over the long-run; in 1998, it accounted for 14.7 percent of health spending and, in 1968, out-of-pocket spending accounted for 34.8 percent of all health spending.

The costs for health services and supplies for 2007 were distributed among businesses (25%), households (31%), other private sponsors (4%), and governments (40%).

Decades ago Dr. Deming included excessive health care costs as one of the seven deadly diseases of western management. We have only seen the problem get worse. Finally it seems that a significant number of people are in agreement that the system is broken. Still, admitting the system is broken is not the same as agreeing on how to fix it. The way forward to workable solutions still seems very difficult.

Full press release from the United States Department of Health and Human Services.