The Illusion of Growth

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by David Stockman, Daily Reckoning:

The Wall Street Journal published a superb example of hopium recently in a sunny-side-up story entitled “U. S. Manufacturing Rides Rising Tide, Buoyed by Global Growth, Optimism.”

Indeed, this lazy cheerleading excuse for journalism captured the sum and substance of why the punters keep buying the dips despite troubles gathering all around.

That is, as the tax bill falters, the crusade to remove the Donald from office gathers strength, the Fed moves into balance sheet normalization and instability breaks out all over the world from the Persian Gulf to the Korean peninsula.

You would think the title says it all, but the WSJ was not nearly done. It cited a 156,000 pick-up in manufacturing employment since last November, rising energy and commodity prices as evidence of a booming global economy and double digit growth in business investment earlier this year, among other things.

American manufacturing has picked up pace over the last 12 months thanks to steady global economic growth, a rise in energy and other commodity prices, and increased business confidence.

Although progress isn’t being felt by all industries, makers of items ranging from bulldozers to semiconductors to food products are on the upswing as various measures of spending, sentiment and employment have climbed, while stock markets have hit record highs.

Yet every one of the trends cited in the WSJ article are less than a year-old. They coincide with the Great Coronation Boom in the Red Ponzi ( the run-up to Xi Jinping’s ascension to total power at the 19th Party Congress); represent only a minor up-tick from the 2014-2015 global deflation; and in the context of the current feeble recovery from the 2008 crisis represent nothing at all to write home about.

Indeed, I am confident that as the Red Ponzi goes into a stabilization and credit containment mode, as is already evident from the October economic data (fudged as it is), that the slight lift to global activity engendered by the latest China credit impulse will quickly fade. And with it the entire trading meme reflected in that WSJ puff piece.

But short of that yet to unfold but predictable global mini-cycle, the actual data on U.S. manufacturing output trends through September reveal nothing to smile about.

In fact, overall U.S. manufacturing production is still down 4.3{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} from its pre-crisis high back in December 2007, and was no higher last month than it was three years ago in November 2014.

Of course, global commodity prices did perk up during the last 18 months. Not only did they rebound off the bottom in normal cyclical fashion, but the hands of China’s central bank were more than a little evident.

When they unleashed the latest credit tsunami in early 2016, the hordes of Chinese speculators dutifully bought up all the iron ore, copper, steel, diesel fuel etc that was to be had and which could be readily financed in cash and futures markets alike.

Presently, they will be selling, too, as the post-coronation signals coming out of Beijing become unmistakably clear.

Nor is the above even the half of it. If you look at output of U.S. consumer goods, which is much less attached to the global commodity/industrial cycle, the rising tide of manufacturing output is nowhere to be seen.

In fact, consumer goods production has flat-lined for the last two years, and is still below where it was at the pre-crisis peak.

The same is true of manufacturing employment. There is no “rising tide.” Thus, between October 2007 and the April 2010 bottom, the U.S. lost 2.3 million manufacturing jobs — representing a loss of 76,000 high paying jobs per month.

By contrast, during the three years since October 2014, the U.S. has recovered about one-tenth of that loss — with manufacturing jobs expanding at a rate of  just 6,000 per month. That is to say, the WSJ was essentially trumpeting statistical noise.

We are now 120 months from the pre-crisis peak in November 2007. Yet the compound annual growth rate of manufacturing is just 0.08{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528}. Which is to say, nothing.

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