May 17, 2022

One Fifth of American Manufacturing Plants Are Idle.

We hear it all the time: “sorry that item is currently out of stock.” We see that everywhere we go. More and more, as I shop I see that this or that item is not currently available. And many times, the store doesn't know just when it will come back.

Shortages. It's become the watchword of modern America. We might want to purchase an item or good. And yet more often than not, the store or online shopping site just can't get it for you.

Economists glibly tell us that: “it's the supply chain, don't you know...” OK, I understand. That gives me some vague idea, that the things I want are parked on a boat or in a plant over in China.

But let's delve a little deeper. Let's get to the heart of what is really happening here.

We begin with a little-noticed economic report which will be released in just a few minutes. It's called the Capacity Utilization Report.

This morning, at precisely 9:15 am eastern time, the Federal Reserve will let us know that the manufacturing in this country is going down the drain.

Oh, they won't put it that way exactly. But translated, that's exactly what they'll be saying. As they have been saying for the last 35 years.

The Fed will report, once again that less than 79% of our manufacturing plants in this country are currently working. That means, of course, fully 21% of our plants are idle. Not working. Available, but not needed.

As I say it's a trend. A very long-term trend.

It's something I can't say enough. In a well-balanced, fully functional economy production and consumption would be balanced. 50:50. The economy would produce just the amount that the consumer wants to purchase.

But the United States is nowhere near a well-balanced economy. We produce less than two-thirds, of what our consumers want to purchase. That means that consumers must look elsewhere for more than a third of what they want to purchase. Hence, those out of stock signs at the local or merchandise store.

For many of us, this is something that has just begun to appear in the past year or so.

But I want to take you back to the year 1995. it was that year, specifically that China was introduced to the World Trade Organization. Giving China preferred status as a member nation of the WTO.

Up until that point, China had limited access to the United States markets. Up until that point, critics of Chinese trade pointed to China's dismal record in terms of pollution and human rights violations, which should prevent China's acceptance into the WTO.

President Bill Clinton however, thought otherwise. Putting the full prestige and influence of his office on the line. Clinton proposed that China should be admitted.

By joining the WTO, China is not simply agreeing to import more of our products, it is agreeing to import one of democracy's most cherished values, economic freedom.”

Of course, the reality has been that China has imported American products. America has imported multiple times more Chinese products.

In 1995, when the US Senate agreed to fully trade status with China. Our overall good trade deficit has ballooned from just $9 billion dollars in 1995 to $109 billion dollars last year. Granted that trade deficit included all countries, not just China.

Sine 1995 our idled manufacturing capacity in the US has nearly doubled. Until today, as we stated, over one-fifth of our plants are idle currently.

As for the other concerns about China: human rights, environmental pollution, and as Clinton touted economic freedom. None have seemed to improve over these last 35 years.

But past diplomatic mistakes need not be the end of our story. Today we have those self-same manufacturing plants standing by. Unused. Ready to begin the production that American consumers are anxious to purchase.

Within a half, an hour drive from where I live, sit factories ready to be brought back to life. Workers and modern equipment were put in place.

Remember, by and large, it was American capital and technology that built those Chinese factories. Why not do the same here back in the USA?



Its Energy Driving Inflation: In India, In Italy, Even In US Retail Sales.

In global economic news overnight, we're seeing different countries headed in different directions in this economic teeter-totter all based on the cost and availability of energy.

For India and Italy, it's the cost of fuel that is the principal driver of their inflation.

Italy on the positive side, fuel costs in Italy for April fell by over 11%. This helped overall Italian inflation decline by ½ point to an annualized inflation rate of just 6%.

While halfway around the world, India saw fuel costs there continue to explode. Gained another 2% in April, to an incredible 38% gain for the year.

Is there any doubt now, why India is reacting positively to securing Russia as an oil and gas supplier? India has no real choice. They need to bring those fuel costs under control. And with little help from the west, Russia becomes a very attractive source of reasonably priced fuel.


Turning to Europe. Remember that heated debate over Brexit? It was claimed that Great Britain's economy would fall apart if they left the European Union.

Well, there's an interesting development in Britain's labor market. It seems that there are simply not enough British workers to meet the open positions.

The British unemployment rate reported last night was just 3.7%.

While France also reported last night, had double the unemployment rate. At 7.3%. Perhaps Brexit was the right thing to do, after all.

Also some interesting short-term government debt auctions over the past couple of days.

We forget that sovereign debt around the world is now priced very differently, as you go from country to country.

Both Germany and France have had short-term government auctions, with the German 12-month Bubill prices yielding a NEGATIVE 10 basis points. And the French 12-month BTF is also priced at a NEGATIVE 14 basis points.

That's right folks, both auctions are still priced with negative yields.

Here in the US on the other hand, yesterday's T Bill Auction at 6 months, jumped by over 10 basis points to a POSITIVE 1.49%.

Is there any doubt about which way we're going to see international capital flows in the future? Take your pick, lose money in Europe, or positive yield in the US.

Interesting world.


In just a few minutes we will get the latest in Retail Sales here in the US.

Retail sales are expected to show a very tepid gain. Driven almost entirely by those, you guessed it, high gas prices. Take away fuel inflation, and there are more than a few analysts who are looking for declining retail sales here in America.

In earnings so far this morning, very positive results from the Retail Sectors. With number one retailer Walmart, and the number one home improvement store, Home Depot, both reported positive results. And both stocks are currently higher.

From across the Pacific, China's number 2 retailer is up over 8% right now.

Have a great day!