U.S. Manufacturing Profits Set New Record in Q1
In another sign of a strong economic recovery in the manufacturing sector, the after-tax profits of U.S. manufacturing corporations reached a record-high $144.5 billion in the first quarter of 2011, according to data released today by the Census Bureau. Adjusted for inflation, first quarter profits this year were 6.6% ahead of the previous quarter, and 28.7% ahead of a year earlier. Compared to the pre-recession level of $124.1 billion in the fourth quarter of 2007, manufacturing profits have increased by 16.2% and $20.4 billion.
I think we can now safely say that the profitability of the U.S. manufacturing sector has made a complete and total V-shaped recovery from the effects of the U.S. recession and global slowdown, and is now well-prepared and situated for a new cycle of growth and expansion in output, sales, jobs, R&D, and capital investment.
36 Comments:
Good news--the trade-enhancing exchange rate of the dollar is helping.
Let's hope for an even lower exchange rate in the future.
Very solid numbers. I am sure thankful that a sizeable portion of manuacturing has stayed on-shore.
how do we reconcile this with the high unemployment numbers?
Fewer workers means lower labor expenses - there's not much to reconcile.
nominally, yes, but in real terms, this is nothing like a V.
this is mostly inflation.
that's the explanation for the bounce without jobs - it's a move in the price level, not in real income or output.
the BLS is just massively understating inflation by gaming CPI.
also: ntk, that's an unlikely explanation. to believe that, you have to believe that companies were significantly overstaffed before. if they can produce as much output now with fewer workers, why did they employ so many before?
there is no productivity miracle going on, just inflation.
Morganovich, take a look at this NYT article from this past weekend titled, "Companies Spend on Equipment, Not Workers".
http://www.nytimes.com/2011/06/10/business/10capital.html?_r=2&partner=rss&emc=rss
"Since the recovery began, businesses’ spending on employees has grown 2 percent as equipment and software spending has swelled 26 percent, according to the Commerce Department. A capital rebound that sharp and a labor rebound that slow have been recorded only once before — after the 1982 recession."
It suggests to me the ongoing substitution of technology for labor HAS improved productivity and at least partically explains why nominal GDP now exceeds pre-recession levels with several million fewer employees.
Larry G: "how do we reconcile this with the high unemployment numbers?"
Pretty simple, Larry. Here's a few things to consider:
The goal of most corporations is to increase profits, not increase employment. Deep recessions force corporations to figure out how to accomplish the former without suffering the latter.
When low-labor industries grow much faster than labor-intensive industries, the overall picture for U.S. manufacturing can look very good without adding very many workers.
Inefficient firms in many industries - the ones which employ too many workers - are the ones which do not survive deep recessions. The lean and efficient firms expand market share at the expense of the bloated ones during a recovery.
Need more reasons? I have more.
MaggotAtBroad&Wall,
That article provides anecdotal evidence to suggest that individual firms are making capital vs labor decisions. But that's only part of the reason why equipment spending exceeds labor spending at the national level.
Aggregate statistics sometimes mask the real changes occurring in the economy. When U.S. low-skilled labor becomes uncompetitive with foreign low-skilled labor, production moves offshore. That's not the situation facing high-capital, relatively low-labor industries.
American manufacturing as a whole might be investing more in equipment yet hiring fewer workers. Much of the reason is the continued shift from labor-intensive industries to capital-intensive industries.
less corporate taxes might lead to more capital investments for equipment but not necessarily workers...
so lowering corporate taxes benefits the investors primarily and will not result in more employment?
that's a question.
and if that is true - then Ryan's supply side idea of cutting taxes to increase employment and therefor more tax revenues will fail?
that's a question also.
Larry G: "less corporate taxes might lead to more capital investments for equipment but not necessarily workers..."
Lower corporate taxes will benefit both capital-intensive U.S. companies and labor-intensive U.S. companies. Both type companies would need more workers.
Yuo are focusing way too much on manufacturing. I argued that capital-intensive manufacturing industries are growing faster in the U.S. than are labor-intensive manufacturing industries. But I said nothing about the service sector.
The service sector in America has for decades employed more workers than the goods-producing sector. The service sector includes not just retail and food service but also such industries as banking, health care, air travel, trucking, vehicle maintenance, and much more.
Larry G: "if that is true - then Ryan's supply side idea of cutting taxes to increase employment and therefor more tax revenues will fail?"
Not at all. Again, look to the service sector:
U.S. employees, Mar-2011
Private goods producing: . 17.95 MM
Privide service sector: .. 90.63 MM
Government sector: ....... 22.2 MM
Manufacturing, a subset of the goods-producing sector, accounted for only 9% of U.S. employment in Mar-2011. That's down from 13% a decade ago.
but you don't need capital investment for the service sector, right?
even the service sector is focusing on not hiring any more than they absolutely need and/or can shed them quickly if business slows.
I think all sectors are not hiring permanent employees with benefits and trending towards part-time and easily shed workers.
I do not think cutting taxes on these companies in hopes that they will hire permanent employees is in play any more.
corporate's primary job is to survive as a business and that is what they are doing ..they have no allegiance to hiring permanent employees - who are, in fact, a liability when business declines.
so... cutting taxes on businesses in the hopes that they will hire more permanent employees is not really working like it used to.
businesses and investors are doing fine - not so much for the unemployed.
I'm not in the group that thinks businesses should be taxed but clearly not taxing them is not working either.
Paul Ryan's plan counts on an unemployment rate of 3% to balance the budget.
that's not going to happen give the current dynamics.
Larry G: "but you don't need capital investment for the service sector, right?"
Some examples:
FedEx is a service company. It regularly buys airplanes, trucks, sorting equipment, package scanners, telecom equipment, computers, and much more.
Hospital Corporation of America owns 164 hospitals and 106 surgery centers. The company purchases hospital beds, x-ray machines, MRI scanners, blood reinfusion systems, arthroscopic surgical euipment, and many other thousands of types of equipment.
Verizon is the nation's largest telecommunications company. Capital spending for this service company totalled $16 billion in 2010. According to the company's website, it has invested a total of $65 billion so far in its telecom network.
You can find many, many more examples of service companies with very high capital requirements.
Oh I agree with your examples.
What I'm saying is that cutting taxes is not going to generate more jobs - who, in turn, will pay taxes.. increase revenues to govt to pay for govt spending.
In other words, the basis of supply-side budgets is based on the idea that more employed people will pay taxes that will help pay for govt.
That's what Paul Ryan's plan basically does.
He counts on low unemployment - 3% and a theory that the other 5% will be employed and paying taxes so we would have increased revenues to pay for govt spending - for the military and non-entitlement spending.
but that idea is not going to work if companies work hard to find ways to conduct business without hiring more people.
Can we have a healthy economy with a permanent 8-9% unemployment rate?
Larry G: " they have no allegiance to hiring permanent employees - who are, in fact, a liability when business declines."
Sorry, but I disagree. I've worked in corporate America for the past 35 years. Based on that experience, which includes several economic downturns, I'd say that productive and non-redundant employees are hardly a liability at any time.
Most corporations use downturns as justification to trim their workforce to levels they should have been at in the first place. If they were being fair to those employees, they would have never hired them in the first place.
larry G: "What I'm saying is that cutting taxes is not going to generate more jobs"
Well, we disagree.
One can look back in history and see that strong economic and employment growth followed previous tax reductions. That was true:
- for the Coolidege tax cuts of the 1920s;
- for the Kennedy tax cuts of the 1960s;
- for the Reagan tax cuts of the mid-1980s;
- for the Clinton capital gains tax cuts of 1987; and
- for the Bush tax cuts of 1983.
Pardon my error. That should be:
"for the Clinton capital gains tax cuts of 1997"
And also:
"- for the Bush tax cuts of 2003."
well.. isn't the proof in the unemployment rate?
when companies are showing robust profits and the unemployment rate is high.. is that what happened in the prior recoveries?
Is this recovery proceeding like the prior cited recoveries?
Larry G: "the basis of supply-side budgets is based on the idea that more employed people will pay taxes that will help pay for govt."
Well, different supply-side economists have different takes on this.
The purpose for cutting taxes is not to pay for more government. Rather, the objective is to grow the economy and increase standards of living.
Most supply side economists I've read argue for not just cutting taxes but also for reducing the size of government. In particular, they argue for eliminating regulation and dismantling most regulatory bodies. Reducing government will reduce many barriers to growth, IMO.
Larry G: "Is this recovery proceeding like the prior cited recoveries?"
Never in my lifetime of 60 years has the federal government interfered so much in the economy as it is doing right now. The banking industry, the health care industry, the insurance industry, and the auto industry have all greatly suffered from government policies, both before and after Obama's election. The food industry is hurting from the effects of ethanol mandates. The oil and gas industry is just now being allowed to resume offshore drilling. Obamacare has added a level of uncertainty to all future employee costs. The massive federal debt is hanging over all of us.
I am not at all surprised that unemployment remains so high.
" Most supply side economists I've read argue for not just cutting taxes but also for reducing the size of government. "
agree but if you are already 14 trillion in debt and have a 1.5 trillion annual deficit....
AND ... you currently take in 900 billion in income taxes and $200 billion in corporate taxes...(about 1.3 trillion combined) and your annual deficit is 1.5 trillion.. can you really find 1.5 trillion to cut/balance without any increased revenues?
that 1.5 trillion annual deficit is MORE than you are taking in - in individual and corporate income taxes, right?
http://en.wikipedia.org/wiki/File:U.S._Federal_Receipts_-_FY_2007.png
it was my understanding that the supply siders were arguing that with better business environment that more people would be hired who in turn would pay income taxes - to help pay for the deficits that still remain after you've cut as much as you can.
Clearly if our deficit is about what we take in - in taxes - we're in a heap of trouble on the "cuts alone" strategy.
no?
" The banking industry, the health care industry, the insurance industry, and the auto industry have all greatly suffered from government policies,"
but the facts argue otherwise as all these industries are enjoying record profits, no?
Larry G: "it was my understanding that the supply siders were arguing that with better business environment that more people would be hired who in turn would pay income taxes - to help pay for the deficits that still remain after you've cut as much as you can."
I think you are correct in that some Supply Side proponents used the Laffer Curve to sell Supply Side economic policies to skeptical lawmakers. But the goal of Supply Side economic policies is not to increase tax revenues. The goal is to increase standards of living.
IMO, there are no deficits "after you've cut as much as you can". Government spending can be cut and cut and cut some more. Cuts can be made in defense, medicare, social security, agriculture subsidies, food stamps, and just about everything else the government wastes money on.
I agree that cuts can be made.
I do not see how we can find 1.5 trillion worth of cuts in a budget that has revenues of 1.3 trillion.
My frustration is with the concept that we can 'cut' without getting to the specifics of what we can actually, realistically can cut verses what remains when we are done and what we do about that.
I just don't see how we can find 1.5 trillion in cuts.
Not a single Republican who advocates cuts has shown a list of 1.5 trillion in cuts.. not Paul Ryan and not Ron Paul.
so when do we get "real" about what can be realistically cut and what we do about what remains?
Paul Ryan CLEARLY believes that supply-side is not to increase standard of living but rather to balance the budget and he clearly thinks that if we cut taxes even more than it will result in an unemployment rate of 3%.
I'm not an advocate for govt spending but I'm pragmatic about the realities and I feel it is irresponsible to hand-wave the deficits...
if we are really serious about the deficit then don't we need to be looking at a plan that achieves the desired goal?
again - we are spending about 2.5 trillion dollars while we are taking in about 1.2 trillion.
I don't see how we get 1.5 trillion in cuts... and I see no other people providing their list of 1.5 trillion in cuts.
basically, we spend:
689 on the military
500 on MedicAid/Medicare PartB
900 on govt
200 on interest
that's about 2.3 trillion
and we take in about 1.3 trillion in taxes.
do you know of a list of cuts that accomplish the necessary cuts to balance the budget?
Larry,
Try these numbers from the CBO
"CBO projects total revenues of $2.228 trillion and total outlays of $3.708 trillion for a deficit of $1.48 trillion for 2011."
The $1.48 Trillion, or whatever number you prefer, is the amount that needs to be cut to avoid increasing the national debt.
"I don't see how we get 1.5 trillion in cuts... and I see no other people providing their list of 1.5 trillion in cuts."
"so when do we get "real" about what can be realistically cut and what we do about what remains?"
You can balance the budget yourself.
that's a neat link.. I will play with it.. but what I was pointing out was in the revenues that we collect - the 2.228 trillion, about 900 trillion are FICA Taxes that are then spent directly on SS and Medicare Part A.
So you don't have the FICA/SS included in what you are cutting to reduce the 1.48 trillion annual deficit.
The number is the revenues that accrue from the income and corporate tax and other less - about 1.3 trillion in revenues.
The Chart I referenced on wiki:
http://en.wikipedia.org/wiki/File:U.S._Federal_Receipts_-_FY_2007.png
it's from CBO also and what it shows is that $865 billion are FICA taxes and 899 billion are income taxes.
cutting SS/Medicare Part B won't materially affect the current 1.48 trillion shortfall anyhow.
the interactive chart you provided does not show - for each category how much funding it receives right now.
an example... the military spends overall $689 billion while ...say the highways spend about 60 billion.
but you don't know that when you are choosing from the different percent cuts.
But EVEN if you DID know - the total amount of non-FICA-funded outlays are about 2.5 trillion and out of that you have a 1.5 trillion deficit.
so basically, you'd have to cut about 3/4 across the board including the military to balance the budget.
Any my point was that out of all of the folks who say we can balance with cuts only - I have yet to see THEIR LIST of suggested cuts.
No one in elective office whether it be the speaker of the house, the whip (cantor), or Paul Ryan or even Ron Paul have provided THEIR LIST of 1.48 trillion in cuts.
So I've been asking if any such lists exist because I've yet to see a single one.
Even Paul Ryan's "road to prosperity" does not have 1.48 trillion in cuts in it. He's actually counting on increased revenues that would result from a 3% unemployment rate to generate enough additional revenues to balance out the entitlement cuts.
"It suggests to me the ongoing substitution of technology for labor HAS improved productivity and at least partically explains why nominal GDP now exceeds pre-recession levels with several million fewer employees."
this is likely a partial explanation as well, but i think that the lions share of this is under-reported inflation.
take the years since the recovery and back out 8% inflation.
you get about 20% nominal increase from price level. that would explain pretty much all of that move.
we can argue over what the proper rate is, but the simple fact is that if we used pre 1992 BLS CPI assumptions, we'd still be deep in recession in real terms, a claim that the labor markets seem to support.
"an example... the military spends overall $689 billion while ...say the highways spend about 60 billion.
but you don't know that when you are choosing from the different percent cuts."
You would know that if you actually ran the simulator, and made the cuts you thought should be made, if any.
I did run the simulator and yes... the dollars are shown but it' messed up.
For instance, if you cut 100% of Social Security - it says
" You have cut the deficit by $544.77 billion.
Your new deficit is $-143.76 billion.
Oops!
You've cut so much that the federal budget now contains a substantial surplus. "
last time I checked 544 billion was about 1/3 of 1.5 trillion.
But more than that - cutting SS would not "cut" the deficit - because SS - right now - is not generating much of that deficit but even beyond that the only way you could say that cutting SS would reduce the deficit is if you took the FICA money not spent on SS benefits to essentially be redirected to other purposes so as to reduce the deficit.
That's never going to happen in any way, shape or form.
We will never cut SS but retain the payroll tax and redirect it to pay for other things.
So the "tool" is math-challenged as well as logic-flawed.
Most people simply do not understand that FICA is really "off budget" and that what we really have in the way of revenues is about 900 billion in income taxes and 200 billion in corporate taxes ... and some change (200 billion) from other excise taxes.
We barely take in about 1.3 trillion in tax revenues and yet we are in an annual deficit of 1.5 trillion because we spend 3.5 trillion.
even if you wiped out SS, it would have no effect because even though it will become a problem in the future - it really does not contribute to the current debt right now.
In order to balance the budget - you'd have to have an across the board cut of about 40% (or equivalent compensating cuts) of the military, Medicare PartB, MedicAid and general government.
As I have said before - I have yet to see ANY list of cuts from any elected Congress person much less a list that totals to 1.5 trillion despite the fact that most of them say we have spending problem and that we CAN get there by cuts alone.
I just don't see how we get there without a 40% across the board cut and I've not see anyone propose anything like that.
correction - we spend 3.5 trillion but you have to substact from that - the amount that goes to SS and Medicare part A - about 800-900 billion.
That leaves you with about 2.7 trillion in spending and about 1.3 trillion in revenues.
Adding FICA taxes to the revenues and showing SS/Medicare Part A as expenditures in the budget misleads folks because what you have to work with is the non-FICA tax revenues.
"That leaves you with about 2.7 trillion in spending and about 1.3 trillion in revenues."
That is the 1.5 trillion deficit under discussion in this thread. No, no one has suggested enough cuts to eliminate that deficit, but I'm not sure what point you're trying to make.
We're not going to discuss FICA or entitlement programs again, Larry, as you have shown that you are lacking some ability to think logically and do math, so I, at least, won't waste my time.
You have already demonstrated that you have problems with basic math in this thread, so it's possible we won't discuss taxes and deficits either.
Ron - I don't have problems with FICA at all. I know it backwards and forwards in terms of how it works and can provide the sources that I use - which are all credible and authoritative.
what we disagree on in the CONCEPT of SS and future "unfunded" liabilities and indeed why one would claim that SS has an unfunded liability but not MedicAid or the Military.
With regard to the deficit - YES - The Conservatives and Republicans had said over and over that we we have a spending problem not a revenue problem and that we can balance the budget with cuts alone.
But not one of them shows 1.5 trillion worth of cuts.
Then they say that we need more revenues - NOT from increasing tax rates but from more economic activity that can be spurred by even more tax cuts (which adds even more to the deficit if you don't get the increased revenues).
That's supply-side thinking.
that's saying that less unemployment will lead to increased tax revenues from which we would pay the deficit down.
That's Paul Ryans Plan that most Republicans have signed on to.
I'm not advocating tax increases per se but I am saying that I have yet to see a plan from those who say we spend too much - for cutting ENOUGH spending to balance the budget right now and that the Ryan plan depends on supply-side concepts.
The only two plans that DO balance the budget have a mixture of cuts and tax increases.
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