Thursday, January 26, 2012

U.S. Manufacturing Already Has Record Profits and Is Doing Quite Well Without Any Government Help

Obama at the SOTU: "If you’re an American manufacturer, you should get a bigger tax cut. If you’re a high-tech manufacturer, we should double the tax deduction you get for making products here. And if you want to relocate in a community that was hit hard when a factory left town, you should get help financing a new plant, equipment, or training for new workers."

In December, I posted about the financial results for the U.S. manufacturing sector through Q3 of 2011, with the following highlights:

1. After-tax profits for U.S. manufacturing corporations were just short of $150 billion during the July-September period in 2011.  Profits for Q3 fell by 4.5% from Q2, but were 20.4% ahead of the same quarter in the previous year, and were the second-highest quarterly profit total for U.S. manufacturers in history. Compared to the $118.6 billion in profits for Q4 2007 when the recession started, manufacturing profits are now 26% above that pre-recession level.  The chart above show annual manufacturing profits back to 1999, with 2011 profits estimated at $600 billion based on results through the first three quarters.

2. The 20.4% increase in manufacturing profits over the last four quarters through Q3 was more than four times greater than the 6.5% increase in profits after-tax for all U.S. corporations during that time period.   

3. While real GDP has increased by only 1.5% during the most recent four quarter period from 2010 Q3 to 2011 Q3, the manufacturing component of U.S. industrial production grew at almost three times that rate (4.22%) from September 2010 to September 2011.

4. Over the most recent 12-month period from December 2010 to December 2011, manufacturing employment grew by 1.95%, compared to the 1.20% growth in total payroll employment over that same period.   

5. For the last seven months of 2011, the jobless rate for manufacturing was below the national average, and is currently at 7.9%, or almost a full half-point below the U.S. average of 8.3% (not seasonally adjusted). 

6. By all relevant measures of economic performance: growth in profits, output gains, employment growth, and unemployment rates, American manufacturing remains the "shining star" of the U.S. economy.  

Bottom Line: American manufacturing is doing quite well and experiencing record profits, without any special government taxpayer help or tax breaks from Obama financed by taxpayers.  In fact, you could almost make a case that U.S. manufacturing is experiencing "windfall profits." But if that information spreads to Capitol Hill, there could be a call for a "Reasonable Profits Board" for American manufacturing, or a "windfall profits tax," which are the political responses whenever U.S. oil companies experience record profits!

25 Comments:

At 1/26/2012 4:01 PM, Blogger Buddy R Pacifico said...

"... American manufacturing remains the "shining star" of the U.S. economy."

Quarterly earnings up 58% and revenues up 35% for the last quarter. World's largest machinery maker leaps over expectations like a CAT.

 
At 1/26/2012 4:14 PM, Blogger Sean said...

There's a lot less tendency for people to regard manufacturing as "rent seeking" than drilling for oil, so they're politically different animals.

 
At 1/26/2012 4:16 PM, Blogger Sean said...

This comment has been removed by the author.

 
At 1/26/2012 4:21 PM, Blogger Jon Murphy said...

There's a lot less tendency for people to regard manufacturing as "rent seeking" than drilling for oil, so they're politically different animals.

Economically, they're the same thing. Oil and Gas extraction and refining are considered manufacturing.

 
At 1/26/2012 4:22 PM, Blogger juandos said...

I'm guessing that manufacturing improvement isn't working uniformally across all states...

From the Tax Foundation: 2012 State Business Tax Climate Index

The 10 lowest ranked, or worst, states in this year’s Index are:

41. Iowa

42. Maryland

43. Wisconsin

44. North Carolina

45. Minnesota

46. Rhode Island

47. Vermont

48. California

49. New York

50. New Jersey

New Jersey scores at the bottom by having the third-worst individual income tax, the fifth-worst sales tax, the 13th-worst corporate tax, and the second-worst property tax...

 
At 1/26/2012 4:24 PM, Blogger Benjamin said...

A strong dollar--strong for exporters that is--is helping US manufacturers.

I hope the exchange rate for the dollar goes way down to a level that helps exporters and domestic manufacturers even more.

 
At 1/26/2012 4:25 PM, Blogger Jon Murphy said...

New Jersey scores at the bottom by having the third-worst individual income tax, the fifth-worst sales tax, the 13th-worst corporate tax, and the second-worst property tax...

Well, that and they're New Jersey :-P

 
At 1/26/2012 4:34 PM, Blogger juandos said...

"Well, that and they're New Jersey"...

Is it just me or is there really a wide difference between eastern New Jersey and its urban areas vs western New Jersey?...:-)

 
At 1/26/2012 4:56 PM, Blogger Hydra said...

Jobs, who neeeds jobs? We can do quite nicely without making jobs.

 
At 1/26/2012 5:14 PM, Blogger Sean said...

Jon Murphy,

Economically, they're the same thing. Oil and Gas extraction and refining are considered manufacturing.
Drilling is not the same as refining. Yet I think it is also pretty myopic to see refining oil as exactly the same as building automobiles or airplanes.

 
At 1/26/2012 5:15 PM, Blogger morganovich said...

hydra-

how about you put your money where your mouth is?

get rid of the electric garage door opener and pay a guy to do it.

get an elevator operator.

pay a guy to pump your gas.

demand that the painter paint your house with q-tip.

prosperity is sure to follow.

 
At 1/26/2012 5:22 PM, Blogger morganovich said...

bunny-

in absolute dollars, imports are up 3X as much as exports in the last 12 months.

so much for your "exporter dollar" theory.

this weak dollar is hurting us more in increased energy prices etc than it's helping exporters.

using your standards, it's a net loss, not a gain.

check the data yourself:

http://www.census.gov/foreign-trade/Press-Release/current_press_release/exh1.pdf

 
At 1/26/2012 5:34 PM, Blogger Jet Beagle said...

Jon Murphy: "Oil and Gas extraction and refining are considered manufacturing."

Well, I think refining and petrochemical production are included in most definitions of manufacturing. But extraction is considered part of mining, isn't it? As I understand it, the distinction is that manufacturing includes fabricating a good from raw materials or from other manufactured goods.

Not sure why electric utility production and construction are not considered to be "manufacturing", but I'm pretty sure that statistics from most nations do keep them separate.

 
At 1/26/2012 5:41 PM, Blogger Jet Beagle said...

Sean: ". Yet I think it is also pretty myopic to see refining oil as exactly the same as building automobiles or airplanes."

Is anyone claiming that refining is exactly the same thing as building automobiles or airplanes? Is anyone arguing that producing corn flakes is the same thing as building automobiles or airplanes?


What those industries have in common - the reason they are all classified as manufacturing - is that they all take raw materials and produce finished goods.

Manufacturing is a very broad term.

 
At 1/26/2012 6:28 PM, Blogger Che is dead said...

"If you’re an American manufacturer, you should get a bigger tax cut. If you’re a high-tech manufacturer, we should double the tax deduction you get for making products here ..." -- Obama

How about we eliminate corporate taxes altogether?

A corporation is not really a taxpayer at all. It is more like a tax collector. The ultimate payers of the corporate tax are those individuals who have some stake in the company on which the tax is levied. If you own corporate equities, if you work for a corporation or if you buy goods and services from a corporation, you pay part of the corporate income tax. The corporate tax leads to lower returns on capital, lower wages or higher prices — and, most likely, a combination of all three. -- Gregory Mankiw

 
At 1/26/2012 6:50 PM, Blogger kmg said...

Shh!!! That will strengthen the private sector! We can't have that!

 
At 1/26/2012 6:52 PM, Blogger kmg said...

How about we eliminate corporate taxes altogether?

Shh!!! That will strengthen the private sector! We can't have that!

Plus, don't you know that the true purpose of business is to exist as a social engineering tool, and to pay women the same salaries as men, for only a fraction of the productivity?

 
At 1/26/2012 7:09 PM, Blogger PeakTrader said...

Morganovich says: "this weak dollar is hurting us more in increased energy prices etc than it's helping exporters."

It's a huge net benefit for the U.S.. Much of the oil the U.S. imports represents a shift from U.S. consumers to the U.S. government (i.e. a shift from high consumer prices to low Treasury yields), and oil exporters will need to exchange more dollars for their currencies. Also, a weaker dollar spurs U.S. exports.

******

The World’s Reserve Currency
October 3, 2007

"A reserve currency is money that’s held by many countries as their foreign exchange reserves. It’s also the currency that’s typically used to price commodities, such as oil and gold, that are traded between countries.

A country whose currency is the predominant reserve currency benefits tremendously. In the case of the dollar, the U.S. benefits from the increased demand for the dollar that the reserve currency status creates.

Other countries give the U.S. valuable goods in exchange for dollars issued by the Federal Reserve. They also lend the dollars they’ve accumulated back to the U.S. at low interest rates. Most significantly, the U.S. benefits from importing these goods and exporting its inflation to other countries in the form of depreciating dollars."

******

Milton Friedman:

The "worst case scenario" of the currency never returning to the country of origin was actually the best possible outcome: the country actually purchased its goods by exchanging them for pieces of cheaply-made paper. As Friedman put it, this would be the same result as if the exporting country burned the dollars it earned, never returning it to market circulation.

 
At 1/26/2012 7:31 PM, OpenID Sprewell said...

I think Obama's goal is to bring even more manufacturing jobs, to make up for the loss in construction jobs during the housing bust, and he's hoping to lower their costs through taxes, to incent them to build more plants here and hire more locals. However, simply cutting taxes by a bit is never going to make up for the vast regulatory costs a US manufacturer has to put up with, which Obama only increases. Further, given how cheap manufacturing labor is in the third world, it is effectively impossible to lower the costs enough to compete. So all these tax measures are simply political theater: Santorum makes a proposal and Obama tries to match it, but neither changes anything meaningful.

 
At 1/26/2012 7:37 PM, Blogger Benjamin said...

Peak Trader:


Milton Friedman:

The "worst case scenario" of the currency never returning to the country of origin was actually the best possible outcome: the country actually purchased its goods by exchanging them for pieces of cheaply-made paper. As Friedman put it, this would be the same result as if the exporting country burned the dollars it earned, never returning it to market circulation.


Right!

Oddly enough, it would be great to us to print as much money as possible (without igniting double digit inflation) and keep importing,. spurring the global economy, but also making our exports more affordable.

Foreigners have shown a willingness to give us product in exchange for paper. Let's accommodate their wishes and give them as much paper as they can take.

If someday they decide they have had enough of paper, they will have to start buying things back from us--bringing on the second stage of the boom.

 
At 1/26/2012 7:39 PM, Blogger PeakTrader said...

Also, I may add, it seems, Friedman believed Greenspan was an excellent Fed chairman:

AN INTERVIEW WITH
MILTON FRIEDMAN
Interviewed by John B. Taylor
Stanford University
May 2, 2000

Taylor: Well, whatever the break point is, why do you think things have changed? Why, as you put it, does the Fed seem to be operating the monetary-policy thermostatic regulator so much better now? What do you think the reason is?

Friedman: I’m baffled. I find it hard to believe. They haven’t learned anything they didn’t know before. There’s no additional knowledge. Literally, I’m baffled.

Taylor: What about the idea that they have learned that inflation was really much worse than they thought in the late 1970’s, and they therefore put in place an interest-rate policy that kept inflation in check and reduced the boom/bust cycle?

Friedman: I believe that there are two different changes. One is a change in the relative value put on inflation control and economic stability and that did come in the eighties. The other is the breakdown in the relation between money and GDP. That came in the early nineties, when there was a dramatic reduction in the variability of GDP. What I’m puzzled about is whether, and if so how, they suddenly learned how to regulate the economy. Does Alan Greenspan have an insight into the movements in the economy and the shocks that other people don’t have?

Taylor: Well, it’s possible.

 
At 1/26/2012 9:22 PM, Blogger Benjamin said...

Peak-

Some say Greenspan was effectively a Market Monetarist. He closely followed thousand of stats and real output, and adjusted policy accordingly.

My own view is that Greenspan was lucky--the US economy (like Japan) has entered a period in which deflation is the devil, not inflation. Ergo, the Fed has only to try to keep things cooking, a much nicer job (if they could learn to love the new reality).

Unlike the 1970s, today the supply side is global, robust, and connected by Internet. Unlike the 1970s, today the private-sector labor force is largely docile and non-unionized.

Raise prices on anything and you find competitors undercutting you.

There are hoary, encrusted shibboleths and the econo-shamans who genuflect to them--and one is that inflation is the Grand Satan.

But times change. I hope the Fed changes before we become Japan II.

 
At 1/27/2012 12:22 AM, Blogger arbitrage789 said...

Let's not forget also that "record profits" are bad.

Companies that have "record profits" are inherently evil and greedy and should be taxed into submission.

(So say many of the liberals).

 
At 1/27/2012 10:48 AM, Blogger David said...

"If you’re an American manufacturer, you should get a bigger tax cut. If you’re a high-tech manufacturer, we should double the tax deduction you get for making products here ..." -- Obama

You can be very sure that the definition of "high-tech manufacturer" would be a function of the fashionableness of a given industry, the number of votes it is perceived to control, and the effectiveness of its lobbying.

 
At 1/28/2012 5:42 AM, Blogger Personable Pet Care said...

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