Tuesday, July 12, 2011

Dow Jones Average Dominated by Manufacturers

I've posted many times about the supposed "decline/demise/death of American manufacturing," how we supposedly "don't make anything here any more," etc. etc.  

And yet what is probably the most popular and most widely-quoted measure of the health of America's stock market?  It's the Dow Jones Industrial Average (DJIA), which is dominated by U.S. manufacturers.  Of the 30 component companies in the DJIA, 19 are American manufacturers: 3M, Dupont, Aloca, IBM, Boeing, Intel, Merck, GE, Microsoft, ExxonMobil, Chevron, Pfizer, Procter & Gamble, United Technologies, Caterpillar, Johnson and Johnson, Cisco, Coca-Cola and Kraft. 

When we want a quick barometer of how American companies and the U.S. economy are performing, we use the manufacturing-dominated DJIA.  It's maybe a simple point, but I don't think most people realize how important, vibrant and dynamic America's manufacturing remains even today.  The fact that we look to a stock market index dominated by our manufacturing sector illustrates its continued importance to the economy, and underscores the reality that it's a sector that's not in decline the way it gets portrayed by the media. 


At 7/12/2011 5:27 PM, Blogger morganovich said...

there are a number of names in there that i really would not consider manufacturers.

what does IBM make? it's pretty much all outsourced.

merck an pfiser are drug companies.

exxon and chevron are oil companies. refining is not the big part of their business.

microsoft is software.

cisco doesn't make their own products. the value add of a router is software, the rest is chips all made by someone else.

i know you can stretch "manufacturing" to cover many of these if you really try, but i think you're really reaching here to call drugs and software "manufacturing".

certainly, no one i know on wall street thinks of them that way.

P+G? they're CPG. it's all branding and sales channels. actually making the products is not where the value lies. same with coke. same with kraft.

there are lots of manufacturing ETF's. not one of them has the companies above in them.
look them up.

IYJ, VAW, etc..

i think you are using far too broad a definition here.

At 7/12/2011 5:36 PM, Blogger morganovich said...


many of those that really are manufacturers really make all their money as finance companies like GE or CAT or live off of subsidies like GE or BA.

pure manufacturers like AA (down 60% since 2007) have been a train wreck over the last 5 years.

BA -16%
GE -50%
DD barely up

there are a couple bright spots like MMM, but mostly it's not too pretty.

i'm not disagreeing there there is some good manufacturing in the US, but i think you are really missing on this dow idea.

At 7/12/2011 7:28 PM, Blogger Benjamin Cole said...

"According to a study reported in the Financial Times, more than 15% of Singapore households are millionaires. No other country comes close Singapore will soon have a million millionaires, out of a population totaling a mere 5 million. I expect the number of Singaporean millionaires to rise sharply in the next few decades. Recall that Singapore only recently became a very rich country (in income terms.) Given its high saving rates, the younger generation will get to a million dollars much quicker than the older generation. I’d guess that roughly half of Singaporeans in their 50s and 60s will be millionaires by 2040. And the younger generation at that time will hope and expect to get there someday." -- From Scott Sumner's blog.

Of course, if the Far East gets richer, that is good for us in USA.

Still, the USA is accumulating debts, and running tight money--the Japan approach, which will probably lead to declining USA asset values, and deflation, slow economic growth.

Singapore, like the Far East, is booming.

"The Singapore economy depends heavily on exports and refining imported goods, especially in manufacturing,[46] which constituted 27.2% of Singapore's GDP in 2010[6] and includes significant electronics, petroleum refining, chemicals, mechanical engineering and biomedical sciences sectors. In 2006 Singapore produced about 10% of the world's foundry wafer output."

At 7/12/2011 8:33 PM, Blogger Marko said...

But Mark, this all isn't real Man-u-facturing. Man-u-facturing is only making steel, and ships and big iron things for rolling over poor people. If it wasn't made in the 19th century, and wouldnt sever your foot if you dropped it, it doesn't count. And if it wasn't made by unions, it doesn't count.

Please note my sarcastic tone, if it didn't come through.

At 7/12/2011 10:56 PM, Blogger arbitrage789 said...

When politicians on the left bemoan the decline in manufacturing, they’re not talking about the tech companies, the drug companies, or the oil companies.

At 7/12/2011 11:10 PM, Blogger Buddy R Pacifico said...

It is interesting that the first Dow components had no manufacturers. Nine of the eleven companies were railroads. The other two were Pacific Mail Steamship and Western Union.

The only two companies to survive since 1884 are Union Pacific and Western Union, although no longer in the Dow. There are no transportation companies in the Dow at present, although Boeing provides transportation and founded United Airlines.

At 7/12/2011 11:36 PM, Blogger PeakTrader said...

According to Wikipedia Economy of the United States


The United States is the world's largest manufacturer, with a 2007 industrial output of $2.69 trillion.

In 2008, its manufacturing output was greater than that of the manufacturing output of China, India, and Brazil combined, despite manufacturing being a very small portion of the entire US economy as compared to most other countries.

Main industries include petroleum, steel, automobiles, construction machinery, aerospace, agricultural machinery, telecommunications, chemicals, electronics, food processing, consumer goods, lumber, and mining.

The US leads the world in airplane manufacturing, which represents a large portion of US industrial output. American companies such as Boeing, Cessna (see: Textron), Lockheed Martin (see: Skunk Works), and General Dynamics produce a vast majority of the world's civilian and military aircraft in factories stretching across the United States.

The U.S. produces approximately 21% of the world's manufacturing output, a number which has remained unchanged for the last 40 years.

The job loss during this continual volume growth is explained by record breaking productivity gains.

In addition, growth in telecommunications, pharmaceuticals, aircraft, heavy machinery and other industries along with declines in low end, low skill industries such as clothing, toys, and other simple manufacturing have resulted in U.S. jobs being more highly skilled and better paying.

At 7/13/2011 4:03 AM, Blogger Ron H. said...

"I’d guess that roughly half of Singaporeans in their 50s and 60s will be millionaires by 2040. And the younger"

I suppose you mean that by 2040, half of the people who will then be in their 50s & 60s, will be millionaires.

Or, did you mean that half of the people now in their 50s & 60s, will become millionaires by 2040?

At 7/13/2011 5:40 AM, Blogger Jet Beagle said...

moganovich: "exxon and chevron are oil companies. refining is not the big part of their business."

Manufacturing is a huge part of ExxonMobil's business. The company owns outright or has significant ownership of 36 refineries worldwide, and numerous chemical plants.

According to XOM's 2010 10K, the company has $66 billion invested in downstream (refining) assets and $26 billion invested in chemicals manufacturing assets.

ExxonMobil's revenues for 2010 totalled $370 billion. Upstream (exploration and production) revenue was only $82 billion, including the upstream revenue from sales of crude and natural gas to downstream and chemicals. The remaining $290 billion revenue - net of purchases from upstream - are totally attributable to XOMs conversion of natural resources to finished product - in other words, manufacturing.

With $290 billion revenue realized from its manufacturing divisions, XOM may be the world's larges manufacturer by sales.

At 7/13/2011 6:02 AM, Blogger Jet Beagle said...

morganovich: "merck an pfiser are drug companies"

I have no idea why you would not consider pharmaceutical companies to be manufacturers.

Merck owns 77 manufacturing plants worldwide. That's what it does: manufacture drugs.

morganovich: "no one i know on wall street thinks of them that way."

I agree that software companies are not manufacturing companies. But I doubt Wall Street professionals consider drug companies to be anything other than manufacturers. In any case, by any economic definition of manufacturing, pharmaceutical companies are manufacturing companies.

At 7/13/2011 7:52 AM, Blogger morganovich said...


the oil companies are arguable, but if you look at refining as a % of revenue/profits, it's not the majority of their biz.

ditto pharma. making the drugs is mostly easy. it's developing them them and selling them that's so difficult.

pharma is much like software in that way. making the first copy is the only difficult part. the first lipator pill costs $2 billion. the rest cost pennies.

the cost of good sold on pharma is maybe 10% of retail price (and in many cases MUCH less).

by your logic, you could call mcdonalds restaurants "manufacturing" because they make burgers and shakes. hell, they even have assembly lines.

"manufacturing" is a far bigger part of mcdonald's business and costs than it is of pharma.

i'm arguing that mark's definition is overly broad.

if you call anyone who winds up with anything physical after work a manufacturer, you've created a definition so braod as to lose most of the intended meaning.

At 7/13/2011 8:15 AM, Blogger Jet Beagle said...


You are mistaken in your assertion that most of XOMs revenue does not come from manufacturing. I gave you the numbers, which came straight from ther company's 10K. XOM is a manufacturig company.

As I pointed out Merck owns and operates 77 manufacturing plants. Merck is also a manufacturing company.

I am not going to waste more of my time proving that Pfizer and Chevron are also manufacturing companies.

At 7/13/2011 8:19 AM, Blogger Jet Beagle said...


You apparently have a different definition of manufacturing than what is in common use. Here's the Merriam-Webster definition:

"transitive verb

1: to make into a product suitable for use

2a : to make from raw materials by hand or by machinery

2b : to produce according to an organized plan and with division of labor"

Here's the U.S. government definition, which is used in assembling the sector statistics which are regularly used on this blog:

"The Manufacturing sector comprises establishments engaged in the mechanical, physical, or chemical transformation of materials, substances, or components into new products. The assembling of component parts of manufactured products is considered manufacturing, except in cases where the activity is appropriately classified in Sector 23, Construction."

Finally, here’s the definition from businessDictionary.com:


Definition:The process of converting raw materials, components, or parts into finished goods that meet a customer's expectations or specifications. Manufacturing commonly employs a man-machine setup with division of labor in a large scale production.

If you know anything about the production of chemicals, pharmaceuticals, and petroleum products, you would understand that companies which engage in these activities meet all three of the above definitions of manufacturing.

Now, please inform us what you believe to be the definition of manufacturing.

At 7/13/2011 8:21 AM, Blogger Jet Beagle said...

morganovich: "by your logic, you could call mcdonalds restaurants "manufacturing" because they make burgers and shakes. hell, they even have assembly lines."

It is not "my logic". It is the definitions which are and have been in common use, and the definitions which federal and state governments use in providing economic statistics. If you choose not to use those definitions, you will continue to have a difficult time communicating with economists such as Mark Perry.

At 7/13/2011 8:50 AM, Blogger PeakTrader said...

McDonald's Corporation – Environmental Defense Waste Reduction Task Force - 1991

"McDonald's does not own any of its suppliers, and is not a manufacturer."

At 7/13/2011 10:07 AM, Blogger morganovich said...


you are missing my point.

sure, merck manufactures drugs, but that has ZERO to do with their success. it's a barely even a material part of their business.

it's not what creates their value.

drug development is.

so yes, they do manufacturing, but no, manufacturing is not their real business nor where the value of the enterprise resides.

mcdonadls is more of a manufacturer than merck.

At 7/13/2011 10:24 AM, Blogger morganovich said...

regarding your pedantic dictionary quotations, they deomnstrate nothing.

when people talk about "the manufacturing sector" they are not talking about drugs or software.

that is simply not common use.

you are applying a definition in a strict sense that makes any company that ever creates anything physical a "manufacturer".

so is the kid on your block with a lemonade stand a manufacturer? do you really think of that as part of the same industry category as caterpillar?

the reason to create categories is to draw meaningful distinctions.

lumping lemonade stands in with manufacturing bulldozers does the opposite.

it is "your logic" and it is not that commonly used. you are being pedantic to the point of missing the point entirely.

find me a manufacturing ETF with a drug co in it.

find me an industrial analyst that covers drugs or software.

far from being some weird definition i have made up, it's the one in common circulation thorough the financial sector.

they have broken companies up this way because the distinction are meaningful. cat and merck are completely different and dervive their value from completely different places.

merck is far more similar to a software company than a manufacturer.

At 7/13/2011 10:27 AM, Blogger Jet Beagle said...


Let me repeat in case you missed it:

If you choose not to use common definitions for manufacturing, you will continue to have a difficult time communicating with people who are discussing economics.

How much of Merck's "success" is due to the manufacture of drugs has no bearing on the decision to classify that company as a manufacturing company or a services company. The company's core business is clearly the production of pharmaceuticals. That their economic activity includes R&D and marketing is irrelevant. Merck manufactures the products for which it gains revenue. Therefore it is a manufacturing company.

I don't really care what point you are trying to make. You are the one who argued that Mark Perry's classification was incorrect. In that argument, I am certain you are incorrect. With the possible exception of IBM and Microsoft, which are certainly service sector companies according to NAIC and SIC classifications.

At 7/13/2011 10:28 AM, Blogger morganovich said...


i have multiple degrees in economics and speak to economists all the time.

i don't think i am the one with the problem speaking to them.

mark is the one using the non standard definition.

i also speak to wall street folks all day long. that's where the dow comes from. none of them are using this definition either.

quote webster if you want, but it will not make you correct in terms of actual usage on wall st and in economic circles.

At 7/13/2011 11:33 AM, Blogger Jet Beagle said...

"i have multiple degrees in economics and speak to economists all the time."

Of course you do. That doesn't make you correct.

When economists refer to manufacturing employment, they almost always use the government statistics to do so. I'm not aware of anyone else who provides statistics on manufacturing employment.

Economists use government supplied manufacturing employment and manufacturing GDP to derive manufacturing productivity.

Economists use government supplied manufacturing GDP to measure and analyze trends in manufacturing sector share.

All the government supplied statistics about manufacturing I've ever seen rely on either the SIC or NAIC codes. Application of those codes would include P&G, Merck, Pfizer, ExxonMobil, and Chevron as manufacturing companies.

As for your claim that economists use a different defintion of manufacturing than the ones I;ve provided, I don't believe it.

At 7/13/2011 6:24 PM, Blogger VangelV said...

there are a number of names in there that i really would not consider manufacturers....

I agree. What I see are a lot of marketing, design, drug development, and software companies. And some of the manufacturers like Boeing, United Technologies, Lockheed Martin, and GE are heavily dependent on government sales, mandates, and subsidies for their profits. As usual, things are not exactly as they seem at first blush.


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