A Severe Global Manufacturing Recession

A Severe Global Manufacturing Recession

Presented byDan MeckstrothChief [email protected]

The Root of the Crisis--Misguided Policy, Greed, Poor Decisions

• Taxpayer Relief Act of 1997o Exempted $500,000 in home equity from personal taxation

• 1997 Asian Currency Crisiso Developing countries’ central banks manipulated exchange rates to build

currency reserveso Global savings glut lowered mortgage rates (homebuyers) and fixed

investment yields (domestic and foreign investors)• Public Policy (for both Parties) to Increase Homeownership Rates,

Especially by Minoritieso Pressure on Fannie and Freddie to lower lending standardso Fannie and Freddie remained severely undercapitalized but able to borrow

at below market rates• Bush Administration’s Financial Market Deregulation Philosophy• Federal Reserve Policy to Clean Up After Bubbles, Not Prevent Them• Financial Industry Creates and Brokers Complex and Opaque Derivatives• Home Equity Loans Finance a Consumer Spending Spree

Vicious Circle of Financial Deleveraging

Source: McKinsey & Company

Rising losses insubprime markets

Credit Conditions: Banks Tightening Business and Consumer Lending Standards

Senior Loan Officer Opinion Survey

Source: Federal Reserve Board

The Financial Crisis Has Spread Worldwide

World Stock Prices

Source: Yahoo Finance

Ind

ex, J

anu

ary

2007

=10

0

Vicious Circle From Financial Sector to Real Economy

Source: MAPI

Rising losses insubprime markets

A Severe Decline in Household Wealth

Housing Prices and Common Stock Prices

Source: OFHEO, S&P 500, MAPIF=Forecast

Home Equity No Longer Supports Spending

Mortgage Equity Withdrawal

Source: Federal Reserve Board, Calculatedrisk.com

Overextended Consumer: Confidence Plummets

Consumer Confidence Index

Source: University of Michigan

Consumers Drastically Cut Big-Ticket Spending

Motor Vehicles and Housing Starts

Source: U.S. Bureau of Labor Statistics, U.S. Bureau of Economic Analysis, MAPIF=Forecast

Widespread Job Loss in the Economy

Dec. 07 to Jan. 09 Dec. 07 to Jan. 09

Industry1000Jobs

% chg.1

% of total2 Industry

1000Jobs

% chg.1

% of total2

Total nonfarm -3572 -2.6 100.0Wholesale trade -222 -3.7 4.3

Government 170 0.8 16.7Other services -44 -0.8 4.1Professional and business services -848 -4.7 12.8

Transportation and warehousing -202 -4.4 3.2

Health care and social assistance 447 2.9 11.9Educational services 125 4.2 2.3Retail trade -570 -3.7 11.1Information -105 -3.5 2.2

Leisure and hospitality -266 -2.0 9.9Real estate and rental and leasing -87 -4.0 1.5

Manufacturing -1064 -7.7 9.4Mining 51 7.4 0.5Construction -781 -10.4 5.0Utilities 9 1.6 0.4

Finance and insurance -182 -3.0 4.4

Source: U.S. Bureau of Labor Statistics, MAPI

Job Loss in the Recession

1Change in jobs as a percent of the Dec. 2007 level2Industry employment as a percent of all jobs in Jan. 2009

Widespread Job Loss in Manufacturing

Dec. 07 to Jan. 09 Dec. 07 to Jan. 09

Industry1000Jobs

% chg.1

% of total2 Industry

1000Jobs

% chg.1

% of total2

Manufacturing -1064 -7.7 100.0 Paper -26 -5.6 3.4 Food manufacturing -20 -1.4 11.6 Primary metals -39 -8.7 3.2

Fabricated metal -137 -8.8 11.2 Semiconductors and electronic components -30 -6.7 3.2

Machinery -58 -4.9 8.9 Electrical equipment and appliances -20 -4.5 3.2

Chemicals -23 -2.7 6.6 Wood products -93 -18.7 3.2 Motor vehicles and parts -204 -21.3 5.9 Beverage and tobacco -4 -1.9 1.5 Plastics and rubber -72 -9.6 5.3 Computer & peripherals -2 -1.1 1.4 Printing and support -57 -9.2 4.4 Apparel -30 -14.5 1.4 Nonmetallic mineral -53 -10.9 3.4 Textile product mills -15 -9.8 1.1 Electronic instruments -7 -1.5 3.4 Textile mills -29 -17.7 1.1 Furniture and related -86 -16.7 3.4 Communications equip. 0 0.3 1.0

Petroleum and coal -1 -1.0 0.9

Source: U.S. Bureau of Labor Statistics, MAPI

Job Loss in the Recession

1Change in jobs as a percent of the Dec. 2007 level2Industry employment as a percent Mfg. in Dec. 2007

Consumer Industries Led Manufacturing into Recession

Percent Change Percent Change

Industry 2008 2009 2010 Industry 2008 2009 2010

Motor Vehicles & Parts -14 -24 5 HVAC Equipment -12 -15 5

Petroleum & Coal 0 -2 2 Textile Products -7 -9 -2

Plastic Products -4 -10 5 Paints, Soaps -1 -8 1

Logging -1 -20 2 Food 2 -1 1

Wood Products -13 -20 10 Apparel -5 -6 -5

Furniture -11 -15 3 Pharmaceuticals 1 -2 2

Source: Federal Reserve Board, Global Insight Model, MAPI

Consumer-Related Manufacturing Production

Excess Capacity in the Economy Depresses Capital Investment

Labor Unemployment Rate and Excess Factory Capacity

Source: U.S. Bureau of Labor Statistics , Federal Reserve Board, MAPIF=Forecast

Falling Capacity Utilization and Tight Credit Conditions Drive Down Business Investment Spending

Business Investment, Inflation-Adjusted

Source: U.S. Bureau of Economic Analysis , MAPIF=Forecast

Capital Equipment Industries Were Pulled Into Recession



Electrical Equipment 1 -11 1 Industrial Machinery -14 -14 4Architectural & Structural Metals -2 -19 -1

Commercial, Service & Other Machinery 0 -14 2

Construction Machinery -7 -21 5 Forging and Stamping 2 -10 3

Engines & Turbines -9 -11 5 Aerospace -1 7 4

Ag. Equipment -4 -3 3 Ship & Boat Building -11 -17 -1Mining and Drilling Equipment 13 -13 -24

Private Nonresidential Construction 12 -12 -17

Metalworking Machinery -2 -13 4 Public Construction 2 -1 5


Investment-Related Manufacturing Production

Intermediate Industries Are In Recession



Paper -3 -8 0 Resins & Synthetic -10 -15 5

Iron & Steel -9 -33 5 Organic Chemicals -15 -15 7

Alumina & Aluminum 0 -12 5 Inorganic Chemicals 3 -9 0

Glass 3 -15 4 Ag. Chemicals -4 -7 4


Material Manufacturing Production

Declining U.S. Steel Production

U.S. Steel Production

Source: Left – Federal Reserve Board, Right – Federal Reserve BoardF=Forecast

U.S. Steel Production

A Massive Federal Stimulus is On the Way

$787 Billion Stimulus Package by Major Category (Percent of Total)

Sources: Joint Committee on Taxation, House Committee on Rules, Congressional Budget Office

Infrastructure and Energy Projects, Education and State Governments Receive the Most Funding

Major Categories of Discretionary Spending in Stimulus Package

(Billions of Dollars)

Sources: Joint Committee on Taxation, House Committee on Rules, Congressional Budget Office

US Dollar Appreciation and Global Recession Hurts Exports Which Have Been a Pillar of Strength in Manufacturing

U.S. Dollar Exchange Rates


World Trade Weight GDP Growth

A Severe Manufacturing Recession

Non-High TechManufacturing Production

Source: Left – Federal Reserve Board, Right – Federal Reserve Board

Non-High TechManufacturing Production

The 2008-2009 Recession is As Severe As 1973-75

Source: National Bureau of Economic Research, Bureau of Economic Analysis, Bureau of Labor Statistics, Federal Reserve Board and Manufacturers Alliance/MAPI

Length and Depth of Selected Post-World War II Recessions

Recession years Length in monthsPeak-to-Trough Percent Change

GDPPrivate-sector employment

Manufacturing production

2008-09 (forecast) 18 -3.0 -3.9 -12.2

2001 9 -0.5 -2.7 -6.6

1990-91 8 -1.5 -1.9 -4.7

1981-82 16 -2.9 -3.5 -9.5

1973-75 16 -3.4 -4.2 -15.6

1957-58 8 -3.7 -5.3 -14.5

Two Speed World: Advanced Countries In Manufacturing Recession

Manufacturing Production Growth

Source: Government Statistical Agencies, Global Insight, MAPIF=Forecast

Two Speed World: Developing Countries Grow At A Decelerating Rate

Manufacturing Production Growth

Source: Government Statistical Agencies, Global Insight, MAPIF=Forecast

A Severe Global Recession

World GDP & Manufacturing Production


World Manufacturing Production

World Steel Production Collapsed at the End of 2008

Global Steel Production

Source: World Steel Association

Pervasive Decline in Global Steel Production

Million Metric Tons Percent Change

Country 2006 2007 2008 2007 2008IQ to IVQ

2008

U.S. 99 98 92 0 -7 -39

EU-27 207 210 199 1 -5 -28

Brazil 31 34 34 9 0 -21

Russian Federation 71 72 69 2 -5 -40

China 423 489 502 16 3 -11

Japan 116 120 119 3 -1 -14

Korea 49 52 54 6 4 -8

Taiwan 20 21 20 4 -3 -20

India 50 53 55 7 4 -2

Other 285 293 279 3 -5 -33

Source: World Steel Association

Global Steel Production

Documents

A Severe Global Manufacturing Recession