….I don’t think most people would have guessed that the manufacturing PMI was going to rise this month, which is a face saving way of saying that I didn’t think it would.
It climbed to 51.6% which, if you recall, indicates expansion (anything about 50 does, anything below 50 shows contraction.) Last month that number had been 50.6, a full point lower, and meaningfully, heading in the wrong direction.
I’ll tell you why I was surprised. The Federal Reserve’s Beige Book survey a few weeks ago showed honest weakness in manufacturing from their review of input from the Fed Banks. That’s a pretty good survey, and it rhymes pretty well with this PMI survey a few week later, so by that token most readers were braced for the worst. Why didn’t the worst happen?
Now we’re into geography. Different regions of the US manufacturing base have unplanned but real ‘specialties,’ both as to their output, and as to the trading partners and destinations for that output.
It turns out that that Fed Survey was overweighted to the Fed banks and thus factories on the east side of the US…which happen to do a lot of trading with and shipping to Europe. And Europe is getting creamed right now between the Greek crisis, the uncertainty associated with its rescue, and the general world slowdown in trade and economic activity. It was
underweighted to the Midwest regional reports, the ISM Chicago, the Kansas City Fed, and the Midwest Mnufacturing Index. Those had decent months, and their contribution was what kept the national PMI positive.
In fact, the US output is leading the pack right now, or nearly so. Manufacturing data from all the major manufacturing countries over the past decade has sorted itself out into a common set of tools, the same 50 or above = expansion, below 50 = contraction.
By that measure only Canada leads us, which says as much about the slowdown in the rest of the world as it says about us. This business you’ve been reading of China’s output being deliberately tamped down to guard against inflation is real and it’s reflected in their PMI number (51.2).
We track those numbers, these world numbers, awfully closely, since we throw them in a weighted fashion into our own TranSystems Transportation Index, which measure transportation activity individually across the modes and the cumulatively. That’s what’s getting moved a lot of the time, the output of factories
Back to the US, employment was up, customer’s inventories didn’t rise crazily (meaning inventories are still lean), exports are up , and though new orders are flat, production is up (all these subcategories are weighted to sum to the big number at the top.)
All in all, not bad, and it argues against any out and out contraction in the economy last quarter and perhaps this one. That GDP report is out on Friday. We’ll see.
…The ports too are strongly bound by geography, their location and the location of their trading partners determine to a large degree what it is that this or that port takes in and puts out. Florida and the Gulf Coast ports do a lot of the trade with South America, the West Coast ports account for the bulk of the trade with the Pacific Rim (it’s a reasonably straight shot from China to LA across the pacific), certain ports are suitable for auto shipments to and from, etc.
The top ten ports these days, accounting for 85% of the maritime traffic in and out the country are, in order, Los Angeles, Long Beach, New York, Oakland, Norfolk, Charleston, Seattle, Savannah, Houston and Tacoma. You can bet that there’s other ports seeking to nudge their way into the top ten – a port can be a robust contributor to a city’s and region’s economy, as well as tapping the city or region into the entirety of world trade.
40% of imports come through the LA/Long Beach Basin ports, because most imports come from that manufacturing behemoth China, and those ports are the ones best equipped and best placed to handle that trade.
Can that change?
Well, that is what everyone is asking themselves, and odds are the percentages are going to change some. The Panama Canal, that wonder of the world, is approaching the limits of the size of container vessels it can handle. As the new “Post-Panamax” sized ships become the industry standard, it was in danger of entering a long-term decline. The new vessels nearly have to be seen to be believed – the current vessels are huge – and they will carry nearly three times the number of shipping containers currently possible, 12,600.
Today when ships bump the unloading piers in California, a fast-paced interaction with the other transportation modes kicks into gear, trucking and rail mainly. BNSF and the UP have a strong presence on the freight rail side, and soon enough all that cargo is making its way across the country to the major distribution cities, Chicago, Atlanta, Kansas City.
The Canal is being widened and deepened – this happens mid-year in 2014 – which will change all that, giving those ships a completely water-borne route to the major population centers (wildly tilted to the east of the country) and distribution centers along the Gulf Coast and the East Coast. Those ports cities are themselves preparing for the new ships, a matter of infrastructure, the development of intermodal facilities port-side or just inland, warehousing, and dredging to accommodate the larger vessels.
Supply chain managers at major shippers like Wal-Mart, Target, Ikea, Home Depot, lay awake at night delighting in finding ways to shave pennies off of shipment costs and thus off of their Total Landed Costs. Interestingly the blue water route all the way won’t be much or even any quicker, but it will allow for one less transfer point in getting these thousands of containers from one means of shipment to the other.
…. I’m no student of the various levels of government through American history, but I would guess that it’s rare and far between that we see all three levels – federal, state, and local – this beat up.
The latest to report in are the cities, and they, already battered by the decline in sales and income taxes, and pulled mightily by the tug and the cost of the social safety net to care for all of the unemployed, now find themselves under pressure from declining property tax income.
This property tax on homes and businesses, well-known and much loathed by any homeowner, is based upon the assessed value of the place. Those assessments are never yearly, and in past recessions, there was ordinarily time for sales and income taxes to start to again climb before properties were reassessed. Even if they were lower in value, along with the associated tax revenue, at least two of the three legs of this three-legged stool were back to their normal bouncy selves.
Not this time however, as the other two legs are themselves still wobbly, and housing….well housing as taken such a tremendous hit, nearly universally across the country, with little anticipation that its going to recover anytime soon….that now all three legs are wobbly.
This has meant layoffs, pay freezes, reductions in force by attrition, cuts in benefits, and of especial interest to this column, cancellation of infrastructure projects.
The new talk over there is that this isn’t just acclimating to a recessionary or post-recession environment, this might be the new normal from here on out.
Making it all that much more important that the Federal government just go ahead and pass that damn transportation bill.
….There was seeming good news on that front last week. I’ll summarize it here.
The transportation bill was waiting for our friends in Congress when they got back from their late summer break. In an unusual surge of common sense, they passed a longer-than-usual extension of the highway bill.
I say bill, but in fact there are
three different versions of the highway bill – none of which have advanced beyond ten and twenty page summaries, at least publicly and at least that I’ve seen – and which diverge from one another on funding and duration and focus.
(There’s also the recent job creation bill proffered by the Administration with significant transit, high speed rail and infrastructure bank provisions, but its future is unclear and it’s at the very early stages of legislation in any event.)
The three are the House version based on the traditional six year duration (furthest along, and, at least till this week, flintiest in funding levels), the Senate version, juicier by $20 billion – over two years – and playing out for a duration of only two years total, and the Administration’s version which was presented back in the proposed budget in February.
Here’s how they played out at the time:
- White House proposal: $92 billion a year , $552 billion total (six years)
- Senate proposal: $55 billion a year, $110 billion total (two years only, if funded for six years = $330 billion)
- House proposal: $38 billion a year, $230 billion total (six years)
If it’s your view that the House version is strongly tinged by the austerity thinking of the Republican party which controls it, the Senate version strongly influenced by the ‘you’ve got to spend money to make money’ world view of the Democratic party which controls it, and that the Administration is charged with getting the ball rolling – proposing in order that Congress may dispose—you would find plenty of evidence for your views in reviewing the bills.
The
House had been basing its reasoning on the fact that this $38 billion a year approximates the actual flow of revenues from the Federal gas tax, which is the official funding source of the highway bill, and if those are the funds available to spend, those are the funds available to spend.. Low-balling is just about what the earliest House version did, and while aligning spending to directed revenues has a certain rhetorical elegance to it, it was not exactly what you’d call a full-throated response to the transportation challenges facing the country today.
The
Senate bill keeps funding at essentially the same rate as now. The Senate version extends spending at the current rate, and funds it from the same gas tax, but proposes that the other $12 billion or so be drawn from other sources, yet to be identified, but necessary to keep the wheels of commerce going around and the safety of citizens ensured.
The
White House version gives full funding to transportation, acknowledging its role as a great economic kickstarter and productivity-enhancer, and includes high speed rail, but neglects or doesn’t particularly mention where the money is going to come from. As I say, it may be that we are to view the Administration’s proposal as a gambit to get the ball rolling, and to let one and all know that they had no intention of low-balling.
There was always the chance that there was more ‘give’ to the House version than anyone was prepared to say in the early days, and the news out of the House this week was very encouraging. Rep. Mica has made public his intention, with the ‘permission’ of the House leadership, to – somehow – come up with $12-15 billion more a year, in order to keep funding at the current pace.
This looks remarkably like what the Senate is doing – finding, in the Senate’s case, another $12 billion –and takes the two totals to roughly the same amount.
Can it hold? Can Mica find the money? If he does, then the new House version looks like this:
- House proposal: $38 billion a year + $15 billion = $53 billion a year = $318 billion total (six years)
At this stage of the game,
we can anticipate, or at least hope, that there will start to be more and more communication between the chairs of these committees in both chambers and their staff members to determine what positive overlaps there are and what concessions each can make to salve the cranked-up passions of their respective colleagues.
To judge from the press releases and press conferences and interviews, I would imagine that Representative Mica, an able and loyal champion of transportation by the way, heard from every single participant who ever took part in transportation, none of them with anything nice to say about that 30% cut in funding.
There are going to be a lot of people with big opinions about this bill, making predictions of a large nature, revving each other up, advancing their ideas and seeking to influence the course of the legislation…that don’t particularly know very much about transportation, but do happen to know a lot about crafting or grabbing headlines. We’ll try to keep you ahead of the noise. – Larry McGurn