Friday, January 2, 2009

Manufacturing Collapse - How to Fix It

Notice a key fact presented at the end of the article: manufacturers are failing because they cannot sustain their debt level. As I have been pointing out, a deflation in a high debt environment is pure death. The solution remains the same: cancel the debt. The debt will be liquidated eventually anyway, but only after complete business melt-down, as we are seeing. Cancel the debt now and we can save our economy.

NEW YORK – Signs grew that the economy could turn even weaker in 2009, as an index of December manufacturing activity sank to its lowest point in 28 years. Only three recessions in the history of the index have showed weaker manufacturing readings, said John Ryding, of RDQ Economics. Those recessions were in 1948 to 1949, 1973 to 1975 and 1980. December's reading is the lowest since June 1980, when the economy was near the end of a six-month recession. Components of the index hit historic lows. New orders fell to their lowest level on records going back to 1948. Prices fell as the number of respondents saying they had paid more in December than in November sank to its lowest monthly reading since 1949. As the economy sputters through a recession that began in December 2007, no industry is proving resistant. Every corner of the sector was down, from bakeries to cigarette-makers to aluminum smelters. No sector reported overall growth in December. Also, none reported growth in new orders, production, employment or prices, as businesses from tobacco to coal products to foodmakers saw declines.

The Institute for Supply Management, a trade group of purchasing executives, said Friday its manufacturing index (a reading below 50 for the overall index indicates contraction) fell to 32.4 in December, a greater-than-expected decline from November's reading of 36.2. Wall Street economists surveyed by Thomson Reuters had expected the reading to fall to 35.5. The index, based on a survey of the institute's members, has fallen steadily for the last five months as the economy deteriorated. The U.S. weakness is part of a worldwide slowdown. China's manufacturing sector, which accounts for 43 percent of the economy, contracted for a fifth straight month in December. Singapore said its economy shrank in the fourth quarter, and South Korea said its exports fell 17.4 percent in December.

The purchasing managers' employment index showed its lowest reading since 1982 as manufacturers across industries continue to cut jobs. With the overall unemployment rate at 6.7 percent in November, the highest in 15 years, manufacturing continues to be one of the hardest hit sectors. The sector lost 85,000 jobs between October and November, according to the most recent data from the Bureau of Labor Statistics. More losses are expected in coming months as demand continues to be weak.

Declining prices, coming after the summer's soaring market for commodities, have sent manufacturers — especially in chemicals and metals — reeling. Century Aluminum last month cut production at a West Virginia plant and said that it might have to cease production at the plant entirely unless it cuts costs and prices stabilize. LyondellBasell Industries, the third-largest independent chemical company in the world, said Wednesday that while several lenders had allowed it to postpone $160 million in loan payments, a Chapter 11 bankruptcy filing might still be an option.The summer's commodity bubble was devastating for many food processors. Pilgrim's Pride Corp., the nation's largest chicken producer, filed for Chapter 11 bankruptcy protection on Dec. 1.

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