Are domestic durable goods orders becoming less relevant?

This Friday the Census Bureau will release the March report on durable goods new orders and shipments. Historically new orders for durable goods have been one of the best indicators of the economy’s future path.

Unfortunately, the durable goods survey only measures domestic manufacturing.  Seems quaint, doesn’t it?  But the Census Bureau is insistent on that:

This survey collects statistics on domestic manufacturing activities of companies located in the United States. Activities of foreign affiliates or subsidiaries should be excluded.

But with the increased offshoring of U.S. manufacturing,  we’re seeing signs in some industries that U.S. spending can pick up, without any gains at all.  Take computers, for example. Over the past year, new orders for domestically-produced computers have fallen by 2%. Meanwhile, imports of computers have risen by about 50%.

We’re seeing the same thing in the auto sector. New orders for motor vehicles and parts from domestic manufacturers have risen by about 2% over the past year. But imports have soared by more than 50%.

This is a sign of the continued hollowing out of the American manufacturing sector. Imports soar, while domestic production barely responds. I am going to be watching for a continuation of this trend on Friday.

Comments

  1. “Hollowing out of the American manufacturing sector”? You say that like it’s a bad thing.😉 For every computer that is manufactured abroad, Apple or Microsoft makes a huge profit margin off the software. Wringing your hands about offshoring of low-margin manufacturing, all while the costs of those computers continue to drop ever year as a result, is not to understand the basic benefits of globalization or technical progress, pretty damning for someone who claims to know economics. In a competitive global market, there will always be individual companies that are winners or losers, but we all benefit from the competition.

    • Mike Mandel says:

      Actually, economic theory doesn’t say we all benefit from free trade…it says that the global economy as a whole benefits, sufficiently that the winners can compensate the losers.

    • Please point out to me where what you’re saying differs from what I said,🙂 except for that nonsensical non sequitur about the winners compensating the losers. Even those manufacturing workers who lost their jobs benefit from the resultant lower prices of those same goods. If you want to blame anyone for the resulting social dislocations, blame our horrible “education system” that has no clue how to retrain those workers for more productive pursuits.

  2. Ajay, if the manufacturing worker who loses is job has to take a job paying half as much
    –for example, stocking shelves at WMT– it is going to take much larger price declines than we are seeing to make him better off. Moit is hard to see how you can blame this of the education system.reover, if the manufacturing worker is a 40 year old that finished high school 25 years ago and does not attemp any retraining

    You are saying something quite different than Mandel.

    You are saying that losers are few and are massively offset by the gainers.

    That may be true in some cases, but Mandel is saying that it is possible to have many losers in the US losing much more than the few winners gain. Trade create net benefits, but the bulk of the gainers may be in China, not the US. Trade does always make the US better off.

    You really need to advance your economics beyond the high school level of your argument.

    • Spencer, if we had better retraining, the unemployed manufacturing worker wouldn’t be unskilled labor at WMT: do you really not see such a simple argument? Or do you think a 40-year old cannot be retrained? I think you misunderstand Mike if you think that’s his argument: he has not gone as far as to make the claim that all the winners are in China, though he has certainly hinted that he might be leaning that way. Do you mean to say that trade doesn’t always make the US better off? Hilarious that you think my economics is at the high school level when the vast majority of economists agree with me, while it is the high school-educated who make your argument.😀

  3. I would be interested to know if there is any way to separate the impact of automation on jobs versus outsourcing versus suppressed demand versus demographics demand effects.

    In electronics, the labor per unit grew so small that many doubted whether off shoring would be justified — it happened anyway. It may have been the expensive professional and skilled support that was the real savings target, or perhaps there is some impact on materials costs tied to currency distortions. I think it might be a surprisingly small number of jobs that would result if electronics manufacturing could be brought back. By the way, nobody has ever told me where any domestic computer is still made — must be something embedded in some equipment.

    What drives my interest is the Deloitte “shift index” report, which shows return on assets steadily falling for nearly every U.S. sector since the 1960’s, health care being the unsurprising exception. I cannot believe that business asset justification has ever been done on the basis of projecting declining returns. Rather, it would seem to be an overlooked side effect of downward wage and job pressure and the corresponding shrinkage of discretionary dollars. Health care’s contribution to the shrinkage is notable. Consumer debt and housing appreciation driven demand merely delayed the inevitable.

    What I am seeking is inspiration for an economic structure that can actually work. The emerging emphasis on bringing back manufacturing is never accompanied by any convincing math. It will raise costs. Even just unpegging the Chinese yuan will raise costs. I suspect that if the data could be had it would reveal that there is almost no physical product left to outsource — a few items will remain due to various reasons like transport costs or niche effects — and thus almost nothing left to be done to further lower product costs. That phase is over. There is also nothing I can think of that can increase demand, except inflationary wage increases, or something like a giant influx of climate refugees, but that will not change anything if my suspicion is correct that there is simply not enough work for everyone.

    I can’t get at enough of the math. I think it is possible that we might be surprised how little, if anything, would be achieved if we brought back some lost manufacturing. Finding legitimate uses for idle assets might yield something more positive. So might turning public enthusiasm toward buying more services than goods.

    At some level, I think that the measure of an economy’s success has to change, and the business and personal focus that achieves it perhaps will follow. What we have today makes New Orleans and WTC destruction a plus for the economy — lots of spending and jobs — but it was not a plus. These events made us poorer by destroying assets that still had a useful life, causing dollars to be diverted from every better purpose. Similarly, chain stores in every corner serve only to shift profits from one region or group to another, leaving a trail of abandoned assets and no net gain for the nation or the world. We have a nation to run here, and we seem to have no understanding of how to preserve or build its wealth.

  4. I’ve just read these comments and have some novice observations (not an economist). If jobs are lost so that goods and services are now less expensive (and business makes a larger profit), isn’t there a point where the jobless persons no longer have the money to buy these less expensive goods? Won’t this have a global effect?

    I’ve read someplace that a local community is vibrant if an employee’s pay circulates thru at least 5 hands before leaving the community. The 5 hands are workers with service jobs; police, teachers, firemen, waiters, clerks, construction, accountants, nurses, etc. All these people save money and pay taxes but cannot continue doing so once the employee loses his/her job. There must be a way to show these savings and taxes for these 5 persons because what is lost is more than just the employee’s pay and what the employee saved and paid in taxes and spent for local services.

  5. i THINK THE ARGUMENT THAT THE SAVINGS FOR THE U.S. CONSUMER MAKES UP FOR THE LOST JOBS IS WEAK. MY UNDERSTANDING OF THE VELOCITY OF MONEY, A KEY CONCEPT FOR A GROWING ECONOMY INCLUDES MONEY CIRCULATING THROUGH MORE HANDS AND MORE OFTEN.THERE IS A CONCEPT OF WHO USES ADDED PROFITS AND HOW.IF ULTIMATELY FOR EXAMPLE ADDED PROFITS ARE USED IN WAYS THAT DESTROY NATURAL CAPITAL, THAT WOULD BE A MINUS FOR THE GLOBAL ECONOMY.
    IF THE PROFITS SIT IN CASH ACCOUNTS, THAT SLOWS DOWN NET ECONOMIC MOMENTUM

  6. aRE THE BEARS BACK?

Trackbacks

  1. […] release neglects to point out that this number only includes domestic orders (see my post from earlier this week).  That is, new orders for domestic manufacturing only.  Orders for imported goods are […]

  2. […] release neglects to point out that this number only includes domestic orders (see my post from earlier this week). That is, new orders for domestic manufacturing only. Orders for imported goods are […]

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