Manufacturing Capacity (Except Semiconductors) Fell too Far to Recover?

by francine Hardaway on February 3, 2010

From today's Wall Street Journal: (HT: GoozNews)

America's industrial base is undergoing its most radical restructuring in decades as manufacturers rethink their businesses in the wake of the recession.

From Dow Chemical Co. to Intel Corp., iconic companies are telling stories of wrenching change—both contraction and recovery—as they report their earnings for 2009.

During 2009, the nation's capacity to produce motor vehicles and chemicals fell 4.4% and 1.7%, respectively, the largest such declines since at least 1949, according to Federal Reserve estimates. Its capacity to produce semiconductors, by contrast, grew an estimated 10.4%. Overall, U.S. industrial capacity fell by an estimated 1% in 2009, the largest year-to-year decline on record, while goods-producing businesses shed more than 2.3 million jobs.

As a result, economists expect unemployment to remain high for many years as millions of American workers in the hardest-hit sectors struggle to find new jobs. And while some economists see the restructuring as necessary to make U.S. industry leaner and more profitable, others worry that the sheer scope of the cutbacks could doom companies that ought to survive.

"The earthquake that we felt was so big, and the aftershocks so strong, that we could easily destroy perfectly good manufacturers that are crucial in the supply chain," such as auto-parts makers that supply the entire industry, said Diane Swonk, chief economist at Mesirow Financial in Chicago. "That's the great danger, and it's still a risk."

To me, this is the best evidence that no jobs program, no continuation of unemployment benefits, nothing that pre-supposes a return to what once was, will help. We have to pretend that we are Haiti: clear away the rubble and build anew.


Posted via email from Not Really Stealthmode

{ 2 comments… read them below or add one }

Greg Head February 3, 2010 at 7:51 pm

There is no question that we have had a serious overcapacity in the domestic auto industry for some time. Ford and other US-based will grow revenues globally, but the US auto market won't recover to it's bubble years perhaps forever. We also currently have an overcapacity of residential, commercial and retail real estate. I don't think we should spend more money we don't have to protect the ecosystems for these industries (or our postal employment service, for that matter). These suppliers will come back when there is money to be made again.

We have to get real about our “over-credit” culture in the US, including our government credit. If we all spent what we could really afford, how much smaller would our economy be?

Should we be thanking Fanny Mae, the Federal Government and Big Banks for our credit spree? If the answer is no, then we better deal with the realities. The realities of the next 20 years will be much harder than the realities of the last 20 years. We asked for it, so let's got on with it.

hardaway February 3, 2010 at 7:56 pm

I couldn't agree more, but the dislocations are really hurting people who
got caught in the economic crossfire

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