Mish's Global Economic Trend Analysis

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Apple to Relaunch Manufacturing in US, Net Result +200 Jobs; Lights Out Posted: 11 Dec 2012 02:19 PM PST In bits and pieces, manufacturing is returning to the US. Unfortunately, jobs (at least human jobs) are not returning as well. For a case in point, the Fiscal Times reports Apple's Big Manufacturing Boom to the U.S. — 200 Jobs. At the end of last week, CEO Timothy Cook announced that Apple intends to invest $100 million next year to relaunch part of its manufacturing operations in the US. Apple and Foxconn, the contractor responsible for manufacturing iPhones, iPads and a host of other Apple products in China and other countries, is expanding its existing operations in America to build Mac computers. How many jobs will it create? About 200—a number that wouldn't even get you noticed in the Fortune 1000. Last year the Boston Consulting Group published a study forecasting a "manufacturing renaissance" in the U.S. as China's wage rates and currency rise, skilled workers grow scarcer, and U.S. productivity maintains a strong lead over China's. Apple thus joins a group of U.S. companies—Caterpillar, Ford, NCR—that have already reckoned that "Made in USA" makes good business sense. Something important is happening here. With the rapid emergence of China, India, and other developing countries as "middle income nations," the classic cheap-labor-for-exports model is losing its primacy. So, it appears, is the automatic assumption that wage rates more or less dictate where a manufacturer will locate. As Boston Consulting argued, in the future companies such as Apple will manufacture in China for the Chinese market and in America for American consumers. It will be interesting, with these studies in view, to see how manufacturing fares in the U.S. in coming years. We still have 2 million fewer manufacturing jobs than we did pre-crisis back in 2007. And do not forget: Apple is all about iPads and iPhones now; the Macs coming back account for less than a fifth of its revenue. It still promises some jobs. But what is good for Apple may not prove good for everybody making things. This is not the beginning of a gold rush. Forces in Play Rise in labor costs abroad Theft of intellectual property Productivity Automation Shipping costs Diminishing tax advantages of overseas production Each point above provides incremental reason to repatriate manufacturing. Whether jobs return as well is another matter. Lights Out Labor costs are on the rise in China on a relative, if not absolute basis vs. the US. Concerns. Theft of intellectual property by China remains a serious concern. The higher the price of oil, the higher the shipping costs. Corporate tax advantages of overseas production will likely be negotiated away in Congress. However, the standout reason for the return of manufacturing to the US is automation. What used to take 20 workers may now only take 4 and in a few years 1. The actual numbers are irrelevant, the enormous trend towards lights-out manufacturing and robotics is not. The more robots are in use, the more labor costs are irrelevant, and the more manufacturing will return. It's that simple. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Union "Victory": Chrysler Reinstates 13 Workers Fired for Drinking on the Job Posted: 11 Dec 2012 09:01 AM PST The following story proves what common sense has long ago suggested, that unions have outlived any possible usefulness and they are also hugely counterproductive to the goal of getting any work done. Please consider the Detroit News article Chrysler reinstates 13 workers fired for drinking on job. Chrysler Group LLC says it was forced to reinstate 13 workers who were fired from its Jefferson North Assembly Plant two years ago after being filmed by a local television station drinking and smoking what the network suggested was a controlled substance before and during work. "The workers followed the grievance procedure process outlined in the collective bargaining agreement between Chrysler and the United Auto Workers. The company denied all of the grievances, leading us to arbitrate the matter," wrote Scott Garberding, vice president of manufacturing at Chrysler, on a company blog Monday. "After more than two years, an arbitrator decided in the workers' favor, citing insufficient conclusive evidence to uphold the dismissals. This was a decision that Chrysler Group does not agree with." Questioning "Conclusive Evidence" Since when does a film of workers drinking and smoking pot on the job not constitute "conclusive evidence"? I have the answer. Collective bargaining rules dictate arbitration, typically in a manner highly favorable to the union. Keep in mind that the mission of the union is to protect the drunks, the drug addicts, the sluggards, and the rule violators from dismissal. Why? That's easy. Because the more inept workers the union can keep employed, the more union workers will be required to do the job. The more union workers there are, the more union dues are collected. It's really that simple. The corollary is union pay scales reflect longevity, not production. If one-year employee Johnny B Goode can produce 10 times as much output as Johnny No-Longer-Gives-a-Damn, it's simply too bad for Johnny B Goode. What matters most to the union is keeping Johnny No-Longer-Gives-a-Damn employed. If anything, union pressure will be applied on Johnny B Goode to not produce as much, so management will not expect as much from everyone else. This absurd Chrysler ruling is part of a continual pattern that shows without a doubt, collective bargaining needs to go. Musical Tribute Let's go "back to the future" for a musical tribute. Link if video does not play: Marty McFly with the Starlighters "Johnny B. Goode" Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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