As the U.S. economy continues its sub-par recovery, there are more hits to the manufacturing sector, which has bled jobs for years. In the 1940s, 40% of all jobs were in manufacturing. Today, it is less than 10%, and dwindling even faster. Last week, Carrier Corporation, a unit of United Technologies (UTX) announced that 2,100 factory jobs in Indianapolis would move to Mexico over the next few years. It was a huge blow for workers and their families, and it was caught on video.
The news even made the GOP debate last Saturday; a topic that will resonate this November.
Carrier points the finger at the factory workers union, United Steelworkers Local 1999, which didn’t offer enough concessions.
Dollars & Sense & Patriotism
Although our manufacturing sector has been decimated, it’s still a very important part of the economy. In fact, in the third quarter of last year, only Information and Business Services added more value as a percentage of the Gross Domestic Product (GDP).
It’s about the bottom line, however. Workers at the Carrier factory are broken into two categories:
$14/hour or $30,000 year
$26/hour or $50,000 year
Can you guess who is losing their jobs?
Sucking Sound
Americans should be upset about jobs leaving the nation, but how do we remedy this in a way that doesn’t backfire on trade or consumers?
Well, for one thing, the North American Free Trade Agreement (NAFTA) wasn’t a good deal; more recently, allowing Mexican drivers to pull long hauls in America is only going to make the deal even worse.
Then, there are regulations.
In a piece from Indiana government (IN. gov), it points out that economists John Dawson and John Seater estimate that accumulated federal regulations have stunted the Gross National Product (GNP) by nearly $40 trillion in 2011 alone.
The national GDP for 2011 was just shy of $15 trillion. This means the national GNP would have been closer to $55 trillion.
The math is shocking. These regulations divide into an annual loss of about $277,100 per household and $129,300 per person. In the meantime, there’s been an intriguing phenomenon of Mexican immigrants leaving the United States (see chart), which underscores just how weak our recovery has been. I know these are big political issues and I worry about the remedy for them. There are smart tariffs, but not individual wars on individual companies. However, before we begin to blame Mexico, we need to make American more hospitable to businesses, although I do not think unions are going to make sacrifices commensurate with economic conditions. Let’s at least roll back the taxes, fees, and regulations.
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Technical View
Last week, the Dow and oil held at perfect double bottoms (on closing basis), but the real test comes at 16.500, which is a long ways off. Most of the Street is looking for that key support number to fail soon, which actually makes me think that maybe it won’t or there could be a big rally before. There’s a major gap above 17,500, but it’s a pipe dream to think it could be filled this week.
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