PLP Advisors, LLC

U.S. and China's Manufacturing Contracts at Lowest Level Since 2008

Financial advisor takes a look at markers in the economy.

 

Grand Rapids, MI -- (ReleaseWire) -- 06/20/2013 -- Have trouble keeping up with what is going on in the U.S. economy?

Dennis Tubbergen, a financial advisor, author, radio show host and CEO of PLP Advisors, LLC can help out. Whether people enjoy his monthly newsletter at www.moving-markets.com or his blog at http://www.dennistubbergen.com, Tubbergen is dedicated to sharing his viewpoints and opinions. On June 11, 2013 his blog was titled U.S and China Manufacturing Contracts.

"An article published by The Telegraph reported that manufacturing in both China and the U.S. contracted and manufacturing is at the lowest level since the 2008 and 2009 crisis," began Tubbergen.

Below he quotes from the June 3, 2013 article (italicized).

The closely-watched ISM index of US factories tumbled through the “boom-bust line” of 50 to 49, far below expectations. It is the lowest since the depths of the crisis in mid-2009 and a clear sign that US budget cuts are starting to squeeze the economy. New orders plunged 3.5 to 48.8 on weak foreign demand and reduced federal contracts.

"GDP, or Gross Domestic Product is a simple mathematical formula. Consumption + Investment + Government Spending + or – net exports," explains Tubbergen. "When government spending declines so does GDP and the economy contracts."

Tubbergen went on to say that according to the U.S. Treasury, total outlays for the first four months of calendar year 2012 were $1,225,878,000 versus $1,182,077,000 for the first four months of 2013. While actual outlays are down, they declined by only 3.6%. When comparing government spending from October, the beginning of the fiscal year, through April government spending declined only .58%.2

"While this slight pullback in spending of less than $44 million may be a slight factor; in the context of a $15.7 trillion economy it’s a gnat on an elephant’s back and not a significant contributing factor to the sudden decline in manufacturing," Tubbergen states.

The news came hours after HSBC said its index for China also fell below 50, a major inflexion point for the world’s industrial workshop.

“This is not a good moment for the world economy,” said David Bloom, currency chief at HSBC. “The manufacturing indices came in weaker than expected in China, Korea, India and Russia, and then we got America’s ISM.

“We thought we had a clear picture that the US was recovering, Japan was printing money and were we’re back to happy days, and now suddenly a huge spanner has been thrown in the works.”

"It is amazing to me that someone thinks we’ve returned to 'happy days' when countries are printing money to prop up their anemic economies," warns Tubbergen. "Debt levels worldwide exist whether money is printed or money is not printed. Debt still has to be dealt with and excessive debt levels are deflationary and cause economic contraction."

The OECD says the US is tightening fiscal policy by 3.2pc of GDP this year, the biggest squeeze in half a century. Consumers spent their way through the initial shock in the first quarter by slashing the national savings rate to 2.5pc.

“People have been living in a psychological bubble,” said Charles Dumas from Lombard Street Research. “They ignored the cuts but now they are starting to feel it.”

"Feeling the effects of less than $44 million in cuts?” asks Tubbergen. "Pah-leeze."

The ISM quoted a string of gloomy comments from different sectors, such as “government spending has tightened” (computers), “over the past 20 days we have seen the trend flatten” (furniture), or “downturn in European and Chinese markets is having a negative effect on our business” (machinery).

Wall Street reacted calmly to the ISM shock, betting that the US Federal Reserve will delay plans to taper its monthly bond purchases of $85bn (£55.5bn). Stephen Lewis from Monument Securities said this may be a misjudgment. The latest minutes of the Federal Advisor Council, which advises the Fed on markets, are packed with warnings over the side-effects of quantitative easing.

The council said it is “not clear” that QE is boosting the economy, and warned that zero rates are pushing pension funds underwater on their liabilities, and may be causing firms to defer investment on the grounds that rates will remain low.

"QE, or money printing, cannot boost the economy," concludes Tubbergen. "QE is the economic equivalent of crack; it produces short term effects and then once it wears off, you’re in worse shape than when you started."

To read the blog in its entirety go to http://www.dennistubbergen.com and select his June 11, 2013 entry.

Tubbergen’s syndicated radio show can be heard on metro Michigan stations WTKG 1230 AM and WOOD Newsradio1300 AM and 106.9 FM.

About Dennis Tubbergen
Dennis Tubbergen has been in the financial industry for over 25 years and has his corporate offices in Grand Rapids, Michigan. Tubbergen is CEO of PLP Advisors, LLC and has an online blog that can be read at http://www.dennistubbergen.com. To view Tubbergen’s latest Moving Markets? newsletter, go to http://www.moving-markets.com.

The opinions expressed herein are those of the writer and not necessarily those of USA Wealth Management, LLC. This update may contain forward-looking statements, including, but not limited to, statements as to future events that involve various risks and uncertainties. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual events or results to differ materially from those that were forecasted. Therefore, no forecast should be construed as a guarantee. Prior to making any investment decision, individuals should consult a professional to determine the risks, costs, benefits and fees associated with a particular investment. Information obtained from third party resources is believed to be reliable but the accuracy cannot be guaranteed.