Friday, August 20, 2010

Is China still the place to be in?

A report by Credit Suisse said the vast majority of U.S. and European companies in China are expecting a "margin hit" over the next 12 months and fear they will not be able to pass on the costs to consumers, with the biggest worries in electronics, clothing and retail. Why?

Rising wage and production costs in China are eating into the profits of Western companies and may soon set off an exodus of multinational companies to cheaper locations.

In May General Electric, said it had plans to shift production of its hybrid water heater from China back to Kentucky next year after securing lower wages from U.S. workers. The company cited the narrowing pay gap, lower transport costs and shorter delivery times.
Pay in the industrial hubs of the Pearl River and Yangtze River deltas are much higher and likely to rise further after a wave of industrial disputes at Foxconn, Honda, Toyota and Omron.

Does/ it mean that manufacturing will return to North America? Maybe

Credit Suisse's survey of executives found that 55% of foreign firms in China could relocate plants to Bangladesh, Vietnam, Indonesia or other low-cost regions relatively easily, though it would be costly.

I guess only time will tell. If we can last long enough.

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Tuesday, August 3, 2010

The State of the US Economy

The Bloomberg report:

The Institute for Supply Management-Chicago Inc.'s business barometer rose to 62.3 this month, exceeding the forecast of economists surveyed which anticipated the measure would drop to 56. The June reading was 59.1 and figures greater than 50 signal expansion.

The worst US recession since the 1930s was even deeper than previously estimated, reflecting bigger slumps in consumer spending and housing, according to the Commerce Department's annual revisions also issued today.

The world's largest economy shrank 4.1 percent from the fourth quarter of 2007 to the second quarter of 2009, compared with the 3.7 percent drop previously. Household spending fell 1.2 percent in 2009, twice as much as previously projected and the biggest decline since 1942.

Consumer Slowdown

Consumer spending, which accounts for about 70 percent of the economy, rose at a 1.6 percent last quarter, compared with a 1.9 percent the previous three months that was smaller than previously estimated. Job gains have been slow to take hold, curbing household purchases.

The economy lost 8.4 million jobs during the recession that began in December 2007, the biggest employment slump in the post-World War II era. So far this year, company payrolls grew by 593,000 workers, according to Labor Department figures earlier this month.

Americans are torn about whether the federal government should focus on curbing spending or creating jobs, the poll conducted July 9-12 shows. Seven of 10 Americans say reducing unemployment is the priority. With more than half saying the deficit is "dangerously out of control."

The US government owes more than it can pay. When a debt cannot be paid by the borrower, someone else must pay. Typically, it's the lender who pays when the borrower defaults. But the US government doesn't have to default. It has another alternative, the aforementioned quantitative easing - monetary inflation, in other words. Instead of defaulting on its debts directly, the federal government can inflate them away.

Do you think Canada is immune? We too are struggling to survive. Our biggest trading partner is sick and we don't have the medicine to help.