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Headlines predict economic growth

However, other headlines add ambiguities to the prediction



A recent report from the Manufacturers Alliance for Productivity and Innovation (MAPI) Foundation said it expects most U.S. manufacturing sectors to see growth this year. MAPI said the latest quarterly U.S. Industrial Outlook report, prepared by its research arm, offered annual projections for 23 of the 27 segments tracked by the group. It said 19 of the business segments should increase this year, primarily in construction, construction machinery, automotive and related industries. The report also said the present strength of the dollar is serving as a handicap to manufacturing growth.

This is good news – increased construction activity results in higher needs for signage.

Why, then, is HP laying off workers? and other news agencies, on September 16, reported Hewlett-Packard as saying it will cut another 25,000-30,000 jobs, or 10% of its worldwide workforce, as it plans to split the company in two. This announcement follows an earlier cut of 55,000 jobs (the company currently has more than 300,000 employees). HP said the cuts, which affect the Hewlett Packard Enterprise (HPE) division (that is splitting from the printer and PC business), will save $2.7billion in annual costs.

The company said the overall plan involves the changing nature of the (not its) workforce. The HP press release did not define the workforce or its changing nature.

And, why is UP laying off workers?


Almost simultaneously, Union Pacific railroad announced it had temporarily furloughed 2,300 train, equipment and freight workers, which followed a July furloughing of 1,200 workers. The layoffs are part of a company effort to adjust its cost structure to “lower demand levels,” a railroad spokesperson said, adding that shipping volumes were down 4% for the year. The declines are in the chemical, agricultural goods and industrial-goods segments.

This year, Union Pacific has suffered a 7% profit decline, compared to last year, the company said.

Lessening rail shipments indicates less movement of commodities and goods, right?

And, what about those New York State orders?

By subject, the Union Pacific announcement somewhat ties to a September 14 AP report on manufacturing declines in New York State, which, the news agency said, has fallen for two consecutive months, because of a drop in new orders and shipments. The report said this decline is further evidence that U.S. manufacturers are contending with the fallout from lower energy prices and a strong dollar, which causes U.S. exports to be more expensive overseas.

Lower energy prices affect manufacturing costs…?


A strong dollar — good or bad news?

Most interesting is that although a strong dollar (it has been up since July, 2014) may affect U.S. manufacturing, it’s an income asset to any American person, family or company that buys foreign-made products, because a stronger dollar effectively lowers the price of goods imported from weaker currency nations.

Further, the strong dollar only affects out-of-country sales for U.S. firms, so it isn’t causing a full-fledged catastrophe. And, in truth, most large corporations have hedge plans that protect it from currency fluctuations.

For example, in his paper, “Hedging versus not hedging: strategies for managing Foreign-exchange transaction exposure,” senior lecturer Scott McCarthy (Queensland University of Technology, Brisbane, Queensland, Australia) said foreign-exchange transaction exposure exists only when firms allow their financial dealings to be settled in a foreign currency, which must then be converted into the home-country currency.
To avoid currency disparity and transfer costs, McCarthy said most firms require payment in their own home currency, which eliminates the exposure to the currency differences (it’s passed onto the buyer). This type action, however, raises the price to the buyer and can affect sales, especially if the product is available from another source.

Essentially, the stronger dollar affects America’s competitiveness in a real-world market. To get around this, many corporation create internal and external hedges. The internal ones comprise the use of foreign currency accounts or leading or lagging payments. External hedges include such derivatives as futures, options and swaps. Forward contracts, the most popular get-around system, uses trading systems that countenance exact specifications on dates, amounts and explicit cost, McCarthy said.

He’s saying the strong dollar dilemma is easily correctable.


The real question, if there is one, is?

The above summaries create interesting questions regarding the New York State manufacturing decline and the HP and UP layoffs, and (possible) strong-dollar problems for U.S. corporations, and energy costs; and, too vast to be discussed here, the China stock market fluctuations and Federal Reserve’s possible raising of interest rates (more monies for loaning agencies and less for borrowers).

All this supplemental information relates to the above quote from the MAPI Foundation that said it expects most manufacturing sectors to see growth in the U.S. this year.

It apparently hadn’t read about the New York State manufacturers.

To this, add the interesting, but uncredited claim that lower U.S. energy prices have affected manufacturing and overseas sales, and the valid question of whether any reduced rail shipping, layoffs or lessening of manufacturing are truly tied to energy costs, changing natures and currency values – or if, perhaps, other mechanisms are presently affecting now imperceptible, but soon to be obvious proceedings.

Remember the butterfly-effect, i.e., small winds that evolve into a storm?



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