America Is Still Making It

“Faith in the free enterprise system may be headed to an all-time low in America, and people, all kinds of people, have been seriously questioning what we call capitalism.”

That’s what almost everybody seems to be saying about business today in the U.S.A., thanks to the accounting scandals on Wall Street. But there’s another side to the story. Consider this. Manufacturing has been on the upswing for six months now and the recovery is continuing. How’s that?

“The manufacturing economy is cementing itself,” noted Ian Morris, chief economist of HSBC Securities USA Inc. (formerly Hong Kong Savings), in New York. He told MHM, “We should have six consecutive months of growth from the manufacturing sector and proof of a real recovery soon while the Conference Board noted that confidence is up.” Morris also noted that price increases at the producer level do not seem to be passing through the system, which is not good news for producers, but does mean that price inflation is not on the horizon.

Morris and many others have repeatedly pointed to the fact that inflation remains dormant, productivity gains in industry continue to be phenomenal and the labor market is looser than it’s been in a decade. Meanwhile, the consumer is continuing to buy.

Consider this for further proof of the reality of the recovery. According to the Manufacturers Alliance/MAPI, manufacturing activity in the country is at its highest since June of 2000, which, as we all recall, was a time of gloriously irrational exuberance. The trade group reports its manufacturing index rose to 63 percent compared to 64 percent in the June 2000 period.

That index reached its all-time low in March 2001. An index above 50 percent means “overall manufacturing activity is expected to increase over the next three months.” The index takes capital spending into account, and these latest numbers offer “solid evidence for growth in manufacturing.”

Other industry groups note the same continuing increases in production throughout the country. So why is the stock market so depressed? Why is there so little general optimism about the economy? Where did all this irrational pessimism come from?

Well, for one thing, not all equities directly reflect manufacturing. For another, there’s a lot of concern and uncertainty in the Untied States about some new problems, which we are only beginning to tackle. Terrorism was always a newspaper issue until 9/11. For another, we’re in a quasi-military situation after that tragedy and may be so for some time. However, there’s another reason for all this gloom and doom about economics, and no amount of upbeat statistics will help. The debacle on Wall Street has taken trillions of our dollars and flushed them away in a series of frauds. Simply put, we’ve all been scammed and scammed big.

Yet, consider a little history as well as a little economics. Swindles and book cooking have been around as long as civilization. Lying and cheating are as old as language itself. More importantly, no government and no religion has ever successfully banished bad behavior; often their officials behave badly themselves. So, here’s another example of how folks can fake it big time. It shocks us. It makes us mad and it makes us want to, as one U.S. senator put it, “Bring back summary executions!” The cheaters will pay and, in many cases, probably go to jail. They certainly won’t be able to walk around Wall Street in broad daylight for a long time. It may be a while, however, before trust is restored to the stock market.

Yes, there’s a lot of bad news out there, but there’s some terrifically positive news as well. This is still a $10 trillion economy! We’re still the industrial leader of the world and the numbers about our manufacturing base over the past half-year prove it so.

The recovery is real. The losses are real. We’ll pay for those and, hopefully, so will the perpetrators. Yes, Adam Smith was right about economics. Unfortunately, even the great Sage of Free Enterprise couldn’t come up with a way to keep all invisible hands ethical.

The recession in manufacturing has been over for six months at least. That’s something to celebrate while we continue to adjust to our new problems — and solve them as well. This is still the Can-Do Country, and the fact that we’re outraged by the unethical behavior of a few is further proof of the fact that America remains the world’s best investment.

George Weimer, contributing editor, weimerg@fleishman.com