It seems to me that following manufacturing news too closely is a bit like taking Nick’s mom up on her decade’s long offer of, “If you need a reason to cry, I’ll give you one.” It’s important to know what’s going on, but it’s also necessary to differentiate between fact and speculation in order to keep a healthy perspective.
In this week’s MakingChips news segment the guys discussed an article by Pat McGibbon, Chief Knowledge Officer at The Association for Manufacturing Technology (AMT), and the title of the article pretty much sums up McGibbon’s take on the current market situation: Slower growth for now, a slide in the summer.
Overall, McGibbon states that manufacturing technology market analysts remain optimistic, and he encourages us all in the manufacturing industry to stay optimistic too. However, as McGibbon’s article was written back in April, he likely had no idea how prophetic his parting words would be:
“The concern here is that exogenous forces (trade issues, confidence in the dollar, etc.) caused by politicians or hair-triggered traders could spike that 20 percent figure further.”
Politicians or hair-triggered traders you say, McGibbon? Well, wouldn’t you know it, the US-China trade war escalated last week when Trump made good on his tweeted threat and hiked taxes on $200 billion of Chinese goods and commodities.
Then, this past Monday, China announced retaliatory taxes on $60 billion in U.S. imports that will take effect June 1. That same day the Dow Jones industrial average tumbled more than 600 points.
And wouldn’t you know it? Here come those exogenous forces, the politicians and hair-triggered traders, like that Philadelphia scene from World War Z.
According to Moody’s chief economist Mark Zandi, the market’s response is partly because multinational corporations with significant exports could see less revenue and profits. The bigger toll, he says, is on business confidence and investment.
“It raises the probability of a full-blown trade war, which will hammer earnings,” Zandi says.
President Trump’s chief economic adviser Larry Kudlow said on Sunday that American consumers would bear some pain from the escalating trade war with China. However, both Kudlow and the president say a protracted trade war will ultimately work in our financial interest if it forces China to treat American companies more fairly.
Kudlow said, “We have had unfair trading practices all these years and so in my judgment, the economic consequences are so small that the possible improvement in trade and exports and open markets for the United States, this is worthwhile doing.”
According to Andrew Berger, senior vice president of government affairs for the Indiana Manufacturers Association, the new wave of tariffs won't have an immediate impact, however they have generated a lot of uncertainty for manufacturers. Without knowing exactly how the tariffs will be enforced, companies have a difficult time anticipating future costs, he said.
"Companies look for predictability as much as they can get it and this is not a predictable area right now, and that hurts the economy," Berger said.
In a series of tweets early Tuesday, President Trump did damage control, assuring the public, “China wants a deal!”. Wall Street responded positively to the president's comments, with the Dow spiking to 330 points — a reversal of Monday's stock market plunge.
So this whole roller coaster ride brings us back to the original challenge of differentiating between fact and speculation. With politics and markets so volatile, it’s easy to let anxiety creep in, but there’s no hard evidence anything will change dramatically. As McGibbon pointed out, “The top 10 indicators for our industry still look healthy. Most suggest continued growth or no weakness, while a handful provide cause for caution.”
Rather than fearing the worst, it’s probably wiser to just heed McGibbon’s advice and stay optimistic. Or, to paraphrase Max Brooks, author of World War Z: An Oral History of the Zombie War, wouldn’t you rather “face the light of a real enemy than the darkness of your imagined fears?”
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