The recession isn’t over yet

Here in San Francisco, the signs of the recession are all around us. Attending the SEMI show, the world’s premier venue for the semiconductor industry, the halls are quiet and the outlook gloomy. Semiconductors are the leading indicator for the electronics industry, which is just about anything these days, and this does not bode well for the overall economy.

Walking the streets and visiting restaurants, as one does on these trips, there is a curious lifelesness. Restaurants and small businesses are closed with “for lease” signs, and the activity on the streets seems subdued. The restaurants we have visited seem to be only partially full, and when asked, owners and waiters say business is off considerably.

In California’s Central Valley, farmers have erected “Congress’s Dustbowl” signs to protest the lack of water caused by the damming of the Sacramento River waters to the Valley because of the Federal injunction protecting the Snail Darter, a fish which may or may not be endangered. You can see the dead groves of almonds and fallow fields as you drive up I-5 from Los Angeles. It’s much worse in the foothills of the Sierra, where irrigation makes all the difference.

July is the time when business starts picking up again. The car companies are building new models and orders for tools and materials pick up. Business ramps up until October, when it begins to tail off until the end of the year. This year is different, though. July has been quiet. Volumes are not picking up. There is no buzz in the manufacturing sector.

The deficit numbers look good for the moment, but the reality is that oil imports are way down and while exports of grain and raw materials are up, manufactured goods exports are stagnant. The airlines are hurting, and a couple may not last till the end of the year. This will then hurt Boeing, especially, America’s prime technology exporter. Delays on the 787 are not helping them either. By the way, this export profile more closely resembles America’s role in the mid 19th Century, when our manufacturing industries were immature and natural resources and agriculture were our primary exports.

Management, especially in the manufacturing sector, are like deer in the headlights. Frozen, unsure of what to do next. Conserving cash is the operative mode. This further stalls the economy. Reinvestment in plant & equipment is critical to a modern economy and provides its own spur to productivity.

While Wall Street has been positive recently, the underlying signs are not good. The next big surge in real estate foreclosures will be in the higher end homes in the $600,000 – $1,500,000 range. This is the heart of the economy in some ways. These are the people who had the disposable income. Now, with higher taxes and falling incomes, they are being hit just as the middle class was hit last year.

The Cap & Trade bill will certainly be a brake on the economy. Some say it will cost every household up to $2,000/year. Now, Congress wants to raise taxes to pay for their poorly thought out health care bill.  Has anyone actually read it yet? The president is trying his best to ram this through as fast as he can while he has a majority, but once again, no one is seeing the details. The burden from this bill will even further weigh on the economy as the best medical care system in the world deteriorates. That is a stone cold guarantee, by the way. Fewer and fewer breakthroughs, because managed care will be the order of the day. Look how well the government runs Medicare (bankrupt in 2017) now and you’ll get a peek at health care in the future.

So where are the bright spots? The stimulus money has not even hit in most sectors, and much of what has been spent has gone to the states with the most out of control spending. The only sector growing is the public sector, which does absolutely nothing to spur the economy. The TARP funds disappeared into the accounts of the banks to make their balance sheets look better. Little of this money is being loaned out. If one looks at the facts objectively, so far, over a trillion dollars has been paid out to those who have acted most irresponsibly in our society; reckless banks, reckless states, and reckless borrowers. And the rest of us are still being asked to knuckle down and pay more. The government is about to create a “right to health care” out of thin air which we cannot afford even under the best of circumstances. So where does the money come from? How is this even Constitutional?

The sycophants in the press tell us that the recession is ending. Not from where I sit, and somehow, being in manufacturing and out on the road in the real world, I have the feeling that perhaps the people in the bubble might want to look around and see what is really going on. Whether it’s San Francisco or Michigan, where unemployment is hitting 20%, or Florida, this country is still hurting badly and needs to begin the recovery.

We can turn this thing around. But we have to have the common sense and willpower to work hard and make sacrifices and act for the long term. This is still the greatest country on earth, and we have the resources and talents to learn quickly from from our mistakes and capitalize on that knowledge.