Stein economics

January 29, 2008
By: Tim Heston

Recently the managing editor at Money magazine sat down with Ben Steinthe quirky lawyer, economist, comedian, and former Nixon speechwriterand asked if he was worried about a recession. Stein said no.

The editor responded, But aren"t you worried about the headlines, about the credit crunch, about the Saudis bailing out Citibank and Merrill Lynch, about foreclosures?

No, I"m not, Stein said. I"m worried that my son isn"t doing very well in school. I"m worried about the fact that my wife smokes. I"m worried about the fact that I eat too much. And I"m worried about the stock market going down, I think irrationally. I"m worried about the role that traders have in the stock market. I"m worried about unethical behavior on Wall Street. And I"m worried about Al-Qaeda. But I"m not worried about a recession.

That statement gives some perspective, I think, considering the headlines of late. Stocks continue to slide. The latest numbers released Monday by the Commerce Department show that in 2007 the U.S. experienced a 26 percent drop in new-home sales, the most significant drop in decades. Meanwhile the National Association of Realtors reported last week that sales of previously owned homes experienced the most significant drop in 25 years, according to reports. It"s doom and gloom all over.

But then again, in a recent release The Conference Board predicted that the U.S. will experience 1.7 percent productivity growth this year. That"s not very doom and gloom at all. Reading it, I began to feel Ben Stein may have a point.

Judging from the report, the keystone to growth seems to be labor productivity, and for that the U.S., at $52.10 an hour, ranks near the top. I believe that, at least in part, we have lean U.S. manufacturers to thank.

Still, with U.S. consumption slowing, where"s a growing manufacturing firm to turn? Going through The Conference Board report again, another figure caught my eye: 8 percent. That"s the 2007 growth rate among the BRIC (Brazil, Russia, India, and China) countries.

I"m sure that number makes Joe Repovs happy. The president of Toronto-based roll form machinery supplier Samco Machinery Ltd. had been firmly entrenched in the North American market until recently, when he made the jump to India and landed one job in particular that has gotten a fair share of press coverage. According to Canada"s The Globe and Mail, he won a $3 million contract to sell his machines to Tata Motors. Today his machines are now helping to make six components of the Nano"s undercarriage.

For me, the Nano serves as a harbinger. More Indians will become more mobile. The country"s fast-paced economy has put more money in more pockets. Indians, like urban Chinese and those in other BRIC countries, are consuming more. That"s something Repovs recognized early, and today he"s seeing the benefit.

According to Geoff Colvin of Fortune magazine, U.S. consumers may not be such a dominant driver of the world"s economies as they once were. In recent years products have been fabricated, welded, and assembled all over the world. But they certainly weren"t consumed all over the world.

This may be changing, and for U.S. manufacturers, that"s not necessarily a bad thing.

Tim Heston

Tim Heston

Senior Editor
FMA Communications Inc.
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