0 Airbus to Assemble Jets in Mobile, Alabama; Start of a Global Labor War?

Airbus is hoping to take US market share from rival Boeing by assembling jets in Mobile, Alabama. Airbus is a French-based company, jointly run by French and German management.

Senator Rick Shelby (Alabama) is supportive of the move. Boeing, as one might have expected, issued complaints of European subsidies, as if US defense contracts don't in essence amount to the same thing. Both sides have complained to the WTO.

Here are a few articles to consider.

Airbus Fires Shot in Labor War

The Wall Street Journal reports Airbus Fires Shot in Labor War

Airbus announced plans to start assembling passenger jets in the U.S. starting in 2015, a move likely to affect labor and trade relations on both sides of the Atlantic.

Airbus outlined the plan Monday at an event in Mobile attended by U.S. suppliers, airlines and politicians, carefully stage-managed amid potential negative reaction on both sides of the Atlantic. EADS shares rose 2% Monday in Paris.

The company said it would create 1,000 jobs at its Brookley Aeroplex in Mobile, doubling the company's U.S. workforce. One assembly-plant job typically supports up to four at suppliers, Airbus said. Parts for the aircraft will be shipped to Mobile from Hamburg, the site of an existing single-aisle Airbus assembly plant.

"We go where the talent is," Airbus Chief Executive Fabrice Bregier said in Mobile ahead of a parade of local politicians welcoming the $600 million investment. He didn't respond directly when asked whether the move would shift employment to the U.S. from Europe. The company's European unions have voiced concern about production moving overseas, according to French media reports.

He said labor flexibility afforded by a union-free facility in right-to-work Alabama helped drive the plan. So, too, did the opportunity to change the balance of dollar-generated revenue with costs that are generated mainly in euros.

About 40% of the average cost of producing Airbus planes is with U.S. suppliers. A senior executive said labor accounts for only 5% of an aircraft's costs.

"We're going to do everything [we can] to create the environment," Sen. Richard Shelby (R., Ala.) said at the Monday event.

Battle for Market Share

Just what are assembly costs in Germany if it makes economic sense to ship parts from Hamburg to Mobile, Alabama for assembly?

Clearly something more is at stake here, and that something is a hope by Airbus to capture more US market share.

But will it? Regardless, expect more battles in the WTO and more battles from unions in Washington state, Boeing's headquarters. Washington in not a right-to-work state and is dominated by unions.

Airbus to Open Factory on Rival Boeing's U.S. Turf

Reuters reports Airbus to Open Factory on Rival Boeing's U.S. Turf

Flanked by local Gulf Coast politicians, top executives from European planemaker Airbus unveiled their plans to build their first U.S. factory -- a move they said that would help them take market share from rival Boeing Co.

The unit of EADS believes that opening a plant in Mobile, Alabama, which will assemble its narrow-body A320 aircraft, will help it take "more than a few percentage points" of market share from its prime rival in the world's busiest aviation market, according to Airbus sales chief John Leahy.

Due to open in 2016 and expected to create some 1,000 jobs, the company said it will be only the second Airbus plant outside Europe that builds its top-selling workhorse jet; the other one is in China.

Airbus currently has a 20 percent market share in the narrow body jet segment in the United States, compared with 53 percent of the market worldwide.

Airbus' announcement drew a lineup of heavy-hitters from U.S. airlines and suppliers, including American Airlines CEO Tom Horton, JetBlue Airways Corp CEO Dave Barger and Goodrich Corp CEO Marshall Larsen.

They arrived to the strains of the rock group Steve Miller Band's 1977 hit "Jet Airliner" -- that homage to Boeing's 707 is something of an anthem for the aviation industry, and Boeing last year hired Miller himself to perform it for workers at its Everett, Washington, factory.

Another Warning to Unions

This is yet another warning to unions. However, they will not hear the message. After all, this is just about "assembly", at least for today. Tomorrow it will be about actual production.

Production is returning to the US, but it sure will not go to California, Illinois, New York and other high-costs states.

Musical Tribute

Clearly this calls for a musical tribute.



Link if video does not play: Jet Airliner

Addendum: Boeing moved its corporate headquarters to Illinois in 2001 while leaving its main production facilities in Washington.

Mike "Mish" Shedlock
http://mishblogdotcom.blogspot.com
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0 Faber Says Germany Should Abandon the Euro

Marc Faber, publisher of the Gloom, Boom and Doom Report, spoke with Bloomberg Television’s Betty Liu this morning and said that, “If I were running Germany, I would have abandoned the eurozone last week.”

Faber went on to say, “In the case of Greece, one should have kicked out Greece three years ago. It would have been much cheaper.”


Link if video does not play: Faber on Europe

Faber on the eurozone crisis:

“If you put one or 100 sick banks in a union, it does not change the fact that they're sick. In my view the markets are rallying because they were grossly oversold. When markets are grossly oversold, especially markets of Portugal, Spain, Italy, France, then any news that is not disastrous news propels stocks higher. I think that combined with seasonal strength in July, the rally has carried on somewhat. But it is another cosmetic fix, a quick fix that does not solve the long-term fundamental problem of over investment in the euro zone. And what it does, basically, it forces Germans to continue to finance people in Spain and Portugal and Greece that are living beyond their means.”

“If I were the Germans, if I were running Germany, I would have abandoned the eurozone last week…It is a costly decision, but losses are there and somewhere, somehow, the losses have to be taken. The first loss is the banks. In the case of Greece, one should have kicked out Greece three years ago. It would have been much cheaper.”

On whether he’s picking up European equities:

“Yes. In Portugal, Spain, Italy, and France, the markets are either at the lows of March 2009, or lower. Along with bad companies and the banks, there are also reasonably good companies. Stellar companies, but they have been dragged down. I see value in equities, regardless of whether the eurozone stays or is abandoned.”

“[I’m buying] anything that has a high yield, or what I perceive to have a relatively safe dividend. In other words, I do not expect the dividends to be slashed by 90%...I am not buying banks, but maybe they could rally. I am just not buying them because I think there will be a lot of equity dilution and recapitalization. I’m not that keen on banks.”

Mike "Mish" Shedlock
http://mishblogdotcom.blogspot.com
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0 US Manufacturing ISM Contracts for First Time in Three Years; New Orders and Prices Plunge; Perfect Miss: 0 of 70 Economists Polled By Bloomberg Expected Contraction

US Manufacturing contracted this month as reported in the June 2012 Manufacturing ISM Report On Business®

Economic activity in the manufacturing sector contracted in June for the first time since July 2009; however, the overall economy grew for the 37th consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business®.

"The PMI registered 49.7 percent, a decrease of 3.8 percentage points from May's reading of 53.5 percent, indicating contraction in the manufacturing sector for the first time since July 2009, when the PMI registered 49.2 percent.

The New Orders Index dropped 12.3 percentage points in June, registering 47.8 percent and indicating contraction in new orders for the first time since April 2009, when the New Orders Index registered 46.8 percent.

The Production Index registered 51 percent, and the Employment Index registered 56.6 percent. The Prices Index for raw materials decreased significantly for the second consecutive month, registering 37 percent, which is 10.5 percentage points lower than the 47.5 percent reported in May.

Comments from the panel range from continued optimism to concern that demand may be softening due to uncertainties in the economies in Europe and China."

New Orders and Prices Plunge



Drop Unexpected

A Bloomberg Survey shows the collapse in ISM was unexpected.

The median forecast in the Bloomberg survey called for a decline to 52. Estimates of 70 economists ranged from 50.5 to 53.5. The gauge averaged 55.2 in 2011 and 57.3 the prior year.

While an index below 50 indicates contraction in the industry, a reading greater than 42.6 generally indicates the economy as a whole is expanding, according to ISM.

Manufacturing is weaker in the rest of the world. The industry in the euro-area contracted for an 11th straight month in June as Europe’s debt crisis sapped demand.

Perfect Score

All 70 economists polled by Bloomberg came in on the high side. Collapses are never expected.

ISM and Recessions

click on chart for sharper image

The above chart by Doug Short (annotations in red, green, and purple by Mish) shows the importance in not relying on a single indicator as strong evidence of a recession.

Since 1959, the ISM dipped substantially below the 50% mark on five occasions when there was no recession. Moreover, in the 70's oil crisis, a recession began with the ISM near 70.  The reverse happened in the wake of the Dot-Com bust as a recession did not start until the ISM was near 40.

No US Decoupling

I am sticking with what I said yesterday in China Manufacturing Weakens 8th Month; Will the US Economy Continue to Decouple From the Rest of the World?

Nearly everyone but the die-hard hyperinflationists thinks the US will decouple from the global economy. This reverse-decoupling idea is primarily based on the absurd belief the Fed will not let the economy or the stock market down (when the Fed is in fact not in control). For further discussion, please see Is There a Limit on Central Bank's Ability to Inflate?

The debate on the Fed will remain, but the facts show that I disagreed with decoupling in 2007 and I disagree with reverse-decoupling theories now.

Please see 12 Reasons US Recession Has Arrived (Or Will Shortly) for detailed rational and further discussion.

Mike "Mish" Shedlock
http://mishblogdotcom.blogspot.com
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0 China Manufacturing Weakens 8th Month; Will the US Economy Continue to Decouple From the Rest of the World?

The global economy led by Europe and China continues its downward path. Will the US follow?

First let's take a look at China. Markit reports China Manufacturing PMI Declines 8th Consecutive Month.

Key points

• New orders fall to greatest extent in seven months, as export orders slump
• Factory output declines marginally in comparison; stocks of finished goods rise 
• Input costs and output charges down at sharpest rates in 39- and 42-months respectively

China’s goods producers reported an eighth successive month-on-month deterioration in operating conditions during June, as output, incoming new orders and employment continued to decrease. After adjusting for seasonal factors, the HSBC Purchasing Managers’ Index™ (PMI™) – a composite indicator designed to give a single-figure snapshot of operating conditions in the manufacturing economy – inched lower from 48.4 to 48.2 in June, a level indicative of a modest pace of deterioration in business conditions. For the second quarter as a whole, the index averaged its lowest quarterly value since Q1 2009.

A lack of demand was behind the latest deterioration in operating conditions, with total and foreign new orders falling at accelerated rates in June. New export orders placed at goods producers dropped at the steepest rate in over three years. North America and Europe were both cited as sources of new order book weakness. Meanwhile, the month-on-month fall in overall new orders (exports plus domestic) was the strongest in 2012 to date. The drop in total new orders led to a further decline in manufacturing output, extending the current period of contraction to four months. However, the rate of decline in factory output remained marginal.

Comment

Commenting on the China Manufacturing PMI™ survey, Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said: “It is all about growth and employment. As external demand has weakened and domestic demand hasn't shown a meaningful improvement in response to earlier easing measures, growth is likely to be on track for further slowdown, hence weighing on the jobs market. But as inflation eases sharply, Beijing has plenty of room and policy ammunition to avoid a hard landing. We expect more decisive easing efforts to come through in the coming months.”

China PMI vs. Shanghai Stock Index

The following charts show an interesting story of unsustainable growth and over-exuberance by China cheerleaders nearly everywhere.

China PMI



$SSEC Shanghai Stock Index



Decoupling Review

Notice the bubble in 2007. That's when all sorts of ridiculous decoupling theories, US hyperinflation scenarios, US treasury crash scenarios, crude is going to $200, Natural Gas is going to $40, and other nonsensical ideas came out of the woodwork, many in book form, some still persisting to this day.

Instead, the reverse happened! It was the US that decoupled from the global economy. Moreover,  China has been exposed for the malinvestment bubble that it is.

Now, in 2012, nearly everyone but the die-hard hyperinflationists thinks the US will decouple from the global economy. This reverse-decoupling idea is primarily based on the absurd belief the Fed will not let the economy or the stock market down (when the Fed is in fact not in control). For further discussion, please see Is There a Limit on Central Bank's Ability to Inflate?

The debate on the Fed will remain, but the facts show that I disagreed with decoupling in 2007 and I disagree with reverse-decoupling theories now.

Please see 12 Reasons US Recession Has Arrived (Or Will Shortly) for detailed rationale.

Mike "Mish" Shedlock
http://mishblogdotcom.blogspot.com
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0 Email From Lead Analyst at EIA on Petroleum Usage

In response to my post 3-Month Petroleum Usage Chart for March, April, May Shows 14 Years of Supply Demand Growth has Vanished (with charts from Tim Wallace) I received a nice email from James Beck, Lead Analyst, Weekly Petroleum Status Report Team, Energy Information Administration (EIA).

Hello Mike and Tim

I just wanted to chime in on your latest charts. As the Lead Analyst for the Weekly Petroleum Status Report at the Energy Information Administration, I appreciate that you use our numbers.

While I do appreciate the use of the weekly numbers, I wanted to send you these three charts (with all of their data included) based on the EIA's Petroleum Supply Monthly which supports your point that demand for gasoline is at 2002 levels and that total petroleum product demand is at 1997/98 levels.

Additionally, I have included the distillate demand chart which shows that since the recession began in 2008, we have had distillate demand at 2000-2002 levels, and 2012 has the second-weakest Jan-Mar level since 2002 (2012 is 0.3% higher than the Jan-Mar demand for 2010, which was the lowest since 2000).

Since diesel demand is a very good proxy for the health of the economy (all shipping uses diesel--trucking, rail, barge, etc.), this weakening might be an indication of things to come.

The reason to look at the monthly numbers is that they are more reliable than the weekly as the survey is of the entire industry and there is a great deal of extra time used to verify the data. Many people believe that the monthly numbers are a revision of the weekly numbers. This is not true. These are separate surveys. Where the monthly surveys the entire industry and collects much more detailed information, the weekly information is based on a sample of the industry drawn from the monthly reporters, collects less information, and is focused on timeliness versus completeness.

The weekly numbers are estimates of the most recent week's data based on the sample and are a snapshot in time. The weekly is a very good indicator of the data, but the monthly is the touchstone (at least until the Petroleum Supply Annual is released--which is, in fact, a revision of the monthly data).

I hope you can make use of the charts. Please let me know if I can be of further assistance.

Thank you,
James Beck
Lead Analyst,
Weekly Petroleum Supply Team
Energy Information Administration Office of Petroleum and Biofuels Statistics

Jet Fuel and Propane

In a follow-up email I asked about jet fuel and received this response.

Hello Mish

Seems KJet is at lowest Jan-Mar level since 1992. KJet suffered post 9/11 then with high fuel costs in 2006-2008. There has been a watershed change in how airlines operate because of the fuel cost (higher occupancy; fewer routes; different business processes for taxiing, at-gate operations, for efficient jets, etc.). Even when passenger miles recovered to pre-9/11 levels, the demand for kjet remained much lower.

Propane is highly seasonal, but even there the Jan-Mar level is lowest since 1995.
James Beck

Monthly Delays

The reason Tim Wallace uses weekly data is one of timeliness. There are long delays in waiting for monthly stats. It is nice to see that the monthly charts below confirm what Tim Wallace has been saying.

Here are the monthly charts from James Beck.

Because of seasonal variations, the proper comparison in each of the charts below is red-dot to red-dot.

Total Petroleum Usage



Diesel and Heating Oil



Gasoline



Jet Fuel



Propane



Thanks James and Tim!

Mike "Mish" Shedlock
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