Where's the economy headed??

I know the country is having issues, but I'm wanting to discuss Michigan in general. So, here's my question:

Michigan has a one-horse economy and that horse is getting lame. There have been quite a few new automotive plants built in this country but they have avoided Michigan. The reason for that doesn't matter for this discussion though. The plants that are in this state are being downsized or shut down totally and the state is feeling the pain. Sitting here at my computer I see things proceeding this way: As more plants are built in other states and ones here are downsized or shut down the economy will continue to falter. This much we know. Now, we do still have lots of tier 1 and 2 companies here but what's going to happen to them? I think they will get outta here as well. If you make seats for BMW it makes no sense to be here in Michigan adding time and money to the process so you'll move 10 miles from the BMW plant to save time and money in the development process and because the state will no doubt give you a nice tax break to move there. Once this starts happening, the big 2 1/2 will stop fearing the unions and will either move production or de-unionize just to stay alive. Michigan can't rely on tourism (the Governor keeps saying we will promote tourism) because there just isn't enough here. We have a stunning upper peninsula but that's just too far for someone from say Ohio or Indiana to drive. Our tourism is based on MI residents and when we are all outta work and money we can't go up north for vacation.

Again, I'm not an economist or anything, just arm-chair quarterbacking. what do you think?

The auto industry and lot of related manufacturing took hold there because the great lakes made shipping the raw matierials cheap at a time when transportation was a much larger part of the cost of production. Wood was cheap. Iron ore was as close as Minnesota. Tons of steel came out of Pittsburg and northern Indiana There was a lot of semi skilled and skilled imigrant labor from Europe who didn't mind the crappy weather. As the industry grew it became a magnet for people to move from all over the place. The state grew rich because it was in the right place at the right time when industrialization was the engine that drove economic growth.

I moved from there to the heart of silicon valley and see the Information age/economy develop first hand. The bottom line now is this. High paid work goes where people have the skills to do it. You have to make a compelling intersting place for well educated people to live. This is not easy. The weather sucks. There are world class universities, but the primary education that feed them is broken. The social and political culture doesn't support the kind of thought leadees and entrprenours that will create new industries to replace the old. The biggest problem for the state long term is that all most of the younger people are leaving. I am one of four childrern. None of us live there now.

The land there was originally a huge healthy forest. I am always pleasantly surprised when I go back by how the trees and forest grow back when land is left alone. Perhaps alternative fuels (methanal based) or engineered wood products could be target industries.

There are tons of crazy market forces going on right now. The need to be able to adapt, innovate, and be able to reposition yourself routinely. The book, "good to great" http://www.amazon.com/Good-Great-Companies-Leap-Others/dp/0066620996 , profiles companies that were able to beat the market routinely for 15 years or more. However, Most of the companies in that book have now fallen upon hard times and are no longer beating the market. This is because they did not work drive themselves to continually innovate. The book, "blue ocean strategy", therorizes that you never really beat the market continually. (what goes up comes down) the idea is the have a company that is positioned so that during the start of a down cycle, you can start to innovate and make change your product to align with the market trends.. You can read exerpts of the blue ocean strategy here http://books.google.com/books?id=fKTllv6_O74C&dq=blue+ocean+strategy&pg=PP1&ots=g1yd9GXBs1&sig=yZ-JyRuDKIdBpuPzL7xDJjc5fTM&hl=en&sa=X&oi=book_result&resnum=1&ct=result#PPR14,M1

Michigan companies were very slow to react to a changing economy and market trends. They lived off the extreme profit everyone was making on SUV's. They mocked those who made smaller more fuel efficient vehicles and they had no real incentive to make changes to their processes because they were making so much money.

Now, I believe what is happening in michigan to be 100% natural and the way that the business cycle works. You can point to many good areas of the world that one time or another were the leaders in one thing. Think of what is happening in Michigan to be a forest fire, a painful but necessary action that will clear the ground for potential new growth. What Michigan needs is the ability to incubate new businesses and plow into some fertile new ground.

what did Flint and Michael Moore say? lint rollers?

Interesting and insightful thoughts...... I hope I can stay in MI and ride this droop out and see the upswing.

Where's the economy headed??

China.

poopshovel wrote:

Where's the economy headed??

China.

nope...

that pendulum will swing back soon.

energy prices

and the practicality of a 22 week long supply chain. I currently have parts coming from india that take 22 weeks to be made from forging to my dock. Think about that. If someone in india messes up a part and they don't catch it. My internal quality folks would catch it, which means I now have 22 weeks worth of crap to inspect and reject. The 22 week lead time was viable when shipping costs, labor costs, and commodity costs were very low.

do me a favor and go to www.ussteel.com and see how many jobs are open and tell me they are dying. Nope.

http://www.nytimes.com/2008/08/03/business/worldbusiness/03global.html

Companies like mine that are still sourcing from china and india are behind the times. Period. We have a five year strategy to source to where, Africa. Why.. Cause they are starving and will work for nothing. The indian economy is strong and so is China. The workers are demanding more money.

China is old news.

I find the idea of Africa sourcing very interesting, but the political instability is a huge question mark. Might as well go to Haiti. Closer, VERY hungry, but no real work force, unless you want to completely train your workers. It would be the same in Africa. Either place, you could be a real hero if you could pull it off. But I would think the political corruption would kill it off before you got off the ground.

cwh wrote: I find the idea of Africa sourcing very interesting, but the political instability is a huge question mark. Might as well go to Haiti. Closer, VERY hungry, but no real work force, unless you want to completely train your workers. It would be the same in Africa. Either place, you could be a real hero if you could pull it off. But I would think the political corruption would kill it off before you got off the ground.

There was a time not so long ago when American labor was sourced from Africa... I think they are more wary of getting into boats now.

http://www.nytimes.com/2008/09/16/business/economy/16econ.html

Industrial Output Decline Is Worse Than Expected * Article Tools Sponsored By By THE ASSOCIATED PRESS Published: September 15, 2008 WASHINGTON (AP) — Government data show the nation’s industrial output plunged in August by nearly four times the amount that had been expected. It was the worst performance since Hurricane Katrina devastated the Gulf Coast in 2005. The Federal Reserve reported Monday that industrial output dropped 1.1 percent last month, far worse than the 0.3 percent decline that economists had been expecting. The weakness was led by an 11.9 percent drop in production of motor vehicles and parts, reflecting the hard times facing the auto industry. The problems in autos contributed to a 1 percent overall drop in manufacturing, the first decline since a 0.9 percent fall in April. Production at the nation’s utilities was off 3.2 percent in August after a 1.6 percent decline in July. Mild weather in much of the country last month contributed to lower demands for air-conditioning. Output in mining, the category that includes oil and gas drilling, fell 0.4 percent in August. The Fed said some of that weakness reflected precautionary shutdowns of oil platforms in the Gulf of Mexico ahead of Hurricane Gustav. The manufacturing sector has been battered by a prolonged housing slump and feeble demand for autos, because of the weak economy and the big jump in gasoline prices that has occurred this year. The problems hurting domestic demand have been partly offset by a boom in export sales, helped by a weaker dollar. Economists worry, however, that that source of strength will come under pressure as some of America’s biggest overseas markets in Europe and Asia face the threat of recessions. The 1.1 percent decline in total output in August after gains of 0.1 percent in July and 0.2 percent in June, and was the largest drop since a 1.8 percent decline in September 2005.

I was hoping these numbers were going to go up soon, with the recent trend of deglobalization.

The Gubment said: Paulson: Banking system is 'sound' Treasury Secretary says he doesn't rule out future finance bailouts, though he never considered one for Lehman. By Aaron Smith, CNNMoney.com staff writer Last Updated: September 15, 2008: 2:43 PM EDT NEW YORK (CNNMoney.com) -- Treasury Secretary Henry Paulson described the commercial banking sector as "sound," and said Monday he doesn't rule out additional government bailouts for the future. "We're working through a difficult period in our financial markets right now as we work off some of the past excesses," said Paulson in a press conference in Washington. "But the American people can remain confident in the soundness and the resilience of our financial system." Paulson's comments came as Lehman Brothers (LEH, Fortune 500) is filed for the biggest bankruptcy in history after it failed to find a buyer, triggering a 94%stock plunge to 20 cents a share. Paulson said times have changed since the government brokered the March bailout of Bear Stearns, and that he never considered that type of support for Lehman. "I never once considered that it was appropriate to put taxpayer money on the line when it came to Lehman Brothers," said Paulson, a former chairman and CEO of Goldman Sachs. But he didn't rule out future bailouts in the financial services industry. When a reporter asked Paulson if there would be "no more" bailouts, he replied: "Don't read it as no more. Read it as that ... it's important, I think, for us to maintain the stability and orderliness of our financial system." Paulson said the finance industry's woes stemmed from the "housing correction," which would take another few months before it reached its peak. Bush feels the pain Earlier Monday, President Bush acknowledged the "pain" of investors and workers in the finance industry, but assured the public that the government is working to iron out the problems. "I know Americans are concerned about the adjustments that are taking place in our financial markets," said Bush, speaking in the White House Rose Garden. "We are working to reduce disruptions and minimize the impact on the [broader economy]." Bush didn't offer much detail as the Dow plunged more than 200 points and the finance industry suffered one of its worst crises ever, stemming from its investments in the battered real estate sector. "In the short run, adjustments in the financial markets can be painful, for people worried about their investments, and for employees of the firms," said Bush. In addition to the Lehman Brothers bankruptcy, here are a couple of the latest developments in the finance sector: Merrill: Bank of America (BAC, Fortune 500) said it would buy Merrill Lynch (MER, Fortune 500) for $50 billion in stock, or $29. Merrill's stock surged nearly 15% on the news to $19.59 a share, while Bank of America plunged 17% to $27.80 a share. AIG: The stock plunged 52% to $5.81 a share for AIG (AIG, Fortune 500), after the insurance giant said it was getting ready to announce a restructuring. Art Hogan, chief market strategist at Jefferies & Co., described this as the biggest economic crisis since the Great Depression of the 1930s and the railroad bankruptcies of the 1800s. "We've never witnessed this before," said Hogan before Bush's speech. "There's no road map for this." First Published: September 15, 2008: 11:20 AM EDT Find this article at: http://money.cnn.com/2008/09/15/news/economy/bush_economy/index.htm?eref=rss_topstories

The "sound" refers to the echo left on Wall Street after everyone bails out.

Not related to Michigan... But anybody notice AIG almost went bankrupt?

mtn wrote: Not related to Michigan... But anybody notice AIG almost went bankrupt?

yes my father is an AIG broker, among others. 2 months ago he moved all of his policies out of them and won't deal with them again.