IS IT TIME FOR ALL AMERICANS TO CONSIDER MORE CONSERVATIVE INVESTMENTS?

…Is this company signaling the beginning of a slowing economy

GM models are not selling well and some of their Rust Belt  factories will close

Is our president beginning to see the erosion of the false promises that he has made to his base and to all Americans?

The market watchers have been promoting that it is way over-due for a serious market correction.  And it would be appropriate for one of the foundational American companies to be the one to sound the first alarm that it’s time for a slow period to start, and for the bears to start taking over the bull market.

One market analyst explained that a bull spears its horns up at its opponents, while a bear swats his claws down at its foes.  The market has been very bullish for way too long.  We may now be seeing the first moves of pessimism in the market with the latest General Motors announcement of their closing of 5 US factories and  the laying-off of almost 15,000 workers.

GM said that the cars being manufactured at these factories are small and full-sized sedan models, which are not selling well and that the factories are under-utilized.  The automaker said it would save $6 billion annually by thinning its salaried management ranks, dropping thousands of American and Canadian factory workers.  In the future, it will emphasizing the production of larger trucks and sport-utility vehicles rather than sedans.

But the real issue for the president is that this may be the start of the economy slowing and of President Trump’s false claim to be bringing factories back to the US.  In addition, it will show that it was a bogus claim that he is leading a renaissance for industrial America.  

What has actually been happening over the past 2-3 decades is that GM has just announced another victory of “capital over labor”.  By that I mean that in all those American factories that have all adopted large adaptations of automation, that is “capital spending winning out over labor’s wages”.  GM will be getting rid of workers and their managers, and they will replace them with more automation and skilled software personnel and computer operators.

Look at it this way: GM’s announcement sounded a negative note amid otherwise positive signs of economic health in America.  In fact, the last six months have produced an economy with the best back-to-back quarters in four years.  The unemployment rate is near a half-century low, and corporate profits are exceeding all expectations.

But as stated, the market observers still insist that the economic expansion, which began in June 2009, is the second-longest expansion since modern records of the economy began back in 1854.  Few economists anticipate a recession, but the annualized rate of auto sales has fallen by 1 million vehicles since September 2017.  In addition, the data on retail sales and industrial production and housing growth, they all suggest that the US economy is getting tired.

“We’d be very surprised to see output growth picking up further from here.  All the manufacturing cyclical indicators we follow have peaked, and some are declining,” this was from Ian Shepherdson, chief economist for Pantheon Macroeconomics, in a recent research note.

In addition, the communities affected by GM’s decision are spread across the nation’s politically vital but vulnerable midsection.  In other words, once again the hit, is directly at the nation’s “Rust Belt”.

Just look at where the closings will hit: car plants in Oshawa, Ontario; Detroit-Hamtramck; and Lordstown, Ohio.  These will all stop production of the Chevrolet Impala, Chevy Cruze and the all-electric Volt.  It also includes stopping the Cadillac CT6, and the Buick LaCrosse next year.  The transmission plants in White Marsh, Md., and Warren, Mich., also they are halting all factory operations.  There will also be stopping the manufacturing of other GM models, yet to be announced.

But it might not stop there.

This announcement comes just weeks after the Republican lost a number of congressional seats across the industrial Midwest.  GM’s action carries a stark political warning for the president, especially if his Rust Belt voters conclude that Trump is failing to deliver on his promise to return lost jobs and prosperity to the region.  Trump’s re-election hopes could have been dealt a major blow by GM.

In 2016, Trump won four states with significant ties to the auto industry: Wisconsin, Michigan, Ohio and Pennsylvania. They provided nearly a quarter of the 270 electoral votes needed for a Trump victory.

Before leaving the White House for a campaign rally in Mississippi, the president told reporters he had complained to GM chief executive Mary Barra about the shutdowns.

“I was very tough,” the president said. “I spoke with her when I heard they were closing. And I said: ‘You know, this country has done a lot for General Motors. You better get back in there soon. That’s Ohio, and you better get back in there soon.’ ”

Trump said he was pressing the company to replace lost production in the factories it plans to shutter with other models, citing the Lordstown plant, which makes the Chevy Cruze.

“Their car is not selling well. So, they’ll put something else — I have no doubt that, in a not-too-distant future, they’ll put something else. They better put something else in,” he said.

Will the president be able to tell GM what to do?  I doubt it, but he is threatening to take away some GM government subsidies.

Trump’s tantrum against GM is obviously linked to his repeated promises to reverse the Rust Belt jobs bleeding that he falsely said the reason they had emptied the factories was a result of poorly designed trade policies.  However, it wasn’t trade policies, it was GM not offering models that the buyers wanted, and that they weren't automating their plants as much as other, non-US auto manufacturers, had done.

“They’re all coming back. They’re all coming back. Don’t move, don’t sell your house,” the president had said back in a 2017 visit to Youngstown, Ohio. “We’re going to fill up those factories or rip them down and build new ones.”  I personally wouldn’t bet on that bit of info from our MAGA president.

You may recall that during an October 2016 campaign rally in Warren, Mich., at a site of one of the targeted GM transmission plants, Trump promised: “If I’m elected, you won’t lose one plant, you’ll have plants coming into this country, you’re going to have jobs again, you won’t lose one plant, I promise you that.”

Well, so much for that Trump promise.

In Lordstown, Ohio, workers are planning to pray for a miraculous reversal of the company’s decision, this is according to David Green, president of United Auto Workers Local 1112.

“It’s like someone knocks the wind out of you,” he said of GM’s announcement. “You lose your breath for a minute.”

It’s pretty bad when your counting on saying prayers, for saving your job.

About 40% of the Auto Worker Union's members had voted for Trump.  Green said: “Now workers want to see the president keep his promises.  He came to our community and said: ‘Don’t sell your house, these jobs are coming back'.  So far, we’ve seen nothing but job losses around here.”

Indeed, long before the GM announcement, Lordstown had been bleeding jobs.

As an example, since Trump took office, GM has eliminated two shifts at Lordstown and roughly 3,000 jobs at that plant.  This is according to John Russo, a visiting scholar at Georgetown University’s Kalmanovitz Initiative for Labor and the Working Poor.  As I had said, these factories were under-utilized, and they have been cutting back for months.

Despite a lengthy period of US economic growth, the unemployment rate in these areas is at 5.2%, which is well above the national 3.7% mark.

“The costs are going to be devastating,” Russo said of the latest layoffs. “This thing is going to ripple through the nation's economy.”

Since the GM announcement, other US manufacturers are now considering possible employment cut backs as well.

Roughly 1 million of the nation’s 150 million, non-farm workers, are employed in some level of motor vehicle manufacturing.  This is according to economist Jim O’Sullivan of High-Frequency Economics.  “So far, the overall economy is still in pretty good shape and small businesses remain upbeat.” O’Sullivan said.

But the economy’s growth rate, which slowed in the third quarter to 3.5% from 4.2% in the previous quarter, is widely expected to continue decelerating. The boost from last year’s tax cut and increased government spending has already faded, while uncertainties and costs associated with the president’s tariffs are continuing to mount.

“Even though times are good and unemployment is low, businesses have a pretty sober outlook about planning for the future,” economist Michael Feroli of JPMorgan Chase said. “There is a little bit of hesitancy to go all-in right now with new investments.”

I must admit that our financial adviser suggested some months ago, and we agreed, to moving any aggressive investments to more conservative investments.

That appears today to be very good advice.

But I doubt that our president will be selling that approach to GM and those living in the Rust Belt.

Copyright G.Ater 2108