Comparing Manufacturing Declines

Highlights include Ingersoll Rand (IR - Analyst Report), Dover (DOV - Analyst Report), Emerson Electric (EMR - Analyst Report) and Textron (TXT - Snapshot Report).

How does the decline of manufacturing this time compare to other downturns? Not very well.

The chart below (from http://www.econbrowser.com/archives/2009/02/industrial_prod_1.html) is very interesting. It shows the change in manufacturing output (the manufacturing component of industrial production) for each of the last 6 economic downturns. The dates shown are the year the downturn started, thus the current downturn is labeled 2007 since that is the official start of this recession. The vertical line is the official start of each recession.

This is done in log terms, so unless you are very much of a math lover, the Y axis will not mean much, but the relative size of the downturns is significant. The Chart shows that up until last summer, the decline was very mild. This was because we were having a bit of an export boom.

That has since come to an end, due to both the rebound in the dollar and every other economy in the world going off a cliff. Since then, the decline has been extremely swift and the total decline in manufacturing output is already the worst of any downturn.

The total decline in factory output since the recession started is 12.3%. However, the annualized rate of decline over the last 3 months is 31.7%. This is a very serious situation. Fortunately, manufacturing makes up a much smaller part of the economy than it did in any of the previous declines (pretty much true that it has been smaller in each successive recession).

This is not good news for any firm, but it is particularly bad for capital goods firms. If factories are idle, the last thing the owners want to do is expand capacity. Firms like Ingersoll Rand (IR - Analyst Report), Dover (DOV - Analyst Report), Emerson Electric (EMR - Analyst Report) and Textron (TXT - Snapshot Report) are examples of the sorts of firms that are hurt by the downturn in industrial production.



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Read the full analyst report on DOV