This past week, I made a lunch presentation to a group here in town. Afterwards, a guy told me my talk seemed “extemporaneous.” That was a new one for me. However, unless a speaker is reading directly from notes, script or a PowerPoint deck, there will be some measure of extemporaneousness in any presentation you attend.
While he probably didn’t mean it as such, I took his observation as a compliment. After all, I had planned both my message and delivery. At the onset of my remarks, I told the group what I was going to tell them, and then I did so. When I had finished, I reinforced what I had just said.
Extemporaneous? That’s debatable.
Trust me, it wasn’t as off the cuff as much as it might have seemed to him but for one thing: the tariff war’s impact on the economy. The reason being is simple: over the past 50-years, or more, there really isn’t any precedent for what has transgressed. As a result, while people in my line of work might have an inkling of what could happen next, they sure miss having some precedent as guidance.
After all, while past performance is not necessarily indicative of future results, history is the best predictor of the future we have. As for my extemporaneous feelings on recent events, well, here goes nothing.
I think it safe to say the longer the trade war lasts, the worse it will be for the economy.
Firms don’t want to commit to substantial capital expenditures when they don’t know what their input costs and future consumer demand will be. As a result, the longer this uncertainty plays out, the less companies will invest in their business. That isn’t so much insight as it is the low-hanging fruit.
Further, is the U.S. consumer in a position to absorb the sharp tariffs the Administration has put on our major trading partners? If so, we have relatively little to discuss. The economy will be just fine. However, if you think the U.S. consumer will have a difficult time paying an additional 245% for Chinese-made products, you can imagine growth in our consumer-driven economy will likely be, um, less than originally forecasted.
The problem is that the U.S. simply doesn’t have the industrial capacity it once did in many sectors. That is a fancy way of saying the factories and the jobs are gone, as in they no longer exist.
- For example, textile mill employment in Alabama topped out in 1995 at 22.5K jobs.
- 10 years later, in 2005, that number had fallen to 12.3K positions.
- In 2015, there were only 5.8K textile jobs left in the state.
- Last year, it was 3.9K.
When this industry collapsed, the factory owners didn’t just put a tarp on the spindles and turn off the lights. Their former employers aren’t twiddling their thumbs in place like Fort Payne, waiting to go back to work making tube socks for the fashion illiterati.
Nope. The machines are no longer there. In all likelihood, the business owners, or the bank, sold them to agents for Chinese, Vietnamese, Pakistani, Guatemalan, Cambodian and Indian companies. Seriously. The necessary workers are no longer there either.
In 2000, there were 392K sewing machine operators in the U.S. economy. In 2024, there were only 92K. Clearly, that is a massive decline in a relatively short period of time. So, how long would it take to find the necessary workers? How much would business owners have to pay them to do the work? How long would it take to adequately train them?
While I have no way of knowing for absolute certain, as there is no historical precedent, I would answer the questions in the previous paragraph thusly: probably never, probably too much to make it economically viable in aggregate and not sure if it is doable.
And the necessary capital? Every lender and investor is different. However, I imagine most private investors are looking for higher margins than what domestically produced base textiles might provide, and most lenders would like to avoid owning a bunch of spindles and sewing machines.
I could be wrong.
Obviously, I am picking on one primary industry. Perhaps it is unfair to use textiles as a strawman. However, it does a good job of illustrating the enormity of the issue.
A lot of these manufacturing jobs have been gone a long time, as in decades. They didn’t just vanish overnight. They no longer exist in the United States, and it is highly unlikely they ever will again. Fortunately, with an Unemployment Rate of 4.2%, there appear to be other opportunities for U.S. workers.
If you are having a problem with my logic or taking issue with my thought process, consider this. In 1995, when textile mill employment was at its zenith in Alabama, the median household income in the state was around 76.3% of the national average. In 2020, it was 80.4%, and, in 2023, it was 75.2%.
So, Alabama has underperformed since the worst of the pandemic. However, its recent underperformance likely has little to do with the lack of textile jobs. After all, the Heart of Dixie actually outperformed the national average for those 25 years the industry was vanishing from the state.
That doesn’t mean the loss of the textile industry didn’t decimate mill towns and cause significant financial hardship for a lot of people. Trust me, it did. It was absolutely awful. However, it didn’t lead to a collapse of the entire state economy because businesses deployed capital elsewhere, and most workers found new employment… many of them at higher wages and better working conditions.
So, do we really want all of these jobs back? You know, the one’s the President claims we are going to get after the U.S. wins the trade war with the remainder of the world?
Well, in 2024, the Cato Institute did a survey about manufacturing employment. It found some 80% of respondents said the U.S. economy would be “better off” with more manufacturing jobs. However, only 25% said they would prefer to have a factory job than the one they currently have.
In the end, you know, my comments here today might be extemporaneous. Off the cuff, if you will. However, I think they are directionally accurate even if I don’t have any historical data to fully support my contentions. Do we need the jobs? That is debatable. Do we even want them? That, too, at best, is debatable.
And, of that, there is little debate.
Thank you for your continued support. As always, I hope this newsletter finds you and your family well. May your blessings outweigh your sorrows on this and every day. Also, please be sure to tune into our podcast, Trading Perspectives, which is available on every platform.