3/24/2005

U.S. Manufacturing

This article discusses how manufacturing has increased within the United States the past year. The annual increase in orders had the biggest jump since the booming 1990’s. However, manufacturing is increasing faster than the manufacturing employment. Companies are operating with fewer employees than needed, but the falling dollar will entice employers to hire. The falling dollar makes imports more expensive to the consumers of the United States and also makes goods more competitive in international markets. Economists predict that manufacturing employment will continue to grow, and that the manufacturing industry needs to create demand for the rest of the world to grow.

2 comments:

scott said...

Its very interesting how the world econonmy regulates itself. There are benefits and draw backs from the dollar either rising or falling. I'm not exactly sure was is causing the dollar to decline and the Euro to rise, but it seems to have been going on for a while. If anyone has any input on that, it would be great to know.

Dr. Tufte said...

-1 on Scott's comment for multiple grammatical and spelling errors.

What is unsaid in the post is that if output is rising faster than employment, then productivity must be going up. This is a good thing because productivity has a pretty tight relationship with wages.

With respect to Scott's question, exchange rates move in response to the supply of money from the central bank and the net desire of foreign and domestic traders to invest in a country. The falling U.S. dollar indicates that either: 1) monetary policy is too expansionary (in a relative sense), 2) that people are relatively less inclined to invest in the U.S., or 3) some combination of those. U.S. monetary policy is currently moving in a contractionary direction, but the falling exchange rate suggests that it hasn't gone far enough in this direction. Since the U.S. economy is growing well, the fact that people want to invest elsewhere suggests that they view opportunities as somewhat played out in the U.S., or more open in other countries.

Having said all that, I emphasize strongly that both of these are relative and temporary effects that do not have to be very large or important in practice to cause the inherently volotile exchange rate to move a lot.