Category: Manufacturing

Boeing Still Cannot Make Aircraft

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The FAA has announced that it is delaying certification of their new 777X variant because of design maturity and potentially disastrous problems with its control systems.

Everyone employed at Boeing’s Chicago headquarters beyond the janitors and secretaries need to be fired ……… and into the sun:

In yet another blow to Boeing, the Federal Aviation Administration last month formally denied the jet maker permission to move forward with a key step in certifying its forthcoming giant widebody airplane, the 777X.

In a sternly worded letter dated May 13, which was reviewed by The Seattle Times, the FAA warned Boeing it may have to increase the number of test flights planned and that certification realistically is now more than two years out, probably in late 2023.

That could push the jet’s entry into commercial service into early 2024, four years later than originally planned.

Clearly, someone at Boeing decided to, “Take off their engineer hat and put your management hat on,” with predictable results.*

Boeing is suffering death by MBA.

………

The FAA cited a long litany of concerns, including a serious flight control incident during a test flight on Dec. 8, 2020, when the plane experienced an “uncommanded pitch event” — meaning the nose of the aircraft pitched abruptly up or down without input from the pilots.

Boeing has yet to satisfy the FAA that it has fully understood and corrected what went wrong that day.

After all the troubles with the 737 MAX, you think that they would have that one at the top of their, “To Do” list, but in their rush to meet schedule, and to move production to a non-union facility, they screwed the pooch AGAIN.

“The aircraft is not yet ready,” [local FAA manager Ian] Won wrote. “The technical data required for type certification has not reached a point where it appears the aircraft type design is mature and can be expected to meet the applicable regulations.”

An FAA official, who asked not to be identified in order to speak freely, said the drag on 777X certification is now “the subject of a lot of attention” at high levels both within the agency and at Boeing.

The FAA got burnt by Boeing with the 737MAX, and they are now dubious of Boeing’s claims.

The reputational damage to the Seattle aircraft manufacturer from its rampant managerialism is ongoing and an existential threat to its continued viability as a going concern.

*This is a paraphrase of a comment made to Thikol engineer Roger Boisjoly by an unnamed manager when he warned of the danger of launching the Space Shuttle Challenger in very low temperatures.†

†For those who don’t know your history, the o-rings in the solid booster failed, and the Challenger blew up.

Boeing F%$#s Up Again

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Boeing will be delaying delivery of new 787s because of new safety issues.

Once again, Boeing’s MBA driven culture has led to it cutting corners, and the FAA has called foul.

It appeared that faith based safety procedures are not looked upon favorably by the regulatory authorities:

Boeing Co. has halted deliveries of its 787 Dreamliners, adding fresh delays for customers following a recent five-month suspension in handing over the aircraft due to production problems, people familiar with the matter said.

Federal air-safety regulators have requested more information about Boeing’s proposed solution to address the previously identified quality lapses, these people said.

………

A Boeing spokesman said the company was working in a timely and transparent manner to provide regulators with more information related to undelivered 787s. The Federal Aviation Administration on Friday confirmed that Boeing had halted Dreamliner deliveries, saying that the plane maker needs to demonstrate that its proposed inspection method complies with federal-safety regulations.

There are statistical methods to validate these procedures, it’s just that Boeing couldn’t be bothered to take the time, because there were union members to be laid off.

………

The FAA launched a review of Boeing’s Dreamliner production last year and has increased scrutiny of its 737 MAX manufacturing operations following earlier factory slip-ups.

As part of its Dreamliner scrutiny, the agency has recently requested more information about the plane maker’s proposed method for addressing quality issues using a system that would allow for targeted checks of newly produced aircraft, rather than broader inspections of more areas, people familiar with the matter said. Boeing’s proposed method is based on a statistical analysis of data.

Until Boeing can satisfy the FAA’s requests, the agency is requiring Boeing to perform the broader inspections, which are more time-consuming and labor-intensive, these people said.

Many of the 787 quality lapses involve tiny gaps where sections of the jet’s fuselage, or body of the plane, join together. Problems have emerged in other places, too, including the vertical fin and horizontal stabilizer at the tail. Such gaps could lead to eventual premature fatigue of certain portions of the aircraft, potentially requiring extensive repairs during routine, long-term maintenance.

This is a problem with composite structures.  Unlike aluminum, things need to fit exactly, since you there is very little flexing to accommodate tolerance stack-up.

You have to get these shims right, or you get point loads, which are death to composites.

………

Boeing has reduced output of the Dreamliner to five a month after shuttering assembly at its Everett, Wash., plant near Seattle and focusing production at North Charleston, S.C. It had built up a backlog of around 100 finished planes by the end of April, and had hoped to deliver most of them by the end of the year.

Yes, the South Carolina plant, which (by their own admission) they opened just to punish and weaken the union, which has poor training, poor morale, and poor safety procedures.

The management at Boeing does not know how to make airliners, and holds the people who do in deep disdain, and it shows.

When do the crashes start?  

My bad, they already have.

Boeing Still Can’t Build Planes, Part 4⁹

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In 2019, a sweeping transformation of Boeing’s quality system deliberately eliminated thousands of quality checks during production and cut 100s of quality inspector jobs.

Ernesto Gonzalez-Beltran, the architect of that shift, left the company in Decemberhttps://t.co/SbcHIzcnFp

— Dominic Gates (@dominicgates) May 18, 2021

Roll Tape!

Boeing has finally been forced to accept the fact that axing hundreds quality inspectors in order to bust the union did now work, and now they are rehiring the inspectors that they laid off, and they canned the architect of the failed program:

The Boeing Co. has quietly recalled at least some of as many as 900 quality control inspectors who were laid off in 2019 as part of a drive to adopt car-industry manufacturing processes in aerospace manufacturing.

The move comes after the union for the inspectors – Machinists District Lodge 751 – pushed the company to prove that getting rid of inspectors could be done without risking quality issues and would actually improve production times.

“Our union’s goal is to save Boeing from making decisions that could be detrimental to (its) future and ours,” union leaders said in its monthly AeroMechanic newsletter. “A second set of eyes is a critical component of building Boeing airplanes and necessary for the long-term success of the company.”

A union spokeswoman said she was unable to say precisely how many of the inspectors were initially laid off, and how many have been brought back since the recalls started. Boeing’s media relations team did not respond to a written list of questions on the topic.

………

In theory, if you eliminate the downtime and the inspections a few thousand times on each plane, that adds up to substantial savings in production time without any investment in people or tools.

IAM 751 appealed to the Federal Aviation Administration to look into Boeing’s plan and made rumblings about getting its supporters in Congress to intervene. Congress is now preparing an investigation into quality lapses at Boeing.

But the deciding factor, in this case, seems to have been the union’s demand to enter into what’s called effects bargaining. Since Boeing was eliminating 900 jobs, the union claimed the right to negotiate over the impact of those changes on its members.

As a result of these talks, Boeing and the union agreed that a team of union-appointed experts would begin reviewing data in areas where inspections were ending, with the ability to propose reinstating inspections when warranted, using Boeing’s own risk assessment criteria and FAA regulations as guidelines.

No Efficiency Gains

What the experts found was that eliminating inspections did not lead to a more efficient production process, the union said.

They f%$#ed up their quality processes for nothing more than the hope that they could fire some union members, and they failed.

If you fired Boeing’s entire C-Suite and replaced them with dirnking bird toys, you would increase productiveity and product quality.

Fragility Has Its Costs

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It looks like manufacturers in general and the automobile industry in particular, are taking a few steps back from just-in-time manufacturing.  It appears that they have discovered that the system where they accumulate little or no inventory may save a few bucks, but when it breaks, it gets ugly fast:

Toyota Motor Corp. is stockpiling up to four months of some parts. Volkswagen AG is building six factories so it can get its own batteries. And, in shades of Henry Ford, Tesla Inc. is trying to lock up access to raw materials.

The hyperefficient auto supply chain symbolized by the words “just in time” is undergoing its biggest transformation in more than half a century, accelerated by the troubles car makers have suffered during the pandemic. After sudden swings in demand, freak weather and a series of accidents, they are reassessing their basic assumption that they could always get the parts they needed when they needed them.

“The just-in-time model is designed for supply-chain efficiencies and economies of scale,” said Ashwani Gupta, Nissan Motor Co.’s chief operating officer. “The repercussions of an unprecedented crisis like Covid highlight the fragility of our supply-chain model.”

………

The basic idea of just in time is avoiding waste. By having suppliers deliver parts to the assembly line a few hours or days before they go into a vehicle, auto makers don’t pay for what they don’t use. They save on warehouses and the people to manage them.

But as supply chains get more global and car makers increasingly rely on single suppliers, the system has grown brittle. The crises are more frequent.

………

A freak snowstorm in Texas in mid-February shut down a refinery that feeds production of 85% of resins produced in the U.S. Those resins go into components from car bumpers to steering wheels. They’re some of the least expensive raw materials in a car, but they go into seat foam, and dealers can’t sell a car without seats.

At the end of March, Toyota shut down production at several U.S. plants due to the shortage, according to a schedule seen by The Wall Street Journal, hitting production of some of its bestsellers, including the RAV4 sport-utility vehicle. 

Obviously, excessive inventory can be as much of a problem as not enough, but when you have inventory levels that are measured in hours, as opposed to weeks, when something goes wrong, you are completely f%$#ed.

Boeing Still Can’t Make Planes

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The FAA will audit Boeing following the discovery of a serious manufacturing flaw.

The short version of this is that Boeing has systematically dismantled procedures to allow employees to report safety issues on the shop floor to senior management, because the management fetishist MBA culture that was imported from McDonnell Douglas when they acquired the firm.

Since McDonnell took over Boeing with Boeing’s money, they have systematically dismantled every advantage that Boeing once they came on board:

Boeing Co. is facing an audit to determine why changes in its manufacturing practices on the 737 Max led to a hazard that went unnoticed for almost two years.

The Federal Aviation Administration, which oversees Boeing and has meted out multiple civil penalties against the planemaker in recent years, said in a statement Thursday that it is also investigating the origin of the manufacturing flaw.

“These initiatives are part of our commitment to continually evaluating and improving our oversight of all aspects of aviation safety, recognizing that catching errors at the earliest possible point enhances what is already the world’s safest form of transportation,” the agency said.

………

The flaws in the electrical components raise new questions about Boeing’s ability to monitor safety issues within the company. The lack of a robust internal safety review and oversight system was cited repeatedly by multiple reviews of the 737 Max crashes.

Until recent months, Boeing didn’t have what is known as a Safety Management System, which requires an organization to conduct more robust risk analyses of design features, open channels for employees to raise concerns and involve senior management.

………

The changes to how certain electrical components were installed on the 737 Max occurred in 2019. At the time, Boeing concluded it was such a minor change that it didn’t require FAA approval, the agency said in a statement. Similarly, Boeing employees who are deputized to act on behalf of the federal regulator also didn’t approve of the changes.

………

The electrical problem was deemed serious enough that the agency said it was waiving the normal period for public comment and would require the repairs as soon as Boeing completes a bulletin detailing them.

Boeing is being run by finance guys, and their business model is tor burn the the company down for the insurance money.

SoftBank-Funded ……… Is Never a Good Start for a Sentence

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It is remarkable just how many enterprises that Softbank funds are fraudulent, criminal, or fraud and criminality adjacent.

When one looks at their investment targets, like WeWork, Uber, and DoorDash, which are basically criminal enterprises, with defrauding investors, evading transportation and safety regulations, and stealing from delivery boys (respectively) being central to their business models.

And now another SoftFank funded dodgy outfit has blown up, Greensill, which financed supply chains.

It’s model was to pay suppliers immediately at a discount, and then collect the difference when the large firms actually buying the stuff paid on a 90 day, and frequently longer, cycle. 

Its finances were sufficiently sketchy that their insurer stopped writing them policies, and then the house of cards collapsed:

Supply chain finance disruptor Greensill is undone by its own financial alchemy, putting at risk thousands of jobs in the UK, Australia and the EU. The timing could not be worse for already buckling supply chains.

Disruptor seems to be a synonym for criminality and ignoring the lessons of finance learned over more than 500 years of fractional reserve banking.

On Monday, the supply chain finance firm Greensill Capital filed for insolvency after defaulting on a $140 million loan it owes to Credit Suisse. Its parent company in Australia had already filed for insolvency there. According to UK court documents, Greensill had “fallen into severe financial distress” and can no longer pay off its debts. Over the past week many of the company’s directors have been frantically jumping ship, including its chairman Maurice Thompson, Australia’s former foreign minister Julie Bishop and former Morgan Stanley executive David Brierwood.

The firm has been in trouble for some time, as I warned in a previous NC post. A number of its client companies already collapsed in 2020. In the aftermath attention switched to the financial menage á trois Greensill had formed with its primary backer, Soft Bank, and Swiss mega-lender Credit Suisse. Greensill was also under investigation by German banking regulator BaFin and the Association of German Banks, an industry group, over its German subsidiary Greensill Bank’s huge exposure to a single client: U.K.-based steel magnate Sanjeev Gupta.

Yep, SoftBank.  

When you want to get in on a fraud, pump it up, and get out leaving suckers holding the bag.

Greensill’s fall from grace was as spectacular as its meteoric rise, writes the FT‘s John Plender:

Greensill Capital went from nothing in 2011, when Lex Greensill abandoned a big-bank career, doing global supply chain financing at Morgan Stanley and Citibank, to go it alone. By 2019 this upstart non-bank says it had extended $US143 billion ($185.5 billion) of financing to 10m-plus customers and suppliers in 175 countries. Its founder also notched up powerful contacts in government and hired former UK prime minister David Cameron as an adviser.

Yeah, hiring David Cameron as an adviser is another tell that they are relying on smoke and mirrors more than anything else. 

It turns out that the model Greensill used was “Working” in the short term because it allowed companies to cook the books:

For large companies the advantages are twofold: they get to preserve cash on-hand by extending payment terms with vendors. They can also record the amount they owe to the supply chain finance firm or bank as accounts payable on the balance sheet rather than as debt. This makes their liquidity position appear healthier than it actually is. And that can be dangerous. Companies can conceal the true size of their debt for longer, leaving investors and creditors bearing bigger losses when they finally collapse, as happened with Spanish green energy giant Abengoa in 2015, UK outsourcing giant Carillion in 2018 and NMC Health, the former FTSE 100 private hospital company, in 2020.

They then repackaged and resold the debt, but this was dependent on these bonds being insured, and when their insurer decided to stop writing policies, and the debt became profoundly unattractive to put it mildly. so the house of cards collapsed.

Once again, though, the principals of the firm will be fine, but this collapse is ricocheting around the trans-national supply chain, and we don’t know when this game of musical chairs will end.

If this sounds familiar to you, it’s because it’s rather similar like Bear Stearns in 2008.

One hopes that the repercussions are less severe.

Out F%$#ing Standing!

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I have been out of work for the past few months, and tomorrow I start a new job at Nozilizer, a company that makes No2 based sterilizers.

As is my wont, I am not going to be blogging about this new job, because this is a way for me to end up on unemployment list.

Even better, it is less than a 10 minute walk from the Lexington Market Metro stop, so I won’t be using my car to commute.

Time for a hearty “Boo Yah!“

After 30 Years and Billions of Dollars the Missile Defense Contractors Still Cannot Solder a Wire Correctly

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Notwithstanding the myriad tough technical problems that are involved, one would think that the Missile Defense Agency would at least be able to make the manufacturers make the interceptors to spec:

Two serious technical flaws have been identified in the ground-launched anti-missile interceptors that the United States would rely on to defend against a nuclear attack by North Korea.

Pentagon officials were informed of the problems as recently as last summer but decided to postpone corrective action. They told federal auditors that acting immediately to fix the defects would interfere with the production of new interceptors and slow a planned expansion of the nation’s homeland missile defense system, according to a new report by the Government Accountability Office.

As a result, all 33 interceptors now deployed at Vandenberg Air Force Base in Santa Barbara County and Ft. Greely, Alaska, have one of the defects. Ten of those interceptors — plus eight being prepared for delivery this year — have both.

Summing up the effect on missile-defense readiness, the GAO report said that “the fielded interceptors are susceptible to experiencing … failure modes,” resulting in “an interceptor fleet that may not work as intended.”

………

One of the newly disclosed shortcomings centers on wiring harnesses embedded within the kill vehicles’ dense labyrinth of electronics.

A supplier used an unsuitable soldering material to assemble harnesses in at least 10 interceptors deployed in 2009 and 2010 and still part of the fleet.

The same material was used in the eight interceptors that will be placed in silos this year, according to GAO analyst Cristina Chaplain, lead author of the report.

The soldering material is vulnerable to corrosion in the interceptors’ underground silos, some of which have had damp conditions and mold. Corrosion “could have far-reaching effects” because the “defective wiring harnesses” supply power and data to the kill vehicle’s on-board guidance system, said the GAO report, which is dated May 6.

………

Chaplain told The Times that based on her staff’s discussions with the Missile Defense Agency, officials there have “no timeline” for repairing the wiring harnesses.

The agency encountered a similar problem with wiring harnesses years earlier, and the supplier was instructed not to use the deficient soldering material. But “the corrective actions were not passed along to other suppliers,” according to the GAO report.

L. David Montague, co-chairman of a National Academy of Sciences panel that reviewed operations of the Missile Defense Agency, said officials should promptly set a schedule for fixing the harnesses.

“The older they are with that kind of a flawed soldering, the more likely they are to fail,” Montague, a former president of missile systems for Lockheed Corp., said in an interview.

The second newly disclosed defect involves a component called a divert thruster, a small motor intended to help maneuver the kill vehicles in flight. Each kill vehicle has four of them.

The GAO report refers to “performance issues” with the thrusters. It offers few details, and GAO auditors declined to elaborate, citing a fear of revealing classified information. They did say that the problem is different from an earlier concern that the thruster’s heavy vibrations could throw off the kill vehicle’s guidance system.

The report and interviews with defense specialists make clear that problems with the divert thruster have bedeviled the interceptor fleet for years. To address deficiencies in the original version, Pentagon contractors created a redesigned “alternate divert thruster.”

The government planned to install the new version in many of the currently deployed interceptors over the next few years and to retrofit newly manufactured interceptors, according to the GAO report and interviews with its authors.

That plan was scrapped after the alternate thruster, in November 2013, failed a crucial ground test to determine whether it could withstand the stresses of flight, the report said. To stay on track for expanding the fleet, senior Pentagon officials decided to keep building interceptors with the original, deficient thruster.

What sort of moron structures a multi-billion dollar multi-year defense system in such a way that there is absolutely no quality control?

To accelerate deployment, then-Defense Secretary Donald H. Rumsfeld exempted the missile agency from the Pentagon’s standard procurement rules and testing standards.

(emphasis mine)

OK, that kind of moron.

Why the hell is the MDA still operating this way? 

Rumsfeld has been “spending more time with his family” for about 9 years, so one would think that the pentagon would be able to correct at least one of his f%$#-ups in the interim.

H/T the hairiest Saroff, aka Bear who Swims.
    o o
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      oo oo

There May Still Be Some Utility Left in the Mk. 1 Human

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Toyota has discovered that robots cannot do it all, and that they need highly experienced experts to maximize the productivity at their plants:

Inside Toyota Motor Corp.’s oldest plant, there’s a corner where humans have taken over from robots in thwacking glowing lumps of metal into crankshafts. This is Mitsuru Kawai’s vision of the future.

“We need to become more solid and get back to basics, to sharpen our manual skills and further develop them,” said Kawai, a half century-long company veteran tapped by President Akio Toyoda to promote craftsmanship at Toyota’s plants. “When I was a novice, experienced masters used to be called gods, and they could make anything.”

These gods, or “kami-sama” in Japanese, are making a comeback at Toyota, the company that long set the pace for manufacturing prowess in the auto industry and beyond. Toyota’s next step forward is counterintuitive in an age of automation: Humans are taking the place of machines in plants across the nation so workers can develop new skills and figure out ways to improve production lines and the car-building process.

“Toyota views their people who work in a plant like this as craftsmen who need to continue to refine their art and skill level,” said Jeff Liker, who has written eight books on Toyota and visited Kawai last year. “In almost every company you would visit, the workers’ jobs are to feed parts into a machine and call somebody for help when it breaks down.”

The return of the kami-sama is emblematic of how Toyoda, 57, is remaking the company founded by his grandfather as the chief executive officer has pledged to tilt priorities back toward quality and efficiency from a growth mentality. He’s reining in expansion at the world’s-largest automaker with a three-year freeze on new car plants.

………

“What Akio Toyoda feared the company lost when it was growing so fast was the time to struggle and learn,” said Liker, who met with Toyoda in November. “He felt Toyota got big-company disease and was too busy getting product out.”

………

Learning how to make car parts from scratch gives younger workers insights they otherwise wouldn’t get from picking parts from bins and conveyor belts, or pressing buttons on machines. At about 100 manual-intensive workspaces introduced over the last three years across Toyota’s factories in Japan, these lessons can then be applied to reprogram machines to cut down on waste and improve processes, Kawai said.

In an area Kawai directly supervises at the forging division of Toyota’s Honsha plant, workers twist, turn and hammer metal into crankshafts instead of using the typically automated process. Experiences there have led to innovations in reducing levels of scrap and shortening the production line 96 percent from its length three years ago.

Toyota has eliminated about 10 percent of material-related waste from building crankshafts at Honsha. Kawai said the aim is to apply those savings to the next-generation Prius hybrid.

The work extends beyond crankshafts. Kawai credits manual labor for helping workers at Honsha improve production of axle beams and cut the costs of making chassis parts.

Though Kawai doesn’t envision the day his employer will rid itself of robots — 760 of them take part in 96 percent of the production process at its Motomachi plant in Japan — he has introduced multiple lines dedicated to manual labor in each of Toyota’s factories in its home country, he said.

“We cannot simply depend on the machines that only repeat the same task over and over again,” Kawai said. “To be the master of the machine, you have to have the knowledge and the skills to teach the machine.”

True dat.

Guys on the shop floor are an invaluable source of knowledge and wisdom.

Bummer of a Birthmark, Boeing

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A Boeing 787 caught fire at Heathrow, though there are no indications that batteries are involved:

Investigators classified the fire that broke out on a Boeing 787 Dreamliner parked at London’s Heathrow airport as a “serious incident” but have found no evidence it was caused by the plane’s batteries, Britain’s Air Accidents Investigation Branch (AAIB) said on Saturday.

 The question of whether the fire was connected to the batteries is crucial because the entire global fleet of Dreamliners, Boeing’s groundbreaking new flagship jet, was grounded for three months this year due to battery-related problems.

 The AAIB designation fell just short of a full-blown “accident” on the scale it uses to describe investigations. The agency’s preliminary probe is expected to take several days, opening up Boeing to more questions about its top-selling plane.

When Boeing decided that it would be a good idea to outsource most of its expertise to “risk sharing partners”, it was pretty much inevitable.

As I noted 2 years ago in the case of Dell Computer, this is penny wise and pound foolish:

So the decline of manufacturing in a region sets off a chain reaction. Once manufacturing is outsourced, process-engineering expertise can’t be maintained, since it depends on daily interactions with manufacturing. Without process-engineering capabilities, companies find it increasingly difficult to conduct advanced research on next-generation process technologies. Without the ability to develop such new processes, they find they can no longer develop new products. In the long term, then, an economy that lacks an infrastructure for advanced process engineering and manufacturing will lose its ability to innovate.

Boeing’s problems are further complicated by the fact that its partners did not have the time to develop the expertise to do the job right, so now we have a troubled airliner where the sum of the parts is less than the whole.

Just Read This

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It’s an article, from Forbes of all places, which explains how our zeal to become a “knowledge economy” is razing our economy to the ground.

They use Dell Computer as an example:

ASUSTeK started out making the simple circuit boards within a Dell computer. Then ASUSTeK came to Dell with an interesting value proposition: “We’ve been doing a good job making these little boards. Why don’t you let us make the motherboard for you? Circuit manufacturing isn’t your core competence anyway and we could do it for 20% less.”

Dell accepted the proposal because from a perspective of making money, it made sense: Dell’s revenues were unaffected and its profits improved significantly. On successive occasions, ASUSTeK came back and took over the motherboard, the assembly of the computer, the management of the supply chain and the design of the computer. In each case Dell accepted the proposal because from a perspective of making money, it made sense: Dell’s revenues were unaffected and its profits improved significantly. However, the next time ASUSTeK came back, it wasn’t to talk to Dell. It was to talk to Best Buy and other retailers to tell them that they could offer them their own brand or any brand PC for 20% lower cost.

It’s an evocative example, and one which is easily understand, but the problem is that it invites the criticism that it’s just another mindless “Yellow Peril” argument.

The meat of the argument, at least to me as an engineer, is further down:

So the decline of manufacturing in a region sets off a chain reaction. Once manufacturing is outsourced, process-engineering expertise can’t be maintained, since it depends on daily interactions with manufacturing. Without process-engineering capabilities, companies find it increasingly difficult to conduct advanced research on next-generation process technologies. Without the ability to develop such new processes, they find they can no longer develop new products. In the long term, then, an economy that lacks an infrastructure for advanced process engineering and manufacturing will lose its ability to innovate.

One of the arguments made by what used to be called “Atari Democrats” in the 1980s was that we could dump all the manufacturing, and then we could all sit behind desks and create the ideas for the lesser (i.e. non-white) people to manufacture.

It’s simply wrong.  When you no longer make stuff, you no longer know how to make stuff, and when you no longer know how to make stuff, you can no longer come up with viable ideas.

The question is whether we want to have the German economy, or the Mexican one, and increasingly, it appears that we are trying to achieve the latter, since by making everyone else poorer, it makes the people at the top of the pyramid comparatively richer, and they are the ones who make the big campaign donations.

Read all 4 parts.

H/t DC on Stellar Parthenon BBS.

Year End Auto Wrap Up

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Click for full size

Numbers are year over year h/t CNN

The surprising news is that in 2009, more old cars were scrapped than new cars were bought, meaning that the US auto fleet fell to 246 million from 250 million.

Note that “cash for clunkers” accounted for only about 700,000 vehicles, so the auto fleet would have contracted without the program.

This is the first time that the US fleet has shrunk since probably the end of WWII.

So the year sucked in terms of sales, though December was good for Ford and Toyota, but bad for GM and Chrysler.

Sales had to go up, as at their nadir, sales would have resulted in a fleet age of almost 30 years.

Economics Update

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Click for full size

Commercial Real Estate Delinquencies
$ billion


Percentage
CRE Data H/t Realpoint (PDF) and FT Alphaville


ISM Employment Index v BLS Manufacturing Employment H/t Calculated Risk


Construction Spending

Yeah, we are in some sort of recovery, though I still think that the underlying problems, particularly as pertain to finance and real estate, have not been addressed.

The Institute for Supply Management’s Manufacturing index rose to 55.7 in October, up from September’s 52.6 and its Manufacturing Employment index rose to 53.1, the first time that this index has broken 50, showing expansion, since April 2006.

On the other side of the Pacific, we have Chinese manufacturing growing for the 8th straight month.

Real estate news appears to be improving too, with construction spending rising in September, and the NAR’s Pending Home Sales Index rising for the 8th month in a row.

This news has had the anticipated effects in currency and energy, with the dollar falling on an increased risk appetite, and oil rising in expectation of increased demand.

Economics Update

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Well, let’s start with the good news, that the Conference Board’s consumer confidence index has risen to a 7 month high, I think largely on Obama being president more than anything else, seeing as how the manufacturing reports from the
New York and Philadelphia Federal Reserve Banks, continue to show contraction, though the press is still crowing about how these reports show that the rate of contraction is easing, despite the fact that manufacturing fell in March by the largest amount since VE day, almost 64 years ago.

Taking the rate of change month to month is stupid, it’s the noisiest way to measure things, but there is real pressure to report prosperity “just around the corner,” because the alternative is to make real systemic changes that would have to be to the disadvantage of people like bank and brokerage presidents.

The fact that housing starts fell again, (top pic) and the weekly jobless numbers remained at very high levels, they dropped a bit, but continuing claims (bottom pic) remained at scary numbers. (click pics to be taken to the Calculated Risk posts in question)

CRE is suffering too, with office vacancies rising to a 3 year high.

Citi actually reported better quarterly numbers than expected, losing about 18¢ a share, less than the forecast 32¢.

Part of the problem is that we are still seeing distressed bonds selling for 3.5¢ on the dollar:

Credit-default swaps traders set a value of 3.25 cents on the dollar for bonds of an AbitibiBowater Inc. unit to settle derivatives linked to the newsprint maker that’s now in bankruptcy protection.

The price means sellers of credit swaps guaranteeing as much as $1.1 billion against a default by the Abitibi- Consolidated unit would pay 96.75 cents on the dollar to settle the contracts. Eleven dealers, including JPMorgan Chase & Co., Barclays Plc and Morgan Stanley, bid in the auction, which was administered by Markit Group Ltd. and broker Creditex Group Inc.

Oh…..My…..Ghod!

This might explain why BankUnited has been given 20 days by regulators to find a buyer, or they will be shut down.

Meanwhile, oil rose slightly on the consumer confidence numbers, as did the US dollar and Pound Sterling.

Economics Update

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We have a report that consumer confidence is improving, according to the IBD/TIPP economic optimism index, which rose to 49.1 from 45.3, which is only slightly pessimistic, 50 being neutral.

I have no idea if the folks at at Investors Business Daily/TIPP actually run a good poll, but it does look like consumer confidence is up a bit, though the Federal Reserve’s view of the economy remains gloomy.

Certainly with wholesale inventories falling by 1.5% in February, the largest drop in 17 years, there are some bright spots here, because as inventories fall, orders have to be made to restock.

The same cannot be said for commercial real estate, with
mall vacancies at a 10-Year high, and office t rents falling significantly in San Francisco.(-24% year over year !)

Rents fell for apartments in Southern California and nation wide too, which tends to mitigate the impetus for people to buy homes, so I think that the continued increase in mortgage applications is still largely Refi activity.

The credit markets still suck which is why the Fed is looking at offering longer term loans at a higher interest rate for TALF, even as participation in the program is less than anticipated, indicating that investors are still leery of investing in things like mortgage backed securities.

In international finance, Fitch has followed S&P’s lead, and downgraded Ireland’s sovereign debt.

The Treasury has expanded TARP to cover insurance companies, including some of the very big names, such as Hartford, Prudential, and Met Life.

This Problem is getting smaller, not bigger.

Finally, both oil and the US dollar rose today, on a less then expected inventory for the former, and a flight to safety for the latter.

Economics Update

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Yeah, I know, I don’t normally do the stock market indices, but the Dow fell to below 7000 today, and closed at 6,763.29, a 12 year low, and you can be sure that this spooks both the markets, and the regulators.

More significant is the fact that personal savings in the US are way up, and as the graph from Calculated Risk shows.

It’s been over a decade since personal savings were that high, and while generally this would be a good thing™, right now the fact that people are deleveraging means that the economy is driven even further down.

It makes sense personally, but in the aggregate, it makes things worse.

Interestingly enough, even with the increase in savings, consumer spending rose in January by 0.6%, which was unexpected, as did incomes, bu 0.4%, which was also a surprise.

I think that it is a one month thing, though it might be the “Obama Effect,” making people more willing to spend now that a Bush and His Evil Minions™ are no longer running things, but in either case the effect is small, and unless we see increases for the next few months, things won’t get better.

We also saw the Institute for Supply Management’s manufacturing index rise to 35.8 from 35.6, beating expectations of a fall to 33.8, but note that this means merely that it’s contracting slightly less implosively than it would otherwise: any number below 50 is a contraction, and this makes 13 straight months of contraction.

The full link to the ISM monthly report is here, and it should be noted that their employment index is at all time (since 1947) low.

In real estate, construction dropped to a 4½ year low.

Meanwhile, the AIG bailout, and the concerns that it raises has driven oil down on concerns of more turmoil in the banking system, and has driven the dollar up in a flight to safety.

Economics Update

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December 2008 Business Outlook Survey – Philadelphia Fed.
Calculated Risk gives us the following graph pr0n on the relation beteween the Philly Fed index and recessions

30-year mortgage lowest in 37 years of Freddie Mac survey – MarketWatch

Also note the Institute for Supply Management’s manufacturing index, which, as Bondad Notes, has fallen off a cliff over the past two months.

If you go to the ISM’s report, you will see that the pretty much everything is down, and down significantly:

The two industries reporting growth in November — listed in order — are: Apparel, Leather & Allied Products; and Paper Products. The industries reporting contraction in November are: Nonmetallic Mineral Products; Fabricated Metal Products; Textile Mills; Printing & Related Support Activities; Machinery; Electrical Equipment, Appliances & Components; Primary Metals; Transportation Equipment; Furniture & Related Products; Plastics & Rubber Products; Computer & Electronic Products; Chemical Products; Petroleum & Coal Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; and Wood Products.

With industrial production cratering, it is no surprise that first time job claims are still at a high level, though they have retreated from last week’s catestrophic numbers, and the 4 week rolling average is up, though continuing claims are down, though I can’t tell if that’s from claim exhaustion, people giving up, or people going back to work, though my money would be on one, or both, of the first two.

Over on the other side of the pond, corporate sentiment is falling in Germany, and the ECB is taking rate cut like steps, even if they are not technically rate cuts, to boost the economy.

In the intersection of real estate and banking, the rate for a 30 year fixed mortgage hit the lowest number ever recorded, and records go back 37 years, though Calculated Risk (again) notes what the rate is for Jumbo loans, which not handled by Fannie and Freddie, who now have an explicit guarantee from the government, the numbers are very different:

As an example Wells Fargo is offering a 30 year fixed at 4.75% (up to $417K), but their rates are 7.375% for loans above that limit.

That’s a 7.375% is 55% more than 4.75%. That’s a lot of flight to safety.

In currency, the dollar is up a bit, which is not surprising. It’s enough time for the shock from the Fed’s rate cut to have worn off.

I still think that hte trend for the dollar is weaker.

In oil, even though OPEC announced large production cuts, fell below $36/bbl.

It could be that oil traders do not believe that the cuts will be followed, or that they think that the economy is so bad that it does not matter, or that there are still people who need cash and are selling oil contracts to get it.

My vote would be for all three.

Economics Update

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It’s generally not been a good year for manufacturing and construction, with the Institute for Supply Management’s (ISM) manufacturing index falling to 49.9, with any number below 50 meaning contraction, though I wonder how much inflation is being measured as “growth”, which is what I think is driving much of the US Commerce Department data showing an increase in factory orders.

I think that this is entirely export driven growth, a position that the abysmal auto sales reinforces, but these export sales are being driven by a cheap dollar, which will eventually drive interest rates higher in the US (foreigners will demand higher returns), crushing domestic consumption.

That being said, construction is clearly cratering, falling 0.6% in July, twice expectations.

Meanwhile, banking continues to look pretty heinous with the FDIC expanding office space in the expectation of a spate of bank failures, S&P downgrading two regional banks, and suggesting that 37% of regional banks will be down graded.

Additionally, when GMACis laying off thousands, you know that the industry is in dire straits.

With Euro zone inflation falling, it appears that the ECB will hold rates steady, for a while at least, which will serve to keep the dollar relatively strong, as evidenced by the US Dollar’s rise today.

Since the hurricanes in the Gulf were relatively mild, oil and gasoline have continued their downward path.