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Economist sees signs of manufacturing slowdown in Greenville-Anderson

Manufacturing
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Manufacturing jobs have been on the decline for the past few months in the Greenville-Anderson-Mauldin metropolitan statistical area. Hiring is up in the sector that includes temporary workers. Meanwhile, exports are down.

It’s not much to go on yet, says economist Bruce Yandle, but it’s raising concerns about the effect a trade war with China is having on the economy. Yandle is distinguished adjunct fellow for the Mercatus Center at George Mason University and former Clemson University dean.

“Unfortunately, with limited data on the Upstate or even for the state in some cases, I cannot offer excellent answers,” Yandle said in an email. “But first consider manufacturing employment growth for Greenville-Anderson-Mauldin. The growth rate has been negative — job losses — since May 2019 and continuing negative through July, which is the latest reading.”

Statewide, it’s different, he pointed out. Manufacturing employment has been growing, including in Spartanburg County, where more than 10,000 people work in the BMW Manufacturing plant.

“For Greenville-Anderson-Mauldin, I watch the growth of employment in professional and business services, which includes temporary workers, as a proxy for pessimism about the future for manufacturing,” Yandle wrote. “Positive growth indicates pessimism if manufacturing employment is falling. The growth in professional and business services employment for the G-A-M (Greenville-Anderson-Mauldin) area turned strong positive in July.”

Yandle said the national purchasing managers’ index, better known as the PMI, went into negative growth territory when the August numbers were posted, affected significantly by a sharp decline in exports. And exporting industries are the ones most affected by the U.S.-China trade war, he said.

“Probing a bit on this point, I checked data on shipments through the Port of Charleston,” he said. “Export shipments were down 2.3% in June, relative to the month before. For the year, January 2019-June 2019, export shipments are down 2.5%. But get this, vehicle shipments — read BMW — are down 15.9%, January through June 2019.”

BMW and Mercedes together accounted for 57% of the 230,115 vehicles exported to China from the U.S. in 2018, according to Automotive News, and X-models built in Spartanburg were 12% of the company’s China sales.

Phil DiIanni, corporate communications manager for BMW of North America, said he does not yet have export numbers for 2019, but added that an export decline may not be caused by tariffs.

“I think it’s important to note that any change in export volume — increase or decrease — wouldn’t necessarily be related to tariffs,” he said in an email. “There are many factors that determine export volume — chief among is market demand. I can tell you that export volumes were down in 2018 as compared to 2017 due to the added local production of the X3 in China, which decreased the need to export the X3 (from South Carolina), and some model changeover.”

But Yandle thinks the new numbers may be related to the tariff battle between China and the United States.

“It seems to me we have serious trade war effects in the U.S. automotive industry,” he wrote. “The latest state leading indicator data for July, published by the Federal Reserve Bank of Philadelphia, show Michigan, Delaware and Kentucky — three heavy auto states — entering the equivalent of a recession in six months. The same leading indicator data for South Carolina and each of the Southeastern states show continued solid growth.”

BMW recently reported that domestic sales are strong for Spartanburg-made BMWs and other models.

“We are happy to say that demand for BMW product in the U.S. remains strong,” Bernhard Kuhnt, president and CEO of BMW of North America, said in a news release. “In addition to our sports activity vehicles, customers are enthusiastic about our increased offerings in the luxury segment, including the newly updated 7 Series and all-new 8 Series.”

BMW sold 12,293 passenger cars in the United States in August 2019 compared with 14,450 in August 2018, down 14.9%, according to information provided by BMW of North America. Sales were down 15.3% year to date. Sales of light trucks were up, 13,212 in August compared with 9,339 last August, a 41.5% increase; and year-to-date sales were up 35.5% to about 97,000 vehicles. When all of that is crunched together, total U.S. sales are up 2.9% so far this year.

Light trucks include the S.C.-made models X3 through X7, DiIanni said, while industry standards classify the X-1 and X-2 as passenger cars.

Dan Ellzey, executive director of the S.C. Department of Employment and Workforce, did not offer comment on the Greenville-Anderson-Mauldin area specifically, but he wrote in his July employment report, which was released Aug. 16, that people are entering the workforce in record numbers and employers are hiring in record numbers.

“As we experience this positive growth, manufacturing in the state has grown by 3.6% since July of 2018,” he said in the report. “In the past year, the manufacturing industry has added more than 9,000 jobs with more than 1,900 of those jobs added in the past month. While this strong growth is encouraging, manufacturers are still anxious to hire, and our agency is meeting with employers around the state to develop creative solutions and programs to find, train and prepare individuals for all of South Carolina’s industries.”

The federal Bureau of Labor Statistics showed 58,900 manufacturing jobs in the Greenville-Anderson-Mauldin area in February and the number was down to 56,300 in June.

“You ask when might we be in trouble and what might we do about it,” Yandle wrote. “With almost 90% of the economy driven by consumer activities, we will be in trouble when they decide to cut back. Recent confidence indicators suggest that may be in the formative stages. The latest round of China tariffs began to hit consumers on Sept. 1. What can we do? We can continue to oppose national policy that imposes taxes on U.S. consumers as a way to punish China or any other trading partner.”

Reach Ross Norton at 864-720-1222.

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October 09, 2019

Something that doesn't seem to correlate with the comment made by Mr. Yandle. His comment “But first consider manufacturing employment growth for Greenville-Anderson-Mauldin. The growth rate has been negative — job losses — since May 2019 and continuing negative through July, which is the latest reading.” He then says, “For Greenville-Anderson-Mauldin, I watch the growth of employment in professional and business services, which includes temporary workers, as a proxy for pessimism about the future for manufacturing,” Yandle wrote. “Positive growth indicates pessimism if manufacturing employment is falling. The growth in professional and business services employment for the G-A-M (Greenville-Anderson-Mauldin) area turned strong positive in July.” Why does growth in professional and business services grow? Because service related industry expansion such as restaurant and hotel, construction related services, etc. that all grow substantially when expansion is occurring. Additionally, temp works are utilized when there is a lack of capable full time workforce to enter the market AND a desire to hire out to service agencies due to lower cost. Reasons for lack of full time workforce is that the qualifications for full time are not being met by the workforce (training/degree requirements, drug screening, lack of desire to pay full time benefits, etc.). Anyone that lives in the GAM area can clearly see record expansion. The number of cars on the road tells the story alone, as new housing starts, need for more hotels, etc. Perhaps partisan teaching at George Mason University? His comment "We can continue to oppose national policy that imposes taxes on U.S. consumers as a way to punish China or any other trading partner.” makes it clear that he sees this under a political view. Note the National Retail Federation says this will be a big year for sales - apparently with retail growing as well as auto sales (per this article) there are plenty of people buying and this is not a "consumer tax" issue related to tariffs.