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Volvo Trucks And That 12%

By Alhambra Investment Partners, LLCStock MarketsDec 03, 2015 01:40AM ET
www.investing.com/analysis/volvo-trucks-and-that-12-374008
Volvo Trucks And That 12%
By Alhambra Investment Partners, LLC   |  Dec 03, 2015 01:40AM ET
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Volvo Trucks (L:0HTP) announced yesterday that they were laying off a quarter of the 2,800 people employed at its plant in Dublin, VA. Notifications were made according to regulations about mass layoffs, these set to take place in February. While the loss of 730 jobs clearly falls within the “12%” of the manufacturing recession, the reason for them lies outside that figure.

“We communicated in the second quarter that we expected 2015 to be the truck market’s peak year in this cycle, and it’s now clear we’re going through an industry-wide correction. We regret having to take this action, but we operate in a cyclical market, and we have to adapt to market demand,” a Volvo spokesperson said in a statement. “Highway customers, who drove much of the recent market growth, have largely accomplished the expansion and renewal of their fleets, so demand from that segment in particular is softening. The U.S. economy also is navigating through a soft interval caused by high inventory levels, which has decreased manufacturing and freight levels.”

These are what economists like to call “feedback mechanisms” that usually produce multiplier effects in their models where they allow them. In this case, the “goods economy” is far more than the 12% that supposedly limits to manufacturing alone; high inventory and lower spending leaves not just less to be produced, but shipped and sold. The goods economy reaches far into even the supposedly robust service sector, especially over time as especially these negative outcomes reverberate far and wide.

This is, of course, just one small anecdote in an overwhelming sea of more indeterminate and debatable conditions, but it is useful at this juncture to pierce the misleading intentions about that 12% figure. If we have a manufacturing recession, then it doesn’t stay in just manufacturing. A manufacturing recession is not a “thing” of itself, it is a warning that “something” in the whole of the economy is very wrong.

Volvo Trucks And That 12%
 

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Volvo Trucks And That 12%

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