Chart of manufacturing production by China, USA, Japan and Germany from 1999 to 2011. The chart was created by the Curious Cat Economics Blog using UN data. You may use the chart with attribution. All data is shown in current USD (United States Dollar).

The story of global manufacturing production continues to be China’s growth, which is the conventional wisdom. The conventional wisdom however is not correct in the belief that the USA has failed. China shot past the USA, which dropped into 2nd place, but the USA still manufactures a great deal and has continually increased output (though very slowly in the last few years).

The story is pretty much the same as I have been writing for 8 years now. The biggest difference in that story is just that China actually finally moved into 1st place in 2010 and, maybe, the slowing of the USA growth in output (if that continues, I think the USA growth will improve). I said last year, that I expected China to build on the lead it finally took, and they did so. I expect that to continue, but I also wouldn’t be surprised to see China’s momentum slow (especially a few more years out – it may not slow for 3 or 4 more years).

As before, the four leading nations for manufacturing production remain solidly ahead of all the rest. Korea and Italy had manufacturing output of $313 billion in 2011 and Brazil moved up to $308 are in 4-6 place. Those 3 countries together could be in 4th place (ahead of just Germany). Even adding Korea and Italy together the total is short of Germany by $103 in 2011). I would expect Korea and Brazil to grow manufacturing output substantially more than Italy in the next 5 years.

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The largest manufacturing countries are China, USA, Japan and then Germany. These 4 are far in the lead, and very firmly in their positions. Only the USA and China are close, and the momentum of China is likely moving it quickly ahead – even with their current struggles.

The chart below shows manufacturing production by country as a percent of GDP of the 10 countries that manufacture the most. China has over 30% of the GDP from manufacturing, though the GDP share fell dramatically from 2005 and is solidly in the lead.

Nearly every country is decreasing the percentage of their economic output from manufacturing. Korea is the only exception, in this group. I would expect Korea to start following the general trend. Also China has reduced less than others, I expect China will also move toward the trend shown by the others (from 2005 to 2010 they certainly did).

For the 10 largest manufacturing countries in 2010, the overall manufacturing GDP percentage was 24.9% of GDP in 1980 and dropped to 17.7% in 2010. The point often missed by those looking at their country is most of these countries are growing manufacturing, they are just growing the rest of their economy more rapidly. It isn’t accurate to see this as a decline of manufacturing. It is manufacturing growing more slowly than (information technology, health care, etc.).

This chart shows manufacturing output, as percent of GDP, by country and was created by the Curious Cat Economics Blog based on UN data. You may use the chart with attribution.

The manufacturing share of the USA economy dropped from 21% in 1980 to 18% in 1990, 15% in 2000 and 13% in 2010. Still, as previous posts show, the USA manufacturing output has grown substantially: over 300% since 1980, and 175% since 1990. The proportion of manufacturing output by the USA (for the top 10 manufacturers) has declined from 33% in 1980, 32% in 1990, 35% in 2000 to 26% in 2010. If you exclude China, the USA was 36% of the manufacturing output of these 10 countries in 1980 and 36% in 2010. China’s share grew from 7.5% to 27% during that period.

The United Kingdom has seen manufacturing fall all the way to 10% of GDP, manufacturing little more than they did 15 years ago. Japan is the only other country growing manufacturing so slowly (but Japan has one of the highest proportion of GDP from manufacturing – at 20%). Japan manufactures very well actually, the costs are very high and so they have challenges but they have continued to manufacture quite a bit, even if they are not growing output much.

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Chart of manufacturing production by the top 10 manufacturing countries (2000 to 2010). The chart was created by the Curious Cat Economics Blog. You may use the chart with attribution. All data is shown in 2010 USD (United States Dollar).

In my last post I looked at the output of the top 10 manufacturing countries with a focus on 1980 to 2010. Here I take a closer look at the last 10 years.

In 2010, China took the lead as the world’s leading manufacturing country from the USA. In 1995 the USA was actually very close to losing the lead to Japan (though you wouldn’t think it looking at the recent data). I believe China will be different, I believe China is going to build on their lead. As I discussed in the last post the data doesn’t support any decline in Chinese manufacturing (or significant moves away from China toward other South-East Asian countries). Indonesia has grown quickly (and have the most manufacturing production, of those discussed), but their total manufacturing output is less than China grew by per year for the last 5 years.

The four largest countries are pretty solidly in their positions now: the order will likely be China, USA, Japan, Germany for 10 years (or longer): though I could always be surprised. In the last decade China relentlessly moved past the other 3, to move from 4th to 1st. Other than that though, those 3 only strengthened their position against their nearest competitors. Brazil, Korea or India would need to increase production quite rapidly to catch Germany sooner. After the first 4 though the situation is very fluid.

Taking a closure look at the large group of countries after top 4. Chart of manufacturing production from 2000-2010.

Chart of manufacturing production by the leading manufacturing countries (2000 to 2010). The top 4 countries are left off to look more closely at history of the next group. The chart was created by the Curious Cat Economics Blog based on UN data. You may use the chart with attribution.

Removing the top 4 to take a close look at the data on the other largest manufacturing countries we see that there are many countries bunched together. It is still hard to see, but if you look closely, you can make out that some countries are growing well, for example: Brazil, India and Indonesia. Other countries (most in Europe, as well as Mexico) did not fare well in the last decade.

The UK had a particularly bad decade, moving from first place in this group (5th in the world) to 5th in this group and likely to be passed by India in 2011. Europe has 4 countries in this list (if you exclude Russia) and they do not appear likely to do particularly well in the next decade, in my opinion. I would certainly expect Brazil, India, Korea and Indonesia to out produce Italy, France, UK and Spain in 2020. In 2010 the total was $976 billion by the European 4 to $961 billion by the non-European 4. In 2000 it was $718 billion for the European 4 to $343 billion (remember all the data is in 2010 USD).

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Chart of output by top 10 manufacturing countries from 1980 to 2010. The chart was created by the Curious Cat Economics Blog based on UN data. You may use the chart with attribution.

China has finally actually taken the lead as the largest manufacturer in the world. Reading many news sources and blogs you may have thought the USA lost the lead a couple of decades ago, but you would be wrong. In 1995 it looked like Japan was poised to take the lead in manufacturing production, but they have slumped since then (still they are solidly the 3rd biggest manufacturer). China has been growing manufacturing output enormously for 20 years, and they have now taken the lead from the USA.

As I have been saying for years the biggest economic story about manufacturing is the dramatic and long term increase of productive capacity in China. The next is the continuing global decline in manufacturing employment: increased productivity has seen production rise year after year and employment fall. What is the next most interesting stories is debatable: I would say the continuing failure to appreciate the continuing strong manufacturing production increases by the USA. Another candidate is the the decline in Japan. Another is the increase in several other counties: Korea, Brazil, India, Indonesia…

Looking more closely at some of the long term data shows how much China stands out. From 1980 to 2010 China increased output 1345%. The total top 10 group increased output 302% (all data is in current USD so inflation accounts for most of the gain, 100 1980-USD equal 280 2010-USD). From 1995 to 2010 China increased output 543%. The group increased 64%. For 1980-2010, the results for the other 3 largest manufacturing countries are: USA up 218%, Japan up 261% and Germany up 148% (other countries doing very well are Korea up 1893% and India up 737%). Looking at the last half of that period, from 1995-2010 the: USA up 44%, Japan down 11% and Germany up 19%.

One thing to remember about adjusting manufacturing data for inflation is that often the products created in later years are superior and cost less. So that a computer manufactured in 1990 which added $5,000 to the manufacturing total is far inferior to one in 2010 that added just $1,000. This point is mainly to say that while the increase in manufacturing in real (not inflated dollars) is not as high as it might seem the real value of manufacturing good did likely increase a great deal. But the economic data is based on price so manufacturing increases are reduced by cost decreases. Computers are the most obvious example, but it is also true with many other manufactured goods.

You can that the other largest manufacturing countries fail to keep up with the increases of the entire group of the top 10. China’s gains are just too large for others to match. If you remove China’s results (just to compare how the non-China countries are doing) from 1980-2010 the increase was 216% (so compared to the other 9 top manufacturers over this period the USA was even and Japan better than the average and Germany was worse). And from 1995-2010 the top 9 group (top 10, less China) increased just 28%: so the USA beat while Japan and Germany did worse than the other 9 as a group.

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My preference is for a lower use of bonds than the normal portfolio balancing strategies use. I just find the risks greater than the benefits. This preference increases as yields decline. Given the historically low interest rates we have been experiencing the last few years (and low yields even for close to a decade) I really believe bonds are not a good investment. Now for someone approaching or in retirement I do think some bonds are probably wise to balance the portfolio (or CDs). But I would limit maturities/duration to 2 or 3 years. And really I would pursue high yielding stocks much more than normal.

In general I like high yielding stocks for retirement portfolios. Many are very good long term investments overall and I prefer to put a portion of the portfolio others would place in bonds in high yielding stocks. Unfortunately 401(k) [and 403(b)] retirement accounts often don’t offer an option to do this. Luckily IRAs give you the options to invest as you chose and by placing your IRA in a brokerage account you can use this strategy. In a limited investing option retirement account [such as a 401(k)] look for short term bond funds, inflation protected bonds and real estate funds – but you have to evaluate if those funds are good – high expenses will destroy the reasons to invest in bond funds.

There are actually quite a few attractive high yield stocks now. I would strive for a very large amount of diversity in high yield stocks that are meant to take a portion of the bonds place in a balanced portfolio. In the portion of the portfolio aimed at capital appreciation I think too much emphasis is placed on “risk” (more concentration is fine in my opinion – if you believe you have a good risk reward potential). But truthfully most people are better off being more diversified but those that really spend the time (it takes a lot of time and experience to invest well) can take on more risk.

A huge advantage of dividends stocks is they often increase the dividend over time. And this is one of the keys to evaluate when selected these stock investments. So you can buy a stock that pays a 4% yield today and 5 years down the road you might be getting 5.5% yield (based on increased dividend payouts and your original purchase price). Look for a track record of increasing dividends historically. And the likelihood of continuing to do so (this is obviously the tricky part). One good value to look at is the dividend payout rate (dividend/earnings). A relatively low payout (for the industry – using an industry benchmark is helpful given the different requirement for investing in the business by industry) gives you protection against downturns (as does the past history of increasing payouts). It also provides the potential for outsized increases in the future.

There are a number of stocks that look good in this category to me now. ONEOK Partners LP pays a dividend of 5.5% an extremely high rate. They historically have increased the dividend. They are a limited partnership which are a strange beast not quite a corporation and you really need to read up and understand the risks with such investments. ONEOK is involved in the transportation and storage of natural gas. I would limit the exposure of the portfolio to limited partnerships (master limited partnerships). They announced today that the are forecasting a 20% increase in 2012 earnings so the stock will likely go up (and the yield go down – it is up 3.4% in after hours trading).

Another stock I like in this are is Abbott, a very diversified company in the health care field. This stock yields 3.8% and has good potential to grow. That along with a 3.8% yield (much higher than bond yields, is very attractive).

My 12 stocks for 10 year portfolio holds a couple investments in this category: Intel, Pfizer and PetroChina. Intel yields 3.9% and has good growth prospects though it also has the risk of deteriorating margins. There margins have remains extremely high for a long time. Maybe it can continue but maybe not. Pfizer yeilds 4.6% today which is a very nice yield. At this time, I think I prefer Abbott but given the desire for more diversification in this portion of the portfolio both would be good holdings. Petro China yields 4% today.

When invested in a retirement portfolio prior to retirement I would probably just set up automatic reinvesting of the dividends. Once in retirement as income is needed then you can start talking the dividends as cash, to provide income to pay living expenses. I would certainly suggest more than 10 stocks for this portion of a portfolio and an investor needs to to educate themselves evaluate the risks and value of their investments or hire someone who they trust to do so.

Related: Retirement Savings Allocation for 2010 – S&P 500 Dividend Yield Tops Bond Yield: First Time Since 1958 – 10 Stocks for Income Investors

China continues to grow manufacturing is output. In 2009, the USA, and most countries saw declines in manufacturing production. China, however, continued to grow. China is now finally approaching the level of manufacturing done in USA. The latest data again shows the USA is the largest manufacturer but China looks poised to take over the number one spot soon.

The chart showing manufacturing output by country was created by the Curious Cat Economics Blog based on UN data (in 2009 USA dollars). You may use the chart with attribution.

The large decline in Germany was 23%. This was a 18% decline in Euro terms, and when you added the decline of the Euro the total USA dollar decline was 23%. Quite extraordinary. Most European countries were down over 15%. In fact, so extraordinary it makes me question the data. World economic data is useful and interesting but it isn’t perfect. USA manufacturing declined just .5%. China increased manufacturing production by 9%.

The last 2 years, China has stopped separating out mining and utilities from manufacturing. The percentage of manufacturing (to manufacturing, mining and utilities) was 78% for 2005-2007 (I used 78% of the manufacturing, mining and utilities figure provided in the 2008 and 2009 data – but that could be wrong). The unadjusted 2009 China total was $2.05 trillion and for the USA the total manufacturing, mining and utilities was $2.33 trillion. In 2009, the manufacturing total was 76% of USA manufacturing, mining and utilities. The percentage varies significantly between countries (the Russian federation is about 55% and Japan about 91%) and various over time as a countries economy changes.

The big, long term story remains the same. China has continued to grow manufacturing output tremendously. I see very little data to support the stories about manufacturing having to leave China to go elsewhere (especially when you look at the “lower wages” counties mentioned in news stories – they are not growing at any significant rate). The USA is still manufacturing a huge amount and that production has steadily grown over time.

When you look back over the period from 1980 to today you can see

1. The biggest story is the growth in Chinese manufacturing
2. The USA started out the largest and has grown significantly
3. Japan did very well from 1980 to 1995, and since they have struggled
4. The USA, China, Japan are really far ahead of other countries in total manufacturing output, and Germany is solidly in 4th place.
5. After that the countries are fairly closely grouped together. Though there are significant trends hidden by the scale of this graph, which I will explore in future posts. South Korea has growth significantly over this period, for example.
6. The biggest macro trend that the data shows, but is not so visible in this chart (other than China’s growth), is the very strong performance of emerging markets (and in fact some counties have fully become manufacturing powerhouses during this period, most notably China but also, South Korea and Brazil). And I see that continuing going forward (though that is speculation).

Two more interesting pieces of data. Italy is the 5th largest manufacturing country, I don’t think many people would guess that. Since 1980 Italy surpassed the UK and France but China rocketed passed them. And Indonesia has moved into 14th place, edging out Canada in 2009.

I plan to take more time in 2011 to look at global manufacturing and other global economic data more closely and to write about it here.

Related: Data on the Largest Manufacturing Countries in 2008 – Top 12 Manufacturing Countries in 2007 – Top 10 Manufacturing Countries 2006 – Leading global manufacturers in 2004

The world today has a much different economic landscape than just 20 years ago. China’s amazing economic growth is likely the biggest story. But the overwhelming success of many other countries is also a huge story. Today it is not the developing world that has governments spending taxes they promise their grandchildren will pay, but instead the richest countries on earth that choose to spend today and pay tomorrow. While “developing” countries have well balanced government budgets overall.

The chart shows gross government debt as percentage GDP from 1990-2009. By Curious Cat Investing and Economics Blog, Creative Commons Attribution. Data source: IMF

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There are plenty of reasons to question this data but I think it gives a decent overall picture of where things stand. It may seem like government debt should be an easy figure to know but even just agreeing what would be the most reasonable figure for one country is very difficult, comparing between countries gets even more difficult and the political pressures to reduces how bad the data looks encourages countries to try and make the figures look as good as they can.

The poster child for irresponsible spending is Japan which has gross government debt of 218% of GDP (Japan’s 2009 figure is an IMF estimate). Greece is at 115%. Gross debt is not the only important figure. Government debt held within the country is much less damaging than debt held by those outside the country. Japan holds a large portion of its own debt. If foreigners own your debt then debt payments you make each year are paid outside your country and it is in essence a tax of a portion of your economic production that must be paid. If the debt is internal it mean taxpayers have to support bond holders each year (but at least when those bondholders spend the money it stays within your economy).
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In previous posts I have shown data for global manufacturing output by country. One of the things those posts have showed is that manufacturing output in China is growing tremendously, but it is also growing in the United States. The chart below shows manufacturing production by country as a percent of GDP. China dominates again, with over 30% of the GDP from manufacturing.

Chart showing manufacturing output, as percent of GDP, by country was created by the Curious Cat Economics Blog based on UN data* (based on current USA dollars). You may use the chart with attribution.

For the 14 biggest manufacturing countries in 2008, the overall manufacturing GDP percentage was 23.7% of GDP in 1980 and dropped to 17% in 2008. I left India (15% in 1980, 15% in 2008), Mexico (20%, 18%), Canada (17%, 13%), Spain (25%, 14%) and Russia (21% in 1990 [it was part of USSR in 1980], 15%) off the chart.

Over the last few decades Korea, and to some extent China, are the only countries that have increased the percent of GDP from manufacturing. China has not only grown manufacturing activity tremendously but also other areas of the economy (construction, mining, information technology). The countries with the largest manufacturing portions of their economies in 2008 were: China 32%, South Korea 25%, Japan and Germany at 21%. The next highest is Mexico at 18% which declined slightly over the last 15 years (with NAFTA in place). Globally, while manufacturing has grown, other areas of economic activity have been growing faster than manufacturing.

The manufacturing share of the USA economy dropped from 21% in 1980 to 18% in 1990, 16% in 2000 and 13% in 2008. Still as previous posts show the USA manufacturing output has grown substantially: over 300% since 1980, and 175% since 1990. The proportion of manufacturing output by the USA (for the top 14 manufacturers) has declined from 31% in 1980, 28% in 1990, 32% in 2000 to 24% in 2008. The proportion of USA manufacturing has declined from 33% in 1980, 29% in 1990, 36% in 2000 to 30% in 2008. While manufacturing output has grown in the USA it has done so more slowly than the economy overall.

Related: The Relative Economic Position of the USA is Likely to Decline – Manufacturing Data, Accuracy Questions – Top 12 Manufacturing Countries in 2007 – Manufacturing Employment Data: 1979 to 2007 – USA Manufacturing Output Continues to Increase (over the long term)

* I made edits to the 1980 Brazil manufacturing data and 1980, 1985 and 2008 China manufacturing data because the UN data only showed manufacturing data combined with mining and utility data. And I am using older UN data that had manufacturing separated from mining and utility figures for China in the other years.

The chart shows the total percent of delinquent loans by commercial banks in the USA.

That last half of 2009 saw real estate delinquencies continue to increase. Residential real estate delinquencies increased 143 basis points to 10.14% and commercial real estate delinquencies in 98 basis points to 8.81%. Agricultural loan delinquencies also increased (112 basis points) though to just 3.24%. Consumer loan delinquencies decreased with credit card delinquencies down 18 basis points to 6.4% and other consumer loan delinquencies down 19 basis points to 3.49%.

Related: Loan Delinquency Rates Increased Dramatically in the 2nd Quarter – Bond Rates Remain Low, Little Change in Late 2009 – Government Debt as Percentage of GDP 1990-2008 – USA, Japan, Germany… - posts with charts showing economic data
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Once again the USA was the leading country in manufacturing in 2008. And once again China grew their manufacturing output amazingly. In a change with recent trends Japan grew output significantly. Of course, the 2009 data is going to show the impact of a very severe worldwide recession.

Chart showing the percentage output of top manufacturing countries from 1990-2008 by Curious Cat Management Blog, Creative Commons Attribution.

The first chart shows the USA’s share of the manufacturing output, of the countries that manufactured over $185 billion in 2008, at 28.1% in 1990, 27.7% in 1995, 32% in 2000, 28% in 2005, 28% in 2006, 26% in 2007 and 24% in 2008. China’s share has grown from 4% in 1990, 6% in 1995, 10% in 2000, 13% in 2005, 14% in 2006, 16% in 2007 to 18% in 2008. Japan’s share has fallen from 22% in 1990 to 14% in 2008. The USA has about 4.5% of the world population, China about 20%. See Curious Cat Investment blog post” Data on the Largest Manufacturing Countries in 2008.

Even with just this data, it is obvious the belief in a decades long steep decline in USA manufacturing is not in evidence. And, in fact the USA’s output has grown substantially over this period. It has just grown more slowly than that of China (as has every other country), and so while output in the USA has grown the percentage with China has shrunk. The percentage of manufacturing output by the USA (excluding output from China) was 29.3% in 1990 and 29.6% in 2008. The second chart shows manufacturing output over time.

Chart showing the output of the top manufacturing countries from 1990-2008 by Curious Cat Management Blog, Creative Commons Attribution.

The 2008 China data is not provided for manufacturing alone (the latest UN Data, for global manufacturing, in billions of current USA dollars). The percentage of manufacturing (to manufacturing, mining and utilities) was 78% for 2005-2007 (I used 78% of the manufacturing, mining and utilities figure provided in the 2008 data). There is a good chance this overstates China manufacturing output in 2008 (due to very high commodity prices in 2008).

Hopefully these charts provide some evidence of what is really going on with global manufacturing and counteracts the hype, to some extent. Global economic data is not perfect. These figures are an attempt to capture the economic reality in the world but they are not a perfect proxy. This data is shown in 2008 USA dollars which is good in the sense that it shows all countries in the same light and we can compare the 1995 USA figure to 2005 without worrying about inflation. However foreign exchange fluctuations over time can show a country, for example, having a decline in manufacturing output in some year when in fact the output increased (just the decline against the USA dollar that year results in the data showing a decrease – which is accurate when measured in terms of USA dollars).

If the dollar declines substantially between when the 2008 data was calculated and the 2009 data is calculated that will give result in the data showing a substantial increase in those countries that had a currency strengthen against the USA dollar. At this time the Chinese Renminbi has not strengthened while most other currencies have – the Chinese government is retaining a peg to a specific exchange rate.

Korea (1.8% in 1990, 3% in 2008), Mexico (1.7% to 2.6%) and India (1.4% to 2.5%) were the only countries to increase their percentage of manufacturing output (other than China, of course, which grew from 3.9% to 18.5%).

Related: posts on manufacturing – Global Manufacturing Data by Country (2007) – Global Manufacturing Employment Data – 1979 to 2007 – Top 10 Manufacturing Countries 2006 – Top 10 Manufacturing Countries 2005