From Volume 5, Issue Number 1 of EIR Online, Published Jan. 3, 2006

U.S. Economic/Financial News

Auto Shutdowns: Delphi Would Cripple Saginaw's Budget

The city of Saginaw, Mich. stands to lose at least 5% of its total budget in one stroke, if the two Delphi plants in the vicinity of Saginaw are shut down.

Delphi Energy & Chassis Saginaw Operations employs 1,300 hourly and salaried workers, and Saginaw officials estimate 250 of them live in Saginaw and pay the full 1.5% resident income tax. The remaining 1,050 are assessed the 0.75% rate for non-resident workers. Delphi Steering in Buena Vista Township has 5,500 workers, of whom 1,100 live in Saginaw and pay the 1.5%. Combined, the city is receiving $1.46 million this year in income taxes from Delphi employees, almost 5% of the $33 million general fund for police, fire, and other services. In addition, Delphi E&C also pays $182,000 in property taxes and $100,000 to the city rubbish fund, so the total contribution is about 5.4% of that budget.

Saginaw City Council members could face a $3 million shortfall for fiscal 2006-07, after already eliminating more than one-third of municipal job positions since 2000.

Automakers Expect Further Sales Declines in December

The close of the year 2005 looked grim for the auto industry. Here are some of the updates:

* The Big Three automakers will likely post a further drop in sales in December despite offering incentives, say Wall Street analysts. GM's sales are expected to decline about 8%, Merrill Lynch analyst John Casesa said Dec. 28, noting that GM's sales have declined in nine of the last 12 months compared to the same month a year ago. Sales at Ford are forecast to fall as much as 14.5%; while sales at Chrysler are seen sliding in the range of 2%-6%. Automakers will announce sales results on Jan. 4.

* Standard & Poor's said it is dumping supplier Visteon from its benchmark 500 index, citing low market capitalization.

* GM will soon announce its "third wave" of outsourcing IT work, farming out $15 billion in contracts to U.S. companies.

* Detroit area official unemployment rate rose to 6.8% in November from 6% in October, according to the Michigan Department of Labor and Economic Growth.

More Machine-Tool Makers Filing Bankruptcy, Slashing Jobs

Following in the wake of the auto shutdowns, the machine-tool industry also posted dire reports for the end of the year.

* Troy, N.Y. mold-and-die manufacturer Bruno Machinery Corp. filed for Chapter 11 bankruptcy. Employing about 80 people, the company makes die-cutting, embossing and molding machines, and heat-sealing presses for many industries.

* Duffy Tool & Stamping, based in Muncie, Ind., has slashed its workforce by 40% since spring, to 400 employees. It is the parent company of Meyer Stamping & Manufacturing, which has cut its workforce by half just since March, from 90 to 45 employees—and will lay-off seven more employees in February, as it depends for some 80% of its revenue from the automotive sector.

* The vice president of Bessey Tool and Die in Sparta Township, Mich. warned, "Every day, you come in the business and you wonder how long the work is going to be available."

Robert Reich: Only Upper 20% Saw an 'Economic Recovery'

Robert Reich, the former Labor Secretary in the Clinton Administration, blasted the fraud of "GDP" (Gross Domestic Product), and of the widely touted "economic recovery," on National Public Radio Dec. 28. "Listen to most economic commentators and you'd think that the biggest news of 2005 was that the American economy continued to grow at a healthy clip," Reich said. "Well, that's true. The resilience of this economy is truly remarkable; but there's another true story about the American economy that's equally remarkable, although more sobering: The data aren't all in yet, but it seems almost certain that in 2005, median incomes continued to drop," he noted. "That would make it four straight years, since the last recession, that the economy grew, but median incomes declined. Take inflation into account and you'll find that half of all workers are earning less now than they did in 2001. Rarely in history has there been such a long period of growth in the Gross Domestic Product, without most Americans sharing in that growth," he continued.

"Forget trickle-down economics. Even if you believe that the Bush tax cuts of 2001 and 2003 helped the economy grow, and if you do, you probably believe in Santa Claus, nothing is trickling down, not even to the middle. Most is going to the top fifth. So, let me end 2005 by asking what may be an impertinent question: What's the point of economic growth if most people aren't any more prosperous? Maybe it's time we stop measuring the U.S. economy by how much larger the GDP is from one year to the next, and started using a new measure that reflects how most of us are doing from one year to the next. Instead of GDP, let's start looking at what might be called the MDP—Median Domestic Prosperity. By this measure, we've had four straight years of declining MDP, which puts us deep in an MDP recession," Reich stated.

Reich then echoed Lyndon LaRouche's observation that the lower 80% of income brackets have suffered serious deterioration of their living standards over the recent period. "Look, I don't want to end this year on a downer; I want to cheer as much as anyone. But, let's be honest. Unless you happen to be in the top 20% of income, this economy is nothing to cheer about. Happy New Year."

Beware the Wal-Martization of the Services Sector

It's not just manufacturing being outsourced to Asia. The new threat is outsourcing of the service industry—lawyers, accountants, editing, architects—are all beginning to lose jobs to India and other cheap-wage destinations, the Philadelphia Inquirer reported Dec. 29.

Six percent of junior law work is outsourced; 11% of architecture firms have outsourced design work. With 80% of Americans working in the service sector, there is a certain dark irony in the outsourcing of the last bastion of American labor.

As the co-director for the Center for Economic and Policy Research, Dean Baker, commented, the risk for American workers is "Wal-Martization" of the service sector.

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