Facts are stubborn things

[GratefulCitizen]

Been aware of these things for some time, but never assembled numbers and references.
Somebody did a nice job assembling them.

http://money.msn.com/top-stocks/post.aspx?post=3dde362e-8879-427b-aeb4-f3e843cc892b

From the article:

Misconception: Most of what Americans spend their money on is made in China.
Fact: Just 2.7% of personal consumption expenditures go to Chinese-made goods and services. 88.5% of U.S. consumer spending is on American-made goods and services.

Misconception: We owe most of our debt to China.
Fact: China owns 7.8% of U.S. government debt outstanding

Misconception: We get most of our oil from the Middle East.
Fact: Just 9.2% of oil consumed in the U.S. comes from the Middle East.


Concerning manufacturing, we make plenty.
We just don't use very many people to do it.
http://www.fool.com/investing/general/2011/07/14/technology-ate-your-job.aspx


Since peaking in 1979, total U.S. manufacturing positions have fallen by 40% -- a loss of some 8 million jobs. Real (inflation-adjusted) manufacturing output, however, has increased 75%.

[Roguish Lawyer]

I don't know if the article is correct or not, but very interesting if it is.

[rdret1]

It does make you think about a few things. What really interested me was the analysis of petroleum attributed to ME countries vs. North American. If the small percentage attributed to OPEC is correct, why are our prices so tied to what OPEC does? I just can't connect the dots on that one.

[The Reaper]

Because it is a global market.

You take one supplier off the market, prices go up everywhere as the global demand remains the same.

TR

[BOfH]

Entire post.


%2.7, keyword personal. Don't forget the big picture of enterprise and government spending, especially on technology, I am sure that is far more than %2.7, and that spending does drive a large part of the economy. Think about how many large technology corporations are enterprise only with absolutely no focus on consumer products and services.

[GratefulCitizen]

%2.7, keyword personal. Don't forget the big picture of enterprise and government spending, especially on technology, I am sure that is far more than %2.7, and that spending does drive a large part of the economy. Think about how many large technology corporations are enterprise only with absolutely no focus on consumer products and services.

More detail here:
http://www.frbsf.org/publications/economics/letter/2011/el2011-25.html

[BOfH]

More detail here:
http://www.frbsf.org/publications/economics/letter/2011/el2011-25.html

Thanks for the link. To be fair, a good chunk of what I was referring to is assembled in the US using foreign parts, and per the above article, would be considered "Made in the USA". While the iPhone is a good example, IMHO, it is only one. Under the articles assertion, I am sure there are many products which could be labeled as "Made in the USA" even if a majority of the sub-components and their associated costs are produced elsewhere...

[Xamine]

I am surprised the article didn't mention we use a tied foreign aid system rather than just handing money out randomly, that seems to be a big misconception also.

[Razor]

To be fair, a good chunk of what I was referring to is assembled in the US using foreign parts, and per the above article, would be considered "Made in the USA". While the iPhone is a good example, IMHO, it is only one. Under the articles assertion, I am sure there are many products which could be labeled as "Made in the USA" even if a majority of the sub-components and their associated costs are produced elsewhere...

Figure 2 in the article seems to address your concern:
Made in US from US parts - 81.9%
Made in US from parts imported from other countries - 5.1%
Made in US from parts imported from China - 0.7%

[Airbornelawyer]

It does make you think about a few things. What really interested me was the analysis of petroleum attributed to ME countries vs. North American. If the small percentage attributed to OPEC is correct, why are our prices so tied to what OPEC does? I just can't connect the dots on that one.

Because it is a global market.

You take one supplier off the market, prices go up everywhere as the global demand remains the same.

TR

What he said. Also, a couple of additional points:

1. OPEC is more than the Middle East. Non-Middle East OPEC members are Algeria, Angola, Ecuador, Libya, Nigeria, and Venezuela.

2. OPEC countries account for 80% of the world's proven oil reserves. Middle Eastern OPEC members account for 66% of OPEC's total, or about 53% of the world's total proven reserves. OPEC accounts for 38%-42% (it fluctuates a lot) of the world's total production. OPEC's share was declining for a while as new sources of oil were discovered and placed in production, notably in the North Sea and the Gulf of Campeche, but those fields have matured, and OPEC's share is increasing.

3. Over 40% of United States oil imports and about 25% of total US consumption comes from OPEC members. The top sources of US oil imports are:

1. Canada - 22.5%
2. Saudi Arabia - 11.4% (OPEC member in Middle East)
3. Mexico - 10.3%
4. Venezuela - 8.1% (OPEC member)
5. Nigeria - 7.6% (OPEC member)
6. Iraq - 5.1% (OPEC member in Middle East)
7. Russia - 4.8%
8. Colombia - 3.5%
9. Angola - 3.5% (OPEC member)
10. Algeria - 3.0% (OPEC member)
11. Brazil - 2.8%
12. Kuwait - 2.0% (OPEC member in Middle East)

4. As you can see from the above list, geography plays a big role. Five of our largest sources of oil imports are in our hemisphere. Two others are on the Atlantic coast of Africa. Cost of transport is part of the cost of production, so we get much of our oil from as close as possible. Other countries do the same. Europe gets its oil mainly from the North Sea, Russian and North Africa and the Middle East. Japan is heavily dependent on Middle Eastern oil. China depends on the Middle East, but as energy needs have grown, it has broadened its interest into Africa, Latin America and its own Asia-Pacific region. But as TR states, it is a global market, so even if one country relies more heavily on a specific region, the global trade determines pricing.

5. Another big factor is the type of crude. Most Persian Gulf oil is light (low density) crude, but it is "sour" (higher sulfur content) rather than "sweet". Light sour crude is most suitable for fuel oils and diesel and costs more to refine. Light sweet crude is the benchmark in oil pricing because it is what best makes gasoline. Because US consumption is heavily geared toward gasoline, US imports are skewed not just toward countries closer to us, but also countries which are sources of light sweet crude. But again, still a global market. European countries are especially demanding of Libyan light sweet crude, which probably played a big role in prompting British and French-led NATO action (and Italian inaction, since Rome probably was more inclined to just deal with the former dictator).

6. Another big factor in the cost of production and consequently the price is, well, the cost of production. The single largest oil field in the world is Saudi Arabia's Ghawar oil field, which accounts for half of Saudi production and by itself outproduces every country in the world except the US and Russia. Ghawar is practically Jed Clampett territory - the oil is as easy to get out of the ground as if Jed were a Bedouin and his old huntin' dog was a camel.

By contrast, the main domestic sources of oil are in Alaska and the Gulf of Mexico and many of our historically low production cost onshore sources matured long ago. Offshore oil production costs significantly more than onshore for obvious reasons, and onshore production from arctic and subarctic regions similarly costs more than it does from temperate regions and deserts.

As for our big non-OPEC sources, most of Mexico's oil production comes from the Gulf of Campeche, a maturing offshore oil field, and most of Canada's production is offshore or from the Alberta oil sands. That means most of Canada's oil is a tar-like substance called bitumen, which takes a lot of processing just to make transportable, much less refined. Venezuela produces mainly heavy sour crude, which must be heavily refined. Same for Colombia, which also has a less developed infrastructure for oil production. Russia's crude comes mainly from Siberia, so like Alaska and Canada, is more costly due to remoteness from refineries and harsh weather conditions.

So ultimately what we have is a well-developed global market in a commodity that is distributed worldwide but not in the same quality or ease of production, and OPEC members control a huge proportion of not just the total, but the most desirable and cheapest parts of the total.

[Paragrouper]

Thanks for the link. To be fair, a good chunk of what I was referring to is assembled in the US using foreign parts, and per the above article, would be considered "Made in the USA". While the iPhone is a good example, IMHO, it is only one. Under the articles assertion, I am sure there are many products which could be labeled as "Made in the USA" even if a majority of the sub-components and their associated costs are produced elsewhere...

I guess it comes down to how you determine something is American made. Take a look at this webpage (http://www.cars.com/go/advice/Story.jsp?section=top&subject=ami&story=amMade0611) Cars.com's top ten 'American made cars.' Their criteria to make the list:

Cars.com's American-Made Index rates vehicles built and bought in the U.S. Factors include sales, where the car's parts come from and whether the car is assembled in the U.S. We disqualify models with a domestic parts content rating below 75 percent, models built exclusively outside the U.S. or models soon to be discontinued without a U.S.-built successor.. I was surprised to see the Ford F-150 and Chevrolet Silverado did not meet the criteria. The Number American Made Car: The Toyota Camry.

[Paslode]

While walking through Home Depot this past Thursday, I noticed a Lady, a bit exasperated looking for a light bulb, she couldn't find what she was looking for and asked a sales associate for assistance.

Here question:

Is there anything here that is not made in China?


Based on personal observance walking through the isle's of commonly shopped places like HD, Lowes, Target and Walmart...I find that a vast portion of their shelf items are tagged made in China.

Few are tagged Made in the USA.

Figure 2 in the article seems to address your concern:

Made in US from US parts - 81.9%
Made in US from parts imported from other countries - 5.1%
Made in US from parts imported from China - 0.7%

Finding something that is 100% Made in the USA can be difficult, it may have changed, but not all that long ago Made in the USA through the Buy American Act meant only 51% of the product had to be produced in America'.

For example Crane Valve company could purchase Steel Casting for Cast Steel valves from Romania, Czech Republic and China, have them delivered to Rogers, Arkansas for final machining. Final machining consisted of boring bolt holes, machining the bonnet faces, flange faces and machine the body for the seats.

From there the valves were assembled with a cornucopia parts from various domestic suppliers that qualified as domestically produced.......which may or may not have originated in the USA.

That creative accounting method equated to 'Made in the USA'.

[Airbornelawyer]

That article from the San Francisco Fed is a good read, and makes important but often forgotten or ignored points applicable not merely to Chinese goods, but to the benefits of international trade in general. Notably:
Obviously, if a pair of sneakers made in China costs $70 in the United States, not all of that retail price goes to the Chinese manufacturer. In fact, the bulk of the retail price pays for transportation of the sneakers in the United States, rent for the store where they are sold, profits for shareholders of the U.S. retailer, and the cost of marketing the sneakers. These costs include the salaries, wages, and benefits paid to the U.S. workers and managers who staff these operations.

However, the article and the main takeaway from it in the MSN blog piece are still misleading. Note the wording:

Misconception: Most of what Americans spend their money on is made in China.
Fact: Just 2.7% of personal consumption expenditures go to Chinese-made goods and services. 88.5% of U.S. consumer spending is on American-made goods and services.

As BOfH noted "%2.7, keyword personal.". But also note the other keywords: "and services". Is it really a common "misconception" that "most of what Americans spend their money on is made in China."? Or is the [mis]conception that so many of our consumer goods seem to carry the "Made in China" label today?

According to the table in the Fed article, 66.9% of U.S. personal consumption expenditures are for services. Does anyone really think there is a conception, much less a misconception, that we are paying rent to our Chinese landlord, getting our electricity from a Chinese utility, being treated in a Chinese hospital, or visiting a Chinese amusement park? The authors of the article were right to include services as well as goods, because the thesis of the article is that Chinese inflation shouldn't seriously affect US consumers, for whom Chinese goods are only a small portion of their expenses.

But that's all. That doesn't really affect the concern of many U.S. consumers, misconception or not, that Chinese goods are supplanting U.S. or other countries' goods on so many store shelves. Back out the 66.9% of personal consumption expenditures on services, which according to the article is 0% "Made in China", and Chinese goods as a percentage of spending on all consumer goods should triple to about 8.1%.

Similarly, if I have 100 chickens and turkeys, of which 3% are red, and I have 67 turkeys and 33 chickens, and none of my turkeys are red, then I have 3 red chickens, which means 9% of my chickens are red (3/33). Commie chickens!

Furthermore, several categories of consumer goods are also not really at issue. Food imports from China aren't really an issue. China accounts for less than 4% of U.S. food imports and imports account for about 10% of U.S. food consumption. And the $3 billion or so of Chinese food exports to the U.S. are dwarfed by the $12-13 billion of U.S. food exports to China.

And we aren't putting Chinese gasoline in our cars.

So where the "Made in China" issue most has resonance is in those areas of spending where we actually notice the "Made in ..." label, as Paslode notes above. These are clothing and many categories of durable goods, especially electronics, toys, tools, auto parts and furniture.

Basically, while I agree it is a misconception that everything seems to be "Made in China" these days, it is equally a misconception that that 2.7% statistic means China is really only a miniscule part of picture.

[GratefulCitizen]

2. OPEC countries account for 80% of the world's proven oil reserves. Middle Eastern OPEC members account for 66% of OPEC's total, or about 53% of the world's total proven reserves. OPEC accounts for 38%-42% (it fluctuates a lot) of the world's total production. OPEC's share was declining for a while as new sources of oil were discovered and placed in production, notably in the North Sea and the Gulf of Campeche, but those fields have matured, and OPEC's share is increasing.


The "proven" reserves issue is a pet peeve of mine.

A "proven" reserve is a statistical estimation which is only applicable to the well or field it references.
Specifically, it means there is a 90% probability of producing at least that much oil from the tested well or field.

The proven reserves from value one field cannot be added to the proven reserves value of another field and get a number which means anything.
Various government agencies (e.g. CIA World Factbook) and others do this, but the numbers they get are absolutely meaningless.

The "probable" reserves from various fields can be added together and get a useful number.
Unfortunately, the SEC requires that "proven" reserves be the published measure and this causes great confusion.

In order to get a "proven" standard for a given nation or the world, we would need to know the mean values and variances used to calculate the proven reserves value.
This information is proprietary to the oil companies.

In a nutshell, there are a great deal more "proven" oil reserves out there than is indicated by the incorrect aggregation method currently used.
Due to the nature of the math, nations which have more numerous, smaller wells (like the USA) are more severely underestimated than those with less numerous, larger wells.

Regardless, reserves aren't the limiting factor (not even close).
Production infrastructure is the limiting factor.



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Arcane details

A proven reserve is calculated using the mean value (m) and the variance (v) for a given well.
Proven = m - 1.28*(square root (v))

In order to calculate proven reserve value of a group of wells, the sum of the mean values (sum(m)) and the sum of the variances (sum(v)) would be used.
sum(proven) = sum(m) - 1.28*(square root (sum(v)))

The incorrect method in popular use just adds up the proven values for individual wells.
They are non-linear equations and cannot be aggregated by simple addition.

The math is roughly analagous to how you find the length of a hypotenuse on a right triangle.
You take the square root of the sum of the squares of the other two sides; you don't add up the lengths of the other two sides.

[GratefulCitizen]

News media from all sides tend to promote doom and gloom.
Sometimes it's good to take a step back and look at the big picture.

Facts are stubborn things.
http://scottgrannis.blogspot.com/2013/04/government-is-shrinking-and-thats-good.html

Notice federal spending as a percentage of GDP (the true "tax" burden).
Compare it to the 1980s and early 1990s.

Consider the level of net imports for oil:
http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=wttntus2&f=4

There is one thing that even powerful incompetent governments have difficulty restraining...

American Exceptionalism. :lifter