The Wall Street Journal - 28.10.2019

thanfactory workers.

But it would be a mistake

to write off the entire sector

as an anachronism, said Su-

san Houseman, research di-

rector at the Upjohn Institute

for Employment Research, a

think tank. Many service in-

dustries depend on manufac-

turing, such as shipping and

logistics, warehousing, or

firms that repair and service

equipment, she said.

And contract workers in

factories are counted as ser-

vice employees because their

employers are temporary

staffing agencies rather than

manufacturers, she said.

“Manufacturing is far from

irrelevant but certainly it is

the case that with a relatively

smaller sector it’s going to

have less influence and im-

pact on the aggregate econ-

omy,” she said.

The fate of American fac-

tories started to diverge from

that of the rest of the econ-

omy in the 1980s, Ms. House-

man said. During the reces-

sion of 2007 to 2009, factory

output fell more rapidly than

the economy’s total output

and has struggled to recover.

While the U.S. economy is

now almost 20% larger—after

adjusting for inflation than it

was at the start of the down-

turn—manufacturing output

has grown by less than 3%

since then, the Commerce De-

partment reported.

Data released earlier this

month provided another ex-

ample of this split. Manufac-

turing production was 0.8%

lower in September than a

THEOUTLOOK|By David Harrison

A Bellwether No Longer Rings True

This has

been a diffi-

cult year for

American

manufactur-

ers, marked by

trade war volleys and a

global economy that is run-

ning out of steam. Output, in-

vestment and employment

are down and firms are less

optimistic.

The overall U.S. economy,

however, keeps powering

along. The national unem-

ployment rate is down to

3.5%, a half-century low, and

forecasters expect continued

economic growth in the third

quarter.

The fate of American fac-

tories is often viewed as a

bellwether for the overall

economy. Because factory

production is volatile and

sensitive to shifts in demand,

it often starts to contract be-

fore the rest of the economy,

the thinking goes. But that

link may be weaker now that

manufacturing firms make up

a smaller share of the econ-

omy and the labor market,

economists say. If that is the

case, it means the U.S. econ-

omy may be big enough and

diverse enough to keep ex-

panding even if manufactur-

ing suffers a downturn.

“Being less exposed to

manufacturing and the global

manufacturing cycle is pro-

viding some stability to the

U.S. economy,” said Gus Fau-

cher, chief economist at PNC

Financial Services.

Whether or not manufac-

turing’s recent troubles will

spill over into the rest of the

economy is a top concern for

Federal Reserve officials, who

are likely to cut interest rates

this week to cushion the econ-

omy from a variety of risks.

Minutes from the Fed’s

meeting last month said offi-

cials cited manufacturing

weakness as a factor that

“could give rise to slower hir-

ing, a development that

would likely weigh on con-

sumption and the overall eco-

nomic outlook.”

But manufacturing’s recent

softness could be a repeat of

its performance in 2015 and

2016. Back then, factory out-
      put was down on a year-over-
      year basis for 18 straight
      months as firms suffered
      from weak demand overseas
      and a stronger dollar. Energy
      producers also suffered from
      low oil prices.
      The overall economy, how-
      ever, didn’t miss a beat. Ag-
      gregate output grew 2.9% in
      2015 and 1.6% in 2016, and
      employers added more than
      five million jobs during those
      two years.

A

sthe American econ-

omy has evolved, it has

relied less on the pro-

duction of goods. Manufac-

turing makes up roughly 11%

of the country’s overall gross

domestic product, down from

about 16% 20 years ago. And

factory workers now make up

about 8.5% of the overall

employed workforce, down

from about 13% two decades

ago. There are now more lo-

cal-government employees

year earlier, according to the

Fed, the third straight month

of year-over-year declines.

Manufacturing employ-

ment also dipped slightly in

September, according to the

Labor Department.

M

eanwhile, the rest of

the economy seems

relatively solid. Retail

sales were up nearly 4% in

September from a year ear-

lier, the Commerce Depart-

ment said Wednesday.

Macroeconomic Advisers, a

forecasting firm, estimates

the economy grew at an an-

nualized rate of 1.3% in the

third quarter, a slower pace

than in the second quarter

but enough to keep the ex-

pansion going.

Mr. Faucher warns against

completely discounting the

risks to the overall economy.

The global slowdown and un-

resolved trade fears, which are

now buffering U.S. factories,

could intensify and spread to

other sectors of the economy,

causing households to cut

spending and businesses

across all industries to pull

back on investment, he said.

“Obviously if it becomes a

more severe [manufacturing]

contraction, that creates a

more severe problem for the

economy,” he said. “Risks are

amplified now because of

trade tensions, because of

slower economic growth, be-

cause of business uncertainty.”

Still, Mr. Faucher doesn’t

see a U.S. recession coming

this year or in the first half

of next year.

Manufacturing'sshareoftheworkforcehassteadilydeclined

whileitsoutputhasgrownmoreslowlythantheoveralleconomy.

Manufacturingasashare

oftotalemployment

Changeinoutputsince

4Q,

Sources: Labor Department (employment); Commerce Department (output)

Note Output adjusted for inflation

2008 ’10 ’18’

• 
  
  
  
  • 
    
  
  
  
  

0

10

20%

GDP

Manufacturing

RECESSION











%

997 ’ ’

ECONOMIC

CALENDAR

Wednesday:TheCommerce

Departmentwill release its

measure of third-quartergross

domestic product. Economists

surveyed by The Wall Street

Journal expect the report to

show the economy expanded at

a 1.6% annual rate this summer.

That would mark a slowdown

from the spring’s growth rate of

2%. TheFederal Reservewraps

up a policy meeting and is ex-

pected to cut its benchmark in-

terest rate by a quarter point.

The central bank has been cut-

ting the rate this year in an ef-

fort to support the U.S. economy

in the face of global headwinds.

Thursday:Economists expect

China’s factory activity to have

contracted more in October.

China’s official purchasing man-

agers indexis forecast to tick

down to 49.7 this month from

September’s 49.8, suggesting con-

traction in activity for six straight

months. If that holds, then the

Chinese economy could slow fur-

ther in the fourth quarter. Also,

Eurostat will release its gauge of

inflation in the eurozone.

Friday:TheLabor Depart-

mentwill release its broadest

gauge of the October job mar-

ket. Economists expect the re-

port to show employers added

85,000 jobs during the month

and the unemployment rate rose

to 3.6%, from a 50-year low of

3.5% in September. The General

Motors strike pushed thousands

of auto workers off payrolls this

month, likely depressing the

overall employment picture. Also,

manufacturing purchasing man-

agers’ indexeswill be released

for the U.S. and U.K. The Insti-

tute for Supply Management’s

U.S. gauge is expected to im-

prove, but remain slightly in a

contractionary zone for October.

U.S. WATCH

pect,Sheriff Hunt said, and

hadn’t yet identified him.

The shooting took place

around midnight Saturday night

at what Sheriff Meeks described

as a Halloween and homecoming

party for Texas A&M University-

Commerce, though officials have

said it wasn’t a school-sanc-

tioned event. Authorities believe

the gunman entered the venue

through the back door.

On Sunday night in Dallas,

gunfire erupted at a vigil for one

of the two people killed, 23-year-

old Kevin Berry Jr. There were

no reports of injuries.

—Associated Press

HEALTH

Weight-Loss Surgery

For Children Backed

Even some severely obese

preteens should be considered

for weight-loss surgery, accord-

ing to new recommendations.

The guidance issued Sunday

by the American Academy of

Pediatrics is based on a review

of medical evidence, including

several studies showing that

surgery in teens can result in

marked weight loss lasting at

least several years, with few

complications. In many cases, re-

lated health problems including

diabetes and high blood pressure

vanished after surgery.

While most of those studies

involved teens, one included chil-

dren younger than 12 and found

no ill effects on growth, the pol-

icy said. “Safe and effective is

the message here,” said Dr.

Sarah Armstrong, a Duke Univer-

sity pediatrics professor and the

policy’s lead author.

—Associated Press

THEWALL STREET JOURNAL

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PITTSBURGH

Synagogue Shooting

Marked One Year On

Thefirst anniversary of the

deadliest attack on Jews in U.S.

history was marked around the

world Sunday with community

service projects, music and an

online remembrance.

The shooting on Oct. 27,

2018, killed 11 worshipers and

wounded seven at the Tree of

Life synagogue in Pittsburgh’s

Squirrel Hill neighborhood, where

a steady stream of people

stopped by Sunday. Lining the

fence outside the closed Tree of

Life building were 11 flowerpots,

each one bearing the name of

one of those killed. People also

piled bouquets and crocheted

hearts at the site and hung

signs on the fence saying the

city was “stronger than hate”

and calling diversity its strength.

“Today we remember those

we lost and come together as a

commonwealth to stand united

as neighbors,” said a Twitter

message from Gov. Tom Wolf.

The synagogue’s three con-

gregations now worship at two

nearby synagogues. Last week,

Tree of Life leaders unveiled

their vision for the damaged

building: a rebuilt space for

places of worship; memorial, ed-

ucation and social events; and

classrooms and exhibitions.

The commemoration—with a

theme of “Remember. Repair. To-

gether”—included a private Jewish

service, studying the portion of

the Torah that was to be read

when the shooting happened, op-

portunities to do community ser-

vice and a public memorial service.

—Associated Press

CALIFORNIA

Rep. Hill Quits Amid

Ethics Panel’s Inquiry

Rep. Katie Hill, a freshman

Democrat who flipped a compet-

itive district in Southern Califor-

nia in 2018, said she would re-

sign from Congress after she

acknowledged having an inti-

mate relationship with a cam-

paign staffer.

“This is what needs to hap-

pen,” Ms. Hill, 32 years old,

wrote.

The House Ethics Committee

opened an investigation into Ms.

Hill last week after a conserva-

tive website published sexually

suggestive photos of Ms. Hill

and another woman and alleged

Ms. Hill had relationships with a

female campaign staffer and a

male congressional aide.

In a letter to supporters last

week, Ms. Hill, who is bisex-

ual, said she is in the midst of a

tumultuous divorce and blamed

the release of the photos on her

husband. She has threatened le-

gal action against outlets that

published the photos, including

the Daily Mail. Ms. Hill’s husband

couldn’t be reached for com-

ment.

—Gabriel T. Rubin

TEXAS

ManhuntIs on for

College-Party Gunman

Agunman opened fire at an

off-campus college party in

Texas, leaving two people dead

and 12 injured before he escaped

in the ensuing chaos, a sheriff

said Sunday.

Authorities believe the

shooter may have been target-

ing just one person at the party

of about 750 people outside

Greenville, 15 miles southwest of

a satellite campus of the Texas

A&M University System, and

that others may have been shot

at random, Hunt County Sheriff

Randy Meeks said. Authorities

were still looking for the sus-

People gathered outside the Tree of Life synagogue in Pittsburgh on Sunday, where one year before 11 worshipers were killed.

GENE

J. PUSKAR/ASSOCIATED PRESS

OnSaturday, Bloomberg re-

ported on LVMH’s interest in

Tiffany.

Buying Tiffany would in-

crease Paris-based LVMH’s ex-

posure to jewelry, one of the

fastest-growing businesses in

the luxury sector.

In 2018, the global jewelry

market grew 7% and was worth

about €18 billion, according to

Bain & Co. Tiffany, with more

than 300 stores globally, is one

of the world’s largest jewelers,

along with Cartier and LVMH-

owned Bulgari, but it has been

unable to keep pace with Euro-

pean rivals.

Tiffany, which has about $

billion in annual revenue, has

ContinuedfromPageOne

struggled with lackluster

sales growth for years.

The 182-year-old brand has

been trying to rebuild its

business after ousting its

chief executive two years ago

amid pressure from an activ-

ist investor. The stock, which

had slumped near $60 in

2016, has been hovering

around $100 for much of the

past year.

Under CEO Alessandro Bo-

gliolo, the jeweler has pushed

an expansion into China, with

plans to open flagship stores

in several major cities. The

chain, which relies heavily on

tourist spending in the U.S.

market, also has been reno-

vating its flagship New York

store on Fifth Avenue.

Tiffany also has tried to

broaden its appeal with mar-

keting that includes more mi-

norities and same-sex cou-

ples, added new products for

younger shoppers and intro-

duced a jewelry line for men.

But in recent quarters sales

have slipped both in the U.S.

and Asia. Excluding currency

swings, comparable sales have

declined from a year earlier

for two straight quarters. In

August, executives cautioned

that the protests in Hong

Kong and a macroeconomic

slowdown could damp profits

for the rest of the year.

Luxury-goods companies

have been pressured by fears

of an economic slowdown in

China, where shoppers ac-

count for about one-third of

luxury-goods purchases world-

wide. Escalating trade ten-

sions also have played a part

in waning consumer confi-

dence in China.

Tiffany would be one of the

biggest acquisitions yet by

Bernard Arnault, LVMH’s chief

executive and controlling

shareholder. Mr. Arnault paid

€12 billion in 2017 to unite

the storied fashion house

Christian Dior with LVMH.

LVMH, which has about

$50 billion in annual revenue,

also relies on Chinese shop-

pers for a chunk of its sales.

But the conglomerate is so

large and has so many

brands—from Louis Vuitton to

Dom Pérignon—that it has

fared better than Tiffany in

recent years. Revenue jumped

in its latest quarter, showing

little impact from the Hong

Kong protests or the U.S.-

China trade tensions.

LVMH could use its deep

pockets to develop product

lines where Tiffany is weak.

In addition to Bulgari, LVMH

owns luxury watchmakers

Hublot and TAG Heuer.

“Tiffany has yet to express

its full potential—for example

in design jewelry and

watches,” said Bernstein & Co.

analyst Luca Solca.

The deal would signifi-

cantly expand LVMH’s pres-

ence in the U.S., giving it

more exposure to U.S. dollar-

denominated revenue and re-

ducing foreign-exchange risk,

Mr. Solca said.

Tiffany’s Mr. Bogliolo is fa-

miliar with LVMH; he spent 16

years at Bulgari before LVMH

took control of the company

in 2011 and then served as

North American operating

chief at LVMH’s Sephora unit

for a little more than a year.

Before joining Tiffany, he was

CEO of Italian apparel com-

pany Diesel SpA.

—Matthew Dalton

contributed to this article.

LVMH

Makes Bid

For Tiffany

CORRECTIONS

AMPLIFICATIONS

Readerscan alert The Wall Street

Journal to any errors in news

articles by emailing

[email protected] by calling

888-410-2667.

The all-cash offer of

$120 a share would

value the jeweler at

nearly $14.5 billion.

A2|Monday,October 28 , 2019 ***** THEWALLSTREETJOURNAL.

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