Im-Politic: Will the Pandemic’s Real Lessons Ever Be Learned?

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Give The New York Times some credit here. On the one hand, its big, graphics-rich feature marking the grim news that about a million Americans have been killed by the CCP Virus has pinpointed a highly specific group of culprits for this towering toll, and an equally specific group of measures that could have held it way down (although it’s never indicated by how much).

Among the worst: “elected officials who played down the threat posed by the coronavirus and resisted safety measures” and “lower vaccination and booster rates than other rich countries, partly the result of widespread mistrust and resistance fanned by right-wing media and politicians.”

So clearly, the authors insist, mask-wearing and lockdowns and social distancing should have been imposed much faster and more widely (without stating for how long), and more vaccinations required.

On the other hand, the reader is presented with abundant evidence that the benefits of such measures might have been limited – which is especially striking since not even a hint is provided that such steps might have inflicted considerable damage in their own right – including from other threats to public health that have been neglected.

Most strikingly, consistent with its observation that “The virus did not claim lives evenly, or randomly.” the piece reminds that in fact, the worst damage was remarkably concentrated in a single group. Specifically, “Three quarters of those who have died of Covid have been 65 or older.” Moreover, of that cohort, a third were 85 and over.

And then there was the related nursing homes disaster. According to the Times piece, a fifth of the roughly million CCP Virus-induced deaths in America occurred among residents and staff of these facilities.

Why longer and more sweeping lockdowns and the like would have reduced the virus’ damage to the nation as a whole, considering all the economic, educational, and health harm they produced for the vast majority of Americans who were far less vulnerable, is never explained.

The article’s case for vaccine mandates is similarly muddled. It repeats the widespread claims that most of those who died from the virus after vaccines became widely available were unvaxxed, and that “vaccinated people have had a much lower death rate — unvaccinated people have been at least nine times as likely to die since April 2021 [when the eligibility for the doses became universally available].”

At the same time, readers learn that:

>“at least 50,000 vaccinated people, many of them older or without booster shots, were among the deaths reported since late April 2021….”; and that

>”People 80 and older who had gotten shots were almost twice as likely to die at the height of the Omicron wave as those in their 50s or early 60s who had not, according to C.D.C. [U.S. Centers for Disease Control and Prevention] data.”

Further, the article makes clear that, even forgetting about the decisive role played by age, claims about vaccine effectiveness are substantially exaggerated. Despite presenting the common contention that “unvaccinated people have been at least nine times as likely to die since April 2021,” the chart presented to support this point shows that this ratio has held for only part of the period duing which vaccines have become widely available. The chart also that the gap has almost disappeared today.

In addition, the piece reports that “The C.D.C. has received data on deaths by vaccination status from only about half of the states….” As the authors explain, this data shortage makes it “impossible to know exactly how many vaccinated people are among the million who have died.”

Conversely, this data shortage – along with thoroughgoing ignorance about how many Americans have enjoyed natural immunity from the virus and therefore passed up the jabs, and how many who caught Covid asymptomatically and made similar decisions – also prevents figuring out what share of unvaccinated Americans died of the virus.

But because both numbers are doubtless both enormous, this percentage is doubtless much smaller than commonly supposed.  The Times authors (and their editors, who it should always be remembered greenlight every article’s journalistic methodology) might have adjusted their judgements, and recognized that alternative pandemic mitigation approaches — including those that took into account the difficult tradeoffs that needed to be made — have long been recommended, had they bothered to consult any of the impressively credentialed specialists who have been making these points

Yet they seemed as determined to ignore or marginalize their views as the official U.S. medical establishment has been.  As long as both America’s healthcare leaders and its Mainstream Media so doggedly oppose full debate on the real lessons taught by the pandemic, it’s hard to imagine that the nation will be prepared for the (inevitable) arrival of the next deadly pathogen. 

(What’s Left of) Our Economy: A Win for Transparency on Corporate Vulnerability to China

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Here’s a development in U.S.-China economic relations that’s potentially game-changing, and that yours truly finds particularly satisfying: The Securities and Exchange Commission (SEC), the federal agency largely responsible for regulating U.S. financial markets require companies publicly traded in America to open their books wide on their ties with and reliance on China.

It’s potentially game-changing because ever since the early 1990s, Washington stepped on the gas to encourage the expansion of trade and investment with China (including massive factory and manufacturing job offshoring), but permitted the multinational companies that by far benefited most from these practices to control the release of most of the information capable of gauging the impact on the broader economy.

The result: When the American political system set its China economic policy priorities, it was forced to rely on the offshoring companies themselves for crucial information on the employment and production fall-out at home. And naturally, these firms – along with the sympathetic economists and think tank hacks they funded – presented Members of Congress and journalists with only cherry-picked facts and figures suggesting that the domestic winners far outnumbered the losers.

But this playing field may be in for major leveling thanks to the work of Steve Milloy of the Energy and Environmental Legal Institute. Milloy, a former SEC attorney, has persuaded the Commission to approve his proposal for a “Communist China Audit,” that would ask “companies to disclose to shareholders the extent to which their business relies on China.”

Milloy’s rationale, as explained in a Wall Street Journal op-ed earlier this week? A Chinese invasion of Taiwan would thoroughly disrupt the extensive commercial ties many public companies maintain with China (which include crucial supply chain dependencies of all kinds), and threaten their bottom lines – and the portfolios of their shareholders – with massive losses. In turn, the entire national economy would take a staggering hit. He rightly adds, moreover, that China’s hostility now extends nearly across the board of major U.S. interests.  

Multinational and other public companies are already required to tell shareholders about the various risks they run. But everyone who has looked through their quarterly and annual financial statements knows that politics and geopolitics risk disclosures are invariably vague and scanty, and details on their China-related operations almost non-existent.

Indeed, the author reports that the SEC is already pushing public companies to reveal how significantly Russia’s invasion of Ukraine is affecting their businesses. Since China’s impact on American companies, their shareholders, and the entire American economy is so much greater, he rightly argues that full transparency on this front is all the more important.

I was thrilled to learn about Milloy’s ideas and successes because for many years, I’ve been advocating something very similar. As I wrote in this 2017 post, Congress should pass and a President should sign what I called a “Truth in Testimony Act.” The measure would require any multinationals representatives appearing before Congress on an international trade or investment or technology-related issue

to specify their job and production offshoring, the wages of their U.S. and overseas workers, their foreign and domestic procurement, the foreign and domestic content of their products, and similar statistics.”

I also recommended that time series be provided, in order to identify long-term patterns. In addition, I pointed out, comparable information has been required of auto-makers selling in the United States since the 1990s, so major precedent exists. And I urged similar requirements for a full range of businesses and their representatives when testifying before the House and Senate, and called for their think tank and academic spokespersons to come clean on all relevant sources of their funding.

Businesses have long protested that such requirements would deprive them of valuable trade secrets and other prime sources of competitive advantage. I countered that (a) if full disclosure is a must for everyone, then no one wins or loses on net; and (b) companies unconvinced by this argument would remain free to opt out of telling Congress their stories.

Milloy’s proposal, however, matters much more, because it would apply to the entire universe of public companies whether they appear before lawmakers or not.

So I’ll be trying to get in touch with him to see if I can help his China audit campaign in any way, and report back on the results, and on any further progress he’s made. As I wrote five years ago, for far too long, the U.S. government has been flying blind on China and other international economic issues and relying on unreliable, incomplete information. Milloy is right in emphasizing that the China threat in every dimension has metastasized. Nothing less than full corporate China-related transparency can be acceptable.

(What’s Left of) Our Economy: Why Cutting China Tariffs to Fight U.S. Inflation Looks More Bogus Than Ever

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As RealityChek readers may have noted, I haven’t followed the U.S. government data on import prices for a while. That’s been because global trade has been so upended for the last two-plus years by the CCP Virus pandemic and the supply chain turmoil it’s fostered. Three big recent developments warrant returning to import price numbers, though.

First, President Biden has confirmed that he and his administration is seriously considering lowering tariffs on imports from China in order to help fight inflation. Second, since early March, China has dramatically driven down the value of its currency, the yuan. Since the yuan’s value is controlled by the Chinese government, rather than trading freely, Beijing has been giving its exports price advantages over all the competition (and in the U.S. and other foreign markets as well as in its own) for reasons having nothing to do with free trade or free markets. Third, new import price statistics just came out this morning.

And developments number two and three make clearer than ever that blaming the China tariffs for any of the torrid price increases afflicting American consumers or businesses is the worst kind of fakeonomics.

In a previous post, I explained why the scant actual tariffs imposed by former President Donald Trump on Chinese-made consumer goods and remaining on them, and the negligible portion of the Consumer Price Index (CPI) they represented, couldn’t possibly move the inflation needle notably.

Further, there’s the timing issue: The Trump tariffs imposed under Section 301 of U.S. trade law were slapped on in stages between March, 2018 and August, 2019. And by their nature, each of them could only generate a one-time price change. Yet consumer inflation in America didn’t take off until early 2021. Obviously, something(s) else was (were) responsible.

China’s currency moves, moreover, show that any Biden tariff-cutting will only add more artificial price edges to those Beijing is already creating for itself – thereby recreating some of the predatory Chinese pressure that competing U.S. employers and workers had long endured before the relief granted by Trump’s tariffs.

Since early March, the yuan has weakened by fully 7.75 percent versus the dollar. And with China’s leaders facing a substantial economic slowdown that could challenge the Communist Party’s political legitimacy, don’t expect Beijing to abandon quickly any practice that could prop up growth and employment.

Those new U.S. import price data reveal that the yuan’s depreciation hasn’t much affected China’s (government-made) competitiveness yet. But as indicated by the chart below, it soon will. As you can see, for years, the prices of Chinese imports entering the American market and the yuan’s value have risen and fallen pretty much in tandem.  

In addition, according to the new import price statistics, over the past year (April to April), import prices from China have risen much more slowly (4.6 percent) than the prices of the closest global proxy, total American non-fuel imports (7.2 percent). And the Trump tariffs should be singled out as a meaningful inflation engine?

Of course, these price trends could be cited to argue that these tariffs had no notable impact on U.S. competitiveness at all. But U.S. Census data show that, between the first quarter of 2018 (when the first Section 301 Trump tariffs were imposed), and the first quarter of this year, goods imports from China fell from 2.44 percent of the U.S. economy to 2.26 percent. (And this despite a big surge in American purchases of CCP Virus-fighting goods from the People’s Republic due to Washington’s long-time neglect of the nation’s health security and the secure supply chains it requires.) During this same period, total non-oil goods imports (the closest global proxy) increased as a share of the economy from 11.35 percent to 12.41 percent. So the Trump policies must have had some not-negligible effect.

The case for reducing the China tariffs is feeble enough even without these inflation points. After all, the Chinese economy is running into significant trouble due to its over-the-top Zero Covid policy, the deflation of its immense property bubble, and dictator Xi Jinping’s crackdown on the country’s tech sector. So the last thing on Washington’s mind should be throwing Beijing a tariff lifeline. Boosting China’s export revenue also means boosting the amount of resources available to the armed forces of this aggressive, hostile great power. And none of the tariff-cutting proposals is conditioned on any reciprocal concessions from China.

Citing bogus inflation arguments is the icing on this rancid cake, meaning the tariff-cutting proposal can’t be dropped fast enough.

(What’s Left of) Our Economy: The Latest Sign That Inflation is Here to Stay

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If you follow the news about the U.S. economy, you know by now that the federal government’s Producer Price Index (PPI – its measure of wholesale price inflation), rose at a slightly slower annual rate in April (11.03 percent) than in March (11.18 percent).

Ditto for the core PPI, which omits not only food and energy but trade services – since supposedly they’re volatile for reasons having nothing to do with the economy’s fundamental vulnerability to out-of-the-ordinary price changes (decreases as well as increases).

Both PPIs measure how much businesses charge each other for the goods and services they turn into final products and sell to households and individuals. That’s why they’re naturally seen as precursors of future consumer inflation rates (measured by the Consumer Price Index, or CPI).

After all, as long as the economy’s overall demand levels (reflecting overall growth levels) remain healthy, these businesses mostly will be able to pass these cost increases on to customers and actually will. Higher consumer inflation follows. So anything like the opposite is happening, and if producer prices are easing at all (even from historic highs), that’s got to be encouraging news on the consumer and overall inflation fronts.

But did the April yearly rate of increase really slow down? Maybe not. That’s because it’s a preliminary reading and, as shown by the left-hand column in the table below, since last September, every revision of that first estimate went up.

Jan 2021: 1.60 percent now 1.59                                1.97 percent

Feb 2021: 2.96 percent now 2.95                               1.11 percent

March 2021: 4.15 percent now 4.06                           0.34 percent

April 2021: 6.51 percent now 6.43                  -1.52 percent now -1.44

May 2021: 6.99 percent now 6.91                   -1.10 percent now -1.01

June 2021: 7.56 percent now 7.49                   -0.68 percent now -0.59

July 2021: 7.96 percent now 7.83                    -0.25 percent now -0.17

Aug 2021: 8.65 percent now 8.58                    -0.25 percent now -0.17

Sept 2021: 8.78 percent now 8.82                             0.34 percent

Oct 2021:  8.87 percent now 8.90                             0.59 percent

Nov 2021: 9.88 percent now 9.94                     0.85 percent now 0.76

Dec 2021: 9.99 percent now 10.58                   0.84 percent now 0.76

Jan 2022: 10.08 percent now 10.17                  1.60 percent now 1.59

Feb 2022: 10.27 percent now 10.51                 2.96 percent now 2.95

March 2022: 11.18 percent now 11.54             4.15 percent now 4.06

April, 2022: 11.03 percent                                       6.43 percent

Sure, the April revision could be a downgrade – like those between January and August, 2021. But the odds of an upgrade look pretty good.

Moreover, the right-hand column in the table shows that the baseline effect, which was cause for some optimism that inflation might peak before too long, is more over than ever.

As known by RealityChek regulars, the unusually high and robustly rising annual CPI and PPI figures for last year stemmed largely from the change they represented from unusually low inflation rates the year before – which were driven down by the arrival of the CCP Virus and the sharp recession it induced by prompting on-and-off lockdowns of huge chunks of the economy, and major behavioral caution by businesses and individuals alike.

What that right-hand column shows is that these effects – even with the slightly better revisions displayed above – were profound enough to result in actual PPI annual decreases from April, 2019-2020 through August, 2019-2020. (The right-hand column also brings the story up to 2020-2021 for January through April – the baseline comparison year for the first four data months of 2021-2022.)

That is to say, the table reveals that the economy’s recovery in 2021 from virus-ridden and downturn-y 2020 amounted to a great catching up process that largely explains the bloated PPI figures. (The other major factor was supply chain disruption resulting from the stop-and-start nature of some of the virus waves and lockdowns, and therefore of the recovery itself.)

But the above table also shows that the baseline effect began fading significantly this past February. That month, the annual PPI rise of 10.27 percent came off a February, 2020-2021 increase of 2.95 percent. The similar January annual increase of 10.08 percent, by contrast, came off a 2020-2021 rise of a much lower 1.59 percent.

And just look at April! That 11.03 percent annual PPI jump has followed a 6.43 percent increase between the previous Aprils.

Moreover, the same kind of trend (at lower absolute levels) is evident from the core PPI data, as shown below. Again, the left-hand column displays the annual increases by month starting in January, 2021. The right-hand column shows the annual changes by month for the year before – the baseline. The only possible significant difference is that I haven’t tracked the revision record for this core PPI series, so I don’t know if the latest April result is likely to be upgraded or downgraded, or unrevised.

Jan 2021: 1.79 percent                                                    1.64 percent

Feb 2021: 2.33 percent                                                   1.36 percent

March 2021: 3.15 percent                                               1.00 percent

April 2021: 4.81 percent                                                -0.09 percent

May 2021: 5.25 percent                                                 -0.18 percent

June 2021: 5.60 percent                                                  0.09 percent

July 2021: 6.01 percent                                                   0.27 percent

Aug 2021: 6.19 percent                                                   0.36 percent

Sept 2021: 6.14 percent                                                  0.72 percent

Oct 2021: 6.26 percent                                                    0.90 percent

Nov 2021: 7.04 percent                                                   0.99 percent

Dec 2021: 7.18 percent                                                    1.17 percent

Jan 2022: 6.91 percent                                                     1.79 percent

Feb 2022: 6.76 percent                                                    2.33 percent

March 2022: 7.10 percent                                               3.15 percent

April, 2022: 6.92 percent                                                4.81 percent

The big takeaway here: Even more than yesterday’s April Consumer Price Index report, today’s release on the Producer Price Index is saying that alarmingly high inflation is here to stay for Americans for the forseeable future. It’s possible that the Federal Reserve, the U.S. government agency mainly responsible for handling inflation, can tighten monetary policy (to reduce that aforementioned consumer demand and in turn growth) skillfully enough to engineer a “soft landing” for the economy – i.e., bring price increases back to much less damaging levels while avoiding a recession. But keep in mind that the next time the central bank achieves this goal starting from inflation rates this hot will be the first.

(What’s Left of) Our Economy: The Baseline Effect’s Gone and U.S. Inflation is Settling In

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Sorry to be the bearer of bad news on the U.S. inflation front, especially considering even the modest cheers (at least in early Wall Street trading) that greeted this morning’s official data on rising prices. But I see the new figures confirming that inflation has entered a worrisome new phase, and mainly because they show that annual living costs are no longer soaring largely because they increased so feebly the year before. Instead, that “baseline effect” is unmistakably gone, and inflation has acquired its own momentum.

The yearly inflation figures by month are the strongest evidence. As noted last month, the baseline effect was most prominent from March through July of last year. During that stretch, the annual headline growth in the overall (or “headline”) Consumer Price Index (CPI) sped up from 2.64 percent to 5.28 percent. But this acceleration owed much to the fast (but choppy) economic recovery from the deep CCP Virus-induced recession of mid-2020, when the annual inflation rate actually fell fom 1.51 percent to 1.05 percent. That’s considerably below the two percent inflation target set by the Federal Reserve, the U.S. government agency with the greatest responsibility for keeping prices stable.

Moreover, from September, 2021 at least through January, 2022, the baseline effect made a major comeback. During those months, the annual inflation rates increased from 5.38 percent to 7.53 percent. Yet their counterparts from the year before dipped from a still low 1.40 percent to 1.36 percent – still below the Fed target.

As I also wrote in March, the February CPI report contained signs that the baseline effect was fading, and today’s April numbers leave no doubt that it’s gone. Headline CPI that month worsened on year much faster than the comparable January rate, and its 2021 predecessor worsened to its highest level since the previous February – not so coincidentally, just before the virus’ arrival in force.

And last month’s big jump in the annual inflation rate came off a March, 2021 annual increase in prices that was significantly higher than the Fed target.

It’s true that April’s 8.22 annual overall inflation rate was a little slower than that March figure of 8.56 percent. But the March cost surge came off a 2.66 percent annual increase for March, 2021. The April result is coming off an April, 2020-2021 jump of 4.15 percent. That was more than twice the Fed target.

In other words, inflation was already hitting disturbing levels last year, and now it’s advancing nearly twice as fast.

Much the same story emerges from the so-called core inflation rate, which strips out food and energy prices supposedly because they’re volatile for reasons having nothing to do with the economy’s underlying vulnerability to high inflation. Since energy prices in particular affect the cost of everything whose production requires energy (i.e., everything) the distinction tends to become pretty artificial after a while. But even playing along with this claim reveals grounds for concern.

As with the headline rate, April’s annual core CPI inflation of 6.13 percent was a moderation from March’s 6.44 percent. But the March result was coming off a March, 2020-2021 period when core inflation rose by 1.66 percent – again, well below the Fed’s two percent target. April’s number followed annual core inflation for the previous April of 2.97 percent – again, much higher than the Fed target.

Meanwhile, the month-to-month CPI data released today don’t bolster the case for inflation optimism emphatically, either. Glass-half-full types will correctly point out that the 0.33 percent sequential rise in the headline April CPI was the lowest since last August, and shrank dramatically from March’s 1.24 percent.

But in April, core CPI advanced on-month by 0.57 percent, a noteworthy increase from March’s 0.32 percent. And the recent rise in gasoline prices will surely push the May headline CPI back up.

Tomorrow, Washington will provide another clue on inflation’s future – the report for the Producer Price Index (PPI) for April.  Unlike the CPI, which measures the prices of what businesses sell to consumers, the PPI tracks what businesses themselves pay for the goods and services they need in order to turn out their whatever they sell to consumers.  Think of it as gauging wholesale inflation versus measuring retail inflation.

The March PPI hit a new record high, and since in a U.S. economy like this one, where consumer demand remains strong, businesses generally can pass on rising costs to consumers, this result made today’s hot CPI almost inevitable.  Unless tomorrow’s April PPI comes way down (which may happen soon since growth looks to be decelerating markedly — ironically because some indications of consumer inflation fatigue are appearing), the CPI will stay far too strong in May  And that news would surely boost the odds that the Fed sees no choice but to tame inflation by crippling demand further — possibly enough to induce a recession.     

Our So-Called Foreign Policy: Why Biden’s China Tariff Cutting Talk is So (Spectacularly) Ill-Timed

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If the old adage is right and “timing is everything,” or even if it’s simply really important, then it’s clear from recent news out of China that the Biden administration’s public flirtation with cutting tariffs on U.S. imports from the People’s Republic is terribly timed.

The tariff-cutting hints have two sources. First, and worst, as I noted two weeks ago, two top Biden aides have publicly stated that the administration is considering reducing levies on Chinese-made goods they call non-strategic in order to cut inflation. As I explained, the idea that the specific cuts they floated can significantly slow inflation is laughable, and their definition of “non-strategic” could not be more off-base.

The second source is a review of the Trump administration China tariffs that’s required by law because the statute that authorizes their imposition limited their lifespan. The administration can choose to extend them, eliminate them entirely, reduce all of them, or take either or both of those actions selectively, Some tinkering around the edges may justified – for example, because certain industries simply can’t find any or available substitutes from someplace else. But more sweeping cuts or removals could signal a stealth tariff rollback campaign that would be just as ill-advised and ill-timed.

And why, specifically, ill-timed? Because this talk is taking place just as the Chinese economy is experiencing major stresses, and freer access to the U.S. market would give the hostile, aggressive dictatorship in Beijing a badly needed lifeline.

For example, China just reported that its goods exports rose in April at their lowest annual rate (3.9 percent) since June, 2020. Exports have always been a leading engine of Chinese economic expansion and their importance will likely increase as the regime struggles to deflate a massive property bubble that had become a major pillar of growth itself.

It’s true that dictator Xi Jinping’s wildly over-the-top Zero Covid policy, which has locked down or severely restricted the operations of much of China’s economy, deserve much of the blame. But Xi has recently doubled down on this anti-CCP Virus strategy, and low quality Chinese-made vaccines virtually ensure that case numbers will be surging. So don’t expect a significant export rebound anytime soon without some kind of external helping hand (like a Biden cave-in on tariffs).

Indeed, China seems so worried about the export slowdown that it’s resumed its practice of devaluing its currency to achieve trade advantages. All else equal, a weaker yuan makes Made in China products more competitively priced than U.S. and other foreign counterparts, for reasons having nothing to do with free trade or free markets.

And since March 1, China – which every day determines a “midpoint” around which its yuan and the dollar can trade in a very limited range (as opposed to most other major economies, which allow their currencies to trade freely) – has forced down the yuan’s value versus the greenback by an enormous 6.54 percent. The result is the cheapest yuan since early November 3, 2020.

It’s been widely observed that such currency manipulation policies can be a double-edged sword, as they by definition raise the cost of imports still needed by the Chinese manufacturing base. But the rapidly weakening yuan shows that this is a price that Beijing is willing to pay.       

Finally, for anyone doubting China’s need to maintain adequate levels of growth by stimulating exports, this past weekend, the country’ second-ranking leader called the current Chinese employment situation “complicated and grave.” His worries, moreover, aren’t simply economic. As CNN‘s Laura He reminded yesterday, Beijing is “particularly concerned about the risk of mass unemployment, which would shake the legitimacy of the Communist Party.”

For years, I’ve been part of a chorus of China policy critics urging Washington to stop “feeding the beast” with trade and broader economic policies that for decades have immensely increased China’s wealth, improved its technology prowess, and consequently strengthened its military power and potential. The clouds now gathering over China’s economy mustn’t lead to complacency and any easing of current American tariff, tech sanctions, or export control pressures. Instead, they’re all the more reason to keep the vise on this dangerous adversary and even tighten it at every sensible opportunity.

(What’s Left of) Our Economy: More Evidence that Pay Really is Worsening U.S. Inflation

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Back in February, I wrote that although U.S. workers’ hourly wages were rising more slowly than the standard measure of consumer prices (the Consumer Price Index, or CPI), and therefore on that basis couldn’t be blamed for the recent, historically high inflation, there was one reason to be worried about the last few years’ healthy pay hikes: Such pay was rising faster than worker productivity.

I explained that this trend inevitably fueled inflation because “when businesses are in situations where wages are rising but their operations are becoming more efficient at a faster rate, they can maintain and even increase profits without passing higher costs on to their customers. When productivity is rising more slowly than inflation, this option isn’t available – or not nearly as readily.”

And more important than my views on the subject, these concerns have been expressed by Jerome Powell, Chairman of the Federal Reserve, the U.S. central bank that has the federal government’s main inflation-fighting responsibilities.

So it’s discouraging to report that new government data on both pay and productivity have come out in the last two weeks, and they make clear that the pay-productivity gap has just been widening faster than ever.

The pay data come from the Labor Department’s latest Employment Cost Index (ECI), which tracks not only hourly wages but salaries and benefits, while the productivity figures come from Labor’s new release on labor productivity, which measures how much output a single worker turns out in a single hour. And conveniently, both releases take the story through the first quarter of this year.

The results? From the fourth quarter of last year through this year’s first quarter, total compensation for all private sector workers, the ECI increased by 1.42 percent, while labor productivity for non-farm businesses (the category most closely followed, and basically identical with the private sector) fell by 1.93 percent. That last number was labor productivity’s worst such performance since the third quarter of 1947. (As RealityChek regulars know, I focus on private sector workers because their pay levels largely reflect market forces, not politicians’ decisions, and consequently reveal more about the labor picture’s fundamentals.)  

The year-on-year statistics aren’t much better – if at all. Between the first quarter of last year and the first quarter of this year, the ECI for the private sector grew by 4.75 percent, but labor productivity dipped by 0.62 percent.

And since the U.S. economy began recovering from the first wave of the CCP Virus pandemic, during the third quarter of 2020, the private sector ECI is up by 6.61 percent, while labor productivity is down by 0.78 percent.

As also known by RealityChek readers, labor productivity isn’t the economy’s only measure of efficiency. Multifactor productivity is a broader, and therefore presumably more useful gauge. It’s not as easy to work with because its results only come out annually, and the latest only take the story up to the end of last year.

The picture is decidedly more encouraging – at least recently. From 2020-2021, multifactor productivity for non-farm businesses improved by 3.17 percent. But it still wasn’t good relatively speaking, since from the fourth quarter of 2020 through the fourth quarter of 2021, the private sector ECI increased by 4.38 percent.

Worse, from 2001 (when the Labor Department began the ECI) to last year, pay b that gauge was up 74 percent while non-farm business multifactor productivity had advanced by a mere 16.46 percent.  Therefore, clearly the recent pay and productivity numbers don’t simply stem from pandemic-related distortions of the economy. 

To repeat important points from last February’s post, the productivity lag doesn’t mean that U.S. workers overall don’t deserve nice-sized raises and better benefits, and it certainly doesn’t mean that they’re solely or largely to blame even for poor labor productivity growth. After all, managers are paid as handsomely as they are fundamentally to figure out how to make their employees more productive. Also, productivity is a barometer of economic performance that’s unusually difficult to determine precisely.

But the new figures do strengthen the case that labor costs bear significant responsibility for boosting inflation, and that a major fear surrounding overheated price increases – that inflation acquires powerful momentum as surging prices lead to big wage hike demands and vice versa, and create a spiralling effect that’s excuciatingly difficult to end without the Fed throwing the economy into recession. Just as depressingly, the new pay and productivity figures also strengthen the case that, unless the economy becomes a lot more productive very quickly, the sooner this harsh medicine is administered, the better for everyone in the long run.

(What’s Left of) Our Economy: Will the Tech Competitiveness Bill Shaft American Tech Workers?

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In case you didn’t already think that the U.S. government has become a dysfunctional mess, the immigration realist group NumbersUSA has just highlighted a recent, thoroughly depressing example. It’s the decision of the Democratic-controlled House of Representatives to turn its version of a bill to boost American technological competitiveness (especially versus China) into a device to advance its Open Borders-friendly immigration agenda ever further – and at the expense in particular of native-born tech workers and tech worker hopefuls.

Not that the story of this competitiveness effort wasn’t a prime example of dysfunction already. As I’ve previously pointed out, both the House bill and its Senate counterpart were originally introduced in mid-2020, and these efforts still haven’t become law – even though concerns about China catching up to the United States technologically, and threatening both American national security and prosperity even more sharply, remain as strong and widespread as ever.

And not that the Democrats are solely responsible: As I’ve also noted, Senate Republicans have strongly supported provisions in their version of the legislation that would both greatly weaken a president’s authority to impose tariffs (including on China to offset the economic damage to U.S. industry from its predatory trade and broader economic practices), and reduce various existing tradei barriers to many imports (including from China).

But the immigration provisions of the House version could be just as damaging, and deserve at least as much attention. As explained by NumbersUSA analyst Lisa Irving, this legislation “allows for an unlimited number of green cards for citizens of foreign countries seeking permanent U.S. residency who hold a U.S. doctorate degree, or its equivalent from a foreign institution, in STEM [Science, Technology, Engineering,and Math fields].”

Adds Irving, “This provision would result in further limiting the job prospects and resources for highly qualified Americans in tech fields.” 

To add insult to injury, as Irving reminds, the measure is based on phony and thoroughly debunked claims, mainly propagated by the U.S. technology industry, that it’s facing a crippling labor and talent shortage. In fact, the tech sector’s prime objective is curbing wage and other compensation gains by opening the flood gates ever wider to foreign-born technologists willing to accept much lower pay.   

The best outcome for the cause of American competitiveness — and for its potential to benefit the existing American population economically — would be for the Congressional conference committee assigned with devising a final compromise version that President Biden can sign into law to strip the Senate version of its trade sections, and the House version of these immigration sections

But don’t expect any progress any time soon. Reuters reports that the committee will hold its first meeting next week – and will contain more than 100 House and Senate lawmakers. In other words, more than 100 cooks for this broth.

As a result, even though China continues massively subsidizing its own tech sector, and even though other countries have already responded with their own incentives aimed at attracting and maintaining their capabilities in semiconductors and other industries, “Congressional aides said it could still take months before a final agreement is reached.” In the ultimate sad commentary on American political dysfunction, given the glaring flaws of both bills, that could be a good thing. 

(What’s Left of) Our Economy: U.S. Manufacturing Job Creation Gains More Momentum

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Today’s official April U.S. jobs report featured such a strong showing by U.S.-based manufacturers that, by one measure, they reclaimed title of America’s best job-creating sector during the CCP Virus era (and its aftermath?).

Domestic industry boosted its payrolls sequentially last month by 55,000 workers, its best such performance since July’s 62,000 gain. In addition, revisions were excellent. March’s initially reported 38,000 increase is now pegged at 43,000, and February’s upgraded 38,000 rise is now judged to have been 50,000.

As a result, manufacturing’s share of U.S. non-farm employment (the federal government’s definition of the American jobs universe), has improved from 8.38 percent in February, 2020 – the last full data month before the virus began roiling the national economy – to 8.41 percent as of last month.

And during this period, manufacturing’s share of America’s private sector jobs is up from 9.83 percent to 9.86 percent.

Domestic industry has recovered a slightly smaller share of the jobs it lost during the sharp pandemic-induced downturn of spring, 2020 (95.89 percent) than the private sector (97.62 percent). But it also shed fewer jobs proportionately than the rest of the private sector during that terrible March and April. (For the record, because of a drag created by public sector hiring, the share of all non-farm jobs regaine d now stands at 94.59 percent.

In all, U.S.-based manufacturing employment is now down a mere 0.44 percent from immediate pre-pandemic-y February, 2020.

April’s manufacturing jobs winners were broad-based, but the biggest among the major sectors tracked by the Labor Department were:

>transportation equipment, whose 13,700 employment improvement was its best such performance since last October’s 28,200. (Last month I erroneously reported that the sector’s best recent monthly performance was last August’s 19,000.) Unfortunately, March’s initially reported employment advance of 10,800 was revised down to 8,800, and February’s previously estimated 19,800 jobs plunge (the worst monthly performance since April, 2021’s automotive shutdown-produced nosedive of 48,100) is now judged to be 19,900. Bottom line: This sector’s employment levels are still 3.38 percent below those of that last full pre-pandemic data month of February, 2020;

>machinery, where 7,400 jobs were added on month – an especially encouraging result since its products are so widely used throughout the rest of manufacturing and the entire economy. Even better, March’s initially reported 1,700 employment increase was revised all the way up to 6,700, and February’s perfomance – which had been revised down from an 8,300 rise to one of 6,600, recovered a bit to 6,700. As a result, machinery employment is off just 1.55 percent from its February, 2020 levels;

>automotive, which boosted headcounts by 6,400 – its best monthly gain since last October’s 34,200 plant reopening-driven burst. But March’s initially reported 6,400 jobs rise was downgraded to 3,600, and even though February’s major job losses were revised for the better again, they’re still pegged at 14,000 – the worst since the 49,100 employees shed during the shutdowns last April. These gyrations have left the combined vehicles and parts workforce 0.78 pecent smaller than in February, 2020;

>plastics and rubber products, which upped employmment by 5,700 sequentially in April, the best such performance since last August’s 7,800. Job-wise, these sectors are now 3.38 percent larger than in February, 2020.

The only significant jobs losers in April were furniture and related products and miscellaneous durable goods. The former lost 1,100 positions in April, but employment has still inched up by 0.57 percent since pre-pandemic-y February, 2020. The latter – which includes much of the protective gear needed to fight and contain the CCP Virus – reduced employment by 1,400 sequentially last month. But this decrease was the first since last August’s 600 loss, and followed a strong 3,100 jobs gain in March. This catch-all category’s employment is now 1.54 percent higher than in February, 2020.

As always, the most detailed employment data for pandemic-related industries are one month behind those in the broader categories, and as with the rest of domestic industry for March, their employment picture showed improvement overall.

The semiconductor and related devices sector is still struggling to meet demand, but hiring continued its slow-but-steady pandemic-era increase in March with job gains of 700. February’s initially reported 100 employment loss now stands at a 100 employment gain, and January’s numbers stayed at plus-300 – the best monthly performance since last October’s 1,000. This sector now employs 1.34 percent more workers than in February, 2020 – impressive since during the sharp spring, 2020 economic downturn, it kept adding jobs.

The latest employment results were mixed for surgical appliances and supplies makers – a category within the aforementioned miscellaneous durable goods sector, and one in which personal protective equipment and similar medical goods abound. In March, the industry added 1,100 workers, but revisions completely wiped out February’s initially reported 800 jobs gain. The January hiring increase stayed at a downwardly revised 1,300. Even so, since just beforet the pandemic’s arrival in force in the United States, these companies have increased payrolls by 4.07 percent.

The very big pharmaceuticals and medicines industry continued to be a moderate employment winner in March. It hired an additional 900 workers on month, and though its February improvement was downgraded (from 1,300 to 1,000), the number was solid. Moreover, January’s hugely upgraded 1,100 employment rise stayed intact. Since February, 2020, this sector’s headcount is up fully 9.23 percent.

March jobs gains were more subdued in the medicines subsector containing vaccines, but they still totaled 400. February’s initially reported employment increase of 800 is estimated at just 500 now, and January’s identical increase stayed the same. But over time, this industry’s jobs growth has been impressive – 23.15 percent since the last pre-pandemic data month of February, 2020.

Good job gains continued in March in the aviation cluster as well. Aircraft manufacturers (including still-troubled industry giant Boeing) rose by 1,100 sequentially – the best monthly gain since last June’s 4,400. February’s increase was upgraded from 500 to 600, but January’s sequential job loss stayed unrevised at 800. This net increase brought aircraft employment to within 11.08 percent of its February, 2020 level.

The aircraft engines and engine parts industry followed February’s unrevised 900 hiring increase by adding 500 more workers in March. January’s results, however, stayed at a slightly downgraded 900 loss. And these companies’ still employ 12.65 percent fewer workers than in February, 2020.

The deep jobs depression in the non-engine aircraft parts and equipment sector remained deep in March, but a little less so. Jobs gains for the month totaled 700, February’s initially reported 200 increase was unrevised, and January’s way upwardly revised job rise was downgraded only from 1,500 to 1,400. But since just before the pandemic, the non-engine aircraft parts and equipment sector has still shrunk by 15.74 percent.

Having recently navigated its way skillfully through a once-in-a-century pandemic, a virtual shutdown of the entire U.S. economy, continuing supply chain disruption, multi-decade high inflation, a major war in Europe (so far), former export champ Boeing’s woes, and sluggish-at-best growth in much of the foreign markets it relies on heavily, it’s tempting to say that U.S-based manufacturing will have finally met its match if the Federal Reserve’s inflation-fighting campaign dramatically slows growth domestically — or worse.  But since the pandemic began, the next time the manufacturing pessimists are right will be the first.       

 

Following Up: Podcast Now On-Line of Last Night’s National Radio Interview on Manufacturing & China Defeatism

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I’m pleased to announce that the podcast of my interview last night on the nationally syndicated “CBS Eye on the World” with John Batchelor is now on-line.

Click here for a timely discussion – including co-host Gordon G. Chang – of whether the U.S. manufacturing revival pessimists are right, and bringing factories back from China really is a fool’s quest.

And keep checking in with RealityChek for news of upcoming media appearances and other developments.