If you harbor any doubt that the automotive sector has been driving domestic U.S. manufacturing’s fortunes since the Great Recession began, and into the current historically weak recovery, throw them overboard.
I’ve just finished giving my blazing new laptop a workout by doing a deep dive into yesterday’s industrial production report from the Federal Reserve. The new figures make absolutely clear that, so far, as goes automotive, so goes manufacturing – and whatever valid hopes for a renaissance are still justified. Moreover, they indicate that the next few months may go far toward determining whether manufacturing’s rebound from an horrific recessionary downturn can continue much longer.
Certainly this pattern has held since the U.S. economy’s most recent woes began in earnest. From the recession’s December, 2007 onset through its official end in June, 2009, overall manufacturing production fell by 20.48 percent in inflation-adjusted terms. But strip out autos and parts, and the downturn was somewhat less dramatic – 18.14 percent.
You can follow along here by clicking on the seasonally adjusted January 1986 to present link here at the homepage of the Fed’s interactive production databases. Warning! Major eye strain could result! 🙂
Since the recovery began, overall manufacturing has grown by 27.41 percent after inflation. But without vehicles and parts, this real growth sinks to 20.42 percent. Put differently, manufacturing production is now up by 1.31 percent in real terms over the nearly seven years since the recession began. But without the booming auto sector, it’s actually down by 1.42 percent.
The trend shows some signs of slowing – but only some. For example, look at the numbers this year since March (to avoid the distortions caused by the severe winter). From March through September, overall manufacturing production has grown by 1.86 percent post inflation. Without automotive, the real growth rate has been only 1.61 percent. That’s a 13.50 percent difference.
During the recovery, the growth gap was nearly twice as big – 25.50 percent. But from March, 2013 through September, 2013, the gap was smaller – 10.11 percent.
One big consequence of automotive’s lead role in the last few months is that its volatility has helped produce big swings in real manufacturing output. During July, a monster 9.39 monthly jump in real automotive output helped boost overall monthly manufacturing production up 0.82 percent – its best performance since the final stages of the recovery from winter in March. Without that increase – the biggest in percentage terms since September, 2009, when production was in its early post-recession bounce – manufacturing grew by only a negligible 0.13 percent.
The automotive sector took a breather in August, as real output sank by 6.98 percent – the worst monthly performance since April, 2011. The rest of American industry eaked out a 0.01 percent inflation-adjusted output gain. But the automotive falloff pushed overall production down by 0.46 percent – its worst since the winter-aided 1.03 percent plunge in January.
The automotive slump continued in September, as production after inflation decreased another 1.40 percent. The rest of manufacturing managed to expand by a solid 0.58 percent. But autos and parts dragged overall real production down to 0.47 percent.
The last two months’ worth of data of course indicate that after leading the manufacturing rebound, auto and parts production is now holding it back. Whether the rest of U.S. industry can keep growing satisfactorily without robust auto output, or whether recent automotive struggles will extend to the rest of manufacturing, will shape not only domestic industry’s future, but the entire economy’s.