Thanks to last week’s Federal Reserve industrial production data for December, we now have more full-year 2016 statistics on the economy. Even better, we can construct a detailed report card for the Obama years on another crucial front – domestic manufacturing output. These numbers will be revised several times more in the next few months, but so far, it’s hard to give the previous administration more than a “C.”
The latest monthly and annual changes for the factory sector as a whole and for the durable goods and non-durable goods super-sectors can be found in my same day report on the latest Fed release. But the figures for specific industries are vital, too, and they’re sending two important messages.
The first is that even though the entire manufacturing sector just barely crawled out of recession toward the end of last year, many specific segments remain mired in a two-year downturn – including some highly unlikely suspects. The second is a confirmation that without an extraordinary boom in the automotive sector, American industry would still be slumping. Indeed, vehicles and parts outperformed even the high tech goods sector during the Obama years. Maybe that’s why President Trump seems so obsessed with preventing more of their offshoring to Mexico?
The government divides manufacturing into 20 major components – eleven durable good industries and nine in the somewhat smaller non-durables category. Of these 20 sectors, only nine increased production in real terms between 2015 and 2016: wood products; primary metals products; non-electrical machinery; computer and electronics products; automotive; miscellaneous manufactures; food, beverages and tobacco; paper; and petroleum and coal products.
The leader was automotive (which grew after inflation by 6.58 percent), but the computer and electronics products industry was the only other sector registering annual constant-dollar growth by more than two percent (with 2.96).
The 2016 manufacturing output losers were led by the small “other manufacturing” sector, where price-adjusted output tumbled by 6.46 percent. But four other industries saw constant-dollar annual production declines of more than two percent: electrical equipment, apparel and leather, printing, and – this is sure unexpected – aerospace and miscellaneous transportation (which of course includes all those Boeing airliners).
And here’s a sign that at least some of the relatively strong 2016 performers were largely recovering from lousy 2015s. Three of the nine that grew at all are still in two-year-long recessions (primary metals, non-electrical machinery, and paper).
If you look in even more detail at U.S. manufacturing, the list of industries that has been stuck in two-year recessions gets really disturbing. For it includes many high-value sectors that generate an outsized share of the economy’s productivity growth and innovation – along with high wage jobs. But the after-inflation output of the following sectors is down on net since at least December, 2014: pharmaceuticals; iron and steel products; ball and roller bearings; construction equipment; machine tools; power generation equipment and turbines; and aircraft and parts.
The new Fed data reveal that, during the Obama years overall (starting in January, 2009), domestic manufacturing output expanded in real terms by 15.88 percent. And since the beginning of the economic recovery (June of that year), it’s up by 20.89 percent. That’s a good performance, but as RealityChek regulars know, they came after the worst manufacturing downturn since the Great Depression, and still leave domestic industry more than four percent smaller than at the start of that latest recession.
That’s why, incidentally, it’s difficult to compare manufacturing under the former president with manufacturing under George W. Bush or any of their recent predecessors. Bush’s presidency, for example, started as the dotcom-driven (and unsustainable) manufacturing expansion of the Clinton years was ending. A significant, but far from catastrophic, industrial downturn followed. But that Great Recession struck at the end of the Bush years, and badly distorts the output numbers if you’re measuring “by president.”
Automotive was the pace-setter in the Obama manufacturing expansion by a long shot. Since Mr. Obama’s first inauguration, its inflation-adjusted production jumped by just over 167 percent, and since the recovery official began six months later, it expanded by just under 168 percent. The lion’s share of output during both periods was in vehicles, where constant-dollar production more than tripled – though parts output increased by more than 130 percent during the Obama years as well.
American industry’s worst performer was that small other manufacturing sector, which has shrunk by more than 30 percent. Output in real terms fell in the apparel and leather, and printing industries under Mr. Obama – which shouldn’t surprise anyone. But it also dropped in the enormous chemicals industry (by a little less than one percent) – which should.
Information technology hardware – semiconductors, computers, and communications equipment – grew robustly, too, in constant dollars during the Obama years (by more than 102 percent) and during the recovery (by a bit more). But these producers clearly were left in the dust by automotive. (And it’s important to remember that high tech industries’ real growth is probably overstated, for reasons explained here.)
And here are the real stunners: If you remove the automotive sector from the real manufacturing output totals, industry’s output improved by only 12.34 percent during the current recovery (not 20.89 percent) and a mere 7.37 percent since the first Obama inauguration (not 15.88 percent). Over a seven-year period, that’s a pittance. Strip out high tech hardware, and manufacturing’s real growth is less, too – but it would still have risen by 15.71 percent during this recovery and 10.25 percent during the previous administration.
These industrial production figures depict President Trump’s focus on reshoring automotive production and keeping it stateside as a no-brainer. By the same token, they indicate that domestic manufacturing’s fortunes could depend heavily on whether or not he succeeds.