The Federal Reserve’s new industrial production figures (for February) follow a pattern that’s begun to emerge lately. They provide evidence that the domestic U.S. manufacturing sector is shifting into a slower gear. But they offer scarcely any reason to believe that President Trump’s tariff-centric trade policies are behind this possible soft patch.
As usual, let’s start with the data pertaining to the President’s levies on aluminum and steel. These tariffs have been widely reported to have gut punched American industry – allegedly proving that Mr. Trump’s approach to trade has been totally counterproductive. Yet just as usual, the performance of the nation’s main steel-using industries – supposedly the main victim of the tariffs, since the trade curbs saddled them with extra costs for major inputs they use – utterly demolishes such claims.
The table below shows the inflation-adjusted output changes for U.S. manufacturing as a whole and for the leading metals-using sectors. And the time periods of the columns represent the gains or losses reported last month between April (the first full month the metals tariffs were in place) and January; the revised April-January figures released this morning, and the preliminary April-February statistics also put out today.
The message they send couldn’t be clearer. The overall manufacturing slowdown comes through from the deterioration that took place between the April-January and April-February results. In fact, on a monthly basis, real manufacturing output declined by 0.40 percent in February – a weakening that followed a 0.49 percent drop in January.
The metals-using industries (including the durable manufacturing super-category in which they’re all found) all exhibited weaker sequential performance between January and February, too (except for aircraft and parts). But with the exception of autos and parts, and major appliances (which are also laboring under the burden of a separate tariff on large household laundry machines imposed in late January, 2018), since the onset of the metals tariffs, they’ve all grown faster than manufacturing as a whole (which is included as a control group since it contains many sectors that don’t use especially large amounts of metals).
Even more revealing are the differences between the old and new January figures. In every case – including for the laggards – they’ve been revised considerably higher. So their underlying strength still looks impressive, which would make no sense whatever if they were really suffering terribly from the metals tariffs.
old thru Jan. new thru Jan. thru Feb.
overall manufacturing: +1.20 percent +1.15 percent +0.75 percent
durables manufacturing: +1.65 percent +1.88 percent +1.78 percent
fabricated metals products: +3.19 percent +3.35 percent +3.30 percent
machinery: +3.87 percent +4.63 percent +2.67 percent
automotive: -5.18 percent -3.78 percent -3.87 percent
major appliances: -2.87 percent -1.42 percent -1.79 percent
aircraft and parts: +6.35 percent +7.22 percent +7.98 percent
Because the Trump China tariffs didn’t begin until August, their impact on domestic American industry is much less clear. In addition, the list of goods on which levies were imposed doesn’t compare well with the industrial production figures because they use different systems for classifying manufacturing sectors. Finally, the number of Chinese import categories tariff-ed in starting in August was relatively small – only $50 billion worth.
The table below presents results from industries where the matchups look solid. This time, I’ve added a column that permits comparing the old and new data for the previous month. And as you can see, the numbers are all over the place. The February figures look especially ugly. But in two cases, the January output results have turned out to be stronger than previously reported (especially in industrial heating equipment).
old Aug.-Jan. new Aug.-Jan. Aug.-Feb.
overall manufacturing: +0.36 percent +0.31 percent -0.09 percent
ball bearings: -0.09 percent +0.05 percent -0.10 percent
industrial heating equipment: -3.86 percent -0.40 percent -4.17 percent
farm machinery and equipment: +9.12 percent +9.12 percent -12.70 percent
Even here, however, so much volatility is evident that withholding judgment is the best approach for now. For example, the February monthly decrease in after-inflation farm machinery output (twenty percent even) was that sector’s worst such performance since January of 2007 (20.54 percent). That’s a more than twelve-year low. Yet the (unrevised) 6.47 percent monthly production improvement in January was the best since last April’s 13.69 percent. Similar volatility can be seen in industrial heating equipment.
So the trade alarmists will have to wait at least another month at least for convincing evidence that the Trump tariffs have backfired big-time against domestic industry. Not that’s stopped them from spreading this wholly false narrative till now.