The economics and investment worlds have plunged into near-panic mode over a report yesterday on American domestic manufacturing whose headline number was the worst since recessionary 2009. The September results from the Institute for Supply Management (ISM) have been interpreted as a sign that a U.S. recession has just become much more likely, and an unusually bad finding for export orders triggered a burst of analyst claims that President Trump’s tariff-heavy trade policies were the main problem. (See, e.g., this article.)
In fact, the ISM report itself stated that “Global trade remains the most significant issue….”
So is the evidence finally reaching critical mass that the President’s approach to trade is backfiring? Here’s why that conclusion seems like a big stretch.
First, the ISM and similar reports present “soft data.” That is, they don’t contain actual figures on production, employment, export orders, or other indicators. Instead, they feature findings on how many of the manufacturers they survey say their results on these and other fronts are worsening and how many are observing improvement.
The scope for error here is made clear by the release yesterday of another closely followed American manufacturing gauge – from IHSMarkit.com. According to this soft data report, September was domestic industry’s best month in the last five, and better orders from American customers were enough to keep U.S. manufacturing in growth mode despite a seriously sagging export business.
Second, as for the most authoritative hard data on manufacturing output, it comes from the Federal Reserve. As my latest update on RealityChek showed, its latest industrial production statistics show that the sector remains in a shallow recession, but that production has been turning up recently.
At the same time, manufacturing employment continues to stumble, and in particular, industries most affected by the Trump tariffs have turned in recent month from employment leaders to employment laggards.
Third, just as I’ve presented the evidence showing that manufacturing’s current recession is anything but its first slump since the U.S. economy’s current expansion began in mid-2009, the current export downturn (which is supported by the hard data) is anything but unprecedented during this period, either.
The table below shows the recovery-era annual changes in total manufacturing exports (the broadest measure of such shipments), global economic growth, and the value of the dollar. The export and growth figures are in pre-inflation dollars.
total exports % change world growth dollar’s value
09 $0.916726t -18.29 percent -5.15 percent +11.43 percent
10 $1.100394t +20.04 percent +9.44 percent -7.13 percent
11 $1.276906t +16.03 percent +11.08 percent +0.41 percent
12 $1.341398t +7.40 percent +2.30 percent +1.58 percent
13 $1.375170t +2.52 percent +2.86 percent -0.67 percent
14 $1.403782t +2.08 percent +2.73 percent +1.62 percent
15 $1.317019t -6.18 percent -5.41 percent +15.65 percent
16 $1.246011t -5.39 percent +1.47 percent +5.45 percent
17 $1.323574t +6.22 percent +6.29 percent +2.26 percent
18 $1.400022t +5.76 percent +6.07 percent -10.85 percent
18 ytd $0.812914t
19 ytd $0.796902t -1.97 percent 2.60 percent* +3.82 percent
As should be clear, manufacturing exports so far this year are off by less than two percent (the new U.S. monthly trade figures, for September, will be out Friday morning) – a decline much smaller than those in 2015 and 2016, when no President was conducting a trade war. Quite the contrary. And once the current expansion ended its early “snapback” phase, manufacturing export growth was pretty underwhelming. Indeed, manufacturing export growth rates sank below global growth rates in 2013 and haven’t recovered by this measure since – although the gap closed markedly during the first two Trump years.
Overall, in fact, since Mr. Trump’s trade policy about-face began in earnest (with metals tariffs imposed in March, 2018), manufacturing exports have held up pretty well considering that global growth (i.e., the health of the foreign markets to which American manufacturers are trying to sell) has slowed considerably (partly due of course to the impact of the trade war in a world outside the United States that’s still overwhelmingly dependent on amassing exports and trade surpluses in order to grow adequately).
And don’t forget exchange rates – which go far toward determining the cost and therefore appeal of U.S. exports versus the competition. Their impacts operate with a time lag, but even with all the complexities of measuring such effects, with the dollar hitting 29-month highs in absolute terms on Tuesday, it’s difficult to argue credibly that the Trump tariffs are the predominant cause of American manufacturing’s export woes.
Indeed, it’s at least as plausible to contend that manufacturing exports’ performance this year has been especially encouraging given that disrupting global supply chains and returning them to the United States – which obviously adds to the near-term challenges faced by American multinational and domestic manufacturers alike – are among the President’s main trade war objectives. And since the full benefits of Mr. Trump’s new trade policy approach can’t possibly quickly, these indications of resilience by U.S.-based industry have to be seen as good news for anyone hoping for an enduring American manufacturing revival.