(What’s Left of) Our Economy: U.S. Manufacturing Output Surprises to the Upside Again

Tags

aerospace, aircraft, aircraft parts, automotive, banking crisis, CCP Virus, chemicals, computer and electronics products, coronavirus, COVID 19, Federal Reserve, inflation-adjusted output, interest rates, machinery, manufacturing, manufacturing production, medical equipment, miscellaneous non-durable goods, monetary policy, pharmaceuticals, plastics and rubber products, recession, semiconductors, textiles, wood products, {What's Left of) Our Economy

Remember one of the signature expressions of 1960s sitcom character Gomer Pyle – “Surprise, surprise, surprise!”? That was my reaction to this morning’s Federal Reserve release on U.S. manufacturing production for February, which reported a second straight increase.

The February improvement was pretty marginal to be sure – 0.12 percent in after-inflation terms (the kind of numbers that will be presented here unless otherwise specified). And since its production is down on net since last February, domestic industry is still in recession. But any official gain in the hard data is noteworthy, given the lousy February sentiment-based survey results put out by many of the Federal Reserve’s regional branches (e.g., here), which have continued into March (e.g., here), and by leading private sector groups (e.g., here).

Also unexpected: January’s increase was revised up from one of 0.94 percent to one of 1.35 percent. That’s the best such performance since October, 2021’s 1.70 percent. So maybe that January figure wasn’t a one-off, as I speculated last month?

That’s not clear yet. Both the January and February advances also might still stem from a baseline effect – specifically, catch-up from an absolutely terrible December. That month’s manufacturing output decline has now been revised down a second time. Its 2.06 percent sequential dropoff is the worst such result since the 3.64 percent nose-dive in weather-affected February, 2021. But as that journalistic cliché goes, “It’s too soon to tell.”

Here’s what we do know – so far (keeping in mind that revisions of all statistics going back to 2021 will be issued on March 28).

The February report means that U.S.-based manufacturing output is now up since since just before the CCP Virus pandemic arrived stateside in force in February, 2020 by 1.65 percent – the same figure calculable from last month’s Fed release.

Only seven of the 20 broadest manufacturing sub-sectors tracked by the Fed boosted their production in February. The biggest winners were:

>the very big chemicals industry, which expanded output by 1.24 percent. Better yet, this growth came after a January increase of 3.11 percent (the best such performance since April, 2021’s 3.97 percent). The January pop looks like catch-up from December’s 2.63 slump (the worst such performance since weather-affected February, 2021’s 6.69 percent cratering). But the February follow-on could be a sign of truly regained strength.

Since immediately pre-pandemic-y February, 2020, chemicals production is up 7.52 percent, versus the 6.11 percent calculable last month;

>computer and electronic products, where production advanced for the first time since last September – and by 1.22 percent. But now it’s contracted by 0.62 percent during the CCP Virus era, versus having grown by 2.95 percent as of last month’s release; and

>wood products, whose output rose for the second straight month after having slumped for most of the past year. Not so coincidentally, this losing streak paralleled the housing industry woes prompted by the Federal Reserve’s historically rapid interest rate hikes. The February 1.11 percent gain was the best since the 2.81 percent surge last February.

But the wood products industry is still 2.49 percent smaller than it was just before the pandemic’s arrival in force, versus the 2.56 percent calculable last month.

The biggest February maufacturing output losers were:

>textiles and products, which saw production sag by 2.11 percent, the biggest decrease since last June’s 3.44 percent. The fall-off depressed output in this small sector to 12.96 percent below its February, 2020 level, versus the 8.93 percent calculable last month;

>plastics and rubber products, whose production decrease of 1.82 percent was its seventh straight monthly loss, and dragged its output losses down to 5.62 percent below its immediate pre-pandemic levels versus the 4.33 percent calculable last month; and

>miscellaneous non-durable goods, where output slipped by 1.52 percent, and pushed production down to 14.95 below its pre-pandemic level versus the 13.76 percent calculable last month.

Output also drooped in two sectors of continuing special importance to all of industry and the entire economy.

The story of CCP Virus era U.S.-based manufacturing has been in many respects a story of the automotive sector, and in February, vehicle and parts production dipped by 0.28 percent. This advance helped it draw to within 0.12 percent of its size in February, 2020, from the 1.61 percent shortfall calculable last month.

The diverse machinery industry, meanwhile, is crucial both to the rest of manufacturing and to the entire economy because its products are used so widely for retooling and modernization. So its growth indicates general manufacturing and overall business optimism, and vice versa.

Ordinarily, therefore, a moderately 0.40 percent monthly decline in machinery output would be moderately bearish, but the sector has been too volatile lately to be certain. The February decline followed a 3.42 percent burst that was the strongest since 5.12 percent pop of January, 2021. That’s a sign of a catch-up effect.

But the January results followed a 2.59 percent tumble in December that was the worst since last May’s 3.34 percent. All told, however, machinery output is now 5.54 percent greater than just before the pandemic struck, versus the 4.77 percent calculable last month.

Manufacturing sectors of special importance since the pandemic struck also suffered generally lousy Februarys performances.

The semiconductor shortages that have caused so many headaches for U.S. and foreign manufacturers seem to be easing, but supplies remain inadequate for many customers. And the situation won’t be helped by the 1.65 percent real output decrease U.S.-based chip production suffered in February.

Worse, this decrease was the sector’s eighth in a row – and some of these estimates have been revised down substantially. Due to these poor and worsening results, whereas as of last month’s Fed release, U.S. semiconductor output was 4.47 percent above its immediate pre-CCPVirus levels; now it’s 7.83 percent below.

Medical equipment and supplies, which contains the healthcare products used so widely to combat the pandemic, suffered a 0.73 percent real output contraction – its fifth straight monthly decrease.

Medical equipment and supplies output in February dropped for the fifth time in the last six months. But even with this latest 0.51 percent retreat, production in this sector – which includes so many of the products used to fight the CCP Virus – is now 10.52 percent higher than jut before the pandemic hit, versus the 9.85 percent calculable last month.

Production in pharmaceuticals and medicines was off by 0.54 percent in February, but the decrease was the first since last July, and depressed this big sector’s growth since immediately prepandemic-y February, 2020 to 20.42 percent versus the 21.44 percent calculable last month.

The exceptions to this pattern were aircraft and aircraft parts-makers – possibly because industry giant Boeing’s fortunes seem to be looking up finally. Their output increased by 0.35 percent in February, and is now up 30.19 percent since the advent of a pandemic that long hammered travel of all kinds, versus the 35.81 percent calculable last month.

What lies ahead? The entrails remain difficult to read, especially since the new banking crisis is creating doubt as to whether the Federal Reserve will continue an inflation-fighting effort it’s been making vigorously but that still hasn’t produced the economy slowdown it’s seeking – but that may at some point because these monetary tightening moves typically don’t start working for many months. See what I mean? 

If the central bank remains on course, domestic manufacturing’s troubles seem certain to return. But as long as the economy keeps defiantly expanding, its power may bring U.S.-based industry securely back into growth mode.

Advertisement

(What’s Left of) Our Economy: (Much) More Evidence That Tariffs Can Work

Tags

aluminum, Biden administration, China, economics, free trade, inflation, mercantilism, metals, output, prices, protection, protectionism, steel, subsidies, tariffs, Trade, Trump administration, {What's Left of) Our Economy

An independent U.S. government agency that most of you have never heard of just issued a blockbuster report full of evidence that further lobotomizies the clearly brain-dead but longstanding and still-prevailing conventional wisdom on a major economic issue facing Americans – how to deal with the global economy.

The agency is the U.S. International Trade Commission (USITC) and the conventional wisdom is that the sweeping, often towering Trump (and now Biden) administration tariffs on metals and on imports from China have cost the American economy on net.

Just as important: The report’s findings also shred the equally enduring belief that such trade protection causes the beneficiary companies or industries to become fat and lazy – and in particular to stop investing in expansion – because it’s so much easier and lucrative to reap higher profits from the higher prices they can charge from their existing operation.

The tariffs most comprehensively examined were those imposed on steel and aluminum imports starting in early 2018. The USITC looked at both their impact on those metals producers themselves, and on the “downstream industries” that use steel and aluminum.

As might be expected, the study reported that the metals levies – imposed to counteract massive foreign subsidies and other predatory practices – reduced imports of the products they covered significantly between 2018 and 2021 (the last year for which full statistics were available). U.S. purchases of affected foreign steel products sank by an annual average of 24.0 percent, and of their aluminum counterparts by an annual average of 31.1 percent

Further, as might also be expected, users of these metals often had to turn to buying domestically produced steel and aluminum in many instances. (In others, where U.S,-made alternatives weren’t available, they needed to eat the increased prices of the imports.)

But here’s where the conventional wisdom starts breaking down. According to USITC researchers, the price of Made in America steel and aluminum barely budged as a result of the tariffs. For steel, it rose by an annual average of 0.74 percent between 2018 and 2021. For aluminum, these increases were 0.87 percent. That sure doesn’t sound like price-gouging.

And one big reason undermines another claim of the tariff conventional wisdom. These prices hikes were so modest due significantly to output increases of these metals. And the higher output wasn’t due simply to the (modestly) higher prices metals-makers could charge. It reflected greater quantities of steel and aluminum that were manufactured. Between 2018 and 2021, because of the tariffs alone, steel companies boosted production volume (not dollar value) by an annual average of 1.9 percent and aluminum companies by an annual average of 3.6 percent. (See the table on p. 21.)

In fact, as the report notes, “Many domestic steel producers announced plans to invest in and greatly expand domestic steel production in the coming years” and capacity utilization in the industry hit a 14-year high in 2021. That’s resting on their laurels?

But the worst blow delivered by the report to the conventional wisdom was to the claim that the metals tariffs damaged the U.S. economy overall because whatever benefits the metals sectors enjoyed were completely swamped by the harm done to much larger metals-using sectors. (Here’s a detailed version. Unlike the USITC study, it focuses on employment and not output impacts, but undoubtedly there’s a pretty close relationship between the two.) According to the USITC, nothing of the kind happened.

As stated in footnote 342 on p. 125, thanks to the tariffs, steel production climbed by $1.90 billion in 2018, by $1.86 billion in 2019, by $0.92 billion in 2020, and by $1.33 billion in 2021. That adds up to $6.01 billion.

Aluminum production was $1.74 billion higher in 2018, $1.72 billion in 2019, $0.88 billion in 2020, and $0.92 billion in 2021 (footnote 347 on p. 126). That adds up to $5.26 billion. Add these steel and aluminum totals, and you get $11.27 billion in production gains by value attributable to the tariffs.

On p. 132, the USITC estimates that the tariff-induced production decline of steel- and aluminum-using industries averaged $3.40 billion from 2018 through 2021 – or $13.60billion in toto. So American output did indeed fall overall?

Not so fast. As the authors note (p. 125), the annual impact of the tariffs decreased during these years because the percentage of metals imports covered by the tariffs shrank – in part due to deals struck by Washington with various foreign metals producers to end levies on their products in return for agreeing to end illegal practices like dumping and to work harder to prevent previously tariff-ed Chinese metals pass through their countries to America via customs fraud.

So it’s likely that the gap between the U.S. metals output increases generated by the tariffs and the users’ output losses generated by the levies – pretty measly to begin with – would have shrunk and even vanished completely had all the tariffs remained in place. And who can reasonably rule out the possibility that the tariffs would have wound up boosting more American manufacturing production than they reduced – especially if the metals users were able to increase their production despite higher costs by improving their productivity. (See this post for a fuller discussion of the relationship between import use and productivity.)

The report didn’t look at the downstream effects of the much greater tariffs on Chinese goods, but presented evidence that they’ve been economic winners for the United States as well. As the study concluded, the China tariffs per se – also imposed to offset systemic economic predation by the People’s Republic – cut the value of Chinese imports by an annual average of 13 percent, and increased the price of domestically produced competitor products and the value of domestic competitor production by an annual average of 0.2 percent and 0.4 percent, respectively. between 2018 and 2021.

In other words, the China tariffs raised domestic production twice as much as domestic prices. And the problem is….?

The USITC authors admit that their model for evaluating the tariffs can’t capture all their effects. And their conclusions certainly don’t mean that all tariffs will work splendidly all of the time. But it’s arguable that for all the trade liberalization achieved since the end of World War II, protectionism and mercantilism by foreign governments remains widespread.  The USITC report strengthens the case that comparable U.S. responses should be used much more often.     

P.S. I published a detailed look at the impact of the 1970s and 1980s tariffs (including those imposed during the Reagan years) back in 1994 in Foreign Affairs and reported similar conventional wisdom-debunking findings.          

(What’s Left of) Our Economy: Banking Crisis or Not, More U.S. Inflation’s Ahead

Tags

American Rescue Plan, banking system, banks, baseline effect, Biden administration, CCP Virus, consumer price index, core inflation, coronavirus, cost of living, COVID 19, CPI, election 2024, Federal Reserve, finance, gasoline prices, inflation, interest rates, monetary policy, oil prices, stimulus, {What's Left of) Our Economy

Soon Jews the world over will celebrate the Passover holiday by asking at the ceremonial dinner (seder) “Why is this night different from all other nights?” (The answer is easily Google-able.)

Today, those the world over who follow the economy should ask “Why is this morning’s U.S. consumer inflation report different from all other recent U.S. inflation reports?”

The answer? Because this morning’s report (which takes the story through February) won’t be the biggest development looked at by the Federal Reserve in its upcoming meeting when it decides where it will set the interest rates it controls.

Instead, the biggest development it considers will be the turmoil that’s been breaking out these last few days in the U.S. banking system, whose proximate cause has been the blazing pace with which the Fed has been raising the federal funds rate over the past year.

Not that the new figures for the Consumer Price Index (CPI) will be ignored. In fact, they were probably unspectacular enough (either in a good or bad way), to convince the central bank to either slow down the pace of rate hikes or to pause them altogether, for fear of igniting a devastating financial chaos. But were they really so so-so? Not the way I see it.

Indeed, the data made clear that U.S. prices remain way too high, and are rising way too fast, to please any reasonable person. And that’s true either when it comes to the headline inflation results, or to their “core” counterparts – which strip out food and energy prices supposedly because they’re volatile for reasons having almost nothing to do with the economy’s underlying vulnerability to inflation.

The monthly February headline figure came in at 0.37 percent – below the 0.52 percent recorded in February (and the worst sequential result since last June’s 1.19 percent), but still bad enough to push prices up by nearly 4.50 percent at an annual rate if it continues for a year. And price increases that strong would be more than twice the Fed’s yearly target of two percent – creating a situation that no consumers will enjoy.

Speaking of annual headline CPI, its actual rate as of February was 5.98 percent – a good deal lower January’s 6.35 percent and the best such figure since September, 2021’s 5.38 percent.

But as known by RealityChek regulars, here’s where some baseline analysis is needed. That is, it’s crucial to see whether these annual figures are following those for the previous year that were unusually low or unusually high. If the former, then a yearly inflation rate that may look lofty at first glance might just represent one-time catch up – a reversion to a long-term average from a weak anomalous read.

In fact, in my view (and that of the Fed and the Biden administration), it was catch up that generated the rapid price hikes of the early part of this current high inflation period. The main reason was a rebound from price stagnation attributable mainly to the arrival of the CCP Virus and all the havoc it wreaked on the economy generally and especially on the service sector that makes up most of it by far. So I agreed with then conventional wisdom that at that point, worrisome inflation was “transitory.” (See, e.g., here.)

After early 2021, however, circumstances changed dramatically. Of course the Russian invasion of Ukraine last February drove up gasoline prices – though they’d been rising strongly since the recovery from the devastating first coronavirus-induced economic slump and took another big leg up in late 2020. (See this chart.)

More important was the Biden administration’s continuation of emergency-type stimulus spending well after the pandemic emergency had peaked and a strong economic recovery was underway. The American Rescue Plan Act and other boosts in government spending ensured that consumers at all income levels would long be abnormally cash- and income-rich, and that their resulting spending would give businesses generally a new jolt of pricing power.

And for many months, the changes in the baselines for annual headline and core inflation have strongly supported that case that inflation has become more entrenched.

In this vein, the allegedly encouraging annual 5.98 percent inflation rate for February shouldn’t be seen in isolation. What also matters is that it followed a 2021-22 baseline figure of a scorching 7.95 percent. That’s a clear sign of business’ continued confidence in its pricing power. The baseline figure for that September, 2021 5.38 percent inflation rate was just 1.63 percent – well below the Fed target and a number that points to an economy that was still being held back largely because of a seasonal CCP Virus rebound.

Core CPI paints a bleaker picture even without examining the baseline effect. On a monthly basis, it rose for the third straight time, and the new figure of 0.45 percent was the highest since last September’s 0.57 percent.

As for the annual increase, that registered 5.53 percent. That was a tad lower than January’s 5.55 percent and the best such result since December, 2021’s 5.52 percent. But the baseline for the new February figure is 6.43 percent – considerably higher than the 6.43 percent for Januay. So that’s a powerful argument for a worsening, not improving, core CPI performance. And the case seems to be clinched that the baseline figure for that December, 2021 core inflation rate was a feeble 1.63 percent – well below the Fed headline CPI target.

Even before the February CPI report, I believed that inflation would keep heating up because most consumers still have plenty of cash (and therefore, don’t forget, credit), and because a combination of slowing growth (which, to be fair, we haven’t seen yet), and an approaching election cycle would keep politicians tempted to keep spending levels high in order to prop up the economy and keep voters happy. Moreover, I’ve never bought the argument that the Fed would keep fighting inflation vigorously enough to tighten monetary policy enough to cut growth rates dramatically – much less risk a recession – going into the high political season.

Now with banking system troubles added to the mix, the idea that continued strong interest rate hikes seems completely fanciful – along with any realistic hopes that inflation will soon fall back to acceptable levels.

(What’s Left of) Our Economy: U.S. Manufacturing’s Employment Win Streak Comes to an End

Tags

aircraft, aircraft engines, aircraft parts, apparel, automotive, CCP Virus, chemicals, computer and electronics products, coronavirus, COVID 19, Employment, furniture, Jobs, machinery, manufacturing, non-farm jobs, non-metallic mineral products, pharmaceuticals, plastics and rubber products, private sector, semiconductors, surgical equipment, textiles, vaccines, {What's Left of) Our Economy

A payrolls loss even as the rest of the American economy continued to create gobs of jobs – that was the big manufacturing takeaway from this morning’s official release on U.S. employment for February.

Although job creation for the non-farm economy (the federal government’s definition of the U.S. employment universe) came in at a robust 311,000, domestic industry shed headcount (by 4,000) for the first time since April, 2021.

Moreover, the modest manufacturing job increase of January, which contrasted so strikingly with the blowout performance recorded by non-farm businesses overall, was revised down – from an initially reported 19,000 to 13,000. The initially reported January total U.S. jobs gain of 517,000 was reduced this morning as well. But unlike the manufacturing results, the new figure (504,000) is still astronomical.

The new February numbers pushed U.S.-based manufacturing deeper into CCP Virus-era employment laggard status. Since February, 2020 (just before the pandemic arrived in force in the United States), domestic industry has boosted headcount by 1.55 percent. the private sector overall by 2.59 percent, and the non-farm sector (which includes public sector workers at all levels of government) by 1.96 percent.

As of last month’s release, manufacturing jobs were up 1.67 percent since February, 2020, private sector jobs up 2.46 percent, and non-farm jobs up 1.77 percent.

Consequently, manufacturing’s share of non-farm jobs has sunk from the 8.38 percent calculable as of last month’s report to 8.36 percent, and from its immediate pre-pandemic level of 8.39 percent.

And its share of private sector jobs is down from the 9.80 percent calculable last month to 9.77 percent, and from its immediate pre-pandemic level of 9.87 percent.

February’s biggest manufacturing jobs winners were:

>computer and electronics products, which added 2,800 workers on month fo its best such performance since last October’s 3,300. In addition, January’s initially reported 700 employment drop is judged to be an increase of 100.

These companies’ workforces are now 2.08 percent higher than in immediately pre-pandemic-y February, 2020, versus the 1.77 percent increase calculable last month;

>chemicals, whose payrolls expanded by 2,500 in a resumption of a multi-year string of healthy monthly gains. Indeed, this sequential advance followed an upwardly revised loss of 1,400 jobs that was the sector’s worst such performance since the 2,200 decline in May, 2021.

Chemicals employment is now 7.40 percent greater than it was just before the pandemic struck versus the 6.80 percent growth calculable as of last month;

>beverage, tobacco and leather products (a new name for miscellaneous non-durable goods), which hired 1,900 workers in February. January’s initially reported rise of 5,000 (which had been its best such performance since last June’s 6,300 surge) has now been downgraded to one of 3,100, but remained strong nonetheless.

Job levels in this sector, therefore, are still up by an impressive 10.42 percent since February, 2020 – down just slightly from the 10.45 percent calculable last month; and

>non-metallic mineral products, which boosted payrolls by 1,500, but whose excellent first-reported January results (4,200 – thought to be the best since last February’s 5,600 pop) have also been downwardly revised (to 1,700).

Companies in this sector have now boosted their workforces by 3.74 percent since the virus’ arrival state-side in force, versus the 4.02 percent calculable last month.

February’s biggest manufacturing jobs losers were:

>plastics and rubber products, where employment fell by 4,700 to resume a weak employment stretch that began last October. January’s gain, meanwhile, was revised from 1,200 to 1,100.

Employment in these industries is now 2.99 higher than in February, 2020 – above the overall manufacturing figure but down from the 3.52 percent calculable last month;

>furniture and related products, which also continued a recent losing streak by cutting 2,800 positions. At least January’s initially reported decrease of 700 has been upgraded to one of 500. Headcounts in these sectors are now off by 3.60 percent since the CCP Virus began roiling the U.S. economy in February, 2020, versus the 2.71 percent calculable last month;

>textile mills, a very small sector whose 1,700 jobs retreat was its worst such perfomance since the identical decrease in July, 2020 – as the economy had begun recovering from the effects of the CCP Virus’ first wave. Further, January’s initially reported 900 jobs gain was revised down to one of 700.

These results left textile mill employment 10.88 percent lower than in February, 2020 versus the 8.91 percent calculable last month; and

>apparel, another very small industry, which cut employment by 1,300. This loss, moreover, comes on top of a January drop of 1,900 that was initially reported as one of 2,100. The apparel workforce is now 11.32 percent smaller than just before the pandemic’s arrival in force, versus the 9.02 percent calculable last month.

RealityChek has also been tracking employment in two industries of special importance to manufacturing and the economy overall, and both eaked out tiny hiring increases in February.

Machinery data have been an emphasis because its products are used to equip and modernize nearly all manufacturing and non-manufacturing sectors. So changes in its workforce can signal optimism or pessimism about their prospects.

This big, varied sector extended its monthly job creation winning streak to nine in February, but by a bare 400. January’s results remained in the black, too, but were revised down from an increase of 2,000 to one of 1,000. Payrolls in machinery have now grown by 1.10 percent since just before the pandemic era began, in February, 2020, versus the 1.13 percent calculable last month.

Automotive’s February headcount gain was even smaller – just 200. Nor was it much of a rebound from January’s contraction, which was revised up from one of 6,500 loss to one of 5,100. But the automotive workforce is now 5.91 percent larger than in February, 2020, versus the 5.70 percent calculable last month.

Monitored by RealityChek as well have been several narrower sectors that have attracted special attention during the CCP Virus era, but where the data are always a month behind those of the above broader sectors, Their employment performances were overall positive but with one exception modestly so.

The shortages plaguing the semiconductor industry have bled over into much of the rest of the economy in recent years, which largely explains why Washington has now decided to spend tens of billions of dollars over the next decade to support more domestic production.

Jobs in the category called “semiconductors and related devices” inched up by 300 in January, but – continuing a pattern described above elsewhere in manufacturing – December’s initially reported increase of 800 is now judged to have been just 400. The workforce in this grouping has now grown by 10.79 percent since just before the pandemic struck in full force – a figure that’s better than it looks since these companies’ cut relatively few jobs during the short but deep virus-induced downturn of spring, 2020.

Aircaft manufacturing was pummeled by a combination of pandemic-era travel curbs and Boeing’s production woes, but employment lately has staged a strong comeback. January’s net new hires numbered 400 and December’s initially reported jump of 1,100 has been upgraded to one of 1,500.

Job levels in the sector have now closed to within 3.45 percent of their immediate pre-pandemic numbers, versus having been down 5.56 percent as of last month’s jobs report.

Aircraft engines and engine parts-makers added just 100 new employees in January, but December’s increase of 800 – the best such performance since July’s 900 – remained unrevised. Their payrolls are now just 7.97 percent lower than their immediate pre-pandemic total versus the 8.08 percent shortfall calculable last month.

Non-engine aircraft parts producers reduced their workforces by 100 in January, but December’s hiring increase was revised from 100 to 200. So their headcounts are still off by 16.44 percent during the pandemic period – the same figure calculable last month.

Surgical appliances- and supplies-makers have been in the spotlight since the virus’ arrival in force, since this grouping contains so many of the products used to fight the pandemic. They increased their workforces by 100 in January, but December’s initially reported loss of 400 is now judged to have been one of 500.

As with non-engine aircraft parts their employment level since February, 2020 stayed the same as calculable in December, but in the case of surgical appliances and supplies, the change has been positive – by 1.14 percent.

The big pharmaceuticals and medicines sector was a notable exception to this employment pattern of marginal change, as its companies’ boosted employment by 1,800. But these gains followed December cuts that were upgraded from an initially reported 1,100 to 2,000 – the sector’s worst such performance since the 2,900 nosedive last July.

Yet upward revisions in previous months enabled the gain in the pharmaceuticals and medicines employment to rise since February, 2020 from the 14.25 percent calculable last month to 14.54 percent.

The news was much worse in the pharmaceutical sub-sector that contains vaccines. Employment tumbled in January for the second straight month (by 100) and December’s initially reported plunge of 1,200 is now pegged as one of 1,300.

These drops depressed this grouping’s employment expansion since immediately pre-pandemic-y February, 2020 – but only from the 20.10 percent calculable last month to a still sterling 19.90 percent.

With the U.S. economy lately growing more vigorously than widely predicted, it’s certainly possible that its surprising strength will bring an end to manufacturing’s ongoing production recession and its recent weak hiring.  And the federal government has certainly been trying to lend a helping hand via the aforementioned semiconductor subsidies, along with an infrastructure bill, and  green subsidies – both of which contain Buy American requirements. 

But it’s also possible that the last few months’ worth of data are telling us that the fortunes of manufacturing and the rest of the domestic economy are being decoupled.  Indeed, industry’s still towering trade deficit is one indication, making clear that the consumption of manufactures remains much greater than their production. 

Compounding the uncertainty:  February’s manufacturing jobs loss could be washed away via revisions in next month’s jobs report.  But at the least, this first employment drop in nearly two years might signal that domestic manufacturers are no longer hoarding workers as zealously as other sectors of the economy have been.  If so, expect manufacturing employment to continue stagnating.         

(What’s Left of) Our Economy: A Deceptively Calm January for U.S. Trade?

Tags

Advanced Technology Products, ATP, Biden, Buy American, Canada, CCP Virus, China, Donald Trump, European Union, exports, Federal Reserve, goods trade, imports, India, Inflation Reduction Act, infrastructure, Japan, Made in Washington trade flows, manufacturing, monetary policy, non-oil goods trade, semiconductors, services trade, stimulus, Taiwan, tariffs, Trade, trade deficit, Ukraine War, Zero Covid, {What's Left of) Our Economy

Pretty calm on the surface, pretty turbulent underneath. That’s a good way to look at yesterday’s official release of the U.S. trade figures for January. Many of the broadest trade balance figures moved little from their December levels, but the details revealed many multi-month and even multi-year highs, lows, and changes – along with one all-time high (the goods deficit with India).

The combined goods and services deficit most strongly conveyed the impression of relatively calm trade waters. It rose sequentially for the second straight month, but only by 1.61 percent, from a downwardly revised $67.21 billion to $68.29 billion.

The trade shortfall in goods narrowed, but by even less – 0.69 percent, from an upwardly revised $90.71 billion to $90.09 billion.

More volatility was displayed by the services trade surplus. It sank for the first time in two months, from upwardly revised $23.50 billion (its highest monthly total since December, 2019’s $24.56 billion – just before the CCP Virs’ arrival stateside) to $21.80 billion. Moreover, this shrinkage (7.26 percent) was the greatest since last May’s 11.05 percent.

Meanwhile, total U.S. exports in January expanded sequentially for the first time since August. And the the 3.41 percent rise, from a downwardly revised $249.00 billion to $257.50 billion was the biggest since April’s 3.62 percent.

Goods exports in January also registered their first monthly increase since August, with the 6.02 percent improvement (from a downwardly revised $167.69 billion to $177.79 billion) the biggest since October, 2021’s 9.09 percent.

Services exports dipped on month in January, from a downwardly revised $81.32 billion to $79.71 billion. And the 1.98 percent decrease was the biggest since last January’s 3.05 percent. But the December total was the highest on record, and the seventh straight all-time high over the preceding nine months, so January could be a mere bump in the services export recovery road.

On the import side, total U.S. purchases from abroad advanced for the second straight month in January, with the 3.03 percent increase (from a downwardly revised $316.21 billion to $325.79 billion standing as the biggest since last March’s 9.64 percent.

Goods imports were up, too – from a downwardly revised $258.40 billion to $267.88 billion. The climb was the second straight, too, and its 3.67 percent growth rate also the biggest since March (11.00 percent).

Services imports in January were up for the first time since September, but by a mere 0.17 percent, from a downwardly revised $57.81 billlion to $57.91 billion.

Also changing minimally in January – the non-oil goods deficit (which RealityChek regulars know can be considered the Made in Washington trade deficit, since non-oil goods are the trade flows most heavily influenced by U.S. trade agreements and other trade policy decision. The 0.32 percent month-to-month decline brought this trade shortfall from $91.97 billion to $91.68 billion.

Since Made in Washington trade is the closest global proxy to U.S.-China goods trade, comparing trends in the two can indicate the effectiveness of the Trump-Biden China tariffs, which cover hundreds of billions of dollars worth of Chinese products aimed at the U.S. maket.

In January, the huge, longstanding U.S. goods trade gap with China widened by 7.01 percent, from $23.51 billion to $25.16 billion. That third straight increase contrasts sharply with the small dip in the non-oil goods deficit – apparently strengthening the China tariffs critics’ case.

Yet on a January-January basis, the China deficit is down much more (30.82 percent) than its non-oil goods counterpart (14.07 percent). The discrepancy, moreover, looks too great to explain simply by citing China’s insanely over-the-top and economy-crushing Zero Covid policies. So the tariffs look to be significantly curbing U.S. China goods trade, too.

U.S. goods exports to China fell for the third straight month in January – by 5.05 percent, from $13.79 billion to $13.09 billion.

America’s goods imports from China increased in January for the second straight month – by 2.55 percent, from $37.30 billion to $38.25 billion.

Revealingly, however, on that longer-term January-to-January basis, these purchases are off by 20.50 percent (from $47.85 billion). The non-oil goods import figure has actually inched up by just 0.71 percent – which also strengthens the China tariffs case.

The even larger, and also longstanding, manufacturing trade deficit resumed worsened in January, rising for the first time in three months. The 2.83 percent sequential increase brought the figure from $113.61 billion – the lowest figure, though, since last February’s $106.49 billion.

Manufacturing exports declined by 3.01 percent, from $105.71 billion to $102.52 billion – the weakest such performance since last February’s $94.55 billion.

The much greater value of manufacturing imports rose fractionally, from $219.31 billlion to $219.36 billion – also near the lows of the past year.

In advanced technology products (ATP), the trade gap narrowed by 11.36 percent in January, from $18.45 billion to $16.35 billion. The contraction was the third in a row, and pushed this deficit down to its lowest level since last February’s $13.42 billion.

ATP exports were down 8.78 percent, from $35.16 billion to $32.07 billion – their lowest level since last May’s $31.25 billion. And ATP imports sank by 9.68 percent, from $53.60 billion to a $48.42 billion total that was the smallest since last February’s $42.44 billion.

Big January moves took place in U.S. goods trade with major foreign economies, though much of this commerce often varies wildly from month to month.

The goods deficit with Canada, America’s biggest trade partner, jumped by 39.02 percent on month in January, from $5.09 billion to $7.07 billion. The increase was the second straight, the new total the highest since last July’s $8.47 billion, and the growth rate the fastest since last March’s 47.61 percent.

But the goods shortfall with the European Union decreased by 10.83 percent, from $18.36 billion to $16.37 billion. The drop was the third straight, the new total the lowet since last September’s $14.44 billion, and the shrinkage the fastest since last July’s 19.97 percent.

For volatility, it’s tough to beat U.S. goods trade with Switzerland. In January, the deficit plummeted 42.07 percent, from $2.28 billion to $1.32 billion. But that nosedive followed a 77.84 percent surge in December and one of nearly 1,200 percent in November (from a $99.9 million level that was the lowest since May, 2014’s $45.3 million).

Also dramatically up and down have been the goods trade shortfalls with Japan and Taiwan. For the former, the deficit plunged by 30.33 percent in January – from $7.09 billion to $4.94 billion. But that drop followed a 20.58 percent increase in December to the highest level since April, 2019’s $7.35 billion.

The Taiwan goods deficit soared by 52.44 percent in January, from $2.80 billion to $3.68 billion. But this rise followed a 33.65 percent December drop that was the biggest since the 43.18 percent of February, 2020 – when the CCP Virus was shutting down the economy of China, a key link of the supply chains of many of the island’s export-oriented manufacturers.

Finally, the goods deficit with India skyrocketed by 106.55 percent in January, from $2.41 billion to that record $4.99 billion. That total surpassed the $4.44 billion shortfall the United States ran up with India last May, but the more-than-doubling was far from a record growth rate. That was achieved with a 146.76 percent burst in July, 2019.

Since the widely forecast upcoming U.S. recession seems likely to arrive later this year (assuming it arrives at all) than originally forecast, the trade deficit seems likely to continue increasing, too. But that outcome isn’t inevitable, as shown by the deficit’s shrinkage in the second half of last year, when America’s economic growth rebounded from a shallow recession.

The number of major wildcards out there remains sobering, too, ranging from the path of U.S. inflation and consequent Federal Reserve efforts to fight it by cooling off the economy, to levels of net government spending increases (including at state and local levels), to the strength or weakness of the U.S. dollar, to the pace of China’s economic reopening, to the course of the Ukraine War. 

On balance, though, I’ll stick with my deficit-increasing forecast, since (1) I’m still convinced that the approach of the next presidential election cycle will prevent any major Washington actors from taking any steps remotely likely to curb Americans’ borrowing and spending power significantly for very long; and (2) I’m skeptical that even the strong-sounding Buy American measures  instituted by the Biden administration (mainly in recently approved infrastructure programs and semiconductor industry revival plans, and in the green energy subsidies in the Inflation Reduction Act) will enable much more substitution of domestic manufactures for imports – least in the foreseeable future.          

(What’s Left of) Our Economy: New Figures Show that America is Still Pretty Unproductive

Tags

CCP Virus, coronavirus, COVID 19, inflation, labor productivity, manufacturing, non-farm business, productivity, recession, total factor productivity, Wuhan virus, {What's Left of) Our Economy

Let’s start off with the good news revealed by today’s final (for now) official U.S. report on labor productivity in the fourth quarter of 2022 and the entire year last year: The quarterly readings have now improved for the fourth consecutive time, and have even showed actual growth for the second straight quarter.

That’s sure better than America’s performance earlierin 2022 for this narrowest of the two productivity growth gauges tracked by the U.S. government. Last year’s first half featured the first quarter’s 6.1 percent drop at annual rates (tying the second quarter, 1960 for the worst such performance ever in a data series going back to 1947) and a second quarter 3.8 percent annualized decrease that created the worst back-to-back results ever.

And any positive productivity news is important any time because robust productivity gains are the country’s best bet for achieving sustainable prosperity rather than the bubble-ized veneer of economic success. Moreover, any positive productivity news these days is especially important, because enough improving efficiency on this score would cool off inflation. For all else (particularly demand levels) equal, it would enable businesses to absorb higher costs for labor and other inputs and still maintain their profits rather than being forced to preserve profitability by raising prices charged to consumers and other final customers.

But that’s it for this morning’s good productivity news.

Although the new fourth quarter rise of 1.7 percent annualized (for non-farm businesses – the government’s closest proxy for the entire private sector economy) was the best since the three percent improvement registered in the fourth quarter of 2021, it was 1.3 percentage points lower than the three percent reported in the advance release.

Further, the 1.7 percent yearly fall-off in labor productivity between 2021 and 2022 was the greatest such weakening since the same decrease in 1974.

Although there’s no legitimate doubt that recent productivity data are still reflecting CCP Virus-related distortions that presumably will fade significantly at some point, the latest number’s unfortunately provide no reasons to think that America’s long-time productivity growth slump will end any time soon. Here are the results, incorporating new “benchmark” revisions for the last few years, for all the expansions that the U.S. economy has enjoyed since the 1990s. (As known by RealityChek regulars, the most reliable economic comparisons are those among the same periods of business cycles.)

1990s expansion (2Q 1991-1Q 2001): +23.53 percent

bubble-decade expansion (4Q 2001-4Q 2007): +16.01 percent

pre-CCP Virus expansion: (2Q 2009-4Q 2019): 13.56 percent

post-CCP Virus expansion: (3Q 2020-4Q 2022): -1.32 percent

Again, maybe American business is still suffering from pandemic era doldrums. But obviously something awfully dramatic is going to have to change to reverse this discouraging trend.

Even worse, as I see it, have been the latest results in manufacturing labor productivity. The reason? As the table below shows, industry used to be far and away the nation’s productivity growth leader – at least until the pandemic struck.

1990s expansion (2Q 1991-1Q 2001): 44.70 percent

bubble-decade expansion (4Q 2001-4Q 2007): 31.05 percent

pre-CCP Virus expansion: (2Q 2009-4Q 2019): 2.11 percent

post-CCP Virus expansion: (3Q 2020-4Q 2022): -1.00 percent

Since the post-pandemic recovery, manufacturing’s labor productivity swoon has been marginally milder than that for non-farm business overall. But for the last two quarters of 2022, its perfomance has been worse, as its labor productivity has sunk by 3.9 percent and 2.7 percent at annual rates. And in fact, it’s fallen in absolute terms for five of the last six quarters.

But maybe the broader measure of productivity growth, total factor productivity (TFP) growth, yields better results? TFP measures how much expansion of output businesses are getting from the use of man different inputs – materials, energy, technology, capital spending, and the like, as well as labor. So it provides a more complete picture of business efficiency. But the TFP numbers only come out annually, and with more of a delay than the labor productivity results.

Yet even keeping in mind the inability to generate TFP growth statistics for the precise extent of expansions, and the delay factor, the results we do have so far don’t differ substantially from the labor numbers in terms of the long-term weakening – especially of manufacturing. Here are the results for non-farm businesses for the closest annual approximations of recent economic expansions:

1990s expansion: 1991-2000: 10.11 percent

bubble-decade expansion (2002-2007): 6.65 percent

pre-CCP Virus expansion: (2009-2019): 6.06 percent

post-CCP Virus expansion: (2020-2021): 4.13 percent

And here are the same results for manufacturing:

1990s expansion (1991-2000): 15.64 percent

bubble-decade expansion (2002-2007): 11.67 percent

pre-CCP Virus expansion: (2009-2019): 1.55 percent

post-CCP Virus expansion: (2020-2021): 3.26 percent

Since the deep pandemic-induced recession of 2020, TFP growth looks pretty impressive. But we only have a single year’s worth of data. And the 2022 numbers don’t come out till March 23. Most economists agree that productivity is the hardest of the economy’s standard performance indicators to measure, so even the upcoming TFP report may contain some big encouraging surprises. And even if it doesn’t, it’s conceivable that it’s missing much of the real productivity story.

Yet since both measures used by the government are in basic agreement, that last argument isn’t one I find persuasive. Worse, as long as American productivity growth remains crummy – and possibly non-existent – fostering a dramatic economic slowdown and quite possibly a recession will be the only ways to defeat today’s troubling inflation.

(What’s Left of) Our Economy: Latest U.S. Growth Figures Confirm (Ambiguous) Recent Trade Trends

Tags

exports, Federal Reserve, GDP, goods trade, gross domestic product, imports, inflation, inflation-adjusted growth, real GDP, real trade deficit, recession, services trade, Trade, trade deficit, {What's Left of) Our Economy

The trade highlights of last Thursday’s second official estimate of U.S. economic growth in the fourth quarter of last year and full-year 2022 were nearly identical to those reported in the first read – pretty good on a quarter-to-quarter basis when it comes to reducing the long bloated trade deficit, but pretty discouraging on a year-to-year basis.

Starting with the quarterly numbers, the new data show that the inflation-adjusted trade gap narrowed somewhat less from the third quarter’s $1.2688 trillion at annual rates than initially reported – by 2.40 percent instead of 2.87 percent. (All value figures in this post will be in after-inflation dollars unless otherwise specified because the most closely followed numbers in the economic growth releases containing these quarterly trade statistics are those that are adjusted for price changes.)

But this means that as of the fourth quarter, the deficit still fell for the third consecutive three-month stretch – the first such span since the period from the second quarter of 2019 through the second quarter of 2020. That’s especially heartening since that stretch includes the CCP Virus’ arrival in the United States, which naturally depressed imports and the trade deficit because it crushed the entire economy. During last year’s third and fourth quarters, of course, the economy expanded.

In that vein, the fourth quarter also remains the second straight to see the economy expand as the overall deficit dropped – the kind of improvement that hasn’t been seen since the year between the second quarter and fourth quarters of 2019, and that signals growth relying more on the healthy combination of investing and producing rather than on the crutch of borrowing and spending.

Moreover, the new fourth quarter level of $1.2384 trillion annualized for the combined goods and services trade shortfall is still the lowest since the $1.2039 trillion recorded in the second quarter of 2021. One discouraging note, though: As with the previous fourth quarter growth report, the new release shows that the trade deficit sank on a decrease of both exports and imports. During the second and thid quarters, it fell because exports advanced and imports retreated.

Another step backward: As of the first fourth quarter report, the trade deficit had increased by 47.98 percent since the last pre-pandemic quarter, the fourth quarter of 2019. But the latest figures show that increase is up to 48.70 percent. At least that result is still better than the 52.35 percent recorded in the third quarter.

In addition, the slight increase in absolute terms of the fourth quarter trade deficit pushed it up from the 6.10 percent of inflation-adjusted gross domestic product (GDP – the standard measure of the economy’s size) to 6.13 percent. In the third quarter, however, this figure stood at 6.33 percent, and the new result is still much lower than the all-time high of 7.47 percent during the first quarter of last year.

Trade’s contribution to fourth quarter growth stayed relatively subdued as well. In the first read, the gap’s shrinkage fueled 0.56 percentage points (19.56 percent) of the estimated 2.86 percent real expansion at annual rates. In other words, had the deficit not changed, fourth quarter constant dollar annualized growth would have been just 2.30 percent.

The second read judges trade’s role as having added 0.46 percentage points (17.36 percent) of 2.65 percent annualized growth – dipping in both absolute and relative terms. And had the shortfall not declined, fourth quarter growth would have been just 2.19 percent.

In the third quarter, the trade deficit’s decrease was responsible for nearly all its growth – 2.86 percentage points of the 3.20 percent annualized price-adjusted GDP increase. That was the biggest absolute amount in 42 years, though far from a long-term high in relative terms.

As mentioned above, the new total export number for the fourth quarter was lower than the first release’s estimate, but only fractionally so. And at $2.5934 trillion at annual rates, these U.S. sales abroad were 0.41 percent less than the third quarter’s all-time high of $2.6041 trillion and still represented the first sequential decrease since the first quarter of last year. At the same time, the new fourth quarter total remains the second best ever.

The new results, though, leave total real exports a mere 0.84 percent above the level of that last pre-pandemic-y fourth quarter of 2019. As of the first read, that increase was 0.92 percent, and as of the third quarter, 1.26 percent.

By contrast, at an annualized $3.8317 trillion, the latest total real import figure was fractionally higher than that in last month’s GDP report, but 1.06 lower than the third quarter result – a dropoff steeper than that of exports. Moreover, this second straight quarterly decrease is still the longest since the year between the second quarter of 2019 and the peak pandemic-y second quarter of 2020. And since the last full pre-pandemic fourth quarter of 2019, they’re up just 12.54 percent as opposed to the 12.43 percent calculable last month and the 13.75 percent since the third quarter.

The second fourth quarter GDP report pegged the annualized trade deficit in goods at $1.4219 trillion – 0.23 percent higher than the first report’s $1.4186 trillion but down 0.74 percent from the third quarter’s $1.4324 trillion.

But despite continued GDP growth, this shortfall still fell for the third straight quarter – a streak that hasn’t been seen since the CCP Virus-dominated period from the fourth quarter of 2019 and the second quarter of 2020. In addition, the new goods trade deficit level was still the best since the $1.4647 trillion of the fourth quarter of 2021.

Consequently, the goods gap has now increased by 33.31 percent since the fourth quarter of 2019. As of last month’s read, the difference was 33 percent even, and as of the third quarter, 34.30 percent.

The longstanding surplus is now judged to have widened sequentially in the fourth quarter by 11.38 percent, from $163.5 billion at annual rates to $182.1 billion. This result marks a downgrade from the first fourth quarter report, which showed a surplus of $184.4 billion at annual rate (the highest such level since the $187.50 billion of the fourth quarter of 2020) and an increase over the third quarter total of 12.78 percent.

With the outsized pandemic-related hit taken by the service sector, this surplus is now still 22.77 percent below the immediate pre-pandemic level of $235.8 billion annualized. In the first GDP read for the fourth quarter, this decline was 21.80 percent, and as of the third quarter, 30.66 percent.

The latest fourth quarter result estimate still reports that goods exports registered their first sequential fall-off since the third quarter of 2021. But that the decrease from the third quarter record total of $1.9101 trillion annualized was greater (by 2.38 percent, to an annualized $1.8647 trillion) than initially judged (2.24 percent, to $1.8647 trillion).

Whereas last month’s GDP report estimated the pandemic period’s goods export improvement at 4.52 percent, it’s now pegged at 4.38 percent since the fourth quarter of 2019. As of the third quarter, goods exports were up 6.92 pecent.

According to the second fourth quarter GDP release, constant dollar goods imports in the fourth quarter fell fractionally less than initially reported, with the $3.2866 trilion anunalized total now down 1.40 percent from the third quarter’s $3.3334 trillion rather than the 1.43 percent reported last month. This decrease also remained the third straight – which hasn’t happened since that economically weak period between the fourth quarter of 2019 through the second quarter of 2020. And the new figure is still the lowest since the $3.2582 trillion recorded in the fourth quarter of 2021.

In inflation-adjusted terms, goods imports are now 15.19 percent higher than in the immediately pre-pandemic-y fourth quarter of 2019, versus the 15.16 percent increase calculable in last month’s GDP release. and the 16.83 percent increase as of the third quarter.

Services exports in the fourth quarter, by contrast, increased by more than judged in last month’s GDP report, to $744.1 billion at annual rates (up 2.99 percent from the third quarter’s $722.5 billion) instead of to $740.0 billion (up 2.42 percent).

This increase remained the tenth straight on a sequential basis, but these overseas sales still expanded from $722.5 billion after inflation at annual rates to $740 billion, a 2.42 percent improvement that represented the tenth straight sequential increase in thse sales. At the same time, real services exports are still down by 5.43 percent from the fourth quarter, 2019 level of $786.6 billion, rather than the 5.44 percent calculable in last month’s release and the 8.17 drop calculable from the third quarter figures.

Inflation-adjusted services imports, though, rose faster in the fourth quarter than the initial read judged – to $562.0 billion at annual rates (up 0.54 percent from the third quarter’s $559.0 billion) instead of edging up fractionally (to $559.6 billion) as initially estimated.

This advance places services imports growth during the pandemic period at two percent versus the 1.56 percent calculable from last month’s release and the 1.45 percent since the third quarter.

Turning to the notably worse annual figures, between 2021 and 2022, the combined goods and services trade gap still widened for a ninth consecutive year, and to a ninth straight yearly record, with the new $1.3566 trillion figure coming in slightly (0.l1 percent) higher than the $1.3551 reported last month. As a result, it’s now pegged at 9.99 percent higher than the 2021 total of $1.2334 trillion, not the 9.87 percent calculable as of the first fourth quarter GDP release.

But since the economy kept growing in real terms, although the total trade shortfall still set its third straight record as a share of GDP, the exact figure stayed at 6.77 percent. Its third quarter counterpart was 6.29 pecent.

The trade shortfall’s contribution to economic growth last year didn’t change much between the first and second GDP reads, either. Last month, it was reported as fueling 0.40 percentage points to a 2.08 percent inflation-adjusted annual growth pace. This month, it’s judged to have added the 0.40 percentage points to a 2.07 percent year-on-year expansion. As noted in last month’s RealityChek post, both figures are far from records.  So had the inflation-adjusted trade deficit not changed, real growth in the fourth quarter would have been a sluggish 1.77 percent. 

The total real exports results were scarcely changed, either. In the first fourth quarter GDP release, the second straight annual increase was pegged at 7.25 percent, from $2.3668 trillion to $2.5384 trillion. That jump was the highest since 2010’s 12.88 percent in 2010 – when the economy was recovering from the Great Recession that followed the Global Financial Crisis.

The second read downgraded the 2002 combined goods and services export total to $2.5378 trillion, resulting in a 7.22 percent annual improvement that remained the strongest since 2010.

Total real imports for 2022 were upgraded marginally, from the $3.8935 trillion estimated last month to $3.8944 trillion. This figure remained both the second consecutive quarterly increase and the second straight quarterly record. In addition, the annual increase went up from 8.15 percent to 8.17 percent from the 2021 level of $3.6002 trillion.

As for the goods trade deficit, it was revised fractionally higher, too, from $1.5220 trillion to $1.5228 trillion. This trade shortfall still represented both the fourth straight all-time annual high, and the thirteenth consecutive increase – itself a new record in a data series that began in 2002. And this shortfall is now 7.69 percent higher than 2021’s $1.4141 trillion, versus the 7.63 percent calculable last month.

The longstanding services trade surplus was revised down in the new GDP figures, from the $162.8 billion estimated last month to $162.3 billion, a difference of 0.31 percent. That means that the yearly decrease was 5.91 percent, not the 5.23 percent previously recorded. But the new 2022 total is still the lowest such number since 2010’s $158.6 billion, and this fifth consecutive annual contraction is the longest such streak ever in another data series that goes back to 2002.

Goods exports of $1.8377 trillion represented a fractional downward revision from the first fourth quarter GDP’s estimate of $1.8383 trillion, and brought annual 2022 growth from 6.33 percent to 6.29 percent. This yearly increase, however, remained the second straight and the annual total a new record – topping 2019’s $1.7915 trillion by 2.61 percent.

At $3.3605 trillion, the new 2022 real goods imports results were virtually unchanged from the previous GDP release’s $3.3603 trillion, and pushed the annual increase from 2021’s $3.1430 trillion from 6.91 percent to 6.92 percent. This figure remained a second consecutive record.

Staying unrevised were the services exports, which are still judged to have surged by 9.90 percent from 2021-2022, the biggest such increases since 2007’s 13.08 percent. In absolute terms, the increase was from $656.9 billion to $717.3 billion..

But services imports rose faster between 2021 and 2022 than previously reported. Instead of climbing by 14.52 percent (from $484.2 billion to $554.0 billion), the increase is now pegged as one of 14.62 percent (to $555.0 billion). The increase was still the fastest ever, surpassing even last year’s robust 12.27 percent.

Although the trade highlights of the first two fourth quarter GDP reports were quite similar, the U.S. economic landscape has undergone some notable changes in the last three months. Inflation seems to have stopped disinflating, at least for the time being (see, e.g., here) no doubt partly as a result because growth has held up better than expected – both domestically and abroad. And surprisingly strong inflation and expansion seem to have firmed the Federal Reserve’s resolve to keep raising interest rates high enough to cool down the continued demand that continues to prop up prices.

But does the Fed really want to tip the economy into recession, especially with a presidential election cycle already in its infancy? Would Congress really permit that to happen, and resist the urge to fill up consumers’ pockets again, whether through more spending or lower taxes or some combination of the two? That would surprise the living daylights out of me, which is why I’m still expecting a short, shallow recession, followed by stagflation – and by steadily worsening trade deficits.

(What’s Left of) Our Economy: More Cold Water Just Poured on Cooling-Inflation Claims

Tags

consumers, core PCE, disinflation, Federal Reserve, inflation, Jerome Powell, PCE, prices, {What's Left of) Our Economy

At least for the time being, can the usual suspects stop talking about U.S. inflation even starting to cool down? Especially since this morning we just got the third official report this month (see also here and here) showing that it’s been heating up lately?

By the way, the usual suspects now include not only spin-happy partisans like incumbent U.S. presidents, but Federal Reserve Chair Jerome Powell, the federal government’s chief inflation fighter. Earlier this month, he ventured that disinflation (not an absolute reduction in prices but a slower rate of price increases) is “under way.”

In fact, the new figures – for the price index for Personal Consumption Expenditures (PCE) in January – are those to which the Fed pays most attention.

And it’s critical to point out that it’s not just that these latest inflation numbers were worse than the expectations of investors and economists (which they were). They actually worsened in real world terms.

The pickup was clear from the headline PCE results, which reported that consumer prices by this measure jumped by 0.6 percent sequentially. That was both the biggest monthly number and the fastest sequential acceleration (from December’s 0.2 percent) since the identical figures last May.

And the pickup was clear from the monthly core PCE statistics, which strip out food and energy prices because they’re supposedly volatile for reasons having little to do with the economy’s underlying prone-ness to inflation. In January, this measure of inflation also rose by 0.6 percent, the greatest increase since last August. In December, core monthly PCE worsened by 0.4 percent.

Further, as if this trend wasn’t bad enough, revisions generally showed that monthly PCE inflation was hotter in prior months than first judged. For the headline measure, October’s increase stayed at an already upgraded 0.4 percent, November’s was revised up from 0.1 percent to 0.2 percent after going unrevised in last month’s report, and December’s initially reported 0.1 percent rise is now pegged at that aforementioned 0.2 percent.

For the core measure, October’s initially reported 0.2 percent climb stayed for the third straight month at an upgraded 0.3 percent. After going unrevised last month, November’s original 0.2 percent is now seen as one of 0.3 percent, and December’s initially reported 0.3 percent rise was upgraded to 0.4 percent.

These monthly revisions, moreover, were telegraphed in advance yesterday by the U.S. Commerce Department. In yesterday’s report on fourth quarter economic growth, the headline PCE inflation figure for that three-month stretch was upgraded from 3.2 percent to 3.7 percent at annual rates, and core PCE inflation was upgraded from an annualized 3.9 percent to 4.3 percent. (Most of these results and those below will be revised again next month.)

PCE inflation looks hotter on an annual basis, too. For the headline figure, yearly price increases worsened from 5.3 percent in December to 5.4 percent in January. That’s a good deal lower than the recent peak seven percent figure of last June. But revisions cast a pall over thesr results, too.

October’s annual increase stayed at an upgraded 6.1 percent for the third consecutive time, but after remaining unchanged, November’s originally reported 5.5 percent increase is now pegged at 5.6 percent, and December’s results have been upgraded from a five percent rise te aforementioned 5.3 percent.

The 4.7 percent annual in January core PCE was well off the recent peak of 5.3 percent, recorded last February. But it was up from December’s 4.6 percent, and revisions were troubling, too. After staying unrevised from its original five percent figure, October’s result stayed at an upgraded 5.1 percent. November’s initially reported 4.7 percent first went unrevised and was then increased to 4.8 percent. And December’s increase is nowjudged to be that 4.6 percent rather than 4.4 percent.

Nor did these annual numbers look any better when baseline effects are examined. For example, when annual headline PCE inflation peaked last June at seven percent, that followed an increase between the previous Junes of four percent. The new January read of 5.4 percent follows an increase between the previous Januarys of a much higher six percent. That unmistakably demonstrates that businesses believe they still have plenty of pricing power.

Similarly, when annual core PCE recently peaked at 5.3 percent last February, the increase between the previous Februarys was a mere 1.5 percent – making clear that that 2021-22 increase reflected a great deal of catching up (or more technically, reverting to the mean) from an abnormally weak result between 2020 and 2021 (when economic recovery from CCP Virus-induced slumps was still tentative).

The January annual core increase of 4.7 percent follows a much higher 5.2 percent rise between January,,2021 and January, 2022 – again surely revealing great pricing confidence in business ranks.

As known by RealityChek regulars, results for a single month prove little (even if they’ve been replicated in three different inflation reports).  But single-month results that are multi-month highs are more revealing, especially when supported by baseline analysis.  The more so when they’re accompanied by upward revisions and data (from the same release containing the PCE figures) that consumer spending shot up on month in January. 

That spending is bound to convince businesses that they still enjoy lots of pricing power, and as long as they keep getting that kind of evidence, expect inflation to remain way too high as well.         

(What’s Left of) Our Economy: A New Post-Virus Normal Emerging in U.S. Trade?

Tags

CCP Virus, coronavirus, COVID 19, goods trade, Trade, Trade Deficits, trade surpluses, Wuhan virus, {What's Left of) Our Economy

Back to the full-year 2022 trade figures today, and the focus is on this question: Is the structure of U.S. trade settling into to a somewhat stable post-CCP Virus pattern? That’s one possible conclusion that can be drawn from a detailed look at U.S. goods trade flows for full-year 2022 and comparing them with those of the year before, and then with those of 2019 – the last full pre-pandemic year.

What they show is that although this structure barely changed between 2021 and 2022, some sizable changes can be seen between 2019 and last year. The evidence comes from examining list of the products that have recorded the biggest trade surpluses and deficits during these years.

For data geeks, these lists are constructed from the U.S.government’s main system for slicing and dicing the economy by industry – the North American Industry Classification System (NAICS). The level of disaggregation used is the sixth – which in my view enables the clearest and most conveniient way to distinguish between final products (on the goods side of the economy) and their parts and components. With so much production of so many manufactures in particular still so globalized, that’s a crucial distinction. All specific amounts are presented in billions of pre-inflation dollars.

Finally, the numbers for the civilian aeropace sector (whose trade flows are enomous) are kind of funky, because the Census Bureau that gathers the data has been inconsistent in lumping all these numbers together and breaking them down into aircraft and the various types of aircraft parts.

That said, let’s start with the twenty categories that ran up the biggest trade surpluses in 2022 and the magnitude of those surpluses:

aircraft:                                                                           $90.53

natural gas:                                                                     $75.14

petroleum refinery products;                                          $60.51

misc special classification:                                              $35.51

soybeans:                                                                         $34.00

plastics materials and resins:                                           $23.16

waste and scrap:                                                               $20.82

corn:                                                                                 $18.59

non-anthracite coal & petroleum gases:                          $16.44

used or second hand merchandise:                                    $9.38

cotton:                                                                                $9.10

semiconductor machinery:                                                 $9.09

wheat:                                                                                 $7.82

non-poultry meat products:                                                $7.60

motor vehicle bodies:                                                          $7.21

non-aluminum non-ferrous smelted/refined metal:             $6.91

petrochemicals:                                                                    $5.66

tree nuts:                                                                               $5.61

semiconductors and related :                                                $5.59

copper, nickel, lead & zinc:                                                  $5.5

Now here are their counterparts in 2021:

civilian aircraft, engines, and engine parts:                        $79.89

natural gas:                                                                          $54.55 

soybeans:                                                                             $27.07

petroleum refinery products:                                               $26.29

special classification :                                                         $24.90

waste and scrap:                                                                  $21.39

plastics materials and resins:                                               $18.78

corn:                                                                                     $18.58

semiconductor machinery:                                                   $12.21

semiconductors and related devices:                                   $10.62

non-anthracite coal and petroleum gases:                             $9.29

used or second-hand merchandise:                                       $8.56

non-poultry meat products:                                                   $7.83

motor vehicle bodies:                                                            $6.95

wheat:                                                                                    $6.87

cotton:                                                                                    $5.76

copper, nickel, lead and zinc:                                                $5.46

tree nuts:                                                                                $4.69

prepared or preserved poultry:                                              $4.54

miscelleaneous inorganic chemicals:                                    $4.05

What jumps out is how similar these two lists are. In fact, 18 of the biggest surplus sectors for 2021 earned the same distinction in 2022. Even the order of the two lists is strikingly similar. No individual sector moved more than two rungs up or down in the rankings. And even the two 2021 biggest surplus winners that didn’t make the 2022 list, they came awfully close, with prepared or preserved poultry ranking twenty first in 2022 and miscellaneous organic chemicals ranking twenty fourth.

And don’t forget this head-scratcher: Between 2021 and 2022, a trade deficit in non-aluminum non-ferrous smelted and refined metals of $484 billion turned into a $6.91 surplus!

Very similar top twenty results emerge from the 2021 and 2022 lists of sectors with the biggest trade deficits for those years. Here’s the 2022 list:

autos and light trucks:                                                      $112.98

broadcast and wireless communications equipment;         $93.76

goods returned from Canada:                                             $90.79

computers:                                                                          $82.93

crude petroleum:                                                                $81.28

pharmaceutical preparations:                                             $66.02

female cut and sew apparel:                                               $47.85

male cut and sew apparel:                                                  $39.07

footwear:                                                                            $34.56

audio and video equipment:                                               $34.26

iron, steel, ferroalloy steel products:                                  $33.34

miscellaneous motor vehicle parts:                                    $31.17

dolls, toys and games:                                                        $30.79

printed circuit assemblies:                                                 $29.90

major household appliances:                                             $21.08

miscellaneous electronic components:                              $20.99

miscellaneous plastics products:                                       $20.03

storage batteries:                                                               $19.13

aircraft engines and engine parts:                                     $18.34

motor vehicle electrical and electronic equipment:          $17.67

And the top (bottom?) twenty for 2021:

goods returned from Canada:                                           $96.13

autos and light trucks:                                                      $95.84

broadcast and wireless communications equipment:       $80.02

computers:                                                                        $79.08

crude petroleum:                                                               $63.69

pharmaceutical preparations:                                            $63.57

female cut and sew apparel:                                              $40.98

audio and video equipment:                                              $34.34

male cut and sew apparel:                                                 $29.82

miscellaneous motor vehicle parts:                                   $28.91

dolls, toys and games:                                                       $26.67

printed circuit assemblies:                                                 $26.57

iron and steel and ferroalloy steel products:                      $26.21

footwear:                                                                            $25.81

major household appliances:                                             $20.84

miscellaneous plastics products:                                        $20.51

jewelry and silverware:                                                      $17.77

motor vehicle electrical and electronic equipment:           $16.09

curtains and linens:                                                            $15.23

aircraft engines and engine parts:                                      $14.06

Revealingly, the 2021 and 2022 lists are not only also very much alike each other. They’re alike in a big way very similar to how the surplus lists for the two yeasr are alike: Eighteen of the entries on the 2021 list are on the 2022 list.

The big difference: Movement up and down the ranks was somewhat greater. Three sectors changed places by more than two rungs: footwear (which rose from fourteenth on the 2021 list to ninth in 2022; jewelry and silverware, which dropped from seventeenth to twenty-first; and curtains and linens, which tumbled from nineteenth to twenty-ninth – likely because the domestic housing sector slumped.

But the differences between the 2019 and 2022 lists are more substantial. Here are the former’s top twenty trade surplus winners:

civilian aircraft, engines, and parts:                                $126.02

petroleum refinery products:                                             $30.55

special classification provisions:                                       $24.51

natural gas:                                                                        $21.79

plastics materials and resins:                                             $18.80

soybeans:                                                                           $18.49

waste and scrap:                                                                 $13.07

non-anthracite coal and petroleum gases:                           $9.31

motor vehicle bodies:                                                         $ 9.20

semiconductors and related devices:                                   $9.01

used or second-hand merchandise:                                      $8.80

corn:                                                                                     $7.62

wheat:                                                                                  $5.85

tree nuts:                                                                              $5.10

computer parts:                                                                    $4.79

copper, nickel, lead and zinc:                                              $4.40

miscellaneous basic inorganic chemicals:                           $4.31

prepared or preserved poultry:                                            $3.79

in vitro diagnostic substances:                                            $3.27

surface active agents:                                                          $3.24

Here again, eighteen out of the 2019 entrants made it to the 2022 list. But there were quite a few more big movers and in two cases huge movers. No fewer than nine made shifts of more than two places, including motor vehicle bodies, which sank from nine on the former to 15 on the latter; semiconductors, which plummeted from tenth to nineteenth; corn, which rose from fourth to eighth; copper and the three other metals,which dropped from 16 to 20; miscellaneous inorganic chemicals, which fell from seventeenth to twenty-fourth; and surface active agents, which declined from twentieth to twenty sixth.

Much more dramatic, however, in computer parts, a $4.79 billion surplus turned into a $438 million deficit, and in in vitro diagnostic substances. a $3.27 billion surplus had become a ginormous $15.47 billion deficit by last year –no doubt mainly reflecting exploding demand for CCP Virus tests.

The differences between the 2019 and 2022 top twenty trade deficit sectors were noteworthy, but not quite so. Here are the results for 2019:

autos and light trucks:                                                      $125.47

goods returned from Canada:                                             $91.23

broadcast and wireless communications equipment:         $73.02

pharmaceutical preparations:                                             $62.24

crude oil:                                                                             $61.91

computers:                                                                          $59.44

female cut and sew apparel:                                               $42.07

male cut and sew apparel:                                                  $30.88

aircraft engines and engine parts:                                      $25.68

footwear:                                                                           $25.39

miscellaneous motor vehicle parts:                                   $23.21

audio and video equipment:                                              $22.36

non-diagnostic biological products:                                  $17.31

dolls, toys and games:                                                       $17.28

iron, steel and ferroalloy steel products:                           $16.95

printed circuit assemblies:                                                 $16.71

motor vehicle electrical and electronic equipment:           $14.36

non-engine aircaft parts:                                                    $14.33

major household appliances:                                              $14.12

miscellaneous plastics products:                                        $12.86

As with the surplus list, eighteen of the top twenty deficit 2019 showed up on the counterpart 2022 list. But whereas nine sectors made moves of more than two places between the coresponding surplus lists, that was the case for only six sectors in the deficit lists. They were iron, steel and ferroalloy products (fifteenth to eleventh); motor vehicle electrical and electronic equipment (seventeenth to twentieth); non-engine aircraft parts (eighteenth to fifty sixth); major household appliances (nineteenth to fifteenth); and miscellaneous plastics products (twentieth to seventeenth). In addition, the non-diagnostic biological substances went from a $17.31 billion deficit in 2019 to a $4.17 billion surplus in 2022! 

As with any economic developments coming out of the pandemic era, it may be way too soon to draw sweeping conclusions. So the structure of U.S. trade deficits and surpluses will be worth watching going forward. But it’s not too soon to ask whether these trends seem likely to benefit or harm the economy’s health longer term – or won’t matter much either way. And that will be the subject  of the upcoming final (for now) deep dive into the 2022 U.S. trade figures.        

(What’s Left of) Our Economy: Contra the Fed, No Disinflation’s Visible in the New Wholesale Price Figures

Tags

consumer price index, consumer prices, cost of living, CPI, Federal Reserve, inflation, PPI, pricing power, Producer Price Index, wholesale inflation, {What's Left of) Our Economy

The U.S. government issued another inflation report today – covering wholesale prices for January – that was not only troublingly hot like yesterday’s consumer price figures, but hot in very similar ways. Specifically, it showed monthly acceleration, and a strong baseline effect (of the wrong kind) in the annual numbers.

Consequently, as with yesterday’s Consumer Price Index (CPI) results, they appear to discredit Federal Reserve Chair Jerome Powell’s belief that the beginnings of disinflation (a slowdown in the rate of price increases, as opposed to actual price decreases) have begun to appear.

As known by RealityChek regulars, the results of this Producer Price Index (PPI) often but don’t always prefigure changes in consumer prices. Of course, companies always want to pass on higher prices to consumers (or to their corporate customers), but have no interest per se in passing on savings to any customers when their costs fall. The exceptions: When they’re striving for growth or market share – at any cost.

Instead, companies’ pricing power depends most importantly on levels of demand for their goods or services. When it’s healthy, pass-through is usually possible whatever their costs are. When demand is weak, it’s much tougher. And as long as consumers in particular are able and willing to spend, PPI reports like today indicate that consumer inflation will remain higher than almost anyone wants, and could well speed up.

The monthly quickening of the PPI took place both in the headline read and its core counterpart – which strips out food, energy, and trade services prices because they’re supposedly volatile for reasons having almost nothing to do with the economy’s fundamental vulnerability to inflation. 

For the former, prices jumped by 0.66 percent on month in January. That was both the biggest increase since last June’s 0.93 percent, and the biggest absolute monthly percentage point swing (from December’s upwardly revised 0.22 percent dip) since peak pandemic-y May, 2022. Since October, these results have been preliminary, so they’ll surely change – but if form holds, not very much.

For core PPI, prices were up 0.59 percent sequentially in January – the worst such figure since last March’s 0.91 percent. It was the biggest percentage point move over December’s (upwardly revised 0.19 percent gain) since last March, too.

Also as with the CPI numbers released yesterday, baseline analysis reveals that both annual January PPI increases are coming off strong increases for the year making clear that businesses believe that they still have lots of pricing power.

On the surface, the annual headline PPI advance of 6.03 percent looks reasonably good. It’s a nice improvement from December’s 6.46 percent, and indeed the best such performance since the 4.07 percent recorded back in March, 2021.

But the January read was coming off a PPI surge between the previous Januarys of 10.18 percent. December’s increase was coming off another high baseline figure: 10.20 percent. It’s somewhat encouraging that the new annual January PPI advance was a good deal weaker than December’s even though the baseline figures remained almost unchanged.

But that March, 2021 PPI increase was coming off a March, 2019-20 increase of a negligible 0.34 percent. In other words, the annual March headline PPI increase represented catch-up from the abnormally low result for 2019-20 that was clearly produced by the sharp economy-wide downturn generated by the CCP Virus. No such catch-up has been taking place in recent months.

So unless you think that a national business community that’s raised wholesale prices by some 10 percent one year and about six percent the following year is shy about pricing power, it’s clear that, at the very least, producer and consumer inflation will remain troublingly elevated for the foreseeable future.

Almost the same trends have unfolded for annual core PPI. The January yearly increase was 4.53 percent, lower than December’s 4.70 percent and the weakest yea-on-year read since March, 2021’s 3.15 percent.

But the January increase followed a previous annual rise of 6.89 percent and the December baseline figure was a comparably torried 7.13 percent. The baseline figure for March, 2021? Minus 0.18 percent. That is, wholesale prices fell between March, 2019 and March, 2020. The CCP Virus-related catch-up effect then is as obvious as the absence of any catch-up nowadays. So is the robust pricing power businesses believe they have.

It’s conceivable, but just barely so, that this picture will change meaningfully by upcoming release of the inflation data preferred by the Fed – the Price Index for Personal Consumption Expenditures (PCE). If it doesn’t, and if a combination of low unemployment and astronomical federal spending keeps most consumers’ wallets and pocketbooks fat enough to support vigorous spending, it’s hard to see how the Fed not only keeps trying to slow the economy by raising interest rates and keeping them “higher for longer,” but steps up its campaign by hiking them faster. And the longer it takes to beat inflation, the worse the desired economic weakening is likely to be.