The modest momentum showed by domestic manufacturing in the previous two Federal Reserve industrial production reports disappeared in this morning’s edition of the monthly survey, as overall real manufacturing output in July fell month-to-month (by 0.36 percent) for the first time since April. Worse, the new data lengthened domestic industry’s recession, with inflation-adjusted production now off by a hair (0.004 percent) since April, 2018 – a stretch much longer than the two straight quarters of cumulative decline that qualify as a downturn for most economists.
This morning’s Fed numbers also provide some additional evidence that President Trump’s tariff-centric trade policies have begun to erode manufacturing’s performance. But only some. Specifically, whereas in the first months following the imposition of metals tariffs in particular, metals-using sectors were handily beating the rest of manufacturing by every major metric, July’s industrial production numbers showed that their more recent relative performance continues to have been much more mixed.
As usual, nearly all of the best evidence concerns the impact of the tariffs on steel and aluminum, for reasons including their relatively long duration (April, 2018 was the first full month they were in place), and the ease with which metals-using sectors can be identified. And as usual, the table below presents the output data for these sectors since April, 2018, with the data for manufacturing overall used as a control group.
April thru May April thru June April thru July
overall manufacturing: -0.20 percent +0.36 percent 0 percent
durables manufacturing: +0.96 percent +1.47 percent +1.23 percent
fabricated metals products: +1.34 percent +1.89 percent +0.95 percent
machinery: +0.86 percent +0.57 percent -0.57 percent
automotive: -1.88 percent +0.60 percent +0.43 percent
major appliances: -2.00 percent -4.47 percent -5.99 percent
aircraft and parts: +0.73 percent +2.46 percent +4.23 percent
These figures show that for three of the five major metals-using sectors tracked (fabricated metals products, machinery, and major appliances), constant dollar output has worsened compared with such production in manufacturing as a whole. Relative performance for automotive and aircraft and parts, however, has improved – as it has for the durable goods super-sector in which the metals users are located.
Keep in mind also that results for the major appliance sector also remain affected by a separate set of product-specific levies on large household laundry equipment that began in February, 2018.
In contrast with the metals tariffs, the first full month for China tariffs of any kind was August, 2018, and the set of goods involved was relatively small. Complicating matters further is the U.S. Trade Representative’s office’s practice of listing the dutied products according to a classification scheme that differs significantly from that used by the rest of the U.S. government to monitor most major indicators of economic performance – including industrial production.
And as previously noted, most of the Made in China products tariff-ed so far have been intermediate goods (parts, components, materials, etc.) whose use by American manufacturers varies widely. Therefore, the impact of tariffs on these products undoubtedly varies widely, too. Moreover, the number of Chinese goods facing tariffs has increased dramatically since last August. Not only were the levies extended to an additional $200 billion worth of such imports from China in late September, 2018, but these duties were raised from ten percent to 25 percent in May, 2019. (See this time-line for the specifics.)
All the same, here are results for a handful of sectors reasonably certain to have faced tariff pressure since last August. Each column measuring real output changes since last August.
August thru May August thru June August thru July
overall manufacturing: -1.09 percent -0.55 percent -0.90 percent
ball bearings: -2.20 percent -2.46 percent -2.27 percent
industrial heating equip: -4.11 percent -5.16 percent -5.21 percent
farm machinery & equip: -7.51 percent -6.53 percent -6.91 percent
oil/gas drilling platform: +4.03 percent +2.22 percent -0.17 percent parts
A greater percentage of these sectors (three of four) generated worse performance versus manufacturing overall than was the case for the metals-using sectors. But the sample size is so small, and the the uncertainties so considerable, that these more downbeat results should still be viewed with the utmost caution. Ditto for claims that the Trump tariffs are killing U.S. manufacturing.