(What’s Left of) Our Economy: March U.S. Manufacturing Job Gains Lagged – For a Good Reason

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aerospace, aircraft, aircraft engines, aircraft parts, American Jobs Plan, automotive, Biden, Build Back Better, CCP Virus, coronavirus, COVID 19, Donald Trump, Employment, fabricated metal products, Jobs, Labor Department, lockdowns, machinery, manufacturing, non-farm jobs, pharmaceuticals, PPE, recession, recovery, regulation, semiconductor shortage, semiconductors, tariffs, taxes, Trade, travel services, vaccines, Wuhan virus, {What's Left of) Our Economy

This morning’s figures from the Labor Department show that U.S. domestic manufacturing was a bit of a jobs creation laggard in March – and that was good news. The reason? The employment gains for the rest of the economy were so enormous.

This latest monthly U.S. jobs report showed that non-farm payrolls (the definition of the U.S. jobs universe used by the Labor Department, which tracks these data), rose by 0.64 percent in March – to 144.210 million. Job-creation in the private sector advanced at a virtually identical rate.

Payrolls in manufacturing were up by a lower 0.43 percent – to 12.284 million. But they still increased by 53,000 – their best performance since September’s 55,000. It’s also possible that hiring in the automotive sector was held down by a global shortage of semiconductors – which has led to production cutbacks and even some layoffs.

The only disappointment in the new manufacturing jobs numbers concerned revisions – which were mostly negative. February’s initially reported 21,000 net employment gain is now estimated at 18,000. January’s 14,000 job loss (already downgraded from an initially judged 10,000) is now pegged at a still greater 18,000. But December’s improvement was upwardly revised again – from 34,000 to 35,000.

As a result, manufacturing has now regained 63.83 percent (870,000) of the 1.363 million jobs the sector shed during the peak CCP Virus lockdowns period of last March and April. That’s fewer relatively speaking than the recovery in private sector employment – 66.88 percent (14.172 million) of the 21.191 million jobs it lost during that period.

But because of continuing weakness in the public sector – which has recovered just 66.42 percent of its 22.362 million job loss last spring – manufacturing’s payrolls’ rebound is still ahead of the entire economy’s. In fact, manufacturing jobs now account for a higher (8.52 percent) of total non-farm employment than during the last full pre-pandemic data month (8.39 percent in February, 2020).

The biggest manufacturing jobs winners in March? Far and away the champ was the big fabricated metals products industry, which expanded employment by 13,700 – more than a quarter of the manufacturing total. Next came two smallish sectors – miscellaneous non-durable goods and printing and related support activities (up 7,400 and 5,900, respectively). Encouragingly, jobs increased by 3,500 in the big machinery sector – whose products are used throughout not only the rest of manufacturing but the entire economy.

The worst performers were transportation equipment – whose 3,000 lost March jobs included 1,000 in the automotive sector, which has been forced into production cutbacks and some layoffs due to the global semiconductor shortage – and furniture (down 1,300).

Unfortunately, these latest figures indicate that employment in many CCP Virus-fighting goods continues to lag. To be sure, their payrolls seem to be up from the last pre-pandemic levels whereas overall manufacturing jobs are down (by 4.02 percent). But given the nature of the emergency, and the shortages it revealed, it’s surprising they’re not higher still.

The relevant numbers only go through February, and in the broad pharmaceuticals sector, employment rose by 1,600 sequentially. And January’s initially reported 700 job loss has been upgraded to a decrease of only 100. But the sector’s payrolls have grown by a mere 2.60 percent since that last pre-pandemic month of February, 2020.

The performance of the pharmaceuticals subsector containing vaccines was considerably better. February payrolls expanded by 1,300 sequentially, and January’s gains are now estimated at 500, not 100. As a result, this vaccine-related sector’s employment levels are now 6.23 percent higher than in February, 2020.

The story, however, has been more discouraging lately in the manufacturing category containing personal healthcare-related protection devices (PPE) like facemasks, gloves, and medical gowns. Payrolls were flat on month in February, and the initially reported January job loss of 800 was only upgraded to a decline of 700. Still, payrolls in this sector have climbed by 7.98 percent since February, 2020.

Interestingly, despite the rebounding orders for Boeing’s popular but previously grounded 737 Max jetliner, the recovery of national and global travel, and the resumption of deliveries of its also-troubled 787 Dreamliner, none of these positive developments has shown up in the aerospace jobs numbers.

For example, aircraft employment in February (also the latest available figures) grew by only 1,000 on month and not only remains down 10.66 percent on year, but substantially lower than all of last year’s safety crisis- and the worst of the CCP Virus-plagued months. Similar trends hold for aircraft engines and engine parts, and non-engine aircraft parts.

The outlook for domestic manufacturing job creation still seem bright, as vaccinations are being administered rapidly, reopenings are spreading, igniting renewed overall economic activity, Boeing does seem to be emerging from its safety and manufacturing-related troubles, and the high, sweeping Trump tariffs keep pricing many Chinese goods out of the U.S. market, thereby creating new opportunities for American producers.

But that global semiconductor shortage, which will eventually affect much more than automotive output, may not end until late next year. It’s tough to know the overall impact of the Biden administration’s American Jobs Plan and other Build Back Better virus recovery proposals on the one hand, and the tax increases proposed to pay for them on the other, as well as the new regulations that will be involved – assuming even that they pass Congress reasonably intact. And vaccines production won’t be booming forever.

So no one concerned about domestic manufacturing’s health and prospects has any excuse not to peruse carefully all the industry-related data and news that are in store in the weeks and months ahead.

(What’s Left of) Our Economy: Winter Smacks February U.S. Manufacturing Output but Forecast Remains Bright

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aerospace, aircraft, American Rescue Plan, automotive, Biden, Boeing, CCP Virus, China, coronavirus, COVID 19, Covid relief, Donald Trump, facemasks, Federal Reserve, industrial production, inflation-adjusted output, machinery, manufacturing, masks, medical equipment, petroleum refining, pharmaceuticals, plastics, PPE, real growth, resins, semiconductor shortage, semiconductors, stimulus package, tariffs, Texas, Trade, vaccines, winter, Wuhan virus, {What's Left of) Our Economy

Count me as one awfully surprised blogger when I saw this morning’s Federal Reserve U.S. manufacturing production figures (for February), which reported a 3.12 percent sequential drop in industry’s inflation-adjusted output. That was by far the worst such monthly performance since pandemicky April’s 15.83 percent crashdive, and even though the Fed largely blamed harsh winter weather in much of the country, it still contended that manufacturing would have shrunk by about half a percent even in balmier conditions.

A big reason for my surprise was the apparent contrast between these results and the findings of the monthly manufacturing surveys conducted by various of the Fed’s regional branches. They’re soft data, presenting manufacturers’ perceptions rather than actual changes in output (or jobs, or capital spending, or any other indicator), and I’ve written before that soft data are anything but perfect. But not only were the production reads in these surveys strong. They were strong even in Texas, where the storms were so severe. (And the Dallas Fed’s survey was conducted as they were raging.) Moreover, the same held for the February results from the neighboring Kansas City Fed bank.

Further, other hard data – specifically, on jobs – pointed to a good February for manufacturing, too, as industry expanded its payrolls by 21,000.

But the new Fed production numbers shouldn’t be dismissed entirely, so let’s look at the…lowlights, starting with the revisions, which were moderately negative. January’s previously reported 1.04 percent monthly advance is now pegged at 1.29 percent. December’s already once-downgraded inflation-adjusted output growth was lowered again, from 0.94 percent to 0.84 percent. November’s result, which had been upgraded twice (most recently to 1.10 percent) is now judged to have been 1.05 percent. October’s string of upward revisions was stopped, too, as the new report reveals a downgrade from 1.51 percent to 1.39 percent.

Overall, these readings mean that domestic manufacturing’s after-inflation production has grown by 20.26 percent since its April nadir, and stands 3.83 percent below its last pre-pandemic reading, from February.

As not the case with recent Fed industrial production reports, the output changes were highly concentrated in a few industries. Bearing out the central bank’s observation that “some petroleum refineries, petrochemical facilities, and plastic resin plants suffered damage from the deep freeze and were offline for the rest of the month,” most of these sectors saw outsized price-adjusted month-to-month drops in February. For petroleum and coal products, the fall-off was 4.43 percent, and for the huge chemicals sector, 7.11 percent Interestingly, the chemicals decline was even bigger than that it suffered last April, at the depths of the pandemic and related economic activity curbs (6.08 percent).

And as for those resin plants? Their February real output plummeted by fully 28.12 percent – much more than at any time last spring, during the pandemic’s height, and the worst such performance since the 30.64 percent cratering during Great Recessionary September, 2008. In fact, constant dollar output in the industry sank to its lowest level since equally Great Recessionary March, 2009.

Another February real production decrease that looks temporary (but perhaps longer-lasting): the 8.26 percent plunge in constant dollar automotive production. The main culprit is no doubt a global shortage of semiconductors that could well weigh on the entire domestic manufacturing sector going forward.

As known by RealityChek regulars, the machinery sector is a major barometer of manufacturing’s overall health, because its products are used throughout industry. So given February’s poor results for the entire sector, it’s no surprise that real machinery output was off by 2.33 percent on month. But January’s results were upgraded tremendously – from 0.52 percent after-inflation growth to 2.59 percent. So price-adjusted machinery output is still within 1.17 percent of its final pre-pandemic levels.

Because Boeing’s protracted safety-related problems continue to clear up, aircraft and parts production notched another month of growth in real terms in February – an increase of 1.04 percent. Revisions, however, were negative, especially December’s – its previously upgraded production increase (to a strong 3.03 percent) is now judged to be a 0.61 percent decline. Largely as a result, inflation-adjusted output is now just fractionally above its February pre-pandemic level.

The picture was brighter in pharmaceuticals and medicines. This industry, which includes vaccines, saw its after-inflation production climbed by anorther 1.29 percent in February. Moreover, January’s initially reported robust 2.42 percent increase was revised to an even better 2.57 percent. As a result, pharmaceutical and medicines real output is now 5.62 percent higher than just before the pandemic, and should generate even better results in the coming months, as vaccine production will be surging even more strongly.

Unfortunately, the also vital medical equipment and supplies sector – which includes virus-fighting items like face masks, face masks, protective gowns, and ventilators – is still behind the curve. Constant dollar production actually dipped by 0.56 percent on month in February, although in another major revision, January’s performance is now judged to be a 1.08 percent gain rather than a 0.54 percent loss. All the same, real production in this sector (which encompasses many other products as well) is still 1.37 percent less than just before the CCP Virus and the lockdowns arrived in force.

All told, I’m still full of confidence about domestic manufacturing production, due to the Boeing, vaccines, and now the Biden stimulus effects. And don’t forget the administration’s continued reluctance to lift its predecessor’s towering and sweeping tariffs on China, and on metals imports from many countries. Lastly: The weather’s bound to keep getting better!

(What’s Left of) Our Economy: As Trump’s Tariffs Stay in Place, U.S. Manufacturing Output Keeps Surging

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aerospace, aircraft, aircraft parts, Boeing, CCP Virus, China, coronavirus, COVID 19, Federal Reserve, gloves, imports, industrial production, inflation-adjusted output, manufacturing, masks, pharmaceuticals, PPE, real growth, recession, tariffs, Trump, Wuhan virus, {What's Left of) Our Economy

It’s tough to describe this morning’s manufacturing production figures from the Federal Reserve (for January) as anything but excellent, and anything but another strong endorsement of the stiff, sweeping tariffs former President Trump imposed on goods, especially from China. By shielding industry from a flood of imports from the People’s Republic, these trade curbs have undoubtedly contributed to a manufacturing recovery that entered its ninth straight month in January, and brought its production to within a whisker of pre-CCP Virus levels.

Moreover, as noted last month, the sector’s prospects seem bright, since not only has the entire economy kept recovering as CCP Virus vaccination proceeds and accelerates, but the aerospace industry revives both from its Boeing safety-related woes and the pandemic-related travel slump, and vaccine production surges.

Domestic manufacturers’ real output rose by 1.04 percent sequentially, increases were broad-based, and revisions were strongly positive. Although December’s previously reported 0.95 percent growth was downgraded to 0.94 percent, November’s was revised up for the second straight time (from 0.83 percent to 1.10 percent), and October’s for a third straight time (from 1.34 percent to 1.51 percent).

Due to these revisions, despite the severely recessionary impact of the CCP Virus both at home and abroad, domestic manufacturing’s inflation-adjusted 2020 production decline now comes in at just 2.01 percent, rather than the 2.63 percent reported last month. In addition, price-adjusted manufacturing output has advanced by 24.11 percent since its April nadir, and is now a mere 0.75 percent below its last pre-pandemic level last February.

As encouraging as the January figures and revisions were was their breadth. In fact, for the second straight month, the constant dollar output improvement came despite a small (0.72 percent) sequential dip in the automotive sector, whose major ups and downs have heavily influenced overall manufacturing production results for much of the pandemic period.

One cautionary note: January monthly after-inflation output growth for the big machinery category – which turns out production equipment for the rest of manufacturing, and devices crucial for other major industries like construction and agriculture – was only 0.52 percent, just half that for the entire manufacturing sector. And revisions were mixed.

More encouraging: Machinery’s growth has been strong enough that its real output is now back to within 1.12 percent of its February pre-pandemic levels.

January also saw accelerating growth in aircraft and parts production. Monthly output in expanded by 2.89 percent in January, December’s strong initially reported 2.78 percent increase is now judged to have been 3.03 percent, and November’s has been upgraded from 2.39 percent to 2.50 percent.

In fact, recovery in these aerospace sectors has been so vigorous that their output is now 6.77 percent greater than their February pre-pandemic levels.

Probably reflecting the vaccine effect, price-adjusted production of pharmaceuticals and medicines increased by 2.42 percent on month in January – the best showing since July’s 2.57 percent. But revisions were mixed, and this vital sector’s real output is only 4.11 higher than in February, just before the pandemic struck the U.S. economy in full force. On the brighter side, immense vaccine demand makes clear that the industry’s upside is enormous for the time being.

As for medical equipment and supplies – including virus-fighting items like face masks,face masks, protective gowns, and ventilators – their production performance keeps lagging badly. Inflation-adjusted output for this category (which encompasses many other products as well) actually fell in January for the second straight month – and by 0.54 percent. In fact, constant dollar output in this sector is 2.18 percent lower than during the last pre-pandemic month of February, 2020.

(What’s Left of) Our Economy: Why Today’s Fed U.S. Manufacturing Report is So Bullish

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737 Max, aircraft, aluminum, automotive, Boeing, China, Federal Reserve, inflation-adjusted growth, Joe Biden, machinery, manufacturing, medical supplies, metals, pharmaceuticals, PPE, real output, steel, tariffs, Trade, vaccines, {What's Left of) Our Economy

Think for a moment about this morning’s very good manufacturing production figures from the Federal Reserve (for December) and a case for major optimism about U.S. industry’s foreseeable future is easy to make. Not only has the advent of highly effective vaccines greatly boosted hopes for a return to normality sooner rather than later. But much of the underlying data was collected before the vaccine production surge began.

Moreover, although Boeing aircraft is still dealing with manufacturing problems, its popular 737 Max model is being recertified or nearly recertified for flight by numerous countries (including the United States) and any continued significant rebound in air travel levels is sure to help the company’s order book for all of its jets.

And again, the data themselves were strong. According to this first Fed read for the month, American inflation-adjusted manufacturing output rose by 0.95 percent sequentially. Moreover, November’s initially reported 0.79 percent improvement was upgraded to 0.83 percent, and October’s results were revised upward for a second time – to 1.34 percent.

These noteworthy advances – which add up to eight straight months of increases – brought price-adjusted U.S. manufacturing production to 22.05 percent above the levels it hit during its CCP Virus-induced nadir in April, and to within 2.40 percent of its last monthly pre-pandemic numbers (for February).

Especially interesting, and another cause for optimism: The December manufacturing growth was so broad-based that it was achieved despite a 1.60 percent monthly drop in constant dollar automotive production. Combined vehicle and parts output has rebounded so vigorously since its near-evaporation last spring (by just under six-fold) that on a year-on-year basis, it’s actually grown by 3.64 percent. But today’s Fed report represents evidence that many other sectors are now catching up.

The crucial (because its products are used so widely throughout the entire economy) machinery sector enjoyed a good December, too, with after-inflation production increasing by 2.07 percent sequentially. That welcome news more than offset a downward revision in the November results, from a 0.51 percent to 0.99 percent shrinkage. Due to this growth, this real domestic machinery output is now just 1.53 percent off its pre-pandemic level.

As for the pharmaceutical industry, its price-adjusted output expanded by a solid 2.12 percent sequentially in December, but November’s disappointing initially reported 0.76 percent fall-off was downgraded to a 0.84 percent decrease, and October’s results stayed at minus 1.01 percent.

Moreover, year-on-year constant dollar pharmaceutical production is up only 0.18 percent – anything but what you’d expect for a country suffering through an historic pandemic.

But the first batch of Pfizer anti-CCP Virus vaccines didn’t leave the factory until December 13, and key data behind this first read on the month’s performance were gathered beforehand. So it’s likely that the huge ramp in vaccine out could start showing up in the revised December results in next month’s Fed manufacturing report (for January), which will reflect more relevant statistics.

Similar optimism seems warranted for the U.S. civilian aerospace industry and especially its beleaguered collosus, Boeing. Despite the safety woes of the popular 737 Max model and its consequent production suspension, the domestic aircraft and parts sectors have actually staged a powerful real output recovery since a 32.85 percent nosedive in February and March. Since then, inflation-adjusted production has boomed by 52.30 percent, fueled in part by December’s 2.78 percent sequential jump and November’s upwardly revised 2.39 percent growth.

In fact, constant dollar output in civilian aerospace is now actually 2.27 percent higher than its last pre-CCP Virus level. The 737 effect isn’t over yet, as made clear by the 11.49 percent real production decline since last December. But it seems evident that the industry is and will remain on the upswing barring any new seriously bad news.

Unfortunately, little such optimism appears justified in the case of medical equipment and supplies – including face masks, protective gowns, ventilators, and the like. Inflation-adjusted production in their larger subsector sank in December by 0.36 percent on month, and although the November increase has been revised up from 1.56 percent to 1.60 percent, October’s growth has been downgraded again – from an initially judged 3.54 percent all the way down to a decidedly non-pandemic-y 1.75 percent.

And since April, the after-inflation production recovery has been only 21.02 percent – still less than that for all of manufacturing. The year-on-year December result is no better, as it’s down 5.44 percent. And of course, those 2019 levels were revealed by the pandemic to have been dangerously inadequate.

But before ending, I couldn’t forgive myself if I didn’t say something about tariffs, and as with last month’s Fed manufacturing figures, the performance of the primary metals sectors for December is sending this loud and clear message to President-Elect Joe Biden: Keep them on.

For in constant dollar terms, these protected industries have recorded strong monthly growth since June, and November’s upwardly revised sequential 3.98 percent pop has now been followed by a 2.51 percent increase in December.

All told, since the April bottom, price-adjusted production has risen by 29.01 percent – expansion that looks inconceivable without the trade curbs preventing the U.S. market from being flooded with Chinese steel and aluminum along with product transshipped through the ports of those U.S. allies with whom Biden is so keen on repairing tattered Trump era ties, and greater metals shipments they often send America’s way to offset their own China-related losses.

(What’s Left of) Our Economy: A Fed Snapshot of U.S. Manufacturing at the CCP Virus Turning Point?

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737 Max, aircraft, aircraft parts, aluminum, Boeing, capital goods, CCP Virus, China, coronavirus, COVID 19, Federal Reserve, industrial production, Joe Biden, machinery, manufacturing, medical devices, metals, pharmaceuticals, PPE, safety, steel, tariffs, Trump, Wuhan virus, {What's Left of) Our Economy

If the Federal Reserve’s monthly industrial production report for February (released in March) was the last such data set assessing domestic U.S. manufacturing’s health before the full force of the CCP Virus pandemic struck the American economy, today’s release (covering November) might be viewed in retrospect as marking the close of the industry’s virus-induced slump – or at least the beginning of the end.

Clearly, the entire U.S. economy remains far from fully recovered from the pandemic and the shutdowns and lockdowns and behavioral changes it produced. Moreover, the virus’ second wave could well prompt renewed restrictions – though lockdown fatigue will probably keep them more limited than their springtime predecessors.

But shortly after the Fed compiled the figures for November came two developments capable of boosting domestic manufacturing output considerably – Washington’s certification clearing Boeing’s troubled 737 Max model jetliner for flight once again, and the announcements that large-scale final-phase clinical trials for two anti-CCP Virus vaccines revealed amazing efficacy rates and reassuring safety results.

At the same time, these last pre-737 and vaccine manufacturing production numbers showed once again how relatively well domestic industry has held up during the CCP Virus period so far, and how strong its post-April recovery has been. By the same token, the data once more make clear the benefits of the Trump administration’s sweeping tariffs on products from China and its levies on steel and aluminum imports – which sharply limited the extent to which U.S. demand for these goods could be met from abroad.

The 0.79 percent November monthly increase in after-inflation manufacturing output recorded by the Fed was weaker than the October figure. But that month’s increases was revised up from a strong 1.04 percent to an even better 1.19 percent. September’s previously reported fractional increase remained basically the same.

As of November, therefore, real manufacturing production has improved by 20.67 percent above its April pandemic-induced trough and, just as important, stands just 3.50 percent lower than its final pre-CCP Virus level in February.

The November numbers are also notable for the outsized role played once again by the automotive sector. Although its October sequential inflation-adjusted output performance has been revised from a virtual “no change” to a 1.14 percent drop, these first November results show a 5.32 percent surge. More important than this volatility, though, is that combined vehicle and parts output is now just 0.38 percent lower than its final pre-pandemic level in February.

One indication of at least short-term concern from the November results: Constant-dollar production in the big machinery sector slipped by 0.51 percent on month. This industry matters greatly because its products are used so widely throughout the economy (e.g., construction, agriculture), and because it contains the capital goods products on which manufacturers themselves rely so heavily to turn out their own goods.

Longer term, the machinery picture looks better, though, as in line with the generally strong capital investment data kept by Washington, its price-adjusted output is now off by just 3.52 percent since February.

As for the tariff angle mentioned above, its importance is evident not simply from the strong overall manufacturing recovery, but from the performance of the primary metals sector, whose performance since March, 2018 has been profoundly affected by levies on steel and aluminum from most major exporting countries.

Constant dollar output of primary metals plunged by 25.46 percent during the peak pandemic months of March and April – a rate faster than that of manufacturing’s total 20.03 percent. Since then, however, its grown in real terms by 25.63 percent (faster than manufacturing’s total 20.67 percent advance).

November, moreover, was no exception, as primary metals’ inflation-adjusted production rose by a robust 3.75 percent. These numbers might give apparent President-elect Joe Biden pause if he’s thinking of lifting the steel and aluminum levies as part of his announced goal of repairing U.S. alliance relations he believes have been gravely damaged by President Trump.

If the beginning of the end of pandemic really is at hand, the November Fed figures show that it can’t come soon enough for the nation’s beleaguered aircraft industry as well as for its pharmaceutical sector. The latter’s after-inflation output remained steady last month, but the levels themselves remained remarkably subdued. November’s 0.76 percent monthly constant dollar production decline followed a downwardly revised 1.01 percent October decrease, and year-on-year, inflation-adjusted output is off by 2.37 percent.

Despite Boeing- and travel-related woes, the aerospace industry has fared considerably better. After a real output nosedive of 32.85 percent in February and March, such production is up by a spectacular 47.75 percent since. And thanks partly to the 2.07 percent on-month improvement in November, real output is down just 3.77 percent since the last pre-pandemic figure in February.

Nonetheless, the 737 Max news and any sign a significant air travel comeback will be welcome for civilian aircraft and parts makers, as after-inflation production is still 15.40 percent less than it was last November.

But despite the number of inspiring anecdotal accounts of medical equipment and supplies manufacturers boosting production of face masks, protective gowns, ventilators, and the like in response to the medical emergency, overall real production of these vital products remained uninspiring in November. Real output rose on-month by 1.56 percent, but the October’s initially reported 3.54 percent after-inflation sequential production increase has now been downgraded to 2.04 percent.

Since April, moreover, the price-adjusted production rebound has been a mere 21.75 percent – not much stronger than that for the total manufacturing recovery. Perhaps most discouraging: Real output in this sector is actually down 5.60 percent – from levels revealed by major continuing reliance on imports to have been dangerously inadequate.

(What’s Left of) Our Economy: Through the Pandemic Fog, Signs of Trump Trade Progress Keep Coming

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(What's Left of) Our Economy, aircraft, Boeing, CCP Virus, Census Bureau, China, coronavirus, COVID 19, exports, goods trade, healthcare goods, imports, Made in Washington trade deficit, manufacturing, manufacturing trade deficit, medical devices, non-oil goods trade deficit, pharmaceuticals, services trade, tariffs, Trade, trade deficit, trade war, Trump, Wuhan virus

Proof positive that much of the U.S. government grinds on whatever the political tumult surrounding it: Despite the controversies that erupted due to the largely unexpected, still-incomplete, and increasingly contested Presidential election results, the Census Bureau nonetheless still put out the new monthly U.S. trade report yesterday – this one taking the story through September.

And by the bizarro economic standards of the bizarro CCP Virus era, the figures were strangely normal: The various September deficits remained awfully high given an economy whose levels are still markedly subdued despite a powerful growth rebound in the third quarter (which ended in September). Yet although these results have been widely interpreted as a stinging rebuke to effectiveness of President Trump’s tariff-centric trade policies (see, e.g., here and here), widely overlooked details reveal major mitigating developments – and resulting reasons for continued encouragement.

As for the awfully high deficits: The combined goods and services trade gap actually decreased on month by 4.73 percent, from a downwardly adjusted $67.04 billion to $63.86 billion. Yet this monthly total (during a troubled economic time) was still firmly in the neighborhood of trade shortfalls during the bubbly mid-2000s, when Washington’s trade policy was about as cluelessly import- and especially China-friendly as possible.

Moreover, back in those days, oil made up a much bigger share of the total goods deficit than today. So obviously, most of the remaining gap owes a good deal to U.S. trade policy decisions – as will be seen below.

Encouragingly, total U.S. exports to a world still largely struggling with virus-related downturns of its own were up 2.55 percent sequentially in September, and registered their best performance ($176.35 billion) since March – just as major pandemic effects were taking hold. Total September imports of $240.22 billion also represented the highest amount ($240.22 billion) since March, but the monthly increase was only 0.51 percent. And where export growth has consistently been strong since May, import growth has begun slowing markedly.

Yet the persistence of high combined goods and services U.S. trade shortfalls stems mainly from problems with services trade that are clearly CCP Virus-related. For example, the longstanding services surplus (which of course includes travel services) is on track for its biggest drop since recessionary 2001. So far, through the first three quarters of 2020, it’s sunk by 20.47 percent on a year-to-date basis.

Indeed, the $43.96 billion reduction in the services surplus has been greater than the $38.54 billion increase in the overall deficit – meaning that if the service surplus had simply remained the same, the total deficit would have declined year-to-date (although still less than expected at least during a normal deep recession).

As indicated above, however, the total trade numbers don’t tell the whole story about the successes or failures of trade policy. That’s because, as known by RealityChek regulars, services are one huge sector where trade agreements and similar decisions have had relatively little impact so far. Ditto for oil

At first glance, examing trade flows that are substantially “Made in Washington” also reveals a nice-sized monthly September reduction in that deficit (4.62 percent), but to a level that’s the third worst on record ($80.74 billion) – just behind the August and July totals, respectively. And on a year-to-date basis, the Made in Washington deficit is up 3.80 percent from last year,to $663.55 billion.

Yet here’s where another detail comes in. This entails the woes of Boeing, which have spread beyond the safety debacle stemming from crashes of its popular 737 Max model to the global virus-induced collapse in air travel.

The safety problems of 2019 cut the longstanding U.S. civilian aircraft trade surplus by nearly 28 percent, or $8.86 billion on a January-September basis. Had the surplus stayed stable, it would have risen only from $600.08 billion during the first three quarters of 2018 to $630.39 billion, rather than $639.25 billion. Given all the import front-running seen throughout 2019 to try to avoid the Trump China tariffs (which artificially inflated the entire non-oil import total), that’s not a bad performance at all.

The aircraft effect has been much more dramatic this year. Year-to-date through September, the Made in Washington deficit is up from that $630.29 billion to $663.55 billion. Yet the nosedive in the aircraft surplus (all the way from $23.16 billion to just under $3 billion) accounts for nearly 83 percent of that increase.

Want another aircraft effect? Check out the manufacturing trade deficit – so rightly the focus of the President’s attention. Month-to-month, it rose by only 1.46 percent. But the new September level of $103.87 billion is the second-worst monthly total of all time – just behind July’s $104.63 billion. Even worse: The aircraft industry’s problems didn’t add to this number, since its trade deficit actually shrunk slightly on month.

But for the entire year so far, the plunge in the aircraft surplus (which, not so coincidentally, has been mirrored by smaller but not trivial reductions in the surpluses of all sorts of aircraft parts, including engines) has made a sizable difference. From January-September, 2019 to this year’s comparable period, the manufacturing trade shortfall has grown by $10.18 billion, from $777.60 billion to $787.78 billion. Take out the $20.16 billion worsening of the aircraft trade surplus, and the $10.18 billion higher year-to-date manufacturing trade deficit becomes a nearly $10 billion lower year-to-date manufacturing trade deficit.

And when it comes to both the manufacturing and overall Made in Washington trade deficits and a virus effect, don’t forget its healthcare goods component. Specifically, the U.S. trade deficit in pharmaceutical preparations jumped by $12.58 billion year-to-date between last year and this year, and in the categories containing (but not restricted to) protective gear like masks and gowns, testing swabs, ventilators, and oxygen tents by another $2.33 billion.

Since China remains so important for Made in Washington and manufacturing trade flows, bilateral exports, imports, and deficits not surprisingly reveal a major pandemic effect, too. The big China difference is how strongly the September data confirm that President Trump’s goals of reducing the bilateral trade gap and decoupling economically from the People’s Republic are being achieved even without taking the CCP Virus into account.

On a monthly basis, the goods trade gap with China dipped fractionally in September, to $29.67 billion. This total represented the second straight such drop and the lowest level since Aprils $28.40 billion. These merchandise imports inched up sequentially in September by just under one percent and have been virtually flat since July, but goods exports improved by 4.53 percent.

On a year-to-date basis, America’s China trade looks like it’s in even better shape. U.S. goods imports from China are off by nearly 11 percent ($37.54 billion) over this stretch, and the trade gap has become 15.24 percent ($40.06 billion) smaller.

This progress, moreover, has been achieved even though total U.S. exports of civilian aircraft and parts (including engines) to China have shrunk by $4.09 billion and the trade deficit in the virus-related medical equipment categories has risen by $1.25 billion. (Oddly, the bilateral pharmaceutical preparations trade balance has improved with the surplus improving from $449 million to $836 million.)

When all of these virus-related complications and the inevitably disruptive and therefore initial efficiency-reducing impact of the Trump trade policies are considered, two questions arise that are equally fascinating and important. First, once these temporary shocks pass, will this approach to globalization look more like a win or a loss for the U.S. economy? Second, will American election politics give the nation a chance to find out?

(What’s Left of) Our Economy: The Trade Wars Would’ve Been Much Easier to Win if Not for Boeing

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(What's Left of) Our Economy, aerospace, aircraft, aircraft parts, Boeing, manufacturing, metals tariffs, tariffs, Trade, trade wars, Trump

Today’s grim news about recent Boeing aircraft orders and deliveries is just the latest valuable reminder that any evaluation of the Trump record on manufacturing and trade policy has to take into account the entire aircraft and parts industry’s transformation from a slight to a bigtime industrial laggard. Moreover, Boeing’s weakness – which has nothing to do with the President’s trade or any other policies — seems likely to continue for the foreseeable future, at least according to Boeing. The company’s latest long-term forecast for the global aircraft market affirms that it will take years for aviation worldwide to return to pre-CCP Virus levels.

The degree of the pain inflicted by Boeing’s troubles – which also include major safety woes that started making headlines in early 2019 – on the whole of domestic industry, and how unrelated manufacturing’s overall Trump era performance has been to the President’s tariff-heavy trade policies, becomes clear from diving into the most detailed U.S. manufacturing output figures available: the Federal Reserve’s industrial production data.

For example, the Fed numbers show that, during the Obama administration, adjusting for inflation, manufacturing output increased by 14.65 percent. Real aircraft and parts production output growth was just slightly slower: 12.39 percent.

But from the start of the Trump years until the arrival of the pandemic (February, 2017 through February, 2020), whereas the manufacturing sector as a whole expanded by 3.60 percent in price-adjusted terms, the aircraft and parts industry shrank by 13.10 percent.

Since the virus struck (from February through the latest available – August – numbers)? Manufacturing output is down by 6.39 percent after inflation, and aircraft and parts production is off by 10.81 percent.

As for the trade war impact, from March, 2018 (the first full month of President Trump’s metals tariffs and a good place for marking the start of the broader trade wars) until February, 2020 (the last month before the virus began significantly affecting manufacturing and the entire domestic economy), overall manufacturing production grew by a bare 0.83 percent. But that poor performance was clearly dragged down by the nation’s aircraft and parts factories – which turned out 10.74 percent less in terms of constant dollar product value.

Aircraft and parts were major industrial also-rans, too, during the comparable 23-month period preceding the first full month of the Trump metals tariffs. Their real production slumped by 4.11 percent, as manufacturing’s overall production rose by 4.07 percent.

The bottom line, then, couldn’t be clearer. The President was wrong in insisting that trade wars for big deficit countries like the United States are “easy to win.” But the facts also demonstrate that the victories the nation has won in these conflicts – which have been significant – would have been come much easier had the aerospace sector and its long-time leader Boeing not turned into such major losers.

(What’s Left of) Our Economy: The Start of a V-Shaped Recovery So Far for Manufacturing Production, Too?

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aircraft, automotive, autos, Boeing, CCP Virus, durable goods, Federa Reserve, inflation-adjusted output, manufacturing, motor vehicles, non-durable goods, real output, recession, recovery, {What's Left of) Our Economy

The May Federal Reserve figures on inflation-adjusted U.S. manufacturing production were released this morning, and what stood out to me right away was how closely the main results resembled those of the remarkable May jobs report from the Labor Department. Not that the surprise factor for manufacturing output was anywhere near that for the jobs report. And of course factories don’t reopen or ramp up production in lockstep with gains in employment (which speak volumes about the economic fortunes of many of their customers). But consider the following figures and what they could be signaling about the pace of recovery:

On a monthly basis, as the CCP Virus pandemic’s effects peaked for the time being, the private sector shed 15.37 percent of its jobs in April, and for manufacturing, the figure was 10.34 percent. That month, real manufacturing output plunged sequentially by 15.66 percent.

In May, as the economy’s reopening sped up, private sector payrolls expanded by 2.86 percent, manufacturing saw a 1.96 percent net jobs gain, and manufacturing production rose by 3.83 percent. It looks an awful lot like an economy that’s bouncing back pretty quickly so far from the worst of the virus-induced shutdowns, but that still has far to go before returning to normal. Call it the possible start of a “V.”

Something else that comes through loud and clear about the latest Fed manufacturing reports – including today’s: They’re being remarkably driven by the stunning gyrations of the automotive sector, and especially price-adjusted vehicles output levels. In fact, in April, production of autos and light trucks – which literally had collapsed according to last month’s preliminary figures – have been revised down to as close to zero as you can get.

But before detailing those results, let’s return to 30,000 feet. That May monthly after-inflation manufacturing output increase was the biggest on record – and by a long shot. But April’s sequential nosedive was revised from 13.28 percent – and therefore is even more of a record-breaker than previously thought. And it’s only slight consolation that the March drop was reduced to 5.27 percent from 5.53 percent. (It was originally reported as 6.27 percent.) At least as bad, as of May, American factories’ monthly output in real terms was their lowest since Great Recession-y July, 2009.

Most of the action continues to be concentrated in the durable goods super-sector, which led manufacturing down in March and especially April, and led it up in May.

As with industry as a whole, the new monthly durable goods production drop for March was smaller than previously estimated (7.73 percent rather than 8.23 percent) and the April disaster was bigger than first judged (with constant dollar output down 21.64 percent rather than 19.27 percent).

Real output in the supersector increased by 5.83 percent sequentially in May – but that record monthly rise still left absolute production levels at their lowest since November, 2009, another Great Recession month.

And the automotive sector continues leading the fluctuations in durable goods production. The revisions for vehicles and parts combined for March and April were both slightly worse than previously judged (30.03 percent vs 29.96 percent for the former, and 76.47 percent versus 71.69 percent for the latter).

The May results (for now preliminary, as are all the May numbers – with April’s set for one more revision next month)? After-inflation output surged by 120.83 percent. That’s not a typo. For comparison’s sake, this latest jump smashed the old monthly record (29.95 percent, in July, 2009) by a factor of four. Even so, inflation-adjusted vehicle and parts output hasn’t been this low since July, 1983 – 33 years ago

As for the numbers for vehicles alone, they’ve been positively fantasmagorical. Cutting to the chase, “nosedived” and “careening” don’t begin to describe the April results. That month, auto and light truck output after inflation practically disappeared – standing 98.87 percent lower than in March and slightly worse than initially reported). Similarly, May’s improvement was less a rebound or even a rocket ride than a restart. What else can you reasonably call a 3,187.39 percent increase? And still, in absolute terms, that only brought output back to its worst level since February, 1982.

This astounding automotive performance, moreover, has clearly moved the needle for manufacturing as a whole. Without the April automotive tailspin, price-adjusted manufacturing production was off by 11.94 percent, not 15.66 percent. In May, without the recovery of the sector, U.S. constant dollar manufacturing production advanced by 1.96 percent – just about half the rate of the 3.83 percent increase recorded with automotive.

The May Fed manufacturing report left the relatively mild March output downturn in the non-durable goods super-sector unrevised at 2.64 percent. But the April decrease was estimates to be worse:  9.59 percent rather than 8.23 percent.

Non-durable factory production rose by 2.07 percent sequentially in May, but interestingly, that advance was only the biggest since October, 2017 2.28 percent – when lots of oil refineries and petrochemicals-using industries came back on line after that autumn’s hurricanes in the Gulf of Mexico.

Finally, some genuinely puzzling results seem to be recorded for the aircraft and aircraft parts sectors, which were troubled for months before the CCP Virus struck by Boeing’s safety woes . Whereas in last month’s Fed manufacturing report, the March monthly inflation-adjusted drop in these industries was reported at 12.09 percent, this morning it was reported to be just 5.38 percent.

More reasonably, the April sequential decline was judged to be slightly smaller – 28.31 percent rather than 28.88 percent. And May’s on-month recovery is estimated to be a robust 9.43 percent.

Since this spring’s manufacturing slump and rebound so closely resembles that of the jobs market, it’s fitting that the same questions hover over it. Will the comeback last, or are we seeing the real economy version of a stock market dead cat bounce? Like the Fed itself, RealityChek‘s judgments will be data-dependent.

(What’s Left of) Our Economy: Inside April’s U.S. Manufacturing Crash I

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aircraft, auto parts, automotive, Boeing, CCP Virus, coronavirus, COVID 19, durable goods, Federal Reserve, inflation-adjusted output, manufacturing, manufacturing output, manufacturing production, non-durable goods, real growth, vehicles, Wuhan virus, {What's Left of) Our Economy

There was never any point in expecting today’s Federal Reserve manufacturing production figures (for April) to change significantly what’s known about the CCP Virus’ body blow to the American economy overall, and to industry in particular. As with the case last month, however, the details reveal a great deal about how the pandemic is changing patterns of U.S. factory output – which in turn to some extent reflect changing patterns of the spending (by both consumers and businesses) that remains the main driver of the nation’s growth (or, nowadays, contraction).

The big takeaways are that:

>The March revisions show that the virus damage to manufacturing that month was a good deal less (with inflation-adjusted output falling by 5.53 percent on month) than the 6.27 percent drop initially reported.

>The April 13.78 percent month-to-month real production was by far the biggest such decrease on record (going back to 1972) – surpassing March’s previous record.

>As with March, the steepest fall-offs in price-adjusted output came in the durable goods sector – which consists of items whose active use or shelf life is expected to be three years or greater. In March, the sequential production decrease was revised from 9.14 percent to 8.23 percent. But in April, the plunge was more than twice as great: 19.27 percent.

>The March monthly shrinkage of non-durable goods production is also now judged to be smaller than first reported – 2.64 percent rather than 3.21 percent. But in April, the rate of sequential deterioration was even faster than for durable goods, speeding up to 8.23 percent.

>Within durable goods (e.g., steel, autos, computers, industrial machinery, furniture, appliances, aircraft), the automotive sector remained by far the weakest industry. It was bad enough that March’s horrific on-month after-inflation output crash dive was thought to be even greater than first estimated (29.96 percent rather than 28.04 percent). But in April, inflation-adjusted output was down by another 71.69 percent.

>And within the automotive sector, the big story was vehicles, not parts. The former’s constant dollar March production is now judged to have been 37.77 percent, not the originally reported 34.76 percent. But then in April, it careened down by 93.60 percent. That is, it nearly stopped.

>For an idea of how profoundly automotive’s tailspin has affected manufacturing’s performance, if it’s removed from the total, factory output’s April monthly contraction would have been 10.29 percent in real terms, not 13.78 percent. That is, still a terrible (and record) performance, but not quite so terrible.

>As for durable goods, its April sequential production drop would have been 12.65 percent in real terms, not 19.27 percent. Again, an awful performance, but much better than the numbers with automotive.

>Speaking of tailspins, Boeing’s troubles have continued to mount because the virus crisis has decimated U.S. travel and transportation, and they showed up in abundance in the April Fed manufacturing report. March’s monthly after-inflation output decrease for aircraft and parts was revised from 10.36 percent to 12.09 percent. And that rate more than doubled in April, hitting 28.88 percent.

I’ll be following up with more detailed April production data later this afternoon!

(What’s Left of) Our Economy: Early Virus-Era U.S. Manufacturing Winners and Losers

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(What's Left of) ur Economy, aircraft, automotive, Boeing, CCP Virus, coronavirus, COVID 19, durable goods, Fed, Federal Reserve, industrial production, manufacturing, non-durable goods, Wuhan virus

Hey! I’m a manufacturing geek (among other things)! It’s part of what I do! Even so, I hope you agree that it’s worth looking in some detail at yesterday’s U.S. manufacturing output report from the Federal Reserve – because it offers a first look at domestic industrial winners and losers in the Age of the CCP Virus.

As always, these numbers will show inflation-adjusted production changes from month to month – in this case, between February and March. Of course, the time lag means that these data only partly reflect the first wave of the full CCP Virus hit.

As I wrote yesterday, that hit has been hard for domestic manufacturing as a whole – its real output sank by 6.27 percent on month – the biggest such fall-off since the post-World War II demobilization in 1946!

Looking at the super-categories first, the biggest sequential production nosedive came in durable goods – which are supposed to be usable (or shelve-able) for at least three years. Think steel, motor vehicles and parts, machinery, aircraft and parts, home appliances, information technology hardware and the like – include medical products except for pharmaceuticals and vaccines. Constant dollar production of these products plunged by 9.14 percent. So they fared much worse than manufacturing as a whole, and that’s especially discouraging since they’re the bigger of the two super-sectors.

Speaking of which, the other super-sector – non-durable goods (which include textiles and apparel, pharmaceuticals and all other chemicals, plastics and resins, petroleum products, paper, and foods and beverages) – saw a monthly real output decrease of only 3.21 percent.

But we can go into much more detail than that. For convenience sake, let’s limit ourselves to examining industries classified at the 3-digit level of the North American Industry Classification System (NAICS), the U.S. government’s main typology for slicing and dicing the entire economy. Here are the results for the February to March period, leading off with the durable goods sectors.

Wood products:                                                                     -4.22 percent

Non-metallic mineral product:                                             -6.56 percent

Primary metal:                                                                      -2.82 percent

Fabricated metal product:                                                     -8.28 percent

Machinery:                                                                            -5.56 percent

Computer and electronic products:                                       -1.89 percent

Electrical equipment, appliances, and components:             -2.24 percent

Motor vehicles and parts:                                                   -28.04 percent

Aerospace & miscellaneous transportation equipment:       -8.12 percent

Furniture and related products                                           : -9.99 percent

Miscellaneous manufacturing:                                             -9.94 percent

(contains most of those non-pharmaceutical healthcare goods)

Clearly, these results are all over the place, with the automotive sectors being the big standouts. Within automotive, the biggest losers were vehicles factories, where after-inflation production cratered by 34.76 percent. Real parts output was off “only” 21.80 percent.

In fact, leaving out these two automotive industries, inflation-adjusted durable goods output fell by just 5.84 percent – versus the 9.14 percent plummet including these products. And real manufacturing production would have been down by just 5.84 percent, not 6.27 percent.

Also of note: Aircraft and parts production dropped by 10.36 percent, for reasons partly due to the CCP Virus (and the impact on air travel), but also partly due to Boeing’s long-running safety problems. In fact, the March results mark the first that indicate major Boeing-related losses – although surely the impact has been felt previously throughout a vast domestic supply chain that includes lots of industries outside the aerospace complex as such.

Here’s the list of non-durable winners and losers:

Food, beverage, and tobacco products:                                   -0.76 percent

Textiles:                                                                                 -14.05 percent

Apparel and leather goods:                                                   -16.54 percent

Paper:                                                                                      -2.04 percent

Printing & related activities:                                                 -18.18 percent

Petroleum and coal products:                                                 -5.93 percent

Chemicals:                                                                              -1.65 percent

Plastics and rubber products:                                                 -7.60 percent

Other manufacturing (different from miscellaneous):           -5.37 percent

As with investment, past results are no guarantee of future performance, especially since the new economic slump is biologically, not economically caused. But some of these figures look like they have staying power – e.g., we’ll continue eating, we’ll keep using computers, we won’t be flying as much. One big puzzle – will car buying stay this depressed? As I like to say, my crystal ball is far from crystal clear. But that just makes it all the more important to keep track of these detailed manufacturing production figures as they come in, especially what leads an economy down is often what leads it back up.