(What’s Left of) Our Economy: New Fed Manufacturing Figures Nudge Tariffmageddon a Bit Further Away

Tags

aluminum, China, Federal Reserve, industrial production, inflation-adjusted growth, manufacturing, metals, metals tariffs, metals-using industries, real growth, steel, tariffs, Trade, trade war, {What's Left of) Our Economy

Today’s industrial production figures from the Federal Reserve showed not only that U.S. domestic manufacturing regained some strength in May following a string of poor monthly results. They also provided more evidence that President Trump’s tariffs have had little, if any, effect on the performance of either the metals-using industries impacted by levies on steel and aluminum imports, or of sectors supposedly affected by China-related duties.

Two more points come through pretty loud and clear from the new figures on domestic industry’s inflation-adjusted growth. First, the weakness displayed in April by manufacturing as a whole and by metals-using sectors could well have been confined to that month. Second, the safety problems revealed in the Boeing Company’s aircraft have begun to influence the picture and may distort the readings for several more months.

The overall readings for manufacturing were mildly encouraging, with the 0.22 percent sequential rise in real output representing domestic industry’s best reading since December’s 0.64 percent improvement. Revisions were ever so slightly positive.

Most of the leading metals-using industries – where the role played by tariffs is relatively easy to identify – fared better in May than in April, too, as the following table shows. The columns show the changes in after-inflation output for these sectors starting with April, 2018 (the first full month the metals levies went into effect) and each of the last three data months of this year. And as usual, the numbers for manufacturing overall are used as a control group.

                                             April thru March   April thru April   April thru May

overall manufacturing:          +0.45 percent        -0.07 percent      +0.89 percent

durables manufacturing:       +1.34 percent       +0.68 percent      +0.98 percent

fabricated metals products:   +2.76 percent      +1.88 percent       +1.73 percent

machinery:                            +2.31 percent       -0.12 percent       +0.11 percent

automotive:                            -3.10 percent       -3.86 percent        -1.55 percent

major appliances:                   -5.27 percent       -8.24 percent        -3.27 percent

aircraft and parts:                  +5.75 percent      +3.34 percent       +1.15 percent

durable mfg ex-automotive: +2.10 percent       +1.48 percent       +1.41 percent

In general, it’s clear that the metals-using industries are still losing growth momentum versus the rest of manufacturing. But do the duties deserve all or even much of the blame? If so, then why did so many of these sectors turn in better growth numbers in May than in April – especially automotive and major appliances? The latter’s relative comeback is especially striking, given that it’s been experiencing not only metals tariffs, but separate levies on large household laundry equipment and a weakness in U.S. housing. Ditto for automotive, where output has been highly volatile for many months.

The Boeing effect is apparent, too, from the falling output numbers since March, when safety problems started generating grounding decisions and airspace national airspace bans for its widely used 737 Max models. Further, both automotive and aerospace are major users of machinery and fabricated metals products.

The impact of the tariffs on products from China remains much more of a puzzle, and for the same reasons that have been apparent since their onset, in August, 2018. They have covered thousands of products, most of which so far have been intermediate goods, and their role as these kinds of inputs for manufacturing industries varies dramatically from final product to final product. In addition, Washington uses different manufacturing classification systems for designating the tariff-ed products and for measuring manufacturing production. The levies have been in place for a shorter period of time than the metals duties. And their scope has widened since the first batch went into effect in August, along with many rates having changed.

Nonetheless, here are some figures for the handful of industries for which I’m sure the numbers create a reasonably accurate picture, with each column measuring real output changes since last August.

                                        August thru March   August thru April   August thru May

overall manufacturing:       -0.45 percent           -0.96 percent         -0.75 percent

ball bearings:                     +0.22 percent          +0.11 percent        +0.01 percent

industrial heating equip:     -0.83 percent          -5.41 percent          -4.70 percent

farm machinery & equip: -11.65 percent         -10.27 percent         -7.51 percent

oil/gas drilling platform    +4.08 percent          +2.58 percent         +4.59 percent

   parts

Unfortunately, no consistent trend emerges. Two of the sectors’ improved between March and May (farm machinery and equipment, and oil and gas drilling platform parts), and two worsened (ball bearings and industrial heating equipment).

And although as long as the China tariffs continue , the future will provide results over a more statistically significant time frame, because the footprint of Chinese inputs in most of U.S. Manufacturing sectors will continue to be so broad and deep, their costs are likely to remain just as hard to discern.

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(What’s Left of) Our Economy: Tariffs-Led Wholesale Price Inflation Going, Going….

Tags

aluminum, China, inflation, metals, metals-using industries, Producer Price Index, steel, tariffs, Trade, trade war, Trump, wholesale prices, {What's Left of) Our Economy

Amid all the recent trade policy-related news, I’ve struggled (unsuccessfully) to keep up with the U.S. inflation data, but kept my nose to the grindstone this week and have now managed to scrutinize the new producer price figures (for May) in detail. These Bureau of Labor Statistics (BLS) figures contain unmistakable signs that whatever tariff-led inflation had begun to be generated in the American wholesale sector has been dramatically dissipating lately – which no doubt has much to do with continuingly weakening core inflation on the consumer side.

As usual, let’s start with the impact of President Trumps metals tariffs, which have lasted the longest (their first full month was April, 2018), and it’s easiest to identify the industries affected, since steel and aluminum-heavy sectors are pretty obvious (along with the metals themselves), and since we’re not dealing with the dependency on metals from any one trade competitor.

And a special bonus: It’s with steel and aluminum prices per se that the loss of any inflationary momentum comes through most clearly. Specifically, after rising 12.37 percent between April and their most recent (September) peak, prices for steel mill shapes fell 6.44 percent through May. As a result, they’re now 5.14 percent higher than during their first tariffs month. In their control group (the processed goods minus foods and feeds – or “core” – super-category) prices rose by 3.41 percent from April through their peak (in October), and have since declined by 2.62 percent. Consequently, they’re now 0.70 percent higher than during the first metals tariffs month.

So although in absolute terms, steel prices remain higher than those in their super-category, they peaked earlier and have come down faster.

Aluminum prices have been much weaker for much longer. After rising by 6.66 percent between April and their (latest) June peak, aluminum mill shapes prices are down by 6.53 percent. As a result, they’re now actually 0.30 percent lower than during their first full tariffs month.

Significantly, signs of markedly decelerating inflation are just as evident in numerous metals-using manufacturing sectors. In past posts on producer price trends, I looked first at industries where price increases since the metals tariffs onset had initially been faster than that for their super-category – final demand goods minus food and energy products.

The table below makes plain that a sizable, widespread slowdown has taken place. The columns show the percentage price changes between April and whichever month saw such prices hit their latest peak; and such changes for such goods since January. In every instance, the percentage changes for the latter have been much smaller than for the former. And in the cases of mining machinery and equipment and construction machinery and equipment, the slowdowns were more dramatic even than that for the super-category (which was awfully dramatic).

                                                               April to peak (month)          Since Jan.

Final demand less food and energy:       +1.73 (May, 2019)              +0.17

pumps/compressors:                               +3.82 (May, 2019)              +0.57

mining mach & equipment:                    +7.52 (April, 2019)            +0.03

construction machinery & equipment:   +5.75 (April, 2019)            +0.04

metal-forming machine tools:                +3.77 (Feb.,2019)              +0.77

But it would be reasonable to counter that four manufacturing sectors are too few to show anything conclusively. So here are results for nine more whose early inflation numbers were stronger than that of the core final demand super-category. Every single one has experienced an inflation slowdown since January, and except for railroad equipment and possibly oil and gas field machinery, all involved several orders of magnitude.

                                                                  April to peak (month)       Since Jan.

agricultural machinery & equipment:        +4.18 (April, 2019)          +0.04

tools, dies, jigs, fixtures, molds:                +2.82 (Feb., 2019)           +0.51

industrial material handling equipment:    +3.83 (May, 2019)          +0.22

oil and gas field machinery:                      +1.99 (March, 2019)       +1.01

household appliances:                               +4.53 (Feb., 2019)          +1.39

lawn & garden equipment:                        +2.19 (May, 2019)          +0.13

truck trailers:                                             +6.96 (May, 2019)          +0.81

aircraft:                                                      +2.20 (May, 2019)         +0.52

railroad equipment                                    +2.76 (March, 2019)      +2.67

For good measure, a slowdown is also occurring for metals-using industries where price increases have been relatively weak since the metals tariffs were imposed, as apparent from the table below: 

                                                                 April to peak (month)    Since Jan.

metal-cutting machine tools:                     +1.75 (May, 2019)        +0.69 

passenger cars:                                          +1.20 (Oct., 2018)         -0.30

heavy trucks:                                             +1.22 (Jan., 2019)           0.00

light trucks:                                                +2.43 (Nov., 2018)       -1.72

motor vehicle parts:                                   +0.71 (April, 2019)      +0.31

travel trailers & campers:                          +2.24 (March, 2018)    +0.42

Switch over to “intermediate demand” goods and you find a broad-based, often dramatic inflation deceleration as well – even though price increases in this super-category have accelerated!

                                                                 April to peak (month)    Since Jan.

core intermediate demand:                       +1.11 (May, 2019)         +1.26

metal containers:                                      +5.01 (May, 2019)         +2.95

fab wire products:                                  +11.49 (March, 2019)     +0.23

non-fluid power valves:                          + 4.01 (May, 2019)        +0.98

bolts, nuts, screws, rivets, washers:        +7.98 (April, 2019)        -0.43

fabricated structural metals products:     +5.10 (May, 2019)        +2.18

hardware:                                                 +5.10 (May, 2019)       +0.49

heating equipment:                                  +6.99 (May, 2019)       +1.85

fluid power equipment:                           +4.54 (May, 2019)       +1.33

mechanical power transmission equip:   +3.73 (May, 2019)      +0.40

A/C & refrigeration equip:                     +4.16 (April, 2019)     +1.37

ball and roller bearings:                          +5.85 (March, 2019)   +2.96

The first Trump China tariffs weren’t imposed until early July, so the sample size is smaller. And as previously noted, it’s relatively difficult identifying their precise effects because the list of tariff-ed sectors uses an industry classification system different from that used by BLS to monitor price changes, and the China content of these products can vary significantly. In addition, the group of tariff-ed goods have grown since then, the level of levies differs widely, and the original duties for many have been increased (not to mention the suspension of this major increase for several months earlier this year.  For the exact phases of the U.S.-China trade war until the latest – May 10 – Trump tariff increase, see here.).

But on this policy front, too, the exact same recent wholesale inflation slowdown is apparent as documented above for metals and metals-using industries. And for goods in the core intermediate demand super-category, the China tariff-affected goods have also seen produce price inflation slow as price inflation for the super-category has sped up. The only exceptions are the transformer category (where the inflation levels have been very low in absolute terms and the speed-up marginal) and possibly the oil and gas field machinery sector (where the monthly inflation rates for the two periods seem to be about the same_. Here, again, are the results for the entire August, 2018-May, 2019 period (covering the full duration of the China tariffs in toto), and for the post-January period.

                                                                              Aug.-May            Since Jan.

core intermediate demand goods:                     -1.85 percent       +1.26 percent

aircraft engines and engine parts:                    +1.32 percent       +0.35 percent

ball bearings:                                                   +4.23 percent       +2.96 percent

electric generators:                                          +2.41 percent       +0.18 percent

medical, surgical & personal aid devices:      +0.94 percent         -0.05 percent

core commodity final demand:                      +1.12 percent          0.00 percent

industrial heating equipment:                        +3.50 percent        +1.85 percent

oil and gas drilling platform parts:                +1.84 percent        +1.01 percent

farm machinery and equipment:                   +2.29 percent           0.00 percent

paper-making machinery:                             +2.92 percent         +0.88 percent

electricity transformers:                                +0.61 percent         +0.70 percent

X-ray and electro-medical equipment:         +0.35 percent          +0.12 percent

It might be an exaggeration to say “If you blinked, you missed tariffs-led inflation in the wholesale economy.” But as the above figures make clear, for now, it’s not much of an exaggeration.

(What’s Left of) Our Economy: New Fed Manufacturing Figures Show Industry is Still Nicely Withstanding the Metals Tariffs

Tags

aluminum, China, durable goods, Federal Reserve, growth, industrial production, inflation-adjusted growth, manufacturing, metals tariffs, metals-using industries, real growth, steel, tariffs, {What's Left of) Our Economy

This morning brought another poor result for U.S. domestic manufacturing – specifically, a 0.52 percent decrease in inflation-adjusted output that was its worst such performance since January’s 0.66 percent sequential decline. As a result, the temptation is to blame the Trump tariffs that have so dominated economic and business news headlines, but as usual, the data simply don’t support this claim.

Unquestionably, these new figures from the Federal Reserve point to a problem with American industry. Tariffs, however, look beside the point. Instead, the numbers reveal what looks like an April problem and an automotive problem, and especially where tariffs on metals are concerned – the major Trump-era levies that have been longest lasting, and where the affected manufacturing sectors are easiest to identify.

Here are the numbers for the economy’s chief metals-using industries. They start in April, 2018 (the first full months when the steel and aluminum levies went into effect). They show the growth rates between then and the last three data months. They include the statistics for overall manufacturing as a control group. And I’ve added two new pieces of information: the year-on-year real production changes for these sectors, and the data for durable goods manufacturing stripped of the automotive industry’s performance.

                                           Apr thru Feb   Apr thru March    Apr y/y prev  Apr y/y

overall manufacturing:          +0.48%             +0.52%              0.00%         +2.33%

durables manufacturing:       +1.31%            +1.35%             +0.40%         +2.49%

fabricated metals prods:       +2.87%            +2.72%             +2.14%         +4.44%

machinery:                           +1.49%            +1.92%              -0.69%         +4.05%

automotive:                          -1.71%             -1.93%              -4.43%          +3.07%

major appliances:                 -1.43%            -6.77%            -10.44%          +0.03%

aircraft & parts:                   +4.89%           +6.08%             +4.82%           -1.30%

durable mfg ex-automotive:  +1.82%        +1.91%              +1.21%          +2.41%

Comparing the automotive and the durables ex-automotive lines clearly shows both the automotive and April effects – with the latter suggesting the possibility of a production hiccup. Strengthening that interpretation: except for the major appliance category, nearly all the April, 2018-March, 2019 growth rates exceeded the April, 2018-February, 2019 growth rates. Moreover, the April automotive nosedive (which has taken place both on a month-on-month and year-on-year basis), is especially important because vehicle and parts production use so much in the way of machinery and fabricated metals products.

In addition, the safety issues encountered by Boeing may be responsible for the April aviation growth slowdown that may also have contributed to manufacturing’s broader woes that month.

The major appliances figures above continue to stick out like a sore thumb.  But of course, this sector has faced not only metals tariffs, but separate product-specific levies that went into effect in February, 2018.  In addition, America’s slumping housing sector has surely depressed sales and therefore production for reasons having nothing to do with tariffs.

As known by RealityChek regulars, gauging the impact of the tariffs on products from China is much more difficult for numerous reasons. Their role as inputs for manufacturing industries varies. The manufacturing classification system used by Washington for designating the tariff-ed products differs from that used for the Fed production statistics. The levies have been in place for a shorter period of time. And their scope has changed since the first batch went into effect in August.

Further, let’s not forget that the China tariff regime is due for some big changes starting in June, when President Trump has just decided that levies will rise on $200 billion worth of products from the People’s Republic. So the data below may tell us little about what to expect going forward. Here they are nevertheless for the handful of industries for which I’m sure the numbers create a reasonably accurate picture.

                                                      Aug thru Feb    Aug thu March    Aug thru April

overall manufacturing:                     -0.33%                -0.38%                -0.90%

ball bearings:                                  +0.32%                +0.25%               +0.14%

industrial heating equip:                 -2.60%                 -1.85%                -5.69%

farm machinery & equip:             -16.86%               -11.65%              -10.40%

oil/gas drilling platform pts:         +4.59%                +4.35%                +2.68%

Something of an April slump can be seen here, too (which in theory is hard to connect to the China tariffs), except for the farm machinery sector. 

The classic Wall Street sales pitch warns (eventually) that “Past performance is no guarantee of future results.” So especially considering the higher China tariffs on the way in two weeks, and the possibility that all goods imports from China will be hit by levies at some future date, predicting manufacturing’s growth performance for the rest of this year seems unusually chancy.

Yet the April figures unmistakably show (yet again) that domestic U.S. manufacturing continues to withstand the metals tariffs with ease.

Making News: New National Interest China Trade War Op-Ed Posted…& More!

Tags

aluminum, Brietbart.com, China, consumers, imports, inflation, John Carney, Making News, steel, tariffs, The National Interest, Trade, trade war, Trump, Yahoo News

I’m pleased to announce the publication of my latest op-ed article.  Posted by The National Interest today, it presents a trove of data – including from the latest U.S. monthly trade report – showing that even though the outcome of the current U.S.-China trade talks is anyone’s guess, economic disengagement between the two countries is already underway.  Moreover, the process has sped up lately under President Trump.  Here’s the link.

The article was also re-posted on Yahoo.com.

Also, it was great to see Breitbart.com‘s John Carney quote my views in his latest post debunking widespread claims that the Trump tariffs on steel and aluminum, and on products from China, have already stoked raging consumer price inflation.  Click here to read.

And keep checking in with RealityChek for news of upcoming and recent media appearances, and other developments.

 

(What’s Left of) Our Economy: Are Trump’s Metals Tariffs Starting to Backfire?

Tags

aluminum, China, Jobs, manufacturing, metals, metals-using industries, steel, tariffs, Trade, trade war, Trump, {What's Left of) Our Economy

Friday’s monthly U.S. jobs report (covering April) not only included the third straight month of weak manufacturing employment gains. It contained the first notable evidence that President Trump’s tariffs (at least on imports of steel and aluminum) contributed to a payroll slowdown.

Industry created only 4,000 new jobs sequentially in April. The February and March revisions were positive (the latter from an increase of 1,000 to 8,000, and the latter from a decrease of 6,000 to no change. But these single-digit (at best) results represented manufacturing’s poorest three-month employment performance stretch (producing a cumulative net gain of 12,000 since January) since the September-December, 2016 period (when the increase was 11,000).

At least as important, the greatest weakness came in those manufacturing sectors that most heavily use the metals for which tariffs have been imposed by Mr. Trump since April, 2018. Whereas until the April, 2019 data, these industries (the main ones are listed in the table below) were generally creating jobs at a faster pace than less metals-reliant manufacturing sectors and even the private sector economy overall, that out-performance came to an end for the industries where April figures are available.

                                                 Old thru March      New thru March      Thru April

entire private sector:                +1.78 percent          +1.79 percent      +1.98 percent

overall manufacturing:            +1.48 percent          +1.58 percent      +1.61 percent

durable goods:                         +1.85 percent          +1.92 percent      +1.92 percent

fabricated metals products:     +1.60 percent          +1.82 percent      +1.80 percent

non-electrical machinery:       +2.76 percent          +2.68 percent      +2.44 percent

automotive vehicles & parts:  +0.40 percent          +0.42 percent     +0.27 percent

household appliances:              not available           -4.10 percent      not available

aerospace products & parts:     not available          +6.56 percent      not available

In other words, as the private sector and manufacturing in general both generated greater employment increases in April than in March (the latter just barely), the metals-using sectors’ April gains were smaller than March’s, and the durable goods super-sector in which they’re all found could only match its March jobs improvement rate.

Further, one point to bear in mind about the numbers for household appliances. This sector includes the large household laundry machines that saw a separate set of tariffs imposed starting in February, 2018.

As usual, the impact of the President’s tariffs on products made in China are more difficult to judge for at least four reasons. First, an enormous number of manufacturing industries use Chinese inputs – and to greatly varying extents. Second, these levies only began in July, and then on a relatively small scale. Third, the list of products tariff-ed beginning in July matches up imperfectly at best with the sectoral classification scheme used by the Labor Department to track manufacturing employment. And fourth, most of the affected products are found in relatively narrow categories of manufactures, where the jobs data is one month behind.

To muddy the waters further, in late February, the President decided to suspend an increase slated to go into effect March 1 on tariffs that began in late September on $200 billion in imports from China. His stated reason: progress in the bilateral trade talks. The levies were to rise from 10 percent to 25 percent.

This morning, however, came another apparent about-face: Mr. Trump announced that the tariff hike suspension would end this coming Friday, and that 25 percent tariffs would go into effect on the remaining $325 billion worth of imports from China “shortly.”

So with all those provisos, here are the latest available employment statistics for some major manufacturing sectors that use the Chinese parts, components, and materials that have been slapped with tariffs since July. As far as I can tell, no clear trend jumps out.

                                July-Feb     Old July-March    New July-March    July-April

private sector:     +1.11 percent   +1.24 percent      +1.25 percent     +1.44 percent

overall mfg:        +1.00 percent   +0.90 percent      +1.00 percent     +1.03 percent

aircraft engines   +0.93 percent    not available       +1.39 percent      not available

  & engine parts:

industrial            +2.46 percent    not available       +2.46 percent      not available 

  heating equip:

oil & gas            +5.83 percent    not available       + 6.11 percent     not available

  drilling platform parts:

farm mach         +1.67 percent     not available       +0.33 percent     not available

   & equipment:

ball bearings:    +1.82 percent     not available       +1.42 percent      not available

Anyone seeking to evaluate the economic effects of the Trump tariffs in a serious manner should recognize that a useful verdict may not be visible for years. But all trends (and their reversals) begin at specific points in time. Further, until the release of the April jobs numbers, tariff supporters could easily demonstrate that the apocalyptic predictions of tariff opponents had not yet come close to appearing. At least for now, that particular case has become somewhat harder to make.

(What’s Left of) Our Economy: Manufacturing’s Productivity Leaders Continue to Surprise

Tags

aerospace, aluminum, appliances, Bureau of Labor Statistics, durable goods, labor productivity, manufacturing, non-durable goods, pharmaceuticals, productivity, semiconductors, steel, {What's Left of) Our Economy

One of my favorite sets of U.S. government statistics came out this morning – “Productivity and costs by industry: manufacturing and mining industries.” However boring it sounds, it’s useful because it sheds lots of light on which specific sectors within domestic American manufacturing should be seen as winners and losers or “industries of the future” (presumably the productivity stars) versus smokestack and other allegedly outmoded types of activity (the productivity laggards).

In addition (and this will be covered in an upcoming post), these detailed figures on manufacturing labor productivity (the narrowest of the two types of productivity tracked by the feds, but the measure that comes out on the timeliest basis) go far toward showing whether job loss in manufacturing lately has mainly been due to trade and globalization, or to industry’s improved efficiency. This debate of course has long been near or at the heart of the broader, decades-long debate about the effectiveness of American trade policies.

First let’s look at the overall numbers – which are anything but flattering to manufacturing. According to the Bureau of Labor Statistics (which compiles these data), in 2018, when manufacturing’s labor productivity as a whole rose by 0.80 percent, it fell in absolute terms in 67 out of the 86 sectors examined. That was a worse performance than in 2017. Even though that year, overall manufacturing labor productivity improved by slightly less (0.70 percent), it decreased in 54 of those 86 industries.

Broken down by super-categories, in 2018, in the 51 durable goods industries followed by the Bureau, labor productivity declined in 41. In the non-durables super-sector, labor productivity dropped in 26 of 35 sectors studied. For 2017, the comparable numbers were 34 of 51 and 20 of 35, respectively.

Even more interesting, in my view, are the results for these 86 individual industries. First, the ten best labor productivity performers in 2018 and their annual percentage gains. As you’ll see, the list that isn’t exactly dominated by advanced technology, at least according to the most popular definitions and portrayals. (FYI, “magnetic media” are a fancy name for products like audio tapes and compact disks – which this aging baby boomer is constantly told are hopelessly outdated.)

magnetic media mfg & reproducing:               +9.1 percent

computer & peripherals mfg:                          +7.7 percent

leather/hide tanning & finishing:                    +6.5 percent

grain & oilseed milling:                                  +5.3 percent

miscellaneous textile product mills:               +5.2 percent

turbine & power transmission equip:             +4.6 percent

resin, rubber, & artificial fibers:                    +3.5 percent

cut and sew apparel:                                      +3.2 percent

agricultural chemicals:                                  +2.2 percent

miscellaneous transport equip:                      +2.1 percent

And here’s a list of the 2018’s ten worst labor productivity performers. Most appear to be “lower tech.” But look at aerospace at Number Five! That’s the economy’s biggest trade surplus winner! The huge automotive sector had a terrible labor productivity year, too.

lime & gypsum products:                             -11.8 percent

textile fabric & finishing mills:                    -11.3 percent

motor vehicle bodies & trailers:                  -10.1 percent

sawmills & wood preservation:                    -9.5 percent

aerospace products & parts:                         -8.1 percent

petroleum & coal products:                         -7.8 percent

motor vehicles:                                            -7.6 percent

sugar & confectionary products:                 -7.1 percent (tie)

apparel knitting mills:                                 -7.1 percent (tie)

audio & video equipment:                           -6.9 percent

beverages:                                                    -6.1 percent

Finally, here are some labor productivity numbers for some manufacturing sectors of special interest. Pharmaceuticals seems a logical choice to kick it off, given the role that healthcare and drug-pricing issues have been playing lately in national policy and political debates. Its 2018 labor productivity fall-off indicates that if the industry improved its efficiency, it wouldn’t need such sky-high prices for many of its products to achieve what it considers adequate profitability. 

pharmaceuticals & medicines:                    -3.4 percent

iron & steel mills & ferroalloys:                 -2.4 percent

alumina & aluminum production:               -2.3 percent

household appliances:                                +1.6 percent

The next three sectors have been prominent in trade policy controversies. The two metals sectors faltered on the labor productivity front last year. (In 2017, both produced considerably better results). But if you look at their labor compensation costs (also provided in today’s productivity release), you’ll see that they’ve at least shared many of the benefits of the protective tariffs they’ve received with their workforces.

Such compensation rose by 7.2 percent for iron and steel-makers, and five percent for the aluminum industry. Both increases handily beat the 1.70 percent average for all manufacturing, and the 1.40 percent for durable goods production.

Household appliances – which include tariff-ed large household laundry machines) – turned in the opposite performance. Labor productivity was up at a relatively strong pace. But labor compensation was off by 2.20 percent. (Even more unusual, its labor productivity fell in 2017, while labor compensation surged.)

Finally, let’s examine the semiconductor sector, since it’s commonly described as a main “building block” of the entire high tech portion of the American economy. In 2018, its labor productivity fell (by 1.20 percent) – and for the third straight year. But here, labor compensation was way up (by 5.60 percent).

Intellectually honest economists will admit that measuring productivity is one of their most challenging tasks. But it’s also inescapable.  And the new detailed manufacturing labor productivity data make clear that identifying the nation’s most and least valuable and promising manufacturing industries remains just as challenging. 

(What’s Left of) Our Economy: Why Tariffs are Off the Hook for Manufacturing’s Slowdown

Tags

aluminum, China, Federal Reserve, industrial production, inflation-adjusted growth, metals, metals-using industries, real growth, steel, tariffs, Trade, Trump, {What's Left of) Our Economy

Here’s all you need to know to recognize that domestic U.S. manufacturing is experiencing some kind of slowdown: Today’s real output numbers from the Federal Reserve showed that production flat-lined on month in March. And that was a significant improvement from the comparable February figure – a 0.37 percent drop!

So do these dreary results mean that tariff fear-mongers are finally right to claim that President Trump’s levies on imports of steel and aluminum, and on a wide range of goods from China are backfiring on American industry? Not according to the internals.

As has been the case for months, the most convincing evidence comes from the metals-using industries. After all, the tariffs affecting their products have been in place longer. (April was the first full month in which they were in effect.) The most relevant industries are easy to identify. And because (with despite numerous exemptions) the tariffs have been virtually worldwide in scope, there’s no need to wonder whether how extensively the steel and aluminum in question are being supplied by an individual country or even group of countries.

The table below presents the inflation-adjusted output changes in major metals-using industries from April through each of the Fed’s last three data months. This format differs from that used in my previous industrial production-related posts because late last month the Fed released a set of revisions going back to 2015. So rather the old and new figures for the previous data month aren’t comparable anymore, and I simply decided to use the new figures going back three months.

                                            April thru Jan.      April thru Feb.     April thru March

overall manufacturing:      +1.20 percent        +0.83 percent         +0.82 percent

durables manufacturing:   +2.05 percent        +2.05 percent          +1.96 percent

fabricated metals prods:   +3.53 percent        +3.08 percent          +2.85 percent

machinery:                       +4.33 percent         +2.24 percent         +2.71 percent

automotive:                      – 2.84 percent         -0.58 percent          -3.06 percent

major appliances:             -1.83 percent          -1.30 percent         -5.62 percent

aircraft and parts:            +5.45 percent         +6.15 percent         +7.43 percent

An overall manufacturing slowdown is apparent from the February and March columns in the top line. And the second line shows that it’s impacted durable goods to a slightly greater extent – a possible signal of a tariff effect since that’s the super-category in which the main metals-using sectors are located.

But tariff-mageddon claims, as has been the case so far, falter upon looking at the details. First, they’re not very consistent with the volatility much of this data display. (E.g., automotive and appliances.) Second, over the past month, the big machinery sector (which provides equipment serving many different markets) has gained momentum. And aircraft and parts-making just keeps growing faster and faster. (Of course, its performance will likely become a drag on manufacturing output going forward because of Boeing’s 737 Max problems and the damage that will harm not only aircraft production, and possibly the industry’s entire supply chain.)

If tariffs are becoming a challenge for these industries, it’s clear that their impact is being swamped by other influences on their performance – especially the distinctive characteristics and status of their individual markets.

Unfortunately, all of the reasons for considering these metals tariffs-related conclusions compelling cut the opposite way when it comes to evaluating the China levies’ impact. The first full month when the earliest were in place was only August. And identifying industries most plausibly affected is difficult both because the tariff list and the industrial production data use different manufacturing classification schemes, and because of the challenge of figuring out where tariff-ed Chinese products play crucial roles in American industry (in the form of parts, components, materials, and other intermediate goods).

As a result, the bottom line remains that only a handful of manufacturing industries look like strong candidates for producing any kind of a China tariff effect, and most of these suffer from one of the above complications. Sharp-eyed RealityChek regulars will notice that I’ve added oil and gas drilling platform parts to the list:

                                            Aug. thru Jan.       Aug. thru Feb.      Aug. thru March

overall manufacturing:      +0.29 percent         -0.08 percent          -0.09 percent

ball bearings:                     +0.27 percent        +0.19 percent         +0.11 percent

industrial heating equip:     -3.61 percent         -3.39 percent         -5.27 percent

farm machinery & equip:  +2.22 percent       -17.14 percent        -11.65 percent

oil/gas drilling platfm pts: +4.74 percent        +4.59 percent         +4.36 percent

The overall manufacturing slowdown is apparent from these statistics, too. But so is a bewildering range of results, along with a small sample size. Whatever problems American industry might now be facing, the case that tariffs bear much, if any, blame has yet to be supported by these or any other data.

(What’s Left of) Our Economy: Signs That No Tariffs-Led Inflation is the New Norm

Tags

aluminum, Bureau of Labor Statistics, China, consumer price inflation, inflation, metals tariffs, steel, tariffs, Trade, {What's Left of) Our Economy

With inflation in the United States still running below the Federal Reserve’s target lately, it’s been difficult enough for tariff fear-mongers to claim that President Trump’s levies on metals and on many Chinese-made goods are setting prices throughout the economy – or even in directly affected sectors – on fire. Yesterday, with a new month’s worth of consumer price data from the Bureau of Labor Statistics, it’s become practically hopeless.

In fact, the big takeaway is that these March data closely resemble February’s. The only significant evidence of steel and aluminum tariffs-led inflation is found in canned fruits and vegetables – where it’s far from airtight – and in large household appliances, which include large laundry machines which have faced their own additional set of tariffs since early 2018. When it comes to products impacted notably by the China tariffs, the price changes are once more all over the board – which strongly indicates that the tariffs themselves haven’t been in the inflation driver’s seat.

As usual, the first table in these monthly consumer inflation analyses presents the price changes for metals-using products. They deserve pride of place for now because they’ve been in effect for more than a year, and because it’s easy to identify metals-using products.

Before zeroing in on the canned stuff, it’s worth mentioning that I found one more data point yesterday morning – inflation numbers for laundry equipment specifically. Some of these products could be the machines used by commercial cleaning operations as opposed to households, but they do sharpen the picture some. In addition, keep in mind that, since so many of the products affected by the metals and China tariffs are food products, the “core inflation” control group figures I’m using measure price changes minus energy – as opposed to the most widely use core data, which strip out both food and energy.

But back to the steel- and aluminum-related figures: Here they are for the February-March, 2019 period (the latest monthly numbers), and for last April to the present (the stretch during which the metals tariffs have been in place), as well as the year-on-year numbers for last April and this March (which provide some indication of trends over time). As usual, the results for tariffs-affected products (e.g., canned foods) are presented along with those of control goods (e.g., non-canned foods) to glean further insights into the tariffs’ effects.

                                 Feb.-March      Since April      y/y April            y/y March

core inflation:        +0.17 percent   +1.93 percent   +2.01 percent   +2.05 percent

fresh fruits             +1.56 percent   +3.55 percent    -0.43 percent   +4.25 percent

& vegs:

fresh fruits:            +1.21 percent   +0.65 percent   +1.38 percent   +1.37 percent

fresh vegetables:    +1.97 percent   +6.98 percent   -2.50 percent   +7.66 percent

processed fruits      +1.57 percent   +1.68 percent   -0.44 percent   +2.72 percent

& vegs:

canned fruits          +1.74 percent    +5.20 percent   -0.14 percent   +6.01 percent

& vegs:

canned fruits:         +3.02 percent    +4.99 percent   -1.60 percent   +8.60 percent

canned vegs:          +1.26 percent    +4.63 percent  +1.00 percent   +5.04 percent

soups:                     -1.33 percent     -0.16 percent    -0.38 percent   +0.54 percent

malt beverages       -0.62 percent    +1.77 percent   +0.84 percent   +1.84 percent

at home:

alcoholic                +0.20 percent    +1.34 percent   +2.17 percent   +1.46 percent

beverages away:

non-frozen, non-    -0.15 percent    +3.30 percent    -0.52 percent    +3.03 percent

-carbonated non-

alcoholic drinks:

carbonated drinks: +0.69 percent    +5.44 percent   +0.04 percent    +5.44 percent

juices & non-         +0.02 percent    +4.17 percent    -0.26 percent    +4.01 percent

alcoholic drinks:

new cars/trucks:    +0.46 percent     +1.13 percent    -1.61 percent    +0.74 percent

motor vehicle        +0.25 percent     +2.08 percent    -0.74 percent    +1.79 percent

parts:

appliances:             -0.76 percent     +2.80 percent   +0.27 percent    +4.83 percent

major appliances:   -2.02 percent     +4.59 percent   +1.55 percent    +8.80 percent

laundry                   -1.02 percent    +0.65 percent  +10.00 percent    +2.80 percent

equipment:

non-electric            -0.76 percent      -0.59 percent    -1.45 percent     -1.56 percent

cookware & tableware:

tools, hardware,     -0.63 percent      +0.86 percent   +0.19 percent    +1.22 percent

outdoor equipment:

The various fruits and vegetables results make a reasonable case that companies in those sectors have been able to pass along some hefty price increases for canned products to consumers. Specifically, except for the April year-on-year changes, all of the figures for canned fruits and canned vegetables show considerably faster price increases than for fresh fruits and vegetables, and even for their processed counterparts (some of which go into frozen or jarred, not canned, products).

It’s true that fresh produce prices as a whole have generally been rising much faster than core prices. But in their canned form, their prices take another big jump up – strongly indicating that something about the canning matters greatly. Moreover, even though the inflation rate in fresh vegetables is leaving in the dust that for fresh fruits, the canning effect is very apparent for fruits as well, especially over time.

It’s also true that the canning effect is much less pronounced for other food groups – like soups and beverages. But here the data is less definitive, largely because these inflation figures also include products sold in forms other than metal cans. And as observed in previous posts, the markets for these products tend to differ significantly as well – which inevitably impacts pricing power.

Yet this March, a generalized “metals-effect” argument once more falls apart upon examining the price trends in non-food products, whether for motor vehicles and their parts; household cookware and tableware; and tools, hardware, and outdoor equipment. Obviously other developments, and perhaps many other developments are playing bigger roles.

The glaring exception is in those double-tariffed laundry machines. Even here, however, that new laundry equipment category I just found reveals major year-on-year price deceleration between last April (ten percent) and this March (2.80 percent). And the March monthly prices were weak across the board in appliances.

The China tariffs continue to present an even more complicated picture for at least three reasons. First, for the following consumer products, last October was the first full month they were in effect. Second, the goods on the U.S. Trade Representative’s list for those levies are categorized using the different classification system than that used by the Bureau of Labor Statistics to gauge prices. As a result, the match-ups are far from exact. And third, the China-specific price effects for different products can be differ dramatically – according to the scale of the Chinese presence in a particular product market.

Nonetheless, here’s the China data for February-March, since last October, and for October and March year-on-year.

                                   Feb.-March         Since Oct.        Oct. y/y           March y/y

core inflation:          +0.17 percent    +0.99 percent   +2.02 percent    +2.05 percent

food:                        +0.28 percent    +1.45 percent   +1.21 percent   +2.12 percent

frozen/freeze-          +1.18 percent     -0.72 percent    -0.46 percent    -0.59 percent

dried prepared  foods:

fish/seafood:             -1.04 percent     +0.79 percent   +2.82 percent  +2.70 percent

processed fish/          -0.51 percent     +0.40 percent   +1.46 percent  +2.76 percent

seafood:

frozen fish/seafood:  -0.46 percent    +0.78 percent    -0.15 percent   +3.29 percent

fruits/vegs:                +1.57 percent    +3.43 percent    -0.32 percent   +3.91 percent

fresh fruits/               +1.56 percent    +3.71 percent    -0.38 percent   +4.25 percent

vegetables:

fresh fruits:               +1.21 percent    +2.51 percent    -1.40 percent   +1.37 percent

fresh vegs:                +1.97 percent    +5.07 percent   +0.81 percent   +7.66 percent

processed                  +1.57 percent    +2.37 percent    -0.06 percent   +2.72 percent

fruits/vegs:

frozen fruits/vegs:    +0.76 percent   +0.25 percent     -2.72 percent   -1.26 percent

non-carbonated/        -0.15 percent   +1.91 percent     +1.23 percent  +3.03 percent

non-frozen juices/drinks:

personal care             -0.27 percent   +0.64 percent     +1.52 percent  +1.25 percent

products:

household                  -0.04 percent   +0.74 percent    +0.69 percent   +1.46 percent

furnishings:

recreation goods:       -0.74 percent   -1.55 percent     -3.51 percent    -7.28 percent

men’s sportswear:      -1.04 percent   -2.54 percent    +1.47 percent   +1.98 percent

women’s                   +2.90 percent   +0.35 percent     -5.08 percent   -1.55 percent

sportswear:

computers,               +0.54 percent    -1.17 percent     -4.09 percent   -3.30 percent

peripherals, etc.:

window/floor           +0.44 percent    -1.96 percent    +0.74 percent   -1.83 percent

coverings:

furniture &              +0.17 percent    +1.38 percent    +1.26 percent   +3.27 percent

bedding:

appliances:               -0.76 percent     -0.58 percent    +4.82 percent   +4.83 percent

major appliances:    -2.02 percent      -0.34 percent   +8.08 percent   +8.80 percent

laundry equipmt:     -1.02 percent     -5.05 percent  +10.00 percent   +8.76 percent

misc appliances:      -0.29 percent     -1.33 percent    +3.25 percent   +2.56 percent

non-electric             -0.76 percent     -0.49 percent     -0.51 percent    -1.56 percent

cookware/tableware

tools/hardware        -0.63 percent    +1.27 percent     +0.39 percent   +1.22 percent

& outdoor equipment:

household               +0.83 percent    +1.24 percent    +1.79 percent    +3.33 percent

cleaning products:

televisions:              -4.20 percent   -10.91 percent   -17.95 percent   -19.28 percent

misc video equip:    -0.03 percent    +4.41 percent     -3.87 percent    +1.79 percent

pets & pet               +0.26 percent    +1.76 percent    +0.91 percent    +2.81 percent

products:

sporting goods:      +1.00 percent    +3.04 percent    +1.71 percent    +0.25 percent

photo equipment     -0.05 percent    -1.29 percent      -4.94 percent    -5.70 percent

& supplies

sewing machines/   +2.51 percent +12.51 percent     -2.08 percent  +10.32 percent

fabrics:

motor vehicle          +0.25 percent   +1.27 percent    +1.25 percent    +1.79 percent

parts:

tires:                        +0.15 percent   +2.28 percent    +0.03 percent    +1.08 percent

stationery/               +0.28 percent   +4.53 percent     -6.48 percent     -0.01 percent

gift wrap:

Even in sectors with a prominent Chinese presence, like apparel of consumer electronics, any kind of price-hiking tariff effect is elusive, at very best. In fact, in virtually all the products below, inflation has been decidedly weaker than in the core control group, and deflation is apparent in many.

Comparing the two year-on-year figures does reveal some accelerating inflation (or weakening deflation). This is especially clear in the food-related categories (including the broad food control group) and in some non-food segments (like household furnishings, men’s and women’s sportswear, computers and peripherals, furniture and bedding, stationery, sewing machines and fabrics). But softening prices can be seen in recreational goods, sporting goods, personal care products, window and floor coverings, televisions, miscellaneous appliances, and several others.

Since these tariffs-related price data began coming in, I’ve been saying that although inflationary effects haven’t yet shown up, they could always appear in the coming months. Roughly a year after the metals tariffs have been in place, it’s now time to start suggesting that the no tariff-led inflation situation is becoming the New Norm.

(What’s Left of) Our Economy: Hold the Gloating on Tariffs and Manufacturing Jobs

Tags

aluminum, China, Jobs, manufacturing, metals tariffs, metals-using industries, steel, tariffs, Trade, Trump, {What's Left of) Our Economy

Even though today’s March U.S. jobs figures overall improved dramatically on their February counterparts, the employment story in domestic manufacturing remained remarkably similar: Generally speaking the results were dismal. But the internals still don’t reveal any connection with President Trump’s tariff-heavy trade policies.

Let’s start by reviewing the manufacturing-wide March jobs performance. Industry’s payrolls dropped by 6,000 month-to-month – their first such decrease since July, 2017’s 3,000 dip. At least as bad, the weak 4,000 sequential jobs gain initially reported for February was revised down to 1,000.

As a result, March’s 209,000 year-on-year employment increase in manufacturing was the sector’s worst annual advance since February, 2018’s 206,000 net drop.

But the tariff-test effect can only be seen upon examining the results for the manufacturing sectors most heavily affected. The best evidence comes in metals-using industries. That’s partly because Mr. Trump’s steel and aluminum tariffs marked their first birthday in March and now we have data (though still preliminary) for eleven months of their first year in effect. But it’s also because the jobs data so precisely tracks trends in those sectors.

The first table below presents the results since last April – the first full month during which the tariffs were imposed – for leading metals-using sector. As has been the case consistently during the metals tariffs era, the latest figures show that most of the metals-using industries (three out of five) have out-hired the manufacturing as a whole (non-electrical machinery, fabricated metals products, and aerospace through February) and two (non-electrical machinery and aerospace through March) have created jobs at a faster pace even than the entire private sector.

The big automotive sector, of course, is a noteworthy laggard on both scores, and suffered an especially bad March. Appliances are dealing with not only metals tariffs, but separate levies on household washing machines. But in terms of momentum, fabricated metals products (whose payrolls exceed automotive’s) have held their own, and non-electrical machinery (which also employs more than motor vehicles and parts makers) has actually picked up the pace.

So because the industries most seriously affected by metals tariffs have generated such disparate employment results, blaming the metals tariffs for whatever problems they’ve been displaying seems unjustified. Clearly, their performance is explained by many other, including many other more important, factors.

                                                     Old thru Feb       New thru Feb       Thru March

entire private sector:                  +1.64 percent      +1.64 percent       +1.78 percent

overall manufacturing:              +1.58 percent      +1.53 percent       +1.48 percent

durable goods:                           +2.04 percent      +1.94 percent      +1.85 percent

fabricated metals products:       +1.60 percent      +1.60 percent      +1.60 percent

non-electrical machinery:         +2.82 percent      +2.71 percent       +2.76 percent

automotive vehicles & parts:   +1.11 percent       +1.04 percent       +0.40 percent

household appliances:               not available        -3.63 percent        not available

aerospace products & parts:      not available      +6.40 percent         not available

The same range of employment results emerges from the manufacturing sectors that seem to be most seriously impacted by the Trump administration’s tariffs on imports from China. But much less confidence should be placed in these figures for three reasons. The first levies imposed have only been in place since last July. The match-ups between the products on that first tariff list and the categories tracked by the Bureau of Labor statistics are much less exact. And statistics for many of these categories are available only through February.

Nonetheless, here’s the best I could come up with. And this month, I’ve added overall private sector data, plus two more items I could identify from that first tariff list, to provide one more point of comparison.

                                                             Old July-Feb   New July-Feb   July-March

entire private sector                           +1.10 percent   +1.10 percent   +1.24 percent

overall manufacturing                       +1.00 percent   +0.94 percent   +0.90 percent

aircraft engines and engine parts:      not available    +0.93 percent    not available

industrial heating equipment:            not available    +2.35 percent    not available

oil and gas drilling platform parts:    not available    +5.97 percent    not available

farm machinery and equipment:        not available    +1.83 percent   not available

ball bearings:                                     not available    +1.54 percent   not available

med/surgical/personal aid devices:   not available    +1.34 percent   not available

X-ray & electro-medical equip:        not available    +2.91 percent   not available 

If anything, when it comes to employment, the China-affected sectors have outperformed the rest of manufacturing and the overall private sector to an even greater extent than the metals-using sectors. (Interestingly, moreover, all these China-affected sectors are heavy metals users as well – so like appliances, they’re impacted by two sets of tariffs.)

So it’s starting to look like President Trump, and the economy as a whole, are looking at diminishing domestic manufacturing jobs mojo. But so far, his trade policy doesn’t belong on the list of culprits.

(What’s Left of) Our Economy: More Signs That U.S. Metals’ Tariffs are Winning

Tags

aluminum, China, metals, overcapacity, steel, tariffs, Trade, transshipment, Trump, World Steel Association, {What's Left of) Our Economy

As known by readers of RealityChek, President Trump’s tariffs on metals have worked out impressively since their imposition in March, 2018. Specifically, domestic output in tariff-ed steel and aluminum has rebounded impressively, and employment has increased, too. Price inflation has been contained. And partly as a result, production and hiring in the metals-using sectors widely predicted to become major victims of these levies generally have outperformed that of the rest of American industry.

But looking at steel production around the world provides additional evidence of the tariffs’ success – and especially of the administration’s widely assailed decision to apply them across-the-board (which numerous product-specific exemptions to be sure) rather than confine them to China. President Trump’s critics argued (correctly) that it was China whose bloated, government-subsidized output was mainly responsible for distorting global steel trade flows and output patterns.

But the Trump administration and domestic steel producers justified the comprehensive approach by claiming that many other steel-making countries were compensating for Chinese pressure on their own steel sectors by ramping up their exports to the wide open U.S. market, or permitting Chinese steel to be sent to the United States after passing through their ports, or some combination of the two (a practice known as transshipment).

The evidence for success on this crucial front comes from the World Steel Association (WSA), an international industry group that claims its members combine to turn out 85 percent of global output. (So there’s no reason to suppose that its findings are unduly influenced by the tariff-supporting domestic U.S. steel sector.)

Each month, the WSA releases steel output data (in volume terms) for 64 countries that it claims account for 99 percent of world production. And as you can see from the table below (calculated from the statistics found here), a stunning change has taken place in global output patterns since the American tariffs’ onset.

Chiefly, the month before the tariffs began, both Chinese steel production and global steel production were both growing considerably faster than America’s on a year-on-year basis. This past February (the last month for which data is available), Chinese output was still outgrowing the world’s as a whole – but so was U.S. steel production.

And as is evident, the American industry has consistently outperformed its collective global counterpart – as well as Chinese steel-makers for the most part – for several months. The clear implication: Because the tariffs have been worldwide in scope, they’ve shut down opportunities for other countries to cope with the China problem at America’s expense.

The figures also demonstrate that Chinese steel output remains feverish despite Beijing’s numerous promises of restraint and capacity cuts. But as long as the other steel-producing countries – many of which are clearly getting squeezed as a result – keep foot-dragging on cooperative efforts to end the Chinese world steel glut, the universal Trump tariffs will keep the United States in the enviable position of being able to say, “Not our problem,” and “mission accomplished.”

Steel output y/y    Feb.        Jan.       Dec.       Nov.       Oct.       Sept         Feb. 18

World                  +4.1%   +1.0%    +4.2%     +5.8%    +5.8%    +4.4%      +3.5%

China                  +9.2%    +4.3%    +8.2%    +10.8%   +9.1%    +7.5%     +5.9%

US                      +4.6%  +11.0%   +12.4%   +11.8%  +10.5%    +9.0%     +0.4%