(What’s Left of) Our Economy: Worsening Automotive Recession Drives Down Manufacturing Output

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aluminum, automotive, Federal Reserve, industrial production, inflation-adjusted output, manufacturing, manufacturing production, recession, steel, tariffs, Trade, Trump, vehicles, {What's Left of) Our Economy

According to the Federal Reserve’s new industrial production figures, a sharp automotive drop-off in July helped pull real U.S. domestic manufacturing output down on month (by 0.06 percent) for the third time this year. Since May, 2015, sector’s inflation-adjusted production is down 2.33 percent – a period much longer than the two-consecutive-quarter definition of recession. July’s annual automotive real output decrease (4.98 percent) was the biggest since September, 2009’s 7.21 percent. And the sector’s 3.64 percent sequential output fall was its biggest since August, 2015’s 3.82 percent.

The vehicle sector performed even worse. Its year-on-year July constant dollar production plunge (9.20 percent) was its greatest since August, 2009 (12.54 percent). And vehicles’ July monthly after-inflation production slide (5.92 percent) was the steepest since August, 2015’s 6.31 percent. Largely as a result, July’s real vehicles production was the lowest monthly total since October, 2014.

With President Trump postponing his decision on tariffs for the import-battered steel and aluminum sectors, their price-adjusted production remained weak in July. The former’s sequential real production slumped by 1.50 percent, and although the annual figure rose by a strong 5.50 percent, the sector is still nearly 20 percent smaller in real terms than at the last recession’s onset. The latter’s July monthly real output inched down while growing slightly on a year-on-year basis, but this industry remains less than half its size when the recession struck. Indeed, for the entire manufacturing sector, after-inflation production in July was down four percent from the level hit as the recession broke out – back at the end of 2007.

Here are the manufacturing highlights of the Federal Reserve’s new release on July industrial production:

>The worst U.S. real automotive production performance in many years – especially in vehicles – helped pull the nation’s after-inflation manufacturing output down 0.06 percent on month in July. Although small, the sequential decline was the third so far this year.

>Leading the way was an automotive sector that had led manufacturing’s strong rebound from a deep recessionary dive.

>Combined vehicles and parts output sank by 3.64 percent on month in July, its biggest such downturn since August, 2015’s 3.82 percent.

>Year-on-year, constant dollar total automotive output was down in July by 4.98 percent – the worst such deterioration since September, 2009’s 7.21 percent.

>Largely as a result, real automotive production in July hit its lowest level since June, 2015.

>The automotive output drop in turn was led by vehicles. Final price-adjusted production in this sector plunged by 5.92 percent sequentially in July – its worst output month since August, 2015 (6.31 percent).

>The year-on-year figures for vehicles were much worse. Compared with the previous July, they plummeted by 9.20 percent – the biggest such decline since August, 2009 (12.54 percent).

>Largely as a result, as of July, real vehicle output stood at its lowest level since October, 2014.

>The new Fed figures also show that the American steel and aluminum industries continue to pay a price for floods of imports widely thought to benefit from government subsidies – and from the Trump administration’s hesitation to impose tariffs.

>July iron and steel production decreased on month by 1.50 percent in real terms. The 5.50 percent year-on-year result was much better, but was helped by favorable comps.

>Moreover, the steel sector’s real output is still 19.70 percent smaller than at the last recession’s onset – more than eight years ago.

>July primary aluminum production declined on month by 1.02 percent, but advanced by 2.90 percent on year.

>Yet primary aluminum production is down 53.49 percent since the last recession began.

>In fact, since that December, 2007 watershed, U.S. manufacturing’s output is down by four percent – meaning that it still hasn’t recovered from the recession.

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(What’s Left of) Our Economy: New Fed Figures Support Case for U.S. Steel and Aluminum Tariffs

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aluminum, capacity utilization, Federal Reserve, Great Recession, imports, industrial production, inflation-adjusted output, iron and steel products, manufacturing, primary aluminum products, recovery, steel, subsidies, tariffs, Trade, {What's Left of) Our Economy

Today’s Federal Reserve industrial production figures contain data supporting claims that the American domestic steel and aluminum industries face heavy global competitive pressures rooted in predatory trade practices that require vigorous responses.

According to the new data, which update the U.S. manufacturing picture through June on a preliminary basis, inflation-adjusted output for all American factories rose by 0.19 percent month-to-month, and by 1.36 percent year-on-year.

Real production of iron and steel products fell by 0.51 percent sequentially in June, and are up by just 0.47 percent on year. For primary aluminum products, the figures are better: monthly after-inflation output improved by 0.26 percent, and it advanced by 1.79 percent over the June, 2016 levels.

Longer term, though, the trends in these two sectors, and in U.S. domestic industry as a whole, have diverged sharply. Since the Great Recession officially broke out, the Federal Reserve data show that American manufacturing’s constant dollar output still hasn’t fully recovered. Indeed, it’s still down by 4.03 percent.

But real iron and steel products production is still 18.55 percent lower than at the recession’s onset – more than nine years ago. Inflation-adjusted primary aluminum production stands at less than half its December, 2007 levels, having plummeted by 53.01 percent.

The plight of steel and aluminum is also apparent from the capacity utilization figures. For all of domestic American manufacturing, utilization rates were 75.88 percent. That’s 3.72 percent below the last pre-recession level of 78.81 percent.

For iron and steel products, the drop has been much steeper – capacity utilization is down 21.47 percent from its December, 2007 level of 92.11 percent. And although the latter level looks unusually high, it had been achieved regularly by these producers during previous decades.

The Fed doesn’t keep capacity utilization figures for aluminum. But statistics for the broader primary metals sector indicate that its fate has been nearly as bad. Capacity utilization since the end of 2007 has sunk from 83.52 percent to 68.24 percent – an 18.30 percent plunge.

As widely reported, this deterioration has coincided – at the very least – with an explosion in the production and export of subsidized steel and aluminum from China. As has been much less widely reported, U.S.-based producers have borne the brunt of the costs. Although comparable numbers are not available for aluminum, the American share of the global steel market has fallen by considerably more during the current economic recovery than the shares of other steel-production countries and regions. In addition, the United State runs by far the world’s biggest steel trade deficit.

It’s still unclear whether or not President Trump will decide to impose any national security-related tariffs on steel imports, which countries’ shipments will or won’t be hit, or what other measures he might approve if the tariff route is rejected. But it’s all too clear that without significant action from Washington, two more important American manufacturing sectors could needlessly fall victim to foreign trade and broader economic policies having nothing to do with either free trade or free markets.

(What’s Left of) Our Economy: What’s Really Wrong with Obama’s Aluminum Trade Case

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aluminum, Fareed Zakaria, Obama, overcapacity, subsidies, Trade, Trump, U.S. Trade Representative, USTR, Washington Post, World Trade Organization, WTO, {What's Left of) Our Economy

What’s most laughable about the Obama administration’s new World Trade Organization (WTO) challenge against China’s subsidies to aluminum producers isn’t the decision to file the complaint with just over a week left in office (although admittedly that’s pretty laughable). What’s most laughable is the continuing belief that the WTO is an effective instrument for fighting such predatory trade practices.

After all, as claimed by a U.S. industry leader in a statement cited by the U.S. Trade Representative’s (USTR) office itself, “China’s subsidies have done enormous damage to the U.S. and global aluminum industries.” USTR’s press release, moreover, goes on to present data making clear that the PRC’s state-supported overcapacity building dates back to at least 2007, and that private sector American rivals that need profits have been forced to respond to the resulting global price crash by dramatically slashing both production and capacity.

It’s bad enough, as USTR admits, that President Obama’s main response until yesterday was completely ineffectual “engagement” with Beijing in various official bilateral talk shops. Mr. Obama allegedly even brought up the subject with Chinese president Xi Jinping last September. The results, according to USTR? “[W]hile China has expressed a willingness to continue talking about the excess aluminum capacity situation….China has not been willing to take concrete steps to address it.”

And now, with the number of aluminum smelter in the United States having fallen from 14 to five since 2011 – “with only one operating at full capacity” – the administration has decided to begin a WTO process that could take 15 months (counting appeals) to complete and, if Washington wins, authorize countervailing tariffs. Further, if Beijing loses and promises to end its aluminum transgressions, the United States will be faced with the probably insuperable challenge of monitoring compliance by China’s highly secretive bureaucracies.

This morning, Washington Post and CNN pundit Fareed Zakaria wrote that “Chinese elites” he’s recently met with are “remarkably sanguine about [President-elect] Trump” and his attacks on Beijing’s trade-related economic practices. If the incoming president relies heavily on the WTO to fight China’s predation, their complacency will be amply justified.