(What’s Left of) Our Economy: The Tariff-Induced Carnage in U.S. Metals-Using Manufacturing is Still MIA

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appliances, automotive, durable goods, fabricated metal products, Federal Reserve, industrial production, machinery, manufacturing, metals tariffs, metals-using industries, tariffs, Trade, Trump, washing machines, {What's Left of) Our Economy

The July figures for after-inflation U.S. manufacturing production came in this morning from the Federal Reserve, and they further debunk widespread reports that President Trump’s tariff-heavy trade policies – and particular his levies on steel and aluminum imports – are backfiring badly by decimating metals-using manufacturing sectors that dwarf the steel and aluminum makers.

Let’s first look at the monthly numbers, and compare the (preliminary) real growth of major metals-using sectors and manufacturing overall from June to July:

overall manufacturing:  +0.31 percent

durable goods:   +0.39 percent

fab metals:  -0.03 percent

machinery:  +0.56 percent

automotive:  +0.94 percent

small appliances:  -1.41 percent

major appliances:  -4.56 percent

Clearly, most metals-using sectors actually outperformed overall, with the top exceptions being appliance makers. Those in the major appliance category, of course, have been hit not only with the metals tariffs, but with safeguard tariffs on one of their actual products – large residential laundry machines.

Moreover, the output data since the advent of the first metals tariffs – in late March – show that the metals-using sectors in general have at least held their own. Here are the inflation-adjusted output percentage changes since April; they include the initially reported numbers through June (released by the Fed last month), and the revised June and initial July figures (released this morning).

                                                       old thru June   new thru June    new thru July

overall manufacturing                     – 0.21                +0.06                 +0.25

durables manufacturing                    -0.05               +0.09                  +0.48

fabricated metals products               +0.90               +0.82                 +0.79

machinery                                         -0.75                -0.47                  +0.09

automotive                                        -0.68                -1.56                   -0.63

small appliances                               -3.31                -3.98                   -5.33

major appliances                              -3.16                -0.73                    -5.25

Although the results for the very large machinery and automotive sectors look worse than the overall manufacturing numbers at first glance, they’ve each been undermined by some one-off developments.

In machinery, as reported here last month, the subpar post-April constant dollar growth clearly reflects some giveback from a big production jump between March and April. This increase was initially reported as a 2.27 percent surge, and it was estimated this morning at a still impressive 2.21 percent.

In automotive, production is still recovering from the effects of a fire in early May at a factory that produced parts for a popular Ford pickup truck, and which depressed after-inflation output that month by a huge 8.52 percent.

The post-April numbers confirm that both appliance sectors continue to be the big tariff losers, but the rest of the data show that they’ve been the exceptions, not the rule.

As usual with data, “past performance does not guarantee future results.” But the new Fed figures (along with comparable employment figures I’ve reported) also make clear that, so far, claims of major tariff-induced losses for domestic metals-using manufacturing belong in the realm of speculation, not of facts.

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(What’s Left of) Our Economy: No Serious Evidence That Tariffs are Killing U.S. Metals-Using Industries

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aluminum tariffs, appliances, automotive, durable goods, fabricated metal products, Federal Reserve, inflation-adjusted growth, Jobs, Labor Department, machinery, manufacturing, media bias, steel tariffs, tariffs, Trade, Trump, {What's Left of) Our Economy

With the mainstream media filled with articles (see, e.g., here, here, and here) on how President Trump’s current and proposed trade tariffs are already inflicting major damage on the U.S. economy, it’s useful to look at the official data capable of shedding maximum light on the situation. Fortunately, in this respect, Washington just released U.S. employment and manufacturing production statistics that can achieve just such a goal, and their message couldn’t be clearer: Although anecdotal accounts point to possible reasons for concern, the most comprehensive information available portrays these reports as completely unrepresentative – at least so far.

Principally, in late March, the Trump administration began imposed levies on steel and aluminum imports. It’s logical to suppose that the nation’s steel-using industries and their workers in particular would be big losers so far, since the steel tariffs of 25 percent are much higher than the ten percent levies on aluminum. But the data make clear that no such conclusions are justified to this point.

Let’s start with production, where statistics (from the Federal Reserve) go through June (on a preliminary basis). They show that, since April (the first few months during which any tariffs had any effects), overall domestic American manufacturing output (which includes all the industries that aren’t major steel users) has dipped by 0.21 percent.

Real production in durable goods sectors (which include all the big steel-using industries) is down, too – but by a bare 0.05 percent.

And many especially heavy metals-using industries have been doing better still. After inflation output in fabricated metal products rose by 0.90 percent between April and June. Constant dollar machinery production is down 0.75 percent – but that drop clearly reflects some mean reversion from the 2.27 percent jump between March and April. Automotive (combined vehicles and parts production) has fallen by 0.68 percent in real terms since April, but much of the decline stems from the supply chain effects of a fire at a factory producing parts for a popular model.

Appliances look like an important exception. Between April and June, constant dollar production in small appliances has tumbled by 3.31 percent, and in major appliances by 3.16 percent. But both sectors had been struggling for years before the Trump tariffs. In the former, it was down on net since February, 2015; in the latter, since September, 2016. By contrast, real output in the other metals-using industries was up strongly during those periods.

The jobs figures (from the Labor Department, which also go through June, preliminarily) tell a similar story. Overall manufacturing output has advanced by 0.43 percent since April. In durable goods industries, it’s improved by 0.57 percent.

In fabricated metals, however, payrolls have grown by 0.72 percent since April, and in machinery, by 0.95 percent during this period. The automotive sector has trailed these two in job creation, but has still nudged its employment up by 0.04 percent since April. And the 0.47 percent decrease in overall appliance employment (separate figures for small and major products aren’t available) continues that sector’s record as a significant jobs laggard.

What will the future hold? That’s anyone’s guess. It’s also true that tariff-produced price increases tend to take their time working their way through corporate supply chains, and that at the end of May, the administration imposed a second, big round of metals tariffs on three big metals-exporting trade competitors exempted from the first round: the European Union, Canada, and Mexico.

But it’s also true that there’s no statistical evidence to date that the metals tariffs, many of which have been in effect since late March, have harmed upstream industries, and plenty of statistical evidence that these metals consumers have been faring just fine – and then some. Fake News, anyone?

Following Up: Still-Empty Dollar-Dumping Threats and a Manufacturing Renaissance Poster Child Up for Sale

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appliances, BRICS, China, debt, dollar, Following Up, foreign dollar holders, GE, manufacturing, manufacturing renaissance, reserve currency, Treasuries

Two items worth noting today:

First, last month, I wrote a piece for Marketwatch.com noting that, despite the strengthening chorus of international criticism protesting the dollar’s domination of the global financial system, even the countries protesting loudest keep buying dollars.

That article was based on Treasury Department data that brought the story up until May. Yesterday, the June data were published – and the trend I described is still firmly in place.

Total foreign holdings of long-term U.S. Treasury securities rose 0.61 percent over their May levels. In May, they were only 0.26 percent higher than in April. Foreign government holdings of this U.S. debt most directly reflect official foreign views of the dollar’s role, and represent about two-thirds of all foreign dollar holdings. These increased by 0.39 percent on month in June – slower than their 0.61 percent May monthly increase, but hardly a sign of significant dissatisfaction.

As for the countries complaining most vociferously, France did sell off 3.52 percent of its Treasury holdings in June. But they’re still up 9.74 percent since January. The BRICS countries (Brazil, Russia, India, China, and South Africa) say they’re so unhappy with the dollar’s “hegemony” that they’ve created their own development bank. But three of the five bought dollars on net in June – even Russia. China, by the far the largest BRICS dollar holder, appears to have sold off 0.20 percent of its holdings.

As is so often the case, however, appearances may be deceiving when it comes to China. Benn Steil of the Council on Foreign Relations has recently presented compelling evidence that Beijing’s avid dollar buying – which importantly helps keep down the yuan’s value versus the dollar and in turn China’s export prices – remains strong. But according to Steil, the data indicate that, to avoid undue U.S. criticism of this protectionist currency manipulation, the Chinese are disguising their dollar buying by sending its new holdings to Belgium.

Our second follow up item: On July 21, I published an item on the news that GE was reported to be exploring the sale of its appliances division. This divestiture would matter big time because, as I noted, GE appliance-making was portrayed in a recent Atlantic cover story as the poster-child for the renaissance allegedly being enjoyed by U.S. domestic manufacturing. Indeed, one of President Obama’s leading manufacturing policy aides made a high profile visit to the company’s main appliance production complex in Louisville, Kentucky in February, 2011.

On Thursday, GE confirmed reports of its desire to unload appliances, listing Swedish white goods powerhouse Electrolux as one possible buyer. Especially significant for manufacturing renaissance claims – a Washington Post reporter’s observation that “The appliances division in particular has grown less profitable as foreign appliance makers command a growing share of the U.S. market .” With renaissances like this, who needs industrial decline?

(What’s Left of) Our Economy: Major Pillar of Manufacturing Renaissance Claims Crumbles

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appliances, GE, Immelt, manufacturing, manufacturing renaissance, {What's Left of) Our Economy

The list of cheerleaders who have touted a phony U.S. manufacturing renaissance ranges from President Obama to the Boston Consulting Group to countless reporters who have parroted their largely fact-free claims. High on this list from nearly the start has been freelance journalist Charles Fishman, who published a lengthy cover story in The Atlantic’s December, 2012 issue boldly proclaiming the start of an “Insourcing Boom.”

Fishman’s distinctive contribution to Manufacturing Mania was his exhaustive look at General Electric’s decision to revitalize its Home Appliances and Lighting division, and in particular, the enormous appliance production complex the company had long maintained in “Appliance Park” in Louisville, Kentucky.

GE had tried to sell the unit in 2008 but found no takers (at an acceptable price, of course). So according to Fishman, the company decided to make chicken salad out of – well, you know – and within years, the results were nothing less than miraculous. In GE’s investment in the first new Louisville assembly lines in decades – including for products whose production was brought back from China – in ingenious process improvements he exhaustively described, and in favorable overseas trends like rising labor costs in China, Fishman saw evidence that much broader, long-time economy-wide trends encouraging manufacturing offshoring were coming to an end. Replacing them was nothing less than an historic industrial “renaissance” that was already “under way.”

The Atlantic was nice enough to run on its website a response of mine, documenting the abundance of statistics making clear that domestic industry was experiencing nothing more than a nice cyclical rebound from an horrific recession. But the renaissance claims have continued almost unabated.

How surprised its readers must have been, then, to see last week’s news that GE was again moving (quietly) to sell Appliances and Lighting. Although GE CEO Geoffrey Immelt invested $1 billion in reviving the division, Bloomberg News pegged the likely selling price at $1.5 to $2.5 billion. Of course, appliance production is likely to continue, at least for a while, in Appliance Park no matter who buys it. But the Bloomberg piece reminded that the sale was “part of a greater strategy to exit businesses where the company is not a leader or poised for growth.” In other words, GE’s new, supposedly revolutionary white goods factories weren’t meeting that standard, and indeed Bloomberg cited industry data showing that the conglomerate trailed Whirlpool and Electrolux in U.S. market share.

Fishman deserves credit for being smart enough to write near the end of his piece that “It’s possible that five years from now, everything will have unraveled—that the return of factory jobs will have been a temporary blip, that Appliance Park will be closed. (Business practices, after all, are prone to fads.)” The company’s reported decision to bring its Louisville experiment to an end – barely two years after Fishman’s breathless account of “a wave of fresh innovation…inspiring further, faster advances—shows that his qualifier was the only reality-grounded point Fishman made.