(What’s Left of) Our Economy: New Fed Manufacturing Figures Mock Tariff-Mageddon Claims

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aluminum, aluminum tariffs, appliances, automotive, China, China tariffs, durable goods, Federal Reserve, manufacturing, manufacturing production, metals, metals-using industries, non-durable goods, steel, steel tariffs, tariffs, Trade, Trump, {What's Left of) Our Economy

With this morning’s release of the Federal Reserve’s new real manufacturing output figures, we just got more data indicating both the impact of President Trump’s metals tariffs and his China levies. And, as with other manufacturing numbers, like employment statistics, the Fed output release mocks widespread claims that both kinds of trade curbs are already undermining U.S. domestic industry.

Here are the results for major metals-using sectors – with one caveat. Because it includes many goods so diminutive and stuffed with electronics that they’re clearly no longer using much steel or aluminum (unlike the large appliances), placing the small household appliances category on this list seems to have been mistaken all along. But I’m leaving them on so you can make up your own mind. The data start with April (because the first metals tariffs were imposed in late March) and go through October (the latest month covered by this Fed series). And I’m presenting the previously reported and revised September results in order to provide a sense of the trends’ momentum.

                                              old through Sept   new through Sept   through Oct

overall manufacturing:           +0.76 percent        +0.98 percent     +1.30 percent

durables manufacturing:        +1.41 percent       +1.46 percent      +1.93 percent

fabricated metals products:    +1.28 percent       +1.83 percent      +2.06 percent

machinery:                             +2.84 percent       +3.80 percent      +5.09 percent

automotive:                            +1.39 percent       +0.35 percent       -2.42 percent

small appliances:                    -1.23 percent        -3.67 percent        -6.62 percent

major appliances                    -0.87 percent        -0.99 percent        -3.32 percent

Superficially, the picture is somewhat mixed. But as I just said, in my view, the small appliances category should be ignored. Accelerating deterioration clearly characterizes the major appliances sector, but do tariffs (which include not only the metals levies but separate tariffs on household laundry machines that result from a trade law case initiated during the Obama years) deserve most of the blame? Maybe not, considering that the domestic housing sector – a big generator of major appliance sales – is in the middle of a noteworthy slowdown.

Momentum is clearly weakening in the automotive sector as well (where even the seasonally adjusted monthly Fed production numbers are notoriously volatile and subject to significant revisions). But it’s likely that sagging output is reflecting sales that are sagging overwhelmingly because of the industry’s own cyclical dynamics.

Indeed, these industry-specific developments look all the stronger considering that two other major metals-using sectors – fabricated metals products and non-electrical machinery – are gaining production momentum. So something other than the price of metals must be kneecapping the laggard sectors.

The new Fed data also shed noteworthy light on the impact of the President’s China tariffs. Levies on a total of $50 billion worth of goods began in July, and tariffs on $200 billion more worth of merchandise imports were imposed in September. So many products have been tariff-ed, and the lists contain so many producer as well as consumer goods, that even a genuinely deep dive into the data might not yield firm conclusions.

But here’s what we know from the 30,000-foot level about after-inflation domestic manufacturing output during the three months preceding the first China tariffs, and the three months following them:

                                             April-July                            July-Oct

overall manufacturing:     +0.29 percent                     +1.02 percent

durable goodsL                 -0.28 percent                      +2.22 percent

non-durable goods:          +0.87 percent                      -0.21 percent

Good luck finding much China damage on net from these numbers.

Back in the 18^th century, Jonathan Swift lamented that “Falsehood flies, and the truth comes limping after it.” Will Mainstream Media coverage of the industrial production figures and Trump tariffs prove him right once again?

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(What’s Left of) Our Economy: Tariff-Led U.S. Inflation Remains Mythical

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aluminum, appliances, beer, cans, Emily Rauhala, inflation, Labor Department, laundry equipment, metals, metals-using industries, Producer Price Index, steel, tariffs, Trade, Trump, Washington Post, wholesale prices, {What's Left of) Our Economy

Talk about bad timing! Yesterday, the Washington Post ran a piece by Emily Rauhala, who covers Canada and other foreign news for the paper, on how soaring tariff-juiced aluminum prices are already “bruising” the American beer industry. According to her report, “In a vivid example of how Trump’s trade tactics abroad can hurt business at home, the U.S. beer industry, which needs aluminum to make cans, is seeing costs rise.”

But this morning, the U.S. Labor Department came out with data showing that, although prices for aluminum (along with steel, another tariff-ed metal) have jumped from last October to this past October, they’re now actually starting to fall. And special bonus! The same trend seems to be holding for household laundry equipment.  Product-specific tariffs boosted prices for a time, and generated big headlines, but now the price are falling back to earth.

The new Producer Price Index (which measures price changes at the wholesale level) reports that “aluminum mill shapes” last month cost buyers 8.2 percent more than they did in October, 2017. But since July, they’ve dropped on a monthly basis by 2.1 percent, 0.3 percent, and 0.4 percent.

Further, it’s important to remember that, as with steel and the laundry machines, last year’s prices were artificially depressed by foreign dumping. In other words, these prices were set by foreign governments determined to grab market share for their producers at the expense of their American-based rivals. They had nothing whatever to do with market forces.

The statistics for “steel mill products”? Between October, 2017 and October, 2018, prices did indeed surge by 18.2 percent. But the monthly numbers since July reveal price changes of +2.6 percent, zero percent, and -0.8 percent.

Also significant: In lots of metals-using industries, there are no major year-on-year price increases at all. These include hardware, plumbing fixtures, turned products (like bolts and nuts and screws), metal valves, ball bearings, auto parts, aircraft parts, and aircraft engines and parts (which are tracked separately).

The price data for household appliances are found in a another of today’s Labor Department tables, and don’t separate out laundry equipment from other appliances where no special tariffs were applied. But they strongly indicate that any producers thinking they’d gain major pricing power from these levies were utterly delusional.

From October, 2017 through last month, prices in this category were up only 3.3 percent. And the last three months’ worth of sequential changes? Down 0.1 percent, up 1.3 percent, and down 0.7 percent. Think we’ll see this development  generate any headlines?

As with investing, past performance doesn’t always predict future results. But it’s not bupkis, either. At some point, President Trump’s tariffs may indeed supercharge U.S. inflation. To date, however, trade-related inflation reports at best deserve the warning, “Let the buyer beware.”

(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.

(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.