(What’s Left of) Our Economy: U.S. Manufacturing’s Now Defying Hurricanes and Delta

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Domestic manufacturing’s done it again. Just as with the Labor Department’s August jobs report, the Federal Reserve’s new release on manufacturing output for the month shows that industry kept dodging whatever potholes the CCP Virus and its highly infectious Delta variant keep digging for the rest of the U.S. economy.

America-based manufacturers’ inflation-adjusted production grew by a meager 0.11 percent sequentially in August. But output was held down by facility closures forced by Hurricane Ida in the petrochemicals, plastics resins, and petroleum refining sectors. Overall revisions were mixed, but some upgrades and downgrades in individual major industries were pretty remarkable, as will be seen below.

The biggest winners in the new price-adjusted manufacturing production report were the small, catch-all “other manufacturing” category (2.42 percent); furniture and related products (up 2.07 percent); computer and electronics products (whose 1.21 percent output rise may have been a response to the worldwide shortage of semiconductors); paper (up 1.07 percent); and fabricated metal products (up 0.74 percent).

The biggest losers were electrical equipment, appliances, and components (down 1.16 percent); textiles products (down 0.81 percent on month); machinery (down 0.80 percent); and the big chemicals sector (down 0.49 percent).

Normally, the machinery results would be discouraging, since its products are used so widely both in the rest of manufacturing and also in big non-manufacturing industries like agriculture and construction. But its August dip followed a July jump of 3.31 percent – its best production improvement since January’s 4.63 percent – which was dramatically upgraded from the previously reported 1.91 percent.

The electrical equipment category followed a similar pattern. Its July real production results were revised all the way up from 2.31 percent to 3.95 percent – its best such performance since January, 2010, when the economy was still in its early bounce-back from the Great Recession that followed the global financial crisis.

Also enjoying a solid August were two narrower manufacturing categories that remain in the news due to the ongoing effects of the CCP Virus. Air travel has of course suffered throughout the pandemic-era, and aerospace manufacturing giant Boeing has been hit with numerous related manufacturing and safety problems (including some pre-dating the pandemic, like the grounding of the popular 737 Max jetliner).

Yet aircraft and parts production in constant dollars advanced by 0.34 percent in August, and in another major revision, July’s previously reported 2.78 percent increase is now pegged at 4.10 percent – its best such result since January’s 6.79 percent burst. And June’s downgraded 3.57 percent rise was bumped back up to 3.84 percent. As a result, aircraft and parts production is now 12.63 percent higher in after-inflation terms than in February, 2020 – the last full data month before the virus began significantly affecting the U.S. economy.

The pharmaceuticals and medicines sector (which includes vaccines) saw a real month-to-month production increase of 0.89 percent in August, and revisions were modest and mixed. These results left inflation-adjusted output 12.33 percent higher than its immediate pre-pandemic levels.

But August real production sank sequentially by 1.73 percent in the vital medical equipment and supplies sector – which includes virus-fighting items like face masks, protective gowns, and ventilators.

On the brighter side, July’s initially reported 1.71 percent constant dollar production rise was revised up to 2.42 percent. June’s dramatically downgraded 1.54 percent decrease was upgraded to a 0.13 percent drop, and May’s upwardly revised 1.86 percent real growth was downgraded only slightly – to 1.78 percent. Even so, on a price-adjusted basis, this crucial industry is just 2.66 percent larger than before the CCP Virus arrived in force.

Domestic industry still faces important headwinds of course – and not just from the possibility that Delta keeps worsening America’s public health and economy, and that approaching winter weather triggers a new wave of infections, hospitalizations, deaths, and restrictions. Those global supply chain snags are still with us, too.

But throughout the pandemic era, U.S.-based manufacturers have overcome obstacles just like this, and their consistent vigor indicates that it’s the pessimists about their future prospectswho now face the biggest burden of proof.

(What’s Left of) Our Economy: U.S. Manufacturing Hiring’s Sloughing Off Delta – For Now

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aerospace, aircraft, aircraft engines, aircraft parts, appliances, automotive, Boeing, CCP Virus, China, coronavirus, COVID 19, Delta variant, electrical equipment, Employment, fabricated metal products, food products, healthcare goods, Jobs, logistics, machinery, manufacturing, medical equipment, metals, non-farm payrolls, pharmaceuticals, plastics and rubber products, PPE, private sector, semiconductor shortage, supply chains, tariffs, transportation, vaccines, {What's Left of) Our Economy

This morning’s official monthly U.S. jobs report (for August) brought a notable departure from recent trends. Athough the overall results were lousy (as total employment rose by just 235,000 during the month), manufacturing hiring soared by 37,000.

It’s true that nearly two-thirds of these gains (24,100) came from the automotive sector, which has been roiled recently by a shortage of semiconductors that’s wreaked havoc on the output of today’s increasingly electronics-stuffed vehicles. It’s also true that this progress might be snuffed out soon by the still widening spread of the CCP Virus’ highly infectious Delta variant and whatever new curbs on economic activity and consumer behavior it might keep prompting.

But it’s also true that domestic industry’s strong hiring in August came during a month when Delta had already become front-page news – which surely expains much of the much-weaker-than expected rise last month in overall non-farm payrolls (NFP – the U.S. jobs universe of the Labor Department that produces the employment data).

And it’s true as well that the major upward revision revealed to the July manufacturing jobs increase (all the way from 27,000 to 52,000 – the best such performance since last August’s 55,000) entailed much more than the vehicles and parts sectors (where the hiring advance was judged to be 10,500 instead of merely 800).

For example, July’s machinery jobs gains were upgraded from 6,800 to 9,100 (its strongest monthly result since last September’s 12,200); those for electrical equipment and appliances was estimated at 1,500 instead of 200; and employment in the plastics and rubber sectors was pegged at 2,300, not 300.

Despite its last excellent two months, U.S.-based manufacturing remained a job-creation laggard during the pandemic period as of August. But it became less of a laggard. Since the deep CCP Virus- and lockdowns-induced downturn of March and April, 2020, when manufacturers shed 1.385 million jobs, these companies have boosted employment by 1.007 million – erasing 72.71 percent of those losses. That share of regained jobs is up from the 68.74 percent level it reached in July.

That’s faster improvement than registered by the private sector, whose regained job percentage rose from 76.96 to 78.72, and by the total non-farm economy, where the advance rose from 74.50 percent to 76.60 percent.

Moreover, it’s important to remember that during the economy’s spring, 2020 woes, manufacturing employment suffered less than payrolls in the rest of the economy. Its job levels fell by 10.82 percent, compared with 16.46 percent for the private sector and 14.66 for the entire non-farm economy.

As with the July revisions, the list of significant manufacturing employment winners in August was hardly confined to the automotive industry. Among the major industry categories used by the U.S. government, fabricated metal products payrolls increased by 6,600 on month (the highest sequential boost since March’s 10,100); plastics and rubber products by 3,100 (its best such performance since February’s 4,500); and food manufacturing (1.600).

The biggest July jobs losers were electrical equipment and appliances (down 3,100, for its worst hiring month since January, when its payrolls fell by 3,400) and miscellaneous durable goods (a category containing personal protective equipment – PPE – and other medical supplies crucial for fighting the CCP Virus), whose 1,800 jobs lost were the worst such total since the entire economy’s spring, 2020 meltdown.

Also somewhat discouraging – job creation in the machinery sector, whose products are used elsewhere in manufacturing and throughout the rest of the economy, flatlined in August following its big 9,100 July spike.

The most detailed employment data for pandemic-related industries is one month behind those in the broader categories, but their July job-creation performance was decidedly mixed. In surgical appliances and supplies (the sector containing PPE and similar goods), May’s previously reported payroll decline of 900 is now judged to be a drop of 1,900, but June’s 500 jobs increase remained intact and was followed by an identical improvement in July. As a result, employment in this crucial national health security sector is now 9.22 percent above immediate pre-pandemic levels.

The overall pharmaceuticals and medicines industry saw hiring slow down notably in July – from a downwardly revised 2,300 in June to 400. May’s downwardly revised loss of 300 jobs stayed intact. These changes left payrolls in the sector 4.72 percent above February, 2020’s immediate pre-pandemic levels.

The story was little better in the pharmaceuticals subsector containing.vaccines. Its May and June employment gains are still judged to be 1,000 each, and no jobs at all were added in July. But its workforce is still 10.21 percent higher than just before the pandemic.

The July results showed that aircraft industry employment is still on a roller coaster, since Boeing is still struggling to overcome the manufacturing and safety issues it’s faced in recent years, along with the CCP Virus-related slump in business and leisure travel. May’s 5,500 monthly plunge in employment was unrevised in this morning’s figures, June’s 4,500 increase was upgraded to 4,700, but payrolls retreated again in July – by 1,500. Due to all these fluctuations, aircraft employment fell to 8.08 percent below its levels just before the pandemic arrived in force in the United States.

The aircraft engines and parts industries added 200 employees on month in July, but June’s previously reported increase of 500 was downgraded to 400. As a result, payrolls are down fully 14.80 percent since immediate pre-pandemic February, 2020.

It’s still possible that the Delta, or some other, CCP Virus variant will lower the boom on domestic manufacturing employment going forward – both because economic activity and therefore demand for manufactured goods will stagnate or drop not only in the United States, but in industry’s important foreign markets. Supply chain snags are no sure bet to clear up any time soon, either.

Nonetheless, U.S.-based manufacturing is still clearly benefiting from the Trump tariffs continued by President Biden that are pricing huge amounts of metals and Chinese-made goods out of the domestic market. Vast amounts of economic stimulus are still pouring into the American and foreign economies. And there remains tremendous pent-up demand among U.S. consumers and businesses alike, due to the lofty heights that household savings have reached and to clogged logistics systems. (A “hard” infrastructure bill will help U.S.-based manufacturers, too. But despite efforts to speed up the permitting process, regulations that can long delay the launch of new projects still may mean that the much of the new work will take months and even years before they’re “shovel ready.”)

And as I keep pointing out, those with the most skin in this game – domestic manufacturers themselves – keep professing optimism. (See, e.g., here and here.) That last consideration still tilts the balance toward manufacturing bullishness for me.

(What’s Left of) Our Economy: No Delta Effect on U.S. Manufacturing Growth In Sight. Yet.

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aerospace, aircraft, aircraft parts, appliances, automotive, Boeing, CCP Virus, coronavirus, COVID 19, Delta variant, electrical components, electrical equipment, fabricated metal products, Fed, Federal Reserve, inflation-adjusted growth, inflation-adjusted output, machinery, manufacturing, medical supplies, medicines, personal protective equipment, petroleum and coal products, pharmaceuticals, plastics, PPE, real growth, recovery, reopening, rubber, textiles, vaccines, {What's Left of) Our Economy

The after-inflation U.S. manufacturing production data reported today by the Federal Reserve revealed plenty of newsy developments. But my choice for biggest is the finding that, in price-adjusted terms, domestic manufacturers’ output finally nosed back above its last pre-CCP Virus (February, 2020) level.

The new number isn’t an all-time high – that came in December, 2007, just as the financial crisis was about to plunge the entire U.S. economy into its worst non-pandemic-related downturn since the Great Depression of the 1930s. As of this July, real manufacturing production is still 5.94 percent below that peak.

Measured in constant dollars, however, such output is now 1.15 percent greater than just before the virus arrived in the United States in force. Not much, and of course any Delta variant-prompted curbs on economic activity or extra caution in consumer behavior could wipe out this progress. But you know what they say about a journey of a thousand miles.

Had this milestone not been reached, I’d have led off this post by noting that although some really unusual seasonal factors in the volatile automotive sector definitely juiced the excellent July sequential output gain, U.S.-based industry outside automotive performed impressively during the month as well.

Specifically, as the Fed’s press release noted, the whopping 11.24 percent jump in the price-adjusted output of vehicles and parts contributed about half of overall manufacturing’s 1.39 percent growth. That automotive figure was the best monthly improvement since the 29.39 percent rocket ride the sector generated in July, 2020 – when the whole economy was staging its rebound from that spring’s deep but brief virus-induced recession. And that overall real on-month production advance was the best for manufacturing in general since the 3.39 percent achieved in March – earlier in the initial post-pandemic recovery.

But in July, the rest of domestic industry still expanded by a strong 0.70 percent after inflation – its best inflation-adjusted growth since the 3.31 percent also recorded in March.

The revisions in this morning’s Fed data for the entire manufacturing sector were mixed. June’s initially reported 0.05 percent decline is now judged to be a 0.10 percent increase, and April’s previously reported 0.39 percent drop now stands as a 0.21 percent decrease. But May’s last reported increase – upgraded slightly to a strong 0.92 percent – is now estimated at just 0.65 percent.

Looking at broad industry categories, the big real output July winners in domestic manufacturing’s ranks aside from automotive were electrical equipment, appliances, and components (up 2.31 percent); plastics and rubber products (up 2.02 percent); machinery (1.91 percent); the broad aerospace and miscellaneous transportation sector (think “Boeing”), which rose by 1.90 percent; textiles (up 1.67 percent); and miscellaneous durable goods, which includes but is hardly confined to many pandemic-related medical supplies (up 1.55 percent).

As I keep noting, good machinery growth is especially encouraging, since its goods are used both throughout manufacturing and the economy as a whole, and strong demand signals optimism among manufacturers about their future prospects – which tends to feed on itself and impart continued momentum to industry.

The list of significant losers was much shorter, with real fabricated metal products output 0.42 percent lower than June levels and petroleum and coal products shrinking by 0.60 percent.

Turning to narrower manufacturing categories that remain in the news, despite Boeing’s still serious manufacturing and safety problems, and ongoing CCP Virus-created weakness in air transport, inflation-adjusted production of aircraft and parts continued its strong recent run. June’s initially reported 5.24 percent monthly output surge was revised down to 3.57 percent. But that’s still excellent by any measure. And July saw production climb another 2.78 percent. As a result, real output in this sector is now 9.95 percent higher than it was just before the pandemic’s arrival in the United States in February, 2020.

Real output in the pharmaceuticals and medicines sector (which includes vaccines) grew by 0.77 percent sequentially in July, and its real output is now 11.35 percent greater than just before the pandemic. But those revisions!

June’s initially reported 0.89 percent increase is now judged to be a 0.34 percent decrease, and May’s previously downgraded 0.15 percent rise has now been upgraded all the way to 1.54 percent.

An even better July was registered by the vital medical equipment and supplies sector – which includes virus-fighting items like face masks, face masks, protective gowns, and ventilators. Monthly growth came in at 1.71 percent. But revisions here were puzzling, too.

June’s initially reported 0.99 percent sequential real production improvement is now seen as a major 1.54 percent falloff. And May’s monthly constant dollar growth, already upgraded from 0.19 percent to 1.18 percent, is now pegged at 1.86 percent.

I’m still optimistic about domestic manufacturing’s outlook, and that’s still based on domestic manufacturers’ own continued optimism – which as shown by the two major private sector monthly manufacturing surveys remained strong in July. (See here and here.)

But I also continue to view U.S. public health authorities’ judgment as suspect when it comes to the balance that needs to be struck between fighting the virus and keeping the economy satisfactorily open. So as long as new virus variants pose the threat of higher infection rates (though not at all necessarily of greater damage to Americans’ health), my own optimism has become more tempered.

(What’s Left of) Our Economy: The Revisions Outshone the New U.S. Manufacturing Jobs Gains

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aircraft, aircraft engines, aircraft parts, appliances, automotive, Boeing, CCP Virus, China, coronavirus, COVID 19, Delta variant, electrical equipment, Employment, fabricated metals products, Jobs, Labor Department, machinery, manufacturing, medicines, metals, miscellaneous durable goods, NFP, non-farm payrolls, personal protective equipment, pharmaceuticals, PPE, recovery, tariffs, Trade, vaccines, Wuhan virus, {What's Left of) Our Economy

Although U.S. manufacturers grew their payrolls by a solid net 27,000 in July, according to the Labor Department’s new jobs report for the month, the big story for industry lies in the June revisions. As often the case during the CCP Virus era, moreover, these were dominated by the automotive sector.

Specifically, June’s initially reported monthly 15,000 manufacturing jobs increase was boosted all the way up to 39,000. And the automotive numbers for June executed a stunning turnabout – from an estimated loss of 12,300 to a gain of 2,700. By contrast, net hiring in the vehicles and parts sectors for July was a quiet 800.

The May manufacturing employment revisions were less dramatic – from an increase 39,000 to one of 36,000. But that month had already witnessed its own huge revision – from an initially reported 23,000 to that 39,000.

Outside automotive, the June revisions were widespread through manufacturing, led by electrical equipment and appliances, whose employment increase that month was upgraded from 1,700 to 3,600. (Its July net job creation was a mere 200.)

Even with the strong revisions, though, manufacturing’s recent status as a U.S. recovery employment laggard continued. As of July, domestic industry had regained 952,000 (68.74 percent) of the 1.385 million net jobs lost in March and April of 2020. The numbers for the private sector overall are 76.96 percent of the 21.353 million lost jobs that have been recovered, and for the total non-farm economy (the definition of the American employment universe used by the U.S. government, which includes government jobs) 74.50 percent of the 22.362 million jobs lost.

One reason, of course, is that manufacturing employment suffered less than payrolls in the rest of the economy in the early spring of 2020. Its job levels fell by 10.82 percent, compared with 16.46 percent for the private sector and 14.66 for the entire non-farm economy.

At the same time, U.S.-based industry is still benefiting from stiff tariffs on metals and goods from China, and like the entire economy, is being supported by massive government stimulus along with skyrocketing vaccine production. This puzzle may be explained by the bottlenecks and resulting shortages plaguing all industries, and by the introduction of labor-saving equipment and other restructuring to substitute for the workers so many manufacturers claim are so hard to find. But as I wrote in last month’s examination of the June jobs report, I’m not completely convinced yet by either explanation.

The biggest July manufacturing employment winners by far of the major industry categories used by the U.S. government were machinery (6,800), miscellaneous durable goods (5,500), and fabricated metals products (4,500).

The performance of the first two is especially encouraging, since machinery’s products are used so widely throughout the entire economy (and since robust hiring therefore signals widespread overall strength and healthy capital spending); and since miscellaneous durable goods includes the personal protective equipment (PPE) and other medical supplies whose importance has been underscored by the pandemic.

Indeed, as a result of their July jobs gains, machinery employment has risen to within 3.30 percent of its immediate pre-pandemic level (in February, 2020), and the comparable figure for miscellaneous durable goods is 1.09 percent higher. (More on the performance of its PPE-including category will be presented below.) Both figures are better than that for manufacturing overall, whose payrolls are still 3.38 percent lower than just before the CCP Virus began significantly affecting the economy.

The only July manufacturing jobs losers suffered overwhelmingly fractional sequential setbacks, led by transportation equipment overall (the category containing automotive, where employment sank by 1,500) and semiconductors and electronic components, where global shortages undoubtedly had much to do with its job loss of 800.

Returning to the pandemic-related industries, where the data are one month behind, the picture in surgical appliances and supplies (the sector containing PPE) is dominated by a big downgrade in the May numbers – from a gain of 1,700 to a loss of 900. And in June, 500 more positions were shed. As a result, employment in this crucial national health security sector has fallen to 7.60 percent above immediate pre-pandemic levels.

In the overall pharmaceuticals and medicines industry, a slightly upgrade of May’s originally reported 400 job loss (to a drop of 300) was followed by a June rise of 2,700 – the biggest monthly advance since September, 2019’s 3,500 (well before the CCP Virus arrived). Its employment levels have consequently climbed to 4.72 percent above their February, 2020 figure.

The pharmaceuticals subsector containing vaccines showed continued good job growth, with May’s unrevised 1,000 improvement followed by an identical June increase. This industry now employs 10.20 percent more workers than just before the pandemic.

Aircraft employment levels have fluctuated wildly recently, due surely to the constant barrage of news both good and bad about Boeing. May’s 5,500 job plunge – the worst such performance since June, 2020’s 5,800 shrinkage – was followed by a June gain of 4,500. That’s its best hiring month since the same number of workers was added in July, 2012. But aircraft employment is still 7.55 percent less than in February, 2020, when the pandemic’s spread globally decimated air travel worldwide. On a more positive note, however, Boeing seems to believe the worst is over.

Aircraft engines and parts employment has been much more stable than aircraft’s, and these industries added 500 workers in total in June. But their payrolls are 14.91 percent smaller than in February, 2020 – nearly twice as big a proportional drop as in aircraft.

What’s next for domestic manufacturing employment? Last month I saw plenty of sources of uncertainty, ranging from bottlenecks to the infrastructure legislation to China tariff policy. Now there’s the virus’ hyper-contagious (but so far less harmful) Delta variant to contend with, and all the resumed lockdowns and other economic activity restrictions it could portend – along with the related likelihood of continued strong and even greater vaccine demand (though the sector isn’t big enough to move the national manufacturing jobs needle much).

I’m still most impressed by how all the national and regional surveys keep showing that manufacturers themselves see a still-brightening future ahead. (See, e.g., here and here.) After all, they’re the ones with skin in the game. Let’s hope they’re right. 

(What’s Left of) Our Economy: Automotive’s Still in the U.S. Manufacturing Growth Driver’s Seat

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aircraft, aluminum, appliances, automotive, CCP Virus, China, coal, coronavirus wuhan virus, COVID 19, Delta variant, electrical equipment, facemasks, Federal Reserve, industrial production, inflation-adjusted growth, inflation-adjusted output, infrastructure, lockdowns, machinery, manufacturing, masks, medical devices, metals, petroleum refining, pharmaceuticals, PPE, real growth, recovery, reopening, steel, stimulus, tariffs, Trump, vaccines, {What's Left of) Our Economy

Talk about annoying! There I was last Thursday morning, all set to dig into the new detailed Federal Reserve U.S. manufacturing production numbers (for June) in order to write up my usual same-day report, and guess what? None of the new tables was on-line! Fast forward to this morning: They’re finally up. (And here‘s the summary release.) So here we go with our deep dive into the results, which measure changes in inflation-adjusted manufacturing output.

The big takeaway is that, as with last month’s report for May, the semiconductor shortage-plagued automotive sector was the predominant influence. But there was a big difference. In May, domestic vehicles and parts makers managed to turn out enough product to boost the overall manufacturing production increase greatly. In June, a big automotive nosedive helped turn an increase for U.S.-based industry into a decrease.

The specifics: In May, the sequential automotive output burst (which has been revised up from 6.69 percent in real terms to 7.34 percent) helped push total manufacturing production for the month to 0.92 percent after inflation (a figure that’s also been upgraded – from last month’s initially reported already strong 0.89 percent). Without automotive, manufacturing’s constant dollar growth would have been just 0.47 percent.

In June, vehicle and parts production sank by an inflation-adjusted 6.62 percent , and dragged industry’s total performance into the negative (though by just 0.05 percent). Without the automotive crash, real manufacturing output would have risen by 0.40 percent.

Counting slightly negative revisions, through June, constant dollar U.S. manufacturing production in toto was 0.60 percent less than in February, 2020 – the economy’s last full pre-pandemic month.

Domestic industry’s big production winners in June were primary metals (a category that includes heavily tariffed steel and aluminum), which soared by 4.02 percent after inflation; the broad aerospace and miscellaneous transportation sector, which of course contains troubled Boeing aircraft, (more on which later), and which turned in 3.75 percent growth, its best such performance since January’s 5.62 percent pop; petroleum and coal products (up 1.36 percent); and miscellaneous durable goods, which includes but is far from limited to CCP Virus-related medical supplies (up 1.21 percent).

The biggest losers other than automotive? Inflation-adjusted production of electrical equipment, appliances, and components, which dropped sequentially by 1.73 percent in real terms; the tiny, remaining apparel and leather goods industry (1.44 percent); and the non-metallic minerals sector (1.07 percent).

Especially disappointing was the 0.55 percent monthly dip in machinery production, since this sector’s products are used so widely throughout the rest of manufacturing and in major parts of the economy outside manufacturing like construction and agriculture.

But in one of the biggest surprises of the June Fed data (though entirely consistent with the aforementioned broad aerospace sector), real output of aircraft and parts shot up by 5.24 percent – its best such performance since January’s 6.79 percent. It’s true that the May production decrease was revised from 1.47 percent to 2.61 percent. But with Boeing’s related and manufacturing and safety-related woes continuing to multiply, who would have expected that outcome?

And partly as a result of this two-month net gain, after-inflation aircraft and parts output as of June is 7.83 percent higher in real terms than in pre-pandemicky February, 2020 – a much faster growth rate than for manufacturing as a whole.

The big pharmaceuticals and medicines sector (which includes vaccines) registered a similar pattern of results, although with much smaller swings. May’s originally reported 0.22 percent constant dollar output improvement was revised down to 0.15 percent. But June saw a 0.89 percent rise, which brought price-adjusted production in this group of industries to 9.33 percent greater than just before the pandemic.

Some good news was also generated by the vital medical equipment and supplies sector – which includes virus-fighting items like face masks, face masks, protective gowns, and ventilators. Its monthly May growth was upgraded all the way up from the initially reported 0.19 percent to 1.18 percent. And that little spurt was followed by 0.99 percent growth in June.

Yet despite this acceleration, this sector is still a mere 2.27 percent bigger in real terms than in February, 2020, meaning that Americans had better hope that new pandemic isn’t right around the corner, that the Delta variant of the CCP Virus doesn’t result in a near-equivalent, or that foreign suppliers of such gear will be a lot more generous than in 2020.

As for manufacturing as a whole, the outlook seems as cloudy as ever to me. Vast amounts of stimulus are still being pumped into the U.S. economy, which continues to reopen and overwhelmingly stay open. That should translate into strong growth and robust demand for manufactured goods. The Trump tariffs are still pricing huge numbers of Chinese goods out of the U.S. market. And the shortage of automotive semiconductors may actually be easing.

But the spread of the Delta variant has spurred fears of a new wave of local and even wider American lockdowns. This CCP Virus mutation is already spurring sweeping economic curbs in many key U.S. export markets. Progress in Washington on an infrastructure bill seems stalled. And for what they’re worth (often hard to know), estimates of U.S. growth rates keep coming down, and were falling even before Delta emerged as a major potential problem. (See, e.g., here.)

I’m still most impressed, though, by the still lofty levels of optimism (see, e.g., here)  expressed by U.S. manufacturers themselves when they respond to surveys such as those sent out by the regional Federal Reserve banks (which give us the most recent looks). Since they’re playing with their own, rather than “other people’s money,” keep counting me as a domestic manufacturing bull.

(What’s Left of) Our Economy: Springtime Blahs for U.S. Manufacturing Jobs

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aerospace, aircraft, appliances, automation, automotive, Boeing, CCP Virus, coronavirus, COVID 19, Employment, fabricated metal products, Jobs, Labor Departent, machinery, manufacturing, masks, metals tariffs, non-farm business, non-farm payrolls, pharmaceuticals, PPE, productivity, protective gear, regulatory policy, tariffs, tax policy, vaccines, Wuhan virus, {What's Left of) Our Economy

In contrast to the mixed set of signals I saw being given off by last month’s official monthly U.S. jobs report (for April), today’s May figures are pretty clearly indicating that manufacturing hiring is in a weak patch. In fact, the patch has been weak enough to turn the sector from a national employment creation leader to a laggard. Just as important, the short-term outlook at least seems somewhat dimmer than it had been.

The main reason for confusion over the previous data had to do with the disconnect between the automotive-heavy losses of April (which accounted for more than all of that month’s initially reported 18,000 net job decrease) and the positive revisions for the preceding months. Another very encouraging sign – the second straight month of strong jobs gains for the machinery sector, whose products are used widely not only in the rest of manufacturing, but in other major parts of the economy like agriculture and construction.

May’s results were almost a mirror image – and not in a good way.

For example, whereas in April, the 27,000 sequential automotive job losses exceeded total manufacturing job loss of 18,000 (leaving the rest of industry’s hiring performance pretty subdued, to be sure), in May, automotive payrolls rose by 24,800. But overall manufacturing job gains totaled only 23,000 – so the rest of the sector shed workers on net.

In addition, revisions are now negative. April’s manufacturing employment is now judged to have fallen by 32,000 month-to-month, not 18,000. That’s largely because that month’s automotive layoffs were much bigger than first reported – 37,700 rather than 27,000. Even March’s very good upwardly revised monthly hiring surge of 54,000 has now been revised down again to 51,000.

As for machinery, that crucial industry lost 4,700 jobs on net in May – its worst results by far since April, 2020 – at the depths of the CCP Virus-induced downturn and the first negative number since January. Moreover, this April’s 3,700 monthly jobs increase has now been revised down to 1,900, and March’s last upgraded 5,400 figure is now pegged at only 3,500.

In all, manufacturing has now regained 876,000 (64.27 percent) of the 1.363 million jobs it lost at the pandemic’s height in the spring of 2020. That’s now well behind the 69.74 percent employment recovery of the private sector and even the 65.88 percent rebound of the total economy (defined as the non-farm sector by the U.S. Labor Department, which compiles and categorizes the data).

The manufacturing sectors with the biggest sequential May jobs gains were the overall transportation equipment sector (where a 9,000 hiring improvement was propped up by the automotive increases), miscellaneous non-durbable good makers (up 4,100), fabricated metals products (up 3,500) miscellaneous durable goods manufacturing (a catch-all category including everything from surgical equipment – like facemasks and other personal protection equipment to gaskets to jewelry – where payrolls were up 3,400), and computer and electronics products and electrical equipment and appliances (up 2,800 each).

The hiring in fabricated metals and appliances was noteworthy given that companies in both industries have been complaining loudly about the pain they’ve been suffering from higher metals prices stemming in part from ongoing U.S. tariffs on these materials. (See, e.g., here and here.)

May’s big manufacturing jobs losers aside from machinery were non-metallic mineral products (down 2,200), paper and paper products (down 2,100), and the big chemicals sector, which is another big supplier of a wide variety of products to the entire economy (down 1,100).

More encouragingly, when it comes to industries closely related to the fight against the pandemic, job creation seems picking up, although the relevant data are one month behind the rest of the jobs figures. Specifically, in the surgical appliances and supplies sector that includes the protective gear, March’s employment increase was unrevised at 900, and hiring accelerated to 1,200 in April – the best monthly performance since September’s 1,600. This sector’s payrolls are now 10,400 (9.89 percnt) higher than in February, 2020 – the last pre-pandemic month.

For pharmaceuticals and medicines overall, March’s 1,500 sequential jobs increase was revised up to 1,600, and April hiring surged to 2,700 – its best performance by far of the CCP Virus period. Its payrolls are up by 12,500 (4.01 percent) since pre-pandemicky February, 2020.

For the pharmaceuticals subsector containing vaccines, March’s initially reported employment increas of 500 is now judged to be 800, and net hiring grew by 1,300 in April – a solid improvement by this industry’s recent standards. As a result, its workforce has now increased by 9,200 (9.30 percent) since February, 2020.

The same unfortunately can’t be said for the aerospace industry, and continuing and even mounting troubles for Boeing presage ongoing woes for the foreseeable future. March’s initially reported 1,800 monthly job loss for aircraft has now been revised for the worse to 1,900, and the sectors workforce fell by another 200 in April. Meanwhile, following sequential March losses in aircraft engines and parts, and in non-engine aircraft parts, employment flatlined in these two sectors combined in April.

Continued strength in the overall recovery of the U.S. economy should provide strong tailwinds for domestic manufacturers and for industry’s jobs figures, and continuing tariffs should help by keep much foreign competition (especially from China) out of the market.

Vaccine production will likely keep expanding – and requiring more workers – as well, mainly to supply immense foreign demand. But the sector is so small that its employment performance can’t move the manufacturing jobs needle much.

Boeing’s problems, however, can be expected to cast a big shadow not only over the big aerospace industry, but over its big domestic supply chain as well. And although the global semiconductor shortage that has hit the automotive sector especially hard may be starting to ease, the damage appears likely to take considerably longer to overcome. Manufacturers face big questions about the future of U.S. tax and regulatory policy, too.

Recently, moreover, some data’s come out pointing to a development that might wind up strengthening domestic industry in toto, but weakening its employment potential, at least in the short run. Labor Department figures show that, from the depths of the pandemic through the first quarter of this year, U.S.-based manufacturing has boosted its labor productivity much faster than the non-farm economy generally — and much faster than it has since its recovery from the last recession.  In other words, manufacturers lately been improving their ability to turn out product more than they’ve increased hiring. 

Whether this is a secular change or whether industry will revert to its recent mean is anyone’s guess. Also highly uncertain is whether better productivity growth (including of course more use of labor-saving technologies) will wind up destroying jobs on net, or increasing them by supercharging production. So far history seems to teach that such advances are net employment creators, but is that inevitable going forward? And is it inevitable for manufacturing specifically? All I can say is “Stay tuned” and “Be patient.”          

(What’s Left of) Our Economy: Has the U.S. Seen Peak Manufacturing Output for the Virus Era?

Tags

(What's Left of) Our Economy, appliances, automotive, capex, capital spending, CCP Virus, coronavirus, COVID 19, Federal Reserve, furniture, household appliances, housing, inflation-adjusted growth, Institute for Supply Management, machinery, manufacturing, real growth, recession, recovery, Wuhan virus

Today’s monthly Federal Reserve report on U.S. manufacturing production was full of surprises, but not enough were of the good kind. And with signs of economic slowing on the rise, the new figures – for September – could mean that, for the time being, industry’s relative out-performance during the pandemic era will begin weakening markedly as well.

The surprises start with the overall figure for the September monthly change in inflation-adjusted output for American factories. Despite an abundance of encouraging data from so-called soft surveys like those issued by the private Institute for Supply Management and the Fed system’s regional banks (see, e.g., here) real manufacturing production dropped by 0.29 percent sequentially. The decrease was the first since April, when national economic activity as a whole bottomed due to the spread of the CCP Virus and resulting shutdowns and stay-at-home orders.

The biggest bright spot in the report came from the upward nature of most revisions. August’s initially reported 0.96 percent monthly gain is now judged to have been 1.13 percent. The July result was upgraded from 3.97 percent to 4.30 percent. And June’s previous 7.64 percent improve was reduced to 3.61 percent. Further, these advances built on similar upward revisions that accompanied last month’s Fed report for August.

In fact, the revisions effect was strong enough to leave domestic industry’s cumulative after-inflation production performance during the virus-induced downturn better than the Fed’s estimate from last month. As of that industrial production report (for August), manufacturing constant dollar production had fallen 6.39 percent from its levels in February – the final month before the pandemic began impacting the economy. Today’s new September release now pegs that decline at only 5.81 percent, and even the monthly September decrease left it at 6.08 percent.

Nevertheless, the breadth of the September monthly decrease in overall price-adjusted manufacturing output unmistakably disappointed. Yes, the automotive sector (vehicles and parts combined) saw its on-month production tumble by 4.01 percent. But in contrast to most of the manufacturing data during the CCP Virus period, automotive didn’t move the overall manufacturing needle much, as real output ex-auto rose only fractionally in September.

Also discouraging –and unexpected, considering the good recent capital spending data reported by the Census Bureau (see, e.g., the “nondefense capital goods excluding aircraft” numbers for new orders in Table 5 in this latest release) – was the 0.41 inflation-adjusted production decline in the big machinery sector following five months of growth.

And even though the U.S. housing sector has been booming during the recession, real output of furniture also slumped for the first time in six months (by 0.96 percent), while price-adjusted household appliances production was down 4.99 percent after its own good five-month run.

As indicated by today’s revisions, these glum September manufacturing output figures could be upgraded in the coming months. Yet given the CCP Virus’ return – which will at best greatly complicate the challenge of maintaining recovery momentum for industry and the entire national economy – no one can reasonably rule out the possibility that, for now, Americans have seen peak post-virus manufacturing production.

Following Up: Inside April’s U.S. Manufacturing Crash II

Tags

aerospace, appliances, automotive, CCP Virus, chemicals, components, computers, coronavirus, COVID 19, durable goods, electrical equipment, electronics, fabricated metals products, Federal Reserve, Following Up, food products, healthcare goods, inflation-adjusted output, machinery, manufacturing, manufacturing output, manufacturing production, medical devices, metals, non-durable goods, paper, real growth, Wuhan virus

A little earlier today, RealityChek presented some lowlights from this morning’s Federal Reserve U.S. manufacturing production report (for April). As promised, here’s a more granular look at the results, which yield even more insights as to how the CCP Virus blow to the economy is reflecting – and probably influencing dramatically changed spending patterns.

The table below shows the findings for durable goods industries, the super-category that covers products with expected usage and shelf lives of three years or more. Included are the original March inflation-adjusted output changes, the revised March data, and the April statistics:

Wood products:                                                -4.22%       -3.15%      -9.04%

non-metallic mineral products:                        -6.56%      -6.50%     -16.26%

Primary metals:                                                -2.82%      -3.95%     -20.37%

Fabricated metal products:                               -8.28%      -4.23%     -11.33%

Machinery:                                                       -5.56%      -3.05%     -10.98%

Computer & electronic products:                     -1.89%      -1.24%      -5.02%

Electrical equip, appliances, components:       -2.24%      -2.83%      -5.99%

Motor vehicles and parts:                               -28.04%    -29.96%    -71.69%

Aerospace/miscellaneous transport equip:      -8.12%      -8.90%     -21.65%

Furniture and related products:                       -9.99%      -6.50%     -20.60%

Miscellaneous manufacturing:                        -9.94%      -7.09%       -9.05%

   (contains most of those non-pharmaceutical healthcare goods)

As in the broader category analysis from earlier today, the automotive collapse – over both March and April – stands out here, although it was joined in the double-digit neighborhood (at much lower absolute levels of course) by six of the other eleven sectors. And as predicted in last month’s post on the March Fed report, the sector that’s held up best has been the computer and electronics industry – though following surprisingly close behind is electrical equipment, appliances, and their components.

It’s also easy to see how the rapid deterioration in automotive and the miscellanous transportation category that includes aerospace (especially in April for the latter) spilled over into supplier industries like metals and fabricated metal products, and machinery.

One durable goods puzzle: the relatively fast April decrease in the miscellaneous manufacturing category, which contains non-pharmaceutical medical goods so crucial for the nation’s CCP Virus response.

The second table shows the same information for the non-durables super-category, where the virus impact has been considerably lighter. Among notable results – the sharp worsening of after-inflation output in the food sector. Although it fared relatively well, there can be little doubt that the worker safety problems in meat-packing plants, along with the cratering of big customers – mainly the restaurant and hotel businesses – played big roles.

The non-durables results also make clear that the sector that’s survived best so far has been paper. Also excelling (at least relatively speaking): the enormous chemicals sector. This industry also contains the pharmaceutical industry, although the any positive CCP Virus impact seems unlikely to date because no vaccines or treatments have been developed yet.

Food, beverage, and tobacco products:          -0.76%      -1.56%       -7.10%

Textiles:                                                        -14.05%      -6.98%     -20.72%

Apparel and leather goods:                          -16.54%    -10.31%     -24.10%

Paper:                                                            -2.04%      -0.08%        -2.58%

Printing and related activities:                    -18.18%    -10.75%      -21.16%

Petroleum and coal products:                       -5.93%      -6.56%      -18.55%

Chemicals:                                                   -1.65%      -1.50%         -5.14%

Plastics and rubber products:                      -7.60%       -4.37%       -11.03%

Other mfg (different from misc above):     -5.37%       -4.29%       -10.37% 

The virus crisis contains so many moving parts (e.g., vaccine and therapeutics progress; infection, fatality, and testing data; uneven state reopening and national social distance practicing; consumer attitudes; second wave possibilities) that extrapolating the manufacturing trends to date seems foolhardy. But tracking industry’s winners and losers as the months pass could still provide important clues as to how much further the economic woes it’s caused will continue; and when, how quickly, and how completely recovery arrives.   

(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: New Fed Manufacturing Figures Mock Tariff-Mageddon Claims

Tags

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?