(What’s Left of) Our Economy: The Start of a V-Shaped Recovery So Far for Manufacturing Production, Too?

Tags

aircraft, automotive, autos, Boeing, CCP Virus, durable goods, Federa Reserve, inflation-adjusted output, manufacturing, motor vehicles, non-durable goods, real output, recession, recovery, {What's Left of) Our Economy

The May Federal Reserve figures on inflation-adjusted U.S. manufacturing production were released this morning, and what stood out to me right away was how closely the main results resembled those of the remarkable May jobs report from the Labor Department. Not that the surprise factor for manufacturing output was anywhere near that for the jobs report. And of course factories don’t reopen or ramp up production in lockstep with gains in employment (which speak volumes about the economic fortunes of many of their customers). But consider the following figures and what they could be signaling about the pace of recovery:

On a monthly basis, as the CCP Virus pandemic’s effects peaked for the time being, the private sector shed 15.37 percent of its jobs in April, and for manufacturing, the figure was 10.34 percent. That month, real manufacturing output plunged sequentially by 15.66 percent.

In May, as the economy’s reopening sped up, private sector payrolls expanded by 2.86 percent, manufacturing saw a 1.96 percent net jobs gain, and manufacturing production rose by 3.83 percent. It looks an awful lot like an economy that’s bouncing back pretty quickly so far from the worst of the virus-induced shutdowns, but that still has far to go before returning to normal. Call it the possible start of a “V.”

Something else that comes through loud and clear about the latest Fed manufacturing reports – including today’s: They’re being remarkably driven by the stunning gyrations of the automotive sector, and especially price-adjusted vehicles output levels. In fact, in April, production of autos and light trucks – which literally had collapsed according to last month’s preliminary figures – have been revised down to as close to zero as you can get.

But before detailing those results, let’s return to 30,000 feet. That May monthly after-inflation manufacturing output increase was the biggest on record – and by a long shot. But April’s sequential nosedive was revised from 13.28 percent – and therefore is even more of a record-breaker than previously thought. And it’s only slight consolation that the March drop was reduced to 5.27 percent from 5.53 percent. (It was originally reported as 6.27 percent.) At least as bad, as of May, American factories’ monthly output in real terms was their lowest since Great Recession-y July, 2009.

Most of the action continues to be concentrated in the durable goods super-sector, which led manufacturing down in March and especially April, and led it up in May.

As with industry as a whole, the new monthly durable goods production drop for March was smaller than previously estimated (7.73 percent rather than 8.23 percent) and the April disaster was bigger than first judged (with constant dollar output down 21.64 percent rather than 19.27 percent).

Real output in the supersector increased by 5.83 percent sequentially in May – but that record monthly rise still left absolute production levels at their lowest since November, 2009, another Great Recession month.

And the automotive sector continues leading the fluctuations in durable goods production. The revisions for vehicles and parts combined for March and April were both slightly worse than previously judged (30.03 percent vs 29.96 percent for the former, and 76.47 percent versus 71.69 percent for the latter).

The May results (for now preliminary, as are all the May numbers – with April’s set for one more revision next month)? After-inflation output surged by 120.83 percent. That’s not a typo. For comparison’s sake, this latest jump smashed the old monthly record (29.95 percent, in July, 2009) by a factor of four. Even so, inflation-adjusted vehicle and parts output hasn’t been this low since July, 1983 – 33 years ago

As for the numbers for vehicles alone, they’ve been positively fantasmagorical. Cutting to the chase, “nosedived” and “careening” don’t begin to describe the April results. That month, auto and light truck output after inflation practically disappeared – standing 98.87 percent lower than in March and slightly worse than initially reported). Similarly, May’s improvement was less a rebound or even a rocket ride than a restart. What else can you reasonably call a 3,187.39 percent increase? And still, in absolute terms, that only brought output back to its worst level since February, 1982.

This astounding automotive performance, moreover, has clearly moved the needle for manufacturing as a whole. Without the April automotive tailspin, price-adjusted manufacturing production was off by 11.94 percent, not 15.66 percent. In May, without the recovery of the sector, U.S. constant dollar manufacturing production advanced by 1.96 percent – just about half the rate of the 3.83 percent increase recorded with automotive.

The May Fed manufacturing report left the relatively mild March output downturn in the non-durable goods super-sector unrevised at 2.64 percent. But the April decrease was estimates to be worse:  9.59 percent rather than 8.23 percent.

Non-durable factory production rose by 2.07 percent sequentially in May, but interestingly, that advance was only the biggest since October, 2017 2.28 percent – when lots of oil refineries and petrochemicals-using industries came back on line after that autumn’s hurricanes in the Gulf of Mexico.

Finally, some genuinely puzzling results seem to be recorded for the aircraft and aircraft parts sectors, which were troubled for months before the CCP Virus struck by Boeing’s safety woes . Whereas in last month’s Fed manufacturing report, the March monthly inflation-adjusted drop in these industries was reported at 12.09 percent, this morning it was reported to be just 5.38 percent.

More reasonably, the April sequential decline was judged to be slightly smaller – 28.31 percent rather than 28.88 percent. And May’s on-month recovery is estimated to be a robust 9.43 percent.

Since this spring’s manufacturing slump and rebound so closely resembles that of the jobs market, it’s fitting that the same questions hover over it. Will the comeback last, or are we seeing the real economy version of a stock market dead cat bounce? Like the Fed itself, RealityChek‘s judgments will be data-dependent.

Those Stubborn Facts: The Fading Henry Ford Wage Strategy

Tags

automotive, autos, Henry Ford, manufacturing, Those Stubborn Facts, wages

Share of an average American factory worker’s annual earnings needed to buy the average new car, 1965: 25 percent

Share of an average American factory worker’s annual earnings needed to buy the average new car today: 59 percent

 

(Source: “Trump lashes GM plant closings as UAW prepares to defend jobs,” by Ted Evanoff, Memphis Commercial Appeal, November 28, 2018, https://www.commercialappeal.com/story/money/cars/2018/11/28/trump-lashes-gm-but-plant-closings-likely-even-uaw-prepares-defend-jobs/2137046002/)

(What’s Left of) Our Economy: Trump Tariffs Would Supercharge U.S. Auto Prices…Not

Tags

auto dealers, auto parts, auto-makers, automotive, autos, Bloomberg.com, Kyle Stock, tariffs, think tanks, Trade, Trump, {What's Left of) Our Economy

If President Trump imposes steep tariffs on U.S. automobile and auto parts imports, the prices of the vehicles we all drive will go through the roof, right? After all, everyone in the know says so. Like the auto-makers. And the dealers. And the leading think tanks.

As known by RealityChek regulars, though, logic alone – along with even a rudimentary knowledge of business practices – warrant deep skepticism. After all, if the auto industry believes that, once the tariffs are in place, the market for their products will be able to support vehicle prices thousands of dollars higher than what their customers pay today, why aren’t they raising prices to these levels right now? And why haven’t they been charging more all along? The only possible answers are that (a) they really don’t believe the higher prices would stick or (b) they’ve been accepting less revenue in order to give consumers a break. You tell me which is even remotely plausible.

And just last week came new evidence showing how phony these forecasts appear: As reported by Bloomberg.com‘s Kyle Stock, there’s a huge glut of vehicles on the U.S. market for several intertwined reasons. Inventories are way too high because auto-makers produced too much (and probably imported too much). Higher and higher shares of auto purchases each year consist of previously owned, not new vehicles. And demand for new models in absolute terms seems set to dip for the first time in ten years.

Moreover, Stock’s article makes clear why the auto-makers and dealers really oppose the tariffs: Precisely because they know they’ll never be able to push through significant price increases, the levies will force them to accept lower profits. Another point worth contemplating – the industry’s pleas for tariff forebearance reveal how unwilling or unable they are to improve productivity in order to absorb the added costs without hurting their bottom lines.

That still leaves the question of why thinktankers – who aren’t supposed to have vested stakes in the automotive industry’s profitability – are peddling this nonsense. And the likely answers here aren’t flattering, either. First, many of them (like the Peterson Institute, whose tariff warnings are featured in the USAToday article linked above) get big bucks from the industry. Peterson’s latest list of donors prominently features Toyota, Ford, GM, Mitsubishi, and the governments of many of the foreign auto-makers who rely so heavily on exports to the American market. Nor are the numbers involved trivial; Toyota, for example, is listed in the $100,000-$999,000 per year category.

Second, analysts at Peterson or elsewhere could be so devoted ideologically to the pro-free trade stance of mainstream economics that they simply don’t want to present or even consider contrary evidence.

Whichever is the explanation, one conclusion comes through loud and clear: As long as the U.S. automotive market remains glutted, the price increase warnings of such experts deserve no more credibility than the pitches of used car salesman.

Following Up: Still Lots of Unanswered Questions About that Trump NAFTA Revamp

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auto parts, autos, Canada, domestic content, Following Up, Mexico, NAFTA, national security, North American Free Trade Agreement, rules of origin, Trade, Trump, World Trade Organization, WTO

In recent days, the Trump administration has reached a trade deal with Mexico that either may or may not fundamentally rework the North American Free Trade Agreement (NAFTA). I say “may or may not” because above and beyond the question of whether the third NAFTA signatory, Canada, will actually go along, and whether Congress will agree to consider a bilateral as opposed to a trilateral deal, some of the most important provisions of the bilateral U.S.-Mexico pact remain unknown to the public.

In particular, it’s completely unclear what the United States and Mexico have agreed to regarding the rules of origin for automotive products traded within the NAFTA zone. In fact, it’s completely unclear whether what they reportedly have agreed to is an agreement at all.

To remind: The rules of origin specify how much of a product (in this case, most motor vehicles as well as all automotive parts) needs to be made inside North America in order to qualify for tariff-free treatment when its sold in any of the signatory countries. The idea – totally reasonable, in my opinion – is to make sure that as many of the benefits of a trade deal as possible flow to the signatories (which of course, legally need to incur all of the obligations) and don’t leak out to non-signatories (which of course legally need to incur none of the obligations).

Automotive trade is crucial in this respect because vehicles and parts combined last year made up nearly a third of all U.S. merchandise imports from Mexico, and (revealingly) 9.65 percent of the considerably smaller amount of U.S. goods exports to Mexico.

As I’ve repeatedly observed, the original NAFTA failed to achieve this objective. And the main problem was not the level of North American content required for duty-free treatment (62.5 percent). The main problem was that the penalty for ignoring the rules was so negligible (a 2.5 percent tariff). And it appears that even though the content requirement has been increased (to 75 percent), the meager penalty remains. Reportedly, it’s also the only obstacle to automakers ignoring the new requirement that 40 to 45 percent of a vehicle be made by workers earning at least $16 per hour.

So it’s entirely reasonable to finish most news accounts and conclude that the new U.S.-Mexico treaty will do little to achieve its stated goal of inducing automakers based outside North America to move production and jobs inside North America.

Complicating matters, though, are some wrinkles in the U.S.-Mexico deal that have been reported in the days since the agreement was first announced. Principally, according to some news accounts, much higher 25 percent tariffs will be imposed on vehicles assembled in Mexico and sent to the U.S. market once the number of those vehicles exceeds 2.4 million. Therefore, the actual automotive rules of origin may well have been genuinely toughened.

Nevertheless, for several reasons, this conclusion, too, needs to be qualified. For Mexico exported only 1.8 million passenger cars and sport-utility vehicles to the United States last year. So its sales would need to rise considerably before that genuine toughening kicks in. Second – and again, reportedly – this provision of the agreement is contained in a side letter. The apparent failure to include it in the core text of the agreement raises questions about its enforceability – especially since the same reports indicate that under it, Mexico retains the right to challenge those higher tariffs at the World Trade Organization (WTO). Moreover, I’ve seen absolutely nothing about any quotas for imports of auto parts as such from Mexico – which are currently running at an annual rate topping $16 billion.

That could actually be good news for the United States – because the auto tariffs (again, reportedly) would be based on the U.S. trade law that authorizes Washington to impose levies based on national security considerations. Such trade curbs are legal under WTO rules because the creators of even this sovereignty-impinging arrangement recognized that no major powers would ever surrender their right to assess and act on their national security interests. It’s plausible, therefore, to believe that today’s WTO majority would shy away from challenging this kind of decision by Washington, however damaging it might be to their exports, for fear of provoking a U.S. walkout and thus the organization’s demise.

But there’s no guarantee of this outcome – especially if or when a more WTO-friendly administration replaces Mr. Trump’s in Washington.

It’s true that an eventual Trump decision to impose lofty national security-justified auto tariffs on non-North American auto-makers would render many of these questions moot – because even if Mexico was exempted, and those companies therefore could keep supplying the American market through that channel, they’d quickly run up against the quota (assuming of course that one exists).

Yet this auto tariff decision seems to lie pretty far down the road. In the meantime, the NAFTA decision continues to look pretty confusing. I’m just hoping that this post will make your confusion a little more informed.

(What’s Left of) Our Economy: The Case that Trump Has Blown a Big NAFTA Opportunity

Tags

autos, Bloomberg.com, Canada, domestic content, Mexico, NAFTA, North American Free Trade Agreement, rules of origin, Trade, Trump, U.S. Transportation Department, World Trade Organization, WTO, {What's Left of) Our Economy

Suppose the U.S. government punished certain types of tax cheating with the financial equivalent of a wrist slap (and no reimbursement requirement), and then announced that some more types of tax cheating would be punished with that same wrist slap. Chances are, unless you had moral qualms about any kind of tax cheating, you’d keep on cheating because even if you were caught every year, your gains would be well worth a marginal fine.

Now let’s suppose that Washington announced that all tax cheating would result in a truly massive and mandatory fine. Chances are you’d become a model taxpayer, or close to it, if your chances of being caught were relatively small.

If this makes sense to you, then you understand one of the main problems that’s plagued the United States since the advent of the North American Free Trade Agreement (NAFTA), and chances are you recognize why what we know of President Trump’s new NAFTA revamp agreement with Mexico leaves that problem almost fully intact.

Although it seems like a big deal that the revised terms require that 75 percent of an automobile be made within the NAFTA free trade zone to qualify for duty-free treatment rather than the current 62.5 percent, as I’ve repeatedly explained, the decision to keep the tariff punishment for noncompliance at 2.5 percent still renders these “rules of origin” toothless. For any automaker whose home base is either inside of outside North America and that’s worth his or her salt should be able to find 2.5 percent cost-savings to offset the levy, or remain plenty profitable even without such offsets. And the high levels of non-North American content that continue to characterize so many vehicles sold inside North America make clear these companies have succeeded in one or both respects.

In other words, because non-compliance is so relatively painless, the existing rules of origin were not stringent or smart enough to achieve their stated aim of luring much automotive production and employment from outside North America to inside North America, and the new rules are no likelier to work any better.

P.S. – the national governments of these non-North American auto producers have always been able easily to help their companies cope with the NAFTA content requirements through a variety of policies – e.g., providing them with new or bigger tax breaks or subsidies, or devaluing their currencies. And because the external NAFTA tariff remains so low, these tactics, too, remain as capable as ever of frustrating the intent of the origin rules.

Even more frustrating for those who hoped for a game-changing NAFTA rewrite, the exact same flaw sandbags the Trump administration’s win with Mexico concerning its separate proposal that duty-free treatment inside North America apply only to vehicles containing 40-45 percent content from factories paying hourly wages greater than $16.

A new piece on Bloomberg.com helpfully confirms the general point about the pointlessness of such a low external tariff, but even more helpfully (if less wittingly) underscores what an immense opportunity has been missed by the administration’s failure to boost these levies.

The article uses U.S. Transportation Department data to show that only three vehicle models currently assembled in Mexico of the 39 sold to Americans would be tariff-ed under the new origin rules regime – and that only one of these is a significant seller in the American market. For Canadian-assembled vehicles, the number that would be affected by the new origin rules is higher – but it’s still only six of the 19 total.

But these Transportation Department data also make clear how likely a much higher tariff would be to shift automotive output and employment to North America. The key is how many of those Mexico-and Canada-assembled vehicles exported to the United States would fall below the 75 percent threshold. and therefore would cost lots more to sell to Americans (say, the 25 percent suggested by Mr. Trump for proposed national security-based automotive tariffs). For Mexico, the number would be 25, or some 64 percent of the number of models its assemblers send to the United States. For Canada, it’s twelve of the 19, or 63 percent.

These numbers as such don’t tell us how many actual vehicles exported from both countries would face these much higher tariffs. But according to the authors, although that figure is a significantly lower than the model percentage number would indicate, it would still represent nearly a third of U.S. vehicle imports from Mexico. Therefore, the costs of noncompliance with the origin rules would be far from chump change for the non-North American producers. (This one-third number also counts cars that would be affected by a separate requirement that 40 to 45 percent of the content of an vehicle come from factories paying at least $16 per hour in order to avoid tariffs.) Exact statistics for Canadian exports aren’t provided, but the authors describe it as “likely” to be similar.

None of the above contradicts the observation that NAFTA external tariffs greater than 2.5 percent would violate America’s World Trade Organization (WTO) commitments. But since when has the Trump administration had use for that regime – or for the previous U.S. trade policies that spearheaded its creation? In addition, why has President Trump not recognized that much higher NAFTA external tariffs – applied, along with universal rules of origin – would solve most of the biggest and chronic U.S. trade problems he’s complained about with foreign rivals like China, Germany and the European Union, Japan, and South Korea.

The answers to date remain unclear at best. What’s perfectly clear, though, is that although President Trump is often portrayed as a disrupter, his new NAFTA deal with Mexico is anything but.

Following Up: Why Auto Tariff Alarmism Just Got (Even) Sillier

Tags

automotive, autos, CNBC, consumers, Following Up, prices, Rick Santelli, tariffs, Trade, Trump

The claims just keep coming that President Trump’s threatened auto tariffs will cause vehicle makers to boost the prices paid by American consumers per vehicle by thousands of dollars. So does the evidence that such claims are “horse hockey” – to quote a memorable euphemism for “baloney” recently used by CNBC’s Rick Santelli (in a similar context).

As I noted in a post last Wednesday, this alarmism flies in the face of recent U.S. auto sales trends – which recently have been weak enough to force the companies to offer deep discounts to prop up their numbers and try to keep market share. As I’ve also noted, those trafficking in price hike fears either know nothing about business, or are trying to fool their audiences. For although producers’ costs of course influence consumer prices, the latter’s main determinant is what the former believe the market will bear. To believe otherwise is to believe that companies aren’t striving to maximize revenues and profits wherever and whenever possible. And by extension, it’s logically to believe that, although auto makers don’t believe their customers will pay those higher prices today, they’ll change their tunes as soon as vehicles become much more expensive.

Which brings us to the newest evidence – yesterday’s data on U.S. auto sales for June and for the first half of the year. Overall, they were up, and up nicely (especially for last month, when they rose year-on-year). But as always, you need to look under the hood. (Couldn’t resist!) And that’s when you encounter vital contrarian details provided by analysts at Cox Automotive.

According to the Associated Press’ coverage of their conclusions, the increases were driven by “low-profit sales to fleet buyers such as rental car companies, and retail sales to individual buyers were propped up by rising incentives such as rebates and subsidized leases.”

Indeed, said observed one Cox consultant, “Retail sales have been flat, and even those sales have been supported by incentives being up 6 percent.”

Does this sound like a market where big, sudden price increases have much chance of sticking? If you agree, I’d be happy to show you a bridge in Brooklyn that’s available for a song. And if you’re parroting this line, chances are you’d be a great used car salesman.

Glad I Didn’t Say That! About that Auto Tariff Alarmism

Tags

Alliance of Automobile Manufacturers, auto tariffs, automotive, autos, Glad I Didn't Say That!, tariffs, Trump

“The Alliance of Automobile Manufacturers, a trade group representing domestic and foreign automakers with plants in the U.S., predicts the average price of a new vehicle will increase $5,800 if the president imposes a 25 percent tariff on imported models.”

–CNBC.com, June 27, 2018

“U.S. auto sales in June likely rose 2.5 percent from the same month in 2017…although discounts on new vehicles remain high, industry consultants…said on Tuesday.”

–Reuters, June 26, 2018

 

(Sources:  “Automakers to Trump:  Tariffs will drive up auto prices and cost thousands of jobs,” by Phil LeBeau, CNBC.com, https://www.cnbc.com/2018/06/27/automakers-to-trump-tariffs-will-drive-up-auto-prices-and-cost-jobs.html & “U.S. June auto sales seen up 2.5 percent, J.D. Power and LMC,” by Nick Carey, Reuters, June 26, 2018, https://www.reuters.com/article/us-usa-autos-sales/u-s-june-auto-sales-seen-up-2-5-percent-j-d-power-and-lmc-idUSKBN1JM1L4)

 

(What’s Left of) Our Economy: The Deepening Mystery of Trump’s NAFTA Strategy

Tags

autos, Canada, light trucks, manufacturing, Mexico, NAFTA, Nick Carey, North American Free Trade Agreement, Reuters, ROO, rules of origin, tariffs, Trade, Trump, wages, {What's Left of) Our Economy

The Trump administration’s approach to the North American Free Trade Agreement (NAFTA) keeps getting murkier. And although I agree that keeping the other parties to a negotiation off balance from time to time, and holding cards close to one’s vest, can be excellent tactics, the latest apparent twist in American policy doesn’t appear to be explained by such considerations.

Let’s start with the excellent insight contained in a Reuters article today about one of the centerpieces of NAFTA reform identified by the administration – the rules of origin (ROO) for autos and other light-duty passenger vehicles. These treaty provisions have been rightly targeted by Team Trump negotiators from the standpoint of U.S. interests because motor vehicles and parts comprise such a large percentage of the goods exchanged throughout North America, and because since NAFTA went into effect, contrary to its supporters’ promises, the American automotive sector has become less, not more globally competitive.

The NAFTA ROO are ostensibly aimed at encouraging automotive manufacturing inside North America and currently require that 62.5 percent of a vehicle’s value come from within the free trade zone in order to be exempted from tariffs. The administration’s response is widely described as a toughening of these rules because it would raise this threshold to 75 percent.

But there’s always been one huge catch that I’ve been tweeting about consistently: Unless the tariff penalty imposed on vehicle and parts-makers outside North America is greatly increased, boosting the duty-free content threshold will have little impact on these companies’ production and employment decisions. The reason? The current NAFTA external tariff on these products is only 2.5 percent. (Just FYI, this point was first made during the original NAFTA debate, in this Economic Strategy Institute study to which I contributed modestly.)

(What’s Left of) Our Economy: RealClearAmateurism on Steel Tariffs

Tags

AK Steel, Armco, autos, foreign direct investment, Japan, Japan Economic Institute, Kawasaki, Michael Cannivet, RealClearMarkets.com, Ronald Reagan, steel, tariffs, The Japan Times, Trade, Trump, {What's Left of) Our Economy

One of my favorite sayings holds that “A little knowledge is a dangerous thing,” and a recent column on the RealClearMarkets.com website on steel tariffs does a splendid job of showing why.

According to author Michael Cannivet, who heads an investment company “serving high net worth private clients,” President Trump’s decision to impose tariffs on steel imports from a wide (but still to be determined precisely) group of U.S. trade partners are “not a real long-term solution” for “cities reliant on American steel and aluminum production” because they’re certain to harm U.S. companies in the sector that are “working hard to reinvent themselves by innovating.” And he chooses as a prime example a steel firm close to his heart – AK Steel, which has a plant in his wife’s hometown of Middletown, Ohio that has employed “generations of her family.”

But in Cannivet’s eyes, AK’s experiences are also important because (quoting another author):

“AK Steel is the result of a 1989 merger between Armco Steel and Kawasaki. The Kawasaki merger represented an inconvenient truth: Manufacturing in America as a tough business since the post-globalization world. If companies like Armco were going to survive, they would have to retool. Kawasaki gave Armco a chance, and Middletown’s flagship company probably would not have survived it.”

This analysis is absolutely right – except it omits one crucial point. Kawasaki – a Japanese steel company – didn’t merge with Armco out of the goodness of its heart, or simply because it viewed the Armco operations in question as unusually promising assets. It also merged with – and transferred state-of-the-art production technologies – to Armco in large measure because Reagan-era trade restrictions severely limited its opportunities to supply the lucrative American market via exporting from Japan. Here’s some evidence from none other than the Japan government-run Japan Economic Institute of America (an often useful source of information and analysis that unfortunately closed its doors in the very early 2000s):

“By the mid-1980s NKK and Japan’s other major steelmakers were beginning to eye onshore U.S. operations. Such a presence would give them a way around the trade restrictions that by then had become a fixture so that they could service the automotive and other Japanese manufacturers that were setting up plants in this country.”

And P.S. – why were so many other Japanese manufacturers (like automotive firms) setting up plants in America? Again, in large measure due to those same Reagan-era trade curbs, as explained by this recent column in The Japan Times:

“The Reagan administration forced the Japanese auto industry into accepting a voluntary restraint on their exports to the U.S., under which the annual shipments from Japan was limited to 1,680,000 vehicles. The Japanese automakers responded by launching production in the U.S. one after another to evade the trade restrictions — Honda was the first by building its long-planned auto plant in Ohio, and was followed by Nissan and Toyota.”

None of this should be surprising to anyone with more than a little knowledge of trade or the globalization in manufacturing in particular. My book, The Race to the Bottom, cited an immense number of examples of national economies much smaller than the United States using tariffs or other trade barriers to lure foreign manufacturing to their shores. As a result, there’s every reason to believe that a U.S. resort to these measures would work spectacularly – and instances of precisely such successes keep emerging. 

And that’s of course the point of this post: Cannivet clearly doesn’t know more than a little about trade or the globalization of manufacturing. What he knows for sure is that he doesn’t like tariffs – possibly because he learned not to like them in a college freshman economics course. But apparently that was all that RealClearMarkets needed to justify showcasing his views. Maybe the site should change its name to RealClearAmateurism.

(What’s Left of) Our Economy: New Figures Report a Strong 2017 that Ended Weakly for U.S. Manufacturing

Tags

automotive, autos, durable goods, Federal Reserve, inflation-adjusted growth, manufacturing, non-durable goods, recovery, {What's Left of) Our Economy

The Federal Reserve’s new industrial production figures for December revealed that inflation-adjusted U.S. manufacturing output growth has slowed substantially. Its fractional (0.08 percent) monthly increase represented its worst sequential performance since August’s 0.14 percent dip. December’s near-standstill, moreover, followed a November upwardly revised 0.31 percent improvement that was much slower than October’s upwardly revised hurricane bounceback growth (1.50 percent). In addition, the December weakness was widespread, with real sequential growth in the durable goods supersector decelerating from November levels and such output decreasing in non-durables.

Nonetheless, domestic manufacturing’s full-year 2017 price-adjusted growth of 2.64 percent was its best annual increase since the 2.71 percent registered in 2011. For non-durable goods, its 2.64 percent annual real production advance was its best since 2005’s 3.95 percent. Inflation-adjusted production in the automotive sector rose on-month by 2.03 percent – its best rate since August’s 3.47 percent. Yet combined motor vehicles and parts output after inflation remained in a technical recession, standing 0.16 percent lower in December than in April. The December figures show that, adjusted for inflation, American manufacturing remains 2.25 percent smaller than when the last recession began, a decade ago..

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

>New Federal Reserve industrial production figures showed that a U.S. manufacturing production growth slowdown – which began in November following October’s hurricane bounceback – extended into a second month in December.

>After-inflation manufacturing output rose on month by a bare 0.08 in December, the worst such performance since August’s 0.14 percent sequential dip.

>Real monthly production for November was revised up from 0.22 percent to 0.31 percent, but that figure still represented a major decrease from the 1.50 percent constant dollar sequential growth in October – when industry mounted a comeback from early autumn’s hurricanes. The October figure was also revised up (for the second time) from 1.45 percent.

>The softness in the December manufacturing output figures was widespread. In the durable goods supersector, real production increased sequentially by a respectable 0.27 percent. But that performance was down from November’s 0.43 percent and October’s 0.54 percent.

>Constant dollar output in non-durable goods – the supersector most heavily affected by the hurricanse – fell sequentially in December by 0.12 percent. Its monthly price-adjusted growth in October and November was 2.57 percent and 0.17 percent, respectively.

>Viewed from a year-on-year perspective, manufacturing’s performance was much better. It’s full-year 2017 inflation-adjusted production increase of 2.64 percent was the best since 2011’s 2.71 percent – which was achieved much earlier in the current economic recovery.

>Durable goods’ growth of 2.65 percent in real terms in 2017 was its fastest rate since 2012’s 4.26 percent.

>For non-durable goods, its identical 2.64 percent real year production rise was its best such performance since 2005’s 3.95 percent.

>December was the best month for automotive output – which increased after inflation sequentially by 2.03 percent – since August’s 3.47 percent.

>But this crucial sector remained in technical recession, as its December inflation-adjusted production down by 0.16 percent since April.

>As of the December figures, after adjusting for price changes, American domestic manufacturing still remained 2.25 percent smaller than when the last recession broke out – ten years ago.