(What’s Left of) Our Economy: The Trade Wars Would’ve Been Much Easier to Win if Not for Boeing

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(What's Left of) Our Economy, aerospace, aircraft, aircraft parts, Boeing, manufacturing, metals tariffs, tariffs, Trade, trade wars, Trump

Today’s grim news about recent Boeing aircraft orders and deliveries is just the latest valuable reminder that any evaluation of the Trump record on manufacturing and trade policy has to take into account the entire aircraft and parts industry’s transformation from a slight to a bigtime industrial laggard. Moreover, Boeing’s weakness – which has nothing to do with the President’s trade or any other policies — seems likely to continue for the foreseeable future, at least according to Boeing. The company’s latest long-term forecast for the global aircraft market affirms that it will take years for aviation worldwide to return to pre-CCP Virus levels.

The degree of the pain inflicted by Boeing’s troubles – which also include major safety woes that started making headlines in early 2019 – on the whole of domestic industry, and how unrelated manufacturing’s overall Trump era performance has been to the President’s tariff-heavy trade policies, becomes clear from diving into the most detailed U.S. manufacturing output figures available: the Federal Reserve’s industrial production data.

For example, the Fed numbers show that, during the Obama administration, adjusting for inflation, manufacturing output increased by 14.65 percent. Real aircraft and parts production output growth was just slightly slower: 12.39 percent.

But from the start of the Trump years until the arrival of the pandemic (February, 2017 through February, 2020), whereas the manufacturing sector as a whole expanded by 3.60 percent in price-adjusted terms, the aircraft and parts industry shrank by 13.10 percent.

Since the virus struck (from February through the latest available – August – numbers)? Manufacturing output is down by 6.39 percent after inflation, and aircraft and parts production is off by 10.81 percent.

As for the trade war impact, from March, 2018 (the first full month of President Trump’s metals tariffs and a good place for marking the start of the broader trade wars) until February, 2020 (the last month before the virus began significantly affecting manufacturing and the entire domestic economy), overall manufacturing production grew by a bare 0.83 percent. But that poor performance was clearly dragged down by the nation’s aircraft and parts factories – which turned out 10.74 percent less in terms of constant dollar product value.

Aircraft and parts were major industrial also-rans, too, during the comparable 23-month period preceding the first full month of the Trump metals tariffs. Their real production slumped by 4.11 percent, as manufacturing’s overall production rose by 4.07 percent.

The bottom line, then, couldn’t be clearer. The President was wrong in insisting that trade wars for big deficit countries like the United States are “easy to win.” But the facts also demonstrate that the victories the nation has won in these conflicts – which have been significant – would have been come much easier had the aerospace sector and its long-time leader Boeing not turned into such major losers.

(What’s Left of) Our Economy: Why Trump’s Solid Trade Record Survives the Lousy New U.S. Trade Report

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automotive, Boeing, CCP Virus, cell phones, civilian aircraft, coronavirus, COVID 19, Made in Washington trade deficit, manufacturing, manufacturing trade deficit, non-oil goods deficit, shutdowns, tariffs, trade deficit, trade war, Trump, U.S. International Trade Commission, Wuhan virus, {What's Left of) Our Economy

This is how bad this morning’s official US. trade figures (for July) looked at first glance for folks like me – who value trade deficit reduction, and believe that trade policies like President Trump’s can make a real difference: When I began examining the data, even though I kept telling myself, “It’s only one month’s worth of statistics,” I scarcely knew what to despair about most.

Yet the “at first glance” point matters a lot. Because when you dig into the weeds, you’ll find plenty of evidence making clear that much of the deterioration had nothing to do with trade policy at all. And the evidence comes in two tables in these monthly trade reports on which I usually pass: Exhibit 7 and Exhibit 8. They cover U.S. exports and imports of goods “by End-Use Category and Commodity” and they provide the report’s most detailed picture of which areas of the economy have performed best and worst trade-wise during the month covered.

They’re not as detailed as those available from the U.S. International Trade Commission’s interactive search engine, but that database isn’t yet updated, so let’s go with what we have to begin seeing exactly where the biggest goods trade deficit increases came in July. (Goods trade, also called merchandise trade, makes up the bulk of U.S. trade flows, and it’s relatively unaffected by the policy decisions made by Washington – including by trade-minded Presidents like Donald Trump – mainly because international negotiations to deal with barriers in these sectors are still in pretty early stages)

Again, from the 30,000-foot level, the July results look terrible. The goods trade shortfall hit $80.91 billion – $9.26 billion, or 12.92 percent, higher than the June figure of $71.65 billion (which mercifully was revised down slightly). That increase proportionately is dwarfed by the record 31.60 jump of March, 1993. But that nearly 18-year old all-time high can be disregarded pretty easily, both because the law of small numbers is at work here (i.e., when you’re dealing with small absolute numbers, relatively small absolute changes can result in outsized percentage changes), and because back in those days, U.S. trade flows were heavily affected by oil trade – another sector of the economy rarely subject to trade policy decisions.

So what mainly accounted for that $9.26 billion merchandise import surge? First of all, we know that more than all of it ($9.94 billion) came in non-oil goods trade. As known by RealityChek regulars, those are the trade flows most heavily influenced by U.S. trade policy. So this increase in the “Made in Washington” deficit seems to reflect badly on decisions made in Washington. Drilling down a little deeper, manufacturing emerges as an even bigger culprit. Its $89.15 billion June trade gap ballooned to $104.63 billion in July – a rise of $15.48 billion. Not so incidentally, that manufacturing trade deficit is the worst ever in U.S. history, eclipsing the $101.65 billion recorded for October, 2018.

Nearly as interesting, though: China trade – where the President has been fighting a war – was not the biggest problem, as the manufacturing-dominated goods gap with the People’s Republic rose by just $3.22 billion. And neither the 11.35 percent on-month increase nor the $31.62 billion total goods gap was anywhere close to a record. 

So we’re back to manufacturing, and figuring out where the big deficit widening took place. Here’s where Exibits 7 and 8 matter.

What they tell us is that the monthly worsening of the merchandise trade deficit was highly concentrated in a handful of industries, and that these latest developments either have little or nothing to do with the Trump tariffs, or actually  demonstrate their effectiveness in widely overlooked ways.

Most relevant of all here is the automotive sector. Between June and July, the deficit in vehicles and parts combined increased by just under $3.20 billion. That represents more than a fifth of the sequential worsening of the manufacturing trade deficit, and nearly a third of the difference in the non-oil goods deficit. But the problem says little about the Trump trade policies, and a great deal about the reopening of U.S. automotive sector in late spring and early summer after the CCP Virus led to its almost complete shutdown in March and April.

From May through July, total American automotive production nearly tripled in real terms, according to the Federal Reserve’s industrial production reports. So it’s no surprise that since production in this industry is so globalized, and thus so many of its parts and materials (and the parts of the parts) are still imported, its trade deficit ballooned, too.

Then there are cell phones. Between June and July, the trade deficit here rose by just under $1.44 billion – 9.30 percent of the increase in the manufacturing deficit, and 14.48 percent of the problem in non-oil goods.

The cell phone category in the monthly trade releases also includes “other household goods” – one of the reasons I don’t love these numbers like I love those available from the International Trade Commission. But it’s reasonable to suppose that most of these goods are cell phones, and that most of these are coming from China – with which the Trump administration of course has been fighting a trade war.

As observed on RealityChek last month, however, Mr. Trump decided not to tariff them. So although cell phone imports indicate that the trade war is incomplete, they certainly don’t show that tariffs don’t work. If anything, they underscore what can happen when they’re missing.

A third major source of the deterioration shown in the new trade report is the civilian aircraft industry – where a surplus of $575 million in June became a $1.50 billion deficit in July. That’s a trade balance worsening of nearly $2.08 billion. In other words, this development alone accounts for 13.44 percent of the lousy July manufacturing trade results and 20.93 percent of the woes in non-oil goods trade flows.

Aircraft’s problems, however, have nothing to do with U.S. trade policy, and everything to with Boeing’s safety failures, which have led to big production shutdowns.

Add up the trade performances of these categories, and together they account for fully 43.38 percent of the manufacturing trade deficit’s increase between June and July, and a whopping 67.57 percent of the monthly rise in the non-oil deficit.

Combine these findings with a U.S. economic recovery that so far has been faster than the bouncebacks of many of its leading trade partners (except, notably, for export-heavy China) and the discouraging July trade figures don’t look nearly so discouraging.

Mission accomplished, then, for the Trump administration? Hardly? But the July trade report is far from a conclusive sign of failure, either. In fact, it leaves any fair-minded evaluation of the Trump trade record pretty much where it’s been since the CCP Virus arrived – deserving of solid grades before the bug arrived, and an incomplete during the completely abnormal times we’ve experienced since then.

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

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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.

(What’s Left of) Our Economy: Full Virus-Distortion Mode for New U.S. Trade Figures

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aerospace, Boeing, CCP Virus, China, civilian aircraft, coronavirus, COVID 19, decoupling, exports, imports, manufacturing, manufacturing trade deficit, Phase One, Trade, Trump, Wuhan virus, {What's Left of) Our Economy

Here’s a heck of a way to start a blog post: On the one hand, it’s a relief to.be writing about something other than the shameful George Floyd killing and its too-often-violent aftermath, and focus on an economic issue like the latest U.S. trade figures. On the other hand, because of the CCP Virus and the deep U.S. and global recessions (and possibly worse) it’s triggered, it’s hard to make the case that the new numbers (for April) even say much of anything useful about that month, much less about how trade flows and their impact on the economy might evolve going forward.

Even less serious is the notion that they shed light on the past, present, or likely future effectivness of President Trump’s Phase One trade deal with China – which incidentally only went into effect in mid-February.

All the same, speaking of China, the month-on-month change was discouraging at least on the surface. The goods deficit nearly doubled between March and April – from $11.83 billion to $22.27 billion. The last change of that magnitude came back in April, 1989, when trade flows were orders of magnitude smaller, and therefore huge fluctuations much easier to generate. Moreover, this trade gap bounceback followed two straight months of dramatic decline that brought the shortfall to its lowest level since March, 2004.

Worth noting in this regard for additional context. On a year-to-date basis, the U.S. goods shortfall with China is down by 28.55 percent. That’s more than three times greater than the 8.17 percent decrease in the global U.S. merchandise deficit, and more than six times faster than the 4.52 shrinkage of America’s worldwide non-oil goods gap, which is a better global proxy for U.S.-China trade.

In other words, here’s clear evidence of major progress toward President Trump’s unstated but apparent goal of decoupling the U.S. and Chinese economies.

U.S. merchandise exports to the economy of the People’s Republic, which by most accounts has started recovering steadily from its own pandemic setback – did rise by 7.94 percent. But the much greater value of imports shot up by 56.88 percent. That’s the biggest percentage increase ever. In second place? The 49.92 jump back in January, 1986, when trade flows were miniscule.

Year-to-date, U.S. goods exports to China are down by 9.03 percent – a little less than overall U.S. goods exports (9.46 percent) and than overall U.S. non-oil goods exports (10.86 percent).

The comparable imports figures: America’s merchandise purchases from China are off by 23.88 percent. That’s more than twice decrease of its total goods imports (9.03 percent) and of its non-oil goods imports (8.45 percent).

In other words, here’s clear evidence that the decoupling and contraction of the bilateral deficit is taking place exactly where it should from an American standpoint – on the import side.

Some other notable takeaways from the April trade report:

>The combined goods and services trade deficit soared sequentially in April by 16.66 percent, to $49.41 billion. That’s the highest monthly total since last August’s $50.78 billion, and the biggest such rise since…March’s revised 22.11 percent.

But that revision is a story in and of itself. The originally reported $44.42 billion figure for the month is now estimated at just $42.34 billion – 4.68 percent lower. That’s an unusually big change, and indicates some major, CCP Virus-related data-gathering and analysis problems.

Year-to-date, the total trade deficit has fallen by 13.36 percent.

>Total U.S. exports took by far the biggest hit in April. plunging by 20.46 percent, from an upwardly revised $190.18 billion to $151.28 billion. That’s the lowest monthly total since the $150.01 billion recorded in April, 2010, when the last economic recovery was still young.

Moreover, the monthly nosedive was both nearly twice as bad as the old record holder of 10.19 percent set in CCP Virus- and shutdown-impacted March, and nearly doubled the previous all-time high (going back to 1992) of 5.50 percent set in September, 2001 – the month of the September 11 terror attacks.

Goods exports fell even faster – by 33.71 percent, from a downardly revised $127.72 billion to $95.52 billion. This contraction has just obliterated the previous record of 10.03 percent, from Great Recession-y December, 2008. (For comparison’s sake, goods exports declined by 5.80 percent in September, 2001).

>Combined goods and services imports were down dramatically, too, on month in April. But although an all-time high, the 13.36 percent decline — from an upwardly revised $232.52 billion to $200.69 billion – was much smaller than that for exports. In addition, it only slightly exceeded the previous monthly record of 11.58 percent, from the Great Recession month of November, 2008. Further, as with exports, the new April monthly total was also the lowest since April, 2010.

April’s monthly goods import decrease was only a bit greater – 13.62 percent, from an upwardly revised $193.74 billion to $167.35 billion. The monthly level was the lowest since November, 2010 and the rate of decrease just a hair above that of the aforementioned November, 2008.

>The longstanding and huge U.S. manufacturing trade deficit also grew sequentially in April – by 9.63 percent, from $75.08 billion to $82.31 billion..That was the biggest monthly total since October, 2019’s $92.70 billion.

Manufacturing exports sank by 30.51 percent on month in April, while the much larger value of imports was 12.78 percent lower.

Interestingly, the sequential worsening of the manufacturing trade shortfall was dominated by the country’s civilian aerospace industry – once far and away America’s trade surplus and surplus growth leader. But between March and April, this surplus tumbled by 73.21 percent, from $4.05 billion to $1.09 billion. The $2.97 billion decrease accounted for fully 41 percent of the widening of the manufacturing trade gap, and stems from the combined impact of aerospace giant Boeing’s continuing safety woes and production cutbacks, the virus-induced global recession, and its especially great impact on the travel industry.

Year-to-date, moreover, the manufacturing trade gap has narrowed by 6.62 percent, from $324.59 billion to $303.59 billion.

(What’s Left of) Our Economy: Inside April’s U.S. Manufacturing Crash I

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aircraft, auto parts, automotive, Boeing, CCP Virus, coronavirus, COVID 19, durable goods, Federal Reserve, inflation-adjusted output, manufacturing, manufacturing output, manufacturing production, non-durable goods, real growth, vehicles, Wuhan virus, {What's Left of) Our Economy

There was never any point in expecting today’s Federal Reserve manufacturing production figures (for April) to change significantly what’s known about the CCP Virus’ body blow to the American economy overall, and to industry in particular. As with the case last month, however, the details reveal a great deal about how the pandemic is changing patterns of U.S. factory output – which in turn to some extent reflect changing patterns of the spending (by both consumers and businesses) that remains the main driver of the nation’s growth (or, nowadays, contraction).

The big takeaways are that:

>The March revisions show that the virus damage to manufacturing that month was a good deal less (with inflation-adjusted output falling by 5.53 percent on month) than the 6.27 percent drop initially reported.

>The April 13.78 percent month-to-month real production was by far the biggest such decrease on record (going back to 1972) – surpassing March’s previous record.

>As with March, the steepest fall-offs in price-adjusted output came in the durable goods sector – which consists of items whose active use or shelf life is expected to be three years or greater. In March, the sequential production decrease was revised from 9.14 percent to 8.23 percent. But in April, the plunge was more than twice as great: 19.27 percent.

>The March monthly shrinkage of non-durable goods production is also now judged to be smaller than first reported – 2.64 percent rather than 3.21 percent. But in April, the rate of sequential deterioration was even faster than for durable goods, speeding up to 8.23 percent.

>Within durable goods (e.g., steel, autos, computers, industrial machinery, furniture, appliances, aircraft), the automotive sector remained by far the weakest industry. It was bad enough that March’s horrific on-month after-inflation output crash dive was thought to be even greater than first estimated (29.96 percent rather than 28.04 percent). But in April, inflation-adjusted output was down by another 71.69 percent.

>And within the automotive sector, the big story was vehicles, not parts. The former’s constant dollar March production is now judged to have been 37.77 percent, not the originally reported 34.76 percent. But then in April, it careened down by 93.60 percent. That is, it nearly stopped.

>For an idea of how profoundly automotive’s tailspin has affected manufacturing’s performance, if it’s removed from the total, factory output’s April monthly contraction would have been 10.29 percent in real terms, not 13.78 percent. That is, still a terrible (and record) performance, but not quite so terrible.

>As for durable goods, its April sequential production drop would have been 12.65 percent in real terms, not 19.27 percent. Again, an awful performance, but much better than the numbers with automotive.

>Speaking of tailspins, Boeing’s troubles have continued to mount because the virus crisis has decimated U.S. travel and transportation, and they showed up in abundance in the April Fed manufacturing report. March’s monthly after-inflation output decrease for aircraft and parts was revised from 10.36 percent to 12.09 percent. And that rate more than doubled in April, hitting 28.88 percent.

I’ll be following up with more detailed April production data later this afternoon!

(What’s Left of) Our Economy: Early Virus-Era U.S. Manufacturing Winners and Losers

Tags

(What's Left of) ur Economy, aircraft, automotive, Boeing, CCP Virus, coronavirus, COVID 19, durable goods, Fed, Federal Reserve, industrial production, manufacturing, non-durable goods, Wuhan virus

Hey! I’m a manufacturing geek (among other things)! It’s part of what I do! Even so, I hope you agree that it’s worth looking in some detail at yesterday’s U.S. manufacturing output report from the Federal Reserve – because it offers a first look at domestic industrial winners and losers in the Age of the CCP Virus.

As always, these numbers will show inflation-adjusted production changes from month to month – in this case, between February and March. Of course, the time lag means that these data only partly reflect the first wave of the full CCP Virus hit.

As I wrote yesterday, that hit has been hard for domestic manufacturing as a whole – its real output sank by 6.27 percent on month – the biggest such fall-off since the post-World War II demobilization in 1946!

Looking at the super-categories first, the biggest sequential production nosedive came in durable goods – which are supposed to be usable (or shelve-able) for at least three years. Think steel, motor vehicles and parts, machinery, aircraft and parts, home appliances, information technology hardware and the like – include medical products except for pharmaceuticals and vaccines. Constant dollar production of these products plunged by 9.14 percent. So they fared much worse than manufacturing as a whole, and that’s especially discouraging since they’re the bigger of the two super-sectors.

Speaking of which, the other super-sector – non-durable goods (which include textiles and apparel, pharmaceuticals and all other chemicals, plastics and resins, petroleum products, paper, and foods and beverages) – saw a monthly real output decrease of only 3.21 percent.

But we can go into much more detail than that. For convenience sake, let’s limit ourselves to examining industries classified at the 3-digit level of the North American Industry Classification System (NAICS), the U.S. government’s main typology for slicing and dicing the entire economy. Here are the results for the February to March period, leading off with the durable goods sectors.

Wood products:                                                                     -4.22 percent

Non-metallic mineral product:                                             -6.56 percent

Primary metal:                                                                      -2.82 percent

Fabricated metal product:                                                     -8.28 percent

Machinery:                                                                            -5.56 percent

Computer and electronic products:                                       -1.89 percent

Electrical equipment, appliances, and components:             -2.24 percent

Motor vehicles and parts:                                                   -28.04 percent

Aerospace & miscellaneous transportation equipment:       -8.12 percent

Furniture and related products                                           : -9.99 percent

Miscellaneous manufacturing:                                             -9.94 percent

(contains most of those non-pharmaceutical healthcare goods)

Clearly, these results are all over the place, with the automotive sectors being the big standouts. Within automotive, the biggest losers were vehicles factories, where after-inflation production cratered by 34.76 percent. Real parts output was off “only” 21.80 percent.

In fact, leaving out these two automotive industries, inflation-adjusted durable goods output fell by just 5.84 percent – versus the 9.14 percent plummet including these products. And real manufacturing production would have been down by just 5.84 percent, not 6.27 percent.

Also of note: Aircraft and parts production dropped by 10.36 percent, for reasons partly due to the CCP Virus (and the impact on air travel), but also partly due to Boeing’s long-running safety problems. In fact, the March results mark the first that indicate major Boeing-related losses – although surely the impact has been felt previously throughout a vast domestic supply chain that includes lots of industries outside the aerospace complex as such.

Here’s the list of non-durable winners and losers:

Food, beverage, and tobacco products:                                   -0.76 percent

Textiles:                                                                                 -14.05 percent

Apparel and leather goods:                                                   -16.54 percent

Paper:                                                                                      -2.04 percent

Printing & related activities:                                                 -18.18 percent

Petroleum and coal products:                                                 -5.93 percent

Chemicals:                                                                              -1.65 percent

Plastics and rubber products:                                                 -7.60 percent

Other manufacturing (different from miscellaneous):           -5.37 percent

As with investment, past results are no guarantee of future performance, especially since the new economic slump is biologically, not economically caused. But some of these figures look like they have staying power – e.g., we’ll continue eating, we’ll keep using computers, we won’t be flying as much. One big puzzle – will car buying stay this depressed? As I like to say, my crystal ball is far from crystal clear. But that just makes it all the more important to keep track of these detailed manufacturing production figures as they come in, especially what leads an economy down is often what leads it back up.

(What’s Left of) Our Economy: Yes, These New (Pre-CCP Virus) U.S. Trade Figures Really Matter

Tags

Atlanta Fed, Boeing, Census Bureau, China, exports, GDP, gross domestic product, imports, Made in Washington trade deficit, manufacturing, New York Fed, Pacific Rim, real GDP, tariffs, Trade, trade deficit, Trump, {What's Left of) Our Economy

There’s no doubt that the pre-CCP Virus U.S. economic data that still keep coming out (and that will continue coming out for months) has at best strongly limited utility nowadays – with one gigantic caveat. They speak volumes about how the economy was faring before the virus’ invasion, and the message they’re sending is especially important for evaluating the effects of President Trump’s tariff-heavy trade policies.

Specifically, they make abundantly clear that the economy was humming along just (and in many ways, increasingly) fine even though steep Trump levies have remained on literally hundreds of billions of dollar worth of potential goods imports – mainly on products from China and steel and aluminum from numerous countries. So you can take the mountain of claims that these duties would wreck American prosperity and throw them on the trash heap. And new reinforcement for this analysis has appeared this morning in the form of the latest official monthly U.S. trade figures (for February) from the Census Bureau.

First, let’s look at the growth numbers, as reported in terms of a measure called “gross domestic product” (GDP). It gauges the nation’s output of goods and services, and the most closely watched figures are those adjusted for inflation.

There’s no doubt that real growth slowed from the time the first Trump-specific tariffs (on metals) were imposed in March, 2018. That year, after-inflation GDP expanded by a healthy 2.93 percent. But the rate slowed notably during that year, certainly at least coinciding with the impact of the tariffs taking hold. It’s also important to point out that China duties began in mid-year, were increased, and plans for many more were announced. (See the timeline linked immediately above for the specifics). 

Growth slowed in full year, 2019, but just to 2.33 percent – still solid by recent U.S. (meaning post-2008 financial crisis) standards. And the nation was dealing not only with trade war fallout, but the safety problems plaguing aircraft giant Boeing and its vast national supply chain.

We don’t have constant dollar GDP results for the first quarter of this year yet, but two regional branches of the Federal Reserve system try to track growth on a timely, ongoing basis. And the pre-virus grades they both gave the economy were encouraging. According to the Atlanta Fed, first quarter after-inflation growth was proceeding at a better-than-three percent annual pace through late March – even though virus infections and deaths were rising troublingly.

(It’s crucial to note, especially in light of shockingly bad recent virus-era growth – and in fact contraction – estimates from private sector economists, that such annualized figures describe growth rates as if the quarterly results lasted for an entire year. That is, the growth or contraction they describe does not represent actual GDP change for that quarter – and as a result, they shouldn’t be taken to revealing that the increases or decreases that are forecast will take place all at once.)

The New York Fed’s estimates tend to be lower than Atlanta’s, but they still predicted an annualized 2.14 percent inflation-adjusted first quarter growth rate as late as February 28. By March 27, that estimate had fallen to 1.68 percent annualized.

And what’s happened to the U.S. trade deficit for the first two months of 2020 – in other words, the first two-thirds of the first quarter of the year? By the broadest measure, which counts both goods and services, it’s down 18.71 percent year-on-year. (This and the following trade numbers are presented in pre-inflation terms, since such figures dominate the detailed results contained in the monthly trade reports.) Better yet, decline has been accelerating. Between December and January, the total trade gap fell by 6.44 percent – from $48.61 billion to $45.48 billion. From January to February, it sank by another 12.20 percent – nearly twice as fast – to $39.93 billion. (The initially reported January number was revised up slightly today.)

That February figure was the lowest since the $39.92 billion registered in April, 2016 – when the economy was growing only a bit more slowly, but when there were no serious problems facing then-export standout Boeing. Moreover, the February monthly drop was the biggest since March, 2018 (12.34 percent) – just as the first Trump metals tariffs were coming into effect.

As known by RealityChek regulars, the best way to judge how trade policy decisions have affected the trade figures is to look at the data measuring the nation’s trade flows minus oil and services (which have never been greatly affected by trade agreements or tariffs). For the first two months of this year, this Made in Washington trade deficit is off by 9.64 percent in pre-inflation terms. Here, too, the rate of decrease is getting faster, with February’s sequential 7.97 percent plummet the biggest such decrease since the 9.45 percent nosedive that took place in January, 2019 – as the China trade war was peaking in terms of tariff impositions. And the $60.76 billion February total is the lowest for a single month since September, 2017’s $60.65 billion.

Speaking of China, a combination of Beijing’s widespread CCP Virus lockdowns and Trump tariffs brought the February U.S. goods trade gap with the People’s Republic all the way down to $16 billion. That’s the lowest such total since the $15.65 billion recorded in Great Recession-ary March, 2009. And the monthly falloff (38.62 percent) was the biggest since December, 1993’s 39.46 percent. That was more than 26 years ago!

Moreover, even though U.S. merchandise exports to China slipped by 5.55 percent on month, U.S. goods imports from China dropped by 31.45 percent. The actual U.S. export level of $6.82 billion was indeed the lowest since June, 2010’s $6.73 billion. But the import level of $22.81 billion was the lowest monthly total since Great Recession-ary May, 2009’s $22.73 billion. And the sequential import drop was the biggest since the 34.07 percent of April, 1986 – nearly 34 years ago, when the much smaller volumes of U.S.-China trade made big percentage moves much easier to produce.

Also important – even as the China year-to-date goods trade deficit has declined by 28.99 percent, the U.S. goods trade gap with Pacific Rim countries (a grouping that does not include Western Hemisphere countries like America’s U.S.-Mexico-Canada trade agreement partners) is off by 25.30 percent. So say so long to the claim that the Trump tariffs have simply shifted the deficit to other Asian countries.

The news was equally good on the manufacturing trade front. America’s mammoth manufacturing trade deficit shrank on month in February from $81.93 billion to $63.01 billion. The February total is the lowest such figure since February, 2017’s $60.47 billion. Meanwhile, the 23.09 percent monthly drop is the biggest since December, 2012’s 27.11 percent decrease.

Further, the deficit fell for all the right reasons. Despite the continued overall economic growth, U.S. manufacturing imports were off 8.98 percent, to $153.07 billion while exports actually grew – by 4.42 percent, to $90.06 billion.

As a result, the manufacturing trade shortfall is down year-to-date so far as well – by 9.65 percent, from $160.43 billion to $144.94 billion.

(What’s Left of) Our Economy: A Winning Trade War Message from the Last Pre-China Virus Manufacturing Figures

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aerospace, aircraft, Boeing, China, China virus, coronavirus, inflation-adjusted output, manufacturing, manufacturing production, metals, supply chains, tariffs, Trade, trade wars, {What's Left of) Our Economy

The new Federal Reserve industrial production figures are now out, and although they only bring the story up through February, they contain two vital messages: First, taking into account ongoing safety problems with aerospace giant Boeing (and its vast domestic supply chain), they’re very solid – and reinforce the case that the pre-China Virus manufacturing and overall U.S. economies were faring well despite widespread slowdown fears. Second, they also show that, despite the equally widespread tariff alarmism being mongered throughout the Trump years, domestic manufacturing wound up handling the so-called trade wars just fine.

According to the Fed, inflation-adjusted manufacturing output increased by 0.12 percent month-to-month and remained down on a year-on-year basis (by 0.18 percent). January’s monthly constant dollar production dip was revised down from 0.09 percent to 0.23 percent. Yet this real output is up on net by 1.33 percent since its last low point (last October) and by 0.36 percent since the first full month of significant Trump tariffs (April, 2018).

At the same time, these production levels remain 1.28 percent below those of manufacturing’s last peak – in December, 2018. So these are by no means salad days for domestic industry.

Take a look, however, at the main Boeing-related figures. Aircraft production and parts sank by 5.12 percent sequentially in February. It reached its lowest level since October, 2011 and this drop followed January’s 11.36 percent monthly nosedive.

Moreover, although impossible from the Fed figures to quantify precisely, the production halt of Boeing’s popular 737 Max model that began in January is clearly dragging down output in sectors ranging from metals to industrial machinery to plastics to electronics and instruments.

The rapid recent spread of the coronavirus throughout the United States will start generating very different and much worse manufacturing production and other data going forward. But these latest data show domestic industry’s performance even as tariffs on literally hundreds of billions of dollars worth of tariff on Chinese and metals inputs used by manufacturers remained firmly in place. And if that doesn’t signal loud and clear that both American producers and consumers were withstanding the Trump trade wars – a New Normal that’s likely to survive the passing of COVID 19 – quite nicely, and in fact that the entire economy had been winning it, what could?

(What’s Left of) Our Economy: Solid Manufacturing Jobs and Trade Numbers Despite Boeing’s Woes

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Boeing, China, exports, imports, Jobs, manufacturing, manufacturing jobs, manufacturing trade deficit, Phase One, tariffs, Trade, trade deficit, {What's Left of) Our Economy

You say U.S. manufacturing jobs keep growing too slowly? You say manufacturing’s trade deficit remains too high, and its exports inadequate? According to two big new government reports on the state of the American economy this morning, if you do, you should also be saying (with beaucoup de snark) “Thanks, Boeing!”

For it keeps getting clearer that the aerospace giant’s safety woes and resulting production halt of its (once) popular 737 Max model are sandbagging both measures of manufacturing’s performance – and not trivially. Don’t forget the silver lining, however.  Despite the Boeing effect, domestic industry has been holding up encouragingly well. 

The evidence is clearest from the trade figures. As reported last month in RealityChek, if not for a big deterioration in the civilian aircraft trade balance (until recently the sector of the entire economy with the biggest trade surplus), the full-year 2019 manufacturing trade shortfall would barely have grown over the 2018 level. And since industry itself increased output last year in pre-inflation terms, (at least through the latest – third quarter – data available), that represented a heartening sign that domestic manufacturing was becoming more self-reliant.

In January, the manufacturing shortfall actually fell month-to-month (by 0.38 percent, from $82.24 billion to $81.93 billion, and $850 million in absolute terms). The mix wasn’t exactly ideal: Imports were down 3.11 percent, but the value of exports (which are much smaller) fell by 5.58 percent.

But the civilian aircraft trade surplus plunged 44.43 percent – from $3.06 billion to $1.70 billion. So in January, had the sector simply equaled its December trade performance, the January manufacturing deficit would have been not $81.93 billion but $80.57 billion – the lowest total since last March’s $76.96 billion, and a monthly drop of 2.03 percent, not 0.38 percent. Further, manufacturing exports would have been $87.93 billion rather than $86.25 billion – or down only 3.74 percent, not 5.58 percent.

The picture is muddier for manufacturing employment because the data for civilian aircraft and their parts is reported one month after most other industry-by-industry jobs statistics. Another complication: The new jobs report overall goes up to February.

More puzzling still: Although latest statistics for the Boeing-related categories are January, they’re little changed from the December totals even though the 737 Max production suspension was announced in the middle of that month.

But it’s still legit to wonder whether they would’ve been better without the Boeing crisis. And how much better? Moreover, the vast aircraft supply chain encompasses dozens of manufacturing sectors beyond the engines and parts themselves. After all, these systems are in turn made of any number of components and materials. Boeing’s difficulties, therefore, could have been holding back manufacturing job growth broadly speaking for months.

Even so, industry as a whole added 15,000 jobs sequentially in February – it’s best such performance (except for a November increase that was aided by the end of the General Motors strike) since January, 2019’s 20,000.

And let’s not forget – industry achieved this employment gain even though the “Phase One” trade deal with China has left stiff U.S. tariffs on hundreds of billions of dollars worth of imported goods from China, as well as on much foreign steel and aluminum.

No doubt the coronavirus outbreak could send the manufacturing performance arrows pointing down again, or leveling off, in the next few months. But the new jobs and trade data make clear that despite an external (Boeing) shock that has nothing to do with President Trump’s trade wars, and despite the trade curbs he has enacted, domestic manufacturing has been on the rebound lately, and showed impressive resilience that bodes well for its future – and the entire economy’s.

(What’s Left of) Our Economy: Boeing Woes Finally Smack (Otherwise Encouraging) Fed Manufacturing Data

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737 Max, aircraft, Boeing, China, China trade deal, Commerce Department, Fed, Federal Reserve, industrial production, inflation-adjusted output, manufacturing, manufacturing production, manufacturing recession, Phase One, recession, tariffs, Trump, {What's Left of) Our Economy

The Federal Reserve’s report on January industrial production is out, and it not only finally makes clear the impact on manufacturing output of Boeing’s safety woes. It also strongly suggests that whatever (mild) recession industry has experienced is now over.

I say “whatever (mild recession)….” because several official measures of manufacturing output indicate that no downturn took place at all. For example, the Commerce Department’s GDP-by-Industry data series (which gauge factory production on a quarterly basis, not a monthly basis like the Fed) shows that manufacturing’s real gross output (analogous to the Fed’s inflation-adjusted manufacturing output figures) has not declined for two consecutive quarters during the entire current economic recovery. At the same time, it has registered several two-quarter (and longer) stretches periods during which manufacturing by this measure of inflation-adjusted output fell cumulatively.

Commerce’s tables for real value-added (a measure of manufacturing production that tries to prevent counting the production of inputs both as such, and as parts, components, and materials of finished goods) do report that industry’s production dropped between the fourth quarter of 2018 and the first quarter of 2019, and between the first and second quarters of this year. Cumulatively, moreover, this production level was lower in the second quarter of this year than in the third quarter of 2018 – revealing that on this basis, manufacturing suffered a three-quarter downturn.

At the same time, according to this series, both by the consecutive quarters and the cumulative methodology, the manufacturing recession ended in the third quarter, when it topped both the second quarter level and the output figure for the third quarter of 2018.

And don’t forget: According to the Fed’s real manufacturing output figures, domestic industry’s price-adjusted production peaked in December, 2007 – i.e., it’s never pulled out of the slump that began with the Great Recession. Further, as I documented last month, the Fed’s data show that within this long manufacturing recession, several shorter recessions have begun and ended by the cumulative criterion.

So that’s some of context needed for the Fed finding that after-inflation U.S. manufacturing production fell by 0.09 percent in January. That represented its first sequential decline since October, and left year-on-year production down 0.72 percent. By that standard alone, therefore, manufacturing’s recession has continued.

At the same time, industry’s constant dollar production is up since last April – by 0.70 percent. It’s also up 0.34 percent since April, 2018 – the first full month when the Trump administration’s tariffs on steel and aluminum imports went into effect,  and signaled that the President’s tariffs-heavy approach to trade had begun in earnest.

But the Boeing effect also needs to be considered as well. January saw a nosedive in aircraft and parts production of 1.07 percent sequentially, due to the company’s December announcement that production of its flawed 737 Max model would be suspended. The drop-off was the sector’s biggest monthly decline since the nearly 24 percent plunge in recessionary September, 2008.

I’ve wondered whether Boeing’s troubles had already been dragging down manufacturing output – given the company’s huge domestic supply chain, and given that the 737s had been grounded or banned from national airspaces nearly worldwide since March. But today’s report leaves no doubt that their effects have shown up. Indeed, the Fed explicitly stated that “excluding the production of aircraft and parts, factory output advanced 0.3 percent” on month in January.

So without the Boeing effect, January manufacturing output would be up cumulatively since last February – by 1.09 percent, not by 0.70 percent. And the increase since the advent of the main Trump tariffs would have been 0.74 percent, not 0.34 percent. These figures certainly don’t reveal a manufacturing boom – or even close. But given that even after the Phase One trade deal was signed with China, tariffs on hundreds of billions of dollars worth of Chinese products remain in place (many of them levied against goods that are manufacturing inputs), they cast new doubt on how damaging the President’s trade war has been for domestic industry.

Boeing’s 737 Max crisis will end some day. But the company itself warned that it could last “several quarters” more. Moreover, Boeing’s troubles scarcely end with this ill-fated aircraft. In other words, the company’s woes will keep impacting both all U.S. manufacturing data for the foreseeable future. Therefore, it’s up to the nation’s economists and journalists (along with think tank hacks, no matter who’s funding them) to keep this in mind when judging the effect of the President’s trade wars and other economic policies. Let’s see how many can meet this challenge.