(What’s Left of) Our Economy: Will Inflation and a Hawkish Fed Finally Undermine U.S. Manufacturing?

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aerospace, aircraft, aircraft parts, appliances, automotive, capital spending, CCP Virus, coronavirus, COVID 19, electrical components, electrical equipment, Federal Reserve, furniture, inflation, inflation-adjusted output, machinery, manufacturing, medical devices, medicines, non-metallic mineral products, petroleum and coal products, pharmaceuticals, real growth, semiconductor shortage, semiconductors, wood products, {What's Left of) Our Economy

The new (May) U.S. manufacturing production report from the Federal Reserve doesn’t mainly indicate that industry may be facing a crossroads because the sector’s inflation-adjusted output dropped on month for the first time since January.

Instead, it signals that a significant slowdown may lie ahead for U.S.-based manufacturers because its downbeat results dovetail with the latest humdrum manufacturing jobs report (also for May), with results of some of the latest sentiment surveys conducted by regional branches of the Fed (e.g., here), and with evidence of a rollover in spending on machinery and equipment by the entire economy (which fuels much manufacturing output and typically reflects optimism about future business prospects).

Domestic industry shrank slightly (by 0.07 percent) in real output terms month-to-month in May. On the bright side, the strong results of recent months stayed basically unrevised, and April’s very good advance was upgraded from 0.75 percent to 0.77 percent.

Still, the May results mean that real U.S. manufacturing production is now up 4.94 percent since just before the CCP Virus began roiling and distorting the American economy (February, 2020), rather than the 5.07 percent calculable from last month’s report.

May’s biggest manufacturing growth winners were:

>Petroleum and coal products, where after-inflation jumped by 2.53 percent sequentially in May. The improvement was the fourth straight, and the increase the best since February’s 2.68 percent. As a result, constant dollar production in these sectors is now 1.21 percent higher than in immediately pre-pandemic-y February, 2020;

>Non-metallic mineral products, whose 1.78 percent sequential growth in May followed an April fall-off that was revised way down from -0.67 percent to -1.72 percent. March’s 0.76 percent decrease was downgraded to a 1.29 percent retreat, but February’s sequential pop was revised down just slightly to a still outstanding 4.37 percent surge. All told, the sector has grown by 2.58 percent after inflation since February, 2020 – exactly the same result calculable from last month’s Fed release; and

>Furniture and related products, whose 1.23 percent May inflation-adjusted output rise was its first such increase since February’s, and its best since that month’s 4.96 percent surge. Moreover, the May advance comes off an April performance that was revised up from a -0.60 percent sequential dip to one of -0.12. In all, these results were enough to move real furniture production above its Februay, 2020 level – by 0.08 percent.

May’s biggest manufacturing production losers were:

>wood products, whose 2.56 percent real monthly output decline was its first decrease since January and its worst since February. 2021’s 3.65 percent. Moreover, April’s previously reported 1.13 percent advance is now estimated to have been just 0.97 percent – all of which means that constant dollar production by these companies is now 5.24 percent higher than just before the pandemic arrived, not the 7.85 percent calculable last month;

>machinery, whose May inflation-adjusted output sank by 2.14 percent – the biggest such setback since February, 2021’s 2.59 percent. As known by RealityChek readers, machinery production is one of those aforementioned indicators of capital spending because it’s sold to customers not just in manufacturing but throughout the economy.

It’s true that machinery’s revisions were mixed. April’s after-inflation production increase was upgraded all the way fom 0.85 percent to 1.69 percent – its best such performance since last July’s 2.85 percent. But March’s performance was revised down from 0.36 percent to one percent shrinkage, and February’s increase was revised up again, but only from 1.17 percent to 1.22 percent. Consequently, whereas as of last month, machinery production was 8.31 percent higher in real terms than in February, 2020, this growth is now down to 6.29 percent.

>electrical equipment, appliances and components, where real output sagged for the second consecutive month, and by a 1.83 percent that was its worst such monthly performance since February, 2021’s 2.34 percent decrease. Revisions were modest and mixed, with April’s previously reported 0.60 percent sequential drop upgraded to -0.42 percent, March’s downgraded 0.04 percent dip upgraded to a 0.19 percent gain, and February’s real output revised up again – from 2.03 percent to 2.08 percent. These moves put real growth in the sector post-February, 2020 at 2.19 percent, less than half the 5.55 percent calculable last month.

By contrast, industries that consistently have made headlines during the pandemic delivered solid May performances.

Aircraft- and aircraft parts-makers pushed their real production up 0.33 percent on month in May, achieving their fifth straight month of growth. Moreover, April’s excellent 1.67 percent sequential production increase was upgraded to 2.90 percent (the sector’s best such result since last July’s 3.44 percent), March’s estimate inched up from a hugely downgraded 0.47 percent to 0.50 percent, and the February results were upgraded again – from 1.34 percent to 1.49 percent. This good production news boosted these companies’ real output gain since immediately pre-pandemic-y 16.37 percent to 19.08 percent.

The big pharmaceuticals and medicines industry performed well in May, too, as after-inflation production increased by 0.42 percent. Revisions were overall negative but small. April’s initially reported 0.20 percent real output slip is now judged to be a0.15 percent gain, but March’s upwardly revised 1.23 percent increase is now pegged at only 0.32 percent, and February’s downwardly revised 0.96 percent constant dollar output drop revised up to -0.86 percent. All told, inflation-adjusted growth in the pharmaceuticals and medicines sector is now up 14.78 percent since February, 2020, as opposed to the 14.64 percent increase calculable last month.

Medical equipment and supplies firms fared even better, as their 1.44 percent monthly real output growth in May (their fifth straight advance) was their best such result since February, 2021’s 1.53 percent. Revisions were positive, too. April’s previously recorded 0.06 percent dip is now estimated as a 0.51 percent increase, March’s downgraded 1.28 percent figure was upgraded to 1.41 percent, and February’s 1.46 percent improvement now stands at 1.53 percent. These sectors are now 11.51 percent bigger in terms of constant dollar output than they were just before the CCP Virus arrived in force – a nice improvement from the 8.92 percent figure calculable last month.

May also saw a production bounceback in the shortage-plagued semiconductor industry. Its inflation-adjusted production climbed 0.52 percent on month, but April’s previously reported 1.85 percent drop – its worst such performance since last June’s 1.62 percent – is now judged to be a 2.25 percent decline. At least the March and February results received small upgrades – the former’s improving from a previously downgraded 1.83 percent rise to 1.92 percent, and February’s upgraded growth of 2.91 percent now estimated at 2.96 percent. The post-February, 2020 bottom line: After-inflation semiconductor production is now 23.82 percent higher, not the 23.38 pecent increase calculable last month.

And since the automotive industry’s ups and downs have been so crucial to domestic manufacturing’s ups and downs during the pandemic era, it’s worth noting its 0.70 percent monthly price-adjusted output growth in May.

Revisions overall were negative. April’s previously reported 3.92 percent constant dollar production growth was revised down to 3.34 percent, March’s 8.28 percent burst was upgraded to 8.99 percent (the best such result since last October’s 10.64 percent jump), and February’s previously upgraded 3.86 percent inflation-adjusted production decrease was downgraded to a 4.24 percent plunge.

But given that motor vehicle- and parts-makers are still dealing with the aforementioned semiconductor shortage, these numbers look impressive, and real automotive output is now 1.17 percent greater than in pre-pandemic-y February, 2020, as opposed to the 0.77 percent increase calculable last month.

Domestic manufacturing has overcome so many obstacles since the CCP Virus’ arrival that counting it out in growth terms could still be premature. But an obstacle that it hasn’t faced since the pandemic-induced downturn have s looming again — a major economy-wide slowdown and possible recession that could result from monetary tightening announced by the Federal Reserve to fight torrid inflation.  And with the world economy likely to stay sluggish as well and limit export opportunities (see, e.g., here), the possibility that industry’s winning streak finally ends can’t be dismissed out of hand.  

Im-Politic: So Much for the “Pandemic of the Unvaccinated”

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Biden administration, CCP Virus, CDC, Centers for Disease Control and Prevention, coronavirus, COVID 19, Im-Politic, vaccination, vaccine mandates, vaccines, Wuhan virus

Remember when President Biden was railing last fall that the CCP Virus crisis at that point was a “pandemic of the unvaccinated” that was needlessly stressing the hospital system, and inexcusably exposing to danger those Americans who had done the right thing? How he used this claim to justify his push for vaccine mandates as a condition of employment for much of the U.S. workforce? And how numerous businesses, universities, and numerous state and local governments had already been using the same reasoning to shut the unvaccinated out of workplaces (both as employees and customers) and classrooms?

As I explained back then, this contention was completely unfounded because natural immunity and asymptomatic Covid had created towering, and likely insuperable, difficulties, in knowing the percentage of unvaxxed Americans who had even contracted the virus, much less who had been killed or hospitalized from it.

But just the other day, I discovered that even by the misleading evidence cited by the President and other fearmongers to make their case, this argument has completely fallen apart. The evidence – from the U.S. Centers for Disease Control and Prevention (CDC) – ignores the above complications, and leaves out jurisdictions containing nearly 40 percent of America’s population.

In addition, its central supposed finding is presented – and has been ceaselessly parroted by much of the national media – without mentioning any of the context that all along would have made clear just how rock-bottom low the chances of being hospitalized or killed by the CCP Virus have been.

Specifically, claims such as “Recent CDC data shows unvaccinated people are 20 times more likely to die” left out the fact that this finding showed that in absolute terms, as of December (the latest CDC figures cited in this ABC News piece), about nine unvaccinated Americans per 100,000 were dying from the CCP Virus versus about half a vaccinated American per 100,000 dying. In other words, unvaccinated Americans had a 0.009 percent chance of dying of Covid, versus 0.0005 percent of the vaccinated. And these literally microscopic numbers warranted throwing the lives of tens of millions of Americans into turmoil?

But even if you’ve been in favor of such measures, the latest CDC figures (from April, which you can see at the above link) show that the gap has been cut in half since December in per-100,000 terms and virtually disappeared in absolute terms.

That is, 0.62 unvaccinated Americans per 100,000 were dying of the CCP Virus – about nine times greater than the vaccinated rate of 0.07 Americans per 100,000 versus the 20 times gap last December. That is, many fewer than one of every 100,000 unvaccinated and vaccinated Americans alike is now dying from the virus. And at least as interesting: These numbers mean that since December, the death rate for the unvaxxed has plummeted by 93.11 percent, while the rate for the vaxxed has barely budged.

In addition, and not so coincidentally, the CDC data on hospitalization rates for the vaxxed and unvaxxed display exactly the same trends.

Yet despite this evidence, many businesses are still insisting on some form of vaccine mandate and/or CCP Virus testing for employees, and the Biden administation is still pushing them for federal workers. So much, it seems, for “following the science” as well as for the always-dubious idea of a pandemic of the unvaccinated. 

 

(What’s Left of) Our Economy: Why U.S. Manufacturing’s Record Trade Deficits Aren’t Biting — Yet

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Biden administration, CCP Virus, China, consumers, coronavirus, COVID 19, Covid relief, exports, Federal Reserve, imports, inflation, manufacturing, manufacturing jobs, manufacturing production, stimulus, tariffs, Trade, Trade Deficits, {What's Left of) Our Economy

Perceptive RealityChek readers (no doubt the great majority!) have surely noticed something odd about my treatment of trade-related developments and the American domestic manufacturing base. For most of the CCP Virus period, I’ve been writing both that U.S.-based industry has been performing well according to practically every major measure, and that the manufacturing trade deficit has been setting new record highs.

It’s not that I’ve ignored a situation that would normally strike me as being utterly paradoxical and even inconceivable over any serious time span. I’ve mainly attributed it to the pandemic’s main economic damage being inflicted on services industries, and to the Trump tariffs on Chinese imports, which have shielded domestic manufacturers from hundreds of billions of dollars’ worth of competition that has nothing to do with free trade or free markets.

But the longer manufacturing has excelled as the trade gap has skyrocketed, the more convinced I’ve been that something else was at work, too. What finally illuminated this influence has been the recent controversy these last few weeks over President Biden’s suggestion that he might cut some of those Trump China tariffs in order to curb inflation.

As I’ve written previously (see, e.g., here), there’s no shortage of economic-related reasons to dismiss the claims that levies that began being imposed in mid-2018 bear any responsibilityfor inflation that only became worrisome three years later, and that reducing the tariffs would ease this inflation meaningfully. Even the Biden administration keeps admitting the latter point.

But the increasingly striking contrast between manufacturing’s strong output, job creation, and capital equipment spending on the one hand, and its historically awful trade deficits on the other points to the paramount importance of another explanation I’ve mentioned for doubting that tariffs have fueled inflation. It’s the role played by the economy’s overall level of demand.

I’ve written that trade levies will contribute to higher prices or boost prices all by themselves overwhelmingly when consumers are spending freely – and consequently when businesses understandably believe they have scope to charge more for tariff-ed goods. That is, companies are confident that the higher costs stemming from tariffs can be passed along to customers who simply aren’t very price sensitive.

Strong enough demand, however, has another crucial effect on manufacturing – and on other traded goods: It creates a market growing fast enough to enable domestic companies to prosper even when their foreign competitors are out-performing them and taking share of that market. In other words, even though all entrants aren’t benefitting equally, all can still benefit.

Conversely, when demand for manufactures is expanding sluggishly, or not at all, this kind of win-win situation disappears. Then U.S.-based and foreign industry are competing for a stagnant group of customers, and one’s gain of market share becomes the other’s loss. In this situation, increasing trade deficits mean that American demand is being met by imports to eliminate any incentive for domestic manufacturers to boost production or employment. Indeed, they become hard-pressed even to maintain output and payrolls.

Of course, even if trade deficits keep surging during periods of slow domestic demand, U.S.-based manufacturers can still in principle keep turning out ever more products and hiring ever more workers if they can achieve one goal: super-charging their export sales. But the persistently mammoth scale of the American manufacturing trade shortfall indicates either that foreign demand for U.S.-made goods almost never improves enough to compensate for reduced or stagnant domestic sales, or that foreign economies prevent such growth by keeping many American goods out, or some combination of the two.

Super-strong demand for manufactured goods is precisely what’s characterized the economy since the CCP Virus arrived in force. As a result, the pie has gotten so much bigger that domestic industry as a whole has had no problem finding enough new customers to support healthy production and hiring levels even though imports’ sales have been lapping them.

Specifically, between the first quarter of 2020 and the fourth quarter of last year (the last quarter for which current-dollar (or pre-inflation) U.S. manufacturing production data are available, the U.S. market for manufactures increased by 22.83 percent – or $1.518 trillion. Revealingly, this demand would have been strong enough to enable domestic industry to pass tariff hikes on to customers, and enable these levies to fuel inflation on at least a one-time basis. But tariffs of course have not been raised during this stretch.

Meanwhile, the manufacturing trade deficit soared by 64.31 percent ($566 billion). And the import share of the U.S. market rose from 29.50 percent to 32.47 percent.

But domestic industry was able to boost its production (according to a measure called current-dollar gross output) by 16.55 percent, or just under $954 billion. ,

Contrast these results with the pre-CCP Virus expansion. During those 10.5 years (from the second quarter of 2009 through the fourth quarter of 2019), the U.S. market for manufactured goods increased by just 45.37 percent, or $2.154 trillion. That is, even though it was more than five times longer than the above pandemic period, that market grew by only about twice as much.

The manufacturing trade deficit actually also grew at a slower rate than during the much shorter pandemic period (169.2 percent). But because the pie was expanding more slowly, too, the import share of this domestic manufacturing market climbed from 23.12 percent to 31.10 percent.  These home market share losses combined with inadequate exports were enough to limit the growth of U.S. manufacturing output to 34.64 percent, or $1.512 trillion. Again, though this 2009-2019 growth took place over a time-span more than five times longer than the pandemic period, it was only about twice as great. That is, the pace was much more sluggish.

And not so coincidentally, because pre-CCP Virus demand for manufactures was so sluggish, too, businesses concluded they had little or no scope to raise prices when significant tariffs began to be imposed in 2018. Further, the levies generated no notable inflation over any significant period even on a one-time basis. Companies all along the relevant supply chains (including in China) had to respond with some combination of finding alternative markets, becoming more efficient, or simply eating the higher costs.

The good news is that as long as the U.S. market for manufactures keeps ballooning, domestic industry can keep boosting production and employment even if the manufacturing trade deficit keeps worsening or simply stays astronomical, and even if domestic industry keeps losing market share.

The bad news is that the rocket fuel that ignited this growth spurt is running out. Massive pandemic relief programs that put trillions of dollars into consumers’ pockets aren’t being renewed, and Americans are starting to dig into the savings they were able to pile up in order to finance their expenses (although, as noted here, these savings remain gargantuan). Credit is being made more expensive by the Federal Reserve’s decision both to raise interest rates and to reduce its immense and highly stimulative bond holdings. And some evidence shows that U.S. consumer spending is shifting from goods like manufactures to services (although some other evidence says “Don’t be so sure.”)

Worse, when the stimulus tide finally recedes, domestic industry will likely find itself in a shakier competitive position than before. For without considerably above-trend demand growth, and with the foreign competition controlling more of the remaining market than before the pandemic, it will find itself more dependent than ever on maintaining production and employment (let alone increasing them) by winning back customers it has already lost. And changing purchasing patterns in place will be much more challenging than selling to customers whose patterns haven’t yet been set.

U.S. based manufacturing is variegated enough – including in terms of specific sectors’ strengths and weaknesses – that the above generalizations don’t and won’t hold for every single industry. But the macro numbers make clear that domestic manufacturing as a whole has experienced unusually fat years lately, and generally has been competitive enough to take some advantage of these favorable conditions. But industry’s continuing and indeed widening trade shortfall and market share losses in its own back yard should also be warning both manufacturers overall and Washington that many of domestic industry’s pre-pandemic troubles could come roaring back once leaner years return.

(What’s Left of) Our Economy: U.S. Manufacturing’s Hiring Takes a (Slight) Breather

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aerospace, aircraft, aircraft engines, aircraft parts, automotive, CCP Virus, chemicals, computer and electronics products, coronavirus, COVID 19, fabricated metals products, Federal Reserve, fiscal policy, food products, inflation, Jobs, Labor Department, machinery, manufacturing, medical devices, medicines, monetary policy, non-farm jobs, non-farm payrolls, personal protective equipment, pharmaceuticals, PPE, semiconductor shortages, semiconductors, stimulus, transportation equipment, Ukraine, Ukraine-Russia war, vaccines, wood products, {What's Left of) Our Economy

U.S.-based manufacturing’s employment performance has been so strong lately that the 18,000 net gain for May reported in today’s official U.S. jobs report was the worst such performance in more than a year – specifically, since April, 2021’s 28,000 employment loss. And even that dismal result stemmed mainly from automotive factories that were shut down due to semiconductor shortages – not from any underlying weakness in domestic industry.

Moreover, revisions of the last several months’ of sizable hiring increases were revised higher. April’s initially reported 55,000 increase is now pegged at 61,000, and March’s headcount boost was upgraded again, this time all the way from 43,000 to 58,000.

Indeed, taken together, this payroll surge has enabled U.S.-based manufacturing to increase its share of American jobs again. As of May, industry’s employment as a share of the U.S. total (called “non-farm payrolls” by the Labor Department that releases the data) rose sequentially from the 8.41 percent calculable last month to 8.42 percent. And the manufacturing share of total private sector jobs climbed from the 9.86 percent calculable last month to 9.87 percent..

The improvement since February, 2020 – the last full data month before the CCP Virus’ arrival began roiling and distorting the entire U.S. economy – has been even greater. Then, manufacturing jobs represented just 8.38 percent of all non-farm jobs and 9.83 percent of all private sector employment.

Domestic industry still slightly lags the private sector in terms of regaining jobs lost during the worst of the pandemic-induced recession of March and April, 2020. The latter has recovered 99.01 percent of the 21.016 million jobs it shed, compared with manufacturing’s 98.75 percent of its 1.345 million lost jobs.

But the main reason is that industry’s jobs losses during those months were smaller proportionately than those of the private sector overall.

Viewed from another vantage point, the May figures mean that manufacturing employment is just 0.13 percent smaller than just before the pandemic struck.

May’s biggest manufacturing jobs winners among the broadest individual industry categories tracked by the Labor Department were:

>fabricated metals products, which boosted employment on month by 7,100 – the sector’s biggest rise since since February’s 9,300. Its recent hiring spree has brought fabricated metals products makers’ payrolls to within 2.24 percent of their immediate pre-CCP Virus (February, 2020) levels;

>food products,where payrolls grew by 6,100 sequentially in May. Employment in this enormous sector is now 2.53 percent higher than in February, 2020;

>the huge computer and electronics products sector, whose headcount improved by 4,400 over April’s levels. As a result, its workforce is now just 0.19 percent smaller than in immediate pre-pandemic-y February, 2020;

>wood products, which added 3,800 employees in May over its April levels. Along with April’s identical gain, these results were these businesses’ best since May, 2020’s 13,800 jump, during the strong initial recovery from the virus-induced downturn. Wood products now employs 6.85 percent more workers than in February, 2020; and

>chemicals, a very big industry whose workforce was up in May by 3,700 over the April total. The result was the best since January’s 5,500 sequential jobs growth, and pushed employment in this industry 4.76 percent higher than in February. 2020.

The biggest May job losers among those broad manufacturing groupings were:

>transportation equipment, another enormous category where employment fell by 7,900 month-to-month in May. That drop was the biggest since February’s 19,900 nosedive. But it followed an April monthly increase that was revised up from 13,700 to 19.500. All this volatility – heavily influenced by the aforementioned semiconductor shortage that has plagued the automotive industry – has left transportation equipment payrolls 2.57 percent smaller than just before the pandemic’s arrival in February, 2020;

>machinery, whose 7,900 sequential job decline in May was its worst such result and first monthly decrease since November’s 7,000. Moreover, April’s initially reported 7,400 payroll increase in machinery is now judged to be only 5,900. These developments are discouraging because machinery’s products are used so widely throughout the entire economy, and prolonged hiring doldrums could reflect a slowdown in demand that could presage weakness in other sectors. Machinery payrolls are now down 2.12 percent since February, 2020; andent since February 2020; and

>miscellaneous nondurable goods, where employment shrank in May by 2,900 on month. But here again, a very good April increase first reported at 3,300 is now judged to have been 4,400, and thanks to recent robust hiring in this catch-all category, too, its employment levels are 8.12 percent higher than in February. 2020.

As always, the most detailed employment data for pandemic-related industries are one month behind those in the broader categories, and their April job creation overall looked somewhat better than that for domestic manufacturing as a whole.

Semiconductors are still too scarce nationally and globally, but the semiconductor and related devices sector grew employment by 900 on month in April – its biggest addition since last October’s 1,000. March’s initially reported 700 jobs gain was revised down to 400, and February’s upgraded hiring increase of 100 stayed unrevised. Consequently, payrolls in this industry are up 1.66 percent since just before the pandemic arrived in full force, and it must be kept in mind that even during the deep spring, 2020 economy-wide downturn, it actually boosted employment.

The news was worse in surgical appliances and supplies – a category containing personal protective equipment (think “facemasks”) and similar medical goods. April’s sequential jobs dip of 200 was the worst such performance since October’s 300 fall-off, but at least March’s initially reported 1,100 increase remained intact (as did February’s downwardly revised – frm 800 – “no change.” Employment in surgical appliances and supplies, however, is still 3.88 percent greater than in immediate pre-pandemic-y February, 2020.

In the very big pharmaceuticals and medicines industry, this year’s recent strong hiring continued in April, as the sector added 1,400 new workers sequentially – its biggest gains since last June’s 2,600. In addition, March’s initially reported increase of 900 was revised up to 1,200, and February’s slightly downgraded 1,000 rise remained unchanged. Not surprisingly, therefore, this sector’s workforce is up by 9.78 percent during the CCP Virus era.

Job creation was excellent as well in the medicines subsector containing vaccines. April’s 1,100 monthly headcount growth was the greatest since last December’s 2,000. March’s initially reported payroll rise of 400 was upgraded to 600, and February’s results stayed at a slightly downgraded 500. In all, vaccine manufacturing-related jobs has now increased by fully 24.47 percent since February, 2020.

Aircraft manufacturers added just only 200 employees on month in April, but March’s jobs gain was revised up from 1,100 to 1,200 (the best such result since last June’s 4,000), and February’s upwardly revised 600 advance remained unchanged. Aircraft employment is still off by 10.96 percent since the pandemic’s arrival in force.

Aircraft engines and engine parts makers were in a hiring mood in April, too. Their employment grew by 900 sequentially, March’s 500 increase was revised up to 600, and February’s unrevised monthly increase of 900 stayed unrevised. Payrolls in this sector have now climbed to within 11.56 percent of their level just before the CCP Virus hit.

As for the non-engine aircraft parts and equipment sector, it made continued modest employment progress in April, with the monthly headcount addition of 300 following unrevised gains of 700 in March and 200 in February. But these companies’ workforces are still 15.48 percent smaller than their immediate pre-pandemic totals.

The U.S. economy is clearly in a period of growth much slower than last year’s, and since there’s no shortage of actual and potential headwinds (e.g., the course of the Ukraine War, the Fed’s monetary tightening campaign, persistent lofty inflation, the likely absence of further fiscal stimulus), no one can reasonably rule out a recession that drags down manufacturing’s hiring with it. But until domestic industry’s job creation and production growth starts deteriorating dramatically and remains weak, today’s so-so employment figures look like a breather at worst – and not much of one at that.

Im-Politic: Will the Pandemic’s Real Lessons Ever Be Learned?

Tags

CCP Virus, coronavirus, COVID 19, facemasks, Great Barrington Declaration, Im-Politic, lockdowns, Mainstream Media, mandates, natural immunity, The New York Times, vaccines

Give The New York Times some credit here. On the one hand, its big, graphics-rich feature marking the grim news that about a million Americans have been killed by the CCP Virus has pinpointed a highly specific group of culprits for this towering toll, and an equally specific group of measures that could have held it way down (although it’s never indicated by how much).

Among the worst: “elected officials who played down the threat posed by the coronavirus and resisted safety measures” and “lower vaccination and booster rates than other rich countries, partly the result of widespread mistrust and resistance fanned by right-wing media and politicians.”

So clearly, the authors insist, mask-wearing and lockdowns and social distancing should have been imposed much faster and more widely (without stating for how long), and more vaccinations required.

On the other hand, the reader is presented with abundant evidence that the benefits of such measures might have been limited – which is especially striking since not even a hint is provided that such steps might have inflicted considerable damage in their own right – including from other threats to public health that have been neglected.

Most strikingly, consistent with its observation that “The virus did not claim lives evenly, or randomly.” the piece reminds that in fact, the worst damage was remarkably concentrated in a single group. Specifically, “Three quarters of those who have died of Covid have been 65 or older.” Moreover, of that cohort, a third were 85 and over.

And then there was the related nursing homes disaster. According to the Times piece, a fifth of the roughly million CCP Virus-induced deaths in America occurred among residents and staff of these facilities.

Why longer and more sweeping lockdowns and the like would have reduced the virus’ damage to the nation as a whole, considering all the economic, educational, and health harm they produced for the vast majority of Americans who were far less vulnerable, is never explained.

The article’s case for vaccine mandates is similarly muddled. It repeats the widespread claims that most of those who died from the virus after vaccines became widely available were unvaxxed, and that “vaccinated people have had a much lower death rate — unvaccinated people have been at least nine times as likely to die since April 2021 [when the eligibility for the doses became universally available].”

At the same time, readers learn that:

>“at least 50,000 vaccinated people, many of them older or without booster shots, were among the deaths reported since late April 2021….”; and that

>”People 80 and older who had gotten shots were almost twice as likely to die at the height of the Omicron wave as those in their 50s or early 60s who had not, according to C.D.C. [U.S. Centers for Disease Control and Prevention] data.”

Further, the article makes clear that, even forgetting about the decisive role played by age, claims about vaccine effectiveness are substantially exaggerated. Despite presenting the common contention that “unvaccinated people have been at least nine times as likely to die since April 2021,” the chart presented to support this point shows that this ratio has held for only part of the period duing which vaccines have become widely available. The chart also that the gap has almost disappeared today.

In addition, the piece reports that “The C.D.C. has received data on deaths by vaccination status from only about half of the states….” As the authors explain, this data shortage makes it “impossible to know exactly how many vaccinated people are among the million who have died.”

Conversely, this data shortage – along with thoroughgoing ignorance about how many Americans have enjoyed natural immunity from the virus and therefore passed up the jabs, and how many who caught Covid asymptomatically and made similar decisions – also prevents figuring out what share of unvaccinated Americans died of the virus.

But because both numbers are doubtless both enormous, this percentage is doubtless much smaller than commonly supposed.  The Times authors (and their editors, who it should always be remembered greenlight every article’s journalistic methodology) might have adjusted their judgements, and recognized that alternative pandemic mitigation approaches — including those that took into account the difficult tradeoffs that needed to be made — have long been recommended, had they bothered to consult any of the impressively credentialed specialists who have been making these points. 

Yet they seemed as determined to ignore or marginalize their views as the official U.S. medical establishment has been.  As long as both America’s healthcare leaders and its Mainstream Media so doggedly oppose full debate on the real lessons taught by the pandemic, it’s hard to imagine that the nation will be prepared for the (inevitable) arrival of the next deadly pathogen. 

Our So-Called Foreign Policy: Why Biden’s China Tariff Cutting Talk is So (Spectacularly) Ill-Timed

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Biden administration, CCP Virus, China, coronavirus, COVID 19, currency, currency manipulation, exports, Our So-Called Foreign Policy, tariffs, Trade, Trump administration, unemployment, Xi JInPing, yuan, Zero Covid

If the old adage is right and “timing is everything,” or even if it’s simply really important, then it’s clear from recent news out of China that the Biden administration’s public flirtation with cutting tariffs on U.S. imports from the People’s Republic is terribly timed.

The tariff-cutting hints have two sources. First, and worst, as I noted two weeks ago, two top Biden aides have publicly stated that the administration is considering reducing levies on Chinese-made goods they call non-strategic in order to cut inflation. As I explained, the idea that the specific cuts they floated can significantly slow inflation is laughable, and their definition of “non-strategic” could not be more off-base.

The second source is a review of the Trump administration China tariffs that’s required by law because the statute that authorizes their imposition limited their lifespan. The administration can choose to extend them, eliminate them entirely, reduce all of them, or take either or both of those actions selectively, Some tinkering around the edges may justified – for example, because certain industries simply can’t find any or available substitutes from someplace else. But more sweeping cuts or removals could signal a stealth tariff rollback campaign that would be just as ill-advised and ill-timed.

And why, specifically, ill-timed? Because this talk is taking place just as the Chinese economy is experiencing major stresses, and freer access to the U.S. market would give the hostile, aggressive dictatorship in Beijing a badly needed lifeline.

For example, China just reported that its goods exports rose in April at their lowest annual rate (3.9 percent) since June, 2020. Exports have always been a leading engine of Chinese economic expansion and their importance will likely increase as the regime struggles to deflate a massive property bubble that had become a major pillar of growth itself.

It’s true that dictator Xi Jinping’s wildly over-the-top Zero Covid policy, which has locked down or severely restricted the operations of much of China’s economy, deserve much of the blame. But Xi has recently doubled down on this anti-CCP Virus strategy, and low quality Chinese-made vaccines virtually ensure that case numbers will be surging. So don’t expect a significant export rebound anytime soon without some kind of external helping hand (like a Biden cave-in on tariffs).

Indeed, China seems so worried about the export slowdown that it’s resumed its practice of devaluing its currency to achieve trade advantages. All else equal, a weaker yuan makes Made in China products more competitively priced than U.S. and other foreign counterparts, for reasons having nothing to do with free trade or free markets.

And since March 1, China – which every day determines a “midpoint” around which its yuan and the dollar can trade in a very limited range (as opposed to most other major economies, which allow their currencies to trade freely) – has forced down the yuan’s value versus the greenback by an enormous 6.54 percent. The result is the cheapest yuan since early November 3, 2020.

It’s been widely observed that such currency manipulation policies can be a double-edged sword, as they by definition raise the cost of imports still needed by the Chinese manufacturing base. But the rapidly weakening yuan shows that this is a price that Beijing is willing to pay.       

Finally, for anyone doubting China’s need to maintain adequate levels of growth by stimulating exports, this past weekend, the country’ second-ranking leader called the current Chinese employment situation “complicated and grave.” His worries, moreover, aren’t simply economic. As CNN‘s Laura He reminded yesterday, Beijing is “particularly concerned about the risk of mass unemployment, which would shake the legitimacy of the Communist Party.”

For years, I’ve been part of a chorus of China policy critics urging Washington to stop “feeding the beast” with trade and broader economic policies that for decades have immensely increased China’s wealth, improved its technology prowess, and consequently strengthened its military power and potential. The clouds now gathering over China’s economy mustn’t lead to complacency and any easing of current American tariff, tech sanctions, or export control pressures. Instead, they’re all the more reason to keep the vise on this dangerous adversary and even tighten it at every sensible opportunity.

(What’s Left of) Our Economy: U.S. Manufacturing Job Creation Gains More Momentum

Tags

aircraft, aircraft engines, aircraft parts, automotive, CCP Virus, coronavirus, COVID 19, Employment, Federal Reserve, furniture, inflation, Jobs, machinery, manufacturing, miscellaneous durable goods, non-farm payrolls, personal protective equipment, pharmaceuticals, plastics and rubber products, PPE, recession, semiconductor shortage, semiconductors, supply chains, transportation equipment, Ukraine-Russia war, vaccines, {What's Left of) Our Economy

Today’s official April U.S. jobs report featured such a strong showing by U.S.-based manufacturers that, by one measure, they reclaimed title of America’s best job-creating sector during the CCP Virus era (and its aftermath?).

Domestic industry boosted its payrolls sequentially last month by 55,000 workers, its best such performance since July’s 62,000 gain. In addition, revisions were excellent. March’s initially reported 38,000 increase is now pegged at 43,000, and February’s upgraded 38,000 rise is now judged to have been 50,000.

As a result, manufacturing’s share of U.S. non-farm employment (the federal government’s definition of the American jobs universe), has improved from 8.38 percent in February, 2020 – the last full data month before the virus began roiling the national economy – to 8.41 percent as of last month.

And during this period, manufacturing’s share of America’s private sector jobs is up from 9.83 percent to 9.86 percent.

Domestic industry has recovered a slightly smaller share of the jobs it lost during the sharp pandemic-induced downturn of spring, 2020 (95.89 percent) than the private sector (97.62 percent). But it also shed fewer jobs proportionately than the rest of the private sector during that terrible March and April. (For the record, because of a drag created by public sector hiring, the share of all non-farm jobs regaine d now stands at 94.59 percent.

In all, U.S.-based manufacturing employment is now down a mere 0.44 percent from immediate pre-pandemic-y February, 2020.

April’s manufacturing jobs winners were broad-based, but the biggest among the major sectors tracked by the Labor Department were:

>transportation equipment, whose 13,700 employment improvement was its best such performance since last October’s 28,200. (Last month I erroneously reported that the sector’s best recent monthly performance was last August’s 19,000.) Unfortunately, March’s initially reported employment advance of 10,800 was revised down to 8,800, and February’s previously estimated 19,800 jobs plunge (the worst monthly performance since April, 2021’s automotive shutdown-produced nosedive of 48,100) is now judged to be 19,900. Bottom line: This sector’s employment levels are still 3.38 percent below those of that last full pre-pandemic data month of February, 2020;

>machinery, where 7,400 jobs were added on month – an especially encouraging result since its products are so widely used throughout the rest of manufacturing and the entire economy. Even better, March’s initially reported 1,700 employment increase was revised all the way up to 6,700, and February’s perfomance – which had been revised down from an 8,300 rise to one of 6,600, recovered a bit to 6,700. As a result, machinery employment is off just 1.55 percent from its February, 2020 levels;

>automotive, which boosted headcounts by 6,400 – its best monthly gain since last October’s 34,200 plant reopening-driven burst. But March’s initially reported 6,400 jobs rise was downgraded to 3,600, and even though February’s major job losses were revised for the better again, they’re still pegged at 14,000 – the worst since the 49,100 employees shed during the shutdowns last April. These gyrations have left the combined vehicles and parts workforce 0.78 pecent smaller than in February, 2020;

>plastics and rubber products, which upped employmment by 5,700 sequentially in April, the best such performance since last August’s 7,800. Job-wise, these sectors are now 3.38 percent larger than in February, 2020.

The only significant jobs losers in April were furniture and related products and miscellaneous durable goods. The former lost 1,100 positions in April, but employment has still inched up by 0.57 percent since pre-pandemic-y February, 2020. The latter – which includes much of the protective gear needed to fight and contain the CCP Virus – reduced employment by 1,400 sequentially last month. But this decrease was the first since last August’s 600 loss, and followed a strong 3,100 jobs gain in March. This catch-all category’s employment is now 1.54 percent higher than in February, 2020.

As always, the most detailed employment data for pandemic-related industries are one month behind those in the broader categories, and as with the rest of domestic industry for March, their employment picture showed improvement overall.

The semiconductor and related devices sector is still struggling to meet demand, but hiring continued its slow-but-steady pandemic-era increase in March with job gains of 700. February’s initially reported 100 employment loss now stands at a 100 employment gain, and January’s numbers stayed at plus-300 – the best monthly performance since last October’s 1,000. This sector now employs 1.34 percent more workers than in February, 2020 – impressive since during the sharp spring, 2020 economic downturn, it kept adding jobs.

The latest employment results were mixed for surgical appliances and supplies makers – a category within the aforementioned miscellaneous durable goods sector, and one in which personal protective equipment and similar medical goods abound. In March, the industry added 1,100 workers, but revisions completely wiped out February’s initially reported 800 jobs gain. The January hiring increase stayed at a downwardly revised 1,300. Even so, since just beforet the pandemic’s arrival in force in the United States, these companies have increased payrolls by 4.07 percent.

The very big pharmaceuticals and medicines industry continued to be a moderate employment winner in March. It hired an additional 900 workers on month, and though its February improvement was downgraded (from 1,300 to 1,000), the number was solid. Moreover, January’s hugely upgraded 1,100 employment rise stayed intact. Since February, 2020, this sector’s headcount is up fully 9.23 percent.

March jobs gains were more subdued in the medicines subsector containing vaccines, but they still totaled 400. February’s initially reported employment increase of 800 is estimated at just 500 now, and January’s identical increase stayed the same. But over time, this industry’s jobs growth has been impressive – 23.15 percent since the last pre-pandemic data month of February, 2020.

Good job gains continued in March in the aviation cluster as well. Aircraft manufacturers (including still-troubled industry giant Boeing) rose by 1,100 sequentially – the best monthly gain since last June’s 4,400. February’s increase was upgraded from 500 to 600, but January’s sequential job loss stayed unrevised at 800. This net increase brought aircraft employment to within 11.08 percent of its February, 2020 level.

The aircraft engines and engine parts industry followed February’s unrevised 900 hiring increase by adding 500 more workers in March. January’s results, however, stayed at a slightly downgraded 900 loss. And these companies’ still employ 12.65 percent fewer workers than in February, 2020.

The deep jobs depression in the non-engine aircraft parts and equipment sector remained deep in March, but a little less so. Jobs gains for the month totaled 700, February’s initially reported 200 increase was unrevised, and January’s way upwardly revised job rise was downgraded only from 1,500 to 1,400. But since just before the pandemic, the non-engine aircraft parts and equipment sector has still shrunk by 15.74 percent.

Having recently navigated its way skillfully through a once-in-a-century pandemic, a virtual shutdown of the entire U.S. economy, continuing supply chain disruption, multi-decade high inflation, a major war in Europe (so far), former export champ Boeing’s woes, and sluggish-at-best growth in much of the foreign markets it relies on heavily, it’s tempting to say that U.S-based manufacturing will have finally met its match if the Federal Reserve’s inflation-fighting campaign dramatically slows growth domestically — or worse.  But since the pandemic began, the next time the manufacturing pessimists are right will be the first.       

 

(What’s Left of) Our Economy: The IMF Strikes Out on Supply Chain Security

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antitrust, Biden administration, Buy American, CCP Virus, competition, coronavirus, COVID 19, health security, IMF, International Monetary Fund, manufacturing, national security, reshoring, supply chains, Ukraine, Ukraine-Russia war, World Trade Organization, WTO, {What's Left of) Our Economy

An impressive body of evidence (see, e.g., here and here) is now shedding light on the dangers of letting specialists in a single field (in this case, public health) dictate policy toward a multi-dimensional challenge like the CCP Virus. For all their supposed expertise on virology and epidemiology, the leaders of the U.S. Centers for Disease Control and Prevention and the National Institutes of Health simply weren’t qualified to take into account the affects of indiscriminate lockdowns and mandates on measures of well-being like economic growth, employment and living standards; educational attainment; and even other dimensions of physical and psychological well-being like opioid use and childhood development.

The best outcomes were always likeliest to come from elected leaders able to see the bigger picture (at least in theory) by drawing on the views of experts from all relevant disciplines.

Just recently, the International Monetary Fund (IMF) has unwittingly exposed the dangers of letting economists dictate national responses to the varied perils underscored first by the pandemic and now by the Ukraine war of over-reliance on problematic suppliers of critical goods in a wide range of industries.

According to a chapter in its new forthcoming World Economic Outlook, the kinds of “Policy proposals to reduce dependence on foreign suppliers, especially in strategic sectors [that] have gained prominence…including in major markets such as Europe and the United States…may be premature, if not misguided.” Instead, “greater diversification in international sourcing of inputs and greater substitutability in input sourcing” would be a much better approach to strengthening supply chain resilience and ensuring adequate access to these products.

But at least when it comes to the United States, the IMF doesn’t even describe the situation accurately. It’s true that during his presidential campaign, Joe Biden set a goal of boosting U.S. manufacturing output, that a principal aim has been improving supply chain security, and that one element of his plan has been to replace imports with U.S.-made goods via better enforcement of the federal government’s Buy America programs. Moreover, the President has been following through.

But it’s also true, as I’ve pointed out repeatedly, that the Biden approach also includes exactly the kind of supplier diversification urged by the IMF – specifically to countries like treaty allies that supposedly deserve to be “trusted.”

And even though these new supply chain policies are mainly intended to achieve crucial goals like enhanced national security and health security, the Fund’s study defines these aims out of existence. As observed in the Wall Street Journal‘s coverage, “The analysis didn’t address that some countries are seeking to bolster domestic supply chains as a national-security issue, and not strictly as the most economically efficient option.”

In fact, like the Biden administration, the IMF study also overlooks a major lesson on the reliability of diversity that became glaringly obvious during the worst days of pandemic. During that terrible first wave in early 2020, no fewer than 80 countries imposed limits on their exports of healthcare goods. These countries – which clearly prioritized the health of their own citizens over that of foreign populations, much less over global trade rules – included all the major economies of Western and Central Europe (even the United Kingdom), along with South Korea.

Yet this IMF study fails on some major purely economic grounds, too. Most important, it ignores the United States’ vast and distinctive degree of self-sufficiency in a wide range of goods and services, and its impressive potential to achieve more. As I wrote in this 2019 article, there’s no reason to doubt that the huge and already highly diverse U.S. economy can handle the great majority of its own economic needs while maintaining entirely satisfactory degrees of the benefits of competition (e.g., low prices, high quality, continuous innovation) by taking anti-trust enforcement much more seriously.

In short, I noted, what’s essential for keeping pressure on businesses to keep getting better isn’t “international competition.” For an economy the scale of the United States, domestic competition should nearly always suffice if government policies help maintain its intensity.

In fact, some confirmation of this claim just appeared in a new study by the World Trade Organization (WTO) on how the Ukraine war could well affect global trade and economic development. Looking further down the road, the WTO examined five possible post-Ukraine scenarios for global trade, with the most extreme being the splitting of the world “into two hypothetical blocs with only low trade barriers remaining within each bloc. This means that trade between blocs would be replaced by trade within blocs in this scenario.”

The WTO’s economists believe that this outcome would reduce global output of goods and services by five percent as compared with a future in which world trade patterns remain basically the same. But the cost to the U.S. economy was much less – just one percent.

The WTO calls all these projections under-estimates because trade within these blocs probably won’t increase, and because for several other reasons, such decoupling would create a much messier and even less efficient structure for global trade.

Yet the United States, for its part, has ample incentive to replace its imports of relatively unsophisticated manufactures from East Asia with purchases from Mexico and Central America – curbing immigration. In fact, the American textile industry has just informed us that this scenario is beginning to play out.

Moreover, there’s no reason to think that even WTO’s relatively optimistic decoupling projections for the United States have taken into account America’s extensive possibilities for replacing imports with domestic goods if competition levels within the country are ratcheted up by breaking up monopolies and oligopolies.

Finally, both the IMF and the WTO completely overlook the enormous purely economic advantages the U.S. economy would reap from decoupling – like better chances of preventing and mitigating the staggering economic costs of future pandemics, and the greater certainty businesses would enjoy from reduced vulnerability from geopolitical turmoil abroad, or from the caprice that even allied countries displayed during the pandemic. Think of decoupling as insurance – which businesses and individuals alike seem to view as a pretty economically sensible investment, even if the IMF and the WTO apparently have never heard of the concept.

(What’s Left of) Our Economy: No More Baseline Excuses for U.S. Inflation

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baseline effect, CCP Virus, China, consumer price index, core inflation, coronavirus, cost of living, COVID 19, CPI, energy, Federal Reserve, food, inflation, lockdowns, prices, sanctions, supply chains, Ukraine-Russia war, Zero Covid, {What's Left of) Our Economy

As if the new monthly and yearly numbers for March per se weren’t high enough, they were far from the only bad news, or even the worst news, in today’s Labor Department report on its inflation measure – the Consumer Price Index or CPI.

The new data also made clear that the baseline effect is definitely gone — especially for the overall CPI — which means that prices in America are no longer rising at annual rates not seen in decades partly because they were rising so slowly in the pandemic period 2020 and very early 2021.

Now their year-on-year jumps are resulting from their more recent and current momentum. And with much more in the way of surging food and energy costs coming in the next few months due to Ukraine war-related global supply disruptions and anti-Russia sanctions, that means Americans will be contending with sky-high and even hotter inflation rates for the foreseeable future.

The rise and fall of the baseline effect becomes clearest from looking at the annual overall inflation rates by month starting in January, 2021, and comparing them with their counterparts from the year before. (Starting with the January, 2022 figures, the baseline year of course is 2021.)

The admittedly complicated table below shows (from left to right) the originally reported annual inflation figures by month for this period, the revised results, and the same annual figure for that month from the previous, CCP Virus-ridden year. Where only one inflation rate is presented, the original figure has remained unrevised:

Jan. 2021:       from 1.37 percent to 1.36       from 2.47 percent to 2.46

Feb: 2021:      1.68 percent                            from 2.31 percent to 2.32

March 2021:  from 2.64 percent to 2.66        from 1.51 percent to 1.53

April 2021:    from 4.16 percent to 4.15        from 0.34 percent to 0.36

May 2021:     from 4.93 percent to 4.94        from 0.22 percent to 0.24

June 2021:     from 5.32 percent to 5.34        0.73 percent

July 2021:      5.28 percent                            from 1.05 percent to 1.03

Aug 2021:     from 5.20 percent to 5.21        from 1.32 percent to 1.33

Sept 2021:     from 5.38 percent to 5.39        from 1.41 percent to 1.40

Oct 2021:      6.24 percent                             from 1.19 percent to 1.18

Nov 2021:     from 6.88 percent to 6.83        1.14 percent

Dec 2021:     from 7.12 percent to 7.10        from 1.31 percent to 1.28

Jan 2022:      7.53 percent                             from 1.37 percent to 1.36

Feb 2022:     7.91 percent                             1.68 percent

March 2022: 8.56 percent                            from 2.64 percent to 2.66

The baseline effect was strongest between March and July, 2021. That year, the annual overall (or “headline”) inflation rate went from 2.64 percent to 5.28 percent. But the annual rates for those months the year before dropped from 1.51 percent to 1.05 percent. Given that the Federal Reserve’s target rate for annual inflation (which helps determine how loose or tight it will keep the supply of credit to the economy and therefore – roughly – how much growth and job creation will be generated) is two percent (albeit for the slightly different gauge it uses), you can see how weakly prices were rising in deeply recessionary spring of 2020, and how those levels distorted the annual rates for the following year, as the economy returned — choppily — to normal growth. 

But a major baseline effect also shows up between September, 2021 at least through January, 2022. During that period, the annual inflation rates rose fom 5.38 percent to 7.53 percent. Yet their counterparts from the year before dipped from a still low 1.40 percent to 1.36 percent.

Starting in February, 2022, though, signs of a baseline fade began appearing, as the that month’s annual rate increased considerably over the January figure and its 2021 predecessor worsened to its highest level since the previous February – not so coincidentally, just before the virus’ arrival in force.

And last month’s big jump in the annual inflation rate came off a March, 2021 result that was significantly higher than the Fed target, and that also pierced that level for the first time since February, 2020.

The core inflation rate, which strips out food and energy because their price levels are supposed to be unusually volatile for reasons having little to do with the economy’s underlying vulnerability to inflation, shows a similar pattern, but with a recent wrinkle. The table below follows the same format as that for overall inflation, although as you’ll see, the absolute levels generally are somewhat lower.

Jan 2021:        from 1.40 percent to 1.39        2.26 percent

Feb 2021:       from 1.28 percent to 1.29        from 2.36 percent to 2.38

March 2021:  from 1.65 percent to 1.66        from 2.10 percent to 2.12

April 2021     from 2.96 percent to 2.97        from 1.44 percent to 1.46

May 2021:     from 3.80 percent to 3.81        from 1.24 percent to 1.25

June 2021:     4.45 percent                             1.20 percent

July 2021:      from 4.24 percent to 4.20        from 1.56 percent to 1.54

Aug 2021:      from 3.98 percent to 3.96        from 1.70 percent to 1.71

Sept 2021:      4.04 percent                            1.72 percent

Oct 2021:       from 4.58 percent to 4.59       1.63 percent

Nov 2021:      from 4.96 percent to 4.95       from 1.63 percent to 1.64

Dec 2021:      from 5.49 percent to 5.48       from 1.61 percent to 1.60

Jan 2022:       6.04 percent                            1.39 percent

Feb 2022:      6.42 percent                            1.29 percent

March 2022:  6.44 percent                            1.66 percent

Again, from March through July, 2021, the annual core inflation rate increased from 1.66 percent to 4.20 percent. But the comparable figures for the year before decreased for 2.12 percent to 1.54 percent. Also as with the headline inflation numbers, the baseline effect appeared later in the year, too. But it’s lasted longer. From September, 2021 through February, 2022, the yearly core inflation rate accelerated from 4.04 percent to 6.42 percent. For the same period from the year before, however, it sank from 1.72 percent to 1.29 percent.

Yet the new March, 2022 data indicate that the core’s baseline effects are numbered, as annual inflation inched up to a still very high 6.42 percent, but March, 2021’s version rose at a much faster clip – from that 1.29 percent to 1.66 percent. Yes, that’s still well below the Fed target, but the increase was the biggest in relative terms since July, and April, 2021’s annual rate had zoomed up to 2.96 percent – nearly doubling.

A glass-half-full result from the new CPI report came from the monthly change in the core figure. Not only did it tumble all the way from 0.51 percent in February to 0.32 percent. But the sequential decrease was the second straight, and the biggest in relative terms during the entire pandemic period and the level was the lowest for a single month since August’s 0.24 percent.

Unfortunately, Ukraine-related disruptions seem likely to reverse this trend, and this regression could well be reinforced by supply chain snags generated by China’s decision to lock down several enormous cities and industrial centers by responding to a recent rebound in CCP Virus cases with a return to its Zero Covid policies.

Moreover, since energy prices in particular eventually feed into price levels for every U.S. economic actor that uses energy, the headline-core inflation distinction will surely look more academic than ever in the months ahead.

Meanwhile, the red hot monthly headline CPI increase of 1.24 percent in March was the biggest such jump since 2005, and a huge speed-up over February’s 0.80 percent. For me, the big takeaway is that the U.S. economy now clearly faces a danger not only of the Federal Reserve creating a recession by tightening monetary policy enough to bring inflation under the control, but of such tightening producing that recession while still leaving inflation far too high.

(What’s Left of) Our Economy: A February Reprieve from Lousy U.S. Trade News

Tags

CCP Virus, Census Bureau, China, coronavirus, COVID 19, Federal Reserve, goods trade, inflation, manufacturing, monetary policy, non-oil goods trade deficit, oil, services trade, trade deficit, Ukraine-Russia war, Wuhan virus, {What's Left of) Our Economy

It wouldn’t be accurate to start off this post with a statement on the order of “As bad as the full-year 2021 inflation-adjusted trade figures released last week were, the new pre-inflation data for February were good.” But a contrast was unmistakable, with yesterday’s latest monthly report from the Census Bureau containing some decidedly encouraging news – even though the numbers were pre-Ukraine war, and therefore pre- all the disruption to global supply chains – in particular in the food and energy sectors – that the conflict has already brought.

And the story even begins at the beginning. The combined goods and services trade deficit decreased sequentially for the first time since October. The slippage was only 0.05 percent, and the monthly total ($89.19 billion) was still the second highest ever (behind January’s $89.23 billion). But that January figure itself was revised down 0.52 percent.

Goods trade produced somewhat better results. February’s shortfall of $107.47 billion represented its first monthly drop since October, and the decrease was 1.04 percent. The February goods trade gap was the second biggest on record, too, but January’s $108.60 billion mark was downgraded by 0.24 percent.

When it comes to the broadest trade balance results, the only black mark was found in the service sector. In February, its long-time surplus shrank for the second straight month, decreasing by 5.62 percent, from $19.37 billion to $18.29 billion. That total was the smallest since November’s $18.30 billion. At least the January number was revised up by 1.05 percent.

More good news came on the export front. Total American sales abroad climbed 1.84 percent on month to $228.63 billion – a new record that nosed ahead of the previous all-time high (December’s $228.35 billion) by 0.12 percent.

Goods exports were up to on a monthly basis in February – by 1.79 percent, to $158.78 billion. That total was the second highest ever – 0.15 percent below October’s $159.02 billion.

Services exports improved, too in February. At $69.85 billion, they were 1.96 percent higher than January’s $68.51 billion. But reflecting the outsized hit this sector took from the CCP Virus and related lockdowns and behavioral changes, these totals remain below pre-pandemic levels.

Combined goods and services imports set their seventh straight monthly record in February, increasing 1.30 percent from $313.72 billion in January to $317.81 billion. The January total, however, was revised down by 0.12 percent.

Goods imports alone lengthened their string of monthly records, too, in February, with its $266.25 billion total topping January’s $264.59 billion by 0.63 percent. Their January total was downgraded fractionally.

The biggest relative imports increase came in services, where February’s $51.57 billion in purchases from abroad represented a 4.95 percent jump from January’s $49.13 billion. And the February total marked an all-time high – beating November’s $50.49 billion by 2.14 percent.

Oil was responsible for the overall February trade figures not being considerably better. The petroleum deficit soared by $2.67 billion on month, from a miniscule $115 million to $2.78 billion – the highest.monthly total since September’s $3.37 billion. And this surge was led by an 18.57 percent increase in oil imports. The monthly total of $23.11 billion, moreover, was the highest since December, 2014’s $25.01 billion.

Much higher prices per barrel of oil bought obviously deserve the blame for much of this news. But even adjusting for inflation, U.S. oil imports for February increased by 4.31 percent – the biggest relative rise since last May’s 6.47 percent.

In line with the improvement in the overall February trade deficit, the non-oil goods shortfall fell by 3.43 percent on month in February. At $103.56 billion, this deficit – which RealityChek regulars know covers the trade flows most affected by U.S. trade policy – was still the second highest on record, after January’s $107.24 billion. But the decrease was the first since October. And it resulted from the ideal combination of both a rise in exports and a decline in imports.

This ideal combination also encouragingly appeared in the February data for two long-term (and related) problem areas in U.S. trade flows – manufacturing and China.

The chronically huge American manufacturing trade gap shrank in February by 12.01 percent – from a record $121.03 billion to $106.49 billion. The decrease was the third straight and the biggest percentage-wise since the 12.70 percent plunge in November, 2019. In addition, the new level the lowest since April, 2021’s $103.60 billion.

As indicated, moreover, manufacturing exports were up on month in February – by 2.40 percent, from $92.33 billion to $94.55 billion. The increase, however, did follow a 7.80 percent sequential decrease in January that brought these foreign sales to their lowest level since last August.

Manufacturing imports, though, decreased for the third straight month – by 5.78 percent, from $213.36 billion to $201.03 billion. The monthly drop was the biggest in percentage terms since February, 2021’s 6.98 percent (amid the CCP Virus’ powerful second wave), and the new February total was the lowest since last April’s $198.06 billion.

America’s trade with China is dominated by manufactures, so it’s not surprising that its also chronically huge goods surplus with the United States plummeted by 15.69 percent sequentially in February, from $36.37 billion to $30.67 billion. This nosedive was the greatest in percentage terms since the 25.19 percent of February, 2020, when the Chinese economy was still seized up by sweeping CCP Virus-induced lockdowns.

Just as important, this monthly cratering was more than 4.5 times bigger than the monthly drop in the U.S. global non-oil goods deficit – the closest worldwide proxy for U.S.-China goods trade. It’s the latest evidence of the Trump tariffs’ effectivness at keeping enormous amounts of Chinese products out of the U.S. market.

As for the new February U.S.-China goods deficit’s level, it was the lowest since last July’s $28.65 billion.

And goods exports to and goods imports from China moved in exactly the right ways from an American standpoint. The former edged up 1.04 percent, from $11.48 billion to $11.59 billion – a performance that snapped a three-month losing streak. But the latter dropped for the second straight month, by 11.68 percent, from $47.85 billion to $42.26 billion. Decreases in imports from China are typical in post-holiday season February, and this latest drop-off was the biggest in percentage terms since last February’s 13 percent.

All the same, as promising as these February trade results are, one month’s worth of data alone reveal nothing about longer term trends and possibilities. And as mentioned at the outset, the Ukraine war impact is yet to be recorded. Further, more major changes may be in store in the U.S. and global economies, especially as the Federal Reserve is sounding more determined than ever to cool torrid inflation dramatically even if it means slowing growth dramatically. (Unless the central bank chickens out, if only because of the unmistakably political impact such tightening would have during an election year?) And as if all this uncertainty wasn’t enough, never forget that the trade figures are just about the most lagging-y set of indicators that the federal government releases.

So as with so many other dimensions of the U.S. economy, meaningful clarity on trade flows looks unlikely to emerge until the impacts of external shocks like the CCP Virus and the Ukraine war wear off.  That day will come at some point, won’t it?   

P.S. Yes, because my own schedule this past week has been disrupted nearly as much as the economy these last few years, this is my latest effort to catch up on reporting on recent economic releases.  More to come!