(What’s Left of) Our Economy: U.S. Manufacturing Output Keeps its Head Above Water

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aircraft, aircraft parts, appliances, automotive, CCP Virus, computer and electronics products, coronavirus, COVID 19, electrical components, electrical equipment, fabricated metal products, Federal Reserve, furniture, housing, inflation-adjusted growth, machinery, manufacturing, medical devices, miscellaneous durable goods, petroleum and coal products, pharmaceuticals, real growth, recession, semiconductor shortage, semiconductors, transportation equipment, wood products, Wuhan virus, {What's Left of) Our Economy

Yesterday’s figures from the Federal Reserve showed that U.S.-based manufacturing is still growing – by the barest of margins.

The data, covering August, revealed that domestic industry expanded in inflation-adjusted terms by just 0.09 pecent. Revisions were slightly negative.

As a result, after adjusting for prices, U.S. manufacturing output is 3.49 percent higher than in February, 2020 – just before the CCP Virus and assorted mandated and voluntary behavioral curbs sparked a short but scary downturn and touched off waves of distortion that persist to this day. As of last month’s Fed report, industry’s inflation-adjusted production had risen by 3.69 percent during the pandemic period.

Among the broadest manufacturing sub-sectors tracked by the Fed, the biggest August winners were:

>petroleum and coal products, whose 3.54 percent constant dollar monthly output surge was its best since the 11.49 percent jump of March, 2021, when the industry was bouncing back from the damage inflicted by that winter’s Texas blizzards. Revisions were mixed. July’s originally reported after-inflation drop of 0.94 percent upgraded to one of 0.25 percent. June’s preliminary figure, revised up last month from a real decrease of 1.92 to one of 1.50 percent revised back down to a 2.80 percent decline. But May’s initially reported 2.33 percent constant dollar sequential monthly shrinkage of 2.61 pcerent now standing as a fall of 1.30 percent.

Since immediately pre-pandemic-y February, 2020, inflation-adjusted production by these companies is up by 1.45 percent, versus the 1.27 decrease calculable last month;

>aerospace and miscellaneous transportation equipment, which rose month-to-month by 2.08 percent in real terms for its best such performance since February’s 2.52 percent. Revisions were slightly positive. June’s initially reported 1.54 percent improvement is now pegged at 1.55 percent. June had advanced from a fractional increase to a 0.14 percent dip to a 0.20 percent increase. But May’s results have deteriorated here, too – from an initially reported 0.85 percent decrease to a 1.25 percent drop.

In price-adjusted terms, this cluster is now 24.07 percent larger than in February, 2020, versus the 21.30 percent calculable last month;

>miscellaneous durable goods, a diverse sector containing the personal protective equipment and other medical gear used to widely to fight the CCP Virus saw inflation-adjusted production grow by 1.71 on month in August, its best such performace since last December’s 1.85 percent. Revisions, however, were negative. July’s initially reported 1.23 percent increase was revised down to one of 0.89 percent. June’s results have been downgraded from an advance of 2.25 percent to one of 0.87 percent to the 0.67 percent reported yesterday. And May’s improvement, first estimated at 1.17 percent, is now just to have been 0.63 percent.

Consequently, real production in miscellaneous durable goods has now increased by 13.92 percent since February, 2020, just before the pandemic’s arrival in force, versus the 13.38 percent calculable last month; and

>computer and electronics products, where constant dollar output climbed by 1.27 sequentially for their best month since May, 2021 (2.44 percent). Revisions were slightly negative, July’s results were downgraded from a decrease of 0.65 percent to one of 0.68 percent. June’s initially reported 0.21 percent was upgraded to a 0.67 percent gain before dropping back to one of 0.46 percent. And the initially reported May monthly rise of 0.50 percent is now recorded as a decrease of 0.11 percent.

After-inflation growth in this broad sector is now reported at 6.11 percent since that last CCP Virus data month of February, 2020 versus the 5.93 percent calculable last month.

Not so coincidentally, August’s two worst manufacturing production losers among the biggest manufacturing sub-sectors were closely related to the nation’s hard-pressed housing sector:

>furniture and related products, which suffered it sixth straight monthly price-adjusted production decrease. Moreover, the 2.13 percent shrinkage was the worst since February, 2021’s 2.77 percent. Moreover, revisions were overall negative. July’s initially reported retreat of 1.57 percent was revised up to one of 0.80. percent. But the June losses have been downgraded from one of 0.55 percent to one of 1.33 percent and then to one of 1.87 percent. And May’s initially reported 0.94 percent increase is now judged to have been a 0.96 percent decrease.

The furniture cluster is now 7.30 percent smaller after accounting for inflation since February, 2020, versus the 5.56 percent calculable last month’

>wood products, whose inflation-adjusted production slip of 1.70 percent was its second month-to-month decrease in a row and its worst since April’s 1.89 percent. Revisions were mixed. July’s initially reported 0.72 percent increase is now pegged as a -0.03 decline. June’s initially reported 0.73 percent rise has been revised down to one of 0.42 percent and yesterday to a 0.62 loss. But May’s results have been upgraded from a 2.64 plunge to a decrease of just 0.28 percent.

Whereas last month’s Fed release showed this sector to be 6.79 percent bigger since just before the pandemic began roiling and distorting the economy, this month’s estimates this increase to have been just 2.67 percent;

>automotive, whose roller-coaster ride continued with real output sinking by 1.44 percent in August. Worse, July’s initially reported 6.60 percent monthly production burst was cut by more than half – to an increase of 3.24 percent. June’s initially reported 1.49 percent decrease was first upgraded to one of 1.27 percent but now stands at 1.31 percent. And May’s initially reported 0.06 percent on month real output dip is now judged to have been a decrease of 1.96 percent.

As of last month’s Fed report, inflation-adjusted vehicle and parts production was recorded as being up by 4.73 percent since February, 2020. Now it’s pegged as being off by 0.20 percent; and

>electrical equipment, appliances (also related to housing), and components, whose inflation-adjusted production contraction (1.01 percent) was its second straight. Revisions, though, were overall positive. July’s initially reported 1.41 percent fall-off is now estimated as one of 1.44 percent., but June’s results have been upgraded a second consecutive time – from an advance of 1.34 percent to one of 1.42 percent to yesterday’s 1.45 percent. And although May remained an output loser, the decrease has been upgraded from an initially reported 1.83 percent to one of 1.68 percent (which was still its worst results since December’s 2.48 percent slump).

All told, though, this cluster’s price-adjusted shrinkage since that last pre-pandemic data month of February, 2020 fell to just 4.53 percent, versus the 4.83 percent fall-off calculable last month; and

>fabricated metal products, another volatile industry. After-inflation production was off by 0.95 percent sequentially in August, after improving by a figure of 1.79 percent that was revised down from an initially reported 2.05 percent but was still the best such result since February’s 2.49 percent jump. Other revisions were mixed, with June’s initially reported decrease of 0.83 percent revised down first to one of 1.40 percent and now to one of 1.59 percent, and May’s initially reported drop of 1.16 percent now pegged at just 0.98 percent.

As of last month’s Fed report, fabricated metals products’ constant dollar output had closed to within 0.14 percent of its immediate pre-CCP virus level. Now it’s off by 1.42 percent.

Better news came from the big and diverse machinery sector, which is a bellwether for both the rest of manufacturing and the rest of the entire economy, since so many industries use its products. It grew in real terms sequentially in August by 0.91 percent – its best such result since April’s 1.97 percent. Revisions were mixed. July’s initially reported 0.50 percent increase is now estimated to have been 0.68 percent. June’s results, first downgraded from a 1.14 percent decrease to one of 2.16 percent were revised back up to one of 1.75 percent. And May’s initially reported drop-off of 2.55 percent is now recorded as one of 3.20 percent – the worst since the 18.64 percent nosedive of April, 2020, during the height of the pandemic’s first wave.

Machinery has now grown by 5.07 percent during the pandemic period, versus the 2.82 percent calculable last month.

Interestingly, except for the still-shortage-plagued semiconductor industry, August was a banner output month for the sectors that consistently have made headlines during the pandemic.

Real output of microchips and related products did decrease by 0.57 percent, but the decline was the first in three months. Revisions were negative, though. July’s initially reported 1.16 percent rise has been downgraded to one of 0.77 percent and following a major upward revision from 0.18 percent growth to 2.09 percent, June’s real output now stands at 0.88 percent. But after a massive downgrade from 0.52 growth to 2.24 percent shrinkage, May’s performance is now recorded as a just a 0.72 percent loss.

After-inflation semiconductor production is now up 17.46 percent since pre-pandemic-y February, 2020, versus the 21.98 percent calculable last month.

Aircraft and parts surged by 3.11 percent sequentially in August after inflation, these industries’ strongest such performance since the 8.61 percent burst in January, 2021. Revisions were mixed, as July’s initially reported 1.02 percent real monthly output rise to one of 1.52 percent, but June’s initially reported 0.26 percent advance revised down to one of 0.18 percent and then back up to just 0.24 percent, and May’s initially reported 0.33 percent advance now judged to be have been a 0.47 percent retreat.

Even so, constant dollar aircraft and parts output is up by 30.60 percent since February, 2020, versus the 26.67 percent calculable last month.

In pharmaceuticals and medicines, real production was up month-to-month in August by 1.62 percent, these sectors’ best such performance since last August’s 1.96 percent. Revisions here, too, were mixed. July’s initially reported 0.29 percent increase was bumped up to growth of 0.30 percent. June’s results stayed at a 0.32 percent increase after being downgraded from 0.39 percent. But May’s initial growth figure of 0.35 percent now stands at 1.20 percent after some ups and downs.

Since just before the CCP Virus’ arrival in force, pharmaceuticals and medicines output (including vaccines) is now up 16.56 percent in real terms, versus the 14.69 percent calculable last month.

And medical equipment and supplies firms (including those that make anti-CCP Virus products) boosted their price-adjusted production in August by three percent in constant dollar terms – their best such performance since January’s 3.15 percent. Revisions were negative on net. July’s initially reported inflation-adjusted improvement of 1.90 percent was downgraded to an increase of 1.58 percent. June’s original 3.12 percent real growth figure has now been revised down twice – to 1.01 and 0.67 percent. May’s initial estimate of 1.44 percent real growth is now pegged at 1.36 percent.

Yet real production in this sector is now 17.81 percent higher than in immediately pre-pandemic-y February, 2020, versus the 16.15 percent calculable last month.

At this point, it’s easy to make the case that the headwinds facing domestic manufacturing are stronger than the tailwinds. There’s not only continued tighter inflation-fighting and growth-slowing monetary policies being pursued by the Fed along with mounting evidence that America’s overall economic growth will remain slow at best. There’s the end of the mammoth government deficit spending that’s also supported that growth for so long, and especially during the CCP Virus emergency. And don’t forget the continually darkening outlook for the global economy – and for the export markets on which U.S.-based industry relies significantly (nearly 18 percent of its gross output in 2021 by my calculations).

U.S.-based industry has been resilient since the pandemic arrived, but it wasn’t able to escape the undertow of the domestic and overseas economic downturns it generated. That seems like as good a forecast as any for domestic manufacturing output over the next few months, too.   

(What’s Left of) Our Economy: More Evidence That Stimulus-Bloated Demand is the Main U.S. Inflation Driver

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CCP Virus, China, consumer price index, consumers, coronavirus, COVID 19, Covid relief, CPI, demand, inflation, Jobs, population, retirement, stimulus, Sun Belt, supply, supply chains, The New York Times, Ukraine War, workers, Wuhan virus, Zero Covid, {What's Left of) Our Economy

The New York Times just provided some important evidence on the big role played by super-charged consumer demand in super-charging inflation – this article showing that the Sun Belt has been the U.S. region where prices have been rising fastest.

The finding matters because a debate has been raging among politicians and economists over the leading causes of multi-decade high inflation rates with which Americans have been struggling over the last year and a half or so.

On one side are those who claim that overly generous government stimulus spending is the main culprit, because it’s increased U.S. buying power much faster than the supply of goods and services has grown. On the other side are those who focus on the inadequate amount of goods and services that companies are turning out, stemming from supply chain disruptions rooted in the stop-and-go nature of the American economy from successive waves of pandemic downturns and slowdowns to the Ukraine war to China’s ridiculously draconian Zero Covid policies.

Clearly, all these developments deserve blame, but the regional disparities in inflation rates provide pretty convincing support for emphasizing bloated demand.

Here’s the latest annual disparity in the headline Consumer Price Index as presented in the Times article:

U.S. total:    8.5 percent

South:          9.4 percent

Midwest:     8.6 percent

West:          8.3 percent

Northeast:   7.3 percent

It correlates roughly, by the way, with the data in this report last spring from the Republican members of Congress’ Joint Economic Committee.

And here’s a principal, demand-related reason: The Sun Belt states of the South and West have been the U.S. states that have gained the most population during the pandemic period. Indeed, according to the latest U.S. Census data, eight of the ten states with the fastest overall population growth between July, 2020 and July, 2021 was a southern or southwestern state, and the same holds for five of the ten states with the fastest population growth in percentage terms.

It’s true that population growth often increases supply, too – by boosting numbers of workers. The U.S. government doesn’t break out job creation along the above regional lines, but a look at individual state totals doesn’t conclusively brand the Sun Belt as an national employment leader. On average, relatively speaking, Arizona, California, Florida, Nevada, and Texas have created more jobs from the pandemic-period bottom in April, 2020 through last month, as shown in this table:

U.S. total:    +16.87 percent

California:   +17.98 percent

Florida:        +21.05 percent

Texas:          +17.31 percent

Arizona:       +16.02 percent

Nevada:        +30.92 percent

But don’t forget – many of these states have outsized travel and tourism sectors, and you know what happened to those activities during the worst of the pandemic. So in part, their employment bounced back so quickly because they had plummeted so dramatically as the CCP Virus’ first wave spread.

Moreover, many of these states are big retirement destinations, too, and as their overall population increase makes clear, this trend has intensified since the pandemic arrived. Of course, the workers in any given state don’t only sell goods and services to that state’s population, and a given state’s residents don’t only buy goods and services from providers in that state. Yet it’s certainly noteworthy that the number of the Sun Belt states’ consumers rose faster relative to the national average than the number of Sun Belt workers.

And in this vein, Sun Belt inflation probably is also particularly hot partly because so many of the newcomers are wealthy. Indeed, one recent study found that, early in the pandemic, “Of the 10 states with the largest influx of high-earning households, nine are located in the Sun Belt, including the six-highest ranked states, starting with Florida.”

Because they bring so much spending power to their new home states, these wealthier Americans naturally tend to drive prices up unusually fast.

As the Times article notes, some prominent reasons for scorching Sun Belt inflation are unrelated to population-driven demand growth – notably much lower population densities that generate more gasoline-using driving.  But the impact of population movement and all the disproportionately high inflation it’s clearly creating is hard to ignore.  And if a consumption shock has spurred so much inflation in the Sun Belt, why wouldn’t it be affecting prices this way in the rest of the nation, too?          

 

(What’s Left of) Our Economy: An Up-Side Surprise for U.S. Manufacturing Output

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aircraft, aircraft parts, apparel, appliances, automotive, CCP Virus, coronavirus, COVID 19, electrical components, electrical equipment, fabricated metal products, Federal Reserve, furniture, machinery, manufacturing, medical devices, pharmaceuticals, printing, recession, semiconductors, transportation equipment, {What's Left of) Our Economy

Just as it’s looking like the U.S. economy as a whole may have skirted the danger of a near-term recession, domestic American manufacturing saw a revival of its fortunes last month, according to yesterday morning’s latest official report on its after-inflation output in July.

Following two consecutive months of falling real production, U.S.-based industry grew by 0.74 percent in price-adjusted terms sequentially last month – its best such performance since March’s 0.74 percent. Revisions were mixed but modest.

These new figures mean that constant dollar U.S. manufacturing output is now 3.69 percent greater than in February, 2020, the last month before the CCP virus and assorted mandatory and voluntay burbs on economic behavior triggered a steep but brief recession and began distorting the economy. As of June’s release, domestic manufacturing had grown by an inflation-adjusted 2.98 percent since then.

Among the broadest manufacturing sub-sectors tracked by the Fed were:

>the automotive industry, whose volatility fueled many of U.S.-based manufacturing’s ups and downs earlier during the pandemic, boosted its real output by 6.60 percent on month – and this burst was only its best such result since March’s 9.04 percent. Revisions here were generally negative, with June’s initially reported monthly loss of 1.49 percent revised up to one of 1.27 percent, but May’s results downgraded again to a drop of 1.92 percent, and April’s originally reported gain of 3.92 percent is pegged at 2.98 percent. All told, though, vehicle and parts production -though still dealing with semiconductor shortages – once again rose back above its immediate pre-pandemic level by 4.73 percent. As of last month, it was still down by 1.07 percent;

>fabricated metal products, which lifted real output on month in July by 2.05 percent – its best such result since February’s 2.49 percent. Revisions were mixed, with June’s initially reported decline of -0.83 percent now estimated as a decrease of 1.40 percent, May’s initially reported shrinkage of 1.16 percent downgraded further to a 1.18 tumble before being upgraded to one of 1.02 percent, and April’s initially 0.85 percent rise previously revised down to a 0.46 percent advance before recovering to one of 0.65 percent. Inflation-adjusted production in this sector has now come to within 0.14 percent of its February, 2020 levels, as opposed to 2.11 percent below them calculable last month;

>aerospace & miscellaneous transportation equipment, where constant dollar production jumped 1.54 percent month-to-month, and where revisions were mixed, too. June’s initially reported fractional improvement is now judged to have been a dip of 0.14 percent, May’s advance estimate of a 0.85 percent decrease bouncing back from a downgrade to a 1.25 percent drop to one of 1.05 percent, and April’s initially reported 2.15 percent increase getting upgaded to one of 3.47 percent before settling back to one of 3.34 percent. In after-inflation terms, this cluster of industries is 21.30 percent bigger than just before the CCP Virus’ arrival in force, versus the 19.47 percent calculable last month; and

>apparel and leather goods, which recorded a second straight excellent growth month. July constant dollar production increased on month by 1.60 percent, and June’s initially reported 2.54 percent surge was revised all the way up to 6.09 percent – its best such result since the 8.04 percent recorded in August, 2020, when the economy’s recovery from the first virus wave was still underway. But May’s initially reported 0.88 percent price-adjusted output rise was revised down a second time – to a 0.24 percent dip. And April’s advance figure, a 0.18 percent climb, is now estimated to have been a 0.43 percent decrease. Still, thanks to the last two months’ results, this long-beleaguered sector has now grown in real terms by 5.71 percent, as opposed to the 0.56 percent calculable last month; and

July’s worst performing of the major sub-categories tracked by the Fed?

>printing and related support activities, where price-adjusted production sank by 1.67 percent on month. Revisions overall were positive, with June’s first reported loss of 2.16 percent revised up to one of 0.51 percent, May’s advance estimate of a 0.35 percent retreat upgraded a second time, to one of only 0.09 percent, and April’s initially reported 0.49 percent gain now standing at 0.69 percent. All the same, this group of companies still 10.50 percent smaller in real terms than it was in February, 2020, versus the11.37 figure calculable last month;

>furniture and related products,where real output sagged by 1.57 percent sequentially, the worst such result since the 2.77 percent decrease in February, 2021. Revisions on the whole were just as bad, with June’s initially reported fall-off of -0.55 percent now judged to have been one of 1.33 percent, May’s initially reported 0.94 increase (the biggest since this past February’s 4.75 percent pop) revised down second time to ai 0.99 decrease, and April’s initially reported -0.59 percent drop now pegged at a slightly smaller one of 0.41 percent. These results dragged down the furniture complex’s performance down to a 5.56 percent inflation-adjusted output shrinkage since immediately pre-pandemic-y February, 2020, versus a 0.91 percent decline calculable last month; and

>electrical equipment, appliances and components, where after-inflation production was off 1.41 percent from June’s levels. Revisions, though, were on the whole positive. June’s originally reported production increase of 1.34 percent was revised up to 1.42 percent (the best such performance since February’s 2.29 percent), May’s downgrade from an advance decrease of 1.83 percent to one of 2.35 percent was upgraded to a 1.93 percent retreat, and April’s initially reported -0.60 percent drop is now judged to have been a 0.57 percent advance. Yet constant dollar production in this cluster is now up only 4.83 percent over its last pre-pandemic reading, versus the 5.59 percent figure calculable last month.

As known by RealityChek regulars, the very big and diverse machinery sector is seen as a bellwether for both the rest of manufacturing and the rest of the entire economy, since so many industries use its products. So it’s encouraging to report that in July its companies notched their first monthly real output gain (0.50 percent) since April. Revisions, however, were overall sigificantly negative terrible. June’s initially reported 1.14 percent decrease is now pegged at 2.16 percent, and May was downwardly revised again to a 3.53 percent loss (the sector’s worst since the 18.64 percent collapse in April, 2020, during the worst of the economy’s pandemic-induced downturn). Only April broke the pattern even somewhat. Its initially reported 0.85 percent price-adjusted sequential output rise was upgraded all the way to 2.27 percent in May. It’s been downgraded since, but still stands at a 1.88 percent advance (the best since January’s 1.95 percent.

These results mean that wherewas last month, inflation-adjusted machinery production was up 4.70 percent during the pandemic era, now it’s only 2.82 percent higher.

The industries that consistently have made headlines during the pandemic performed well in July, too.

Measured in constant dollars, production by aircraft- and aircraft parts-makers was up 1.02 percent on month, but revisions were modesty negative. June’s initially reported after-inflation output growth of 0.26 percent is now pegged at only 0.18 percent, and May’s real production was unchanged at down 0.23 percent after having been downgraded from a 0.33 percent improvement. After having been upgraded twice, from an initially reported 1.67 percent advance to one of 3.13 percent, the April results dipped to a 2.96 percent rise. But this was still the best monthly result since January, 2021’s 8.60 percent surge). Nonetheless, the aircraft and parts sector is now 26.67 percent larger in real terms, since February, 2020 – up from the 25.58 percent figure calculable last month.

In the big pharmaceuticals and medicines industry, real production climbed on month by 0.29 percent n July and revisions were generally positive. June’s initially reported 0.39 percent increase was slightly downgraded to 0.32 percent, but after having its initially reported 0.42 percent increase was revised down to only 0.01 percent, it was upgraded all the way to a 1.20 percent improvement. And April’s initially reported -0.20 percent after-inflation monthly production dip was revised up a third time to a 0.08 percent increase. Due to these results, real output of aircraft and parts has now grown by 14.69 percent during the pandemic period, versus the 12.98 percent calculable last month.

Medical equipment and supplies firms (who make so many of the products used to fight the CCP Virus) enjoyed a banner July, expanding after inflation by 1.90 percent – its best such result since January’s 3.15 percent jump. June’s initially reported from 3.12 percent rise was downgraded to one of 1.01 percent, but after a downward revision from 1.44 percent real growth to 1.01 percent, May’s results wee revised back up to 1.66 percent, and after two straight upward revisions and one downward, April’s final (for now!) result is now judged to be 0.44 percent growth. But this cluster’s virus era inflation-adjusted production growth now stands at 16.15 percent versus the 17.27 percent calculable last month.

For the shortage-plagued semiconductor industry, price-adjusted output improved on month in July by 1.16 percent. Revisions were positive – but all over the place. June’s initially reported 0.18 percent rise is now pegged at 0.49 percent. But after a massive downgrade from 0.52 growth to 2.24 percent shrinkage, May’s performance is now recorded as a 0.37 gain. And the April sequential results are now as follows: down 1.85 percent, down 0.88 percent, down 2.71 percent, and down 2.68 percent – still the worst production month since the 11.26 percent plunge in December, 2008 – in the middle of the Great Recession that followed the global financial crisis. After all this movement, though, constant dollar semiconductor production is now up 21.98 percent since pre-pandemic-y February, 2020, up dramatically from the 15.22 percent calculable last month.

Even by pandemic-era standards, the outlook for domestic manufacturing looks unusually murky to me. The reasons for pessimism abound (like the near certainty of more growth-slowing monetary tightening by the Federal Reserve in order to tame inflation, darkening growth prospects in all of export-heavy manufacturing’s foreign markets, and continuing supply chain woes, industry’s still ginormous trade deficit). But so do reasons for (cautious) optimism (like U.S. unemployment at 50-year lows and all the personal spending this level supports, the chance that the Fed will ultimately chicken out in its anti-inflation campaign, and the ongoing fade of the pandemic).

Moreover, and maybe most important, all recent bets so far against U.S.-based manufacturing’s resilience have been losing bets. Unless you think that the nation’s manufacturers have suddenly lost their chops, or are about to, it’s reasonable to suppose that, at least for now, they remain horses worth riding.       

(What’s Left of) Our Economy: America’s Long-Time Productivity Slump Looks Like it’s Deepening

Tags

CCP Virus, coronavirus, COVID 19, inflation, Labor Department, labor productivity, productivity, total factor productivity, wages, {What's Left of) Our Economy

Since strong productivity increases are America’s best hope for improving living standards, sustainable prosperity and robust non-inflationary economic growth, it’s clearly bad news that the nation may be on the edge of a productivity growth cliff – and staring into a canyon. That’s the clear message being sent by the new official U.S. preliminary data on labor productivity for the second quarter of this year released by the Labor Department this morning.

At least as bad: The lousy labor productivity figures strengthen the case that even though U.S. wages aren’t rising nearly as fast as living cost, they still could be fueling some of the torrid inflation of the last year and a half or so.

There’s a possibility that this dreadful performance is just another hangover from the CCP Virus pandemic and related lockdowns and curbs on individuals’ voluntary activity (along with the massive covid relief measures provided by Washington), which has played havoc with the entire economy and the data used to monitor its health. But it’s crucial to remember that the nation is also suffering a long-term productivity growth slump, so any virus distortions aren’t reflected in the numbers may not be game-changing.

As known by RealityChek regulars, labor productivity is the narrower of the two measures of efficiency tracked by Labor, and measures the output of each worker per each hour on the job. The Department itself made clear how awful the second quarter results were for the non-farm business sector – the numbers that are followed most closely:

“The 2.5-percent decline in labor productivity from the same quarter a year ago [actually, it was 2.55 percent] is the largest decline in this series, which begins in the first quarter of 1948.” (Actually, the Department’s own raw data tables go back to the first quarter of 1947.) Let’s all agree that a 75-year all-time worst is really alarming.

The quarterly figures were stomach-turning, too. Labor productivity sank at an annual rate of 4.71 percent sequentially – the fifth biggest such drop ever. Further, this followed on the heels of the first quarter’s sequential 7.64 percent nosedive – the second worst since the 12.26 percent crash of the third quarter of 1947.

And here’s some thoroughly depressing context: Such back-to-back quarterly declines are rare. Before that latest stretch, they – or longer labor productivity losing streaks – had only happened eleven times over the last three quarters of a century.

Two consecutive declines in labor productivity aren’t the longest such stretch on record. That dubious honor belongs to the five-quarter period between the second quarter of 1973 and the third quarter of 1974. But the latest cumulative quarterly deterioration of 12.26 percent at annual rates is the worst of all time. True, it’s just slightly greater than the 12.24 percent cumulative drop suffered during that 1973-74 productivity depression. But don’t forget – the current streak may not be over yet!

As for that 2.51 percent annual decline in labor productivity, the context here is completely gloomy, too. As with the sequential results, it represented the second straight worsening – following the 0.58 percent drop in the first quarter. And two or more straight annual labor productivity decreases have only happened six times before this morning’s release.

Also as with the quarter-to-quarter figures, a stretch of two straight decreases isn’t the longest ever. Between 1973 and 1974, annual productivity fell four consecutive times. But the current annual slump is the deepest since that which lasted between the first and third quarters of 1982. And of course, today’s slump isn’t over yet, either.

As I’ve written previously, productivity is the measure of economic performance in which most economists are least confident (especially in service industries that make up the vast bulk of the U.S. economy). Further, labor productivity is a narrower measure of efficiency than total factor productivity, which measures output as a function of a wide range of inputs used by business (not only workers but capital, technology, materials, etc.) And today’s second quarter results will be revised next month (which recently I mistakenly reported as the date for these preliminary numbers), with the latest set of (annual) revisions coming this fall.

But most legitimate doubts about the productivity data mainly concern their precision, not the direction they show. And all-time worsts and near-worsts surely can’t be mainly attributed to measurement flaws. And as for the total factor results, for decades, they’ve been no great shakes, either, as made clear in the above linked RealityChek post. Maybe the revisions will substantially brighten the picture?

So far, though, that’s just a “maybe.” The best information available indicates that America’s long-time productivity woes are taking a big turn for the worse, and that in combination with recent wage increases could be embedding unacceptably high inflation – and stagnating living standards – into the U.S. economy’s foreseeable future.

(What’s Left of) Our Economy: The Real Biden Record on Job Creation

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CCP Virus, coronavirus, COVID 19, Employment, healthcare services, Jobs, manufacturing, non-farm jobs, private sector, subsidized private sector, Wuhan virus, {What's Left of) Our Economy

No one can reasonably blame President Biden for running a victory lap right after last Friday’s official U.S. jobs figures (for July) came out. The 528,000 jobs added by employers more than doubled the consensus forecast, and undercut claims that his policies had created both historically torrid inflation and an actual or impending recession. And what U.S. President has ever resisted taking credit for whatever good economic news takes place during his term in office?

But in many key respects, Mr. Biden’s boasting went far overboard. For example, according to the President, “[W]e’re almost to 10 million jobs — almost to 10 million jobs since I took office.  And that’s the fastest job growth in history.”

Except that it’s not. Since he entered office, the overall economy (defined by the Labor Department as the non-farm economy), has indeed seen net employment growth of 9.519 million. But between April, 2020 (the early pandemic era bottom) through January, 2021, total payrolls grew by 12.504 million.

It’s true that the early post-pandemic bounceback was unusually fast, benefiting from a reopening-strengthened rubber band effect from an unusually deep downturn. But it’s also true that the 12-plus million pre-Biden employment boost came over nine months. The Biden-era jobs have been created over 18 months.

Another tall Biden tale: “Since I took office, we’ve created 642,000 American manufacturing jobs in America.  We’ve seen the biggest and the fastest job recovery in American manufacturing history since the ‘50s.”

The 642,000 number is correct. But during that pre-Biden phase of the recovery, employment in industry grew by 761,000. And the rubber band effect was somewhat weaker, since manufacturing lost a smaller share of its workforce during the depths of the pandemic than the rest of the economy.

Some job quality concerns are marring the Biden period record, too. Chiefly, fewer of those new jobs have been truly private sector jobs than during that prior recovery phase, and more have been jobs in government and in areas of the economy that I’ve called the subsidized private sector. These are categories like social services an especially the giant healthcare services sector that are heavily dependent on government funding for their economic performance – including their employment levels.

As I’ve repeatedly noted, many of these public sector and subsidized private sector jobs are vital for any modern economy. But their scale is influenced primarily by politicians’ decisions, not by market forces, and therefore they tell us relatively little about the economy’s real health.

Moreover, if you believe (as you should) that the private sector is more productive than the public sector, and that as a result its performance is the best guarantee of sustainable prosperity, then you want to see the private sector maintain a big lead in job creation over the government and subsidized private sector.

Unfortunately, that lead to date has eroded during the Biden presidency. Specifically, over the nine months of recovery before his inauguration, government (at all levels) plus subsidized private sector jobs accounted for 12.02 percent of the total expansion achieved in non-farm employment. But since then, these sectors have generated 16.92 percent of the total.

And government jobs accounted for all of this increase – and then some. During the pre-Biden recovery, they fell by 116,000. Under his administration, they’ve risen by 494,000.

President Biden is by no means responsible for the relative growth of government and especially subsidized private sector employment. As known by RealityChek regulars, that’s been a long-time trend, at least until the CCP Virus came along. Further, because of the country’s aging population, it could well be an unstoppable trend (unless the healthcare system in particular somehow becomes a lot more efficient). But as mentioned above, one price to date has been a less healthy economy. And how nice it would be if politicians spent more time talking about this tradeoff and how to at least ease it, and less time spinning jobs data so hard that they veer into misinformation.             

(What’s Left of) Our Economy: Slower Growth and More Hiring in U.S. Manufacturing, Too

Tags

aerospace, aircraft, aircraft engines, aircraft parts, CCP Virus, chemicals, coronavirus, COVID 19, electronics products, Employment, fabricated metal products, furniture, Jobs, machinery, manufacturing, medicines, miscellaneous durable goods, non-farm jobs, non-farm payrolls, paper, paper and paper products, pharmaceuticals, recession, semiconductors, surgical equipment, textiles, vaccines, {What's Left of) Our Economy

When it comes both to the U.S. economy in general and domestic manufacturing in particular, this morning’s official jobs report (for July) strongly supported a widely held supposition of economists – that employment is a lagging indicator of trouble.

That’s because laying off workers supposedly is seen as a last resort by businesses facing bad times, and the new results for non-farm payrolls (the U.S. government’s definition of the national jobs universe) seems to have validated this view in spades. Even though the economic growth has been slowing dramatically from last year’s rapid pace, employers boosted their headcounts by a stunning 528,000 last month (including 471,000 in the private sector). And even though inflation-adjusted American manufacturing production has fallen for the last two data months (May and June – the July results will come out August 16), U.S.-based industry added workers for the fifteenth straight month.

Indeed, July’s 30,000 increase in manufacturing jobs was the biggest monthly gain since April’s 61,000. And the numbers included the best hiring month of all time (or at least since that data series began in 1990) for the big pharmaceuticals and medicines industry. Moreover, revisions left the solid results of June and May virtually unchanged.

As a result, domestic manufacturing employment is 0.32 percent higher than its level in February, 2020 – just before the CCP Virus struck the U.S. economy in force and sent economic activity spiraling downward. Last month, when it finally regained its pre-pandemic jobs levels, the net gain was 0.09 percent.

Since July’s overall jobs improvement was so great, manufacturing is no longer the economy’s post-pandemic employment champion. That title has passed again to the total private sector, where payrolls are now 0.49 percent higher than in February, 2020. But manufacturing’s net job creation pace continues to exceed that of the non-farm economy (which includes the public sector). Its workforce is just 0.02 percent larger than just before the pandemic’s arrival.

The huge July surge in non-farm and private sector net hiring did depress manufacturing’s share of those workforces – from 9.86 percent of private sector jobs to 9.85 percent, and from 8.42 percent of non-farm jobs to 8.41 percent. But manufacturing employment is still up in relative terms since February, 2020 – climbing from 9.83 percent of private sector employment and 8.38 percent of non-farm employment.

Job-creation winners abounded throughout manufacturing’s major sectors in July, with the standouts being:

>fabricated metals products, where payrolls grew by 4,200. Revisions, however, continued to be weak, with June’s sequential loss remaining at 600; May’s originally reported 7,100 surge revised lower first to 6,900 and now to 6,600 (still the best since February’s 9,300 pop); and April’s results staying at a twice downgraded 1,400. Employment in this big sector is now 2.04 percent below its immediate pre-pandemic levels, versus the 2.31 percent shortfall calculable last month;

>miscellaneous durable goods (the major category containing many of the key medical devices used to combat the virus), which added 3,700 workers in its strongest monthly performance since last November’s 10,400. But revisions were on balance negative here, too, with June’s initially reported 2,400 job growth now judged to have been 1,700, May’s initially upgraded 1,300 advance downgraded to 1,000, and only April’s results breaking the pattern, with its upgraded 600 job loss staying unchanged.

Miscellaneous goods’ workforce is now 2.79 percent higher than in February, 2020, versus the 2.36 percent calculable last month;

>chemicals, which remained on a hot streak last month. Its companies added 3,700 employees on month in July, its June performance was revised way up from a 1,200 improvement to 4,500, its initially downgraded May rise upgraded to 5,100 (the greatest improvement since January’s 5,500), and April’s increase settling at 1,700 after being first reported as 1,000. As of July, 5.84 percent more workers were employed in the chemicals industry than in February, 2020, versus the 4.83 percent calculable last month; 

>machinery, which RealityChek regulars know is a bellwether for the rest of manufacturing and the whole economy because of how widely its products are used. Its employment increased by 3,400 on month in July; June’s initially reported 1,000 rise is now pegged as 1,600; May’s initially reported 3,200 job decrease has now ben revised all the way up to a jobs gain of 200; and April’s final total stayed at a twice downgraded 5,800. Consequently, machinery employment has rebounded to within 1.47 percent of its immediate pre-pandemic level, versus the 2.05 percent shortfall calculable last month; and 

>computer and electronics products, which contains shortage-plagued semiconductor sector, also boosted its employment by 3,400 sequentially in July. June’s initially reported 2,300 net new job creation is now judged to have been 2,000, but May’s totals were revised up a second time, to 5,300 (its best monthly performance since the 6,300 recorded in May, 2020, during the economy’s strong bounceback from the first CCP virus wave), and April’s thrice upgraded figure remained the same at 4,900. This progress pushed headcounts in this sector 0.41 percent above their February, 2020 levels, versus the 0.11 percent calculable last month.

The worst performers among July’s few maufacturing losers:

>paper and paper products, where employment fell month-to-month by 1,200. At the same time, June’s initially reported 1,200 job increase was upgraded to 1,500; May’s advance was revised down but still remained at an increase of 700; and April’s initially downwardly revised 1,300 employment rise stayed at an upwardly revised 2,100 increase. Nonetheless, there are now 0.86 percent fewer jobs in paper and paper products compared with February, 2020, versus the 0.22 percent dip calculable last month;

>textile mills, whose July employment was off by 600. Revisions were mixed, with June’s initially reported jobs bump of 700 now judged to have been 300, but May’s initially reported payroll decrease of 700 now upgraded to a loss of 400, and April’s upgraded 800-job increase remaining the same. Since just before the pandemic arrived,, however, textile mill jobs have shrunk by 6.18 percent, versus the 5.15 percent calculable last month; and

>furniture and related products, where headcounts sank by 600 on month. Worse, revisions on balance were decidedly negative. June’s initially reported employment improvement of 100 is now considered to be a drop of 1,100; May’s results, first reported as a 1,000 jump, were downgraded a second time to a mere 100 advance; and April’s initially reported 1,100 drop have been revised up only to 900 job loss. Whereas as of last month, the furniture complex’s workforce had risen to 0.60 higher than its February, 2020 level, it’s now sunk back to 0.03 percent lower.

As always, the most detailed employment data for pandemic-related industries are one month behind those in the broader categories, and most turned in performances even better than manufacturing as a whole.

The semiconductor industry is still struggling with the aforementioned shortages that are hampering so many other parts of the economy. But the 1,700 jobs it added on month in June were the most since the 1,800 in January, 2019, and revisions were positive. May’s initially reported 800 jobs gain is now pegged as having been 1,000 and April’s first reported 100 increase has been upgraded more than ten-fold – to 1,100.

The upshot seems to be that the recent high profile announcements of new domestic microchip fab construction are showing up in the employment data. As of last month, the sector’s payrolls were only 2.20 percent higher than just before the pandemic’s large-scale onset (though in fairness, semiconductor employment actually rose during the steep 2020 downturn). As of today, however, employment is up 3.22 percent during that period. (Note: The 1,400 semiconductor job growth I said last month took place in December, 2021 in fact came in the previous December. Apologies for the error.)

In surgical appliances and supplies (which includes so many of the personal protective equipment and other medical goods so widely used to fight the CCP Virus), June employment dropped by 800 – these companies’ worst monthly performance since last July’s 1,100 decline. At least revisions were positive. May’s initially reported gain of 400 is now estimated at 500, and April’s figure stayed at an upgraded loss of 100. The surgical appliances and supplies sector now employs 3.69 percent more workers than in February, 2020; last month, this increase had been 4.36 percent.

The pharmaceuticals and medicines industry, by contrast, generated record-smashing net job creation in June. The 4,300 rise was the biggest monthly total ever in a data series that goes back to 1990, and greatly eclipsed the old mark of 3,200 recorded in September, 2019. Revisions, moreover, were excellent, with May’s initially reported 100 payroll decline now raised all the way up to a 1,200 gain, and April’s increase remaining at an upgraded 1,500. Headcounts in these businesses are now 11.58 percent higher than just before the pandemic, versus the 10.10 percent calculable last month.

The much smaller medicines subsector containing vaccines performed well on the jobs front, too, hiring 1,100 net new workers in June. In addition, May’s initially reported 600 increase is now judged to have been 700, and April’s monthly improvement stayed at 1,100. This subsector’s workforce has now expanded by 26.29 percent since just before the pandemic arrived in force, as opposed to the 24.47 percent calculable last month.

An aerospace cluster hit especially hard by CCP Virus-related travel restrictions experienced another robust employment month in June.

Aircraft companies hired 1,500 net new workers on month, and revisions were excellent as well. May’s initially reported net new hires figure was upgraded from 1,300 to 1,600 – their best such performance since last June’s increase of 4,400 (mis-reported last month as a rise of 4,000). And April’s advance remained at an upgraded 500. As a result, the aircraft workforce is only 9.64 percent smaller than just before the pandemic arrived, versus the 10.30 percent calculable last month.

Aircraft engines and engine parts jobs were up by 800 sequentially in June, May’s initially reported increase of 700 was revised up to 900, but April’s results stayed at a downwardly revised 800. This improvement enabled employment at these firms to come within 9.81 percent of their February, 2020 levels, versus the 10.91 percent calculable last month.

These increases were mirrored in the non-engine aircraft parts and equipment industry, which added 600 workers on month. May’s initially reported 300 jobs increase remained unrevised as did April’s upgraded 400 increase. The non-engine aircraft parts and equipment sectors, as a result, crept to within 14.62 percent of their employment levels of February, 2020, versus the 15.14 percent calculable last month.

The big questions for American workers, and domestic industry as a whole including manufacturing, are whether economic growth will really continue to deteriorate further (here’s a recent forecast that it won’t, at least in the third quarter); and if it does, will businesses continue to “hoard” labor. Let me know if there’s anyone you trust to provide accurate answers.

(What’s Left of) Our Economy: So Much for the Both the Great Resignation and the Recovery?

Tags

CCP Virus, coronavirus, COVID 19, Employment, Employment to Population Ratio, EPOP, Great Resignation, job openings, Jobs, JOLTS, Labor Department, Labor Force Participation Rate, LFPR, quits, recession, retirement, unemployment, workers, Wuhan virus, {What's Left of) Our Economy

Yesterday’s official U.S. report on job turnover reenforced two important messages that have sent by lots of recent economic data: first, that the nation’s growth rate really has slowed dramatically this year; and second, that the CCP Virus- and lockdowns-led Great Resignation is ebbing significantly. And not surprisingly, these developments look related.  

The job turnover report, (whose jazzy acronym is JOLTS – Job Openings and Labor Turnover Survey) takes the story up through June, and shows that the number of vacancies that U.S. private sector employers say they want to fill, preliminarily hit its lowest (9.766 million) since last September’s 9.680 million. Moreover, it’s down 9.67 percent since their peak of 10.275 million from last November. (As known by RealityChek regulars, data focusing on the private sector, whose performance is driven mainly by market forces, reveal more about the economy’s true health than data that include government workers. After all, the public sector’s performance is driven mainly by politicians’ decisions.)

Additional economic slowdown (and even recession) signs: This calendar year so far, when the official statistics on gross domestic product (GDP – the standard measure of the economy’s size and how it changes) have shown two consecutive quarterly drops (a popular definition of recession), private sector job openings are off by 5.58 percent.

Private sector job openings, though, are still a whopping 57.64 percent higher than in February, 2020 – the last full data month before the pandemic and ensuing mandatory and voluntary curbs on economic activity began distorting and roiling the economy. So labor market conditions are still far from having returned to their pre-CCP Virus norm.

In even more important relative terms, a similar though more modest pattern appears as well. The private sector job openings rate – which adds total employment figures and openings figures, and then divides them by the number of openings – hit seven percent in June. That was its lowest level since the previous June’s 6.8 percent, it’s fallen for three straight months, and it’s declined by 6.45 percent during the first two (recession-y looking) quarters of this year. And as with the absolute number of job openings, the openings rate remains much (52.17 percent) higher than just before the virus arrived in force.

The Great Resignation claims have held that the CCP Virus pandemic and resulting curbs on individuals’ economic behavior led unprecedented numbers of Americans to leave the workplace for good – regardless of whatever subsequent ups and downs the economy will wind up experiencing.

The private sector quits numbers contained in each JOLTS report provide some support for idea that this Great Resignation is fading already – but only some. That’s because so many Americans who leave their jobs voluntarily seek and get more desirable jobs. They do, however, buttress the slowdown/recession narrative pretty effectively.

In the private sector in June, job leavers totaled 3.999 million – a decrease of 3.96 percent during this possibly recession-y year, the lowest level since last October’s 3.884 million, as well as the first sub-four million number since then. They’re also down 6.26 percent from their CCP Virus-era high (last November’s 4.266 million.

And although the many more Americans still are leaving their jobs each month than just before the pandemic’s arrival in force, this increase is a not-jaw-dropping 22.86 percent – and of course it’s falling

The private sector quits rate has been drifting down, too. As of June, it was 24 percent higher than in immediate pre-pandemic-y February, 2020 (3.1 percent versust 2.5 percent). But it’s 8.82 percent lower than its peak (3.4 percent last November) and has dropped 6.06 percent so far this calendar year – suggesting that a slowing economy has reduced workers’ confidence that that better job will be there for the asking.

Also throwing cold water on permanent Great Resignation claims – though barely whispering “recession” so far – are the federal government’s two measures of the share of Americans actually working. Both the Labor Force Participation Rate (LFPR) and the Employment to Population Ratio (EPOP) helpfully provide figures for the entire economy (though their definitions are somewhat different), and for different segments of the population (including age groups). So both shed unmistakable light on the Great Resignation question with data sets for the 55-year old and over cohort. (Don’t forget, though, that neither measure separates out public and private sector workers. So the following results apply for the “civilian noninstitutional population.)  

Yet both measures reveal that the share of Americans either at or near retirement age holding jobs has shrunk during the pandemic era – by 4.22 percent for the LFPR and 4.32 percent for the EPOP. But both measures also show that the current percentages who are employed is at the high end of the range of results since 1948, and well within their post-2000 ranges.

In other words, the percentage of these older Americans in the workforce (38.6 percent as of this June according to the LFPR and 37.6 percent according to the EPOP) was steadily shrinking from 1948 (when these data sets begin) through about 2000, and then grew healthily till the CCP Virus came along (by about 25 percent for both the LPFR and EPOP). Once the worst of the pandemic, it edged back up to long-term normal levels, and may only be leveling off or inching down in the last few months because of the current slowdown or recession – not because of any underlying changes in older Americans’ views of work.

Unfortunately, though, because employment levels are one of the economy’s most conspicuously lagging indicators (due to most business’ tendency to view layoffs as a last resort in the face of worsening prospects), we’ll need to wait further to justify a more definitive recession call from the LFPR and EPOP results. Here, the most useful measures are probably those tracking the so-called prime age (for employment purposes) population – the 25 to 54-year olds.

And labor force participation for these folks is actually up by 0.49 percent so far in this seeming period of economic shrinkage. The EPOP is off, but by a modest 0.87 percent. 

Significantly, going forward, I suspect that the growth slowdown and at least quite possible recession will weaken the Great Resignation further – especially since the income supports provided by the Covid relief measures have stopped.  What I also suspect, however, is that the jobs seniors will once again keep seeking won’t enough to secure their financial futures. 

(What’s Left of) Our Economy: Is the U.S. Trade Deficit’s Latest Dip More than Recession-y?

Tags

CCP Virus, China, coronavirus, COVID 19, economic growth, exports, GDP, goods trade, gross domestic product, imports, inflation-adjusted growth, real GDP, real trade deficit, recession, services trade, supply chains, Trade, trade deficit, Ukraine War, Zero Covid, {What's Left of) Our Economy

Although yesterday’s official figures show that the U.S. economy has now shrunk for the second straight quarter, the nation’s chronic and immense trade deficit played a diametrically different role in producing the final results. Whereas during the first quarter of this year, the trade gap’s widening was the difference between expansion and contraction of the gross domestic product (GDP – the standard measure of the economy’s size), during the second quarter (at least according to the new advance figures), its narrowing kept the drop in GDP from being considerably worse.   

The tumble of 0.94 percent at annual rates revealed in GDP after inflation (the most widely followed measure, and the GDP gauge that will be used throughout this post unless otherwise specified) came on top of a 1.58 percent decrease in the first quarter. As many have observed, two consecutive quarters of real GDP decline has long been a common definition of a recession.

This time around, however, a 4.53 percent fall-off in the inflation-adjusted trade shortfall, from a record $1.5447 trillion at annual rates to $1.4747 trillion, generated 1.43 percentage points of sequential growth in the second quarter. Although the new deficit was still the second biggest on record, the improvement prevented the quarter’s GDP drop from reaching 2.37 percent – which would have been the worst such performance since the nearly 36 percent crash dive recorded between the first and second quarters of 2020, when the CCP Virus pandemic and its impact on the economy were at their worst.

This year’s second quarter, moreover, marked the first time that America’s trade flows had added to growth, and the biggest such contribution in absolute terms, since that spring of 2020, when the pandemic and related mandated and voluntary curbs on economic activity greatly depressed U.S. imports. In relative terms, the second quarter’s trade contribution to growth was the best since the second quarter of 2009, near the end of the Great Recession that followed the global financial crisis. During that quarter, real GDP sank at an annual rate of 0.68 percent, but trade generated 1.53 percentage points of growth.

By contrast, during the first quarter, the trade deficit’s expansion subtracted a whopping 3.23 percentage points from the change in GDP – which turned what would have been a 1.65 percent sequential increase into that 1.58 percent shrinkage.

The reduction in the trade deficit also enabled the shortfall to decrease as a percentage of the entire economy from the first quarter’s all-time high of 7.83 percent to 7.49 percent. Further, the 4.34 percent sequential decrease represented by this progress was the biggest since the 9.45 percent decline in the fourth quarter of 2019 – just before the pandemic arrived state-side in force.

At the same time, at 7.49 percent of real GDP, the second quarter trade deficit was still the second highest ever, and since that immediately pre-pandemic-y fourth quarter of 2019, the trade shortfall has ballooned by 73.99 percent. As of the first quarter, it had swollen during this period by 82.24 percent.

Ordinarily, the reasons for this trade deficit decline would be a clearcut positive:  Even though the gap usually narrows as the economy weakens, it stemmed from  total exports (counting goods and services) advancing much faster than the much larger amount of imports. But as the nation and world are still in the CCP Virus and in the middle of the Ukraine War, with all the supply chain turbulence they’ve both brought on and will surely keep bringing, drawing strong conclusions still seems unusually hazardous.   

Those total U.S. exports improved by 4.22 percent on quarter, from $2.3613 trillion at annual rates to $2.4410 trillion – the highest such total since the $2.5533 trillion recorded in the fourth quarter of 2019, just before the pandemic hit the U.S. economy. The results were especially encouraging since total exports fell sequentially in the first quarter (by 1.23 percent), and given the global economic slowdown and the dollar’s strengthening to roughly 20-year highs versus nearly all currencies. This move in and of itself put U.S.-origin goods and services at a price disadvantage versus foreign competitors the world over.

Combined goods and services exports are now down just 3.61 percent since that fourth quarter of 2019, versus the 7.52 percent calculable last quarter.

Total imports inched up just 0.76 percent, although the new $3.9357 trillion annualized level did amount to a sixth straight record and an eighth consecutive quarterly increase. These purchases have now climbed by 15.37 percent during the pandemic era, versus the 14.85 percent calculable last quarter.

The goods trade deficit, meanwhile, declined by 3.96 percent sequentially, from the first quarter record total $1.6572 trillion annualized to $1.5916 trillion. This drop was the first since the peak pandemic-y second quarter of 2020, and the biggest since the 6.52 percent shrinkage in the fourth quarter of 2019. The goods trade gap, consequently, has grown by 48.55 percent since the end of 2019, as opposed to the 54.68 percent calculable last quarter.

Goods exports in the second quarter rose 3.69 percent from the first quarter’s $1.7577 trillion at annual rates to a new record $1.8225 trillion – surpassing the previous all-time high of $1.8046 trillion set in the first quarter of 2019. These new results also mean that goods exports have finally exceeded pre-pandemic levels (by 2.24 percent). After the first quarter ended, they were still down 1.39 percent since the fourth quarter of 2019.

Goods imports, however, recorded their first quarterly decrease since the third quarter of 2021 – though only from a worst ever $3.4149 trillion annualized to $3.4141 trillion. But these imports are still 19.63 percent higher than in that immediate pre-pandemic fourth quarter of 2019.

The services trade surplus improved by 8.60 percent between the first and second quarters, from $109.3 billion at annual rates to $118.7 billion. Reflecting the unusually hard hit delivered by the pandemic to the service sector, however, this surplus is still 47.64 percent lower than its level just before the virus began seriously affecting the U.S. economy. That is, it’s been nearly cut in half.

Services exports in the second quarter actually increased sequentially for the third straight time. And the 5.56 percent advance, from $631.5 billion annualized to $666.6 billion was the strongest since the 5.83 percent jump in the fourth quarter of 2006. Nonetheless, services exports remain 13.84 percent off their immediate pre-pandemic level, versus the 18.38 percent calculable last quarter.

Services imports are now back above their pre-pandemic levels, too (by 1.65 percent), having risen 4.92 percent sequentially in the second quarter, from $522.2 billion at annual rates to $547.9. The improvement, moreover, was the fastest since the 7.80 percent recorded in last year’s third quarter.

As mentioned above, usually it’s unambiguously good news for both trade, and to a lesser extent, the entire economy, when the trade deficit diminishes because exports are up considerably faster than imports. It’s normally even better news when these kinds of results are delivered in challenging international and exchange rate environments. But with the Ukraine War and China’s Zero Covid policy still distorting U.S. and global trade flows and unlikely to end anytime soon, unbridled optimism is hard to justify. So like the Federal Reserve, RealityChek will remain data dependent as it tries to detemine the outlook for U.S. trade’s fortunes.

(What’s Left of) Our Economy: A Second Straight Month of Production Shrinkage for U.S. Manufacturing

Tags

aircraft, aircraft parts, apparel, appliances, automotive, CCP Virus, China, coronavirus, COVID 19, dollar, electrical components, electrical equipment, exchange rates, Federal Reserve, fiscal policy, inflation, inflation-adjusted growth, machinery, manufacturing, medical devices, medicines, metals, miscellaneous durable goods, monetary policy, personal protective equipment, petroleum and coal products, pharmaceuticals, production, real output, recession, semiconductor shortage, semiconductors, stimulus, supply chains, textiles, Trade Deficits, Wuhan virus, Zero Covid, {What's Left of) Our Economy

Yesterday’s after-inflation U.S. manufacturing production report (for June) marked a second straight decline in real output for domestic industry, adding to the evidence that this so far resilient sector is finally suffering the effects of the entire economy’s recent slowdown.

Another possible implication of the new downbeat results: The record and surging trade deficits being run in manufacturing lately may finally be starting undermine U.S.-based manufacturing’s growth. (See here for how and why.)

Also important to note: This release from the Federal Reserve incorporated the results of both typical monthly revisions but also its annual “benchmark” revision, which reexamined its data going back several years (in this case, to 2020), and updated the figures in light of any new findings.

And the combination has revealed some big surprises – notably that the domestic semiconductor industry, which along with its foreign competition has been struggling to keep up with recently booming worldwide demand, has turned out fully 36 percent less worth of microchips on a price-adjusted basis since the CCP Virus struck than was calculable from the (pre-revisions) May report.

In real terms, U.S.-based manufacturing shrank by 0.54 percent on month in June – the worst such result since last September’s 0.78 percent drop. Moreover, May’s originally reported 0.07 sequential percent dip is now judged to be a decrease of 0.52 percent.

The April results remained good, but were downgraded a second time, from 0.75 percent monthly growth in after inflation to 0.66 percent, while the March numbers told a similar story, with a third consecutive modest downward revision still leaving that month’s inflation-adjusted expansion at 0.76 percent.

Especially discouraging, though – the June report plus the two revisions left constant dollar U.S. manufacturing output just 2.98 percent greater than just before the pandemic struck the economy in full force and began distorting it, in February, 2020. The pre-benchmark revision May release pegged its virus-era real growth at a much higher 4.94 percent, and the first post-benchmark number was 4.12 percent.

May’s biggest manufacturing growth winners among the broadest manufacturing categories tracked by the Fed were:

>the very small apparel and leather goods industry. Its price-adjusted output surged by 2.54 percent month-to-month in June – its best such perfomance since May, 2021’s 2.63 percent. May’s initially reported 0.88 percent gain was revised down to a 0.34 percent loss, though. April’s upgraded 0.30 percent rise is now judged to be a 0.33 percent decrease, and March’s figures were revised down after two upgrades – from 1.54 to a still solid 1.30 percent. But whereas last month’s Fed release showed inflation-adjusted production in this sector up 4.59 percent during the pandemic era, this growth is now pegged at just 0.56 percent; 

>the miscellaneous durable goods sector, which contains the medical products like personal protective equipment looked to as major CCP Virus fighters. It’s June sequential output jump of 2.25 percent was its biggest since March, 2021’s 2.61 percent, and revisions were overall positive. May’s initially reported 0.96 percent monthly price-adjusted production gain was downgraded to 0.49 percent, but the April figure was revised up for a second time – to 0.71 percent – and March’s results were upgraded a third straight time, to 0.51 percent.

These industries are now 14.11 percent bigger in constant dollar terms than in February, 2020, versus the 11.41 percent gain calculable last month; and

>the electrical equipment, appliances, and components cluster, where price-adjusted production climbed 1.34 percent on a monthly basis in June, the strongest such showing since February’s 2.29 percent.. Revisions were positive on net, with May’s originally reported 1.83 percent monthly falloff downgraded to one of 2.35 percent, but April’s initially estimated -0.60 percent decrease upgraded a second time,to a 0.49 percent gain, and March’s three revisions resulting in an originally judged 1.03 percent increase now pegged at 1.23 percent. These results pushed these companies’ real production 5.59 percent higher than in immediately pre-pandemic-y February, 2020, not the 2.19 percent calculable last month;

The list of biggest manufacturing inflation-adjusted output losers for June was considerably longer, starting with

>printing and related support activities, where the monthly inflation-adjusted production loss of 2.16 percent was the worst such showing since February, 2021’s 2.26 percent. Revisions were actually net positive, with May’s initially reported dip of 0.35 percent upgraded to one of 0.15 percent; April’s results downgraded from a one percent advance to one of 0.33 percent after being revised up from an initially reported 0.49 percent; and March’s totals rising cumulatively from an initially reported 1.10 percent decrease to a decline of just 0.05 percent. All the same, the printing cluster is now judged to be 11.37 percent smaller in real terms than in February, 2020, not the 1.89 percent calculable last month;

>petroleum and coal products, whose June sequential production decrease of 1.92 percent was its biggest since January’s 2.96 percent. Revisions here were mixed, too, with May’s figure revised up from a 2.53 percent improvement to one of 2.61 percent; April’s totals downgraded a second time, from a 0.13 rise to one of 0.04 percent to a decrease of 1.91 percent; and March’s results increasing from an initial estimate of 0.72 percent to one of 1.03 percent. But whereas last month’s Fed release showed petroleum and coal products’ after-inflation output 1.21 percent above its last pre-pandemic level, this month’s reports that it’s 0.27 percent below.

>textiles and products, where price-adjusted output sank on month by 1.80 percent for its worst month since March’s 2.45 percent shrinkage. Revisions were negative, with May’s initially reported 0.02 percent real production decline downgraded to one of 0.35 percent, April’s upgraded 0.45 percent increase now pegged as a 0.05 percent decrease, and March’s initially reported 1.55 percent falloff now judged to be one of 2.45 percent. As a result, the sector is now 5.35 percent smaller in terms of constant dollar output, rather than down 3.80 percent as calculable last month; and

>primary metals, whose inflation-adjusted production sagged by 1.60 percent on month – its poorest performance since March’s 1.42 retreat. Revisions were overall positive here, with May’s initially reported 0.77 percent real output rise downgraded to one of 0.66 percent, April’s initially downgraded 1.22 percent increase revised up to 1.46 percent, and March’s initially reported 1.69 percent drop now judged to be that aforementioned 1.42 percent. Even so, primary metals price-adjusted production is now estimated as having inched up only 0.50 percent since the pandemic arrived, not the 4.45 percent increase calculable last month.

In addition, an unusually high three other major industry sectors suffered constant dollar output declines of more than one percent on month in June. On top of plastics and rubber products (1.25 percent), the were two that RealityChek has followed especially closely during the pandemic period – machinery and automotive.

As known by RealityChek regulars, the machinery industry is a bellwether for both the rest of manufacturing and the entire economy, since use of its products is so widespread. But in June, its real production was off by 1.14 percent on month, and May’s initially reported 2.14 percent decrease is now estimated at-3.14 percent – its worst figure since the 18.64 collapse recorded in pandemic-y April, 2020. And although this April’s numbers have been revised up twice, to have reached 2.20 percen, March’s initially reported 0.78 percent inflation-adjusted increase is now estimated to have been a 0.89 decrease. Consequently, in price-adjusted terms, the machinery sector is now estimated to be 4.70 percent larger than in February, 2020, not the 6.29 percent calculable last month.

As for motor vehicles and parts makers, dogged for months by that aforementioned semiconductor shortage, their real output was off by 1.49 percent on month in June, and May’s initially reported rise of 0.70 percent is now estimated as a1.86 percent decline. Following a slight downgrade, April’s output is now pegged as growing by 3.85 percent rather than 3.34 percent, and March’s initially reported 7.80 percent advance is now pegged at 9.08 percent – the best such total since last October’s 10.34 percent. Nonetheless, after-inflation automotive output is now reported to be 1.07 percent lower than just before the pandemic arrive in force, not the 1.17 percent higher calculable last month.

Notably, other industries that consistently have made headlines during the pandemic outperformed the rest of manufacturing in June.

Constant dollar output by aircraft- and aircraft parts-makers was up 0.26 percent month-to-month in June, but revisions were mixed. May’s initially reported 0.33 percent rise has now been downgraded to a 0.23 percent decline – snapping a four-month winning streak. April’s results were upgraded a second straight time – from a hugely upgraded 2.90 percent to an excellent 3.13 percent (the best such performance since January, 2021’s 8.60 percent burst). But the March figures have been substantially downgraded from an initially reported 2.31 percent to a gain of just 0.53 percent. After all this volatility, though, real aircaft and parts production is now 25.58 percent greater than in February, 2020, much better than the 19.08 percent calculable last month.

The big pharmaceuticals and medicines industry grew its real putput by another 0.39 percent in June, but revisions were generally negative. May’s initially reported 0.42 percent improvement, however, is now judged to be just an infinitesimal 0.01 percent. April’s upgraded 0.15 percent rise is now pegged as a 0.04 percent loss, and March’s results have been downgraded all the way from an initially reported 1.17 percent increase to one of just 0.49 percent. Price-adjusted output in these sectors, therefore, is now estimated at 12.98 percent higher than in February, 2020, versus the 14.64 percent calculable last month.

Medical equipment and supplies firms boosted their inflation-adjusted output for a sixth straight month in June, and by a stellar 3.12 percent – their best such performance since January’s 3.15 percent. May’s growth was downgraded from 1.44 percent to 1.01 percent, but April’s estimate rose again, from 0.51 percent to 1.01 percent, and March’s initially reported 1.81 percent improvement has been slightly downgraded to 1.67 percent. This progress pushed these companies’ real pandemic era output growth from the 11.51 percent calculable last month to 17.27 percent.

The news was significantly worse, though, in that shortage-plagued semiconductor industry. Real production rose by 0.18 percent sequentially in June, but May’s initially reported 0.52 percent advance is now judged to have been a 2.24 percent drop. Meanwhile, April’s already dreary initially reported 1.85 percent slump has now been downgraded again to one of 2.71 percent (the sector’s worst such performance since the 11.26 percent plunge in December, 2008 – in the middle of the Great Recession that followed the global financial crisis). Even March’s initially reported impressive 1.99 percent monthly price-adjusted production increase has been revised all the way down to 0.52 percent.

The bottom line: The pandemic-era semiconductor real production increase that was estimated at 23.82 percent last month is now judged to have been just 15.22 percent.

It’s not as if the recent official manufacturing data has been all disappointing. Employment, notably, rose respectably on month in June. And the pace of capital spending has actually sped up some (at least through May) – which, like employment is a sign of continued optimism among manufacturers about their future outlook.

But at this point, the headwinds look stronger – including continued credit tightening by the Federal Reserve (not to mention a drawdown in the massive bond purchases that also have significantly propped up the entire economy); the resulting downshifting in domestic economic growth at which the Fed is aiming in order to bring down raging inflation; an even worse slump in economies overseas, which have been important markets for U.S.-based industry; the strongest dollar in about two decades, which puts Made in America products at a price disadvantage the world over; and the ongoing supply chain snags resulting from the Ukraine-Russia War and China’s lockdowns-happy Zero Covid policy.

And don’t forget those stratospheric and still-rising manufacturing trade deficits, which could well mean that, once the unprecedented pandemic fiscal and monetary stimulus/virus relief that have helped create so much business for domestic industry starts fading significantly, U.S.-based manufacturers could might themselves further behind the eight-ball than ever.  

Im-Politic: The Public Shows Signs of Getting It on Fighting Pandemics

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CCP Virus, CDC, Centers for Disease Control and Prevention, coronavirus, COVID 19, facemasks, Great Barrington Declaration, Im-Politic, lockdowns, mandates, masks, Pew Research Center, public health, social distancing, vaccines

It looks like Americans are having second thoughts about how their government has responded to the CCP Virus pandemic, at least according to this new Pew Research Center survey. And that’s great news for those of us who have insisted that, once it became clear (awfully early on) that the pandemic wasn’t a rerun of the Black Death, the widespread lockdowns, mandates, and other indisciminate measures were cures that, on balance, were needlessly worse than the disease.

To be sure, Americans still feel pretty cautious about the pandemic and its effects. Principally, in May, 41 percent of U.S. adults told Pew that they viewed the virus as a “major threat to public health.” That’s down considerably from the spring of 2020, when the share describing the virus this way was in the mid-60s percent. But it’s still more than four in ten.

The public also still gives robust endorsements to many restrictions on behavior and anti-covid measures that have been strongly encouraged or required nationally or in various states at various times during the pandemic era. For example, 55 percent said that vaccination had been “extremely” or “very” “effective in limiting the spread of the coronavirus,” 49 percent agreed with his characterization of “wearing masks around other people indoors,” and 48 percent thought the same of “limiting activities/interactions with other people.” One exception: Only 34 percent put much stock in “staying at least six feet apart from other people indoors.”

But by an impressive 62 percent to 31 percent, respondents said that “the country’s COVID-19 response has given too little priority” to “meeting the educational needs of K-12 students.”. By 48 percent to 40 percent they felt that short shrift had been given to “supporting overall quality of life for the public.” By 46 percent to 40 percent they said not enough attention was paid to “supporting businesses and economic activity.” And by 46 percent to 30 percent they said that anti-virus strategies failed adequately to “respect individuals’ choices.”

Moreover, the public approval of the authorities most supportive of the virus-centric priorities has taken a major hit. In the spring of 2020, 79 percent agreed that “public health officials such as those at the CDC [U.S. Centers for Disease Control and Prevention]” had done “an excellent or good job responding to the coronavirus outbreak.” By this past May, this support had dropped to 52 percent. And since February, 2021 (shortly after his inauguration) the share of U.S. adults stating that President Biden’s response to the CCP Virus has been excellent or good fell from 54 percent to 43 percent. (Such approval for former President Trump’s virus responses sank as well – from 48 percent in March, 2020 to 36 percent in February, 2021. But no samplings about the Trump strategy have been taken since.)

Predictably, partisan splits appeared, and although no trends over time were presented, it was striking how many self-identified Democrats and ”Democratic leaners” expressed disenchantment with some priorities that have been pursued for most of the pandemic era. In particular, 57 percent of them agreed that “the educational needs of K-12 students have been neglected and 45 percent agreed that too little attention has been paid to “overall quality of life for the public.” At the same time, only 34 percent of Democrats and leaners felt that “businesses and other economic activity” should have received more support, and only 28 percent believe “respecting individuals’ choices” has deserved more emphasis. 

To me, the big takeaway is that Americans may finally be realizing that the tradeoffs between public health and other pressing needs were never adequately acknowledged by the nation’s lockdowns- and restrictions-obsessed public health establishment, or by the political leaders who uncritically followed their advice and failed to understand that balances needed to be struck.

Far from a position that’s “anti-science” or dismissive or the virus’s deadly properties and potential, it’s one that’s entirely consistent with that pressed by the legions of eminent epidemiologists, virologists, and other medical specialists who signed the Great Barrington Declaration. This manifesto urged viewing the public health dangers posed during the pandemic holistically, avoiding the wide-ranging and grave consequences of shutting down entire national economies and societies, and focusing virus-mitigation measures instead on those most vulnerable to serious disease and death.

Will the U.S. public health establishment display as much of the learning curve that the Pew poll indicates the public has demonstrated? Will the politicians whose policies overwhelmingly reflected their conventional wisdom? Those are questions whose answers had better be “Yes” if America is to cope with the next pandemic better than it handled this one.