(What’s Left of) Our Economy: New Fed Manufacturing Figures Show Industry is Still Nicely Withstanding the Metals Tariffs

Tags

aluminum, China, durable goods, Federal Reserve, growth, industrial production, inflation-adjusted growth, manufacturing, metals tariffs, metals-using industries, real growth, steel, tariffs, {What's Left of) Our Economy

This morning brought another poor result for U.S. domestic manufacturing – specifically, a 0.52 percent decrease in inflation-adjusted output that was its worst such performance since January’s 0.66 percent sequential decline. As a result, the temptation is to blame the Trump tariffs that have so dominated economic and business news headlines, but as usual, the data simply don’t support this claim.

Unquestionably, these new figures from the Federal Reserve point to a problem with American industry. Tariffs, however, look beside the point. Instead, the numbers reveal what looks like an April problem and an automotive problem, and especially where tariffs on metals are concerned – the major Trump-era levies that have been longest lasting, and where the affected manufacturing sectors are easiest to identify.

Here are the numbers for the economy’s chief metals-using industries. They start in April, 2018 (the first full months when the steel and aluminum levies went into effect). They show the growth rates between then and the last three data months. They include the statistics for overall manufacturing as a control group. And I’ve added two new pieces of information: the year-on-year real production changes for these sectors, and the data for durable goods manufacturing stripped of the automotive industry’s performance.

                                           Apr thru Feb   Apr thru March    Apr y/y prev  Apr y/y

overall manufacturing:          +0.48%             +0.52%              0.00%         +2.33%

durables manufacturing:       +1.31%            +1.35%             +0.40%         +2.49%

fabricated metals prods:       +2.87%            +2.72%             +2.14%         +4.44%

machinery:                           +1.49%            +1.92%              -0.69%         +4.05%

automotive:                          -1.71%             -1.93%              -4.43%          +3.07%

major appliances:                 -1.43%            -6.77%            -10.44%          +0.03%

aircraft & parts:                   +4.89%           +6.08%             +4.82%           -1.30%

durable mfg ex-automotive:  +1.82%        +1.91%              +1.21%          +2.41%

Comparing the automotive and the durables ex-automotive lines clearly shows both the automotive and April effects – with the latter suggesting the possibility of a production hiccup. Strengthening that interpretation: except for the major appliance category, nearly all the April, 2018-March, 2019 growth rates exceeded the April, 2018-February, 2019 growth rates. Moreover, the April automotive nosedive (which has taken place both on a month-on-month and year-on-year basis), is especially important because vehicle and parts production use so much in the way of machinery and fabricated metals products.

In addition, the safety issues encountered by Boeing may be responsible for the April aviation growth slowdown that may also have contributed to manufacturing’s broader woes that month.

The major appliances figures above continue to stick out like a sore thumb.  But of course, this sector has faced not only metals tariffs, but separate product-specific levies that went into effect in February, 2018.  In addition, America’s slumping housing sector has surely depressed sales and therefore production for reasons having nothing to do with tariffs.

As known by RealityChek regulars, gauging the impact of the tariffs on products from China is much more difficult for numerous reasons. Their role as inputs for manufacturing industries varies. The manufacturing classification system used by Washington for designating the tariff-ed products differs from that used for the Fed production statistics. The levies have been in place for a shorter period of time. And their scope has changed since the first batch went into effect in August.

Further, let’s not forget that the China tariff regime is due for some big changes starting in June, when President Trump has just decided that levies will rise on $200 billion worth of products from the People’s Republic. So the data below may tell us little about what to expect going forward. Here they are nevertheless for the handful of industries for which I’m sure the numbers create a reasonably accurate picture.

                                                      Aug thru Feb    Aug thu March    Aug thru April

overall manufacturing:                     -0.33%                -0.38%                -0.90%

ball bearings:                                  +0.32%                +0.25%               +0.14%

industrial heating equip:                 -2.60%                 -1.85%                -5.69%

farm machinery & equip:             -16.86%               -11.65%              -10.40%

oil/gas drilling platform pts:         +4.59%                +4.35%                +2.68%

Something of an April slump can be seen here, too (which in theory is hard to connect to the China tariffs), except for the farm machinery sector. 

The classic Wall Street sales pitch warns (eventually) that “Past performance is no guarantee of future results.” So especially considering the higher China tariffs on the way in two weeks, and the possibility that all goods imports from China will be hit by levies at some future date, predicting manufacturing’s growth performance for the rest of this year seems unusually chancy.

Yet the April figures unmistakably show (yet again) that domestic U.S. manufacturing continues to withstand the metals tariffs with ease.

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(What’s Left of) Our Economy: Manufacturing’s Productivity Leaders Continue to Surprise

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aerospace, aluminum, appliances, Bureau of Labor Statistics, durable goods, labor productivity, manufacturing, non-durable goods, pharmaceuticals, productivity, semiconductors, steel, {What's Left of) Our Economy

One of my favorite sets of U.S. government statistics came out this morning – “Productivity and costs by industry: manufacturing and mining industries.” However boring it sounds, it’s useful because it sheds lots of light on which specific sectors within domestic American manufacturing should be seen as winners and losers or “industries of the future” (presumably the productivity stars) versus smokestack and other allegedly outmoded types of activity (the productivity laggards).

In addition (and this will be covered in an upcoming post), these detailed figures on manufacturing labor productivity (the narrowest of the two types of productivity tracked by the feds, but the measure that comes out on the timeliest basis) go far toward showing whether job loss in manufacturing lately has mainly been due to trade and globalization, or to industry’s improved efficiency. This debate of course has long been near or at the heart of the broader, decades-long debate about the effectiveness of American trade policies.

First let’s look at the overall numbers – which are anything but flattering to manufacturing. According to the Bureau of Labor Statistics (which compiles these data), in 2018, when manufacturing’s labor productivity as a whole rose by 0.80 percent, it fell in absolute terms in 67 out of the 86 sectors examined. That was a worse performance than in 2017. Even though that year, overall manufacturing labor productivity improved by slightly less (0.70 percent), it decreased in 54 of those 86 industries.

Broken down by super-categories, in 2018, in the 51 durable goods industries followed by the Bureau, labor productivity declined in 41. In the non-durables super-sector, labor productivity dropped in 26 of 35 sectors studied. For 2017, the comparable numbers were 34 of 51 and 20 of 35, respectively.

Even more interesting, in my view, are the results for these 86 individual industries. First, the ten best labor productivity performers in 2018 and their annual percentage gains. As you’ll see, the list that isn’t exactly dominated by advanced technology, at least according to the most popular definitions and portrayals. (FYI, “magnetic media” are a fancy name for products like audio tapes and compact disks – which this aging baby boomer is constantly told are hopelessly outdated.)

magnetic media mfg & reproducing:               +9.1 percent

computer & peripherals mfg:                          +7.7 percent

leather/hide tanning & finishing:                    +6.5 percent

grain & oilseed milling:                                  +5.3 percent

miscellaneous textile product mills:               +5.2 percent

turbine & power transmission equip:             +4.6 percent

resin, rubber, & artificial fibers:                    +3.5 percent

cut and sew apparel:                                      +3.2 percent

agricultural chemicals:                                  +2.2 percent

miscellaneous transport equip:                      +2.1 percent

And here’s a list of the 2018’s ten worst labor productivity performers. Most appear to be “lower tech.” But look at aerospace at Number Five! That’s the economy’s biggest trade surplus winner! The huge automotive sector had a terrible labor productivity year, too.

lime & gypsum products:                             -11.8 percent

textile fabric & finishing mills:                    -11.3 percent

motor vehicle bodies & trailers:                  -10.1 percent

sawmills & wood preservation:                    -9.5 percent

aerospace products & parts:                         -8.1 percent

petroleum & coal products:                         -7.8 percent

motor vehicles:                                            -7.6 percent

sugar & confectionary products:                 -7.1 percent (tie)

apparel knitting mills:                                 -7.1 percent (tie)

audio & video equipment:                           -6.9 percent

beverages:                                                    -6.1 percent

Finally, here are some labor productivity numbers for some manufacturing sectors of special interest. Pharmaceuticals seems a logical choice to kick it off, given the role that healthcare and drug-pricing issues have been playing lately in national policy and political debates. Its 2018 labor productivity fall-off indicates that if the industry improved its efficiency, it wouldn’t need such sky-high prices for many of its products to achieve what it considers adequate profitability. 

pharmaceuticals & medicines:                    -3.4 percent

iron & steel mills & ferroalloys:                 -2.4 percent

alumina & aluminum production:               -2.3 percent

household appliances:                                +1.6 percent

The next three sectors have been prominent in trade policy controversies. The two metals sectors faltered on the labor productivity front last year. (In 2017, both produced considerably better results). But if you look at their labor compensation costs (also provided in today’s productivity release), you’ll see that they’ve at least shared many of the benefits of the protective tariffs they’ve received with their workforces.

Such compensation rose by 7.2 percent for iron and steel-makers, and five percent for the aluminum industry. Both increases handily beat the 1.70 percent average for all manufacturing, and the 1.40 percent for durable goods production.

Household appliances – which include tariff-ed large household laundry machines) – turned in the opposite performance. Labor productivity was up at a relatively strong pace. But labor compensation was off by 2.20 percent. (Even more unusual, its labor productivity fell in 2017, while labor compensation surged.)

Finally, let’s examine the semiconductor sector, since it’s commonly described as a main “building block” of the entire high tech portion of the American economy. In 2018, its labor productivity fell (by 1.20 percent) – and for the third straight year. But here, labor compensation was way up (by 5.60 percent).

Intellectually honest economists will admit that measuring productivity is one of their most challenging tasks. But it’s also inescapable.  And the new detailed manufacturing labor productivity data make clear that identifying the nation’s most and least valuable and promising manufacturing industries remains just as challenging. 

(What’s Left of) Our Economy: New U.S. Jobs Report Delivers (Another) Face Slap to Trump’s Trade Critics

Tags

China, durable goods, global supply chains, Jobs, manufacturing, metals, metals tariffs, metals-using industries, tariffs, trade war, Trump, {What's Left of) Our Economy

My deepest sympathies to the nation’s tariff fear-mongers, who keep insisting that President Trump’s levies on imports have been decimating America’s domestic manufacturing sector. This morning’s Labor Department report on the U.S. employment situation in December reveals that they’re still as pathetically wrong as ever.

Let’s start, as usual, with the impact of the President’s tariffs on steel and aluminum, which started to be imposed in April, and which allegedly have been hammering metals-using industries. This Trump decision is supposed to epitomize the folly of such protectionist policies in general, and metals tariffs in particular, since metals-using industries generate much more output than metals-producing indusries, and employ many more workers.

Yet has been the case since the onset of these levies, the data makes abundantly clear that the metals-using sectors generally have been outperforming not only the rest of manufacturing jobs-wise, but the private sector economy as a whole. Here are the numbers for April through the last three data months (keeping in mind that the November and December figures are both still preliminary):

                                                   thru October     thru November     thru December

entire private sector:                +0.99 percent      +1.13 percent      +1.37 percent

overall manufacturing:           + 0.99 percent      +1.20 percent      +1.45 percent

durable goods:                         +1.25 percent      +1.43 percent      +1.67 percent

fabricated metals products:     +1.33 percent      +1.30 percent      +1.75 percent

non-electrical machinery:       +1.66 percent      +1.90 percent       +2.20 percent

automotive vehicles & parts:  +0.73 percent      +0.58 percent      +0.77 percent

household appliances:             -1.25 percent       -1.41 percent        not available

aerospace products & parts:   +4.45 percent      +5.47 percent        not available

Notably, even in one major sector that’s been lagging – automotive – the pace of net new job creation has quickened a bit lately. And the industry that’s genuinely taken it on the employment chin – appliances – has been dealing both with a separate set of tariffs on large household laundry machines along with a major slump in the American housing sector.

The impact of the Trump administration’s wide-ranging China tariffs is tougher to identify, partly because they only began in July, and partly because Chinese inputs are found in so many manufacturing industries. But here are the data for sectors with extensive global supply chains that often pass through China:

                                                           July thru November     July thru December

entire private sector:                             +0.66 percent              +0.90 percent

overall manufacturing:                         +0.66 percent              +0.93 percent

chemicals:                                            +1.54 percent              +1.40 percent

non-electrical machinery:                    +0.66 percent              +0.96 percent

computer & electronics products:        +0.50 percent              +0.83 percent

automotive vehicles & parts:               +0.90 percent              +1.08 percent

With one exception – computer and electronics products – these globalized industries have outperformed, too. And even in that lagging sector, employment has been growing faster lately.

These results still don’t prove that President Trump was right in claiming that trade wars are “easy to win.” But they sure add to the evidence that, for the United States, they’re eminently winnable. And that the President’s critics are losing. 

(What’s Left of) Our Economy: New U.S. Manufacturing Production Data (Again) Mock Tariff Fear-Mongering

Tags

aluminum, China, durable goods, Federal Reserve, industrial production, inflation-adjusted output, manufacturing, metals, metals tariffs, metals-using industries, non-durable goods, steel, tariffs, Trade, {What's Left of) Our Economy

If you’re among the legions of tariff alarmists in America’s intertwined political, business, and media establishments, this morning’s industrial production report (for November) from the Federal Reserve turned out to be an especially cruel hoax. It’s overall results seem to reveal that President Trump’s levies on imports of steel, aluminum, and on products from China are (finally!) producing major economic data showing damage to domestic manufacturing in the form of inflation-adjusted output. But the critical details (once again) show absolutely noting of the kind.

Let’s start with the metals tariffs – which started to be imposed in late March – and the performance of industries that make heavy use of them. If the Trump tariffs are indeed going to bite, then you’d think that some evidence would be visible eight months later. But the new Fed data make clear that this evidence still hasn’t appeared. As with last month’s post on the industrial production statistics, I’m including small household appliances. I’m still increasingly convinced that they’re now so small and consequently use little in the way of steel and aluminum, they do incorporate lots of electronics – so in principle they reveal something about the China tariffs’ impact.

The data start with April (the first full month in which the metals tariffs were in place) and go through November. I’m presenting the previously reported and revised October results in order to provide a sense of the trends’ momentum. I’m also adding aircraft and parts, which I carelessly left out last month; therefore, the original October results aren’t available.

                                                    old thru Oct      new thru Oct         thru Nov

overall manufacturing:              +1.30 percent    +0.78 percent     +0.80 percent

durables manufacturing:           +1.93 percent    +1.55 percent     +1.73 percent

fabricated metals products:      +2.06 percent     +1.67 percent     +1.61 percent

machinery:                               +5.09 percent      +4.54 percent    +5.11 percent

automotive:                               -2.42 percent      -1.74 percent     -1.46 percent

small appliances:                      -6.62 percent       -8.10 percent   -10.86 percent

major appliances:                     -3.32 percent       -3.24 percent     -0.88 percent

aircraft & parts:                        not available       +3.54 percent    +3.27 percent

The good news for tariff alarmists is the overall real manufacturing growth slowdown apparent from this table, led by a significant downward revision for October. But look more closely and there’s no reason to blame the metals tariffs at all.

For if they were the main culprit, why would the slowdown be so much more modest in the durable goods sector – where so many of the biggest metals-using industries are found? Why would heavy metals-using machinery still be outperforming big-time? Why would another metals-reliant giant, automotive, be demonstrating such impressive catch-up? And how could the major appliances sector – which has also been hit with a product-specific tariff on large home laundry machines – be making up even more ground?

The details will also prove disappointing to China tariff alarmists. Starting in July, levies on $250 billion worth of imports from the People’s Republic. And so many U.S. domestically manufactured products contain parts and components and other inputs from China that it’s been easy to sell the contention that the higher prices for American industry resulting from the tariffs will backfire on the entire manufacturing sector.

Yet once more, the Fed industrial production data reveal these claims to be “truthy” (i.e, something that pushers want to believe is the case) rather than “true.” As noted last month, Chinese inputs are so widely used that I can’t perform a deep statistical dive for now. But the main manufacturing aggregates don’t bear out the “tariff-mageddon” story for the China levies, either.

As the numbers in the first table for smaller appliances indicate, there’s a case that they’ve been damaged by the China tariffs, since they surely use lots of Made in China electronic components. But the industrial production data writ large show nothing of the kind. The figures below show the changes in real output for manufacturing generally, and for its two main super-sectors, for the five months since the first China tariffs were imposed (during the first week of July) and for the five months to and including July.

                                                      March-July                       July-Nov

overall manufacturing:               +0.87 percent                 +0.52 percent

durable goods:                            +0.13 percent                 +2.01 percent

non-durable goods:                     +1.65 percent                  -0.99 percent

The obvious conclusion: Unless Chinese inputs are highly concentrated in the non-durable goods sector (and there’s no justification for this assumption), there’s a problem in non-durable goods stemming from something (or things) other than the China tariffs.  ‘

Luckily for the tariff alarmists, however, there’s no sign that they’ll be held accountable by the institution that’s supposed to be democracy’s watchdog:  the Mainstream Media.  So for the foreseeable future, in terms of what the public will be reading and hearing on trade policy, expect gloom to keep springing eternal. 

(What’s Left of) Our Economy: New Fed Manufacturing Figures Mock Tariff-Mageddon Claims

Tags

aluminum, aluminum tariffs, appliances, automotive, China, China tariffs, durable goods, Federal Reserve, manufacturing, manufacturing production, metals, metals-using industries, non-durable goods, steel, steel tariffs, tariffs, Trade, Trump, {What's Left of) Our Economy

With this morning’s release of the Federal Reserve’s new real manufacturing output figures, we just got more data indicating both the impact of President Trump’s metals tariffs and his China levies. And, as with other manufacturing numbers, like employment statistics, the Fed output release mocks widespread claims that both kinds of trade curbs are already undermining U.S. domestic industry.

Here are the results for major metals-using sectors – with one caveat. Because it includes many goods so diminutive and stuffed with electronics that they’re clearly no longer using much steel or aluminum (unlike the large appliances), placing the small household appliances category on this list seems to have been mistaken all along. But I’m leaving them on so you can make up your own mind. The data start with April (because the first metals tariffs were imposed in late March) and go through October (the latest month covered by this Fed series). And I’m presenting the previously reported and revised September results in order to provide a sense of the trends’ momentum.

                                              old through Sept   new through Sept   through Oct

overall manufacturing:           +0.76 percent        +0.98 percent     +1.30 percent

durables manufacturing:        +1.41 percent       +1.46 percent      +1.93 percent

fabricated metals products:    +1.28 percent       +1.83 percent      +2.06 percent

machinery:                             +2.84 percent       +3.80 percent      +5.09 percent

automotive:                            +1.39 percent       +0.35 percent       -2.42 percent

small appliances:                    -1.23 percent        -3.67 percent        -6.62 percent

major appliances                    -0.87 percent        -0.99 percent        -3.32 percent

Superficially, the picture is somewhat mixed. But as I just said, in my view, the small appliances category should be ignored. Accelerating deterioration clearly characterizes the major appliances sector, but do tariffs (which include not only the metals levies but separate tariffs on household laundry machines that result from a trade law case initiated during the Obama years) deserve most of the blame? Maybe not, considering that the domestic housing sector – a big generator of major appliance sales – is in the middle of a noteworthy slowdown.

Momentum is clearly weakening in the automotive sector as well (where even the seasonally adjusted monthly Fed production numbers are notoriously volatile and subject to significant revisions). But it’s likely that sagging output is reflecting sales that are sagging overwhelmingly because of the industry’s own cyclical dynamics.

Indeed, these industry-specific developments look all the stronger considering that two other major metals-using sectors – fabricated metals products and non-electrical machinery – are gaining production momentum. So something other than the price of metals must be kneecapping the laggard sectors.

The new Fed data also shed noteworthy light on the impact of the President’s China tariffs. Levies on a total of $50 billion worth of goods began in July, and tariffs on $200 billion more worth of merchandise imports were imposed in September. So many products have been tariff-ed, and the lists contain so many producer as well as consumer goods, that even a genuinely deep dive into the data might not yield firm conclusions.

But here’s what we know from the 30,000-foot level about after-inflation domestic manufacturing output during the three months preceding the first China tariffs, and the three months following them:

                                             April-July                            July-Oct

overall manufacturing:     +0.29 percent                     +1.02 percent

durable goodsL                 -0.28 percent                      +2.22 percent

non-durable goods:          +0.87 percent                      -0.21 percent

Good luck finding much China damage on net from these numbers.

Back in the 18^th century, Jonathan Swift lamented that “Falsehood flies, and the truth comes limping after it.” Will Mainstream Media coverage of the industrial production figures and Trump tariffs prove him right once again?

(What’s Left of) Our Economy: “Tariff Victim” US Industries Remain Full of Job Openings

Tags

business, China, durable goods, employers, job openings, Jobs, JOLTS, labor shortages, manufacturing, metals tariffs, metals-using industries, private sector, quits, tariffs, Trade, Trump, workers, {What's Left of) Our Economy

If today’s government data on U.S. jobs openings don’t prompt loud mea culpas and apologies from the tariff-alarmists in the Mainstream Media and elsewhere in America’s globalization cheerleading establishment, I don’t know what will.

Recall that Americans have been swamped in recent months with reports that President Trump’s trade curbs have already been decimating American manufacturing.  And since they have been in place the longest, his metals tariffs (on most steel and aluminum imports) have been treated as prime examples, with metals-using industries being the prime victims.

But the new figures on job openings in major sectors of the economy (contained in the latest monthly release of the “JOLTS” numbers – the “job openings and labor turnover series”) are simply the latest statistics thoroughly debunking these claims.

Here are the results for job openings from April (because the metals tariffs began to be imposed in late March) through September (the most recent month covered by the JOLTS reports):

private sector:     +2.30 percent

manufacturing:   +7.08 percent

durable goods:   +7.47 percent

As has been the case with so much other data, the durable goods super-sector of manufacturing – the portion of industry containing the biggest metals-using industries – outperformed the rest of manufacturing and the entire economy in the number of employment opportunities it claimed were available.

And although the number of job openings in durable goods dipped from August to September (whose figures are still preliminary), they fell much less than in the rest of the economy.

private sector:     -2.85 percent

manufacturing     -4.72 percent

durable goods     -0.66 percent

Moreover, the 302,000 durable goods jobs openings reported preliminarily in September were the second largest number on record (going back to late 2000). The all-time high? August’s 304,000.

Some critics maintain that employers have incentives to exaggerate their claims of job vacancies. The motives cited include reinforcing contentions of “skills gaps” and other forms of labor shortages; rationalizing the persistence of high unemployment rates or sluggish wage growth; and pushing government or schools to take on worker training responsibilities (and expenses) that employers are loathe to assume. It’s also easy to see how exaggerated job openings claims can be used to bolster arguments for more immigration – which of course is also a tempting strategy for keeping wages down by increasing labor supply relative to demand.

But even if such exaggeration is rife, why would it be so much more important in durable goods manufacturing than in the rest of the economy? Further, why would employers have any reason to overstate the number of vacancies they’re trying to fill if they believed that their businesses were being swamped by steep, tariffs-led costs increases, or were about to? Wouldn’t they be trying to shed payroll instead? As a result, it’s hard to escape the conclusion that the JOLTS openings numbers simply add to the evidence that, despite the claims of actual or impending tariffs-mageddon, metals-using industries continue to be faring just fine.

Interestingly, workers in durable goods sectors don’t appear to share this optimism fully, according to the JOLTS data. For the figures also measure the numbers of employees voluntarily leaving their jobs – a clear sign of confidence that lots of new opportunities are available. Here are are the April-through-September results:

private sector:     +8.53 percent

manufacturing:    -2.94 percent

durable goods:     -9.48 percent

Clearly, durable goods workers have been displaying less confidence about reemployment opportunities than their counterparts in the rest of manufacturing, and much less than private sector workers overall. And these results are mirrored in the August-to-September numbers:

private sector:     -1.26 percent

manufacturing:    -6.60 percent

durable goods:   -11.76 percent

Nonetheless, in absolute terms, all these quits levels – even for durable goods – remain pretty high by recent standards. And for durables, they’re somewhat volatile, possibly because the absolute numbers have always been on the small side. Indeed, durable goods quits increased by 6.19 percent month-to-month as recently as July. And the August-to-September drop-off was the biggest sequential decline in percentage terms since the 15.70 percent monthly nosedive in August, 2017 – after which the numbers of quits steadily recovered.

As always, these trends could change (or, with the quits rate) intensify. It’s also possible that the President’s more sweeping tariffs on imports from China will be game-changers. (The first round dates only from early July, and the second, much larger round, went into effect in mid-September.) For now, however, the only real news about the economic effect of these levies is that they’ve showed no signs of slowing the recovery’s current momentum. Accept no substitutes.

(What’s Left of) Our Economy: More Terrible Data for…the Metals Tariffs Alarmists

Tags

aluminum, durable goods, Jobs, manufacturing, metals tariffs, metals-using industries, Peanuts, Samuel Beckett, steel, tariffs, Trade, Trump, Waiting for Godot, {What's Left of) Our Economy

Remember Waiting for Godot? For those who haven’t read it, in a (very superficial) nutshell, Samuel Beckett’s 1953 existentialist masterpiece tells the story of two men who keep waiting for someone who never comes despite promises of his arrival that keep getting proved wrong. Think of the play as a world-class literary and philosophical version of the running Peanuts gag involving Lucy holding the football for a Charlie Brown place-kick.

Both Godot and Peanuts came to mind instantly this morning once I digested the new U.S. manufacturing jobs figures (for October). For as has been the case since late March, when President Trump began in imposing tariffs on metals imports, the job-creation performance of American metals-using industries once again defied the doomsayers by generally outperforming job-creation in the rest of domestic manufacturing, and in the U.S. private sector as a whole.

Here are the detailed numbers for October and September (which are still preliminary) and for August (which are now final – until the next major revision):

                                        through August     through September     through October

entire private sector:        +0.68 percent          +0.77 percent           +0.97 percent

overall manufacturing:     +0.61 percent          +0.75 percent           +0.82 percent

durable goods:                  +0.82 percent         +1.00 percent            +1.27 percent

fabricated metals products: +1.09 percent      +1.16 percent             +1.16 percent

non-electrical machinery:   +1.23 percent       +1.37 percent            +1.80 percent

automotive vehicles & parts: -0.03 percent     +0.07 percent            +0.78 percent

household appliances:          -0.31 percent        -0.31 percent             not available

aerospace products & parts:  +3.12 percent    +3.71 percent              not available

Consistent with data for the preceding months, the results are somewhat uneven. The automotive and appliances sectors have been under-performing considerably. (The latter, of course, was hit with household laundry machine tariffs a little before the metals tariffs began.) And momentum is slowing in fabricated metals products. But the rate of payroll increases everywhere else keep exceeding those for manufacturing overall, and even the durable goods super-sector – where the metals use in manufacturing is heavily concentrated. In addition, the momentum for motor vehicles and parts is strengthening.

Nothing in economics lasts forever. But the Cassandras who have been claiming both that the metals tariffs will surely decimate American metals-using industries, and that the damage is already visible, clearly need to rethink their narratives. Because with each passing month, they look just as clueless as Vladimir, Estragon…and good old Charlie Brown.

(What’s Left of) Our Economy: New Fed Figures Show Still More Solid Metals-Users Growth Despite Tariffs

Tags

aluminum, durable goods, Federal Reserve, industrial production, inflation-adjusted growth, manufacturing, metals, metals tariffs, metals-using industries, steel, tariffs, Trade, Trump, {What's Left of) Our Economy

Although the media remains far from catching on, with the release this morning of the Federal Reserve’s latest manufacturing production figures (for August), it should no longer be news to report that President Trump’s metals tariffs show absolutely no sign of harming U.S. industry overall or sectors that use significant amounts of steel and aluminum – where the levies have been imposed. The real metals tariff-related news will come if and when such damage actually does turn up in any official data.

Here’s how major metals-using industries have done in terms of generating real growth between July and August (according to this morning’s preliminary data) – along with the numbers for manufacturing as a whole, and durable goods as a whole (the super-category in which the heaviest metals users tend to be found):

overall manufacturing: +0.28 percent

durable goods:   +1.01 percent

fabricated metal products:  +0.22 percent

machinery:  +1.07 percent

automotive:  +4.02 percent

small appliances:  +0.81 percent

major appliances:  -2.76 percent

In general, the metals-using sectors have clearly performed quite well. Moreover, major appliance makers – the top exception – have of course, have been hit not only with the metals tariffs, but with safeguard tariffs on one of their products – large residential laundry machines.

But since a single month does not a trend make, let’s examine the inflation-adjusted output data since the advent of the first metals tariffs – in late March. Once again, the big takeaway is that the metals-using sectors in general have at least held their own. In fact, except for the major appliances category, their price-adjusted production has begun to accelerate.

                                                  old thru July   new thru July    new thru Aug

overall manufacturing                     +0.25                +0.26                 +0.54

durables manufacturing                    +0.48               -0.09                  +0.94

fabricated metals products               +0.79               +0.62                 +0.84

machinery                                        +0.09                +0.69                  +1.77

automotive                                        -0.63                -3.38                   +0.49

small appliances                               -5.33                -4.11                     -3.34

major appliances                              -5.25                -2.87                     -5.55

Finally, the metals tariffs now appear to be resulting in notable after-inflation production increases in the protected metals sectors, too. In August, constant dollar primary metals production grew on month by three percent – its best such performance since March, 2010 (3.43 percent), when the current economy-wide recovery was in its very early stages. In addition, since the first steel and aluminum tariffs went into effect, real primary metals production is up 1.15 percent – which compares very favorably with the output performance of manufacturing in general, the durable goods super-sector, and the metals-using industries.

In other words, rather than sitting on their hands and just enjoying the higher profits enabled by the tariffs, it seems that the steel and aluminum industries are indeed ramping up production. So in a world where trade-related news was reported accurately, reports on the new industrial production numbers would specify that the levies so far are a win-win for the economy – working as intended for the metals makers and leaving metals users unscathed. Let’s see if this winds up as an accurate description of this world. 

  

(What’s Left of) Our Economy: Where’s the (Trump Tariffs-Created) Uncertainty?

Tags

capital spending, Census Bureau, core capex, durable goods, tariffs, Trade, Trump, {What's Left of) Our Economy

When something widely predicted keeps not happening, maybe it’s time to start de-emphasizing speculation as to when it might happen, and start focusing instead on why the predictions have been off-base.

I’m not saying that that time has yet arrived when it comes to the impact of President Trump’s tariff-heavy trade policies on the U.S. economy – which have triggered any number of forecasts of disaster, or at least serious slowdown, but which have, as I’ve reported, so far brought nothing of the kind. But with the release this morning of the Census Bureau’s latest advance gauge of orders for durable goods industries, the time to start reassessing predictions of trade-mageddon clearly continued to get closer.

The biggest contrarian piece of evidence in these durable goods numbers (which go through July) is the finding on American business spending on new orders for capital goods minus defense products. This data series is widely, and rightly, regarded as the best available evidence of corporate purchases of machinery and equipment, and therefore a highly revealing sign of business optimism or pessimism – and of the economy’s prospects.

For if businesses are spending strongly on such goods, they’re surely expecting good times to continue, or less-than-good times to become good. If such spending is weak, then the opposite conclusion is certainly reasonable to draw.

In this vein, a central argument against the Trump trade policies is that, at the least, they’ll increase what businesses supposedly like least – uncertainty about the future – and that as a result, corporations will either freeze or cut capital goods spending and set off a downward economic spiral. But the newest Census data show that nothing of the kind is yet happening.

According to the new release, spending on non-defense capital goods excluding aircraft (defense spending is excluded because it’s the result of government policy, not market forces, and therefore says relatively little about the fundamentals of the economy; aircraft figures are excluded because they can be highly volatile) rose a healthy 1.40 percent between June and July.

If this sequential increase is confirmed in the final July numbers, which will come out in early September, then it will represent the fourth straight monthly advance. And what’s revealing about the time-frame is that the first tariffs to be imposed by the Trump administration per se (as opposed to levies imposed by the independent U.S. International Trade Commission) came in late March in the form of the steel and aluminum tariffs. So these “core capex” findings seem to indicate substantial certainty on the part of American business.

Skeptics can (correctly) point to signs that the pace of core capital spending has slackened since the tariffs’ advent. As indicated above, the final core capex numbers only go through June, but they show that from January through April, such spending rose a total of 2.68 percent, but only 0.92 percent since April.

Yet looking over the comparable data for previous years – when such tariffs were only vague talk (2017) or off the table (before Mr. Trump became president) – shows that this pattern is nothing out of the ordinary. Here are the January-thru April, and the April-thru-June final core capital spending changes for 2014 through 2017:

                                              January-April                   April-June

2017                                     +2.08 percent                  -0.03 percent

2016                                      -1.61 percent                  -1.73 percent

2015                                      -2.43 percent                   -1.35 percent

2014                                      -2.16 percent                   +4.32 percent

Yes, as emphasized in previous such posts, the time-frames are short, many more tariffs could lie ahead, and they could take a major toll on the American economy. But until this damage starts appearing, perhaps the Mainstream Media and the other economic and business powers-that-be might begin investigating why it may not?

(What’s Left of) Our Economy: The Tariff-Induced Carnage in U.S. Metals-Using Manufacturing is Still MIA

Tags

appliances, automotive, durable goods, fabricated metal products, Federal Reserve, industrial production, machinery, manufacturing, metals tariffs, metals-using industries, tariffs, Trade, Trump, washing machines, {What's Left of) Our Economy

The July figures for after-inflation U.S. manufacturing production came in this morning from the Federal Reserve, and they further debunk widespread reports that President Trump’s tariff-heavy trade policies – and particular his levies on steel and aluminum imports – are backfiring badly by decimating metals-using manufacturing sectors that dwarf the steel and aluminum makers.

Let’s first look at the monthly numbers, and compare the (preliminary) real growth of major metals-using sectors and manufacturing overall from June to July:

overall manufacturing:  +0.31 percent

durable goods:   +0.39 percent

fab metals:  -0.03 percent

machinery:  +0.56 percent

automotive:  +0.94 percent

small appliances:  -1.41 percent

major appliances:  -4.56 percent

Clearly, most metals-using sectors actually outperformed overall, with the top exceptions being appliance makers. Those in the major appliance category, of course, have been hit not only with the metals tariffs, but with safeguard tariffs on one of their actual products – large residential laundry machines.

Moreover, the output data since the advent of the first metals tariffs – in late March – show that the metals-using sectors in general have at least held their own. Here are the inflation-adjusted output percentage changes since April; they include the initially reported numbers through June (released by the Fed last month), and the revised June and initial July figures (released this morning).

                                                       old thru June   new thru June    new thru July

overall manufacturing                     – 0.21                +0.06                 +0.25

durables manufacturing                    -0.05               +0.09                  +0.48

fabricated metals products               +0.90               +0.82                 +0.79

machinery                                         -0.75                -0.47                  +0.09

automotive                                        -0.68                -1.56                   -0.63

small appliances                               -3.31                -3.98                   -5.33

major appliances                              -3.16                -0.73                    -5.25

Although the results for the very large machinery and automotive sectors look worse than the overall manufacturing numbers at first glance, they’ve each been undermined by some one-off developments.

In machinery, as reported here last month, the subpar post-April constant dollar growth clearly reflects some giveback from a big production jump between March and April. This increase was initially reported as a 2.27 percent surge, and it was estimated this morning at a still impressive 2.21 percent.

In automotive, production is still recovering from the effects of a fire in early May at a factory that produced parts for a popular Ford pickup truck, and which depressed after-inflation output that month by a huge 8.52 percent.

The post-April numbers confirm that both appliance sectors continue to be the big tariff losers, but the rest of the data show that they’ve been the exceptions, not the rule.

As usual with data, “past performance does not guarantee future results.” But the new Fed figures (along with comparable employment figures I’ve reported) also make clear that, so far, claims of major tariff-induced losses for domestic metals-using manufacturing belong in the realm of speculation, not of facts.