(What’s Left of) Our Economy: A “Gentleman’s C” for the New Manufacturing Jobs Numbers

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aircraft, aircraft engines, aircraft parts, automotive, Boeing, CCP Virus, electronics, Employment, fabricated metals products, facemasks, food products, furniture, housing, Jobs, Labor Department, manufacturing, masks, metals, pharmaceuticals, ports, PPE, printing, productivity, protective gear, recession, recovery, reopening, semiconductor shortage, tariffs, vaccines, {What's Left of) Our Economy

June’s gains weren’t nearly enough to overcome the latest trend in U.S. manufacturing employment: From a job growth leader earlier during the CCP Virus pandemic, domestic industry has turned into a laggard. It’s not lagging by a big margin, but given significant net headwinds it should still be enjoying, recent results are clearly disappointing.

This morning, the Labor Department reported that U.S.-based manufacturers created 15,000 net new jobs in June – a modest number given the 662,000 increase in total private sector employment on month. At least revisions were positive. May’s initially reported 23,000 monthly improvement is now judged to be 39,000, but April’s already downwardly revised 32,000 sequential job loss is now pegged at 35,000.

In many of the nation’s supposedly prestige colleges, the grade earned by this kind of result would be called a “Gentleman’s C.”

As a result, domestic manufacturing has now regained 904,000 (66.32 percent) of the 1.363 million jobs lost during the pandemic. The numbers for the private sector overall are 72.98 percent of the 21.353 million lost jobs that have been recovered, and for the total non-farm economy (the definition of the American employment universe used by the U.S. government, which includes government jobs) 69.75 percent of the 22.362 million jobs lost.

A manufacturing optimist (and I’ve been one of them) can note that industry took less of an employment hit during the pandemic-loss months of March and April, 2020. Manufacturing employment sank by 10.65 percent, versus 16.46 percent for the private sector and 14.66 percent for the whole non-farm economy.

But nowadays, domestic manufacturers are still benefiting from major tariffs plus massive government stimulus on both the fiscal and monetary fronts, and from the huge ramp up in vaccine production. Reopening-related bottlenecks clearly are causing problems, but according to the major national surveys that measure how manufacturers themselves believe they’re faring, production and new orders for their products keep growing strongly. (For the newest ones, see here and here.) Even given equally widespread reports that new workers are hard to find, I expected hiring to remain much more robust than it has.

One explanation may be higher productivity, which enables businesses to turn out more goods with fewer workers. But given the longstanding difficulties of gauging this measure of efficiency, and undoubted pandemic-era distortions, I’m reluctant to put too much stock in this argument.

The shortages issues have been once again illustrated by the dominance of the automotive sector in the June manufacturing jobs picture. Payrolls of vehicles and parts companies fell by 12,300 – the biggest individual sector decreases by far – and surely stem from the continuing global shortage of the computer chips that have become ever more important parts of cars and trucks of all kinds.

One small bright spot in the June figures – the 300 jobs increase in the machinery sector. It’s an important indicator of the overall state of industrial hiring, since its products are used throughout industry (as well as in non-manufacturing sectors like agriculture and construction). At the same time, these new positions represented machinery’s weakest sequential performance since January’s 3,200 employment decrease.

Other big June manufacturing net hiring winners were furniture and related products (up 8,500, no doubt reflecting still strong home sales and remodeling activity), fabricated metals products (up 5,700, which is noteworthy given still widespread whining about the ongoing U.S. tariffs on metals), and miscellaneous durable goods manufacturing (up 3,300 – encouraging since this category includes many pandemic-related medical supplies).

The biggest losers other than automotive were food products (down 4,100 and continuing an employment slump that began in January), electronic instruments (down 2,100 and possibly related to the semiconductor shortage), and printing and related activities (down 1,400).

Pandemic-related industries turned in a mixed hiring performance, according to the latest jobs report. Job creation accelerated significantly in the surgical appliances and supply sector, which contains protective gear like face masks, gloves and surgical goans. Its payrolls grew by 1,700 on month in May (its data are one month behind, as is the case with the other sectors examined below), up from April’s 1,200 and its best monthly total since last July’s 3,000. This surgical category’s workforce is now 11.50 percent bigger than in February, 2020 – the last pre-pandemic month.

But the May figures revealed a job creation setback in the overall pharmaceuticals and medicines industry. April’s hiring was revised down slightly, from 2,700 to 2,500, but the number was still solid. In May, however, its payrolls shrank by 400, its worst such performance since pandemicky April, 2020. And its workforce is only 3.82 percent greater than in February, 2020.

Better news came out of the pharmaceuticals subsector containing vaccines, but not that much better. This industry added one thousand workers on net in May, but April’s initially reported 1,300 jobs increase was revised down to 1,100. Still, this vaccines-heavy sector now employs 9.20 percent more workers than just before the pandemic.

And in aircraft, Boeing’s continuing manufacturing and safety issues surely helped produce this industry’s worst jobs month – consisting of a 5,500 payroll decrease – since June, 2020’s 5,800. This sector has now lost 9.39 percent of its jobs since the final pre-pandemic month.

Interestingly, the aircraft engines and parts, and non-engine parts categories weren’t nearly as hard-hit job-wise in May. (The former even maintained employment levels.) But payrolls in each are down since February, 2020, by roughly twice as much proportionately as in aircraft.

Major uncertainties still hang over the domestic manufacturing jobs scene, and in one important respect – big new backups in Chinese ports – they’ve become murkier. Nor do Boeing’s problems seem ready to end any time soon. I’m still bullish on U.S.-based manufacturing’s employment outlook, at least in the short and medium terms mainly because American policy remains so overwhelmingly stimulative and its effects are still coursing through the economy. But I’m getting a little impatient for the numbers to start backing me up once again.

(What’s Left of) Our Economy: Strong Crosswinds Roil the New U.S. Manufacturing Jobs Figures

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aerospace, air travel, automotive, CCP Virus, chemicals, coronavirus, COVID 19, Employment, fabricated metals products, infrastructure, Jobs, machinery, manufacturing, miscellaneous durable goods, miscellaneous non-durable goods, non-farm jobs, pharmaceuticals, PPE, private sector, regulation, semiconductor shortage, semiconductors, stimulus package, taxes, vaccines, wood products, Wuhan virus, {What's Left of) Our Economy

It’s tough to imagine a U.S. official monthly jobs report giving off so many conflicting signals about the health of domestic manufacturing and its outlook than the one that came out this morning (for April).

On the one hand, the sector’s 18,000 jobs loss was its worst monthly performance since the identical January setback. On the other hand, the problem was heavily concentrated in the automotive sector, which has been forced to cut back production due to the ongoing global semiconductor shortage. On the other, other hand (!), this shortage is unlikely to ease for many months. On still another hand, the revisions were strong. And some key manufacturing industries continued a recent pattern of solid results. At the same time, even removing the automotive results would still leave the rest of domestic manufacturing’s April employment performance decidedly weak.

I could go on in this vein – and will below.

The decisive automotive/semiconductor effect on the April manufacturing figures becomes clear enough upon realizing that this sector’s 27,000 sequential employment loss was considerably greater than manufacturing’s total on-month job decline. Nonetheless, even had automotive held its employment line, the consequent 9,000 manufacturing job increase would have been unimpressive at very best.

And yet there are those revisions. March’s initially reported 53,000 monthly manufacturing payroll increases – the best such figure since last September’s 55,000 – are now pegged at 54,000. Even better, February’s initially downgraded (from 21,000 to 18,000) monthly employment increase has now been revised all the way up to 35,000.

As a result, domestic industry has now regained 63.83 percent (or 870,000) of the 1.363 million jobs it shed during the height of the CCP Virus pandemic in spring, 2020. It’s still behind the private sector overall (which has recovered 66.88 percent of its pandemic peak employment loss), but still ahead of the overall economy’s (called the non-farm sector by the Labor Department, which issues the monthly jobs reports) 63.26 percent.

The only major April manufacturing jobs loser other than automotive was the small wood products sector (7,200). The big fabricated metals products industry saw employment fall by 2,900 on month in April, but the drop followed a large March gain that’s been downwardly revised but still stands at a strong 10,400.

The machinery numbers were downright encouraging, and that matters because as I keep reminding, this subsector’s products are used not only throughout the rest of domestic manufacturing, but in other important parts of the economy like construction and agriculture. Its April employment boost of 3,700 followed March job creation that was upgraded strongly to 5,400.

In the big miscellaneous durable goods sector, a catchall category that includes everything from surgical equipment and supplies (like personal healthcare protection equipment – PPE – more on which later) to jewelry to gaskets and fasteners to musical instruments, payrolls jumped by 12,600 – their best monthly performance since its 15,300 advance last July.

And two other significant manufacturing employers –miscellaneous non-durable goods and the big chemicals sectors (whose output is also used all over the economy) – each generated enjoyed healthy payrolls increases of 4,300 in April.

Even the industries closely related to the fight against the CCP Virus, whose employment performance since the pandemic’s arrival generally have disappointed, showed some signs of job-creation life in April.

The overall pharmaceutical industry added 1,500 jobs on month in March (the latest available figures) and Februay’s improvement remains a strong 1,700. Since the last pre-pandemic month (February, 2020), this sector’s payrolls have grown by 3.11 percent.

Hiring slowed in the pharmaceuticals subsector containing vaccines – from 1,300 sequentially in February (unchanged from the first estimate) to 500 in March (also the latest available figures). But these companies’ employment is still 6.77 percent higher than in that last pre-pandemic month of February, 2020.

The employment signals were mixed in the manufacturing category containing PPE goods like facemasks, gloves, and medical gowns. Monthly job creation in February was downgraded from zero to a loss of 100, but March’s results (also the most recent) came in at 900, and this sector now employs 8.75 percent more workers than in February, 2020.

In an aerospace industry troubled for years by Boeing’s safety woes, the recent jobs figures are literally all over the place. The latest (March) results show that payrolls for aircraft fell month-to-month in March by 1,800 – surely reflecting the continuing virus-generated slump in air travel. But February’s upward revisions were nothing less than stunning – skyrocketing from a jump of 1,000 to one of 11,700. Fluctuations – though more modest – were also evident in aircraft engines and parts, and non-engine aircraft parts.

Yet as confusing as the new manufacturing jobs figures have been, the future seems just as cloudy. Optimism remains justified by developments like the enormous amounts of stimulus still pouring into the U.S. economy, by the apparent certainty that a major injection of infratructure spending is (finally) on the way, and by the continuing reopening of the economy spurred by vaccinations and less consumer caution.

Even so, the semiconductor shortage is not only here to stay for some time, but has affected many other industries other than automotive. The rate of U.S. vaccinations is slowing and the virus – including the new variants – appears likely to stage something of a comeback when the weather cools again in the fall. Air travel may never recover to pre-virus levels, which will harm not only the aerospace industry per se, but its vast domestic supply chain. And higher taxes and many more regulations could well hit U.S.-based manufacturers – at least until the Congressional elections of 2022.

On balance, I’d still bet on a bright future for domestic industry – mainly because all the sentiment surveys show that manufacturers themselves are full of confidence, and because President Biden has kept in place all the Trump China and metals tariffs that have priced much foreign competition out of the U.S. market. But I’m far from willing to bet the ranch.

Following Up: Inside April’s U.S. Manufacturing Crash II

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aerospace, appliances, automotive, CCP Virus, chemicals, components, computers, coronavirus, COVID 19, durable goods, electrical equipment, electronics, fabricated metals products, Federal Reserve, Following Up, food products, healthcare goods, inflation-adjusted output, machinery, manufacturing, manufacturing output, manufacturing production, medical devices, metals, non-durable goods, paper, real growth, Wuhan virus

A little earlier today, RealityChek presented some lowlights from this morning’s Federal Reserve U.S. manufacturing production report (for April). As promised, here’s a more granular look at the results, which yield even more insights as to how the CCP Virus blow to the economy is reflecting – and probably influencing dramatically changed spending patterns.

The table below shows the findings for durable goods industries, the super-category that covers products with expected usage and shelf lives of three years or more. Included are the original March inflation-adjusted output changes, the revised March data, and the April statistics:

Wood products:                                                -4.22%       -3.15%      -9.04%

non-metallic mineral products:                        -6.56%      -6.50%     -16.26%

Primary metals:                                                -2.82%      -3.95%     -20.37%

Fabricated metal products:                               -8.28%      -4.23%     -11.33%

Machinery:                                                       -5.56%      -3.05%     -10.98%

Computer & electronic products:                     -1.89%      -1.24%      -5.02%

Electrical equip, appliances, components:       -2.24%      -2.83%      -5.99%

Motor vehicles and parts:                               -28.04%    -29.96%    -71.69%

Aerospace/miscellaneous transport equip:      -8.12%      -8.90%     -21.65%

Furniture and related products:                       -9.99%      -6.50%     -20.60%

Miscellaneous manufacturing:                        -9.94%      -7.09%       -9.05%

   (contains most of those non-pharmaceutical healthcare goods)

As in the broader category analysis from earlier today, the automotive collapse – over both March and April – stands out here, although it was joined in the double-digit neighborhood (at much lower absolute levels of course) by six of the other eleven sectors. And as predicted in last month’s post on the March Fed report, the sector that’s held up best has been the computer and electronics industry – though following surprisingly close behind is electrical equipment, appliances, and their components.

It’s also easy to see how the rapid deterioration in automotive and the miscellanous transportation category that includes aerospace (especially in April for the latter) spilled over into supplier industries like metals and fabricated metal products, and machinery.

One durable goods puzzle: the relatively fast April decrease in the miscellaneous manufacturing category, which contains non-pharmaceutical medical goods so crucial for the nation’s CCP Virus response.

The second table shows the same information for the non-durables super-category, where the virus impact has been considerably lighter. Among notable results – the sharp worsening of after-inflation output in the food sector. Although it fared relatively well, there can be little doubt that the worker safety problems in meat-packing plants, along with the cratering of big customers – mainly the restaurant and hotel businesses – played big roles.

The non-durables results also make clear that the sector that’s survived best so far has been paper. Also excelling (at least relatively speaking): the enormous chemicals sector. This industry also contains the pharmaceutical industry, although the any positive CCP Virus impact seems unlikely to date because no vaccines or treatments have been developed yet.

Food, beverage, and tobacco products:          -0.76%      -1.56%       -7.10%

Textiles:                                                        -14.05%      -6.98%     -20.72%

Apparel and leather goods:                          -16.54%    -10.31%     -24.10%

Paper:                                                            -2.04%      -0.08%        -2.58%

Printing and related activities:                    -18.18%    -10.75%      -21.16%

Petroleum and coal products:                       -5.93%      -6.56%      -18.55%

Chemicals:                                                   -1.65%      -1.50%         -5.14%

Plastics and rubber products:                      -7.60%       -4.37%       -11.03%

Other mfg (different from misc above):     -5.37%       -4.29%       -10.37% 

The virus crisis contains so many moving parts (e.g., vaccine and therapeutics progress; infection, fatality, and testing data; uneven state reopening and national social distance practicing; consumer attitudes; second wave possibilities) that extrapolating the manufacturing trends to date seems foolhardy. But tracking industry’s winners and losers as the months pass could still provide important clues as to how much further the economic woes it’s caused will continue; and when, how quickly, and how completely recovery arrives.   

(What’s Left of) Our Economy: New Productivity Data Further Debunk “Tariffs Hurt” Claims

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aluminum, aluminum tariffs, China, durable goods, fabricated metals products, inputs, Labor Department, labor productivity, manufacturing, metals, metals tariffs, multi-factor productivity, productivity, steel, steel tariffs, tariffs, Trade, trade law, World Trade Organization, WTO, {What's Left of) Our Economy

The Trump administration’s announcement last Friday of new tariffs on some metals-using manufactures imports was greeted with the predictable combination of chuckles and gloating from the economists, think tank hacks, and Mainstream Media journalists who keep insisting that all such trade curbs are self-destructive whenever they’re imposed.

If the critics bothered to look at the new official data on multi-factor productivity, however, they’d stop their victory laps in their tracks. For the Labor Department’s latest report on this broadest productivity measure utterly trashes their claims that the tariffs slapped on metals in early 2018 – which unofficially launched the so-called Trump trade wars – have backfired by undercutting most domestic American manufacturing.

In fairness, the Trump administration itself gave the trade and globalization cheerleaders lots of evidence for their triumphalism. Specifically, the levies were justified with statistics showing that various categories of goods made primarily of tariff-ed steel and aluminum had seen major surges of imports since the duties began. The obvious conclusion? Foreign-based producers of these products were capitalizing on their cheaper metals available to their factories to undersell their U.S.-based competition.

As a result, Mr. Trump decided to tariff some of these final products, too – to erase the advantage created for imports from less expensive steel and aluminum.

So in one sense, it’s tough to blame tariff critics for feeling vindicated about predictions that the metals levies might boost the metals-producing sectors themselves, but injure the far larger metals-using sectors. Ditto for their warnings that in an economy with so many connected industries, protection for one or a few would inevitably spur calls for such alleged favoritism by others, threatening a consequent loss of efficiency for all of manufacturing and even the entire economy.

Examine the issue in more detail, though, and you see that it’s entirely possible to arrive at radically different conclusions. For example, the new tariffs appear to be imposed on a limited set of products, and none of them (e.g., nails, tacks, wires, cables, even aluminum auto stampings) qualifies as a major industry. In other words, the chief metals-using industries, like motor vehicles and parts overall, aerospace, industrial machinery (many of which have been complaining loudly about the metals tariffs, even though their overall operational costs have been barely affected) were left out.

Finally in this vein, and as the critics imply, the new Trump tariffs also make the case for trade curbs on any final products whose significant inputs receive duties. Why indeed strap otherwise competitive domestic producers with higher prices for materials, parts, and components? This practice has been a major flaw in the U.S. trade law system, which has prioritized legal over economic and industrial considerations, since its founding. And in fact, my old organization, the U.S. Business and Industry Council, has been urging this reform since at least 2008.

Even better – to prevent cronyism from influencing such trade policy decisions, impose a uniform global tariff on all manufactures, or all non-energy goods.

But it’s just as important to point out a gaping hole in the longstanding argument that cheap imported inputs (including subsidized, and therefore artificially cheap imported inputs) are essential for the overall global competitiveness of U.S. domestic manufacturing. And the hole has been opened (or perhaps it’s more accurate to say, reopened, given this previous RealityChek analysis of earlier data) by those new multi-factor productivity statistics.

They only go through 2018 (such time lags explain why multi-factor productivity trends aren’t followed as closely as labor productivity trends). But they’re the broader of the two productivity measures, as they gauge the effect of many inputs other than hours worked. And via the table below, they make clear that even the wide open access domestic manufacturers enjoyed to artificially cheap metals and other imported inputs have played absolutely no evident role in improving industry’s health. In fact, there’s reason to conclude that the more access domestic industry had to such materials, parts, and components, the less productive it became.

                                                               Total mfg   Durable goods   fabr metals

1990s expansion (91-2000):                   +23.40%       +38.76%         +4.79%

bubble decade expansion (02-07):          +11.74%      +16.61%          +7.62%

current expansion (10-present):                -4.84%         -0.84%           -4.51%

pre-China WTO (87-2001):                   +22.18%      +37.72%           -3.32%

post-China WTO (02-present):               +6.72%      +17.17%           -2.05%

As usual, the time periods chosen to illustrate these trends consist (with one exception) of recent economic expansions (because they enable the best apples-to-apples comparisons to be made). And the 1990s expansion is the first one examined because the relevant Labor Department data only go back to 1987. The products chosen consist of all manufactured goods, durable goods industries (the super-category containing most of the big metals users), and fabricated metals products (the most metals-intensive sectors of all).

The table demonstrates that multi-factor productivity growth across-the-board has weakened dramatically from the 1990s expansion through the current – ongoing – expansion. The slowdown between the 1990s expansion and the previous decade’s expansion was moderate (and multi-factor productivity actually grew faster during the second in fabricated metals, though in absolute terms its improvement lagged badly). But during the current recovery, multi-factor productivity growth has been replaced in all three instances by multi-factor productivity decline. And crucially, during none of this time did any of these manufacturing categories face any shortage of imported inputs of any kind – subsidized or not.

Indeed, one event in 2001 greatly increased the supply of subsidized inputs – China’s admission into the World Trade Organization (WTO). For once China joined, the difficulty of using U.S. trade law to keep these Chinese products out of the U.S. economy became much greater.

Yet at the same time, as shown below, productivity growth was considerably weaker after China’s WTO entry than before in manufacturing overall, and in durable goods. And although its performance actually improved in fabricated metals, that industry’s performance was much worse in absolute terms.

Nor does the inclusion of the 2007-2009 Great Recession in the post-2002 China-related data (which violates the “apples-to-apples rule”) seem to have been a game changer – because the worst performances of all in each case, and by a mile, have been registered during the current expansion. Moreover, since the data stop in 2018, those current expansion results are dominated by the period preceding both the Trump metals tariffs and the Trump China tariffs (most of which target industrial inputs, as opposed to final products).

It’s entirely possible that, for various reasons, the multi-factor productivity statistics would have been even worse if not for the widespread availability of cheap imports. Or maybe multi-factor productivity isn’t much of a measure of manufacturing’s health? Both alternative explanations, however, seem pretty far-fetched (especially given the pre- and post-China WTO results).

Much likelier – as I argued in that post linked above – the availability of cheap inputs has helped retard productivity growth by enabling businesses to achieve cost-savings without investing in research and development into new products and especially processes, and without buying more efficient equipment (including software).