(What’s Left of) Our Economy: Has the U.S. Seen Peak Manufacturing Output for the Virus Era?

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(What's Left of) Our Economy, appliances, automotive, capex, capital spending, CCP Virus, coronavirus, COVID 19, Federal Reserve, furniture, household appliances, housing, inflation-adjusted growth, Institute for Supply Management, machinery, manufacturing, real growth, recession, recovery, Wuhan virus

Today’s monthly Federal Reserve report on U.S. manufacturing production was full of surprises, but not enough were of the good kind. And with signs of economic slowing on the rise, the new figures – for September – could mean that, for the time being, industry’s relative out-performance during the pandemic era will begin weakening markedly as well.

The surprises start with the overall figure for the September monthly change in inflation-adjusted output for American factories. Despite an abundance of encouraging data from so-called soft surveys like those issued by the private Institute for Supply Management and the Fed system’s regional banks (see, e.g., here) real manufacturing production dropped by 0.29 percent sequentially. The decrease was the first since April, when national economic activity as a whole bottomed due to the spread of the CCP Virus and resulting shutdowns and stay-at-home orders.

The biggest bright spot in the report came from the upward nature of most revisions. August’s initially reported 0.96 percent monthly gain is now judged to have been 1.13 percent. The July result was upgraded from 3.97 percent to 4.30 percent. And June’s previous 7.64 percent improve was reduced to 3.61 percent. Further, these advances built on similar upward revisions that accompanied last month’s Fed report for August.

In fact, the revisions effect was strong enough to leave domestic industry’s cumulative after-inflation production performance during the virus-induced downturn better than the Fed’s estimate from last month. As of that industrial production report (for August), manufacturing constant dollar production had fallen 6.39 percent from its levels in February – the final month before the pandemic began impacting the economy. Today’s new September release now pegs that decline at only 5.81 percent, and even the monthly September decrease left it at 6.08 percent.

Nevertheless, the breadth of the September monthly decrease in overall price-adjusted manufacturing output unmistakably disappointed. Yes, the automotive sector (vehicles and parts combined) saw its on-month production tumble by 4.01 percent. But in contrast to most of the manufacturing data during the CCP Virus period, automotive didn’t move the overall manufacturing needle much, as real output ex-auto rose only fractionally in September.

Also discouraging –and unexpected, considering the good recent capital spending data reported by the Census Bureau (see, e.g., the “nondefense capital goods excluding aircraft” numbers for new orders in Table 5 in this latest release) – was the 0.41 inflation-adjusted production decline in the big machinery sector following five months of growth.

And even though the U.S. housing sector has been booming during the recession, real output of furniture also slumped for the first time in six months (by 0.96 percent), while price-adjusted household appliances production was down 4.99 percent after its own good five-month run.

As indicated by today’s revisions, these glum September manufacturing output figures could be upgraded in the coming months. Yet given the CCP Virus’ return – which will at best greatly complicate the challenge of maintaining recovery momentum for industry and the entire national economy – no one can reasonably rule out the possibility that, for now, Americans have seen peak post-virus manufacturing production.

(What’s Left of) Our Economy: So Much for That Pre-Virus Trump Manufacturing Recession?

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(What's Left of) Our Economy, Barack Obama, election 2020, Federal Reserve, GDP, gross domestic product, gross output, industrial production, Joe Biden, manufacturing, manufacturing recession, real GDP, real value added, tariffs, Trade, Trump, value added

A funny thing happened when the U.S. Commerce Department released its latest report on gross domestic product (GDP) by industry last Wednesday: Most of the evidence that American domestic manufacturing suffered a recession – even a mild one, as widely reported – before the CCP Virus struck disappeared.

The new figures also reveal that President Trump’s manufacturing record before most of the U.S. economy was literally ordered closed due to virus-related fears looks even better than previously thought in comparison with that of the Obama administration – in which the President’s Democratic rival for the White House, Joe Biden, served as vice president.

Focusing on this pre-virus data is anything but grasping at straws – unless you think the CCP Virus and its impact will last forever. For manufacturing’s fortunes have been closely connected to President Trump’s tariff-centric trade policies throughout his time in office because manufacturing is so thoroughly exposed to foreign competition both at home and abroad. And as this article (which featured unusual balance) made clear, recent evidence that industry had slumped last year – even before the virus’ arrival and the deep downturn it caused – was widely viewed as a major sign not only that the “trade war” was failing, and undermining Mr. Trump’s .broader determination to revive the sector.

Yet the new GDP by Industry numbers (which take the story through the second quarter of this year, and incorporate revisions going back to the first quarter of 2015 and which were part of a broader release of four different measures of manufacturing production) generally revised that recession away. So presumably, judgments about the effectiveness and impact of the Trump tariffs and similar trade decisions during normal economic times should turn much more positive.

Understanding that the federal government uses four different measures of manufacturing production is the key to understanding why those manufacturing recession claims now look largely mistaken, and why some uncertainty remains. The four measures are: gross output and inflation-adjusted (real) gross output, and value added and real value added. The latter two measures try to eliminate the double-counting in the gross output numbers that economists generally agree results from including in its results both the parts and components and other manufactured inputs of final products, along with the final products themselves.

As of now, the only one of these gauges that still shows a pre-virus Trump-era manufacturing recession (defined as two straight quarters of declining output) is current dollar (pre-inflation) gross output. According to these data, this downturn began in the second quarter of 2019 and continued through the end of the year – and of course into this year. But a recession doesn’t show up in any of the other measures, and its absence in the new real gross output figures is especially important, since that’s the measure that the Federal Reserve uses to measure manufacturing production in its closely followed monthly industrial production reports.

At the same time, those real gross output figures still leave one manufacturing production uncertainty remaining. For even though the Commerce Department’s tables, and their quarterly numbers, show no pre-virus Trump era recession by this measure, the Fed’s monthly numbers do. Specifically, they report three consecutive quarters of manufacturing production decrease last year – from the first through the third.

Yet the quarterly figures reported by the Commerce Department show that real gross output in manufacturing fell between the first and second quarters of 2019, but rose between the second and third before dropping again between the third and fourth. Even odder: Although these Commerce numbers show a weakening manufacturing output picture for the fourth quarter of last year, the Fed figures show a brighter one.

As for the comparison between administrations, here’s what the new numbers show for the two most comparable pre-virus periods (because they’re closest together in the same business cycle) – the last three years of the Obama administration and the first three years of the Trump administration. And they demonstrate that, whether due to Mr. Trump’s policies or not, industry performed considerably better during his watch. The Trump numbers are all the more impressive since 2019 was marked in part by major production woes at Boeing that greatly undercut the output numbers for the huge U.S. aerospace industry and its vast domestic supply chain.

last 3 Obama years first 3 Trump years

Gross output: -6.50 percent +12.71 percent

Real gross output: +1.40 percent +4.63 percent

Value added: +5.41 percent +11.72 percent

Real value-added: +2.33 percent +9.00 percent

This year, of course, has been terrible for domestic U.S. manufacturing. Between the first and second quarters, in real gross output terms it decreased by 1.03 percent at an annual rate between the fourth quarter of 2019 and the first quarter of 2020, and by 9.47 percent between the first and second quarters.

Interestingly, put together, those are about the same as the declines suffered by the entire U.S. private sector (1.11 percent and 9.14 percent, respectively), even though manufacturing employment during this that period held up notably better than its overall private sector counterpart. During the first and second quarters of this year, the private sector lost 9.92 percent of its jobs, compared with 6.25 percent for manufacturing.

The GDP by Industry figures for the third quarter won’t be out until well after the election (December 22), so voters won’t be able to judge the full Trump manufacturing output record during the CCP Virus period. But from what’s known so far, it looks like something the President can point to during the rest of the campaign as a promise kept.

Im-Politic: Trump’s Decidedly Non-Racist Economic Record

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African Americans, Barack Obama, CCP Virus, coronavirus, COVID 19, election 2020, families, family income, Federal Reserve, Hispanics, Im-Politic, inquality, Joe Biden, median income, racism, Survey of Consumer Finances, Trump, wealth gap, whites, Wuhan virus, xenophobia

Some pre-debate advice for Democratic presidential nominee Joe Biden: Don’t rush to trot out your charge that Donald Trump is the first racist President in American history. Because if Mr. Trump has been briefed with any competence, two recent official economic reports have just come out making clear that when it comes to African Americans and Hispanic Americans, – at least before the outbreak of the CCP Virus that has hit minorities especially hard for longstanding structural reasons – the incumbent’s economic record compares quite favorably to that of the Obama administration for which Biden rode shotgun.

The evidence we’ll look at today drawn from the latest edition of the Federal Reserve’s Survey of Consumer Finances, contains arguably the most important finding of all: The wealth gap separating African Americans and Hispanic Americans on the one hand from white Americans on the other narrowed more during Mr. Trump’s first three years in office than during the final three years of the Obama administration. (RealityChek regulars know that such time frames provide the best apples-to-apples data needed for comparisons, since they came right next to each other in the same economic cycle – in this case, the post-2009 expansion.)

This racial wealth gap is often described as the most damning indictment of the nation’s longstanding failure to generate equal economic opportunity, since the wealth created by one generation can be passed down to future generations, and thereby boost the odds that beneficiaries are cushioned against major economic and financial stress, and foster all the self-reinforcing social as well as economic advantages flowing from such achievement of the American Dream.

The numbers come both from the Fed’s new survey, which covers the 2016-2019 period, and its previous survey, which covered the 2013-2016 period, and here they are, starting with the growth in median family net worth (the Fed’s preferred measure of wealth) for all American families, for non-Hispanic white families, for non-Hispanic black families, and for Hispanic families.

During the final three Obama years, in pre-inflation dollars, this net worth increased as follows for the aforementioned three groups pre-tax

for all U.S. families: +16.25 percent

for white non-Hispanics: +16.80 percent

for black non-Hispanics: +29.41 percent

for Hispanics: +45.77 percent

As a result, median wealth for black non-Hispanic and Hispanic families as a share of median family wealth for their white counterparts rose as follows:

                                                                   2013                    2016

black non-Hispanic families:              9.29 percent        10.29 percent

Hispanic families:                               9.70 percent        12.11 percent

Alternatively put, black non-Hispanic families closed the wealth gap with white non-Hispanic families by 10.76 percent, and Hispanic families by 24.85 percent. No denying that’s progress.

And the Trump record through 2019 in comparison? We’ll start again with the increases in pre-tax median family net worth from 2016 until then:

for all U.S. families: +17.58 percent

for white non-Hispanics: +3.46 percent

for black non-Hispanics : +32.42 percent

for Hispanics: +65.30 percent

So during the first three Trump years, median family wealth overall grew faster than during the final three Obama years, and minority families far outgained white families in this regard. Moreover, this was especially true for Hispanic families, who belong to an ethnic group Mr. Trump is often accused of despising.

That this minority family outperformance bettered that achieved during the most analogous Obama period comes through even more clearly from the following table, which shows how minority families’ net worth grew as a share of white family net worth between 2016 and 2019:

                                                                    2016                    2019

black non-Hispanic families:              10.01 percent       12.81 percent

Hispanic families:                               12.04 percent       19.23 percent

Again, alternatively put, during the Trump years, these results mean that black non-Hispanic families closed the wealth gap with white families by 27.97 percent, and Hispanic families by 59.72 percent. So both groups made much more relative progress during the Trump supposedly racist and xenophobic Trump administration (pre-CCP Virus) than during the supposedly racially enlightened Obama administration.

The Trump record isn’t as good when it comes to another measure of economic peformance – pre-tax family incomes and their growth. But any fair-minded observer would have to agree that it’s more than respectable, especially considering the President’s reputation among so many of his opponents.

Once more, let’s start with the Obama record on this score between 2013 and 2016. (These results aren’t adjusted for inflation, either. During these years, median family income grew as follows for the groups in question:

for all U.S. families: +9.56 percent

for white non-Hispanics: +6.44 percent

for black non-Hispanics: +9.94 percent

for Hispanics: +14.93 percent

As a result, median incomes for black non-Hispanic and Hispanic families as a share of median income for their white counterparts rose as follows:

                                                                    2013                    2016

black non-Hispanic families:               56.00 percent       57.84 percent

Hispanic families:                                58.26 percent       62.91 percent

So the income gap with white non-Hispanic families shrank by 1.13 percent for black families and by 7.98 percent for Hispanic families. These relative gains generally were far smaller than those registered for wealth, but they were gains all the same

At first glance, it’s clear that the Trump record between 2016 and 2019 lagged the Obama era progress. Here’s how family incomes rose then for the groups concerned:

for all U.S. families: +4.64 percent

for white non-Hispanics: +6.00 percent

for black non-Hispanics: +7.00 percent

for Hispanics: -0.49 percent

The same conclusion flows from examining the changes in minority groups’ family income as a share of non-white Hispanic families’ income:

                                                                    2016                    2019

black non-Hispanic families:               57.76 percent      58.41 percent

Hispanic families:                                62.83 percent      58.99 percent

In fact, Hispanic families actually lost ground on this front.

And not surprisingly, the income gap between Hispanic families and white non-Hispanic families widened by 6.11 percent during these Trump years, while that between black and white non-Hispanic families narrowed by much less than during the final three Obama years (1.13 percent versus 3.29 percent).

These Fed figures hardly show that President Trump, as he likes to claim, has done more for African Americans than any President in history Lincoln aside, or that Hispanic Americans have been special beneficiaries of his policies. But they do show impressive progress for minority groups and, perhaps more important, progress that compares well with such achievements under the nation’s first African American President.

Therefore, Biden (and other Trump opponents) could well be right about the President’s racism and xenophobia when all considerations are taken into account. But if so, he’s clearly the strangest racist and xenophobe in U.S. history – a conclusion that will be supported when RealityChek turns next to the new poverty statistics and another set of income figures just issued by the Census Bureau. .

Im-Politic: The Supreme Court Mess II

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Antonin Scalia, Constitution, diversity, Federal Reserve, identity politics, Im-Politic, Joe Biden, Robert Bork, Ruth Bader Ginsburg, Senate, Supreme Court, term limits, Trump

Since the Supreme Court Mess that I analyzed yesterday really is a Supreme Court Mess and not simply a Ruth Bader Ginsburg Mess, today let’s dive right into problems with how Americans deal with the top of the federal government’s judiciary branch other than the means of picking the late Justice’s replacement.

First and maybe most obvious comes an inconsistency in the position of the Democrats and especially of their presidential nominee this year, former Vice President Joe Biden. From that party and candidate comes the insistence that it’s wrong for President Trump to choose a new Justice so close to the November election because it could strap the country with a new Justice and Court line-up that flout the popular will that would be revealed by a Biden win on major policy issues (like abortion or the future of Obamacare).

Leaving aside the (clear un-) Constitutionality of this position, it’s not entirely unreasonable. But it would become much stronger substantively, and much less vulnerable to charges of hypocrisy and pure partisanship, if Biden enabled voters to assess their actual Supreme Court-related choices at least as clearly as Mr. Trump has with the list of Ginsburg replacement possibilities he’s released. Biden has promised that he’d put forward an African American woman (though maybe not this time?). But which ones is he considering (if it is this time)? He hasn’t told us. So the criterion of fairness should oblige him to release his own list ASAP, to permit voters to weigh the alternatives fully. After all, even if they don’t like any of the Trump candidates (which the President has subsequently announced will be restricted to women), Americans might like Biden’s choices even less.

The second problem, though, has precisely to do with the identity politics of Supreme Court nominations that both Biden and the President are practicing. Not that I have any inherent objection to another female Justice or the first African American female Justice. But these announcements raise any number of divisive questions that Americans could do without in these divisive times. Just a few examples:

>During the Obama years, there was much talk that the Court needed an Asian-American Justice. (Full disclosure: Denny Chin, the federal appeals court judge mentioned here, is a college friend.) So many valid reasons were cited (e.g., they’re “the fastest growing population of color in the country, with a voting electorate expected to double in the next 25 years”). Exactly when, therefore, did this proposal become obsolete? And why?

>Regarding the Biden pledge to nominate an African American woman, that would move the Court’s makeup closer to the gender composition of the entire U.S. population, so this promise can be justified by the goal of making the Court “look like America.” (So would the President’s promise to choose a woman whose race or ethnic background he hasn’t specified.) But an African American woman would bring the number of African Americans on the Court to two (along with Clarence Thomas). Since they amount to only some 13 percent of all Americans, they’d be way over-represented.

>The same outcome would result from if Mr. Trump picks Cuban-American federal appeals court judge Barbara Lagoa from Florida. She’d be the second Latino woman on the Court (along with Sonia Sotomayor). But that decision would create another over-representation situation (though not one as sizable as those for African Americans, at least in the early part of a Biden administration). And what about Latino men? They’d remain completely shut out. How come?

Again, I agree broadly with the idea that the leadership ranks of major American institutions, especially public, but also private, should be diverse enough in terms of all the major population categories to make sure that the widely varying experiences of these groups contribute to decision-making. In my view, that’s a major plus, since the idea of objectively optimal policies or practices is impossibly naive, and because the choices made by public institutions are bound to affect different groups differently.

But although all these stakeholders deserve a say, when diversity – and especially specific diversity formulas – become explicit, you unfortunately enter a world in which the kinds of potentially ugly identity politics-related questions just mentioned tend to come to the fore, and vital issues of merit tend to move to the rear.

As a result, though doing so is somewhat hypocritical, certain kinds of fictions do serve important purposes. So I hope that from now on, diversity promises for public appointments at least become less explicit, and the results become the product of informal political pressures and other considerations. (Privately owned institutions should be able to do whatever they want within the bounds of anti-discrimination laws. Even so, diversity can benefit them, too, since especially in the case of businesses, they’re trying to win and keep customers, and diverse leadership ranks are likely to provide important insights into appealing to various population groups.)

The third big part of the Supreme Court Mess: The American political system clearly has moved way too far away from the crucial idea that, since elections matter, Presidents have the right to appoint whoever they wish to fill positions the Constitution entitles them to fill unless their choices are flagrantly incompetent, or utterly dismissive of Constitutional and ther legal standards, or ethically or criminally compromised. If Senators simply don’t agree with nominees on legitimate Constitutional and legal controversies – too bad.

Thankfully, this idea isn’t completely dead. For example, three Democrats did vote to approve Trump Supreme Court nominee Neil M. Gorsuch in April, 2017. At the same time, three isn’t much. Vastly more encouraging: In August, 1993, Ginsburg was confirmed by a 96 to 3 vote (one Senator abstained), which means that plenty of Republicans supported here even though she surely wasn’t their legal and Constitutional cup of tea.

At the same time, Republicans controlled the Senate when Gorsuch was considered, and Democrats enjoyed a majority when Ginsburg came up. So a better example of this ideal would be the 1990 vote in favor of David H. Souter. He was a George H.W. Bush nominee, yet won the nod of a Democratic Senate – in a 90-9 landslide. (This time, one Senator didn’t vote.) 

Or was it? After all, Souter arguably received this margin precisely because his views on major subjects were so unknown – largely because his lower court opinions and other legal writings were so plain vanilla or so scarce or both. As widely (and convincingly) supposed, Souter (and his supporters) had learned the big lesson of the failed nomination of Robert Bork: Don’t leave a conspicuous “paper trail.”

Bork, whose bid for the Court failed in 1987, was rejected by a Democratic-controlled Senate largely because his prodigious writings were so controversial. His reputation as a Watergate-era villain surely didn’t help, either.

But were Bork’s views so out of the mainstream, as his opponents charged? Just a year earlier, another doctrinaire judicial conservative nominated by President Ronald Reagan – Antonin Scalia – was elevated to the Court. And he won unanimously. (Two Senators didn’t vote.)  But that year, Republicans ran the upper chamber.

As a result, it’s easy to conclude that the tradition of “Borking” is very much alive, and that overly political Supreme Court nomination fights will continue for the time being.

The final big aspect of the Supreme Court mess: This drift away from the respect for legitimate presidential prerogatives no doubt results from both the prominent role the Court has played in deciding issues (like Obamacare) that elected politicians should be figuring out, and this prominence, and the towering stakes thereby created, in turn stem from the lifetime nature of Court terms. In other words, once a Justice is confirmed, he or she can serve literally for decades, and for just as long decisively influence policy decisions that shouldn’t be legalized.

Therefore, although I’m super-hesitant to support Constitutional changes in response to developments that are probably transient, I fear that the too often vicious and hyper-partisan nature of American politics is here to stay for the foreseeable future.  Therefore, I’d support at least considering an amendment that would limit the Justices’ terms.  One possible model: the Federal Reserve, another government body that’s supposed to be shielded from politics, and whose seven Board members serve for fourteen years, and whose Chair and Vice Chair are limited to four (although this curb doesn’t count against their Board service).

Not that I love the Fed’s degree of autonomy.  But the temperature of national politics clearly needs to be lowered to safer levels, and term limits on the increasingly supremely powerful Supreme Court are the best place to start I can think of.     

(What’s Left of) Our Economy: New Fed Figures Show the U.S. Manufacturing Recovery is Proceeding Nicely

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automotive, CCP Virus, China, coronavirus, COVID 19, Federal Reserve, inflation-adjusted output, lockdowns, manufacturing, manufacturing production, real growth, shutdown, stimulus package, Trump tariffs, Wuhan virus, {What's Left of) Our Economy

It’s not apparent from the overall numbers, but the most important takeaway from this morning’s monthly Federal Reserve report on U.S. manufacturing production is that American industry has continued a steady comeback from the ravages of the CCP Virus and the government-induced shutdown of much of the U.S. economy. And the continuing healthy pace of this comeback is all the more impressive given the stop-and-start nature of so many of the economic restrictions imposed by Washington, D.C. and by the states and localities, and given the recent uncertainty about a new virus-relief bill.

The overall Fed numbers, as indicated above, do show a manufacturing bounceback that’s losing noteworthy steam. In August (the latest available data month), inflation-adjusted manufacturing output grew by 0.96 percent sequentially. That’s definitely a weaker pace than July’s growth (now pegged at 3.97 percent on month), much weaker than June’s 7.64 percent monthly burst, and well short of May’s 3.91 monthly percent production rise.

Grounds for encouragement, though, are justified even by these aggregate figures, as revisions for recent months generally were positive, and July’s was really positive – that month’s previously estimated manufacturing real growth was 3.41 percent.

But the best and most important news comes from the numbers on manufacturing production outside the automotive sector. As known by RealityChek regulars, the wild sequential swings in output from vehicle and parts makers have dominated the Fed manufacturing production reports for nearly the entire CCP virus period. (See., e.g., last month’s post on this subject.) So important though automotive is – both because of its size per se and because it affects the rest of its industry due to its big domestic supply chain – the non-auto results arguably provide a more accurate picture of U.S. manufacturing’s fundamentals. And this picture looks remarkably good, and still displays significant momentum.

Ex-auto, as the cognoscenti put it, constant dollar manufacturing production increased by 1.40 percent on month in August. So since that’s much faster than overall manufacturing’s performance (up 0.96 percent) that means automotive output fell (by 2.13 percent, specifically).

The August sequential improvement for ex-auto manufacturing, moreover, isn’t dramatically lower than July’s (1.93 percent). And it compares pretty well with June’s (now estimated at 3.82 percent) and May’s (now judged to be 2.12 percent).

Even better, all the pre-July results have been revised up except for May’s.

When all is said and done, the August Fed report underscores just how resilient domestic manufacturing has been despite the formidable CCP Virus challenges (which also include major economic slowdowns in the foreign markets U.S. industry has always relied on for much of its sales). As of August, overall price-adjusted American manufacturing output was just 6.39 percent below its levels in February (the final month before virus effects began impacting the economy). Manufacturing ex-auto’s real production was just 7.04 percent less than in February. And automotive’s after-inflation production was a mere 1.98 percent below that February benchmark.

And another factor to consider: Since China’s has been the world’s first major economy to resume growth since the virus struck, and since its recent growth has been so markedly export-led, think of how much worse U.S. industry’s state would be had the steep Trump tariffs on hundreds of billions of Chinese goods normally sent to the United States not been imposed, or left almost completely in place by the Phase One trade deal.

(What’s Left of) Our Economy: U.S. Manufacturing Kept Ploughing Ahead in July

Tags

automotive, CCP Virus, coronavirus, COVID 19, Federal Reserve, industrial production, inflation-adjusted growth, manufacturing, real growth, Wuhan virus, {What's Left of) Our Economy

Whereas the last few U.S. manufacturing production reports from the Federal Reserve have overwhelmingly been one story – automotive –this morning’s findings (covering July) are notable for at least two other stories: unusually large downward May and June revisions for the entire sector when it comes to their inflation-adjusted growth, and despite that discouraging news, the more positive development that stripping out automotive from the overall totals, manufacturing has now been growing pretty steadily for three straight months.

The new Fed figures show that in toto, real manufacturing output grew sequentially by 3.41 percent. That figure, too, is now up for three straight months.

But those revisions! June’s originally estimated 9.06 percent jump is now judged to have been only a 7.52 percent improvement – still excellent, but much lower. And after being revised up to 5.06 percent, May’s increase is now pegged at 3.88 percent.

As implied above, automotive outperformed the rest of manufacturing by a mile. Its July monthly production advance came in at 28.29 percent – much less than the May and June rocket rides, but still extraordinary. And the numbers for the May and June comebacks have held up well. The former, previously reported as a 117.12 percent surge, is now judged to have been 110.97 percent. And the June number was revised up from 115.02 percent to 118.33 percent. In other words, price-adjusted production of vehicles and parts combined still more than doubled in both May and June, reflecting both the reopening of factories from earlier spring shutdowns, but strong demand from consumers.

The data for the rest of manufacturing have been considerably less spectacular. But these industries did collectively boost their constant dollar output in June by 1.63 percent sequentially. And the May and June monthly results are still 2.04 percent and 3.66 percent, respectively. Arguably that’s an impressive performance given not only the worst overall U.S. economic slump since the Great Depression of the 1930s, but the stop-start nature of the CCP Virus’ spread and, therefore, of many individual states’ lockdowns and shutdowns.

All the same, let’s close with some statistics that make clear how mind-blowing automotive’s production performance has been during the pandemic. Since February – the last month before major numbers of virus infections started appearing and as a result major economic disruption began – total inflation-adjusted U.S. manufacturing output is down 7.84 percent. Leaving out automotive, real production is off by 8.65 percent during this period. And automotive itself? It’s practically back to normal, with its July price-adjusted manufacturing output just 0.32 percent lower than February’s levels.

(What’s Left of) Our Economy: Automotive Output Keeps Driving Virus-Era U.S. Manufacturing Production

Tags

automotive, CCP Virus, coronavirus, COVID 19, Federal Reserve, inflation-adjusted output, manufacturing, manufacturing production, Wuhan virus, {What's Left of) Our Economy

As with the last few Federal Reserve reports on U.S. manufacturing production, today’s release (covering June) is mainly a combined CCP Virus/automotive story. And intriguingly, if worker pressures to re-close at least some of the nation’s vehicle and parts factories succeeds due to the surge seen in virus cases in recent weeks, this pattern could well continue.

The overall results – which measure domestic manufacturing output in inflation-adjusted terms – were decidedly encouraging. Last month, this real production sequentially jumped by 9.06 percent – the biggest such increase on record, and smashing the old mark of 7.03 percent recorded in August, 1997. (File this date  away for future reference.)

Of course, this constant dollar output improvement, along with May’s upwardly revised 5.06 percent advance, have followed historic after-inflation monthly production nosedives. And these revisions have only been slightly mixed (April’s drop is now judged to be 16.94 percent, not the previously reported 15.66 percent, while the March decrease was shaved from 5.27 percent to 4.09 percent.) So the hole out of which U.S. based industry must dig itself out was just about as deep as originally estimated. (Of course, all these figures, along with those for the previous several years, will be further revised by the Fed sometime later this year, so don’t view them as being set in stone.)

But the automotive results keep driving (pun intended?) the overall manufacturing growth figures. In June, combined real output of vehicles and parts soared by 115.02 percent. In other words, it more than doubled in a month. And that surge followed a monthly automotive comeback in after-inflation terms of 117.12 percent – another more-than-doubling. Moreover, this figure has revised down only from a previously reported 120.83 percent .

As with manufacturing in general, though, these remarkable increases have followed deep decreases in April and March (now judged to have been 77.81 percent and 28.05 percent, respectively, with revisions minimal) due to a CCP Virus-led decision by the automakers to suspend most of their operations . Indeed, as of June, constant dollar automotive production is still 25.47 percent below February’s pre-pandemic level.

History, moreover, makes clear that outsized automotive influence on the total manufacturing production numbers is a well-established pattern. For example, the previous record increase for after-inflation monthly overall U.S. manufacturing production (that 7.03 percent rise in August, 1997) stemmed largely from a 49.17 percent increase in real automotive output – which in turn resulted from the end of a strike at General Motors.

And strikes aside, production in the sector fluctuates tremendously during the summer because that’s when factories have often been shut down to get their acts together for the upcoming model year. Don’t expect this kind of boost this year, though, as a number of automakers have decided to skip these annual retooling and maintenance pauses since their virus-related factory closings have already hit them hard enough.

One more sign of how profoundly the auto figures have distorted manufacturing’s overall recent production performance – stripping out this sector, real manufacturing output would have risen on mont in June not by 9.06 percent, but by 5.45 percent. That’s still a great performance, though – in fact, it’s the best since the 6.32 percent improvement in August, 1967.

Indeed, without the automotive sector, U.S. price-adjusted manufacturing output is down only 7.13 percent from its last pre-pandemic reading in February. Add in automotive, and this figure becomes 8.82 percent.  But due the CCP virus, lockdown and reopening decisions, and restiveness in some of the nation’s automotive workforce, the road ahead for domestic manufacturing is anything but clear.    

(What’s Left of) Our Economy: The Most Troubling Racial Economic Gap?

Tags

African Americans, Federal Reserve, George Floyd, inequality, personal finance, race relations, Survey of Consumer Finances, wealth, {What's Left of) Our Economy

As so widely and correctly reported in the wake of unarmed African American detainee George Floyd’s killing in Minneapolis last month by a white police officer, the economic gap between black and white Americans remains way too wide despite the progress made in recent decades. In addition, research consistently shows that this inequality can be found in every indicator you can think of. (Two recent summaries can be found here and here.) 

Some recent digging, however, has convinced me that nowhere is the problem bigger or more serious than in wealth – that is, what people earn (from wages, salaries, rents, or what have you) along with what they own (homes, autos, stocks, etc.) The above-linked Washington Post article makes clear why wealth matters so much, especially over time:

“More wealth makes for more a comfortable, safer living. And, more importantly, it is passed on to the next generation. Their parents’ wealth gives many white children a boost at birth, an advantage many of their black peers lack.”

But the closer you look at the wealth figures, the more surprising they are. For although the black-white gap has consistently remained formidable in absolute term going back to at least 1989, it has witnessed some fluctuations that haven’t been trivial, and that over time at least point in the right direction.

Here’s a table containing the black-white breakdown in wealth over recent decades. The source is a study released every three years by the Federal Reserve that’s called the Survey of Consumer Finances. Unfortunately, the latest edition only takes the story through 2016. (If schedules for the previous studies hold, the next release won’t come out until the early fall.) The numbers in the left-hand and center column represent the actual dollar wealth amounts, adjusted for inflation, of the typical white and black households. In other words, it shows us the median – the figure for households exactly at the midpoint of results for all households. The right-hand column shows that ratio between these levels. The source is this collection of charts that accompanied the latest release: 

                     non-hispanic white      non-hispanic black     ratio white:black

1989:                   132.7                                7.4                           17.93:1

1992:                   116.9                              16.9                             6.92:1

1995                    120.0                              17.1                             7.02:1

1998                    141.4                              22.9                             6.17:1

2001:                   166.3                              26.3                             6.32:1

2004:                   179.3                              26.0                             6.90:1

2007:                   198.3                              24.4                             8.13:1

2010:                   144.3                              17.6                             8.20:1

2013:                   146.4                              13.6                           10.76:1

2016:                   171.0                              17.1                           10.00:1

Over the longest term, it’s clear that the racial wealth gap has narrowed significantly. Indeed, from 1989 to 2016, it shrank by a little over 44 percent. Much more discouraging – the lion’ share of this progress took place during the three years between 1989 and 1992.  Since then, it’s widened by 44.50 percent.

The relationship between this wealth gap and the economy’s ups and downs are noteworthy, too. During the 1990s economic expansion (which took place essentially between the 1992 and 2001 figures), the gap narrowed modestly – from 6.92:1 to 6.32:1. But during the so-called bubble expansion of the first decade of this century (from 2001 through 2007), it widened significantly. And it widened further during the first six years of the last, pre-CCP Virus recovery – by nearly 22 percent.

At the same time, as that expansion took hold, the 2012-2016 results show that some narrowing resumed.

Also, odd –during the Great Recession, which lasted from the end of 2007 till the middle of 2009, the racial wealth gap barely widened at all.

Finally, though, according to a chart that ran in the above-linked Washington Post piece (and that I wasn’t able to reproduce), there’s data going back to the 1950s. I haven’t looked at the figures first hand, but if the graphic is accurate, the wealth gap narrowed dramatically through the late 1970s, (though the black household wealth levels start at a shockingly low level), suffered a terrible 1980s (even though the economy overall grew nicely during the decade), recovered sharply during the 1990s (an even stronger, longer expansion), and has regressed steadily this entire century (through 2016).  Worst of all, though, the caption’s message:  virtually no progress since the late 1960s – another time of racial and other national tumoil. 

Unfortunately, the next set of Fed figures won’t shed any light on the virus’ impact on this key measure of black economic performance and progress. But Americans may learn whether the country had finally started getting back on the right track.

 

 

(What’s Left of) Our Economy: A Respectable Case for Optimism?

Tags

CCP Virus, China, consumer confidence, consumers, coronavirus, COVID 19, Federal Reserve, Jerome Powell, lockdown, recovery, reopening, restart, restaurants, retail, second wave, shutdown, social distancing, Sweden, testing, vaccines, Wuhan virus, {What's Left of) Our Economy

At the risk of being (undeservedly) tarred as a CCP Virus pollyanna, I can’t help but being struck by the some new evidence that the U.S. economy’s recovery from its pandemic-induced swoon will be faster than widely feared. In fact, I still share these fears to some degree. But I can’t ignore increasing signs to the contrary.

To be clear, this evidence has little to do with the subject of yesterday’s post. Just because data can be cited showing significant national progress in beating back the virus threat doesn’t necessarily mean that a more so-called “V-shaped” economic rebound is on the way. The same goes for the impact of this progress on the economy reopening decisions of individual U.S. states – even though the more decline seen in numbers of new cases (despite gains in testing that should be revealing much more infection), numbers of deaths, and numbers of virus-related hospitalizations, the more reopening obviously will be seen.

Nor are my views being shaped by the strong rebound seen in U.S. stock markets so far (including today so far), or by the newly bullish recovery views voiced last night on “Sixty Minutes” by Federal Reserve Chair Jerome Powell. And this post isn’t even driven by the latest news about vaccine progress (though such reports will clearly help as long as the results continue being validated).

The reason: I’ve been convinced that the key to the recovery’s strength will be Americans’ willingness to start patronizing businesses in an economy where most activity – and most income earning opportunities – depend on consumer spending. So I’ve put considerable stock in predictions that, even though all the objective conditions can show that a return to normality will be safe, too many Americans will remain too fearful to boost the economy significantly.

I also take seriously the idea that all the restrictions on visiting retail stores (including restaurants) and personal service businesses will limit their customer flow either simply by forcing them to operate substantially below capacity, or by dissuading many customers from visiting in the first place, and thereby sharply reducing impulse consuming. Further, I’m well aware that the much more modest shock administered to Americans by the Great Recession triggered by the 2007-08 financial crisis was painfully slow to wear off. (See here and here where I write about reasons for recovery pessimism.)

In addition, the experiences of other countries that started reopening earlier has reenforced consumer caution concerns. Sweden, for example, has imposed fewer economic restrictions than any other major country. But this survey by the consulting firm McKinsey & Co. reports that consumer spending has dropped significantly anyway, and may not recover for months. China claims that it’s beaten the virus and its regime has been easing factory lockdowns since February. But as of late April, retail sales were still way down.

Finally, there’s the second wave threat, which could kneecap the economy as temperatures start dropping in the fall even if summer does witness a decent bounce back toward pre-virus consuming.

So the case against a relatively quick recovery with real legs is still awfully strong.

But don’t overlook reasons for more optimism. One that’s nothing less than amazing: The piece in this morning’s Washington Post reporting that even though virus testing is now much more widely available in the United States than previously, Americans are far from rushing to capitalize on these opportunities. Even accepting the various reasons offered in this article (e.g., not enough Americans know that the situation has changed; there’s too much mistrust of medical providers in some U.S. communities, particularly African-Americans), it’s difficult at least for me to conclude anything else but that many in the United States simply aren’t concerned enough about the pandemic to take this precaution. After all, if they were panic-stricken, wouldn’t they be following every bit of news about the supply of tests with baited breath?

Perhaps more important, the more news that emerges that the CCP Virus is much less lethal than early reports suggested, the (understandably) less concerned about infection more and more Americans seem to be.    

Then there are all the reports of Americans, whether in states that have eased lockdowns more vigorously and those that haven’t, violating social distance guidelines, either by not wearing masks where they’re supposed to, or seemingly ignoring social distancing rules in public place – and indeed returning to restaurants and bars and beaches in pretty impressive numbers. These reports are anecdotal, and therefore should be viewed with lots of caution. Also, please don’t assume that I’m endorsing this behavior! But there sure seems to be a lot of it, these reports also seem related to growing evidence of the virus’ relatively modest death rates, and and as an old adage goes, when enough anecdotes appear, they become data. 

Finally are several indicators pointing to an actual, non-trivial comeback in economic activity, and for a variety of sectors. This account mentions encouraging signs from the tech sector to the automotive industry. This article presents evidence of bottoming even in hard-hit bricks and mortars retail stores and restaurants. And click here for information on the housing industry.

Of course, the references above to “bottoming” could still be entirely consistent with pessimistic predictions of a painfully slow climb back to pre-virus prosperity. But I still find myself wondering if, having seen the overpoweringly depressive effect of various official edicts literally to halt and outlaw much economic activity, Americans might experience a reasonably powerful growth effect from their withdrawal – not to mention declining fears that infection is a death sentence.

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.