(What’s Left of) Our Economy: Worker Pay Keeps Lagging, Not Leading, U.S. Inflation

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benefits, core services, cost of living, ECI, Employment Cost Index, Federal Reserve, inflation, Jerome Powell, Labor Department, private sector, services, stimulus, wages, workers, {What's Left of) Our Economy

The Federal Reserve, the agency with the U.S. government’s main inflation-fighting responsibilities, has made clear that it’s paying special attention to worker pay to figure out whether it’s getting living costs under control or not, and that its favored measure of pay is the Labor Department’s Employment Cost Index (ECI).

Therefore, it’s genuinely important that the new ECI (for the fourth quarter of last year) came out this morning. Even more important, the results undercut the widespread beliefs (especially by Fed leaders) both that worker compensation has been a driving force behind the inflation America has experienced so far, and/or has great potential to keep it raging.

Consequently, the new numbers seem likely to influence greatly the big choice before the Fed. Will it keep trying to raise the cost of borrowing for consumers and businesses alike in the hope of slowing spending enough to cool inflation even at the risk of producing a recession? Or will it decide that it’s made enough inflation progress already, and can tolerate current levels of economic growth – which the latest data tell us are pretty good) rather than stepping on the brakes harder.

The central bank likes the ECI better than the hourly and weekly also put out by Labor for two main reasons. First, it measures salaries and non-cash benefits, too. And second, it takes into account what economists call compositional effects.

That is, the standard wage figures report hourly and weekly pay for specific sectors of the economy, but they don’t say anything about labor costs for businesses for the same jobs over time. The ECI tries to achieve this aim by stripping out the way that the makeup of employment between industries can change, and the way that the makeup of jobs within industries can change (e.g., from a majority of lower wage occupations to one of higher wage occupations).

According to the new ECI report, when you adjust for the cost of living, “private wages and salaries declined 1.2 percent for the 12 months ending December 2022” and “ Inflation-adjusted benefit costs in the private sector declined 1.5 percent over that same period.”

So for the last year, total compensation has risen more slowly, rather than faster, than inflation, That’s not the kind of fuel I’d want in my vehicle or home. (As known by RealityChek regulars, private sector trends are the ones that count because compensation levels there are set largely by market forces, rather than mainly by politicians’ decisions, as is the case for public sector workers.)

Blame-the-workers (or their bosses) types can argue that since late 2021, compensation has caught up some with inflation rates. Specifically, from December, 2020 through December, 2021, it had fallen in after-inflation terms by 2.5 percent. Between the next two Decembers, it had dropped by less than half that rate – 1.2 percent.

But it was still down – and this during a period when private business claimed it was frantic trying to fill unprecedented numbers of job openings in absolute terms.

Moreover, the new ECI release contained signs that even this modest compensation catch up could soon reverse itself. Between the first quarter of last year and the fourth, in pre-inflation terms, the total compensation increase weakened from 1.4 percent to one percent even. And for what it’s worth, both economists and CEOs still judge that the odds of a recession this year are well over 50 percent.

Fed Chair Jerome Powell has also expressed concerns about wage trends in what he calls the core service sector, because, as he put it at the end of last November:

“This is the largest of our three categories, constituting more than half of the core PCE index.[the Fed’s preferred gauge of prices]. Thus, this may be the most important category for understanding the future evolution of core inflation. Because wages make up the largest cost in delivering these services, the labor market holds the key to understanding inflation in this category.”

The ECI releases don’t contain figures for this group, but if you look at total compensation for private service sector workers, it’s tough to see how they’ve been en fuego lately, either. Between the first and fourth quarter of last year, their rate of increase dropped by the exact same rate as that for the private sector overall. And although most economic growth forecasts lately have been far too pessimistic, almost no one seems to expect the current expansion to strengthen.

And if workers haven’t been able to reap a major inflation-adjusted compensation bonanza in the conditions that have prevailed for the last few months, or during earlier strong growth bursts since the CCP Virus struck the United States in force, when will they?

I remain concerned that living costs could remain worrisomely high – though not that they’ll rocket up again – because consumers still have lots of spending power, which will keep giving businesses lots of pricing power. But that’s not because Americans’ pay has exploded. It’s because government stimulus has been so mammoth in recent years, and could well stay unnaturally high.

Further, since such government spending is politically popular – and will remain more tempting for politicians to approve as the next election cycle approaches – my foreseeable-future forecast for the U.S. economy remains stagflation.  In other words, growth will be rather stagnant, and inflation will stay way too high.  And as the new ECI release suggests, workers could be left further behind the living cost eight ball than ever.       

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(What’s Left of) Our Economy: The U.S. Inflation Outlook Keeps Getting Curious-er and Curious-er

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baseline effect, core PCE, cost of living, energy prices, Federal Reserve, food prices, inflation, PCE, {What's Left of) Our Economy

Today’s official report on the measure for U.S. consumer inflation preferred by the Federal Reserve (covering December) looks awfully similar to the higher profile Consumer Price Index (CPI) figures released about two weeks ago. Both create portraits of price increases that keep clouding the inflation outlook.

These new results for the price index for Personal Consumption Expenditures (PCE) warrant great attention because the Fed is the government agency with the prime responsibility for controlling living costs. And of course, if the nation’s central bankers believe that prices are rising too fast, they’ll keep acting to slow economic growth to reduce the rate – and could even generate a recession if need be in their eyes.

The problem for them –and the rest of us: Although the figures revealing the most about what economists consider the economy’s underlying inflation rate are down on a year-on-year basis, they’re up on a monthly basis.

Such “core inflation” numbers strip out the prices of food and energy, because they’re supposedly volatile for reasons unrelated to the economy’s fundamental vulnerability to inflation.

The good news is that their increase between December, 2021 and December, 2022 (4.4 percent) was weaker than that between November, 2021 and November, 2022 (4.7 percent).

The bad news is that their monthly increase in December (0.3 percent) was faster than that in November (0.2 percent). So although annual core prices have been steadily and significantly decelerating (from a peak of 5.3 percent last February), their monthly counterparts may be picking up steam – although they’re still just half the rate they were worsening at their peak (0.6 percent) in June and August.

Compounding the bad news: The baseline effect for core annual PCE is still pretty strong. That is, its yearly increases are no longer reflecting much of a catch-up effect following a period when inflation was unusually weak. Instead, they’re coming on top of inflation for the previous year that was unusually strong.

Specifically, that 4.7 percent annual core PCE inflation rate in November was coming off an identical result between the previous Novembers that was that year’s hottest to that point. But December’s 4.4 percent annual core PCE increase followed a rise for the previous Decembers that was even worse – 4.9 percent.

Monthly December headline PCE inflation (which includes the food and energy prices) stayed at the same 0.1 percent pace as in November. Since they’re among the lower numbers for the year, they do signal that price increases are cooling. In fact, if this trend continues, or if monthly 0.1 percent headline PCE inflation continues, the annual rate would become 1.2 percent – well below the Fed’s two percent target. Therefore, if the central bank focuses here, it could well soon conclude that its economy-slowing moves so far are working, and that more won’t be needed.

The headline annual PCE story isn’t quite so encouraging, but does add modestly to evidence of waning inflation. The five percent yearly increase is significantly lower than the peak of seven percent hit in June. But the June baseline rate was only four percent. December’s was 5.8 percent.

Better news comes from the comparison between November and December. Between those two months this year, annual headline PCE inflation fell from 5.5 percent to five percent. The baseline figure rose – but not by as much (just 5.6 percent to 5.8 percent).

Because for the trends, anyway, these PCE inflation figures so closely resemble their CPI counterparts, my outlook for future price increases has remained the same as when I posted most recently on the latter:  a shallow recession followed by a (possibly long) period of 1970s-style stagflation (with twenty-first century characteristics, as the Chinese might say, to be sure).     

(What’s Left of) Our Economy: Signs of the Wrong Kind of Inflation Progress

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baseline effect, Biden administration, core PPI, cost of living, energy prices, Federal Reserve, food prices, inflation, PPI, Producer Price Index, producer prices, recession, SPR, stimulus, Strategic Petroleum Reserve, wholesale inflation, {What's Left of) Our Economy

Yesterday’s official U.S. report on wholesale price inflation (for December) finally contained some modest signs of genuine cooling, but that’s not necessarily good news. The biggest reason seems to be a significant slowing in the nation’s economic growth and further confirmation that America remains far from creating a truly healthy economy – one that can expand adequately without either racking up towering debts or, more recently, igniting decades-high price increases.

As I’ve written previously, changes in this Producer Price Index (PPI) influence changes in consumer prices, but the relationship is more complex than often thought. Because wholesale prices represent costs for producing the goods and services that businesses sell to each other and to consumers, companies understandably try to pass increases on to their final customers – but can’t always do so.

That’s because the final result depends on these customers’ buying power. If they’ve got lots of it, chances are they’ll pay up, enabling businesses to preserve and even boost profits. If they don’t, they won’t, and margins will suffer with one big caveat – the ability of the sellers to become more efficient, and generate cost-savings elsewhere.

At the same time, if final customers feel flush with cash and/or credit, the businesses that supply them won’t necessarily, or even often, cut their selling prices if their costs decrease or stabilize. Why should they? With certain exceptions (like a prioritizing gaining market share), they’ll naturally charge whatever their customers seem willing to pay. 

And because some major signs of mounting economy-wide weakness have appeared recently (especially falling consumer spending), that new evidence of softer wholesale prices seems to add to the evidence that a recession of some kind is looming.

The best wholesale inflation news came in the new monthly numbers. The headline figure actually fell by 0.50 percent between November and December. That’s the most encouraging such result since this PPI dropped 1.29 percent sequentially in April, 2020 – when the CCP Virus’ first wave plunged the economy into a short but steep slump.

The core figure (which strips out food, energy, and a category called trade services, supposedly because they’re volatile for reasons largely unrelated to the economy’s fundamental vulnerability to inflation), did rise month-to-month, but only by a tiny 0.09 percent. That was the best such result since a fractionally lower figure in November, 2020.

Almost as good, the revisions for both for recent months didn’t meaningfully change this picture – though they do remind that PPI data can change non-trivially during the several months when they’re still considered preliminary.

The annual headline and core PPI figures did exhibit something of the baseline effect that always should be kept in mind when evaluating economic trends. That is, it’s essential to know whether improvements of worsening of data merely represent returns to a longer-term norm after stretches of abnomality. In the case of post-CCP Virus inflation readings, the big spike in price increases that began in early 2021 largely reflected a (ragged) normalization of economic activity and business pricing power that followed many months in 2020 when both were unusually subdued.

But for both measures of wholesale prices, the baseline effect appeared to be fading. For headline PPI, the December annual increase was 6.22 percent – the best such result since March, 2021’s 4.06 percent, and a big decline from November’s downwardly revised 7.34 percent. The baseline figure (headline annual PPI from December, 2020 through December, 2021) was a terrible 10.18 percent. But it was only slightly higher than its November counterpart of 9.94 percent.

Since the scariest aspect of inflation is its tendency to feed on itself, and keep spiraling higher, that feeble increase in the baseline figure over the last two months could well signal a loss of momentum. 

The annual core PPI statistics tell an almost identical story. The latest annual December increase of 4.58 percent was considerably lower than November’s upwardly revised 4.91 percent, and the best such result since May, 2021’s 5.25 percent. But the December baseline increase of 7.09 percent was barely faster than November’s 7.03 percent.

At the same time, the same kinds of big questions that hang over the consumer inflation figure hang over the wholesale inflation figure. For example, the annual increase in wholesale energy prices nosedived last year from 57.05 percent in June to just 8.58 percent in December. On a monthly basis, they’ve plummeted in absolute terms since June by 21.18 percent.

But these impressive results stemmed mainly from historically large releases of oil from the nation’s Strategic Petroleum Reserve (which of course expanded supply) and the Chinese economic growth that was severely depressed by dictator Xi Jinping’s wildly over-the-top Zero Covid policy. and therefore dampened global oil demand enough to affect prices in the United States.

The petroleum reserve, however, is now down to its lowest level in 39 years, which explains why far from contemplating further sales, the Biden administration is now slowly starting to refill it. Morever, China has now decided (for now) to reopen its economy, which will again put upward pressure on energy prices.

In addition, one lesson that Americans should have learned from this latest spell of inflationis that wages and other forms of income (including investment income) are hardly the only sources of consumer buying power. The government can supply oceans of it, too, and as I wrote yesterday, it’s entirely possible that U.S. politicians and Federal Reserve officials become recession-phobic that they decide to subsidize Americans’ buying power again. Hence my medium-term forecast of stagflation – a stretch of uncomfortably low growth and stubbornly high prices. 

That’s certainly better than a future of continually rising inflation. But anyone describing the current and likely economic situation facing Americans as “good” is using a depressingly low bar.

(What’s Left of) Our Economy: Today’s Really Recession-y U.S. Manufacturing Production Report

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aircraft, aircraft parts, Federal Reserve, machinery, manufacturing, medical devices, medical equipment, miscellaneous transportation equipment, nonmetallic mineral products, output, petroleum and coal products, pharmaceuticals, primary metals, printing, production, real output, recession, semiconductors, soft landing, {What's Left of) Our Economy

A U.S. recession is either imminent or already here – that’s the main message being strongly suggested by today’s release by the Federal Reserve on inflation-adjusted manufacturing production (for December).

Not only did industry’s real output sink by 1.30 percent sequentially – the worst such result since February, 2021’s 3.64 percent weather-affected plunge. But November’s initially reported 0.62 percent retreat was revised down to one of 1.10 percent.

Two straight monthly drops of one percent or more each haven’t been recorded by U.S.-based manufacturers since the February through April, 2020 period – when the arrival of the CCP Virus began roiling American life and the national economy, and indeed threw the latter into a deep downturn.

The new figures pushed price-adjusted U.S. manufacturing production into contraction for full-year 2022 – by 0.41 percent. That’s a major deterioration from the 4.19 percent constant dollar gain in 2021 – the strongest such showing since the 6.48 percent achieved in 2010, during the recovery from the Global Financial Crisis and ensuing Great Recession.

Moreover, since just before the pandemic arrived in force in the United States (February, 2020), after-inflation manufactuing has now grown by just 1.21 percent. As of last month’s industrial production release, this figure stood at 3.07 percent.

Of the twenty broadest manufacturing sub-sectors tracked by the Fed, only three boosted monthly inflation-adjusted production in December: aeropace and miscellaneous transportation equipment (0.96 percent), primary metals (0.84 percent), and nononmetallic mineral products (0.65 percent).

The biggest losers among their 17 other counterparts were machinery and printing and related support activities (3.37 percent each), and petroleum and coal products (3.13 percent).

Especially concerning, and continuing a pattern identified last month – for machinery and printing, these results were the worst since April, 2020, at the peak of the CCP Virus’ devastating first wave, when their real output collapsed month-to-month by 18.64 percent and 23.10 percent, respectively. Meanwhile, the monthly decrease in petroleum and coal products was its biggest since weather-affected February, 2021.

And as known by RealityChek regulars, machinery’s tumble last month is a particularly bright red flag. Because its products are used so widely in sectors inside and outside of manufacturing – including by growing companies or firms counting on continued or faster growth – its fortunes are seen as a good predictor of the economy’s future. Therefore, a big machinery production decrease (the second in a row) could well mean that business activity across the national board is at least slowing markedly and won’t be reviving any time soon.

The December numbers were only somewhat better for sectors of special interest since the CCP Virus’ arrival stateside. Sequential increases were registered in pharmaceuticals and medicine (by 1.10 percent) and aircraft and parts (by 1.49 percent). But price-adjusted output fell in automotive (by 1.03 percent), the shortage-plagued semiconductor industry (by 1.20 percent), and the medical equipment and supplies sector that encompasses products heavily used to fight the pandemic (by 2.50 percent).

In addition, the slippage in medical equipment and supplies was one of those that was the greatest since the peak of the CCP Virus’ first wave (when it nosedived by 17.76 percent).

Since manufacturing is only about fifteen or sixteen percent of the total U.S. economy (depending on how you count output), a downturn in industry doesn’t necessarily presage an overall recession. But the new industrial production statistics aren’t the only signs of shrinkage. Consumer spending comprises nearly 71 percent of the economy according to the latest (third quarter, 2021) data, and today’s advance official retail sales report (for December) indicates that they’ve now fallen consecutively for two months. Possibly weaker inflation (indicated most recently by today’s wholesale price report, which I’ll post about tomorrow), also signals gloomy times ahead.

Since the new Fed manufacturing production results will be revised several times over the next few months, it’s possible that the real picture in industry could brighten somewhat. But likelier, in my view (as I wrote yesterday), is for a recession-averse Washington to move to stimulate consumer spending without seeking similar results for production – in other words, a time-tested formula for stagflation at best for the foreseeable future.

P.S. As alert readers may have noticed, this post contains many fewer manufacturing production details than its recent predecessors. My aim is to ensure that I can get this info to you on a same-day basis. Do you like this simpler format better? Or should I return to going deeper into the weeds? Please let me know if you get a chance.         

        

(What’s Left of) Our Economy: Why the Really Tight U.S. Job Market Isn’t Propping Up Much Inflation

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CCP Virus, consumer spending, consumers, coronavirus, cost of living, COVID 19, Federal Reserve, headline PCE, inflation, inflation-adjusted wages, interest rates, Jerome Powell, monetary policy, PCE, personal consumption expenditures index, prices, recession, stagflation, stimulus, wages, {What's Left of) Our Economy

It’s been widely assumed that even though very tight U.S. labor markets haven’t yet touched off the kind of wage-price spiral that can supercharge inflation, they’ve been helping consumers offset the effects of rapidly rising prices – and therefore helping to keep living costs worrisomely high.

The intertwined reasons? Because even though when adjusted for inflation, wages generally have been falling since price increases took off in early 2021, rock-bottom unemployment rates and the wage hikes that have been received have enabled healthy consumer spending – and given business unusual pricing power.

Most important, this is what the Federal Reserve believes, and it’s the federal government institution with the prime responsibility for fighting inflation. According to Chair Jerome Powell, “demand for workers far exceeds the supply of available workers, and nominal wages have been growing at a pace well above what would be consistent with 2 percent inflation over time.”

For good measure, Powell said that the labor market “holds the key to understanding inflation” especially in U.S. services industries other than housing, which make up more than half of the set of inflation data favored by the Fed, and where “wages make up the largest cost.”

How come, then, when you look at the wage data put out by the federal government, it’s so hard to find evidence that recent wage levels have significantly bolstered U.S. workers’ spending power during this current high inflation period?

Given the Fed’s power, it makes sense to use the inflation measure it values most – which as RealityChek regulars know is the Personal Consumption Expenditures (PCE) Price Index. As the Fed prefers, we’ll focus on the “headline” gauge, which includes the food and energy prices that are stripped out of a different (“core”) reading supposedly because they’re volatile for reasons having nothing to do with the economy’s underlying prone-ess to inflation.

And for the best measure of the wages workers are taking home, we’ll use weekly wages. What they show is that since the headline PCE rate first breached the central bank’s two percent target, in March, 2021, inflation-adjusted weekly pay (as opposed to the pre-inflation wages Powell oddly emphasizes) is actually down – by 4.60 percent. For production and non-supervisory workers (call them “blue collar” workers for convenience’s sake), real weekly wages were off by a more modest but still non-trivial 3.52 percent.

And this has propped up American consumer spending exactly how?

The Fed actually looks more closely at a wider official measure of compensation than the wage figures. It’s called the Employment Cost Index (ECI) and it takes into account salaries as well as wages, along with non-wage benefits. The ECI only comes out quarterly, and the next one, for the fourth quarter,of last year, won’t be out till January 31. But from the second quarter of 2021 (roughly when headline annual PCE inflation rose higher than that two percent Fed target) through the end of the third quarter of 2022, the ECI for private sector workers) also dropped in after-inflation terms – by 2.39 percent.

But if American workers’ pay isn’t doing much to power their still-strong consumption, what is? Obviously, the answer is mainly the excess savings piled up thanks to pandemic stimulus programs and government measures aimed at…compensating them for high inflation.

When it comes to fighting inflation, there’s good news stemming from the status of these enormous amounts of cash injected into American bank accounts: They’re being run down significantly or are just about gone for everyone except the wealthy. That no doubt explains much of the recent evidence of the cooling of the white hot levels of consumer demand that filled so many businesses with confidence that they could jack up prices dramatically are cooling, and why headline PCE is showing some signs of ebbing.

The bad news remains what it always has – that meaningfully reduced consumer spending, combined with the Fed’s continued stated determination to keep increasing the price of the borrowing that spurs so much spending, could trigger more unemployment, even worse wage trends, and a possibly painful recession.

Yet as I wrote in that above-linked RealityChek post, the $64,000 questions that will determine inflation’s fate remains unanswered: Will recession fears lead the Fed to chicken out, and at least pause its inflation-fighting interest rate increases? And will Congress and the Executive Branch decide to ride to the rescue as well, with new politically popular stimulus programs – which are likely to stimulate inflation, too?  My answer remains a pretty confident “Yes,” which is why my forecast for the economy calls for a short, fairly shallow downturn followed by a significant stretch of “stagflation” – sluggish growth and above-Fed-target inflation.   

(What’s Left of) Our Economy: Why the U.S. Inflation Outlook Just Got Even Cloudier

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CCP Virus, China, consumer price index, consumers, core CPI, coronavirus, cost of living, COVID 19, CPI, energy prices, Federal Reserve, food prices, inflation, Jerome Powell, prices, recession, stagflation, stimulus, supply chains, Ukraine War, Wuhan virus, {What's Left of) Our Economy

If the big U.S. stock indices didn’t react enthusiastically to yesterday’s official American inflation figures (which were insensitively released the very day I had a minor medical procedure), that’s because they were too mixed to signal that consumer prices were finally being brought under control.

Lately, good news on inflation-fighting has been seen as good news for stock investors because it indicates that the Federal Reserve may at least pause its campaign to hike interest rates in order to slow economic growth significantly– and even trigger a recession. That’s because a weaker economy means consumers will have less money to spend and that businesses therefore will find it much harder to keep raising prices, and even to maintain prices at currently lofty levels. And all else equal, companies’ profits would take a hit.

So already softening inflation could convince the central bank that its efforts to date have been good enough, and that its goal of restoring price stability can be achieved without encouraging further belt tightening – and more downward pressure on business bottom lines.

Of course, stock investors aren’t always right about economic data. But their take on yesterday’s figures for the Consumer Price Index (CPI), which cover December. seems on target.

The data definitely contained encouraging news. Principally, on a monthly basis, the overall (“headline”) CPI number showed that prices actually fell in December – by 0.08 percent. That’s not much, but this result marks the first such drop since July’s 0.02 percent, and the biggest sequential decline since the 0.92 percent plunge recorded in April, 2020, when the economy was literally cratering during the CCP Virus’ devastating first wave. Further, this latest decrease followed a very modest 0.10 percent monthly increase in November.

So maybe inflation is showing some genuine signs of faltering momentum? Maybe. But maybe not. For example, that CPI sequential slip in July was followed by three straight monthly increases that ended with a heated 0.44 percent in October.

Moreover, core CPI accelerated month-to-month in December. That’s the inflation gauge that strips out food and energy prices because they’re supposedly volatile for reasons having little or nothing to do with the economy’s underlying inflation prone-ness.

December’s sequential core CPI rise was 0.30 percent – one of the more sluggish figures of the calendar year, but a rate faster than a November number of 0.27 percent that was revised up from 0.20 percent. Therefore, these last two results could signal more inflation momentum, not less.

In addition, as always, the annual headline and core CPI numbers need to be viewed in light of the baseline effect – the extent to which statistical results reflect abnormally low or high numbers for the previous comparable period that may simply stem from a catch-up trend that’s restoring a long-term norm.

Many of the multi-decade strong year-to-year headline and core inflation rates of 2021 came after the unusually weak yearly results that stemmed from the short but devastating downturn caused by that first CCP Virus wave. Consequently, I was among those (including the Fed) believing that such price rises were “transitory,” and that they would fade away as that particular baseline effect disappeared.

But as I’ve posted (e.g., last month), that fade has been underway for months, and annual inflation remains powerful and indeed way above the Fed’s two percent target. The main explanations as I see it? The still enormous spending power enjoyed by consumers due to all the pandemic relief and economic stimulus approved in recent years, and other continued and even new major government outlays that have put more money into their pockets (as listed toward the end of this column).

(A big hiring rebound since the economy’s pandemic-induced nadir and rock-bottom recent headline unemployment rates have helped, too. But as I’ll explain in an upcoming post, the effects are getting more credit than they deserve.)

And when you look at the baselines for the new headline and core CPI annual increases, it should become clear that after having caught up from the CCP Virus-induced slump, businesses still believe they have plenty of pricing power left, which suggests at the least that inflation will stay high.

Again, here the inflation story is better for the annual headline figure than for the core figure. In December, the former fell from November’s 7.12 percent to 6.42 percent – the best such number since the 6.24 percent of October, 2021, and the sixth straight weakening. The baseline 2020-2021 headline inflation rate for December was higher than that for November (6.83 percent versus 7.10 percent), and had sped up for four consecutive months. But that November-December 2020-2021 increase was more modest than the latest November-December 2021-2022 decrease, which indicates some progress here.

At the same time, don’t forget that the 6.24 percent annual headline CPI inflation of October, 2020-2021 had a 2019-2020 baseline of just 1.18 percent. Hence my argument that businesses today remain confident about their pricing power even though they’ve made up for their pandemic year weakness in spades.

In December, annual core inflation came down from 5.96 percent to 5.69 percent. That was the most sluggish pace since December, 2020-2021’s 5.48 percent, but just the third straight weakening. But the increase in the baseline number from November to December, 2021 was from 4.59 percent to that 5.48 percent – bigger than the latest November-December decrease. In other words, this trend for core CPI is now running opposite it encouraging counterpart for headline CPI.

Finally, as far as baseline arguments go, that 5.48 percent December, 2021 annual core CPI increase followed a baseline figure the previous year of a mere 1.28 percent. Since the new annual December rate of 5.69 percent comes on top of a rate more than four times higher, that’s another sign of continued business pricing confidence.

But the inflation forecast is still dominated by the question of how much economic growth will sink, and how the Fed in particular will react. And the future looks more confusing than ever.

The evidence for considerably feebler expansion, and even an impending recession, is being widely cited. Indeed, as this Forbes poster has reported, “The Federal Reserve Bank of Philadelphia’s Survey of Professional Forecasters indicates the highest probability of a recession over the next 12 months in the survey’s 55-year history.”

If they’re right, inflation may keep cooling modestly for a time but still remain worrisomely warm. And the Fed may react either by keeping interest rates lofty for longer than expected – as Chair Jerome Powell has already said – or even raise them faster. 

Nonetheless, although the recession that did take place during the first and second quarters of last year convinced numerous observers that worse was yet to come, the third quarter saw a nice bounceback and the fourth quarter could be even better. So if a downturn is coming, it will mean that economic activity will need to shrink very abruptly. Hardly impossible, but hardly a sure thing.

And if some form of economic nosedive does occur, it could prompt the Fed to hold off or even reverse course to some extent, even if price increases remain non-trivial. A major worsening of the economy may also lead Congress and the Biden administration to join the fray and approve still more stimulus to cushion the blow.

Complicating matters all the while – the kind of monetary stimulus added or taken away by the central bank takes months to ripple through the economy, as the Fed keeps emphasizing.  Some of the kinds of fiscal stimulus, like the pandemic-era checks, work faster, but others, like the infrastructure bill and the huge new subsidies for domestic semiconductor manufacturing will take much longer.

Additionally, some of the big drivers of the recent inflation are even less controllable by Washington and more unpredictable than the immense U.S. economy – like the Ukraine War’s impact on the prices of energy and other commodities, including foodstuffs, and the wild recent swings of a range of Chinese government policies that keep roiling global and domestic supply chains. 

My own outlook? It’s for a pretty shallow, short recession followed by a comparably moderate recovery and all accompanied by price levels with which most Americans will keep struggling. Back in the 1970s, it was called “stagflation,” I’m old enough to remember that’s an outcome that no one should welcome, and it will mean that the country remains as far from achieving robust, non-inflationary growth as ever.  

(What’s Left of) Our Economy: 2022’s U.S. Manufacturing Employment Winners and Losers

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automotive, durable goods, Employment, Federal Reserve, inflation, Jobs, manufacturing, nondurable goods, nonfarm jobs, private sector, recession, soft landing, {What's Left of) Our Economy

The release last Friday of the December official U.S. jobs report enables students of the economy to examine developments over the last full year, and that includes the biggest employment winners and losers in domestic manufacturing.  (Here‘s my analysis on the latest monthly manufacturing jobs data.) 

Below are the results for the broadest manufacturing categories tracked by the government, along with the durable and nondurable goods super-categories, both in absolute terms and in relative (percentage) terms. Because its fortunes have so strongly influenced those of all domestic industry, the data for the narower automotive sector will be presented as well.

(As known by RealityChek regulars, the numbers for other narrower sectors of special importance since the CCP Virus arrived stateside in force, like certain medical equipment and pharmaceuticals and semiconductors, are always one month behind. So year-on-year changes for full year 2022 won’t be available until next month.)

As with all U.S. government data, the figures below will be revised several times more. But unless the upgrades and downgrades are enormous, the year will have been marked by several important trends and comparisons with the 2021 data. In particular:

>manufacturing employment from December, 2021 through December, 2022 grew by exactly the same percent (3.02) as employment in the non-farm economy as a whole – the government’s definition of the entire economy;

>between December, 2020 and December, 2021, manufacturing job creation trailed hiring in the non-farm economy by 4.73 percent to 2.99 percent;

>between December, 2021 and December, 2022, head counts in the private sector as a whole expanded by 3.31 percent – also faster than manufacturing’s pace – but that result represented a smaller margin versus manufacturing than in 2021, when private sector payrolls expanded by 5.21 percent;

>in 2022, payrolls increased faster in durable goods (3.29 percent) than in nondurable goods (2.57 percent);

>in 2021, the durable goods edge was a smaller 3.11 percent versus 2.80 percent; 

>on a percentage basis, 2022 manufacturing job growth was broad-based. Of the 20 broad industry groupings tracked by the federal government, 15 generated additional hires and ten boosted their workforces by between two and four percent; and

>2021’s manufacturing employment increases were even broader based, however, as only the petroleum and coal products sector cut jobs.  But the spread among sectors was greater, as only eight fell into the two-four percent growth range.   

And now, the absolute yearly changes in manufacturing employment in 2022 and 2021, with the former listed in order from best performance to worst:

                                                                       2022                    2021

manufacturing total                                     379,000               365,000

durable goods                                              257,000               236,000

nondurable goods                                        122,000               129,000

transportation equipment                               90,800                 50,400

food manufacturing                                       59,100                  29,200

fabricated metal products                              43,900                  46,000

machinery                                                      41,000                  27,500

chemicals                                                       31,000                  26,300

computer & electronics products                   30,200                  14,600

miscellaneous nondurable goods                   18,400                  40,300

plastics & rubber products                             16,700                  20,100

miscellaneous durable goods                         15,600                  31,700

wood products                                                12,000                  16,900

non-metallic mineral products                       14,200                    3,300

primary metals                                                 9,900                  11,600

electrical equipment & appliances                   7,500                 17,500

paper & paper products                                    5,200                      800

printing & related support activities                   300                   7,000

apparel                                                               -300                   2,100

petroleum & coal products                             -1,600                  -4,400

textile mills                                                     -3,400                   3,900

textile product mills                                        -3,500                   4,000

furniture & related products                            -8,000                15,600

20-21 absolute changes

And here are those percentage changes, with the 2022 results again listed from best performance to worst:

                                                                           2022                   2021

manufacturing total                                            3.02                    2.99

durable goods                                                     3.29                    3.11

nondurable goods                                               2.57                    2.80

transportation equipment                                   5.43                     3.11

miscellaneous nondurable goods                       5.42                  13.46

machinery                                                          3.84                    2.64

food manufacturing                                           3.56 `                  1.79

chemicals                                                           3.53                    3.09

non-metallic mineral products                           3.48                    0.81

fabricated metal products                                   3.11                   3.37

wood products                                                    2.87                   4.21

computer & electronics products                       2.83                   1.39

primary metals                                                   2.78                   3.36

miscellaneous durable goods                             2.49                   5.33

plastics & rubber products                                 2.21                   2.82

electrical equipment & appliances                     1.86                   4.55

paper & paper products                                      1.48                   0.23

printing & related support activities                   0.08                   1.91

apparel                                                               -0.32                   2.28

petroleum & coal products                                -1.52                  -4.01

furniture & related products                              -2.09                   4.24

textile product mills                                           -3.32                   3.94

textile mills                                                        -3.39                   4.05

As for the automotive sector, which is placed within the broader transportation equipment category, it added 54,200 workers in 2022, a 5.50 percent advance. So among the above industries, on a percentage basis, it takes the job creation crown for industry during the past year.  Vehicle and parts makers enjoyed a strong 2021 employment-wise, too, enlarging their workforce by 4.05 percent, or 38,300.

A final noteworthy point: Manufacturing’s hiring performance doesn’t seem to have been strongly related to its production growth. In 2021, when industry’s payrolls expanded by 2.99 percent, its inflation adjusted output rose by 4.19 percent. But last year, when manufacturers upped their headcounts by 3.02 percent, their real production annual growth (through November – the lastest data available) slowed to 1.40 percent.

This year, the economy could well tip into recession, or perhaps at best achieve the “soft landing” sought by the Federal Reserve in its fight against inflation. In other words, U.S.-based manufacturers could well face a new test of the growth and hiring resilience they’ve shown so far since the pandemic’s arrival.            

(What’s Left of) Our Economy: What a U-Turn for the U.S. Trade Deficit!

Tags

CCP Virus, China, coronavirus, expansion, exports, Federal Reserve, GDP, goods trade, gross domestic product, imports, inflation, manufacturing, non-oil goods trade deficit, pandemic, recession, services trade, supply chains, Trade, trade deficit, {What's Left of) Our Economy

As this morning’s stunning official U.S. international trade figures (for November) made clear, the CCP Virus pandemic really wasn’t over yet near the end of last year – at least when it came to China. The steep monthly drop in the November overall trade gap stemmed largely from the Chinese dictatorship’s erratic response to a new tidal wave of virus cases. Beijing at first ordered a series of new shutdowns in numerous major cities, and then abruptly tried reversing course following widespread protests from an outraged and pandemic-and lockdown-exhausted Chinese citizenry.

The resulting turmoil and confusion depressed the Chinese economy – including the export-focused sectors that had led the country to serve as the “world’s factory.”

At the same time, the renewed disruption of China-centric global supply chains only accounted for a little less than half of the November U.S. trade balance’s sequential improvement. And at least as strikingly, the combined goods and services shortfall cratered even though by most accounts the U.S. economy’s growth accelerated late last year. More surprising still, growth appears to have sped up in November – and during the rest of the quarter – even as imports fell off the table.

As known by RealityChek regulars, it’s been rare for the deficit to tumble when the gross domestic product (GDP – the standard measure of the economy’s size) increases, and largely because American expansion typically means that both U.S. consumers and businesses are stepping up their historically robust importing. Much more common are deficit drops mainly due to the economy sagging and this importing tailing off.

As the U.S. recession during the first half of last year came to an end, America’s trade performance racked up a short winning streak during which the trade gap shrank and – even better – exports increased and imports decreased. That’s “even better” because an economy that’s importing less and exporting more is one that’s growing less because of borrowing and spending and more because of producing.  Early in the third quarter, though, the return of growth seemed to start reproducing the standard pattern during which rising imports boosted the deficit.

November’s results sharply reversed that latest trend – to put it mildy. The overall deficit sank month-to-month in November by a whopping 20.93 percent. That’s the biggest fall-off since February, 2009’s (26.85 percent), when the economy was still mired in the Great Recession triggered by the Global Financial Crisis of 2007-08. And the $61.51 billion level (down from October’s $77.85 billion) is the lowest monthly figure since the $59.11 billion in September, 2020, when the economy was recovering from the first CCP Virus wave.

Total exports were off sequentially in November, but only by two percent, from $256.996 billion to $251.864 billion. That was the third straight decline, the biggest since January’s 2.01 percent, and the lowest monthly figure since April’s $244.230 billion. But given the sluggishness of the rest of the global economy, and the unusually level of the U.S. dollar then (which undermines the price competitiveness of U.S.-origin goods and services at home and abroad), this decrease seems pretty modest.

The bigger move by far was in total imports, which plunged by 6.41 percent, from $334.843 billion to $313.374 billion. The decrease was the biggest in percentage terms since the 13.16 percent nosedive of April, 2020, when the pandemic and its economic effects were at their worst in the United States.

The China effect was certainly a huge contributor. The U.S. goods gap with the People’s Republic (country-specific services data take much longer to release) slumped by fully 26.23 percent, from $28.87 billion to $21.30 billion. This $7.57 billion difference represented 46.33 percent of the $16.34 billion monthly improvement in the total trade deficit in November. For good measure, the sequential plunge was the greatest since the 38.93 percent nosedive of February, 2020 (when China was still struggling with the first virus outbreak), and the monthly total the lowest since April, 2020’s $22.30 billion.

And goods imports from China fell sequentially in November by $7.70 billion, from $44.57 billion to $36.88 billion. That decrease of 17.27 percent was steepest since the 31.47 percent collapse in February, 2020, and the monthly total the most modest since March, 2020’s $19.64 billion.

But as a result, more than half of the spectacular monthly drop in the November combined goods and services deficit came from other trade flows, as did 64.13 percent of the month’s total import decline of $21.47 billion.

More evidence that the monthly trade shortfall’s decrease was spurred by much more than China’s troubles: The U.S..global non-oil goods trade gap, the closest proxy to U.S.-China goods trade, was off by $15.21 billion on a monthly basis in November (more than twice the amount of the $7.57 billion decline in the U.S.-China deficit). And non-oil goods imports tumbled by $19.87 billion month-to-month in November – some two and a half times the amount of the $7.70 billion drop in goods imports from China.

In other noteworthy November trade developments, the U.S. goods deficit drooped by 15.44 percent on month, from $99.40 billion to $84.05 billion. That figure is the lowest since December, 2020’s $83.20 billion and the decrease the biggest relatively speaking since the 20.79 percent in Great Recession-y February, 2009.

The long-time surplus in services, the biggest sector of the U.S. economy, and a cluster of industries hit especially hard by the pandemic and its resulting economic damage, rose 4.60 percent, from $21.55 billion to $22.54 billion.  That monthly total was the highest since February, 2021’s $23 billion.

The November slippage in goods exports of 3.03 percent, from $176.16 billion to $170.82 billion, was the largest in percentage terms since the 3.34 percent of September, 2021.

Goods imports dropped 7.51 percent, from $275.56 billion to $254.87 billion. That total was the lowest since October, 2021’s $243.85 billion and the percentage decline the greatest since the 12.79 percent in pandemic-y April, 2020.

Services exports inched up by just 0.26 percent sequentially in November, but the $81.05 billion total was the eighth straight record, and the monthly advance the tenth in a row.

The huge, chronic trade deficit in manufacturing sank from $134.73 billion in October to $115.72 billion, with that November level the best since February’s $106.49 billion – when the last economic downturn had begun. And the sequential retreat of 14.11 percent was the greatest since the 23.09 percent in Great Recession-y February, 2020.

Manufacturing exports were down 4.71 percent on month, from $110.44 billion to $105.24 billion, and manufacturing imports plummeted by 9.88 percent, from October’s $245.17 million (the second worst monthly total ever, behind March’s $256.18 billion), to $220.95 billion.

On a year-to-date basis, however, the manufacturing deficit of $1.3902 trillion has already passed last year’s annual record of $1.3298 trillion, and is running 15.49 percent ahead of the 2021 pace.

Even by CCP Virus-era standards, the November U-turn taken by the trade deficit has rendered the U.S. economic outlook awfully fuzzy. Economists seem pretty confident that the economy is headed for a recession soon, but the latest prominent forecast shows that growth heated up notably between last year’s third and fourth quarters. So if a downturn really is imminent, it’s going to come incredibly abruptly.

That should improve the trade deficit further. But what if the Federal Reserve chickens out and decides to halt or just pause its strategy of cooling inflation by slowing growth significantly because…it becomes clear that the tightening it’s already pursued has begun slowing growth? What if all the money Washington has put into consumers’ pockets continues to fuel robust spending – which tends to pull in more deficit-widening imports? But if so, how come growth has been so much better in the second half of the year even as Americans’ purchases from abroad now look like they’re tanking?

And will China finally get control over the pandemic, and return its economy to some semblance of normalcy?

The answers to those questions seem to be way above any mortal’s pay grade.  And although I’m in the “recession’s coming” camp, so far, the economy doesn’t seem to care.  As a result, I’ll be following the incoming trade and other economic data unusually closely – and with unusual humility.      

(What’s Left of) Our Economy: New Official Data Show U.S. Inflation is Far From Whipped

Tags

baseline effect, core PCE, cost of living, energy prices, Federal Reserve, food prices, Gerald R. Ford, inflation, PCE, personal consumption expenditures index, recession, soft landing, Whip Inflation Now, {What's Left of) Our Economy

There’s a new reason emerging for doubting that recent official U.S. inflation figures are showing real progress being made against rising prices, and today’s release of the numbers the Federal Reserve takes most seriously are a great example. The reason? The results of previous reports – which have generated so much of the optimism (see, e.g., here) – have often been revised higher.

This morning’s data from the Commerce Department on what’s called the price index for Personal Consumption Expenditures (PCE) matter greatly. After all, the Fed is the government agency mainly responsible for keeping inflation under control. If its officials are convinced that price increases are indeed cooling significantly, they could in principle decide to stop raising interest rates and/or draining the money supply so vigorously in order to tame inflation by dramatically slowing growth and hiring.

Signs of real success, in other words, could boost the odds that the Fed’s efforts to slash consumer spending bring the economy to a soft landing – either a short, moderate growth slowdown or brief, shallow recession – rather than trigger a longer, deeper downturn. But if the Fed isn’t satisfied with anti-inflation progess, then it’s likelier to turn the clamps even tighter, and increase the chances of a painful recession or worse.

And those of you who follow the news closely know that many students of the economy (e.g., this fellow) have been insisting that inflation rates have already come down so impressively that the Fed’s stated determination to continue its restrictive policies could inflict much needless damage.

As known by RealityChek regulars, my doubts that inflation is being whipped have sprung largely from examining the baseline effect. Specfically, I look at the year-on-year results to see how they compare to those of the year before. If the former look abnormally high but the latter are abnormally low, then the most recent lofty results can be reasonably attributed to a catch up process that will simply result in price increases returning to a typical (and presumably acceptable) rate.

But if back-to-back annual inflation rates are both strong, even if these latest yearly results seem to be slowing with each passing month, then it’s just as reasonable to conclude that unacceptably high inflation retains strong momentum. And in recent months, that’s exactly what the situation has been – including today’s figures, which take the story through November.

So it’s true that November’s headline annual PCE inflation rate of 5.5 percent was the lowest since October, 2021’s 5.1 percent, and a sizable weakening from October’s 6.1 percent. But in October, 2021, when annual headline PCE was running at that 5.1 percent pace, the baseline figure headline PCE for October, 2019-2020 was 0.1 percent.

It was obvious to me, therefore, that late last year, prices were rising at rates needed to make up for the rock-bottom inflation rates of the year before, when the economy was kneecapped by the CCP Virus pandemic. That’s why I believed at that point that high inflation was “transitory.” (So did the Fed.) But it’s just as obvious that a 5.5 percent November, 2021-22 PCE inflation rate following a 5.6 percent rate between the previous Novembers means that a catch up phase has ended, and that businesses still believe they have ample scope to keep charging their customers more and more.

Adding to my concerns: That October headline annual PCE inflation rate of 6.1 percent followed a yearly rise between the previous Octobers of 5.1 percent. And then there are those revisions. That latest 6.1 percent October figure was originally reported at six even. September’s initially reported 6.2 percent now stands at 6.3. Same for August. So no one can reasonably rule out an upgrade for the November results.

The core annual PCE results tell a similar story. These data omit food and energy prices, supposedly because they’re volatile for reasons having nothing to do with the economy’s fundamental prone-ness to inflation. And the November read of 4.7 percent was the lowest since July’s identical figure, and a seemingly comforting decrease from October’s five percent.

But the baseline figure for annual November core PCE is an identical 4.7 percent – significantly higher than both October’s 4.2 percent and July’s 3.6 percent.

Moreover, upward revisions have been made recently here, too. For example, September’s initially reported 5.1 percent annual core PCE inflation is now recorded at 5.2 percent. And June’s initially reported 4.8 percent was revised up to five percent. Let’s see what the next PCE report does with today’s November figure.

The revisions have been noteworthy in the monthly PCE figures, too. November’s headline PCE rose sequentially by 0.1 percent – the best such result since July’s 0.1 percent dip, and decidedly weaker than October’s 0.4 percent. But that October result was originally pegged at 0.3 percent. Therefore, between July and October, headline PCE heated up significantly on a monthly basis. Does November signal the beginning of a sequential cooling trend? Stay tuned.

Revisions figure even more prominently in the monthly core PCE readings. November’s 0.2 percent sequential advance was also the best result since July – when it rose just 0.1 percent. It, too, was better than October’s 0.3. But October’s monthly core PCE used to be 0.2. That July advance used to be a flatline. And August’s initially reported 0.5 percent rise is now judged to have been one of 0.6 percent. So the real November figure could well be higher, too.

During the 1970s, then President Gerald R. Ford tried to deal with that era’s cost of living crisis by fostering a grassroots campaign called “Whip Inflation Now.”  Pretending today that the data are showing the anti-inflation war already won or nearly over is likely to flop just as badly. 

(What’s Left of) Our Economy: New Official Manufacturing Output Figures Add to Recessionary Gloom

Tags

aerospace, aircraft, aircraft parts, appliances, automotive, computer and electronics products, electrical components, electrical equipment, Federal Reserve, furniture, inflation-adjusted growth, machinery, manufacturing, medical supplies, pharmaceuticals, plastics and rubber products, printing, real growth, semiconductors, transportation equipment, wood products, {What's Left of) Our Economy

Yesterday’s Federal Reserve report on U.S. manufacturing production (taking the story through November) tells me that domestic industry’s inflation-adjusted output is rolling over into contraction – and not just because it fell last month for the first time since June. As I’ll spotlight below, it was also disturbing to see multi-month worsts in industries where such output has been remarkably stable lately, and sequential drops in some other sectors that were the biggest since the peak of the CCP Virus pandemic’s hit to the economy in April, 2020.

Production in real terms by U.S.-based manufacturers sagged by 0.62 percent sequentially last month – the first negative read since June’s 0.73 percent drop. Oddly, though, revisions of recent months’ results were slightly to the upside, although hardly stellar.

Still, as a result, since February, 2020, just before the pandemic struck the U.S. economy in force, such manufacturing production is up by 3.07 percent, versus the 3.76 percent calculable last month.

November’s manufacturing output losses were so broad-based that only four of the twenty broad industrial subsectors tracked by the Fed registered any sequential growth at all. They were:

>wood products, which grew by 3.59 percent in price-adjusted terms despite the continuing troubles of the housing industry. Indeed, that was the best such result since March, 2021’s 3.71 percent. But the November increase came after an October decrease of a downwardly revised 3.58 percent that was wood products’ worst month since constant dollar production plunged by 11.02 percent in April, 2020. wave. Other revisions were overall negative, too, but the November pop means that after-inflation wood products output is now up by 0.20 percent since immediately pre-pandemic-y February, 2020, versus being 2.67 percent below calculable last month:

>printing and related support activities, which enjoyed its second straight sequential real output improvement after difficult summer and fall. The sector’s 1.58 percent advance in November followed one of an upwardly revised 2.75 percent in October that was the best such figure since February’s 3.13 percent jump. Other revisions were mixed on balance but the recent growth spurt has brought the industry’s price-adjusted output to within 7.92 percent of its February, 2020 levels versus the 9.37 percent calculable last month; 

>aerospace and miscellaneous transportation equipment, which produced constant dollar production growth of 1.15 percent. Slightly positive revisions helped the sector push its post-February, 2020 output expansion to 26.37 percent in real terms, versus the 26.29 percent> calculable last month; and

>computer and electronics products, where inflation-production production was 0.53 percent higher in November than in October. Yet decidedly negative revisions helped push this diverse category’s real expansion since February, 2020 down to 5.70 percent, versus the 6.32 percent calculable last month.

The biggest November losers among the great majority of broad manufacturing sub-sectors seeing drooping after-inflation production were:

>automotive, whose volatility has shaped so much of manufacturing’s recent fortunes. November’s constant dollar output sank on month by 2.84 percent, the worst such result since February’s 3.81 percent tumble. Revisions were mixed but inflation-adjusted production of vehicles and parts is now 0.46 percent lower since just before the CCP Virus struck in force, versus being 3.18 percent higher as of last month.

>electrical equipment appliances and components, where output slipped 2.41 percent in November. – another post-April, 2020 worst. In addition, an initially reported October increase of 1.92 percent, which was the best such result since February’s 2.29 percent, was downgraded to 0.68 percent. Other revisions were negative as well, which dragged down this diverse sector’s after-inflation growth since February, 2020 all the way down to 2.83 percent, versus the 7.07 percent calculable last month;

>furniture, which experienced a 2.02 percent real output decrease that represented its worst such result since February, 2021’s 2.77 percent. Revisions were negative overall, and in real output terms the furniture industry is now 7.31 percent smaller than in immediately pre-pandemic-y February, 2020 versus the 4.80 percent calculable last month; and

>plastics and rubber products, whose 1.84 percent price-adjusted output slip was another worst since the 18.63 percent nosedive in peak pandemic-y April, 2020. Along with mixed revisions, the November drop depressed real plastics and rubber products output to 0.66 percent below February, 2020 levels versus having been 1.18 percent above as of last month.

The machinery sector is a major bellwether for the rest of domestic U.S. manufacturing and the entire economy because its products are so widely used. In November, its real output dipped for the first time (by 0.23 percent) since June’s 1.94 percent fall-off. Revisions were slightly negative, and inflation-adjusted production of machinery is now 7.53 percent greater than just before the CCP Virus’ arrival in force in February, 2020, versus 8.31 percent calculable last month.

The shortage-plagued semiconductor industry has also been key to domestic manufacturing’s fortunes, and will be receiving mammoth subsidies soon due to Congress’ passage of legislation aimed at boosting its American footprint. So November’s 0.39 percent real output expansion is good news, especially since it was the first increase since June’s 0.79 percent. Revisions were mixed, leaving constant dollar semiconductor output up 12.40 percent since February, 2020, versus the 12.16 percent calculable last month.

Since the pandemic struck, RealityChek has been paying special attention to several other manufacturing sectors that have either been especially hard hit by the pandemic, or that have been especially important in fighting it. Overall, they experienced downbeat Novembers in terms of production.

The exception was aircraft and parts, whose companies were hit so hard by the CCP Virus-related curbs on travel. In November, these companies boosted their after-inflation output by another 1.85 percent. Moreover, October’s initially reported gain of 2.51 percent was upgraded to one of 2.59 percent (the best such performance since April’s 3.01 percent). Other revisions were negative, but inflation-adjusted output in this sector is now 35.82 percent higher than just prior to the pandemic’s arrival in force, versus the 34.14 percent calculable last month.

The pharmaceutical and medicines industry (including vaccine makers) saw real production down by 0.16 percent, the first decline since June’s 0.50 percent. But revisions were positive enough (especially for October) to bring this sector’s real output 18.11 percent above February, 2020’s levels versus the 16.71 percent calculable last month.

Inflation-adjusted production slid by 1.55 percent after inflation for the medical equipment and supplies firms that turn out so many products used to fight the virus. This drop was another instance of a worst such result since peak pandemic-y April, 2020 (15.08 percent). Revisions were mixed, and real output in these industries is still up 13.23 since just before the pandemic. But as of last month, this figure was 15.75 percent.

It’s of course entirely possible that these dreary November manufacturing output results are blips, and that the sector will keep shrugging off bearish predictions. But with U.S. growth seemingly certain to slow down markedly at the least, and global growth already weak, it’s difficult to understand how domestic industry escapes these undertows.