(What’s Left of) Our Economy: Peak U.S. Inflation Still Tough to See in Latest U.S. Figures

Tags

Atlanta Federal Reserve Bank, core inflation, core PCE, Federal Reserve, fiscal policy, inflation, monetary policy, PCE, personal consumption expenditures index, {What's Left of) Our Economy

Even for those who don’t put much stock in using baseline comparisons, the latest official report on U.S. inflation – which covers the Federal Reserve’s preferred measure of price changes – there wasn’t much to get excited about..

The strongest evidence optimism that inflation’s peaking in this latest release on what’s called the price index for Personal Consumption Expenditures (PCE) came from the monthly results for core inflation. These strip out the food and energy results because they’re volatile for reasons supposedly having nothing to do with the economy’s fundamental prone-ness to inflation.

The latest number (for October) showed a 0.2 percent sequential rise in prices. That was one of the tamer results for the year, but it followed two straight months of 0.5 percent increases – which were among the highest results of the year. And to add a bit of insult to injury, July’s original monthly flatline figure has been revised up to 0.1 percent.

As for the monthly headline inflation result, that came to 0.3 percent in October. This increase also was one of the year’s lowest, but was the third straight month of prices rising at this rate. So a wait-and-see attitude seems to be the best that’s justified.

The annual PCE data for October was considerably less encouraging, largely because of that baseline effect. Core PCE was up five percent that month – mid-range in terms of this year’s figures. But between the previous Octobers, this inflation gauge jumped by 4.2 percent – to that point, by far the worst result of 2021.

In fact, in September of this year, when core PCE worsened by 5.2 percent, its baseline figure was just 3.7 percent.

In other words, core annual PCE inflation was getting really hot at this point a year ago. And over the course of the next year, it got hotter. And that 5.2 percent annual result for this past September has been revised up, too (from 5.1 percent).

Intriguingly, the headline annual PCE numbers reveal a very similar pattern. The bg difference: The October read of six percent matched the year’s lowest figure (from January). But the previous October annual rate was 5.1 percent – also the fastest increase that year to that point.

The September baseline figure was just 4.4 percent, and the 2022 annual headline PCE increase for that month was revised up itself – from 6.2 percent to 6.3 percent.

The bigger picture isn’t especially encouraging, either. That’s because whatever hints of inflation slowdown may be in the air surely stem from weakening momentum for the economy as a whole. (To be sure, many economists, like the Atlanta Federal Reserve’s crew, keep forecasting solid expansion continuing. But many forward-looking indicators are sending exactly the opposite message.) And as I’ve noted (e.g., here), it doesn’t take a policy genius to end inflation by tightening credit so much that growth and employment get crushed.

Further, what’s worrisome about this demand-centric approach, and continued neglect of boosting the supply of goods and services, is that when the Fed loosens monetary policy once more, or when Congress and the administration reopen the net spending spigots, or both, there will be every reason to expect strong inflation to return.

Advertisement

(What’s Left of) Our Economy: Hold Your Applause on Inflation Progress Signs

Tags

consumers, demand, Employment, Federal Reserve, fiscal policy, gas prices, GDP, gross domestic product, household spending, housing, inflation, Jobs, manufacturing, manufacturing jobs, manufacturing production, monetary policy, mortgages, personal consumption, personal spending, recession, retail sales, trade deficit, {What's Left of) Our Economy

At the end of last month, I wrote that if a national government (including its central bank) wants to get inflation down, it’s not a rocket science-type challenge.” Basically all that’s needed is the willingness to take some combination of the kinds of fiscal and monetary measures that are guaranteed to slow economic growth.

Keep that in mind as you read the mushrooming number of claims that America’s recent historic burst of inflation is either peaking (see, e.g., here, here, and here) or should peak soon (e.g., here, here, and here). Because wherever softening prices can be seen, levels of demand have fallen off either because goods and services are becoming unaffordable and sales are down, or because easy money has gotten harder, or some degree of both. So let’s not conclude that inflation progress stems from a sudden outburst of policy-making genius.

Anyone doubting the start of a economic downshifting should check out the many of the latest reports released by the federal government on the economy’s performance. In the first quarter of this year, the gross domestic product (GDP – the standard measure of the economy’s size) fell by 1.58 percent at an annual rate adjusted for inflation, and the pretty reliable forecasters at the Atlanta branch of the Federal Reserve system expect about the same kind of contraction for the second quarter.

If this prediction holds, the United States will have entered a recession by the most widely used yardstick – two straight quarters of what economists call “negative growth.”   

Manufacturing production – which RealityChek regulars know has held up very well during the pandemic period – has now dropped sequentially for two straight months. And a downshifting U.S. economy is importing less, which has reduced the bloated trade deficit for two straight months as well.

The employment picture is better (including in manufacturing) but on an economy-wide basis some signs of deterioration are visible as well. Chiefly, if you look at three-month averages (which help smooth out often misleading short-term fluctuations, you see that from January through March, this measure of private sector job growth totalled 527,000. From April through June, it dropped to just under 362,000, and may sink lower, as the April and May figures have been downwardly revised, signaling that the same may be in store for June’s results.

Some of the best evidence of declining affordability – across the board – come from the official retail sales figures. On an annual basis, their increase is down from the mid-double digit levels of January and February (propped up by the unusually weak numbers from the heavily pandemic-affected figures for the previous – baseline – winter), to 9.26 percent in June.

That may not sound like a lot, but when inflation is considered, these retail sales increases turn into decreases for three of the last four months through June’s preliminary report. In other words, because of rapidly rising prices, consumers weren’t actually buying more in the way of goods and services. They were simply paying more for quantities that had actually shrunk. And the month-on-month sales numbers have been negative for three of the last four months, too.

The affordability issue is especially clear from the recent decrease in gasoline prices. Yes, they’ve tumbled for more than a month. But less driving is the obvious reason. For example, here we are in the middle of peak summer driving season, when the subsiding of the pandemic supposedly has millions of Americans determined to engage in so-called “revenge travel.”

But according to the U.S. Energy Information Administration, gasoline consumption “is just above the same time two years ago [when revenge travel was popular, too, as the virus’ first wave receded, but was still taking a much bigger toll than today] but below every other year going back to 2000.”

The American Petroleum Institute added that last month’s 9.1 million barrels per day of demand was “down 2.3% y/y compared with June 2021—a third straight month in which gasoline trailed its year-ago levels.” Moreover, so far, this year’s May-June increase of 0.4 percent in gasoline use has badly “lagged the average 2.9% seasonal increase seen between May and June in 2012-2021.”

Meanwhile, the role of higher interest rates (and consequently tighter credit) is best seen in the housing market. Summarizing the latest findings of the National Association of Realtors, The Wall Street Journal just reported that “sales of previously owned homes fell for a fifth straight month, dropping 5.4% in June to an annualized rate of 5.12 million.”

The main reason? The big run up in mortgage rates has depressed mortage applications for three straight weeks has pushed them down to their lowest levels since 2000. That means they’re below where they were even during the deflation of the mid-2000s housing bubble that helped trigger the global financial crisis and Great Recession.

Most important of all, even those believing that American leaders deserve credit for figuring out a successful anti-inflation fighting strategy, should remember that although interest rates are higher, they’re far from historically high and even fall well short of even recent very low norms; and that even though some prices are down, they’re still historically high. And that’s not even considering that the supply chain troubles also contributing to recent inflation could well intensify as long as the Ukraine war drags on, and the threat of more over-the-top Zero Covid lockdowns in China can’t be dismissed.

So even though this kind of bitter policy medicine is needed to avoid worse inflation down the road, and genuinely harsh austerity measures (especially as long as U.S. leaders seem to lack a clue regarding the inflation-fighting potential of productivity growth improvement), American voters aren’t likely to be grateful this November – or in any elections in the foreseeable future. And who could blame them?

 

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

Tags

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(What’s Left of) Our Economy: U.S. Manufacturing’s Hiring Takes a (Slight) Breather

Tags

aerospace, aircraft, aircraft engines, aircraft parts, automotive, CCP Virus, chemicals, computer and electronics products, coronavirus, COVID 19, fabricated metals products, Federal Reserve, fiscal policy, food products, inflation, Jobs, Labor Department, machinery, manufacturing, medical devices, medicines, monetary policy, non-farm jobs, non-farm payrolls, personal protective equipment, pharmaceuticals, PPE, semiconductor shortages, semiconductors, stimulus, transportation equipment, Ukraine, Ukraine-Russia war, vaccines, wood products, {What's Left of) Our Economy

U.S.-based manufacturing’s employment performance has been so strong lately that the 18,000 net gain for May reported in today’s official U.S. jobs report was the worst such performance in more than a year – specifically, since April, 2021’s 28,000 employment loss. And even that dismal result stemmed mainly from automotive factories that were shut down due to semiconductor shortages – not from any underlying weakness in domestic industry.

Moreover, revisions of the last several months’ of sizable hiring increases were revised higher. April’s initially reported 55,000 increase is now pegged at 61,000, and March’s headcount boost was upgraded again, this time all the way from 43,000 to 58,000.

Indeed, taken together, this payroll surge has enabled U.S.-based manufacturing to increase its share of American jobs again. As of May, industry’s employment as a share of the U.S. total (called “non-farm payrolls” by the Labor Department that releases the data) rose sequentially from the 8.41 percent calculable last month to 8.42 percent. And the manufacturing share of total private sector jobs climbed from the 9.86 percent calculable last month to 9.87 percent..

The improvement since February, 2020 – the last full data month before the CCP Virus’ arrival began roiling and distorting the entire U.S. economy – has been even greater. Then, manufacturing jobs represented just 8.38 percent of all non-farm jobs and 9.83 percent of all private sector employment.

Domestic industry still slightly lags the private sector in terms of regaining jobs lost during the worst of the pandemic-induced recession of March and April, 2020. The latter has recovered 99.01 percent of the 21.016 million jobs it shed, compared with manufacturing’s 98.75 percent of its 1.345 million lost jobs.

But the main reason is that industry’s jobs losses during those months were smaller proportionately than those of the private sector overall.

Viewed from another vantage point, the May figures mean that manufacturing employment is just 0.13 percent smaller than just before the pandemic struck.

May’s biggest manufacturing jobs winners among the broadest individual industry categories tracked by the Labor Department were:

>fabricated metals products, which boosted employment on month by 7,100 – the sector’s biggest rise since since February’s 9,300. Its recent hiring spree has brought fabricated metals products makers’ payrolls to within 2.24 percent of their immediate pre-CCP Virus (February, 2020) levels;

>food products,where payrolls grew by 6,100 sequentially in May. Employment in this enormous sector is now 2.53 percent higher than in February, 2020;

>the huge computer and electronics products sector, whose headcount improved by 4,400 over April’s levels. As a result, its workforce is now just 0.19 percent smaller than in immediate pre-pandemic-y February, 2020;

>wood products, which added 3,800 employees in May over its April levels. Along with April’s identical gain, these results were these businesses’ best since May, 2020’s 13,800 jump, during the strong initial recovery from the virus-induced downturn. Wood products now employs 6.85 percent more workers than in February, 2020; and

>chemicals, a very big industry whose workforce was up in May by 3,700 over the April total. The result was the best since January’s 5,500 sequential jobs growth, and pushed employment in this industry 4.76 percent higher than in February. 2020.

The biggest May job losers among those broad manufacturing groupings were:

>transportation equipment, another enormous category where employment fell by 7,900 month-to-month in May. That drop was the biggest since February’s 19,900 nosedive. But it followed an April monthly increase that was revised up from 13,700 to 19.500. All this volatility – heavily influenced by the aforementioned semiconductor shortage that has plagued the automotive industry – has left transportation equipment payrolls 2.57 percent smaller than just before the pandemic’s arrival in February, 2020;

>machinery, whose 7,900 sequential job decline in May was its worst such result and first monthly decrease since November’s 7,000. Moreover, April’s initially reported 7,400 payroll increase in machinery is now judged to be only 5,900. These developments are discouraging because machinery’s products are used so widely throughout the entire economy, and prolonged hiring doldrums could reflect a slowdown in demand that could presage weakness in other sectors. Machinery payrolls are now down 2.12 percent since February, 2020; andent since February 2020; and

>miscellaneous nondurable goods, where employment shrank in May by 2,900 on month. But here again, a very good April increase first reported at 3,300 is now judged to have been 4,400, and thanks to recent robust hiring in this catch-all category, too, its employment levels are 8.12 percent higher than in February. 2020.

As always, the most detailed employment data for pandemic-related industries are one month behind those in the broader categories, and their April job creation overall looked somewhat better than that for domestic manufacturing as a whole.

Semiconductors are still too scarce nationally and globally, but the semiconductor and related devices sector grew employment by 900 on month in April – its biggest addition since last October’s 1,000. March’s initially reported 700 jobs gain was revised down to 400, and February’s upgraded hiring increase of 100 stayed unrevised. Consequently, payrolls in this industry are up 1.66 percent since just before the pandemic arrived in full force, and it must be kept in mind that even during the deep spring, 2020 economy-wide downturn, it actually boosted employment.

The news was worse in surgical appliances and supplies – a category containing personal protective equipment (think “facemasks”) and similar medical goods. April’s sequential jobs dip of 200 was the worst such performance since October’s 300 fall-off, but at least March’s initially reported 1,100 increase remained intact (as did February’s downwardly revised – frm 800 – “no change.” Employment in surgical appliances and supplies, however, is still 3.88 percent greater than in immediate pre-pandemic-y February, 2020.

In the very big pharmaceuticals and medicines industry, this year’s recent strong hiring continued in April, as the sector added 1,400 new workers sequentially – its biggest gains since last June’s 2,600. In addition, March’s initially reported increase of 900 was revised up to 1,200, and February’s slightly downgraded 1,000 rise remained unchanged. Not surprisingly, therefore, this sector’s workforce is up by 9.78 percent during the CCP Virus era.

Job creation was excellent as well in the medicines subsector containing vaccines. April’s 1,100 monthly headcount growth was the greatest since last December’s 2,000. March’s initially reported payroll rise of 400 was upgraded to 600, and February’s results stayed at a slightly downgraded 500. In all, vaccine manufacturing-related jobs has now increased by fully 24.47 percent since February, 2020.

Aircraft manufacturers added just only 200 employees on month in April, but March’s jobs gain was revised up from 1,100 to 1,200 (the best such result since last June’s 4,000), and February’s upwardly revised 600 advance remained unchanged. Aircraft employment is still off by 10.96 percent since the pandemic’s arrival in force.

Aircraft engines and engine parts makers were in a hiring mood in April, too. Their employment grew by 900 sequentially, March’s 500 increase was revised up to 600, and February’s unrevised monthly increase of 900 stayed unrevised. Payrolls in this sector have now climbed to within 11.56 percent of their level just before the CCP Virus hit.

As for the non-engine aircraft parts and equipment sector, it made continued modest employment progress in April, with the monthly headcount addition of 300 following unrevised gains of 700 in March and 200 in February. But these companies’ workforces are still 15.48 percent smaller than their immediate pre-pandemic totals.

The U.S. economy is clearly in a period of growth much slower than last year’s, and since there’s no shortage of actual and potential headwinds (e.g., the course of the Ukraine War, the Fed’s monetary tightening campaign, persistent lofty inflation, the likely absence of further fiscal stimulus), no one can reasonably rule out a recession that drags down manufacturing’s hiring with it. But until domestic industry’s job creation and production growth starts deteriorating dramatically and remains weak, today’s so-so employment figures look like a breather at worst – and not much of one at that.

Making News: (Re)Unveiling a Revolutionary U.S. Tax Policy Proposal

Tags

CCP Virus, coronavirus, COVID 19, deficits, fiscal policy, Henry George, Henry George School of Social Science, InsideSources.com, Land-Value Tax, LVT, Making News, municipal finance, recession, taxes, Wuhan virus

And now for something completely different. (Apologies to the Monty Python crew.)

As some of you may know, when I’m not blogging here at RealityChek or Tweeting like a house on fire, I’m serving as a Trustee of the Henry George School of Social Science. This economic education institution seeks to apply some of the truly revolutionary insights reached by George, a Gilded Age/Progressive Era American economist about issues of his day, that strongly resemble some of the biggest challenges of our own times – for example, the rise of economic inequality amid extraordinary wealth creation and technological progress, the replacement of so much productive activity with financial speculation, and the weakening of competition throughout American business as enormous industries grow more monopolistic.

George’s signature proposal was a “land-value tax” (LVT), which he wrote boasted great potential to penalize casino-type finance; reward productive investment and thereby foster production-based, broadly shared prosperity; and break up economically and politically dangerous concentrations of wealth.

Folks associated with the School and with “Georgism” have advocated for this proposal ever since, but we believe that the LVT creates yet another advantage that’s especially important today: Its adoption could place the finances of state and cities devastated by the CCP Virus-induced recession and collapse of tax revenues on a healthy, sustainable footing.

As a result, we’ve launched an effort to show exactly how the LVT could eliminate budget gaps in states and localities across the country, and I’m pleased to announce that the first of these offerings has just been published (as an op-ed I’ve co-authored) by the news syndicate InsideSources.com). Here’s the link.

Moreover, we’ve recently issued a policy brief containing much more data relating to New York City and New York State that you can read here. And in the coming weeks and months, we’ll be sending off locally customized versions of this piece to news organizations in dozens of financially squeezed regions, including detailed projections of exactly how much revenue entirely affordable LVTs could raise.

So keep checking in with RealityChek for info on these articles, and news of other upcoming media appearances and developments.

(What’s Left of) Our Economy: The Republican Tax Plans’ Biggest Flaw

Tags

Alan Greenspan, Barack Obama, Bill Clinton, budget deficits, business spending, capital gains, corporate taxes, dividends, Federal Reserve, fiscal policy, George W. Bush, House, income taxes, monetary policy, multinationals, non-residential fixed investment, Paul Volcker, repatriation, Republican tax bills, Ronald Reagan, Senate, tax cuts, taxes, {What's Left of) Our Economy

The tax bills passed by the Republican-controlled House and Senate and strongly supported by President Trump (despite some important differences between them) can be fairly criticized for any number of big reasons: the mess of a drafting process in the Senate, the impact on already bloated federal budget deficits and the national debt, the cavalier treatment of healthcare reform, the seemingly cruel hits to graduate students and to teachers who buy some of their students’ school supplies.

My main concern is different, though. I could see an argument for the main thrust of the bills – even taking into account most of the above flaws – if they boasted the potential to achieve its most important stated aim. In Mr. Trump’s words, “We’re going to lower our tax rate to the very competitive number of 20 percent, as I said. And we’re going to create jobs and factories will be pouring into this country….” Put less Trump-ishly and more precisely, the idea is that by slashing tax rates for corporations and so-called pass-though entities, along with full-expensing of various types of capital investment, American businesses will build more factories, labs, and other productive facilities; buy more equipment, materials and software; hire more workers and increase their pay (since the demand for labor will soar).

Actually, since automation will surely keep steadily reducing the direct hiring generated by all this promised productive investment, let’s focus less on the jobs promise (keeping in mind that manufacturing in particular generates lots of indirect jobs per each direct hire), and more on the business spending that will boost output – since faster growth is the ultimate key to robust employment and wage levels going forward.

Unfortunately, after spending the last few days crunching some relevant numbers, I can’t see the GOP tax plans living up to their billing – which makes their flaws all the more damning.

What I’ve done, essentially, is look at inflation-adjusted business spending during American economic recoveries (to ensure apples-to-apples data by comparing similar stages of the business cycle) going back to the Reagan years of the 1980s, and examine whether or not individual and especially business tax cuts have set off a factory etc building spree. And I didn’t see anything of the kind, except possibly over the very short term. Moreover, even these increases may have had less to do with the tax cuts than with other influences on such investments – like the overall state of the economy and the monetary policies carried out by the Federal Reserve (which help determine the cost of credit).

Let’s start with the expansion that dominated former President Ronald Reagan’s two terms in office – lasting officially from the fourth quarter of 1982 through the second quarter of 1990 (by which time he had been succeeded by George H.W. Bush). The signature Reagan tax cuts, which focused on individuals, went into effect in August, 1981 – when a deep recession was still underway.

Interestingly, business investment kept falling dramatically through the middle of 1983 – when an even stronger rebound kicked in through the end of 1984. Indeed, that year, corporate spending (known officially as private non-residential fixed investment surged by 16.66 percent. But this growth rate then began slowing dramatically – and through 1987 actually dropped in absolute terms.

A major tax reform act was signed into law by the president in October, 1986, and individuals were its focus as well. Two provisions did affect business, but appeared to be at least somewhat offsetting in their effects, in line with the law’s overall aim of eliminating incentives and disincentives for specific kinds of economic activity. They were a reduction in the corporate rate and a repeal of the investment tax credit – whose objective was precisely to foster capital spending. Other provisions had major effects on business but principally by encouraging more companies to change over to so-called pass-through entities, not (at least directly) on investment levels. Business spending recovered, but its peak for the rest of the decade (5.67 percent of real GDP in 1989) never approached the earlier highs.

Arguably, fiscal and monetary policy were much more influential determinants of business spending, along with the recovery’s dynamics. The depth of the early 1980s recession practically ensured that the rebound would be strong, as did the massive swelling of federal budget deficits, which strengthened the economy’s overall demand levels, and their subsequent reduction.

Perhaps most important of all, the Federal Reserve under Chairman Paul Volcker cut interest rates dramatically from the stratospheric levels to which he drove them in order to tame double-digit inflation. And yet for most of 1984, when business spending soared, the federal funds rate (FFR) was rising steeply. Capex also strengthened between 1987 and mid-1989, which also witnessed a scary stock market crash (in October, 1987).

The story of the long 1990s expansion, which mainly unfolded during Bill Clinton’s presidency, was simultaneously simpler and more mysterious from the standpoint of business taxes – and macroeconomic policy. Following a shallow recession, Clinton raised both personal and corporate tax rates while government spending was so restrained that the big budget deficits he inherited actually turned into surpluses by the late-1990s. For good measure, the FFR began rising in late 1993, from 2.86 percent, and between early 1995 and mid-2000, stayed between just under six percent and just under 6.5 percent.

And what happened to capital spending? In late 1993, right after the tax-hiking, spending- cutting, deficit-shrinking Omnibus Budget Reconciliation Act was passed, and the Fed was tightening, businesses went on a capex spending spree began that saw such investment reach annual double-digit growth rates in 1997 and stay in that elevated neighborhood for the next three years.

It’s true that Clinton and the Republican-controlled Congress passed tax cut legislation in August, 1997, that among other measures lowered the capital gains rate. But the acceleration of business spending began years before that. And although we now know that much of this capital spending went to internet-centered technology hardware for which hardly any demand existed then at all, from a tax policy perspective, the key point is that this category of spending rose strongly – not whether the funds were spent wisely or not.

The expansion of the previous decade casts major doubt on whether any policy moves can significantly juice business spending. Just look at all the stimulative measures put into effect, tax-related and otherwise. The recovery lasted from the end of 2001 to the end of 2007, and during this period, on the tax front, former President George W. Bush in June, 2001 signed a bill featuring big cuts for individuals, and in May, 2003 legislation that sped up the phase-in of those personal cuts and added reductions in capital gains and dividends levies. For good measure, in October, 2004, the “Homeland Investment Act” became law. It aimed to use a tax “holiday” (i.e., a one-time dramatically slashed corporate rate) to bring back (i.e., “repatriate“) to the U.S. economy for productive investment hundreds of billions of dollars in profits earned by American companies from their overseas operations.

In addition, under Bush, the federal budget balance experienced its biggest peacetime deterioration on record, and starting in the fall of 2000, the Federal Reserve under Alan Greenspan cut the FFR to multi-decade peacetime lows, and didn’t begin raising until mid-2004.

The business investment results underwhelmed, to put it mildly. Such expenditures fell significantly throughout 2001 and 2002, and grew in real terms by only 1.88 percent the following year. Thereafter, their growth rate did quicken – to 5.20 percent rate in 2004, 6.98 percent in 2005, and 7.12 percent in 2006. But they never achieved the increases of the 1990s and by 2007, that expansion’s final year, business investment growth had slowed to 5.91 percent.

There’s no doubt that something needs to be done to boost business spending nowadays, which has lagged for most of the current recovery and turned negative last year – even though the federal funds rate remained near zero for most of that time and the Federal Reserve’s resort to unconventional stimulus measures like quantitative easing as well, despite unprecedented budget deficits (though they began shrinking dramatically in 2013), and despite the continuation of all the Bush tax cuts (except the repatriation holiday, and the imposition of a small surcharge on all investment income to help pay for Obamacare). Business investment’s record during the current recovery has been even less impressive considering a Great Recession collapse that was the worst in U.S. history going back to the early 1940s, and that should have generated a robust bounceback.

But if history seems to teach that tax cuts and even other macroeconomic stimulus policies haven’t been the answer, what is? Two possibilities seem well worth exploring. First, place productive investment conditions on any tax cuts and repatriation (the 2004 tax holiday act did contain them) and then actually monitor and enforce them (an imperative the Bush administration neglected). And second, put into effect some measures that can boost incomes in some sustainable way – and thus convince business that new, financially healthy customers will emerge for the new output from their new facilities. To me, that means focusing less on ideas like raising the national minimum wage to $15 per hour (though the rate should, at long last, be linked to inflation), and more on ideas like trade policies that require business to make their products in the United States if they want to sell to Americans, and immigration policies that tighten labor markets and force companies to start competing more vigorously for available workers by offering higher pay.

In that latter vein, the 20 percent excise tax on multinational supply chains contained until recently in the House Republican tax plan could have made a big, positive difference. Sadly, it looks like it’s been watered down to the point of uselessness, and the original has little support in the Senate. The House Republican tax plan also had included a border adjustment tax that would have amounted to an across-the-board tariff on U.S. imports (and a comparable subsidy for American exports), but the provision was removed from the legislation partly due to (puzzling) Trump administration opposition.

Mr. Trump clearly has acted more forcefully to relieve immigration-related wage pressures on the U.S. workforce, but it’s unclear how quickly they’ll translate into faster growing pay.  If such results don’t appear soon, and barring Trump trade breakthroughs, expect opponents of the Republican tax plan to keep insisting that it’s simply a budget-busting giveaway to the rich, and expect these attacks to keep resonating as the off-year 2018 elections approach.