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(What’s Left of) Our Economy: New U.S. Jobs Data Show a Continued Trade Punch for Manufacturing – & Industry Resilience

06 Friday Dec 2019

Posted by Alan Tonelson in (What's Left of) Our Economy

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aircraft, aluminum, automotive, Boeing, Bureau of Labor Statistics, China, General Motors, General Motors strike, GM, manufacturing, manufacturing jobs, metals tariffs, metals-using industries, steel, tariffs, Trade, Trump, {What's Left of) Our Economy

For observers of U.S. domestic manufacturing, this morning’s new jobs report (for November) could not have made clearer how the recent strike at General Motors (GM) have bollixed up the recent monthly totals for reasons having nothing to do with the underlying state of the economy or with President Trump’s trade wars. Nonetheless, even with the strike’s effects filtered out, industry’s job creation this year continues to lag behind last year’s strong pace, and damage from Mr. Trump’s metals tariffs in particular is still apparent – if anything but calamitous.

Moreover, in a continuing mystery, although Boeing’s safety woes are kneecapping domestic manufacturing’s trade performance, their impact on manufacturing employment is still nowhere to be seen.

Because of the GM strike’s impact, the overall manufacturing job figures for November (along with the revised October numbers) are pretty worthless. What does matter are the results with motor vehicles and parts stripped out (although even taking this step fails to account for the strike’s effects on all the industries making up the domestic automotive supply chain).

Ex-automotive, the previously reported October U.S. manufacturing monthly jobs change would have come to a 5,600 net monthly gain, rather than a 36,000 net loss. The revised October manufacturing jobs change reported today was somewhat better – without the GM strike, a net sequential employment loss pegged at a higher 43,000 would have been a net gain of 6,800. (And another revised October figure will come out next month, along with a new November number.)

For its first read on November’s performance, the Bureau of Labor Statistics reports that domestic industry’s payrolls rose by 54,000 on net. Removing from that total the 41,300 jump in automotive employment stemming from the return to work of GM workers and of employees at parts companies who may have been laid off, and you get a 12,700 monthly increase in manufacturing jobs.

Encouragingly, that’s the best such performance since January’s 17,000 payroll advance. But the year-on-year improvements remain humdrum even taking out the automotive distortions.

For example, without the automotive distortions, October’s stand-still manufacturing jobs total would only have been 56,000 higher than that of October, 2018. Between the previous Octobers, manufacturing employment surged by 275,000. The comparable November numbers? A 32,000 improvement between 2018 and 2019, as opposed to 228.000 between 2017 and 2018.

The November jobs report’s news for so-called trade hawks wasn’t good, either. As usual the impact of the Trump administration’s steel and aluminum tariffs are relatively easy to gauge, and it remains the case that the metals-using sectors’ employment performance has lost notable momentum versus the rest of manufacturing and the rest of the private sector overall.

Below are the latest figures for employment changes at major metals-using industries starting with the April, 2018 – the first full month in which these levies were in effect, and run through October. For comparison’s sake, the results for manufacturing overall are also included, along with those of the durable goods super-sector in which most of the big metals-users are grouped:

                                                       Old thru Oct       New thru          Thru Nov

entire private sector:                    +2.58 percent   +2.62 percent    +2.82 percent

overall manufacturing:                +1.40 percent   +1.40 percent    +1.83 percent

durable goods:                            +1.48 percent    +1.43 percent    +1.99 percent

fabricated metals products:        +1.57 percent    +1.49 percent    +1.51 percent

non-electrical machinery:          +1.74 percent    +1.65 percent    +1.26 percent

automotive vehicles & parts:      -4.89 percent    -4.60 percent      -0.45 percent

household appliances*:               not available    -6.31 percent      not available

aerospace products & parts*:     not available   +8.98 percent       not available

*data are one month behind

The end of the GM effect is clear from the big differences between the October and November overall manufacturing and durable goods jobs changes. But by the same token, November was a lousy employment month for the big machinery and fabricated metals sectors. Look at that aerospace products and parts increase, though – job creation in this Boeing-heavy sector continues to excel.

Now it’s possible that much of the damage being done to the company, and manufacturing more generally, is being done in its own vast domestic supply chain. But the employment numbers for narrower sectors like aircraft and their parts show nothing of the kind, and the effects on companies in other supplier sectors (e.g., machinery, metals, and fabricated metals products) simply can’t be teased out.

But even worse for the metals-using industries generally, whereas most were job creation leaders last year, they’ve turned into job creation laggards this year. This deterioration is made clear from comparing the previous table with the following table, which shows their employment performance from the metals tariffs advent through the end of last year and the beginning of this year:

                                                          Thru December               Thru January

entire private sector:                         +1.36 percent                +1.60 percent

overall manufacturing:                     +1.39 percent                +1.49 percent

durable goods:                                  +1.72 percent                +1.97 percent

fabricated metals products:              +1.57 percent                +1.78 percent

non-electrical machinery:                +2.33 percent               +2.57 percent

automotive vehicles & parts:          +1.07 percent               +1.15 percent

household appliances:                     -2.05 percent                -2.52 percent

aerospace products & parts:           +5.47 percent               +5.87 percent

Of course, President Trump’s tariffs on several hundred billion dollars worth of imports heading America’s way from China are affecting domestic manufacturing as well. But because of these products ubiquity throughout domestic industry, the greatly varying levels of their U.S. market share, and the duties’ on-again-off-again nature (prominently on display in recent days), I continue to despair of quantifying the impact usefully.

And speaking of Mr. Trump, there’s no doubt that, contrary to his confidence, trade wars are not “easy to win” – and can be highly disruptive even for countries like the United States with ample leverage to prevail. That’s inevitable when you’re trying to reverse several decades of policy. All the same, U.S. domestic manufacturing’s employment performance, even in leading victim industries, has held up pretty well since the President began responding to foreign predation in earnest. Whether the manufacturing interests he’s counting on to win reelection will agree is another question entirely.

(What’s Left of) Our Economy: Trade Wars’ Impact on U.S. Manufacturing Output Still Clouded by GM and Boeing

16 Saturday Nov 2019

Posted by Alan Tonelson in (What's Left of) Our Economy

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737 Max, aircraft, aluminum tariffs, automotive, Boeing, Fed, Federal Reserve, General Motors, General Motors strike, GM, household appliances, inflation-adjusted growth, inflation-adjusted output, manufacturing, metals-using industries, safety, steel tariffs, supply chain, tariffs, Trade, trade wars, {What's Left of) Our Economy

If you read last month’s Federal Reserve report on after-inflation U.S. manufacturing output (for September), then there wasn’t much reason to read yesterday morning’s report on after-inflation manufacturing production (for October). For it described the same puzzling picture: American industrial performance clearly dragged down by the recently ended strike at General Motors (GM), but apparently completely unaffected by Boeing safety woes that have sharply reduced the aviation giant’s enormous exports.

The top-line figures released by the Fed were definitely gloomy. Last month, real U.S. Manufacturing output dropped by 0.62 percent sequentially – the worst such result since April’s 0.87 percent fall-off. Inflation-adjusted motor vehicle and parts output, however, plunged by 7.65 percent – its worst such performance since the 7.97 percent nosedive of April, 2011. Moreover, September’s previously reported 4.22 percent monthly automotive price-adjusted automotive decrease was revised all the way down to a 5.49 percent slump.

As the Fed observed, without the huge October monthly plunge in inflation-adjusted automotive output, the overall manufacturing production decline would have been just 0.14 percent – which obviously doesn’t show any strength, either.

But this is where the Boeing puzzle comes in. There’s still no sign of it in these Fed data. Most curiously, constant dollar production for aircraft and parts production rose a solid 0.57 percent on month in October. It’s down since March, when governments the world over began grounding its popular but now troubled 737 Max jet or banning it from their national air spaces.

But although Boeing’s exports have deteriorated sharply, too, the real output shrinkage has only been 1.48 percent since March, and since April (the first full data month since those March woes), after-inflation production of aircraft and parts has actually risen 1.15 percent. That’s considerably better than the output performance of domestic manufacturing as a whole during this period. And it’s much better than the output of key supplier sectors, although surely they’d been affected by the GM strike as well:

overall manufacturing: -0.19 percent

durable goods: -0.81 percent

primary metals: -1.62 percent

fabricated metals products: -0.60 percent

machinery: +0.37 percent 

It’s true that export sales and production don’t move in lock step for aircraft, or for any other industry.  But with foreign markets representing well over half of Boeing’s revenue last year, the former sinking while the latter keep growing isn’t easy to explain.

Something else that needs to be considered: Whatever the Fed data actually show, they’re not able to show much about how aircraft parts and production would have fared without the Boeing troubles. And they’re even less capable of showing such counterfactuals regarding how supplier sectors might have fared.

As for the impact of the trade wars, as usual, the consequences of the President’s tariffs on aluminum and steel are easiest to gauge, since they’ve been on the longest, and the major metals-using industries (the presumed leading victims) are so easy to identify. The table below represents the changes in their real output since April, 2018 (the first full month in which the levies were in effect), with the data for manufacturing overall used as a control group, and durable goods included because it’s the super-category in which most of the main metals-using industries are located:

                                          Old Apr thru Sept    New Apr thru Sept    Apr thru Oct

overall manufacturing:       +0.09 percent            +0.08 percent         -0.54 percent

durables manufacturing:    +1.25 percent            +0.87 percent         -0.32 percent

fabricated metals prods:    +1.85 percent             +1.63 percent        +1.42 percent

machinery:                            0 percent                 -0.96 percent         -0.81 percent

automotive:                        -3.92 percent             -5.53 percent       -12.24 percent

major appliances:               -2.19 percent            -2.03 percent          -9.14 percent

aircraft and parts:              +5.43 percent           +3.00 percent         +3.59 percent

In absolute terms, the results are still all over the place, and a GM strike effect is clearly evident for supplier industries like fabricated metal products and machinery. The interruption of GM production also seems to have aggravated – but not caused – the loss of relative momentum exhibited by the metals-users – meaning, that their production slowdown has gotten faster relative to that of overall manufacturing, even leaving out the cratering of automotive output. Interestingly, that momentum loss is now affecting aircraft and parts, too – whose September production figures were also revised down significantly.

Also noteworthy – the steep monthly production dive in major appliances in October. Yes, they’ve experienced their own product-specific tariffs (on large household laundry equipment) as well as the metals tariffs. Production of these products is pretty volatile, too. But the 7.26 percent real monthly output drop was the biggest since it plummeted 8.29 percent between September and October, 2013. Even stranger – the housing sector, which drives much appliance buying and therefore indirectly production – registered a major uptick in growth in the third quarter after six quarters of substantial decline.

As for the impact of the China tariffs on manufacturing output, since that’s much more difficult to gauge than the effects of the metals tariffs (e.g., because Chinese products have been used so widely, and to such varying extents, as inputs for so many manufacturing industries) it seems to make less sense than ever to examine them, given the possibility of the Boeing effect lasting months more.

And somewhat depressingly, I find myself wondering if that’s going to be true for following any manufacturing-and-trade-relevant data for at least a month or two more. (Though I’m sure I’ll keep soldering on!)

(What’s Left of) Our Economy: US Growth Remains Solid Despite a Notable Boeing Drag

30 Wednesday Oct 2019

Posted by Alan Tonelson in (What's Left of) Our Economy

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Boeing, exports, GDP, General Motors strike, goods, gross domestic product, imports, real GDP, real trade deficit, services, Trade, trade deficit, {What's Left of) Our Economy

This morning’s first official read on U.S. economic growth in the third quarter not only beat expectations. Inflation-adjusted gross domestic product (GDP) expanded nicely despite potholes dug by the General Motors strike and Boeing’s ongoing safety woes.

Bad news wasn’t entirely absent, especially from a trade policy standpoint, as the overall U.S. trade gap edged up to a new record in absolute terms. But even here, mitigating circumstances can be cited – namely, foreign reluctance to purchase Boeing planes, which surely weighed on exports, and tariff front-running sparked by importers’ desire to buy products from China in particular to beat the imposition of threatened tariffs.

The third quarter’s 1.91 percent annualized increase in real GDP – the first of three near-term growth figures that will be issued – handily surpassed the latest 1.6 percent consensus of the forecasts tracked by CNBC and Moody’s Analytics. Moreover, the Boeing effect looks anything but negligible. As noted by Harvard University economist Megan Greene, the Trump administration believes that the aerospace giant’s troubles cut 0.40 percentage points from third quarter GDP, and private sector economists peg the cost at 0.25 percentage points.

The real trade deficit, however, was clearly no help. It wasn’t nearly as big a drag on inflation-adjusted growth as in the second quarter (when it subtracted 0.68 percentage points from that two percent annualized constant dollar expansion). But it still depressed the third quarter’s real growth by 0.08 percentage points – and edged up by 0.58 percent to a new record $986.4 billion on an annual basis. (The previous all-time high was the $983.0 billion level reached in the fourth quarter of 2018).

This after-inflation trade deficit as a share of the entire economy stayed virtually unchanged from quarter to quarter – at 5.16 percent. But these are the kinds of levels that haven’t been seen since late during the last, bubble-decade expansion (in the third quarter of 2007). Their only saving grace is that they’re still well off the current record of 6.10 percent of GDP, also set during that bubble decade (in the third quarter of 2005).  Nonetheless, the Boeing effect shouldn’t be discounted here, either, as demonstrated in my recent RealityChek post. 

As for other trade-related highlights of the new GDP report:

>Total annualized real exports increased by 0.19 percent, from $2.5175 trillion in the second quarter to $2.5222 trillion.

>Inflation-adjusted goods exports rose at a somewhat faster rate – 0.39 percent sequentially, from $1.7753 trillion to $1.7823 trillion.

>Constant dollar services exports fell on-quarter for the second straight quarter – from $748 billion annualized to $746.3 billion. That total was their lowest since the second quarter of 2017’s $740.7 billion.

>Combined after-inflation goods and services imports were up by 0.29 percent, from $3.4982 trillion annualized to $3.5085 trillion – the second highest total on record after the $3.5116 trillion record in the fourth quarter of 2018.

>Constant dollar goods imports inched up by 0.11 percent sequentially, from $2.9417 trillion annualized to $2.9450 trillion.

>Inflation-adjusted services imports rose quarter to quarter from $557.2 billion annualized to $563.2 billion. That total represents a new record, surpassing the previous all-time high of $558.1 billion set in the first quarter of this year.

(What’s Left of) Our Economy: A Thoroughly Muddled Manufacturing Production Figure

17 Thursday Oct 2019

Posted by Alan Tonelson in (What's Left of) Our Economy

≈ 2 Comments

Tags

aluminum, Boeing, China tariffs, Federal Reserve, General Motors, General Motors strike, industrial production, inflation-adjusted output, manufacturing, metals tariffs, metals-using industries, recession, steel, supply chains, tariffs, trade war, {What's Left of) Our Economy

The latest U.S. inflation-adjusted manufacturing output numbers (for September) are now out, and they leave more muddled than ever the matter of how much (if any) damage American industry has suffered from President Trump’s tariff-heavy trade policies.

And it’s not just because of ongoing uncertainties about the effects of President Trump’s current and threatened China tariffs, and all the fluctuations in coverage and rates. It’s not just because of the month-long General Motors strike – which could end soon if the union rank-and-file approve the settlement agreed on by their leaders, and which the Federal Reserve itself (which tracks manufacturing output) fingered as a big culprit behind September’s lousy read. It’s also because of the impact of Boeing aircraft’s continuing safety woes (a subject on which the Fed has been strangely silent).

As I’ve reported, the Boeing effect finally showed up in the latest U.S. trade data – which is especially important given the aerospace giant’s reliance on exports. But it hasn’t appeared anywhere else, including the new manufacturing production figures, even though orders for Boeing jets have been dramatically slashed, and even though the company is a huge consumer of materials, parts, and components from other manufacturing sectors.

With all those cautions out on the table, here’s what the new Fed statistics showed. After-inflation domestic manufacturing output slid by 0.48 percent sequentially in September, the worst such result since April’s 0.87 percent decrease, and more than enough to keep industry overall in recession. Since July, 2018, its real output is down a total of 0.38 percent.

GM’s labor troubles clearly dragged the total number down. Constant dollar vehicles and parts production in September sank by 4.22 percent on month, its worst such performance since January’s 7.18 percent nosedive (when the federal government was still shut down, surely depressing consumer confidence).

The Fed made clear that “Excluding motor vehicles and parts, [its] overall [industrial production] index and the manufacturing index each moved down 0.2 percent.” (More precisely, the real manufacturing decline would have been only 0.15 percent without automotive.) Oddly, though, the Fed didn’t mention that any development that depresses vehicle and parts production is bound to ripple through all the industries making up its extensive supply chain, too.

Yet despite the export troubles revealed in the trade figures, the Fed’s statistics show that aircraft and parts production enjoyed a terrific September. Indeed, the 1.82 percent sequential jump was the biggest since March, 2014’s 2.42 percent.

Nor do sectors comprising the aerospace supply chain (which broadly overlaps considerably with automotive’s) seem to be lagging significantly, except for primary metals. For example, below are the inflation-adjusted output figures for some big supplier sectors and control groups since April (the first full data month following actions the world over grounding or banning from various air spaces Boeing’s 737 Max jets):

overall manufacturing: +0.44 percent

durable goods: +0.75 percent

primary metals: -3.38 percent

fabricated metals products: -0.17 percent

machinery: +1.19 percent

As for the impact of the trade wars, as usual, the consequences of the President’s tariffs on aluminum and steel are easiest to gauge, since they’ve been on the longest, and the major metals-using industries (the presumed leading victims) are so easy to identify. The table below represents the changes in their real output since April, 2018 (the first full month in which the levies were in effect), with the data for manufacturing overall used as a control group, and durable goods included because it’s the super-category in which most of the main metals-using industries are located:

                                           Old Apr thru Aug   New Apr thru Aug   April thru Sept

overall manufacturing:        +0.54 percent          +0.57 percent       +0.09 percent

durables manufacturing:     +1.98 percent          +2.00 percent       +1.25 percent

fabricated metals prods:     +1.88 percent          +2.07 percent       +1.85 percent

machinery:                         +0.67 percent          +1.39 percent           0 percent

automotive:                        +0.17 percent          +0.30 percent        -3.92 percent

major appliances:               -2.04 percent           -1.22 percent        -2.19 percent

aircraft and parts:              +4.39 percent          +3.54 percent        +5.43 percent

The results are mixed – and obviously the most recent automotive number has little to do with the metals duties. Otherwise, three of the remaining four metals users have gained momentum versus the rest of manufacturing (durables, appliances, and aircraft), although their output performances remain subdued in absolute terms, and machinery has lost momentum.

Unfortunately, this kind of analysis not only remains much more difficult for the impact of the China tariffs. But every twist and turn in the trade talks saga only increases the challenge. Primarily because of uncertainties stemming from differences between the manufactured goods classification systems used by the U.S. Trade Representative’s office (which publishes the lists of tariff-ed items) and the main system used by other U.S. government agencies (like the Fed), the sectors below are among the handful that are reasonably certain to have faced tariff pressure since the first duties were placed in imports from China in July, 2018. Each column shows the real output changes since their first full month in effect through July, August, and September of this year:

                                                  Aug thru July      Aug thru Aug      Aug thru Sept

overall manufacturing:             -0.89 percent       -0.33 percent       -0.81 percent

ball bearings:                            -2.32 percent       -2.26 percent       -2.30 percent

industrial heating equip:          -4.58 percent       -1.72 percent       -1.01 percent

farm machinery & equip:        -6.91 percent      +9.71 percent       -0.69 percent

oil/gas drilling platform pts:   -0.86 percent       -1.38 percent       -1.38 percent

As is clear, these results are even more mixed than for the metals-using industries – to which all of these products belong. And with the President’s trade policies all too likely to stay ragged as the 2020 elections come closer, “more confusion” looks like the safest prediction possible regarding American manufacturing production 

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Terence P. Stewart

Protecting U.S. Workers

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Real Estate + Economics + Gold + Silver

Reclaim the American Dream

So Much Nonsense Out There, So Little Time....

Mickey Kaus

Kausfiles

David Stockman's Contra Corner

Washington Decoded

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Upon Closer inspection

Keep America At Work

Sober Look

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Credit Writedowns

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Michael Pettis' CHINA FINANCIAL MARKETS

New Economic Populist

So Much Nonsense Out There, So Little Time....

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