(What’s Left of) Our Economy: New Ups & Downs for Manufacturing Production, but Recovery Still Incomplete

Tags

automotive, durable goods, Federal Reserve, Great Recession, industrial production, inflation-adjusted output, manufacturing, non-durable goods, recovery, {What's Left of) Our Economy

Domestic manufacturing has entered a period of output volatility, today’s new Federal Reserve figures indicate. Inflation-adjusted production in May – the latest data – fell sequentially (by 0.39 percent) for the second time in three months, following a six-month streak of sequential improvements. But April’s big rise was upgraded from one percent to 1.16 percent – the strongest such showing since May, 2010’s 1.49 percent, early in the current recovery. At the same time, March’s already downgraded 0.41 percent real monthly output decrease was lowered again, to a 0.75 percent slide. That was the worst such retreat since winter-affected January, 2014’s 1.09 percent.

Automotive revisions figured prominently in these upgrades and downgrades, with April’s initially reported five percent constant dollar monthly production surge now judged to be 4.12 percent. In May, after-inflation output for the sector, which has led generally led manufacturing’s rebound from the Great Recession, tumbled 2.02 percent on month.  

Durable goods – manufacturing’s biggest super-sector – was most seriously affected by the auto volatility.  Its April monthly real output was boosted to an upwardly revised 1.20 percent – the fastest such pace since February, 2014’s winter-affected 1.80 percent.  But its May after-inflation on-month production was dragged down to a 0.84 percent fall – the worst since the 0.99 percent decrease resulting partly from January, 2014’s similarly cold weather.    

Non-durables’ production performance has been steadier, with May’s 0.10 percent on-month real gain its fourth such improvement in five months. Moreover, April’s sequential inflation-adjusted production growth was upgraded from an already strong 0.98 percent to 1.10 percent – it best such performance since October, 2008’s 2.15 percent. And non-durables’ annual real output increase of 1.53 percent was its best year-on-year rise since February, 2016’s 1.55 percent.

All the same, the new figures and volatility left domestic manufacturing’s price-adjusted output 3.99 percent less than at its pre-recession peak, more than nine years ago.

Here are the manufacturing highlights of the Federal Reserve’s new release on May industrial production:

>U.S. real manufacturing output fell in May sequentially for the second time in three months. But the 0.39 percent decline – which followed six straight months of sequential growth – was modest compared with many of the March and April revisions, which could be starting a period of new volatility.

>April’s strong initially reported inflation-adjusted output rise of one percent was revised up to 1.16 percent. That was the best such performance since May, 2010’s 1.49 percent, when the manufacturing recovery from the Great Recession was still gathering steam.

>But March’s already downgraded 0.41 percent monthly real production decline was cut further, to 0.75 percent. That was domestic manufacturing’s worst such growth showing since the 1.09 percent fall-off in January 2014, which was affected by harsh winter weather.

>February’s last (downwardly revised) 0.27 percent monthly after-inflation output increase was revised back up to 0.38 percent.

>Some these swings can be traced to the automotive sector, which has led manufacturing’s real growth for most of the current economic recovery.

>April on-month price-adjusted auto production was initially reported to have advanced by five percent – its best growth since July, 2015’s 7.84 percent. Leading the way was a reported 8.04 percent surge in real vehicle output, also the best since July, 2015 (12.38 percent).

>The new April numbers: 4.12 percent and 6.76 percent, respectively. And in May, constant-dollar production fell by 2.02 percent.

>Automotive’s ups and downs most profoundly affected production of durable goods – manufacturing’s largest super-sector.

>The poor May automotive performance contributed to the 0.84 percent sequential durable goods real production shrinkage that month – the worst such decline since winter-affected January, 2014’s 0.99 percent.

>But the initially reported 1.01 April monthly durables production advance is now estimated at 1.20 percent – the super-sector’s fastest growth since the winter-affected 1.80 percent in February, 2014. Combined with the lower automotive results, this development indicated some relative strength outside automotive.  

>And thanks to the strong and upwardly revised April monthly figures, durable goods year-on-year after-inflation production gain that month was upgraded from 2.03 percent to 2.22 percent – still the best such increase since January, 2015’s 3.15 percent, which was also affected by harsh winter weather.

>In April, however, the annual durable goods real output improvement sank to 1.66 percent.

>The new Fed figures show that real output in non-durable goods has been steadier than in durables, but April was a standout nonetheless. Their robust sequential output growth of 0.98 percent was revised up to 1.10 percent – which produced the best monthly result since the 2.15 percent recorded in October, 2008 – even before the Great Recession broke out.

>And non-durables followed up by eaking out 0.10 percent monthly inflation-adjusted production growth in May – their fourth such advance in the last five months.

>Further, the 1.53 percent May non-durables annual constant dollar output increase was its best yearly result since February, 2016’s 1.55 percent.

>Yet not even this recent volatility could turn domestic manufacturing into a recovery-era economic winner. The overall sector is still 3.99 percent smaller in real terms than at its pre-recession peak – more than nine years ago, in December, 2007.

>Durable goods real output is up – but by only 0.13 percent – during this time, while non-durables real output is down 9.08 percent from its pre-recession peak, hit in July, 2007.

(What’s Left of) Our Economy: Where Trump Deserves High, Low, and “Incomplete” Marks on Germany Trade

Tags

advanced manufacturing, automotive, commodities, comparative advantage, Financial Crisis, Germany, Global Imbalances, Great Recession, innovation, manufacturing, productivity, Trade, Trade Deficits, trade surpluses, Trump, {What's Left of) Our Economy

As I’ve suggested, President Trump has big, valid points to make about Germany’s auto trade with the United States. Not only does America run an enormous deficit with Germany in vehicles and parts, but claims that Germany deserves great praise from Washington because it makes so many vehicles in the United States are completely unjustified. For they overlook its companies’ very low levels of U.S. content and only very modest improvement on this score. That is, German vehicles are overwhelmingly screwed together in the United States, and therefore add much much less value to the American economy than autos made with domestic parts.

The trouble is that America’s troubles with German trade policies greatly transcend the automotive industry and, to a great extent, Germany. I’ve previously written that there’s a fundamental problem that both the administration and it’s critics are missing:  Germany’s economy, like China’s and many others around the world, is simply not structured in such a way as to make mutually beneficial trade with the United States possible.

But there’s another big U.S.-Germany trade issue that needs highlighting, along with a major danger that Bonn’s approach to trade is creating for the entire world – at least in the medium or long-term.

That other U.S. Germany trade problem has to do with the makeup of bilateral commerce. If you look at the nature of what the United States trades most successfully with Germany and vice versa, you find that the former category contains a mix of high value manufactures and commodities, while the latter is dominated by advanced industrial goods. Here are lists of the sectors in which America last year ran its biggest trade surpluses and deficits with Germany. (To the surplus list should be added – prominently – aircraft, which are not counted accurately in the U.S. International Trade Commission database I’m relying on.)

Top ten U.S. trade surpluses with Germany: 

glass products 

tree nuts 

soybeans 

computers 

non-costume jewelry 

non-anthracite coal & petroleum gases 

fin-fish products

computer parts 

surgical appliances and supplies 

pulp mill products 

 

Top ten US deficits with Germany

autos and light trucks 

pharmaceuticals

goods returned from Canada 

motor vehicle transmissions and transmission parts

aircraft engines and engine parts

construction machinery

miscellaneous general purpose machinery 

miscellaneous basic org chemicals 

miscellaneous engine equipment 

motor vehicle parts

These results are disturbing because, contrary to the superficial conventional wisdom, if you take seriously standard trade theory and its core concept of comparative advantage, sectoral trade balances matter tremendously. For the main idea behind the freest possible international trade is structuring the world economy so as to enable those countries most proficient at producing various goods and services to dominate their output. So surpluses and deficits in different industries show which countries are passing and failing this test – and thus which countries look likely eventually to control worldwide supplies of the sophisticated goods that create so many high wage jobs and foster so much innovation and productivity growth.

Since the U.S.-Germany data aren’t U.S.-global data, in theory they could be anomalies. In other words, Americans could be doing better with the world as a whole, and therefore, the nation’s prospects in high value industries could be a lot brighter. Unfortunately, that’s not the case at all. The makeup of U.S.-Germany trade isn’t terribly different from the makeup of U.S. global trade, in that America’s trade winners are, again, a mix of commodities and high value goods (again, including aircraft), and its losers are nearly all advanced sectors.

Top ten US surpluses globally

petroleum refinery prods

soybeans

special classification goods

plastics materials andcresins

waste and scrap

corn

liquid natural gas

semicaonductor manufacturing equipment

non-poultry meat products

turbines and turbine generator sets

 

Top ten US deficits globally

autos and light trucks

crude oil and natural gas

goods returned from Canada

broadcast and wireless communications equipment

computers

pharmaceutical products

telecommunications equipment

audio and video equipment

aircraft engines and engine parts

games, toys, and children’s vehicles

Yet Germany also is contributing significantly to a major trade-related threat that threatens the entire world, not just the United States. I’ve repeatedly spotlighted blue chip academic research concluding that unprecedented global imbalances centered on American trade shortfalls were instrumental in setting the stage for the last global financial crisis and the painful recession that followed. Worse, evidence keeps accumulating that international commerce is becoming worrisomely lopsided again, and that Germany’s overall international surpluses – currently the world’s largest – have generated much of the problem.

Indeed, a valuable reminder came in this morning’s Washington Post:

“[G]ermany is one of a number of countries, including China, Japan, and South Korea that are now saving far more than they are either consuming or investing….At some point, the world will be unable to absorb the capital surpluses of Germany, China and others, leading to another painful correction that might undermine the liberal order.”

Interestingly, Germany itself has indirectly acknowledged these risks, and hinted that it recognizes some responsibility to get the surpluses down. Unfortunately, Berlin has demonstrated few signs of following through. So although some of President Trump’s focus on the German trade issue seems off target, it’s also clear that the sense of urgency he’s brought to the issue, from both an American and global standpoint, is not only appropriate, but necessary.

(What’s Left of) Our Economy: Modest Trade Improvement Helps Lift U.S. Growth a Bit

Tags

exports, GDP, Great Recession, gross domestic product, imports, Made in Washington trade deficit, real GDP, real trade deficit, recovery, Trade, trade deficit, {What's Left of) Our Economy

The government’s first revision of first quarter gross domestic product (GDP) figures showed that the inflation-adjusted trade deficit shrank slightly more than originally reported on a sequential basis, and therefore boosted growth by fractionally more (0.13 percentage points rather than 0.07 percentage points). Nonetheless, the quarter-to-quarter positive swing in trade’s growth role (1.95 percentage points) now matches the biggest such change since the fourth quarter of 2010. The $599.9 billion quarterly real trade still represented the second biggest quarterly total since the $623.7 billion run up in the first quarter of 2008, just after the last recession officially began.

The new GDP figures show all of the major categories of after-inflation exports and imports still at new quarterly records, with the former generally fractionally higher and the latter generally fractionally lower. (Services exports were the exception.) The cumulative growth drag created by the real trade deficit’s increase during the current, historically feeble economic recovery shrank from 9.70 percent in the advance first quarter GDP read to 9.32 percent. Separate Census data show that the Made in Washington trade drag declined in the first quarter as well, but at 21.26 percent still represented nearly $533 billion in foregone real output.

Here are the trade highlights from this morning’s GDP report:

>The government’s second look at first quarter U.S. gross domestic product (GDP) showed that a slightly smaller real trade deficit than previously reported made a slightly larger contribution to inflation-adjusted growth.

>The new $599.99 billion annualized trade deficit number (down from the previously reported $605 billion) means that the shortfall shrank sequentially by 0.84 percent. As a result, trade’s absolute boost to growth (0.13 percentage points) was larger than the 0.07 percentage point figure reported last month.

>Moreover, the quarterly positive swing in the trade’s growth role from the fourth quarter of last year (when it subtracted 1.82 percentage points) grew to 1.95 percentage points – matching the biggest such total since the fourth quarter of 2010.

>At the same time, this quarterly trade gap was still the second largest since the $623.7 billion deficit registered in the first quarter of 2008, as the economy was just starting to succumb to the Great Recession.

>All categories of exports and imports tracked in the real GDP figures remained at new quarterly records in the first quarter, with all export totals except for services exports rising modestly, and all import totals falling modestly.

>Combined annualized goods and services exports in the first quarter were upgraded from $2.1675 trillion to $2.168 trillion – 1.43 percent higher than the fourth quarter’s level. The previous quarterly all-time high had been $2.1620 trillion annualized, set in the third quarter of last year.

>The goods export total was revised up from $1.4828 trillion to 1.4832 trillion – an increase of 2.04 percent over the fourth quarter. The previous record of $1.4792 trillion was also set in third quarter, 2016.

>Services exports remained unchanged at $685.8 billion annualized – and still topped the previous record of $684 billion record set in the first quarter of 2015.

>Total annualized first quarter imports were pegged at $2.7679 trillion – a bit lower than the previously reported $2.7703 trillion level, and 0.93 percent higher than the fourth quarter total. The new first quarter level still bested the previous $2.7424 billion record of that fourth quarter.

>Goods imports also were revised down fractionally, from $2.2797 trillion to $2.2782 trillion. That still represented a 1.03 percent increase over the fourth quarter level of $2.2549 trillion – the previous record.

>Services imports were reported last month at their eighth straight quarterly record., and they remained so in today’ report. But the previous $488.3 billion figure was revised down to $487.4 billion – a 0.47 percent sequential increase.

>According to these new GDP figures, the trade drag on the current, historically weak, economic recovery was smaller in the first quarter than previously estimated. The 9.70 percent figure was revised down to 9.32 percent – somewhat lower than the fourth quarter’s 9.71 percent. The new data mean that the economy has grown by $233.6 billion less in real terms during the recovery due to the increase in the real trade deficit.

>The trade drag created by the Made in Washington deficit is still more than twice as great, according to the GDP data and separate figures compiled by the Census Bureau. But it, too, has been slightly downgraded.

>This deficit strips out U.S. trade in oil (which is rarely the subject of trade deals or related policy decisions) and services (where liberalization has made relatively little progress). The growth of the remaining real non-oil goods deficit during the current recovery has slowed cumulative inflation adjusted growth by fully 21.26 percent.

>That’s down from the 21.67 percent growth loss that could be calculated from the previous GDP report, but it will means that the growth of this policy-influenced trade deficit has cost the U.S. economy $532.9 billion in cumulative inflation-adjusted production during this recovery.

Im-Politic: More Evidence that Trump-ers Were Mainly Voting Their Pocketbooks

Tags

Commerce Department, Great Recession, Hillary Clinton, Im-Politic, inflation-adjusted growth, manufacturing, recovery, states, Trump

One of my favorite statistical reports just came out a week ago – the Commerce Department’s survey of economic growth last year in each of the 50 states plus the District of Columbia. I like the report so much mainly because it’s accompanied by the release of figures that show how much manufacturing production changed in real terms on an annual basis – and therefore gives us another indication as to whether or not the sector really has recovered from the Great Recession completely. (Spoiler alert: It hasn’t. But more on that later.)

This year, the new state numbers provide some new insights into why last year’s presidential election turned out as it did. Specifically, it shows a strong relationship between a state’s economic performance and its award of electoral votes to President Trump or his Democratic rival, former Secretary of State Hillary Clinton.

To begin, here’s a list of the “Top Ten” states that enjoyed the fastest inflation-adjusted growth between 2015 and 2016. (Because of ties, there are actually 21 of them). Their real percentage growth in 2016 is next to their names, then comes their rank (in parentheses) and then their presidential choice:

Washington 3.7 (1) Clinton

Oregon 3.3 (2) Clinton

Utah 3.0 (3) Trump

NH 3.0 (3) Clinton

Fla. 3.0 (3) Trump

Georgia 3.0 (3) Trump

Utah 3.0 (3) Trump

Calif. 2.9 (4) Clinton

Nevada 2.4 (5) Clinton

DC 2.4 (5) Clinton

Arizona 2.1 (6) Trump

So. Carolina 2.1 (6) Trump

Hawaii 2.1 (6) Clinton

Tenn. 2.0 (7) Trump

Colorado 2.0 (7) Clinton

Mass. 2.0 (7) Clinton

Idaho 1.8 (8) Trump

Michigan 1.8 (8) Trump

Ohio 1.7 (9) Trump

So. Dakota 1.7 (9) Trump

No. Carolina 1.6 (10) Trump

At first glance, the election seems like a toss-up in terms of the economic winner states, with Mr. Trump winning twelve and Clinton nine. But in terms of one of the main questions posed about the president’s supporters – whether they were motivated mainly by economic concerns or by other hopes or fears (ranging from racism and xenophobia to mistrust of Clinton) – this list looks like it points to the latter.

But here’s where some context needs to be considered. After all, the president won 32 (or 62.75 percent) of the states (including D.C.) up for grabs. Clinton won only 19. But the Trump share of the economic winners was somewhat lower – 12 of 21, or 57.4 percent. So maybe economic issues were fairly prominent among the Trump-ers.

More convincing evidence comes from the list of the worst performing states in 2016. Here they are in the same format used for the first list. (These states total eleven due to a tie):

No. Dakota -6.5 (1) Trump

Alaska -5.0 (2) Trump

Wyoming -3.6 (3) Trump

Oklahoma -2.3 (4) Trump

West Va. -0.9 (5) Trump

Louisiana -0.6 (6) Trump

New Mex. -0.5 (7) Clinton

Kansas 0.2 (8) Trump

Montana 0.2 (8) Trump

Texas 0.4 (9) Trump

Delaware 0.3 (10) Clinton

In fact, this evidence couldn’t be clearer. President Trump won nine of these eleven slowest-growing states.

These results don’t finally resolve the debate over Trump voters by a long shot – if only because the nation’s population is so unevenly distributed among states, and because of the winner-take-all nature of the Electoral College (except in Maine and Nebraska). Moreover, there’s not always such a bright line between economic and non-economic concerns, and many voters base their choices on several considerations.

Finally, it would be important to examine the economic growth trends over a longer period of time. That way, we could see whether various states’ expansion or contraction last year was consistent with longer-term trends or whether they were outliers. (Those distinctions presumably would have some influence over voters’ views of their own fortunes and the appeal of incumbents – or representatives of incumbent administrations – and challengers.)

But the news that nine of the 19 states won by Clinton were among the nation’s fastest growers, and only two were among the slowest, lends more support to the view that pocketbook issues created a big divide in the electorate last year.

And about that manufacturing news: The industry data released along with the new states growth shows that American domestic manufacturing’s output fell by 0.15 percent in constant dollar terms. That’s not much, but recall that it’s only a tenth as fast as even the negligible growth registered by the economy as a whole after inflation – 1.54 percent.

And thanks largely to this down year, from the last quarter of 2007 (when the Great Recession began) until the last quarter of last year (the latest quarterly data available), real manufacturing production shrank by 2.37 percent. As RealityChek readers know, there are several measures of manufacturing output used by the government – but they also know that most, like these latest data, show that the claim that America’s manufacturers have never turned out more product in this country than ever in the nation’s history are just peddling fakeonomics.

(What’s Left of) Our Economy: New Peterson Pro-Globalization Study Only Deserves a “Nice Try”

Tags

China, Financial Crisis, Gary C. Hufbauer, Global Imbalances, globalization, Great Recession, Larry Summers, manufacturing, Peterson Institute for International Economics, productivity, secular stagnation, technology, Trade, trade agreements, trade liberalization, trade policy, World Trade Organization, {What's Left of) Our Economy

The Peterson Institute’s new study of the benefits to Americans of globalization apparently leaves no doubt that the nation should promptly forget about any retreat from conventional trade liberalization policies and resume its aggressive pursuit of new trade agreements like the Trans-Pacific Partnership (TPP). Or does it? A close reading of the report reveals gaping holes in these claims.

According to authors Gary C. Hufbauer and Zhiyao Lu, between 1950 and 2016, “trade expansion” has enriched the overall U.S. economy by $2.1 trillion, and boosted America’s output per head and per household by just over $7,000 and $18,000, respectively. Even better, lower-income households probably gained the most (since the greatest trade liberalization progress has been made in the goods that comprise so much of their consumption).

Yet the phrase quoted in that previous paragraph points to the first big hole in the Peterson findings. “Trade expansion’s” benefits, the authors specify, entails much more than either signing new trade deals or otherwise reducing trade barriers. It also includes “technological advances in transportation and communications [that] have drastically slashed the economic distance between countries.”

Of course, there’s been a lot of the latter over the last 66 years. What share of expanded trade’s benefits has come from trade liberalization policy decisions and what share from that technological progress? Darned if the authors know.

The long time frame, in turn, reveals a second major problem with the central argument. Obviously over that last two-thirds of a century, the world economy, and America’s position in it, have changed in numerous and fundamental ways. One prominent example: For the first roughly three post-World War II decades, the United States was the only fully intact developed country. How could trade liberalization not have been a major net benefit? America produced countless products that the rest of the world desperately needed. And none of its important industries faced significant import competition until the 1970s. That doesn’t sound much like current circumstances.

And in fact, Hufbauer and Lu acknowledge this problem, noting, for example, that “compared to previous decades, increased trade since 2003 has not delivered substantial gains.” At this point, however, their analysis gets dicey. For example, they speculate that that low recent payoff resulted partly from “the lack of fresh policy liberalization on a large scale (the failure of the Doha Round)….” But that period actually saw a hugely important liberalization initiative completed – China’s accession to the World Trade Organization. And don’t forget the numerous free trade deals signed by the George W. Bush and Obama administrations, including with South Korea’s very large economy.

Moreover, although Hufbauer and Lu rightly note that the financial crisis and Great Recession also have marked the post-2003 period, they claim that “The decade that experienced the greatest gains from increased trade was 1970 to 1980.” That decade witnessed no less than two recessions (three if you count the 1980 downturn).

Undaunted, the authors contend that returning to the trade liberalization policy course will result in even more American wealth creation. But here’s where their discussion of the post-2003 period fails badly – and unmistakably. They never mention that, thanks largely to that aforementioned boost to incredibly lopsided U.S.-China the first decade of this century produced the greatest U.S. trade deficits and associated global economic imbalances in world history. They ended in the financial crisis and the nation’s worst economic downturn since the Great Recession.

Since America’s main trade partners – including China – seem either just as export-dependent, and/or just as import-and consumption-phobic as ever, it’s difficult to understand why a return to conventional trade diplomacy, combined with the cumulative and often lagged impact of past deals (as noted by Hufbauer and Zu) wouldn’t end in near-catastrophe again.

Another big problem: Former Treasury Secretary and chief Obama economic adviser Larry Summers, along with many others, worry that the United States has fallen into an economic trap they call “secular stagnation.” They speculate that the nation has become so incapable of generating healthy growth that it’s grown dependent on blowing up credit and consumption bubbles to at least produce (misleading) signs of economic life – and that these bubble’s inevitable bursting keeps creating financial crises and serious slumps. Do Hufbauer and Zu believe that the sandbagging of domestic manufacturing (which hasn’t grown in real terms since 2006) due to import competition and offshoring isn’t partly to blame? 

Finally, and similarly, American leaders have finally recognized that the economy is experiencing a major productivity growth slowdown. Can trade liberalization’s real economic impact be measured without considering the effect on productivity of allowing all that trade damage to manufacturing, which historically has led the nation in productivity growth?  

It’s definitely encouraging that a major think tank like the Peterson Institute is looking in detail at globalization’s impact on America’s economy.  Let’s hope that its next effort reflects some actual thinking.  

(What’s Left of) Our Economy: New GDP Figures Reveal Record, Growth-Killing Jump in Real Trade Deficit in Late-2016

Tags

exports, GDP, goods, Great Recession, gross domestic product, growth, imports, inflation-adjusted growth, Made in Washington trade deficit, non-oil goods trade deficit, real GDP, real trade deficit, recovery, services, trade deficit, {What's Left of) Our Economy

The government’s third and final (for now) figures for fourth quarter and full-year 2016 gross domestic product (GDP) revealed that the U.S. real trade deficit recorded its biggest quarterly increase since these figures have been tracked (15.86 percent). Worse, trade took its greatest absolute toll on inflation-adjusted quarterly growth (1.82 percent out of a 2.06 percent annualized increase) since the second quarter of 2004 (1.84 percent out of a 2.93 percent annualized increase).

The new GDP report also showed that, from quarter to quarter, the cumulative trade drag on the current, feeble American recovery rose from 6.57 percent to 9.71 percent. Separate Census figures show that, through 2016, the growth of the Made in Washington trade shortfall (which strips out energy and services) slowed growth by almost twice as much (17.64 percent).

The record fourth quarter real trade deficit per se was revised up from a record $599.6 billion annualized to $605 billion – and remained the biggest such gap since the first quarter of 2008, in the aftermath of the recession’ onset. Meanwhile, the annual 2016 trade deficit was revised up from $561.6 billion to $563 billion – the highest total since 2007.

Quarterly services exports after inflation were revised down from a record $685.5 billion annualized to a non-record $683.8 billion, but the import figure was revised up to set a new record – $485.1 billion annualized. Quarterly total imports and goods import totals were revised up from newly set records – to $2.7424 trillion and $2.2549 trillion annualized, respectively.

All annual real import categories saw previously reported annual record totals revised higher. Annual combined goods and services exports remained at all-time highs, but were revised down slightly to $2.1282 trillion annualized. All annual import categories, which set new quarterly records in late 2016, saw those numbers revised higher – to $2.6912 trillion for combined goods and services imports; to $2.2101 trillion for goods imports; and to $478.7 billion for services imports.

Here are the trade highlights from this morning’s GDP report:

>The new and final (pending the next benchmark revision) fourth quarter and full-year 2016 GDP report made clear that the end of last year saw an even worse American trade performance – dominated by the wrong kinds of records and multi-year worsts – than reported in the previous estimate. And the main victim was the U.S. economy and its still-feeble recovery.

>The sequential jump in the inflation-adjusted trade deficit was revised upward from 14.82 percent to 15.86 percent – the worst such deterioration since the Commerce Department began presenting this figure in 1999.

>As a result, the bite taken by the real trade deficit’s latest sequential growth (1.82 percentage points out of a 2.06 percent annualized real expansion) was the biggest in absolute terms since the second quarter of 2004, when trade subtracted 1.84 percentage points from annualized growth of 2.93 percent.

>The new figures mean that as of the end of 2016, trade had reduced the U.S. economy’s real cumulative growth during the current recovery by 9.71 percent, or $238.7 billion. As of the end of the third quarter, the drag was 6.57 percent.

>Separate figures from the Census Bureau show much greater damage has been inflicted on the economy by a different set of U.S. trade flows – constant-dollar imports and exports minus energy and services, which have not been significantly affected by American trade agreements and similar policy decisions. The rapid growth of the inflation-adjusted American trade deficit stripping out these two sectors – which has been Made in Washington – has slowed cumulative U.S. growth during this recovery by fully 17.64 percent, or $433.43 billion.

>The fourth quarter after-inflation trade deficit was revised up from $599.6 billion annualized to $605 billion – still the highest such total since the first quarter of 2008 ($623.7 billion), shortly after the Great Recession began.

>The full-year 2016 trade deficit was revised up from $561.6 billion after inflation to $563 billion. That represented the highest annual real trade deficit since 2007 ($712.6 billion) – the last pre-recession year – and a 3.68 percent rise from 2015’s $540 billion.

>This morning’s trade figures showed that one real export record reported in the previous GDP estimate is now gone: Quarterly price-adjusted services exports were revised down from $685.5 billion to $683.8 billion – still the third best total on record.

>Unfortunately, after-inflation services imports hit their own new all-time high, as their fourth quarter total was revised up from $483.9 billion annualized to $485.1 billion.

>New quarterly records reported in the previous estimate for two import categories – total imports and goods imports – were both revised even higher this morning. The former total increased from $2.7935 trillion annualized to $2.7424 trillion, while the latter were upgraded from $2.2533 trillion annualized to $2.2549 trillion.

>Annually, inflation-adjusted 2016 goods and services exports remained at a record, as reported in the previous GDP estimate. But the figure was revised down slightly from $2.1399 trillion to $2.1282 trillion. As a result, the annual increase is now 0.36 percent.

>New records were augmented in all import categories. Combined goods and services imports were judged this morning to be $2.6912 trillion instead of $2.6901 trillion. As a result, the 2016 annual increase was 1.15 percent.

>Real goods imports in 2016 were revised up from $2.2097 trillion to $2.2101 trillion. As a result, the annual increase was 0.73 percent.

>Real services imports last year are now pegged at $478.7 billion, not $478.3 billion. As a result, the annual increase was 3.08 percent.

>Estimates were also raised for the real trade deficit’s share of the economy. Previously estimated at 3.57 percent of real GDP for the fourth quarter, the new figure is now 3.60 percent. That’s the highest level since the fourth quarter of 2008 (3.64 percent).

>For all of 2016, the real trade deficit is now judged to be 3.38 percent instead of 3.37 percent. That’s the highest level since 2008 (3.76 percent).

(What’s Left of) Our Economy: An Eight-Year (But Not All-Time) High for Real U.S. Manufacturing Output

Tags

durable goods, Federal Reserve, Great Recession, industrial production, inflation-adjusted growth, manufacturing, non-durable goods, recovery, {What's Left of) Our Economy

The Federal Reserve’s new industrial production report today showed that the strongest back to back real increases since February and March, 2014 drove domestic industry to its highest inflation-adjusted output level since June, 2008 – shortly after the official onset of the Great Recession. As a result of the broad-based improvement, manufacturing’s February constant-dollar year-on-year growth (1.39 percent) since April, 2015 (1.46 percent). Three of the last four monthly figures have now been revised positively. A new all-time high was recorded for inflation-adjusted durable goods production, leaving it 2.72 percent larger than at the last recession’s onset.

One big sign of domestic manufacturing’s continuing challenges: Real production is still 2.83 percent below the levels it hit when the Great Recession began – more than nine years ago. Moreover, the bigger manufacturing picture could be significantly altered by the Fed’s release at the end of this month of revisions going back to 2015. 

Here are the manufacturing highlights of the Federal Reserve’s new release on February industrial production: 

>In February, the first consecutive monthly U.S. real manufacturing output increases of 0.50 percent or better in three years helped industry reach its highest inflation-adjusted production levels since the early months of the Great Recession. 

>The 0.51 percent sequential gain in February – which is still preliminary – followed an upwardly revised 0.54 percent gain in January. The result was the first such growth since February and March, 2014 (0.70 percent and 1.07 percent, respectively). 

>Moreover, the new data look even better considering that these 2014 figures in part reflected a bounce-back from an unusually harsh winter. 

>In addition, February’s year-on-year after inflation manufacturing output improvement of 1.39 percent was the best recorded since April, 2015’s 1.46 percent. 

>The February manufacturing improvement was broad-based. Durable goods’ real output rose sequentially by 0.58 percent, and non-durables comparable production was up 0.42 percent. 

>Another sign of breadth – inflation-adjusted manufacturing production increased by 0.45 percent even after stripping out the automotive sector that has led industry’s rebound for much of the current economic recovery. 

>Generally positive revisions also buoyed manufacturing’s recent growth performance. November’s monthly advance was upgraded for a second time, from 0.04 percent to 0.06 percent. December’s initially upgraded sequential improvement of 0.26 percent was revised down a tick to 0.25 percent. But January’s initially reported 0.22 percent gain more than doubled – to 0.54 percent.

>Yet even after these new strides, price-adjusted U.S. manufacturing production still remains 2.83 percent below its level in December, 2007 – when the Great Recession officially began. Further, the Fed’s release on March 31 of revisions going back to 2015 could significantly change the manufacturing data. 

>February’s figures put real durable goods output at a new all-time high. The sector is now 2.72 percent bigger in constant-dollar terms than at the recession’s onset. 

>Further, it’s 1.86 percent year-on-year constant dollar growth was its fastest since November, 2013’s 2.67 percent. 

>In February, non-durable goods’ after-inflation output hit its highest level in more than eight years. The super-sector is now 0.91 percent bigger than it was in November, 2008. 

>But its 0.82 percent annual February growth was only its best since last March’s 0.77 percent. 

>Moreover, non-durable goods output after inflation is still 9.40 percent below its pre-recession peak, reached in July, 2007.

(What’s Left of) Our Economy: With the Fed Seemingly Set to Tighten Again, Real Wages are in Recession

Tags

BLS, blue-collar workers, Bureau of Labor Statistics, Federal Reserve, Great Recession, inflation-adjusted wages, manufacturing, real wages, recovery, Trump, wages, {What's Left of) Our Economy

If you had any doubts that American workers are experiencing a dramatic slowdown in inflation-adjusted wages, the newest figures on this pay indicator just put out by the Bureau of Labor Statistics (BLS) should emphatically dispel them. In fact, they make clear that the nation is now stuck in a technical real wage recession – meaning that constant dollar hourly wages have fallen on net for at least two straight quarters. Moreover, when looking over the last two years, the worst results have been registered in price-adjusted hourly pay for blue-collar workers.

Keep that in mind if the Federal Reserve, as expected, announces a new tightening of monetary policy this afternoon, in large measure because the U.S. labor market supposedly has healed the wounds suffered during the Great Recession and the historically weak recovery that followed it.

For all private sector workers and for manufacturing workers, constant dollar hourly pay is down 0.19 percent since last March. And for blue-collar workers in these swathes of the economy, the story actually is slightly worse. Production and non-supervisory employees in the private sector overall have seen their after-inflation hourly pay fall by 0.33 percent since last February. For their counterparts in manufacturing, real wages are down 0.12 percent since December, 2015. (Government workers’ wages aren’t tracked by BLS, because they’re set largely by politicians’ decisions, not by market forces. Therefore, they tell us little about the economy’s fundamentals.)

And the new real wage figures add to the evidence – presented at RealityChek last month – that increases in such take-home pay adjusted for prices have slowed dramatically over the last year.

Here are the new numbers for all private sector workers:

February, 2014-15: +2.03 percent

February, 2015-16: +1.33 percent

February, 2016-17: 0 percent

And the new results for private sector production and non-supervisory workers:

February, 2014-15: +2.15 percent

February, 2015-16: +1.77 percent

February, 2016-17: -0.33 percent

Here are the figures for all manufacturing workers”

February, 2014-15: +1.33 percent

February, 2015-16: +1.32 percent

February, 2016-17: +0.09 percent

And finally, here are the new data for blue-collar manufacturing employees:

February, 2014-15: +1.90 percent

February, 2015-16: +1.75 percent

February, 2016-17: -0.57 percent

In fact, the only piece of good news in the new BLS report is that the January and February real wage figures are still preliminary. But unless they see unprecedented upward revisions, or constant dollar wages enjoy a strong rebound in the next few months, expect the real wage numbers to start turning up the political heat both for a Federal Reserve that’s apparently thinking “Mission Accomplished,” and a president apparently convinced that his mere election is speeding up the recovery.

(What’s Left of) Our Economy: A “C” for Obama on Manufacturing – Thanks to Automotive

Tags

automotive, Federal Reserve, Great Recession, high tech goods, industrial production, inflation-adjusted growth, manufacturing, Obama, recovery, Trump, {What's Left of) Our Economy

Thanks to last week’s Federal Reserve industrial production data for December, we now have more full-year 2016 statistics on the economy. Even better, we can construct a detailed report card for the Obama years on another crucial front – domestic manufacturing output. These numbers will be revised several times more in the next few months, but so far, it’s hard to give the previous administration more than a “C.”

The latest monthly and annual changes for the factory sector as a whole and for the durable goods and non-durable goods super-sectors can be found in my same day report on the latest Fed release. But the figures for specific industries are vital, too, and they’re sending two important messages.

The first is that even though the entire manufacturing sector just barely crawled out of recession toward the end of last year, many specific segments remain mired in a two-year downturn – including some highly unlikely suspects. The second is a confirmation that without an extraordinary boom in the automotive sector, American industry would still be slumping. Indeed, vehicles and parts outperformed even the high tech goods sector during the Obama years. Maybe that’s why President Trump seems so obsessed with preventing more of their offshoring to Mexico?

The government divides manufacturing into 20 major components – eleven durable good industries and nine in the somewhat smaller non-durables category. Of these 20 sectors, only nine increased production in real terms between 2015 and 2016: wood products; primary metals products; non-electrical machinery; computer and electronics products; automotive; miscellaneous manufactures; food, beverages and tobacco; paper; and petroleum and coal products.

The leader was automotive (which grew after inflation by 6.58 percent), but the computer and electronics products industry was the only other sector registering annual constant-dollar growth by more than two percent (with 2.96).

The 2016 manufacturing output losers were led by the small “other manufacturing” sector, where price-adjusted output tumbled by 6.46 percent. But four other industries saw constant-dollar annual production declines of more than two percent: electrical equipment, apparel and leather, printing, and – this is sure unexpected – aerospace and miscellaneous transportation (which of course includes all those Boeing airliners).

And here’s a sign that at least some of the relatively strong 2016 performers were largely recovering from lousy 2015s. Three of the nine that grew at all are still in two-year-long recessions (primary metals, non-electrical machinery, and paper).

If you look in even more detail at U.S. manufacturing, the list of industries that has been stuck in two-year recessions gets really disturbing. For it includes many high-value sectors that generate an outsized share of the economy’s productivity growth and innovation – along with high wage jobs. But the after-inflation output of the following sectors is down on net since at least December, 2014: pharmaceuticals; iron and steel products; ball and roller bearings; construction equipment; machine tools; power generation equipment and turbines; and aircraft and parts.

The new Fed data reveal that, during the Obama years overall (starting in January, 2009), domestic manufacturing output expanded in real terms by 15.88 percent. And since the beginning of the economic recovery (June of that year), it’s up by 20.89 percent. That’s a good performance, but as RealityChek regulars know, they came after the worst manufacturing downturn since the Great Depression, and still leave domestic industry more than four percent smaller than at the start of that latest recession.

That’s why, incidentally, it’s difficult to compare manufacturing under the former president with manufacturing under George W. Bush or any of their recent predecessors. Bush’s presidency, for example, started as the dotcom-driven (and unsustainable) manufacturing expansion of the Clinton years was ending. A significant, but far from catastrophic, industrial downturn followed. But that Great Recession struck at the end of the Bush years, and badly distorts the output numbers if you’re measuring “by president.”

Automotive was the pace-setter in the Obama manufacturing expansion by a long shot. Since Mr. Obama’s first inauguration, its inflation-adjusted production jumped by just over 167 percent, and since the recovery official began six months later, it expanded by just under 168 percent. The lion’s share of output during both periods was in vehicles, where constant-dollar production more than tripled – though parts output increased by more than 130 percent during the Obama years as well.

American industry’s worst performer was that small other manufacturing sector, which has shrunk by more than 30 percent. Output in real terms fell in the apparel and leather, and printing industries under Mr. Obama – which shouldn’t surprise anyone. But it also dropped in the enormous chemicals industry (by a little less than one percent) – which should.

Information technology hardware – semiconductors, computers, and communications equipment – grew robustly, too, in constant dollars during the Obama years (by more than 102 percent) and during the recovery (by a bit more). But these producers clearly were left in the dust by automotive. (And it’s important to remember that high tech industries’ real growth is probably overstated, for reasons explained here.)

And here are the real stunners: If you remove the automotive sector from the real manufacturing output totals, industry’s output improved by only 12.34 percent during the current recovery (not 20.89 percent) and a mere 7.37 percent since the first Obama inauguration (not 15.88 percent). Over a seven-year period, that’s a pittance. Strip out high tech hardware, and manufacturing’s real growth is less, too – but it would still have risen by 15.71 percent during this recovery and 10.25 percent during the previous administration.

These industrial production figures depict President Trump’s focus on reshoring automotive production and keeping it stateside as a no-brainer. By the same token, they indicate that domestic manufacturing’s fortunes could depend heavily on whether or not he succeeds.

(What’s Left of) Our Economy: Government is Still (Indirectly) Driving Too Much U.S. Job Creation

Tags

Great Recession, health care services, Jobs, Obama, private sector, recovery, subsidized private sector, Trump, {What's Left of) Our Economy

Time for one of my favorite exercises in figuring out the American economy’s real strengths and weaknesses – as opposed to those reported by the usual mainstream media suspects. In other words, here’s what Friday’s new monthly U.S. jobs report tells us about how many of the new positions created in November and during the economic recovery have been those truly deserving the label “private sector,” and how many have come from industries heavily dependent on government subsidies (chiefly healthcare services).

This distinction seems more important than ever nowadays, with the country in the midst of presidential transition, and the media spreading the story that, thanks to President Obama, Donald Trump is incredibly lucky to be entering the Oval Office with an economy in such excellent shape – as opposed to the near-disaster situation faced by his soon-to-be predecessor.

If the new jobs figures really did bear out this claim, then you’d expect that the vast majority of the employment increase last month, and recently, would have come in the “real private sector” – because it’s always been the nation’s best bet for enduring prosperity. And by the same token, given their reliance on tax dollars and politicians’ decisions, you’d hope that new employment in the subsidized private sector would be a relatively small and even shrinking part of the picture.

Sadly, the narrative of the current recovery has told exactly the opposite story, with the November jobs figures underscoring again how employment gains in the subsidized portions of the labor market have punching considerably and increasingly above their weight.

The November statistics showed that the subsidized private sector created 44,000 of the 178,000 total net new jobs generated that month – or 24.72 percent. The private sector contributed 156,00 – or 84.67 percent. But as of November, the subsidized private sector accounted for just 15.78 percent of the nation’s total employment – a major over-performance. The private sector’s share of job gains was 87.64 percent – a minor over-performance.  (Government at all levels accounted for the remainder of the employment improvement.)

Compare these figures to those at the start of the economic recovery, in the middle of 2009. At that time, when the economy was still losing hundreds of thousands of jobs per month, the subsidized private sector accounted for only 14.97 percent of total employment – but it gained 31,000 jobs that month. Indeed, it was the only net job-creation game going, as private sector employment was 82.77 percent of total jobs and shed 429,000 jobs.

At the start of the last recession, at the end of 2007, the subsidized private sector’s share of total American employment was even lower – 13.63 percent – though it was generating more than half of all the net new job created then. The total private sector represented 83.83 percent of all U.S. employment, but was responsible for only 56.70 percent of new job creation – i.e., not much more than the much smaller subsidized private sector. (Government at all levels added the balance of new jobs – more than 43 percent.)

And what happened to the real private sector during this time?  Its share of total American employment sank from 70.19 percent to 67.88 percent and last month totaled only 62.92 percent. 

The burgeoning role of the subsidized private sector also becomes clear by looking at job creation patterns over the last four years. During the first eleven months of 2013, 14.92 percent of all the economy’s new jobs came in the subsidized private sector. Moreover, these industries made up 14.60 percent of all the conventionally defined private sector jobs generated. During the first eleven months of this year, these numbers had increased to 24.82 percent and 30.18 percent, respectively.

Subsidized private sector jobs as a share of total jobs created actually dipped from 2015’s levels – when they stood at 25.27 percent. But that’s because the pace of government hiring more than doubled. More revealingly, the subsidized private sector represented 26.05 percent of all the conventionally defined private sector jobs created during the 2015 period. During the first eleven months of this year, this share increased to 30.18 percent.

From the opposite perspective, from January through November, 2013, 87.23 percent of all U.S. jobs created were real private sector jobs. By the first eleven months of this year, that figure had sunk all the way down to 63.52 percent.

As I keep reminding, no one should take this analysis as an argument that subsidized private sector jobs are “bad.” Obviously, the healthcare industry and social assistance agencies and for-profit educational institutions perform critical functions for any civilized society. But their reliance on government assistance just as obviously puts them in a different category from sectors of the economy where growth (and therefore hiring) to a much greater extent on free market forces. And no one should mistake their ballooning payrolls as a sign of healthy economic fundamentals.

As a result, I fervently hope that the new administration will direct the government’s statistical agencies to start drawing this distinction. If you care about knowing the real deal about the state of the economy, you will, too – and send your elected officials the message.