Following Up: Inside April’s U.S. Manufacturing Crash II

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aerospace, appliances, automotive, CCP Virus, chemicals, components, computers, coronavirus, COVID 19, durable goods, electrical equipment, electronics, fabricated metals products, Federal Reserve, Following Up, food products, healthcare goods, inflation-adjusted output, machinery, manufacturing, manufacturing output, manufacturing production, medical devices, metals, non-durable goods, paper, real growth, Wuhan virus

A little earlier today, RealityChek presented some lowlights from this morning’s Federal Reserve U.S. manufacturing production report (for April). As promised, here’s a more granular look at the results, which yield even more insights as to how the CCP Virus blow to the economy is reflecting – and probably influencing dramatically changed spending patterns.

The table below shows the findings for durable goods industries, the super-category that covers products with expected usage and shelf lives of three years or more. Included are the original March inflation-adjusted output changes, the revised March data, and the April statistics:

Wood products:                                                -4.22%       -3.15%      -9.04%

non-metallic mineral products:                        -6.56%      -6.50%     -16.26%

Primary metals:                                                -2.82%      -3.95%     -20.37%

Fabricated metal products:                               -8.28%      -4.23%     -11.33%

Machinery:                                                       -5.56%      -3.05%     -10.98%

Computer & electronic products:                     -1.89%      -1.24%      -5.02%

Electrical equip, appliances, components:       -2.24%      -2.83%      -5.99%

Motor vehicles and parts:                               -28.04%    -29.96%    -71.69%

Aerospace/miscellaneous transport equip:      -8.12%      -8.90%     -21.65%

Furniture and related products:                       -9.99%      -6.50%     -20.60%

Miscellaneous manufacturing:                        -9.94%      -7.09%       -9.05%

   (contains most of those non-pharmaceutical healthcare goods)

As in the broader category analysis from earlier today, the automotive collapse – over both March and April – stands out here, although it was joined in the double-digit neighborhood (at much lower absolute levels of course) by six of the other eleven sectors. And as predicted in last month’s post on the March Fed report, the sector that’s held up best has been the computer and electronics industry – though following surprisingly close behind is electrical equipment, appliances, and their components.

It’s also easy to see how the rapid deterioration in automotive and the miscellanous transportation category that includes aerospace (especially in April for the latter) spilled over into supplier industries like metals and fabricated metal products, and machinery.

One durable goods puzzle: the relatively fast April decrease in the miscellaneous manufacturing category, which contains non-pharmaceutical medical goods so crucial for the nation’s CCP Virus response.

The second table shows the same information for the non-durables super-category, where the virus impact has been considerably lighter. Among notable results – the sharp worsening of after-inflation output in the food sector. Although it fared relatively well, there can be little doubt that the worker safety problems in meat-packing plants, along with the cratering of big customers – mainly the restaurant and hotel businesses – played big roles.

The non-durables results also make clear that the sector that’s survived best so far has been paper. Also excelling (at least relatively speaking): the enormous chemicals sector. This industry also contains the pharmaceutical industry, although the any positive CCP Virus impact seems unlikely to date because no vaccines or treatments have been developed yet.

Food, beverage, and tobacco products:          -0.76%      -1.56%       -7.10%

Textiles:                                                        -14.05%      -6.98%     -20.72%

Apparel and leather goods:                          -16.54%    -10.31%     -24.10%

Paper:                                                            -2.04%      -0.08%        -2.58%

Printing and related activities:                    -18.18%    -10.75%      -21.16%

Petroleum and coal products:                       -5.93%      -6.56%      -18.55%

Chemicals:                                                   -1.65%      -1.50%         -5.14%

Plastics and rubber products:                      -7.60%       -4.37%       -11.03%

Other mfg (different from misc above):     -5.37%       -4.29%       -10.37% 

The virus crisis contains so many moving parts (e.g., vaccine and therapeutics progress; infection, fatality, and testing data; uneven state reopening and national social distance practicing; consumer attitudes; second wave possibilities) that extrapolating the manufacturing trends to date seems foolhardy. But tracking industry’s winners and losers as the months pass could still provide important clues as to how much further the economic woes it’s caused will continue; and when, how quickly, and how completely recovery arrives.   

(What’s Left of) Our Economy: Is the New U.S. Trade Report a Virus Portent or Anomaly?

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China, decoupling, Europe, healthcare goods, high tech goods trade, Ireland, manufacturing, pharmaceutical, pharmaceuticals, PPE, protective gear, services trade, Trade, trade deficit, travel services, {What's Left of) Our Economy

Were this morning’s latest monthly U.S. trade figures (for March) just one of those things? Or a sign of CCP Virus-affected trade patterns to come? Evidence for both propositions can be found in the weeds, though on balance I remain confident that as the nation’s economy remains gravely wounded (and could well face worse), its trade shortfall will continue its recent (and highly beneficial) Trump-era trend of narrowing.

The reasons for dismissing the new trade report as an outlier stem from the tendency (with numerous exceptions) of the gap to narrow when the economy weakens and to expand when it strengthens. So it was a real surprise to find that, from February to March, when all indicators showed that a major downturn was beginning thanks to the pandemic, the trade deficit rose a strong 11.57 percent – from a downwardly adjusted $39.81 billion to $44.42 billion.

Also surprising for a U.S. economy that’s not very export focused but that’s usually voracious importer: The main reason for the deficit’s growth both in absolute and percentage terms was a drop-off in the former. In March, total U.S. overseas sales sank on month by 9.63 percent, from an upwardly adjusted $207.75 billion to $187.75 billion. That was the lowest monthly total since November, 2016’s $185.49 billion. Combined goods and services imports were down, too – but by a smaller 6.22 percent, from an upwardly adjusted $247.56 billion to $232.16 billion. That total was the lowest for a month since December, 2016 ($234.56 billion).

Moreover, in terms of the trade balance, March’s worse U.S. performance can’t be pinned on the virus-produced collapse in travel. Make no mistake about it – international travel both to and from the United States did collapse. In value terms, two-way travel sank from $28.77 billion in February to $13.49 billion. In other words, it was more than cut in half. But the travel services trade surplus actually improved during that period – from $4.53 billion to $4.72 billion. That means not only that, on net, legal visitors to the United States (including students) as usual spent more in America than Americans spent overseas between February and March. It means that foreign spending in the United States exceeded Americans’ spending abroad by an even greater amount.

Another puzzling result that doesn’t have obvious staying power – at least not to me: The biggest single contibutor to the March trade deficit increase was a more than doubling of the monthly goods trade shortfall with Europe – from $11.37 billion to $22.97 billion. That’s the biggest monthly total ever and the biggest absolute increase ever (the figures go back to 1997), and the third biggest percentage increase of all time (after July, 1997’s 418.80 percent and March, 1998’s 205.89 percent – both totals coming when trade volumes were much smaller, and big percentage increases therefore much easier to generate).

The big Europe merchandise trade deficit surge, moreover, came on the the import side. These soared to $56.04 billion in March (another record), and the 26.42 percent sequential rise was the biggest since March, 2011’s 29.35 percent.

U.S. goods exports to Europe didn’t do badly – they hit $33.07 billion in March, the third best total ever. But the monthly increase was a bare 0.26 percent.

Some of the Europe trade results were due to a much bigger goods deficit and much greater goods imports from Ireland – which is a major foreign supplier of pharmaceuticals to the United States. Despite the overall sequential decrease in American merchandise exports and imports in March, trade in pharmaceutical preparations rose both coming and going. The trade shortfall increased by 13.25 percent, with imports rising by 14.92 percent. And the goods trade gap with Ireland (not all due to pharmaceuticals, to be sure) soared by 45.81 percent with imports up 41.91 percent.

It’s true that both the deficit with Ireland and imports from the Emerald Isle fell sharply on month in February. But both totals were all-time highs.

At the same time, India is another big pharmaceutical supplier to the United States, and although its March merchandise trade deficit with America shot up by 47.87 percent month-to-month, imports actually dipped (by 0.37 percent).

And what about March U.S. trade with China – which gave the world the virus, and remains a major supplier of the chemical building blocks of pharmaceutical products as well as protective medical gear?

In an unmistakably good development for those who recognize both the health security and broader economic dangers of doing extensive business with a predatory trader that’s increasingly hostile geopolitically, the U.S. merchandise trade deficit with the People’s Republic plummeted dramatically again – by just over 26 percent month-to-month, to $11.83 billion. You’d have to go back to March, 2004 to find a lower monthly figure ($10.44 billion).

U.S. goods exports to China actually improved sequentially in March – by 16.98 percent, to $7.97 billion. That’s far from the biggest absolute or percentage monthly increase on record. But with China’s economic growth at multi-decade lows due largely to the virus and the Trump tariffs, it’s encouraging that America’s goods exports to China have held up since the Phase One trade deal was signed in January.

U.S. goods imports from China, meanwhile, fell by 13.18 percent on month in March, to $19.81 billion. That total is the lowest since February, 2009 ($18.85 billion), during the depths of the Great Recession.

On a year-to-date basis, the American merchandise merchandise deficit with the People’s Republic is now down an astonishing 32.61 percent. That’s nearly three times more than the comparable drop in the global U.S. goods deficit, and a clear sign that trade diversion and decoupling from China are taking place even as the overall American trade gap narrows – and are likely to continue taking place.

Two other oddities worth noting in the March trade report. First, the manufacturing deficit rebounded from February’s $63.01 billion (the lowest total since February, 2017’s $60.47 billion) to $75.80 billion. That’s a very big 20.30 percent higher. Even though overseas markets for America’s domestic manufacturers are tumbling into recession and maybe worse along with the U.S. economy, manufacturing exports still managed a monthly gain of 3.55 percent in March – to $93.26 billion. But despite signs of weakness in domestic U.S. manufacturing and the overall economy, manufacturing imports shot up by 10.45 percent, to $169.06 billion. It’s difficult to see how either trend lasts until the CCP Virus is brought under control.

Incidentally, the March totals bring the manufacturing trade gap to $220.75 billion so far this year – down 7.01 percent from last year’s comparable $237.38 billion. Manufacturing exports year-to-date as of March are down four percent, and imports have declined 5.38 percent.

Similarly, the longstanding U.S. trade shortfall in high tech goods more than doubled sequentially in March, from $5.13 billion to $10.30 billion. Sure, this increase followed a 55.62 percent plunge in February, but the turnaround is still stunning. And although high tech exports rose in March on month by a healthy 8.55 percent, the big change, as in February, was on the import side – where U.S. purchases from abroad jumped by 22.24 percent.

More detailed March trade data — particularly shedding more light on U.S. trade in healthcare-related goods — should be out from the federal government shortly, and I’ll be sure to keep you up to date on those developments.   

(What’s Left of) Our Economy: New Fed Manufacturing Figures Show No Burst So Far in Anti-CCP Virus Goods Output

Tags

(What' Left of) Our Economy, CCP Virus, coronavirus, COVID 19, facemasks, Fed, Federal Reserve, healthcare goods, industrial production, inflation-adjusted growth, manufacturing, manufacturing output, medical devices, medical equipment, PPE, protective gear, ventilators, Wuhan virus

No one should have been surprised by this morning’s manufacturing output report from the Federal Reserve, which judged that industry’s inflation-adjusted production tumbled by 6.27 percent in March from February’s levels – which was revised downward slightly from a 0.12 percent gain from a 0.02 percent dip. In other words, “Thanks, China!” for the CCP Virus that’s caused an unprecedented shutdown of huge sections of the U.S. economy.

Lately, however, some manufacturing sectors of special concern have emerged – the healthcare goods sectors. And the results are below.

Unfortunately, the statistics in the relevant sectors aren’t very granular. In particular, they don’t enable us to distinguish between, say, masks and ventilators, or between final pharmaceutical products and vaccines, or between CAT-scan and MRI machines and non-medical high tech instruments. Still, the following sequential results must have some significance, given the overall skid in after-inflation manufacturing production. And for February-March, they are:

soaps, cleaning compound, & toilet preparation:      +1.85 percent

pharmaceuticals & medicines:                                  +0.50 percent

  (includes vaccines)

medical equipment & supplies:                                 -1.55 percent

  (includes everything from ventilators to facemasks)

Less helpful is learning that constant dollar output in a category called “navigational, measuring, electromedical and control instruments” decreased by 2.39 percent on month.

Keep in mind that since these data were compiled, all manner of manufacturing companies have volunteered, or been officially pressured, either to ramp up their existing healthcare goods production greatly, or to enter the field. So next month’s Fed industrial production report – for April – should be more revealing. For now, however, the March numbers don’t show much in the way of surge production.

Nor should anyone expect the Fed’s figures on manufacturing capacity and capacity utilization to shed much light on healthcare-related surge performance and surge capacity. The categories simply aren’t this detailed.

Maybe one of the CCP Virus-induced changes in government will be involve tracking healthcare-related manufacturing data in more detailed? Stay tuned. And send all such suggestions to

Jerome Powell, Chair, Board of Governors of the Federal Reserve System, 20th St. and Constitution Ave. NW, Washington, D.C.  20551

 

Making News: Jim Bohannon Interview on America’s Compromised Health Security Now On-Line; Returning Tonight to Batchelor Show on China & Supply Chains

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CCP Virus, China, coronavirus, COVID 19, Gordon G. Chang, health security, healthcare goods, Making News, manufacturing, medicines, pharmaceuticals, supply chains, The Jim Bohannon Show, The John Batchelor Show, Wuhan virus

I’m pleased to announce that the podcast is on-line of my interview last night on Jim Bohannon’s nationally syndicated radio show.  Click here for a great discussion of America’s troubling dependence on foreign sources of supply for vital medicines and other healthcare products.

Also, I’m slated to return on John Batchelor’s nationally syndicated radio show tonight. John, I, and co-host Gordon G. Chang will be looking at how the CCP Virus crisis is likely to change global supply chains and trade products not only for healthcare products, but for all domestic industry, especially when it comes to China.

Tonight’s segment is a little different from usual, because virus-related disruption has led John to tape his programs for now, and I haven’t yet been told exactly when this particular segment will air.

I’ll certainly post that information on Twitter (a compelling reason to follow me there at @AlanTonelson!), but in the meantime, here‘s where you can listen on-line to this evening’s show.  I’ll be posting a link to that podcast as soon as one’s available. And of course, keep checking with RealityChek for news of other upcoming media appearances and other developments.

Following Up: More Data on America’s Dependence on Foreign Healthcare Goods

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Barack Obama, Department of Health and Human Services, facemasks, Following Up, George W. Bush, health security, healthcare goods, imports, Lena H. Sun, manufacturing, masks, Mike Bowen, Prestige Ameritech, Rachel Siegel, supply chain, The American Conservative, Trump, Washington Post

Since news organizations can be so unreliable, I always do whatever I can to use information from primary sources instead of items in the media. I’m making an exception this morning, however, because I’ve failed to find a government document mentioned in several news articles, and reportedly it contains such important data that it deserves mention. Specifically, this document seems to add vital detail to my recent description in The American Conservative of how extensively the United States relies on foreign sources for crucial health care goods, and how long this gaping hole in the nation’s healthcare security has existed.

The document I can’t find has been described in this Washington Post piece as “a 2014 briefing released by the Office of the Assistant Secretary for Preparedness and Response in the U.S. Department of Health and Human Services.” Among its findings, according to Post correspondents Lena J. Sun and Rachel Siegel:

“Up to 95 percent of surgical masks are made outside the continental United States, in places like China and Mexico….”

The 2014 date, of course, is revealing in that it was two years before Donald Trump was elected President. Also revealing: The authors interviewed a domestic mask manufacturer who showed them letters he’s written to American Presidents warning that mask availability could be disrupted during a pandemic outbreak.

The first was written to Barack Obama in 2010. And apparently little or nothing was done. But the manufacturer, Mike Bowen of Texas-based Prestige Ameritech, says he reached out to George W. Bush’s administration as well – with the same results.

But just in case you think this is an establishment-bashing exercise, it’s important to note also that Bowen says he sent the same warning in 2017 – when Mr. Trump did occupy the Oval Office.

Contrary to much (self-serving) conventional wisdom, I’m not at all opposed to finger-pointing and blame-casting, even during a crisis. In fact, I view it as critical to ensuring that mistakes aren’t repeated. But I am opposed to cherry-picking finger-pointing. Because by now it should be abundantly clear that when it comes to U.S. national leaders and American health security, both Democrats and Republicans and liberals and conservatives and even populists have let the country down.

And the faster all partisans get off their high horses and focus on identifying lessons that need to be learned regardless of political effect, the faster Americans will overcome this crisis and the lower the chances of a rerun.

Im-Politic: Selective CCP Virus Finger-Pointing

Tags

Barack Obama, CCP Virus, coronavirus, COVID 19, Dan Diamond, Daniel Lippman, Defense Production Act, DPA, George W. Bush, health security, healthcare goods, Im-Politic, Jessica Silverman-Greenberg, Mainstream Media, MSM, Nahal Toosi, National Security Council, Nicholas Kulish, pandemic, regulations, Sarah Kliff, The New York Times, Trump, ventilators, Wuhan virus

Mainstream Media accounts of the Trump administration’s CCP Virus response keep appearing emphasizing how lousy and lackadaisical it’s been compared with the federal response to potentially dangerous disease outbreaks during the Obama years – and especially given supposedly prescient pandemic warnings that the Obama-nauts sounded to their successors that allegedly were ignored.

So RealityChek is going to have to keep pointing out major flaws in these accounts that both reporters and their editors should have noted, and questions they should have asked.

Keep in mind, moreover, that today’s pushback comes on top of (1) this blog’s description of a 2011 Commerce Department report on America’s increasingly dangerous vulnerability to foreign cutoffs of vital healthcare goods that was completely ignored; and (2) a similar presentation of federal economic data making clear the nation’s healthcare security – another way to think of this vulnerability – has been weakening for at least two decades.

Let’s start with the article in today’s New York Times detailing how a George W. Bush administration plan continued under Barack Obama failed to plug what its public health officials viewed as “one of the medical system’s crucial vulnerabilities: a shortage of ventilators.” The effort entailed finding businesses willing to try to build ventilators that were cheaper, more portable, and easier to use than were then available, and then awarding the contract to the best proposal.

According to Times reporters Nicholas Kulish, Sarah Kliff, and Jessica Silver-Greenberg (and presumably their editors), the eventual failure mainly highlighted “the perils of outsourcing projects with critical public-health implications to private companies; their focus on maximizing profits is not always consistent with the government’s goal of preparing for a future crisis.”

And although this point wasn’t made, the obvious message that the piece meant to send readers is that the President continues making a big mistake by not unleashing the full power of the Defense Production Act (DPA)– which creates vast government power to order whatever companies it wishes to make whatever products it considers necessary as quickly as possible, and to prioritize sales to Washington, not other customers. Underlying this position, of course, is the (completely ignorant) belief that this 1950 law (amended several times since) enables a Chief Executive to snap his fingers and instantly start assembly lines churning out ventilators and face masks and pharmaceuticals, etc.

But let’s leave aside this DPA fetishism. As I tweeted, the following sentence in the piece isn’t completely uninteresting given the unmistakable importance of quick results: After an initial failure (that shouldn’t be pinned on either of those two administrations), “The federal government started over with another company in 2014, whose ventilator was approved only last year and whose products have not yet been delivered.”

That doesn’t sound like the regulatory process reflected particular urgency – and clearly the problem extended into the Trump administration. But this business-as-usual attitude reigned even though, as the article noted, the ventilator project “came in the wake of a parade of near-miss pandemics: SARS, MERS, bird flu and swine flu.” In other words, evidence abounded that pandemics weren’t a rarity. Recently, they were becoming frequent. And still apparently no thought was given to any regulatory fast-tracking.

Finally in connection with this episode. It’s commendable that these pre-Trump public health officials tried to do something new. Less commendable, and less understandable, is why none of them recognized the foreign vulnerability problem and the offshoring-happy trade policies that fostered them.

Two other recent articles seeking to pin the blame for U.S. CCP Virus unpreparedness on Mr. Trump came out March 16 and March 25 in Politico. The first documented that on January 13, 2017 – seven days before the Trump inauguration – a team of outgoing Obama administration officials held a briefing for a team of incoming Trump-ers “intended to hammer home a new, terrifying reality facing the Trump administration, and the incoming president’s responsibility to protect Americans amid a crisis” – the distinct possibility that a major, deadly pandemic would sweep over the United States from abroad.

Further, the briefers specified that the new administration “could face specific challenges, such as shortages of ventilators, anti-viral drugs and other medical essentials, and that having a coordinated, unified national response was ‘paramount’….” Unfortunately, continued the article by Nahal Toosi, Daniel Lippman, and Dan Diamond, the Trumpers seemed pretty apathetic. And that’s pretty damning, right?

In principle, yes. But why did the Politico staff bury this observation: “None of the sources argued that one meeting three years ago could have dramatically altered events today”? Because it would take much of the punch out of this supposed bombshell?

Also buried: An observation in the apparently actual briefing document that, when in terms of “U.S. hospital preparedness and response,” “State and local governments lead public health response.” That’s an important piece of the current American response – even though it’s been relentlessly portrayed in the press another example of the administration’s failure. And P.S. – this document said nothing about ensuring adequate national screening capability.

Politico wasn’t finished, however. Nine days later, it ran another piece – by two of the same reporters – charging that the Trump administration’s CCP Virus policies have “failed to follow” a detailed pandemic playbook prepared by the Obama National Security Council that, it seems, would have prevented much of the virus damage inflicted on the nation.

Again, it’s a plausible claim – although, like the first Politico piece, this article left out the development of the Trump administration’s own pandemic strategy by the fall of 2018 (which means that work on it throughout the federal government began months before).

Also, like the first article, it failed to pose these crucial questions: If the Obama pandemic specialists were so utterly convinced that a pandemic would strike sooner rather than later, and that Team Trump was falling down on the preparation job, why didn’t they alert Democrats in Congress, or Never Trumper Republicans? Certainly there’s been no shortage of lawmakers (especially Democrats) looking for any opportunity to slam the administration (especially if this activity could do some good).

Additionally, if these pandemic warriors did send their message to these lawmakers, why did the public hear so little about it?

My hunch: For three years, the Never Trumpers of both parties had much higher priorities. Think “Russia” and “impeachment.”