(What’s Left of) Our Economy: Headwinds Finally Undercut U.S. Manufacturing Output

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aircraft, aircraft parts, automotive, Boeing, CCP Virus, coronavirus, COVID 19, Federal Reserve, health security, Hurricane Ida, machinery, manufacturing, medical devices, personal protective equipment, petrochemicals, petroleum refining, pharmaceuticals, plastics, PPE, printing, supply chains, {What's Left of) Our Economy

The new Federal Reserve industrial production figures indicate that all the headwinds it’s faced recently are finally proving too much for U.S. domestic manufacturing – at least for the time being. Moreover, revisions show that they – started taking a significant toll earlier than previously reported.

There’s still a case for optimism, as the numbers showed that damage inflicted by Hurricane Ida to the petrochemicals, plastics resins, and petroleum refining sectors originally revealed in the previous industrial production release (covering August) continued depressing the overall September figures (which came out this morning). Presumably, those effects have already begun to wear off.

The main argument for pessimism? The supply chain snarls that have been hamstringing manufacturers – especially in the automotive industry – seem certain to persist for many more months.

At the 30,000-foot level, U.S.-based manufacturing’s recent struggles can be seen by the 0.76 percent monthly drop suffered by its real output in September, and the new 0.40 percent decline now estimated for August – a significant downward revision from the previous 0.11 percent growth number. Moreover, such back-to-back after-inflation sequential production decreases are the first since the brief but savage recession triggered by the CCP Virus’ arrival in force in the United States in the spring of 2020.

Behind both these last two contractions have been Ida and supply chain woes.

Specifically, in August, the automotive sector was originally judged to have grown fractionally over July levels. Now this fall-off is pegged at 3.19 percent. And in September, constant dollar production tumbled another 7.17 percent – the worst sequential result since April’s 7.23 percent.

As for the most Ida-affected industries, the revisions left their dreary August performances intact overall, but real monthly output shrinkage accelerated in September for the petrochemicals-related organic chemicals sector (from 2.98 percent to 6.63 percent). It moderated somewhat in the resins and synthetic rubber segment (from 3.08 percent to 2.54 percent). And it turned from growth to contraction in petroleum refineries (from a 1.03 percent gain to a 2.64 percent drop).

Domestic manufacturing’s biggest September monthly growth winners among the broadest industry categories tracked by the Fed? The champ hands down was printing and related support activities, which expanded by 2.69 percent in price-adjusted terms. Next came textiles at 1.72 percent (although its fractional August decrease was revised way down to 1.68 percent); followed by electrical equipment, appliances and components (up 1.34 percent, though its August decline was also downgraded, from 1.16 percent to 1.56 percent, and its previously upgraded 3.95 percent July surge was knocked way down to 1.13 percent); miscellaneous durable goods, which contains many key healthcare related products (up 1.29 percent); and fabricated metal products (up 1.22 percent).

Another important winner – the machinery sector, whose products are used throughout the rest of manufacturing and in big non-manufacturing industries like construction and agriculture. Its August monthly contraction was revised down from 0.80 percent to 1.01 percent, but in September it eaked out a 0.18 percent gain. And its big July jump stayed above three percent.

The biggest losers, aside from the aforementioned automotive and hurricane-affected industries? Non-metallic mineral products (down 0.87 percent on month); wood products (off by 0.61 percent); and the very big food products sector (a 0.56 percent slide).

Manufacturing industries that have been prominent in the news turned in overall fair performances in September. Aerospace giant Boeing’s manufacturing troubles continue, but inflation-adjusted aircraft and parts production climbed by 1.83 percent on month and revisions to these sectors’ strong recent results were generally even stronger. As a result, real output in this complex is now 16.33 percent above the levels it hit in February, 2020 – the last full data month before the pandemic struck.

After-inflation production slipped on month in phamaceuticals and medicines by 0.74 percent, but this decrease might be a breather following their August growth – which was revised all the way up from 0.89 percent to 2.75 percent. Thanks to this big upgrade, the sector is now 14.14 percent bigger now than in February, 2020.

The crucial medical equipment and supplies sector – which includes virus-fighting items like face masks, protective gowns, and ventilators – generated almost precisely the opposite results. Price-adjusted production increased sequentially by 1.53 percent in September, but August’s initially reported 1.73 percent real output decline is now estimated to have been a 2.22 percent fall-off. Consequently, real output of these products has grown by just 5.54 percent during the CCP Virus period.

Manufacturing bulls can point to future growth catalysts – like Congressional passage of a “hard” infrastructure bill, an end to the CCP Virus as a public health emergency (however anyone wants to define that goal), and a resulting new boost to American and global growth. But these catalysts seem unlikely to arrive quickly, meaning that further growth struggles could mark at least the short-term future for domestic manufacturing.

(What’s Left of) Our Economy: U.S. Manufacturing’s Now Defying Hurricanes and Delta

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aircraft, aircraft parts, appliances, Boeing, CCP Virus, chemicals, computer and electronics products, coronavirus, COVID 19, Delta variant, electrical equipment, fabricated metal products, facemasks, Federal Reserve, furniture, Hurricane Ida, inflation-adjusted growth, machinery, manufacturing, masks, medical devices, medicines, oil refining, paper, personal protective equipment, petrochemicals, pharmaceuticals, plastics, PPE, real output, semiconductor shortage, supply chain, travel, ventilators, Wuhan virus, {What's Left of) Our Economy

Domestic manufacturing’s done it again. Just as with the Labor Department’s August jobs report, the Federal Reserve’s new release on manufacturing output for the month shows that industry kept dodging whatever potholes the CCP Virus and its highly infectious Delta variant keep digging for the rest of the U.S. economy.

America-based manufacturers’ inflation-adjusted production grew by a meager 0.11 percent sequentially in August. But output was held down by facility closures forced by Hurricane Ida in the petrochemicals, plastics resins, and petroleum refining sectors. Overall revisions were mixed, but some upgrades and downgrades in individual major industries were pretty remarkable, as will be seen below.

The biggest winners in the new price-adjusted manufacturing production report were the small, catch-all “other manufacturing” category (2.42 percent); furniture and related products (up 2.07 percent); computer and electronics products (whose 1.21 percent output rise may have been a response to the worldwide shortage of semiconductors); paper (up 1.07 percent); and fabricated metal products (up 0.74 percent).

The biggest losers were electrical equipment, appliances, and components (down 1.16 percent); textiles products (down 0.81 percent on month); machinery (down 0.80 percent); and the big chemicals sector (down 0.49 percent).

Normally, the machinery results would be discouraging, since its products are used so widely both in the rest of manufacturing and also in big non-manufacturing industries like agriculture and construction. But its August dip followed a July jump of 3.31 percent – its best production improvement since January’s 4.63 percent – which was dramatically upgraded from the previously reported 1.91 percent.

The electrical equipment category followed a similar pattern. Its July real production results were revised all the way up from 2.31 percent to 3.95 percent – its best such performance since January, 2010, when the economy was still in its early bounce-back from the Great Recession that followed the global financial crisis.

Also enjoying a solid August were two narrower manufacturing categories that remain in the news due to the ongoing effects of the CCP Virus. Air travel has of course suffered throughout the pandemic-era, and aerospace manufacturing giant Boeing has been hit with numerous related manufacturing and safety problems (including some pre-dating the pandemic, like the grounding of the popular 737 Max jetliner).

Yet aircraft and parts production in constant dollars advanced by 0.34 percent in August, and in another major revision, July’s previously reported 2.78 percent increase is now pegged at 4.10 percent – its best such result since January’s 6.79 percent burst. And June’s downgraded 3.57 percent rise was bumped back up to 3.84 percent. As a result, aircraft and parts production is now 12.63 percent higher in after-inflation terms than in February, 2020 – the last full data month before the virus began significantly affecting the U.S. economy.

The pharmaceuticals and medicines sector (which includes vaccines) saw a real month-to-month production increase of 0.89 percent in August, and revisions were modest and mixed. These results left inflation-adjusted output 12.33 percent higher than its immediate pre-pandemic levels.

But August real production sank sequentially by 1.73 percent in the vital medical equipment and supplies sector – which includes virus-fighting items like face masks, protective gowns, and ventilators.

On the brighter side, July’s initially reported 1.71 percent constant dollar production rise was revised up to 2.42 percent. June’s dramatically downgraded 1.54 percent decrease was upgraded to a 0.13 percent drop, and May’s upwardly revised 1.86 percent real growth was downgraded only slightly – to 1.78 percent. Even so, on a price-adjusted basis, this crucial industry is just 2.66 percent larger than before the CCP Virus arrived in force.

Domestic industry still faces important headwinds of course – and not just from the possibility that Delta keeps worsening America’s public health and economy, and that approaching winter weather triggers a new wave of infections, hospitalizations, deaths, and restrictions. Those global supply chain snags are still with us, too.

But throughout the pandemic era, U.S.-based manufacturers have overcome obstacles just like this, and their consistent vigor indicates that it’s the pessimists about their future prospectswho now face the biggest burden of proof.