(What’s Left of) Our Economy: As Trump’s Tariffs Stay in Place, U.S. Manufacturing Output Keeps Surging

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aerospace, aircraft, aircraft parts, Boeing, CCP Virus, China, coronavirus, COVID 19, Federal Reserve, gloves, imports, industrial production, inflation-adjusted output, manufacturing, masks, pharmaceuticals, PPE, real growth, recession, tariffs, Trump, Wuhan virus, {What's Left of) Our Economy

It’s tough to describe this morning’s manufacturing production figures from the Federal Reserve (for January) as anything but excellent, and anything but another strong endorsement of the stiff, sweeping tariffs former President Trump imposed on goods, especially from China. By shielding industry from a flood of imports from the People’s Republic, these trade curbs have undoubtedly contributed to a manufacturing recovery that entered its ninth straight month in January, and brought its production to within a whisker of pre-CCP Virus levels.

Moreover, as noted last month, the sector’s prospects seem bright, since not only has the entire economy kept recovering as CCP Virus vaccination proceeds and accelerates, but the aerospace industry revives both from its Boeing safety-related woes and the pandemic-related travel slump, and vaccine production surges.

Domestic manufacturers’ real output rose by 1.04 percent sequentially, increases were broad-based, and revisions were strongly positive. Although December’s previously reported 0.95 percent growth was downgraded to 0.94 percent, November’s was revised up for the second straight time (from 0.83 percent to 1.10 percent), and October’s for a third straight time (from 1.34 percent to 1.51 percent).

Due to these revisions, despite the severely recessionary impact of the CCP Virus both at home and abroad, domestic manufacturing’s inflation-adjusted 2020 production decline now comes in at just 2.01 percent, rather than the 2.63 percent reported last month. In addition, price-adjusted manufacturing output has advanced by 24.11 percent since its April nadir, and is now a mere 0.75 percent below its last pre-pandemic level last February.

As encouraging as the January figures and revisions were was their breadth. In fact, for the second straight month, the constant dollar output improvement came despite a small (0.72 percent) sequential dip in the automotive sector, whose major ups and downs have heavily influenced overall manufacturing production results for much of the pandemic period.

One cautionary note: January monthly after-inflation output growth for the big machinery category – which turns out production equipment for the rest of manufacturing, and devices crucial for other major industries like construction and agriculture – was only 0.52 percent, just half that for the entire manufacturing sector. And revisions were mixed.

More encouraging: Machinery’s growth has been strong enough that its real output is now back to within 1.12 percent of its February pre-pandemic levels.

January also saw accelerating growth in aircraft and parts production. Monthly output in expanded by 2.89 percent in January, December’s strong initially reported 2.78 percent increase is now judged to have been 3.03 percent, and November’s has been upgraded from 2.39 percent to 2.50 percent.

In fact, recovery in these aerospace sectors has been so vigorous that their output is now 6.77 percent greater than their February pre-pandemic levels.

Probably reflecting the vaccine effect, price-adjusted production of pharmaceuticals and medicines increased by 2.42 percent on month in January – the best showing since July’s 2.57 percent. But revisions were mixed, and this vital sector’s real output is only 4.11 higher than in February, just before the pandemic struck the U.S. economy in full force. On the brighter side, immense vaccine demand makes clear that the industry’s upside is enormous for the time being.

As for medical equipment and supplies – including virus-fighting items like face masks,face masks, protective gowns, and ventilators – their production performance keeps lagging badly. Inflation-adjusted output for this category (which encompasses many other products as well) actually fell in January for the second straight month – and by 0.54 percent. In fact, constant dollar output in this sector is 2.18 percent lower than during the last pre-pandemic month of February, 2020.

(What’s Left of) Our Economy: U.S. Manufacturing’s Biggest 2020 Winners & Losers

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aerospace, automotive, Boeing, CCP Virus, computer and electronics products, consumer goods, coronavirus, COVID 19, energy, Federal Reserve, food products, fossil fuels, furniture, housing, industrial production, inflation-adjusted output, lockdowns, machinery, manufacturing, on-line shopping, stay-at-home, travel, wood products, Wuhan virus, {What's Left of) Our Economy

Thanks to last Friday’s release of the Federal Reserve’s report on December U.S. manufacturing production, it’s possible to identify the sector’s biggest winners and losers for inflation-adjusted growth. And their ranks include some notable surprises. (As with all U.S. government economic data, though, there’ll be plenty of revisions over the next few years.)

First, let’s keep in mind that the following categories are pretty broad, including a wide range of products whose performances have varied just as widely. For example, as noted previously (e.g., here), “machinery” contains everything from machine tools to heating and cooling equipment to semiconductor production gear to turbines to construction equipment to farm machinery.

Still, these groupings are specific enough to show how much care is needed when generalizing about the performance of a piece of the economy as big as manufacturing. Moreover, they’re the categories that come early on in the incredibly detailed presentation each month of manufacturing output results deep in the weeds of the Fed’s own website.

With these observations in mind, the five strongest growers (or most modest shrinkers) in manufacturing during 2020 were automotive (vehicles and parts combined) at plus-3.64 percent; food, beverage, and tobacco products (up 0.40 percent), wood products (0.38 percent), computer and electronics products (up 0.14 percent), and non-metallic mineral products (down just 0.52 percent).

The biggest losers? Petroleum and coal products (down 13.34 percent); printing and related activities (off by 10.41 percent); furniture and related products (down 9.86 percent); non-durable miscellaneous manufactures (down 8.57 percent); and aerospace and other non-automotive transportation equipment (an 8.27 percent contraction).

Some of these results were entirely predictable. For example, petroleum and coal products essentially entails the fossil fuels industries, which have been decimated by the overall U.S. and global economic slumps triggered by the CCP Virus, and by the particular hit taken by business and leisure travel. And don’t forget the lingering effects of Boeing’s safety troubles. Moreover, of course those Boeing woes in turn have taken their toll on the aerospace sector.

On the flip side, despite major concern about the strength of America’s food supply chain, it proved impressively resilient. And since Americans didn’t stop eating, real food production expanded – although as the table below shows, its this expansion was much slower than in 2019.

I’m not sure what’s been up with furniture, though, especially considering that the good performance of wood products surely reflects the strength of a domestic housing industry that should have spurred production of furniture. Moreover, so far, the 2020 trade statistics reveal no significant increase in imports.

Non-durable miscellaneous manufactures are something of a puzzle, too. This category includes items like jewelry, silverware, sporting goods, toys, and musical instruments. Since on-line shopping has propped up consumption during the pandemic period, purchases and domestic production of these goods should have remained strong, too – even though many of these sub-sectors have long dominated by imports.

And speaking of imports, a clear sign of their importance is the negligible growth of the domestic computer and electronics industries. It’s clear that the virus and related lockdowns and stay-at-home orders has greatly increased demand for information technology products. But it’s evident that the biggest winners weren’t U.S.-based suppliers. In fact, 2020 growth was way below 2019’s, as the table below shows.

Meanwhile, the solid growth of the automotive sector is pretty remarkable, since the sector literally shut down almost completely in March and April. That looks like awfully strong evidence that much of the economic damage of the pandemic period has stemmed from government restrictions, and not from any inherent weakness in the economy.

In any event, below are the results for all of manufacturing’s main big industry groups, along with the data for the durable goods and non-durable goods super-sectors, and industry overall. For comparison’s sake with the pre-CCP Virus period, I’ve also presented their after-inflation growth for 2019. And a year from now, the final Fed 2021 statistics will permit judging just how complete a retun to normalcy has been achieved.

                                                                              2018-19              2019-20

manufacturing                                                        -1.06                   -2.63

durable goods                                                         -1.70                   -2.97

wood products                                                       +3.58                  +0.38

non-metallic mineral products                               -1.17                   -0.52

primary metals                                                       -2.69                   -7.66

fabricated metals products                                     -1.72                   -5.38

machinery                                                              -2.39                   -3.80

computer & electronics products                          +6.19                  +0.14

electrical equipmt, appliances & components       -1.71                   -1.68

motor vehicles and parts                                        -9.05                  +3.64

aerospace and misc transporation equipment       +0.29                   -8.27

furniture and related product                                +0.34                   -9.86

miscellaneous manufactures                                +0.30                    -3.67

non-durable goods                                                -0.72                    -2.24

food, beverage and tobacco products                  +2.67                   +0.40

textiles and products                                            -2.24                    -5.04

apparel and leather goods                                    -7.50                    -3.64

paper                                                                    -2.37                    -1.91

printing and related activities                              -3.20                  -10.41

petroleum and coal products                               -1.32                  -13.34

chemicals                                                            -2.07                     -1.31

plastics and rubber products                               -3.24                     -0.78

other manufacturing                                           -8.59                      -8.51

(What’s Left of) Our Economy: A Fed Snapshot of U.S. Manufacturing at the CCP Virus Turning Point?

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737 Max, aircraft, aircraft parts, aluminum, Boeing, capital goods, CCP Virus, China, coronavirus, COVID 19, Federal Reserve, industrial production, Joe Biden, machinery, manufacturing, medical devices, metals, pharmaceuticals, PPE, safety, steel, tariffs, Trump, Wuhan virus, {What's Left of) Our Economy

If the Federal Reserve’s monthly industrial production report for February (released in March) was the last such data set assessing domestic U.S. manufacturing’s health before the full force of the CCP Virus pandemic struck the American economy, today’s release (covering November) might be viewed in retrospect as marking the close of the industry’s virus-induced slump – or at least the beginning of the end.

Clearly, the entire U.S. economy remains far from fully recovered from the pandemic and the shutdowns and lockdowns and behavioral changes it produced. Moreover, the virus’ second wave could well prompt renewed restrictions – though lockdown fatigue will probably keep them more limited than their springtime predecessors.

But shortly after the Fed compiled the figures for November came two developments capable of boosting domestic manufacturing output considerably – Washington’s certification clearing Boeing’s troubled 737 Max model jetliner for flight once again, and the announcements that large-scale final-phase clinical trials for two anti-CCP Virus vaccines revealed amazing efficacy rates and reassuring safety results.

At the same time, these last pre-737 and vaccine manufacturing production numbers showed once again how relatively well domestic industry has held up during the CCP Virus period so far, and how strong its post-April recovery has been. By the same token, the data once more make clear the benefits of the Trump administration’s sweeping tariffs on products from China and its levies on steel and aluminum imports – which sharply limited the extent to which U.S. demand for these goods could be met from abroad.

The 0.79 percent November monthly increase in after-inflation manufacturing output recorded by the Fed was weaker than the October figure. But that month’s increases was revised up from a strong 1.04 percent to an even better 1.19 percent. September’s previously reported fractional increase remained basically the same.

As of November, therefore, real manufacturing production has improved by 20.67 percent above its April pandemic-induced trough and, just as important, stands just 3.50 percent lower than its final pre-CCP Virus level in February.

The November numbers are also notable for the outsized role played once again by the automotive sector. Although its October sequential inflation-adjusted output performance has been revised from a virtual “no change” to a 1.14 percent drop, these first November results show a 5.32 percent surge. More important than this volatility, though, is that combined vehicle and parts output is now just 0.38 percent lower than its final pre-pandemic level in February.

One indication of at least short-term concern from the November results: Constant-dollar production in the big machinery sector slipped by 0.51 percent on month. This industry matters greatly because its products are used so widely throughout the economy (e.g., construction, agriculture), and because it contains the capital goods products on which manufacturers themselves rely so heavily to turn out their own goods.

Longer term, the machinery picture looks better, though, as in line with the generally strong capital investment data kept by Washington, its price-adjusted output is now off by just 3.52 percent since February.

As for the tariff angle mentioned above, its importance is evident not simply from the strong overall manufacturing recovery, but from the performance of the primary metals sector, whose performance since March, 2018 has been profoundly affected by levies on steel and aluminum from most major exporting countries.

Constant dollar output of primary metals plunged by 25.46 percent during the peak pandemic months of March and April – a rate faster than that of manufacturing’s total 20.03 percent. Since then, however, its grown in real terms by 25.63 percent (faster than manufacturing’s total 20.67 percent advance).

November, moreover, was no exception, as primary metals’ inflation-adjusted production rose by a robust 3.75 percent. These numbers might give apparent President-elect Joe Biden pause if he’s thinking of lifting the steel and aluminum levies as part of his announced goal of repairing U.S. alliance relations he believes have been gravely damaged by President Trump.

If the beginning of the end of pandemic really is at hand, the November Fed figures show that it can’t come soon enough for the nation’s beleaguered aircraft industry as well as for its pharmaceutical sector. The latter’s after-inflation output remained steady last month, but the levels themselves remained remarkably subdued. November’s 0.76 percent monthly constant dollar production decline followed a downwardly revised 1.01 percent October decrease, and year-on-year, inflation-adjusted output is off by 2.37 percent.

Despite Boeing- and travel-related woes, the aerospace industry has fared considerably better. After a real output nosedive of 32.85 percent in February and March, such production is up by a spectacular 47.75 percent since. And thanks partly to the 2.07 percent on-month improvement in November, real output is down just 3.77 percent since the last pre-pandemic figure in February.

Nonetheless, the 737 Max news and any sign a significant air travel comeback will be welcome for civilian aircraft and parts makers, as after-inflation production is still 15.40 percent less than it was last November.

But despite the number of inspiring anecdotal accounts of medical equipment and supplies manufacturers boosting production of face masks, protective gowns, ventilators, and the like in response to the medical emergency, overall real production of these vital products remained uninspiring in November. Real output rose on-month by 1.56 percent, but the October’s initially reported 3.54 percent after-inflation sequential production increase has now been downgraded to 2.04 percent.

Since April, moreover, the price-adjusted production rebound has been a mere 21.75 percent – not much stronger than that for the total manufacturing recovery. Perhaps most discouraging: Real output in this sector is actually down 5.60 percent – from levels revealed by major continuing reliance on imports to have been dangerously inadequate.

(What’s Left of) Our Economy: U.S. Manufacturing Output Held its Own in October

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automotive, Boeing, CCP Virus, civilian aircraft, coronavirus, COVID 19, durable goods, Federal Reserve, industrial production, manufacturing, masks, medical devices, non-durable goods, pharmaceuticals, PPE, vaccines, Wuhan virus, {What's Left of) Our Economy

This morning’s monthly Federal Reserve industrial production report is an object lesson in not counting your real manufacturing output chickens too soon – that is, before the revisions hatch.

So keeping in mind that today’s data will be revised further several times as well, it looks like my concerns last month about manufacturing turning from a CCP Virus-era economic leader into a laggard might have been premature.

Not that today’s release, which brings the story through October, showed gangbuster results. Inflation-adjusted manufacturing output increased by 1.04 percent over September’s levels. Much more encouraging, though, were the continually positive overall revisions and especially those for September. Its initially reported 0.29 percent constant dollar monthly output decline is now reported as a fractional (0.01 percent) increase.

As a result, after having sunk by just over twenty percent from February (the last month before the virus began seriously weakening the economy’s performance) through its April bottom, after-inflation manufacturing production is up by 19.35 percent. Alternatively put, it’s 4.56 percent below the February level, and 3,61 percent lower than last October’s.

Today’s October release also provided more evidence that the automotive sector’s dominant role role in determining overall manufacturing growth has just about faded away. Combined vehicles and parts production remained virtually flat in October, after falling an upwardly revised 3.02 percent sequentially in September.

In addition, October’s figures confirmed that, within manufacturing, the non-durable goods supersector has outperformed its durable goods counterpart – mainly because its first-wave pandemic dropoff was so much less dramatic.

Between February and April, price-adjusted durable goods output (including automotive and the troubled aerospace sector – due to Boeing’s woes and the virus-related travel shutdown) plunged by 27.99 percent, versus a 11.53 percent decline in non-durables (which contains industries like food, healthcare goods, and paper products manufacturing).

Since April real durables output has rebounded by 31.22 percent. But it’s still 5.51 percent lower than in February, and 4.19 percent lower than last October.

Since April, non-durables’ real output is up by 9.06 percent. But since its decline was so much less severe than durables’, in after-inflation terms its production is just 3.51 percent off the February level, and 2.97 percent below last October’s figure.

And what of some of the obvious drivers – for good or ill – of manufacturing output during this CCP Virus era?

Between February and April, aircraft and parts production plunged by 32.85 percent. An astonishing 43.31 percent recovery since has left the sector only 3.77 percent production-wise than in February. But because Boeing’s woes predated the pandemic, this output remains down 17.79 percent year-on-year.

Oddly, constant dollar production of medical equipment and supplies (a category including face masks, protective gowns, and ventilators) dropped by 19.75 percent as the CCP Virus was surging between February and April. And since then, it’s risen only 23.20 percent – including an encouraging 3.54 percent monthly improvement in October. Year-on-year, moreover, these sectors have seen 2.73 percent real output growth, but that improvement suggests how modest – and in retrospect, how inadequate – production was before the pandemic.

Finally, pharmaceutical and medicines production has been steady all year long in inflation-adjusted terms, and advanced by a modest 0.12 percent sequentially in October. Year-on-year, moreover, output has grown by just 0.39 percent – which makes these industries of special interest in the months ahead as mass production of recent promising vaccines ramps up.

For now, though, overall, domestic manufacturing production more than held its own in October. But except for that vaccine production, as the virus second wave strengthens, its near-term future could be just as challenging as that of the rest of the economy and nation

(What’s Left of) Our Economy: So Much for That Pre-Virus Trump Manufacturing Recession?

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(What's Left of) Our Economy, Barack Obama, election 2020, Federal Reserve, GDP, gross domestic product, gross output, industrial production, Joe Biden, manufacturing, manufacturing recession, real GDP, real value added, tariffs, Trade, Trump, value added

A funny thing happened when the U.S. Commerce Department released its latest report on gross domestic product (GDP) by industry last Wednesday: Most of the evidence that American domestic manufacturing suffered a recession – even a mild one, as widely reported – before the CCP Virus struck disappeared.

The new figures also reveal that President Trump’s manufacturing record before most of the U.S. economy was literally ordered closed due to virus-related fears looks even better than previously thought in comparison with that of the Obama administration – in which the President’s Democratic rival for the White House, Joe Biden, served as vice president.

Focusing on this pre-virus data is anything but grasping at straws – unless you think the CCP Virus and its impact will last forever. For manufacturing’s fortunes have been closely connected to President Trump’s tariff-centric trade policies throughout his time in office because manufacturing is so thoroughly exposed to foreign competition both at home and abroad. And as this article (which featured unusual balance) made clear, recent evidence that industry had slumped last year – even before the virus’ arrival and the deep downturn it caused – was widely viewed as a major sign not only that the “trade war” was failing, and undermining Mr. Trump’s .broader determination to revive the sector.

Yet the new GDP by Industry numbers (which take the story through the second quarter of this year, and incorporate revisions going back to the first quarter of 2015 and which were part of a broader release of four different measures of manufacturing production) generally revised that recession away. So presumably, judgments about the effectiveness and impact of the Trump tariffs and similar trade decisions during normal economic times should turn much more positive.

Understanding that the federal government uses four different measures of manufacturing production is the key to understanding why those manufacturing recession claims now look largely mistaken, and why some uncertainty remains. The four measures are: gross output and inflation-adjusted (real) gross output, and value added and real value added. The latter two measures try to eliminate the double-counting in the gross output numbers that economists generally agree results from including in its results both the parts and components and other manufactured inputs of final products, along with the final products themselves.

As of now, the only one of these gauges that still shows a pre-virus Trump-era manufacturing recession (defined as two straight quarters of declining output) is current dollar (pre-inflation) gross output. According to these data, this downturn began in the second quarter of 2019 and continued through the end of the year – and of course into this year. But a recession doesn’t show up in any of the other measures, and its absence in the new real gross output figures is especially important, since that’s the measure that the Federal Reserve uses to measure manufacturing production in its closely followed monthly industrial production reports.

At the same time, those real gross output figures still leave one manufacturing production uncertainty remaining. For even though the Commerce Department’s tables, and their quarterly numbers, show no pre-virus Trump era recession by this measure, the Fed’s monthly numbers do. Specifically, they report three consecutive quarters of manufacturing production decrease last year – from the first through the third.

Yet the quarterly figures reported by the Commerce Department show that real gross output in manufacturing fell between the first and second quarters of 2019, but rose between the second and third before dropping again between the third and fourth. Even odder: Although these Commerce numbers show a weakening manufacturing output picture for the fourth quarter of last year, the Fed figures show a brighter one.

As for the comparison between administrations, here’s what the new numbers show for the two most comparable pre-virus periods (because they’re closest together in the same business cycle) – the last three years of the Obama administration and the first three years of the Trump administration. And they demonstrate that, whether due to Mr. Trump’s policies or not, industry performed considerably better during his watch. The Trump numbers are all the more impressive since 2019 was marked in part by major production woes at Boeing that greatly undercut the output numbers for the huge U.S. aerospace industry and its vast domestic supply chain.

last 3 Obama years first 3 Trump years

Gross output: -6.50 percent +12.71 percent

Real gross output: +1.40 percent +4.63 percent

Value added: +5.41 percent +11.72 percent

Real value-added: +2.33 percent +9.00 percent

This year, of course, has been terrible for domestic U.S. manufacturing. Between the first and second quarters, in real gross output terms it decreased by 1.03 percent at an annual rate between the fourth quarter of 2019 and the first quarter of 2020, and by 9.47 percent between the first and second quarters.

Interestingly, put together, those are about the same as the declines suffered by the entire U.S. private sector (1.11 percent and 9.14 percent, respectively), even though manufacturing employment during this that period held up notably better than its overall private sector counterpart. During the first and second quarters of this year, the private sector lost 9.92 percent of its jobs, compared with 6.25 percent for manufacturing.

The GDP by Industry figures for the third quarter won’t be out until well after the election (December 22), so voters won’t be able to judge the full Trump manufacturing output record during the CCP Virus period. But from what’s known so far, it looks like something the President can point to during the rest of the campaign as a promise kept.

(What’s Left of) Our Economy: U.S. Manufacturing Kept Ploughing Ahead in July

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automotive, CCP Virus, coronavirus, COVID 19, Federal Reserve, industrial production, inflation-adjusted growth, manufacturing, real growth, Wuhan virus, {What's Left of) Our Economy

Whereas the last few U.S. manufacturing production reports from the Federal Reserve have overwhelmingly been one story – automotive –this morning’s findings (covering July) are notable for at least two other stories: unusually large downward May and June revisions for the entire sector when it comes to their inflation-adjusted growth, and despite that discouraging news, the more positive development that stripping out automotive from the overall totals, manufacturing has now been growing pretty steadily for three straight months.

The new Fed figures show that in toto, real manufacturing output grew sequentially by 3.41 percent. That figure, too, is now up for three straight months.

But those revisions! June’s originally estimated 9.06 percent jump is now judged to have been only a 7.52 percent improvement – still excellent, but much lower. And after being revised up to 5.06 percent, May’s increase is now pegged at 3.88 percent.

As implied above, automotive outperformed the rest of manufacturing by a mile. Its July monthly production advance came in at 28.29 percent – much less than the May and June rocket rides, but still extraordinary. And the numbers for the May and June comebacks have held up well. The former, previously reported as a 117.12 percent surge, is now judged to have been 110.97 percent. And the June number was revised up from 115.02 percent to 118.33 percent. In other words, price-adjusted production of vehicles and parts combined still more than doubled in both May and June, reflecting both the reopening of factories from earlier spring shutdowns, but strong demand from consumers.

The data for the rest of manufacturing have been considerably less spectacular. But these industries did collectively boost their constant dollar output in June by 1.63 percent sequentially. And the May and June monthly results are still 2.04 percent and 3.66 percent, respectively. Arguably that’s an impressive performance given not only the worst overall U.S. economic slump since the Great Depression of the 1930s, but the stop-start nature of the CCP Virus’ spread and, therefore, of many individual states’ lockdowns and shutdowns.

All the same, let’s close with some statistics that make clear how mind-blowing automotive’s production performance has been during the pandemic. Since February – the last month before major numbers of virus infections started appearing and as a result major economic disruption began – total inflation-adjusted U.S. manufacturing output is down 7.84 percent. Leaving out automotive, real production is off by 8.65 percent during this period. And automotive itself? It’s practically back to normal, with its July price-adjusted manufacturing output just 0.32 percent lower than February’s levels.

(What’s Left of) Our Economy: Early Virus-Era U.S. Manufacturing Winners and Losers

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(What's Left of) ur Economy, aircraft, automotive, Boeing, CCP Virus, coronavirus, COVID 19, durable goods, Fed, Federal Reserve, industrial production, manufacturing, non-durable goods, Wuhan virus

Hey! I’m a manufacturing geek (among other things)! It’s part of what I do! Even so, I hope you agree that it’s worth looking in some detail at yesterday’s U.S. manufacturing output report from the Federal Reserve – because it offers a first look at domestic industrial winners and losers in the Age of the CCP Virus.

As always, these numbers will show inflation-adjusted production changes from month to month – in this case, between February and March. Of course, the time lag means that these data only partly reflect the first wave of the full CCP Virus hit.

As I wrote yesterday, that hit has been hard for domestic manufacturing as a whole – its real output sank by 6.27 percent on month – the biggest such fall-off since the post-World War II demobilization in 1946!

Looking at the super-categories first, the biggest sequential production nosedive came in durable goods – which are supposed to be usable (or shelve-able) for at least three years. Think steel, motor vehicles and parts, machinery, aircraft and parts, home appliances, information technology hardware and the like – include medical products except for pharmaceuticals and vaccines. Constant dollar production of these products plunged by 9.14 percent. So they fared much worse than manufacturing as a whole, and that’s especially discouraging since they’re the bigger of the two super-sectors.

Speaking of which, the other super-sector – non-durable goods (which include textiles and apparel, pharmaceuticals and all other chemicals, plastics and resins, petroleum products, paper, and foods and beverages) – saw a monthly real output decrease of only 3.21 percent.

But we can go into much more detail than that. For convenience sake, let’s limit ourselves to examining industries classified at the 3-digit level of the North American Industry Classification System (NAICS), the U.S. government’s main typology for slicing and dicing the entire economy. Here are the results for the February to March period, leading off with the durable goods sectors.

Wood products:                                                                     -4.22 percent

Non-metallic mineral product:                                             -6.56 percent

Primary metal:                                                                      -2.82 percent

Fabricated metal product:                                                     -8.28 percent

Machinery:                                                                            -5.56 percent

Computer and electronic products:                                       -1.89 percent

Electrical equipment, appliances, and components:             -2.24 percent

Motor vehicles and parts:                                                   -28.04 percent

Aerospace & miscellaneous transportation equipment:       -8.12 percent

Furniture and related products                                           : -9.99 percent

Miscellaneous manufacturing:                                             -9.94 percent

(contains most of those non-pharmaceutical healthcare goods)

Clearly, these results are all over the place, with the automotive sectors being the big standouts. Within automotive, the biggest losers were vehicles factories, where after-inflation production cratered by 34.76 percent. Real parts output was off “only” 21.80 percent.

In fact, leaving out these two automotive industries, inflation-adjusted durable goods output fell by just 5.84 percent – versus the 9.14 percent plummet including these products. And real manufacturing production would have been down by just 5.84 percent, not 6.27 percent.

Also of note: Aircraft and parts production dropped by 10.36 percent, for reasons partly due to the CCP Virus (and the impact on air travel), but also partly due to Boeing’s long-running safety problems. In fact, the March results mark the first that indicate major Boeing-related losses – although surely the impact has been felt previously throughout a vast domestic supply chain that includes lots of industries outside the aerospace complex as such.

Here’s the list of non-durable winners and losers:

Food, beverage, and tobacco products:                                   -0.76 percent

Textiles:                                                                                 -14.05 percent

Apparel and leather goods:                                                   -16.54 percent

Paper:                                                                                      -2.04 percent

Printing & related activities:                                                 -18.18 percent

Petroleum and coal products:                                                 -5.93 percent

Chemicals:                                                                              -1.65 percent

Plastics and rubber products:                                                 -7.60 percent

Other manufacturing (different from miscellaneous):           -5.37 percent

As with investment, past results are no guarantee of future performance, especially since the new economic slump is biologically, not economically caused. But some of these figures look like they have staying power – e.g., we’ll continue eating, we’ll keep using computers, we won’t be flying as much. One big puzzle – will car buying stay this depressed? As I like to say, my crystal ball is far from crystal clear. But that just makes it all the more important to keep track of these detailed manufacturing production figures as they come in, especially what leads an economy down is often what leads it back up.

(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

 

(What’s Left of) Our Economy: Boeing Woes Finally Smack (Otherwise Encouraging) Fed Manufacturing Data

Tags

737 Max, aircraft, Boeing, China, China trade deal, Commerce Department, Fed, Federal Reserve, industrial production, inflation-adjusted output, manufacturing, manufacturing production, manufacturing recession, Phase One, recession, tariffs, Trump, {What's Left of) Our Economy

The Federal Reserve’s report on January industrial production is out, and it not only finally makes clear the impact on manufacturing output of Boeing’s safety woes. It also strongly suggests that whatever (mild) recession industry has experienced is now over.

I say “whatever (mild recession)….” because several official measures of manufacturing output indicate that no downturn took place at all. For example, the Commerce Department’s GDP-by-Industry data series (which gauge factory production on a quarterly basis, not a monthly basis like the Fed) shows that manufacturing’s real gross output (analogous to the Fed’s inflation-adjusted manufacturing output figures) has not declined for two consecutive quarters during the entire current economic recovery. At the same time, it has registered several two-quarter (and longer) stretches periods during which manufacturing by this measure of inflation-adjusted output fell cumulatively.

Commerce’s tables for real value-added (a measure of manufacturing production that tries to prevent counting the production of inputs both as such, and as parts, components, and materials of finished goods) do report that industry’s production dropped between the fourth quarter of 2018 and the first quarter of 2019, and between the first and second quarters of this year. Cumulatively, moreover, this production level was lower in the second quarter of this year than in the third quarter of 2018 – revealing that on this basis, manufacturing suffered a three-quarter downturn.

At the same time, according to this series, both by the consecutive quarters and the cumulative methodology, the manufacturing recession ended in the third quarter, when it topped both the second quarter level and the output figure for the third quarter of 2018.

And don’t forget: According to the Fed’s real manufacturing output figures, domestic industry’s price-adjusted production peaked in December, 2007 – i.e., it’s never pulled out of the slump that began with the Great Recession. Further, as I documented last month, the Fed’s data show that within this long manufacturing recession, several shorter recessions have begun and ended by the cumulative criterion.

So that’s some of context needed for the Fed finding that after-inflation U.S. manufacturing production fell by 0.09 percent in January. That represented its first sequential decline since October, and left year-on-year production down 0.72 percent. By that standard alone, therefore, manufacturing’s recession has continued.

At the same time, industry’s constant dollar production is up since last April – by 0.70 percent. It’s also up 0.34 percent since April, 2018 – the first full month when the Trump administration’s tariffs on steel and aluminum imports went into effect,  and signaled that the President’s tariffs-heavy approach to trade had begun in earnest.

But the Boeing effect also needs to be considered as well. January saw a nosedive in aircraft and parts production of 1.07 percent sequentially, due to the company’s December announcement that production of its flawed 737 Max model would be suspended. The drop-off was the sector’s biggest monthly decline since the nearly 24 percent plunge in recessionary September, 2008.

I’ve wondered whether Boeing’s troubles had already been dragging down manufacturing output – given the company’s huge domestic supply chain, and given that the 737s had been grounded or banned from national airspaces nearly worldwide since March. But today’s report leaves no doubt that their effects have shown up. Indeed, the Fed explicitly stated that “excluding the production of aircraft and parts, factory output advanced 0.3 percent” on month in January.

So without the Boeing effect, January manufacturing output would be up cumulatively since last February – by 1.09 percent, not by 0.70 percent. And the increase since the advent of the main Trump tariffs would have been 0.74 percent, not 0.34 percent. These figures certainly don’t reveal a manufacturing boom – or even close. But given that even after the Phase One trade deal was signed with China, tariffs on hundreds of billions of dollars worth of Chinese products remain in place (many of them levied against goods that are manufacturing inputs), they cast new doubt on how damaging the President’s trade war has been for domestic industry.

Boeing’s 737 Max crisis will end some day. But the company itself warned that it could last “several quarters” more. Moreover, Boeing’s troubles scarcely end with this ill-fated aircraft. In other words, the company’s woes will keep impacting both all U.S. manufacturing data for the foreseeable future. Therefore, it’s up to the nation’s economists and journalists (along with think tank hacks, no matter who’s funding them) to keep this in mind when judging the effect of the President’s trade wars and other economic policies. Let’s see how many can meet this challenge.

(What’s Left of) Our Economy: Manufacturing’s (Latest) Recession Looks Like It’s Over

Tags

aluminum, China, Commerce Department, Federal Reserve, Great Recession, industrial production, inflation-adjusted output, manufacturing, manufacturing production, metals tariffs, recession, steel, tariffs, Trade, trade war, Trump, {What's Left of) Our Economy

Let’s do something a little different this time in RealityChek‘s monthly examination of the Federal Reserve’s latest domestic U.S. manufacturing output figures – which came out this morning and bring the story through December and therefore through full-year 2019 (at least preliminarily).

Instead of focusing on the industries most seriously affected by President Trump’s tariff-heavy trade policies (mainly the metals tariffs, given big measurement problems with the China duties), let’s look at the question of whether manufacturing remains in recession – which has big, trade war-related implications because this Trump campaign is widely blamed for many of manufacturing’s recent weakness.

There’s considerable evidence that the answer is “Yes” – that industry’s inflation-adjusted production (the measure used by the Fed) is back in growth mode, though just barely.

But the question remains an open one. That’s partly because the answer depends on which baseline date you use for the start of the manufacturing recession, which unit of time you use (along with which particular manufacturing output gauge you favor).

Among that evidence tilting toward “Yes” – today’s Fed data.  Specifically, December’s 0.16 percent monthly increase in constant dollar manufacturing output means that, since June, such production is up. Now it’s only up by 0.04 percent. But since that’s a cumulative increase over the last six months (i.e., two consecutive quarters), the technical definition of recession no longer applies.

Or does it? The same Fed figures show that, between December, 2018 and December, 2019, after-inflation manufacturing output was down – by 1.26 percent. So the recession is still on, right?

Maybe. But use another baseline – April, 2018. As RealityChek regulars know, that’s the first full month in which significant Trump tariffs went into effect (on imports of aluminum and steel). Since then, though, price-adjusted manufacturing production has grown by 0.38 percent. This result, therefore, indicates that, although the President’s trade policies seem to have delivered a hit to domestic manufacturing, it was pretty negligible, and it’s already over (at least for now).

To complicate matters still further, as RealityChek reported last July, according to the Fed’s figures, manufacturing has suffered several recessions since the current economic recovery began (in the middle of 2009).  Indeed, as of this morning, it  still hasn’t recovered from the Great Recession that began at the end of 2007!

At the same time, another set of U.S. government data support the conclusion that there has been no trade war-related manufacturing recession during the Trump years – or manufacturing recession of any kind.

These statistics come from the Commerce Department’s “GDP [Gross Domestic Output] by Industry” reports. They use the same measure used by the Fed for tracking manufacturing growth (or contraction), but they’re kept on a quarterly, not monthly, basis. As a result, these numbers aren’t issued as frequently.

Yet the latest results came out January 9, and although they stop at the third quarter of last year, they show that in real terms, domestic manufacturing under Mr. Trump never shrank on net for two straight quarters, much less over any longer time frame. Here are the quarterly change figures:

2Q 16-1Q 17 :+0.32%

1Q 17-2Q 17: -0.7%

2Q 17-3Q 17: +0.35%

3Q 17-4Q 17: +1.22%

4Q 17-1Q 18: +0.38%

1Q 18-2Q 18: +0.09%

2Q 18-3Q 18: +1.38%*

3Q 18-4Q 18: +0.38%

4Q 18-1Q 19: +0.43%

1Q 19-2Q 19: -0.38%

2Q 19-3Q 19: +0.67%

*those Trump metals tariffs began in this quarter

Indeed, what comes through loud and clear from them is that not only has there been no manufacturing recession on President Trump’s watch, but there hasn’t even been an output slowdown.

It’s always possible to point to the counter-factual – that is, in this instance, to try to figure out how matters would look without any Trump tariffs, or similar Trump efforts to transform U.S. trade policy. And it’s certainly conceivable that domestic industry would have fared even better had Trump abjured all tariffs.

But that’s not the only counter-factual. For example, what if the rest of the world had been able to deal with the pressure created by China’s steel dumping by dumping its own steel into the United States (which hasn’t happened because the Trump metal tariffs were global)? What if China itself had remained completely free to send artificially low-priced (because heavily subsidized) product into the US market? What if President Trump had kept the United States in the Trans-Pacific Partnership trade agreement (TPP), with its wide open back door for imports with lots of Chinese content, while China remained under no obligation whatever to open its market to U.S. products? It’s easy to see that U.S.-based manufacturing could have gone on the critical list.

What’s certain, however, is that according to the most authoritative data available, claims of tariffs-led disaster for U.S. manufacturing have been either much ado about nothing, or much ado about very little. Could the coming months finally bear out the worst fears of cheerleaders for pre-Trump trade policies and other globalists? Of course. But that’s simply speculation, which counts much less than facts.