(What’s Left of) Our Economy: Worsening Automotive Recession Drives Down Manufacturing Output

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aluminum, automotive, Federal Reserve, industrial production, inflation-adjusted output, manufacturing, manufacturing production, recession, steel, tariffs, Trade, Trump, vehicles, {What's Left of) Our Economy

According to the Federal Reserve’s new industrial production figures, a sharp automotive drop-off in July helped pull real U.S. domestic manufacturing output down on month (by 0.06 percent) for the third time this year. Since May, 2015, sector’s inflation-adjusted production is down 2.33 percent – a period much longer than the two-consecutive-quarter definition of recession. July’s annual automotive real output decrease (4.98 percent) was the biggest since September, 2009’s 7.21 percent. And the sector’s 3.64 percent sequential output fall was its biggest since August, 2015’s 3.82 percent.

The vehicle sector performed even worse. Its year-on-year July constant dollar production plunge (9.20 percent) was its greatest since August, 2009 (12.54 percent). And vehicles’ July monthly after-inflation production slide (5.92 percent) was the steepest since August, 2015’s 6.31 percent. Largely as a result, July’s real vehicles production was the lowest monthly total since October, 2014.

With President Trump postponing his decision on tariffs for the import-battered steel and aluminum sectors, their price-adjusted production remained weak in July. The former’s sequential real production slumped by 1.50 percent, and although the annual figure rose by a strong 5.50 percent, the sector is still nearly 20 percent smaller in real terms than at the last recession’s onset. The latter’s July monthly real output inched down while growing slightly on a year-on-year basis, but this industry remains less than half its size when the recession struck. Indeed, for the entire manufacturing sector, after-inflation production in July was down four percent from the level hit as the recession broke out – back at the end of 2007.

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

>The worst U.S. real automotive production performance in many years – especially in vehicles – helped pull the nation’s after-inflation manufacturing output down 0.06 percent on month in July. Although small, the sequential decline was the third so far this year.

>Leading the way was an automotive sector that had led manufacturing’s strong rebound from a deep recessionary dive.

>Combined vehicles and parts output sank by 3.64 percent on month in July, its biggest such downturn since August, 2015’s 3.82 percent.

>Year-on-year, constant dollar total automotive output was down in July by 4.98 percent – the worst such deterioration since September, 2009’s 7.21 percent.

>Largely as a result, real automotive production in July hit its lowest level since June, 2015.

>The automotive output drop in turn was led by vehicles. Final price-adjusted production in this sector plunged by 5.92 percent sequentially in July – its worst output month since August, 2015 (6.31 percent).

>The year-on-year figures for vehicles were much worse. Compared with the previous July, they plummeted by 9.20 percent – the biggest such decline since August, 2009 (12.54 percent).

>Largely as a result, as of July, real vehicle output stood at its lowest level since October, 2014.

>The new Fed figures also show that the American steel and aluminum industries continue to pay a price for floods of imports widely thought to benefit from government subsidies – and from the Trump administration’s hesitation to impose tariffs.

>July iron and steel production decreased on month by 1.50 percent in real terms. The 5.50 percent year-on-year result was much better, but was helped by favorable comps.

>Moreover, the steel sector’s real output is still 19.70 percent smaller than at the last recession’s onset – more than eight years ago.

>July primary aluminum production declined on month by 1.02 percent, but advanced by 2.90 percent on year.

>Yet primary aluminum production is down 53.49 percent since the last recession began.

>In fact, since that December, 2007 watershed, U.S. manufacturing’s output is down by four percent – meaning that it still hasn’t recovered from the recession.

(What’s Left of) Our Economy: New Fed Figures Support Case for U.S. Steel and Aluminum Tariffs

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aluminum, capacity utilization, Federal Reserve, Great Recession, imports, industrial production, inflation-adjusted output, iron and steel products, manufacturing, primary aluminum products, recovery, steel, subsidies, tariffs, Trade, {What's Left of) Our Economy

Today’s Federal Reserve industrial production figures contain data supporting claims that the American domestic steel and aluminum industries face heavy global competitive pressures rooted in predatory trade practices that require vigorous responses.

According to the new data, which update the U.S. manufacturing picture through June on a preliminary basis, inflation-adjusted output for all American factories rose by 0.19 percent month-to-month, and by 1.36 percent year-on-year.

Real production of iron and steel products fell by 0.51 percent sequentially in June, and are up by just 0.47 percent on year. For primary aluminum products, the figures are better: monthly after-inflation output improved by 0.26 percent, and it advanced by 1.79 percent over the June, 2016 levels.

Longer term, though, the trends in these two sectors, and in U.S. domestic industry as a whole, have diverged sharply. Since the Great Recession officially broke out, the Federal Reserve data show that American manufacturing’s constant dollar output still hasn’t fully recovered. Indeed, it’s still down by 4.03 percent.

But real iron and steel products production is still 18.55 percent lower than at the recession’s onset – more than nine years ago. Inflation-adjusted primary aluminum production stands at less than half its December, 2007 levels, having plummeted by 53.01 percent.

The plight of steel and aluminum is also apparent from the capacity utilization figures. For all of domestic American manufacturing, utilization rates were 75.88 percent. That’s 3.72 percent below the last pre-recession level of 78.81 percent.

For iron and steel products, the drop has been much steeper – capacity utilization is down 21.47 percent from its December, 2007 level of 92.11 percent. And although the latter level looks unusually high, it had been achieved regularly by these producers during previous decades.

The Fed doesn’t keep capacity utilization figures for aluminum. But statistics for the broader primary metals sector indicate that its fate has been nearly as bad. Capacity utilization since the end of 2007 has sunk from 83.52 percent to 68.24 percent – an 18.30 percent plunge.

As widely reported, this deterioration has coincided – at the very least – with an explosion in the production and export of subsidized steel and aluminum from China. As has been much less widely reported, U.S.-based producers have borne the brunt of the costs. Although comparable numbers are not available for aluminum, the American share of the global steel market has fallen by considerably more during the current economic recovery than the shares of other steel-production countries and regions. In addition, the United State runs by far the world’s biggest steel trade deficit.

It’s still unclear whether or not President Trump will decide to impose any national security-related tariffs on steel imports, which countries’ shipments will or won’t be hit, or what other measures he might approve if the tariff route is rejected. But it’s all too clear that without significant action from Washington, two more important American manufacturing sectors could needlessly fall victim to foreign trade and broader economic policies having nothing to do with either free trade or free markets.

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

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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: U.S. Manufacturing Growth Regained Momentum in April

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

Today’s new Federal Reserve figures showed that real U.S. manufacturing production rebounded in April after a March decline with its best monthly gain (one percent) since winter-affected February, 2014’s 1.11 percent. April’s annual increase (1.91 percent), moreover, was the strongest since January, 2015’s 2.58 percent – which was also impacted by harsh weather. Leading the April industrial comeback was the automotive sector, which saw its constant dollar output jump five percent – the biggest monthly improvement since July, 2015’s 7.84 percent. Vehicles were the standout within automotive, as after inflation production soared by 8.02 percent on-month in April, their best month since a 12.38 percent increase also registered in July, 2015.

Thanks largely to the automotive sector, price-adjusted output in the durable goods super-sector increased by 1.01 percent. That rise was its best since March, 2014 (1.03 percent). Largely as a result, the yearly inflation-adjusted durables output increase of 2.03 percent was its best such performance since January, 2015’s 3.15 percent – which was weather-related as well. But manufacturing’s solid April improvement was broad-based, as indicated by the 0.98 percent monthly gain in non-durable goods production – its best since November, 2014 (1.03 percent). Moreover, the annual inflation-adjusted non-durables production improvement of 1.73 percent was its best such improvement since October, 2015 (1.81 percent).

Revisions to March and February manufacturing output numbers were slightly negative, however, and the sector’s after-inflation output is still down by 3.58 percent since the onset of the last recession – more than nine years ago.

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

>U.S. real manufacturing output regained its momentum in April following a March drop, with real output growing sequentially (by one percent) for the seventh time in the last eight months.

>The gain was industry’s best since the 1.11 percent on-month increase in February, 2014 – when the sector was recovering from a harsh winter.

>Largely as a result, after-inflation manufacturing production in April also recorded its best annual increase (1.91 percent) since January, 2015’s 2.58 percent – which also partly stemmed from a recovery from a slowdown due to unusually cold weather.

>Leading manufacturing’s April surge was the biggest (five percent) sequential increase in automotive production since July, 2015 (7.84 percent). And leading automotive was the vehicles sector, where constant dollar production jumped on-month by 8.02 percent – also the biggest such advance since July, 2015 (12.38 percent).

>Thanks largely to automotive’s performance, the durable goods super-sector saw its monthly price-adjusted production grow by 1.01 percent – the fastest pace registered since March, 2014’s 1.03 percent.

>In addition, durable goods’ annual April real advance of 2.03 percent was its best such performance since the weather-affected 3.15 percent improvement in January, 2015.

>But April’s sequential manufacturing advance extended far beyond the durables super-sector, as its non-durables counterpart boosted its monthly real production last month by 0.98 percent. That growth rate was its best since November, 2014’s 1.03 percent.

>Non-durables’ real annual output gain of 1.77 percent was its fastest since October, 2015’s 1.i1 percent.

>The only blemishes in these April Fed manufacturing data were the revisions. March’s previously reported 0.38 percent monthly real production decline was downgraded to a 0.41 percent falloff and February’s already downwardly revised 0.35 percent sequential growth is now reported as a 0.27 percent rise. The downwardly revised January on-month growth figure of 0.39 percent was upgraded to 0.40 percent.

>Despite April’s strong monthly results, American domestic manufacturing is still 3.58 percent smaller in real terms than at the beginning of the last recession – more than nine years ago, at the end of 2007.

(What’s Left of) Our Economy: So U.S. Manufacturing’s Never Produced More, Huh?

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Commerce Department, Federal Reserve, gross output, industrial production, inflation-adjusted output, manufacturing, real gross output, real value-added, recession, recovery, value added, {What's Left of) Our Economy

Even though (thankfully) few claims have been heard lately that American domestic manufacturing is either enjoying a renaissance or on the verge of one, it’s still commonplace to insist that the sector’s output is at an all-time high. Invariably, the purpose is to argue that U.S. industry is in perfectly acceptable shape, and that anyone believing the contrary is mistakenly obsessing about the industry’s long years of job losses – which are attributed to its ever faster adoption of labor-saving technologies that are encouragingly boosting productivity.

Let’s (charitably) leave aside the reality that manufacturing’s productivity performance lately has been historically feeble. Instead, let’s express thanks to the Commerce Department, which has just published its latest reminder of how complicated – and uninspiring – manufacturing output has been lately.

As known by RealityChek regulars, the Federal Reserve’s monthly industrial production numbers have made sadly clear that, when adjusted for inflation, American manufacturing output is anything but at an all-time high. Indeed, its peak came at the very end of 2007, just as the Great Recession was beginning according to the quasi-official scorekeepers at the National Bureau of Economic Research. Since then, real manufacturing production has shrunk by 4.43 percent.

But as the Commerce Department’s new quarterly report on gross domestic product (GDP) by industry once again describe in detail, the U.S. government measures manufacturing output in several different ways. Unfortunately, however, none of them tell a story especially flattering to the sector.

Commerce gives pride of place to a gauge called real value-added – which tries to eliminate the double-counting that often marks the simpler production numbers mentioned above. In other words, real value-added (along with value-added that’s not adjusted for inflation) tries to ensure that the government isn’t counting an auto part once when it comes out of a parts factory and again when it comes out of a vehicle factory as one piece of a finished good.

The real value-added data certainly make manufacturing’s recent production growth look better than the real output figures. But that’s not to say they make this performance look good, for they show that from its 2007 peak through the end of last year, domestic manufacturing has shrunk by 0.81 percent.

It’s only when you don’t adjust for inflation that you start getting genuinely encouraging manufacturing output numbers. According to the pre-inflation value-added data, American manufacturing production was indeed at an all-time high as of the end of 2016. In fact, it’s 17.31 percent higher than the 2007 level.

Don’t get too excited by this number, however. If we switch time-frames and just look at the current economic recovery, we see that from the time the economy resumed growing in 2009 (and unfortunately, this data set doesn’t contain quarterly figures, so we have to use full years) through the end of 2016, current dollar manufacturing value-added advanced by 25.97 percent. That’s only a little faster than manufacturing’s 25.42 percent value-added growth during the previous (2001-2007) expansion – which was a year shorter. Moreover, no one ever considered those years a manufacturing golden age – or even close.

Yet another version of the manufacturing story is told by the gross output numbers compiled by the Commerce Department. They show that manufacturing production rose after the last recession began – by 12.94 percent. But that growth ended in 2014. Over the next two years, it dropped back – by 4.41 percent. So record manufacturing output came – and then went.

Adjusting gross output for inflation serves up a less volatile picture of manufacturing production, but it’s not much of an improvement. According to this measure, output peaked in 2007, and since then has dipped by 0.27 percent. That’s not much. But it doesn’t mark 2016 as an all-time high, either.

To me, a reasonable bottom line is this: The U.S. government uses five different measures of manufacturing output. Both its timeliest (the Fed industrial production figures) and arguably the one it likes best (real value-added) show that real manufacturing production is off its recent records. So do two other measures. The only data set that tells a reasonably good story is one that’s doesn’t take inflation into account. That’s a pretty flimsy reed on which to base claims that domestic manufacturing output has never been stronger.

(What’s Left of) Our Economy: Automotive Plunge into Technical Recession Drags Down March US Manufacturing Output

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

The Federal Reserve’s new industrial production report today showed that U.S. domestic manufacturing in March took its first monthly tumble (0.38 percent) since August and its biggest since winter-affected February, 2015 (0.49 percent). Revisions (which incorporate the latest annual revision results released last month) were negative, and undercut the strong preliminary readings reported for January and February.

March’s manufacturing output fall-off was led by the biggest sequential plunge in constant dollar automotive output (2.96 percent) since May’s 3.19 percent decrease. As a result, the combined vehicles and parts industry, which has led U.S. manufacturing’s comeback during most of the current recovery, fell into a technical recession. It’s real production is now down by 0.38 percent since last February. Vehicle output was especially weak in March, plummeting by 4.77 percent for its worst month since last May’s 4.94 percent shrinkage in real terms.

March’s poor numbers mean that real U.S. domestic manufacturing output is now down on net since January, 2006 (by 0.38 percent), and is 4.43 percent below its all-time high, hit in December, 2007. The weak March automotive numbers helped drive monthly durable goods output down by its greatest percentage (0.83 percent) since January, 2014’s winter-affected 0.99 percent sequential contraction.

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

>U.S. real manufacturing output dropped in March on month for the first time since last August, and the 0.38 sequential fall-off of 0.38 percent was industry’s biggest since February, 2015’s 0.49 percent – which was affected by unusually cold weather.

>Just as discouraging, the revisions (which incorporated the latest annual industrial production revision released by the Fed in late March) weakened initially reported combined January and February growth estimates that were industry’s best two-month stretch since February and March, 2014.

>January’s 0.54 percent monthly gain – which was upgraded in last month’s industrial production report – was revised down to 0.39 percent. February’s initially reported 0.51 percent sequential growth was downgraded to 0.35 percent growth.

>The overall March manufacturing monthly production fall-off was led by the worst figures for the automotive sector since last May.

>Real output in vehicles and parts combined – which has led manufacturing’s comeback since the current economic recovery began in mid-2009 – sank by 2.96 percent on month in March, the biggest such drop since last May’s 3.19 percent.

>The results were bad enough to plunge the sector into a technical recession. After-inflation automotive output is off by 0.38 percent since February, 2016.

>Automotive’s poor March owed mainly to a huge 4.77 percent decrease in inflation-adjusted vehicles production – the worst such figure since last May’s 4.94 percent.

>Another consequence of the overall real manufacturing production decline in March – industry’s constant-dollar output is now down on net (by 0.38 percent) since January, 2006.

>And since its pre-recession (all-time) peak, reached in December, 2007, price-adjusted domestic manufacturing output has now fallen by 4.43 percent.

>Overall real U.S. manufacturing output was up 0.98 percent on year in March – faster than its 0.12 percent inflation-adjusted output increase between the previous Marches.

>Automotive’s poor March performance helped lead to an after-inflation 0.83 percent monthly drop in manufacturing’s durable goods super-sector. That decrease was its first since August, and its biggest such shrinkage since winter-affected January, 2014 (0.99 percent).

>Year-on-year, inflation-adjusted durable goods output was up 1.45 percent. Between March, 2015 and March, 2016, if fell by 0.98 percent.

>Since its pre-recession peak, hit in December, 2007, durable goods production after inflation is down by 0.25 percent.

>Real production in the non-durable goods super-sector edged up by 0.13 percent on month in March – its third straight sequential increase.

>Year-on-year, non-durables’ price-adjusted production inched up by only 0.45 percent in March – much slower than its 1.37 percent advance between the previous Marches.

>Since its pre-recession peak – in July, 2007 – output in the non-durables super-sector has shrunk by 9.59 percent.

(What’s Left of) Our Economy: New Fed Revisions Show Weaker U.S. Manufacturing Performance

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

Last Friday, the Federal Reserve came out with revised figures for industrial production going back to 2012, and the results show that President Trump faces a bigger challenge in making American manufacturing great again than even he might have thought.

According to the new data, inflation-adjusted U.S. domestic manufacturing output is further from having regained its pre-recession high than previously estimated. Before the revision was released, as of the latest available (February) figures, American industry was still 2.83 percent smaller in price-adjusted terms than at the recession’s December, 2007 onset. Now, the shortfall since that peak more than nine years ago is judged to be 3.78 percent.

As a result, U.S. after-inflation manufacturing production today is still slightly lower than it was in August, 2006 – more than ten years ago.

The Fed’s new numbers also yield new figures for domestic manufacturing’s annual performance in recent years. Here are the pre-revision Fed estimates of real manufacturing output changes in recent years:

2014: +2.30 percent

2015: +1.20 percent

2016: +0.40 percent

Here are the revised real manufacturing output changes:

2014: +1.80 percent

2015: -0.50 percent

2016: +0.50 percent

The new Fed data also present the performance of manufacturing’s durable goods and non-durable goods sectors in new lights.

According to the pre-revision figures, real durable goods output in February, 2017 had climbed to 2.72 percent higher than its pre-recession peak in December, 2007. Now that increase is pegged at only 0.63 percent. Non-durable goods real output was previously thought to be 9.40 percent below its pre-recession peak (reached in July, 2007). Now the shortfall is judged to be slightly smaller – 9.17 percent.

The best news in the new Fed data concerned upward revisions for this year’s constant-dollar U.S. manufacturing output. The January figure – already upwardly revised to 0.54 percent on month – is now estimated at 0.59 percent. February’s initially reported 0.51 percent seqential improvement was upgraded to 0.54 percent. These are still the best back-to-back monthly gains since February and March, 2014 – but those increases have been revised, too (from 0.70 percent to 1.11 percent, and from 1.07 percent to 0.80 percent, respectively).

Even better, those 2014 rises in part reflected a manufacturing bounceback from an unusually harsh winter.

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

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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: The Signals Remain Mixed at Best

Tags

automotive, industrial production, inflation-adjusted wages, manufacturing output, recession, recovery, wages, {What's Left of) Our Economy

A short break in my aforementioned schedule has emerged, so why not use it to briefly review two new important clues from last Wednesday on the status of the U.S. economy – the latest inflation-adjusted wages data, and the similarly price-adjusted manufacturing production numbers? They’re worth noting because, although the economics world’s conventional wisdom seems to be concluding that the historically sluggish American recovery that began in mid-2009 is finally reaching a more respectable pace, these new numbers seem to be saying, “Not so fast.”

The main bright orange flag was waved by those real wage figures, which bring the story up to January, and which incorporate revisions going back to January, 2012. Their main message to me? The nation is now firmly stuck in a wage recession. That is, after-inflation wages have been down on net for at least two straight quarters. In fact, they’re 0.19 percent lower than they were last February – a span of eleven months.

A big reason is that in January, real wages fell on month by 0.47 percent in the private sector. (The real wage data don’t track pay in the public sector, since those levels are set largely by government fiat, not market forces.) That’s their worst such performance since August, 2012, when they sank by 0.58 percent sequentially.

And year-on-year, constant dollar wages were flat in January – the worst such change since June, 2014, when they were also flat on year. Between January, 2015 and January, 2016, by contrast, real wages rose by 1.04 percent. And during the entirety of this economic recovery – which is now more than seven years old, inflation-adjusted wages have advanced by only 3.30 percent.

The picture in manufacturing was comparably dismal. It’s mired in a wage recession, too, as inflation-adjusted pay is down 0.28 percent since last April. I’d say that January’s monthly performance was especially bad (down 0.46 percent). But it actually beat the new December figure (down 0.64 percent). And just as with overall private sector real wages, you’d have to go back to August, 2012 to find a bigger monthly drop (0.76 percent).

Year-on-year, real wages did rise in January – by 0.37 percent. But that rate was the slowest since November, 2014 (0.19 percent) and was much worse than the 1.22 percent improvement registered during the previous two Januarys. And since the current recovery’s June, 2009 onset, real manufacturing wages have inched up only 0.75 percent.

These new January figures are still preliminary, so they’ll be revised yet again in subsequent months. But it’s hard to square the phrase “wage recession” with the idea of a healthy economy or labor market.

The manufacturing production numbers that also came out Wednesday morning were better, but anything but stellar. And they were strange enough to leave a data geek scratching his or her head. The main reason? The automotive sector, which has led the domestic manufacturing sector out of its worst tailspin since the Great Depression, was a January real output laggard – and has been for the last three months. Largely as a result, so was the entire durable goods super-sector, which grew more slowly for a change than its non-durables counterpart.

Overall after-inflation manufacturing output in January was up 0.22 percent on a monthly basis – nothing unusual, but at least enough to keep the sector leaving behind the recession it endured from November, 2014 through last September. Revisions were positive, too, with November’s 0.14 percent sequential output dip marked up to a 0.04 percent increase, and December’s month-on-month improvement upgraded from 0.17 percent to 0.26 percent.

Oddly, however, constant dollar production of motor vehicles and parts combined decreased by 2.90 percent on month in January – the biggest such fall-off since last May’s 4.77 percent. In addition, the decline was led by vehicles, where real output plunged by 4.67 percent – the biggest such plummet since last May’s 6.98 percent. In fact, that was the second sequential drop in after-inflation vehicle production in the last three months. Auto parts has experienced a similar slump, but in January, real output was off by only 1.72 percent.

To give you an idea of just how unusual this latest trend has been, since the last recession began at the end of 2007, real manufacturing output is down 3.56 percent. Take away the automotive sector, and the downturn has been more than twice as bad – 7.60 percent.

An optimist could say that manufacturing is finally reducing its dependence on vehicle and parts production for respectable production performance. A pessimist could say that trouble in automotive is likely to foreshadow further weakness in the rest of manufacturing. I’ll stay agnostic on this count. What seems clearer from the new manufacturing and wages figures, however, is that more than seven years after the current weak recovery began, the jury is still out as to whether it will or can escape the frustrating stop-go pattern it’s exhibited so far.

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

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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.