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

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

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

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

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

Washington 3.7 (1) Clinton

Oregon 3.3 (2) Clinton

Utah 3.0 (3) Trump

NH 3.0 (3) Clinton

Fla. 3.0 (3) Trump

Georgia 3.0 (3) Trump

Utah 3.0 (3) Trump

Calif. 2.9 (4) Clinton

Nevada 2.4 (5) Clinton

DC 2.4 (5) Clinton

Arizona 2.1 (6) Trump

So. Carolina 2.1 (6) Trump

Hawaii 2.1 (6) Clinton

Tenn. 2.0 (7) Trump

Colorado 2.0 (7) Clinton

Mass. 2.0 (7) Clinton

Idaho 1.8 (8) Trump

Michigan 1.8 (8) Trump

Ohio 1.7 (9) Trump

So. Dakota 1.7 (9) Trump

No. Carolina 1.6 (10) Trump

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

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

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

No. Dakota -6.5 (1) Trump

Alaska -5.0 (2) Trump

Wyoming -3.6 (3) Trump

Oklahoma -2.3 (4) Trump

West Va. -0.9 (5) Trump

Louisiana -0.6 (6) Trump

New Mex. -0.5 (7) Clinton

Kansas 0.2 (8) Trump

Montana 0.2 (8) Trump

Texas 0.4 (9) Trump

Delaware 0.3 (10) Clinton

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

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

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

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

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

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

(What’s Left of) Our Economy: 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: U.S. Manufacturing Productivity Growth is Not Only Weak, but Low Quality

Tags

inflation-adjusted growth, Labor Department, labor productivity, manufacturing, multi-factor productivity, offshoring, Trade, {What's Left of) Our Economy

Granted, the Labor Department’s latest detailed data on American manufacturing productivity isn’t as exciting as the news about President Trump’s firing of FBI Director James Comey. But if you attach any importance to the future of the U.S. Economy, you need to pay attention. For these figures simply trash the standard claims that American manufacturing is in great shape except for its workforce, which is steadily being replaced by labor-saving technologies and brilliant management innovations.

We already know that manufacturing productivity has slowed to a crawl in recent years. That’s been true both on the labor productivity front (the data that comes out on the timeliest basis, which measures output per hour worked) and on the multi-factor productivity front (the figures that take longer to calculate, and that measure how much output results from a broad range of inputs). What the new statistics reveal is that its sluggishness may not be the most worrisome aspect of manufacturing’s labor productivity lately. For the quality of that productivity growth has been very low quality, too.

By high quality labor (or multi-factor) productivity growth, I mean better efficiency that’s accompanied by more output. That’s the kind of productivity growth that the conventional wisdom apparently assumes domestic manufacturing has been generating. Low quality productivity growth means that better efficiency is taking place while output is shrinking. When we’re talking about low quality labor productivity growth, we’re talking about industries that are getting less efficient while turning out fewer goods. And that description applies to exactly half of the categories used to classify American manufacturing at the most detailed level that’s commonly used by the government.

The new Labor Department report tracked labor productivity, output, and a variety of related performance indicators for 86 manufacturing sectors. Exactly 16 managed to boost both their labor productivity and inflation-adjusted output in 2016. One sector grew in real terms with no improvement in labor productivity (motor vehicle bodies and trailers). But fully half – 43 – recorded falling productivity and falling output. The rest were judged to have either become less productive while growing after inflation, or more productive while contracting in real terms.

Moreover, as was the case the previous year, the lists of winners and losers aren’t what you’d expect. In the former (higher productivity and price-adjusted growth) we see for example fabric mill products; saw mill products; petroleum and coal products; lime and gypsum products; iron and steel mill products; miscellaneous non-ferrous metals; and paints, coatings, and adhesives. Rightly or wrongly, few would make many rosters of “industries of the future.”

Other high quality labor productivity industries appear less surprising – like computers and parts, plastics resins, and agricultural chemicals (the best performer when you add up productivity and output growth). But can you really imagine an American president rewarding any company in the latter category with a factory visit?

The list of low quality labor productivity industries is at least as surprising. It includes pharmaceuticals and medicines, metal working machinery (which contains machine tools and related products), turbines and power generation equipment, motor vehicles (the sector whose growth has led the manufacturing comeback for most of the current economic recovery), semiconductors and electronic components, and aerospace products. The worst performer on a combined basis was audio and video equipment.

Overall, only 27 of the 86 manufacturing sectors surveyed improved their labor productivity last year, whether they expanded output or not. Fifty nine suffered labor productivity declines and, again, labor productivity among motor vehicle body and trailer makers flat-lined.

A final point: Never forget that, if anything, these bleak results are probably overstating American manufacturing’s productivity performance. For the Labor Department states that the offshoring of manufacturing production has boosted industry’s labor productivity figures by more than 20 percent annually between 1997 and 2006. (Here’s a layman’s explanation.) Apparently, the Department hasn’t examined the situation for later years, but it’s tough to avoid concluding that, if the nation is serious about solving its manufacturing productivity problem, ending the longstanding offshoring focus of U.S. trade policy would be a great place to start.

(What’s Left of) Our Economy: The Good Economic News that Trump Has Missed

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bubble, bubble decade, business spending, CNBC, Commerce Department, Financial Crisis, GDP, gross domestic product, housing, inflation-adjusted growth, investment, Jeff Cox, personal consumption, real GDP, Trump, Wilbur Ross, {What's Left of) Our Economy

Here’s how badly the latest figures on U.S. economic growth (for the first quarter of this year) have been misunderstood: Even the Trump administration, which has displayed no hesitation to take credit for good economic news even when undeserved, failed to note a big possible silver lining.

As noted in last week’s coverage of these figures on gross domestic product (GDP), the inflation-adjusted growth figure reported by the Commerce Department in its initial read for the first quarter was a measly 0.69 percent. That’s the worst such performance since the 1.19 percent annualized contraction in the first quarter of 2014.

So it’s not entirely surprising that Commerce Secretary Wilbur Ross seized on this discouraging news to emphasize that “We need the President’s tax plan, regulatory relief, trade renegotiations and the unleashing of American energy sector to overcome the dismal economy inherited by the Trump Administration. Business and consumer sentiment is strong, but both must be released from the regulatory and tax shackles constraining economic growth.”

But especially given the rise in sentiment noted by Ross, it’s at least somewhat surprising that he didn’t make more of the strong rise in business spending revealed in the new GDP report. For it lends significant support to President Trump’s claim that his election is already liberated many of the “animal spirits” – i.e., a surge in business optimism – often needed to spur more hiring and especially more corporate spending on new plant and equipment.

For example, in absolute terms, such business spending rose sequentially by 9.1 percent at an annualized rate in the first quarter. That’s the fastest rate since the fourth quarter of 2013, when it jumped by 9.2 percent.

At the same time, back at the end of 2013, the economy expanded at a 3.90 percent real annual rate. In the first quarter of this year, after-inflation growth was only 0.69 percent annualized. So business spending punched far above its weight as a growth engine. As RealityChek regulars know, that’s an encouraging indication that the nation’s growth recipe is becoming more production oriented, and therefore healthier and more sustainable in the long run.

In fact, higher business spending accounted for all of the first quarter’s growth. (Other sectors of the economy contributed to and subtracted from the overall result, too, but their net effect was zero.) As a result, its relative contribution to expansion was its strongest since the first quarter of 2014, when such investment boosted real GDP by 0.84 percentage points but the economy actually contracted at a 1.19 percent annual rate.

And on a standstill basis, business investment in the first quarter represented its highest share of real GDP (13.34 percent) since the third quarter of 2015 (13.48 percent).

Not that one quarter’s results – which will be revised twice more in the next two months alone – are anywhere close to definitive. But the Trump administration had much more to crow about than it seemed to realize.

At the same time, the new GDP data showed that the economy remains way too personal consumption- and housing-heavy – the toxic combination whose bloat so powerfully inflated the bubbles that produced the previous decade’s global financial crisis.

As previously reported on RealityChek, at their pre-crisis peak, in the second quarter of 2005, the combined consumption and housing share of real GDP hit 73.27 percent. The comparable first quarter total was 73 percent even – not much lower. And that share was up slightly from the fourth quarter’s 72.95 percent.

So the United States is still a long way from achieving former President Obama’s goal of creating “an economy that’s built to last.” But from what we know of the first quarter’s growth this year, the economy made some progress that’s worth noting.

P.S. Partial credit for this post goes to CNBC’s Jeff Cox, whose report here first called my attention to the good business spending results.

(What’s Left of) Our Economy: New U.S. GDP Report Shows Slight Trade Deficit Drop but Heavy Growth Drag

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economic growth, exports, GDP, goods, gross domestic product, imports, inflation-adjusted growth, real trade deficii, recession, recovery, services, Trade, trade deficit, {What's Left of) Our Economy

The government’s initial figures for first quarter gross domestic product (GDP) revealed that a slight sequential dip in the U.S. real trade deficit boosted inflation-adjusted growth only fractionally in early 2017. Yet the decline also resulted in the biggest positive sequential swing in trade’s contribution to quarterly growth first quarter (1.89 percentage points) since the fourth quarter of 2010 (1.95 percentage points). Nonetheless, the first quarter’s constant dollar trade deficit ($602.7 billion) was still the second biggest quarterly total since the $623.7 billion run up in the first quarter of 2008, just after the last recession officially began.

These advance first quarter figures show that all of the major categories of after-inflation exports and imports reached new quarterly records, including total goods and services exports ($2.1675 trillion), goods exports ($1.482.8 trillion), services exports ($685.8 billion), total goods and services imports ($2.7703 trillion), goods imports ($2.2797 trillion), and services imports ($488.3 billion). The cumulative growth drag created by the real trade deficit’s increase during the current, historically feeble economic recovery totaled 9.70 percent in the first quarter – down slightly from the 9.71 percent hit in the fourth quarter of 2016. This translates into $239.4 billion in lost real economic expansion. The Made in Washington trade drag – calculated from separate Census figures that isolate trade flows heavily influenced by trade policy – has been much greater. The latest data, which run through the fourth quarter of 2016, reveal it as having reached 21.67 percent, or $532.56 billion in lost growth.

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

>The government’s first look at first quarter U.S. gross domestic product (GDP) showed that a slight (0.38 percent) sequential dip in the inflation-adjusted trade deficit boosted the period’s modest (0.69 percent annualized) economic growth by a scant 0.07 percentage points.

>At the same time, this marginal lift resulted in the biggest positive quarterly swing in trade’s impact on economic growth (from a 1.82 percentage point reduction to that 0.07 percentage point increase, or a 1.89 percentage point shift) since the last quarter of 2010 – when trade flipped from subtracting 0.83 percentage points from real expansion to adding 1.12 percentage points (a 1.95 percentage point shift).

>The sequential decrease in the real trade deficit, from $605 billion annualized in the fourth quarter to $602.7 billion annualized in the first still left the shortfall at its second highest quarterly level since the first three months of 2008. At that time, just after the last recession officially broke out, the gap hit $623.7 billion.

>All categories of exports and imports tracked in the real GDP figures hit new quarterly records in the first quarter.

>Combined goods and services exports rose on-quarter by 1.41 percent, to $2.1675 trillion annualized. That broke the previous record of $2.1620 trillion annualized, set in the third quarter of last year.

>Goods exports alone increased by 2.01 percent, to $1.4828 trillion annualized – marginally better than the previous record of $1.4792 trillion, also set in third quarter, 2016.

>Services exports inched up by a mere 0.29 percent, to $685.8 billion annualized. That performance bested the old $684 billion record set in the first quarter of 2015.

>Total imports climbed by 1.01 percent, to $2.7703 trillion annualized – their second straight all-time high.

>Goods imports also set a second straight quarterly record, with the first quarter’s $2.2797 billion total annualized besting the fourth quarter’s by 1.10 percent.

>Services imports set their eighth straight quarterly record. The first quarter’s $488.3 billion annualized level was up 0.66 percent from the fourth quarter’s total.

>According to these new GDP figures, the trade drag on the current, historically weak, economic recovery fell slightly on a sequential basis – from 9.71 percent to 9.70 percent. That is, increase in the real trade deficit during the current expansion has reduced its cumulative growth by 239.4 billion.

>Yet the trade drag created by the Made in Washington deficit is now more than twice as great, according to the GDP data and separate figures compiled by the Census Bureau.

>This deficit strips out U.S. trade in oil (which is rarely the subject of trade deals or related policy decisions) and services (where liberalization has made relatively little progress). The growth of the remaining real non-oil goods deficit during the current recovery has slowed cumulative inflation adjusted growth by fully 21.67 percent, or $536.52 billion.

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

Tags

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: New GDP Figures Reveal Record, Growth-Killing Jump in Real Trade Deficit in Late-2016

Tags

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Tags

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(What’s Left of) Our Economy: New Trade Figures Full of (Odd) Surprises & (Mainly Dubious) Records

Tags

Census Bureau, China, currency, exports, Germany, high tech goods, imports, inflation-adjusted growth, Japan, Korea, Made in Washington trade deficit, manufacturing, Mexico, non-oil goods trade deficit, recovery, Trade, trade deficit, Trump, {What's Left of) Our Economy

America’s goods and services trade deficit decreased 3.21 percent in nominal terms on month in December – even though inflation appears to be rising and the fourth quarter real deficit rose at its fastest rate (14.82 percent) since early 2010. In fact, in pre-inflation terms, the quarterly deficit was up only 12.95 percent sequentially. In addition, despite a slowdown in U.S. economic growth, the overall trade deficit edged up on-year by 0.38 percent, to $500.25 billion. In 2016, both combined and goods imports both recorded their first consecutive annual decreases since the current Census historical series begins (1960). In addition, both categories of exports fell in 2016 for the second straight year for the first time since 2002.

December combined goods and services exports rose to their highest level since January, 2015, but total imports hit a post-March, 2015 high. Fueling much of the December sequential improvement was a double-digit drop in the huge and chronic manufacturing trade deficit, and the biggest all-time fall in the volatile high tech goods shortfall (71.78 percent) that was generated largely by the sector’s best-ever monthly exports ($32.18 billion). The goods deficit was down 1.64 percent on year, but the long-time surplus the nation has run in services trade decreased by 5.48 percent – its first such fall since 2003.

Trade with countries possibly targeted by President Trump for new negotiations or unilateral U.S. tariffs turned in a mixed 2016 performance, as American goods deficits rose slightly with Mexico and Japan, and fell with China and Germany. But all these imbalances remained at lofty levels historically. The monthly shortfall with free trade partner Korea, however, hit its lowest level since February, 2014. Nonetheless, the December figures revealed a dramatic rise in the trade drag on America’s sluggish economic recovery.

Most troubling, as of year-end 2016, the Made in Washington deficit had reduced cumulative inflation-adjusted growth during the recovery by 20.56 percent, or $434.78 billion.

Here are selected highlights of the latest monthly (December) and full-year trade balance figures released this morning by the Census Bureau:

>A monthly 3.21 percent drop in the December goods and services trade deficit led off a series of surprises produced by the new monthly U.S. trade figures – which also presented the first full-year results for 2016.

>The December sequential decrease – to $44.26 billion from an upwardly revised $45.73 billion November level – yielded a rise in the nominal fourth quarter 2016 trade gap of 12.95 percent. That’s less than the 14.82 percent surge in the real trade deficit in that fourth quarter reported in the latest gross domestic product figures – even though inflation in the United States appears to be heating up.

>Also puzzling in the new trade figures – the annual increase of the combined goods and services shortfall (albeit by only 0.38 percent, to $500.25 billion) despite a slowing overall economy.

>The new records and multi-year highs and lows revealed in this morning’s trade figures start on the import side. Both combined imports and goods imports fell in 2016 for the second straight year. Such declines have not been seen since 1960 – when the Census Bureau’s current historical statistics series begins.

>The former reached $2.712 trillion in 2016 – the lowest such level since 2011 ($2.676 trillion). The latter reached $2.210 trillion – also the lowest such level since that year ($2.240 trillion).

>Combined exports also fell for the second straight year in 2016 – by 2.34 percent – and totaled $2.209 trillion. The last time such a back-to-back decline was experienced was in 2002. And the 2016 level was the lowest since 2011 ($2.127 trillion).

>Goods exports on an annual basis fell consecutively for the first time since 2011 as well. In 2016, they were off by 3.31 percent, and hit $1.460 trillion. That’s the lowest such level since 2011 as well ($1.499 trillion).

>Meanwhile, the slight deterioration in the annual overall 2016 trade deficit resulted largely from an unusual source – the first drop in the services trade surplus (by 5.48 percent, to $247.82 billion) since 2003.

>In 2016, services exports dipped by 0.17 percent, to $749.58 billion. But the drop was the sector’s first since 2009. Services imports, meanwhile, hit an all-time high of $501.75 billion – up 2.68 percent from 2015 levels.

>The goods deficit in 2016 fell for the first time since 2013 – by 1.64 percent, to $750.07 billion.

>Total exports increased in December on a monthly basis by 2.71 percent, from a downwardly adjusted $185.65 billion to $190.69 billion. That’s the best total since January, 2015’s $191.97 billion.

>Total imports rose more slowly – by 1.54 percent, to $234.95 billion from an upwardly adjusted $231.38 billion. But that total was the highest since March, 2015’s $238.64 billion.

>Fueling much of the December monthly improvement was the biggest monthly drop in America’s volatile high tech goods deficit on record – a 71.78 percent plunge from $13.53 billion to $3.82 billion.

>High tech goods exports shot up sequentially by 15.80 percent to a monthly all-time high of $32.18 billion. Imports were off by 12.87 billion on month, to just over $36 billion.

>The broader manufacturing sector enjoyed a good December, too. The monthly deficit fell from a record $80.75 billion in November to $69.52 billion – an improvement of 13.91 percent.

>Even better, the manufacturing trade gap shrank because imports fell on month in December by 4.71 percent and exports advanced by 3.91 percent.

>On year, however, manufacturing’s trade performance deteriorated again. The annual trade deficit rose by another 3.25 percent to $861.82 billion – its latest annual record.

>Manufacturing exports declined by 4.71 percent, to $1.051 trillion, but imports were off only 1.71 percent, to $1.913 trillion.

>U.S. trade partners who have attracted the ire of President Trump could take some solace from this morning’s trade figures.

>The longstanding and enormous U.S. goods trade deficit with China fell by 5.48 percent on year, from $367.13 billion to $347.04 billion. Both U.S. merchandise imports from and exports to the still strongly growing Chinese economy decreased on annual basis – by 4.23 percent and 0.26 percent, respectively.

>The merchandise trade shortfall with Germany – whose currency policies, like China’s, have been criticized by the Trump administration – was down as well on year, by an even greater 13.34 percent, from $74.85 billion to $64.87 billion. U.S. goods exports to Germany slipped by 1.22 percent but goods imports sank by 8.49 percent.

>>The decline in the U.S. goods trade deficit with Korea, with which a free trade agreement went into effect in 2012, was 2.29 percent, from $28.31 billion to $27.67 billion. This total was still the second highest on record. Both U.S. goods exports to and imports from Korea decreased – by 2.71 percent and 2.55 percent, respectively.

>Some of the improvement in Korea trade resulted from the nearly 50 percent monthly plummet in the December goods gap. The $1.20 billion figure was the lowest since February, 2014’s $1.08 billion.

>Yet the merchandise trade gap with Mexico rose – by 4.17 percent, from $60.66 billion to $63.19 billion. U.S. goods exports – many of which are intermediate goods that are re-imported as final products – inched down by 2.03 percent while imports were down by only 0.76 percent.

>America’s merchandise trade deficit with Japan climbed fractionally, to $68.94 billion in 2016, as goods exports advanced by 1.32 percent and the much greater volume of goods imports grew by 0.64 percent.

>Unfortunately, the new trade data showed that trade’s drag on the U.S. economy increased significantly in 2016. In particular, the inflation-adjusted increase in the Made in Washington deficit (the non-oil goods deficit) since the current recovery began in mid-2009 has cut cumulative inflation-adjusted growth during this sluggish expansion by fully 20.56 percent. That translates into $434.78 billion of real output lost because of America’s trade performance in those areas most heavily affected by trade deals and related policies.

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

Tags

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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