(What’s Left of) Our Economy: New Fed Manufacturing Production Figures Produce Mixed Picture

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

Domestic U.S. manufacturing grew on month in April in real terms for the third straight month, according to the Federal Reserve’s new industrial production figures. Moreover, April’s 0.47 percent sequential after-inflation production increase was the best such result since October’s 1.31 percent – which was boosted by a bounce-back effect from last fall’s hurricanes. Monthly constant dollar output gains were recorded for both durable goods (0.42 percent) and non-durable goods (0.52 percent).

Yet moderately negative revisions generated an annual April real growth rate for overall manufacturing (2.01 percent) that was the lowest since January’s 0.99 percent, and slightly more sluggish than the previous April-to-April’s 2.18 percent. Adjusted for inflation, domestic U.S. manufacturing output remains 3.31 percent smaller than at its peak before the last recession began – more than ten years ago.

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

>The new April Federal Reserve industrial production figures showed mixed results for domestic manufacturing, with inflation-adjusted output expanding sequentially for the third straight months, but annual real growth showing some signs of slowing.

>Industry’s constant dollar output improved on month by 0.47 percent in April – the best such performance since a hurricane bounce-back effect helped spur a 1.31 percent sequential spurt last October.

>April’s real monthly production improvement was broad-based, including both the durable goods (0.42 percent) and non-durable goods (0.52 percent) super-sectors.

>Yet the latest revisions were moderately negative. March’s meager 0.07 percent monthly output rise was downgraded to 0.02 percent, February’s 1.51 percent jump is now judged to have been 1.40 percent, and January’s 0.37 percent sequential drop is now reported as a 0.59 percent decrease.

>Largely as a result, April’s year-on-year real manufacturing production increase was only 2.01 percent – the lowest since January’s 0.99 percent.

>Between the previous Aprils, constant dollar manufacturing output expanded by 2.18 percent.

>In addition, the new Fed figures reveal that, in price-adjusted terms, domestic manufacturing is still 3.31 percent smaller than at its pre-recession peak at the end of 2007 – more than ten years ago.

>More encouragingly, April’s monthly manufacturing production improvement was broad-based.

>For durable goods, the larger of manufacturing’s two super-sectors, real output advanced by 0.42 percent sequentially in April.

>Nonetheless, revisions were negative as well, with March’s previously reported 0.39 percent increase downgraded to 0.17 percent, February’s 1.84 percent increase to 1.59 percent, and January’s 0.25 percent dip to a 0.40 percent decrease.

>Durable goods’ year-on-year results were no better. April’s 1.94 percent annual production increase was the lowest inflation-adjusted figure since January’s 0.74 percent. It was also significantly worse than the 2.77 percent figure recorded between the previous Aprils.

>Durable goods real production is now 0.78 percent above the level it hit at the outset of the last recession, at the end of 2007. It rose slightly the following month, and is now 0.75 percent above that January, 2008 levels.

>Non-durable goods have turned in a somewhat better recent performance.

>In April, their price-adjusted output rose by 0.52 percent on month.

>Moreover, March’s previously reported 0.27 percent sequential real production decrease was revised up to a 0.13 percent decline, and February’s 1.16 percent increase was revised up to 1.20 percent. Only January’s results were downgraded – from a 0.50 percent monthly decrease to a 0.79 percent drop.

>On an annual basis, non-durables after-inflation output rose by 2.10 percent in April – a decided improvement from the 1.54 percent increase between the previous Aprils.

>Further, although the latest year-on-year non-durables’ real output increase is also the lowest since January’s (1.26 percent), the deceleration has been smaller than that in durable goods.

>Nonetheless, constant dollar non-durables output is now fully 8.13 percent below its pre-recession peak – hit in July, 2007.

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(What’s Left of) Our Economy: Record U.S. Exports and Imports Mark New U.S. Growth Report – Mainly as the Latter Stagnate

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

According to the advance gross domestic product figures for the first quarter of 2018, all categories of U.S. exports and imports hit new all-time quarterly highs in inflation-adjusted terms and the real quarterly trade shortfall declined sequentially.

The real trade gap, though, was still the second highest annualized quarterly total ($645.9 billion) since the third quarter of 2007 ($703.2 billion) – just before the Great Recession began. Moreover, the constant dollar trade deficit’s 1.22 percent sequential drop-off resulted almost entirely from the greatest sequential slowdowns in the growth of total imports (80.95 percent) and goods imports (87.19 percent) since the fourth quarter of 2010 and the first quarter of 2009, respectively.

Trade continued in the first quarter of 2018 to subtract from cumulative real growth during the current economic recovery, the the drag diminished from the 9.82 percent figure for the fourth quarter of 2017 to 9.23 percent.

Here are the trade highlights from the Commerce Department’s report today on first quarter GDP growth:

>All categories of America’s exports and imports hit all-time highs in the first quarter of 2018 after inflation, according to the Commerce Department’s initial report on the new gross domestic product’s (GDP) growth for that period.

> Real exports totaled $2.2563 trillion on an annualized basis – 1.19 percent higher than the final (for now) level for the fourth quarter of last year, and American overseas sales’ fifth straight quarterly record.

>Real goods exports of $1.5722 trillion annualized topped the fourth quarter total by 1.49 percent – their fifth straight quarterly record as well.

>The first quarter constant dollar services export total of $688.3 billion was a 0.60 percent sequential improvement and a new record itself, but represented a rebound from the fourth quarter’s 0.35 percent sequential dip.

>On the import side, the United States’ total purchases from abroad came to $2.9022 trillion on an annualized basis – up 0.64 percent sequentially and their second straight quarterly record.

>But that growth rate contrasted dramatically with the 3.36 percent sequential increase in last year’s fourth quarter, and indeed was 80.95 percent slower.

>The goods imports total of $2.3985 trillion annualized represented this category’s second straight all-time quarterly high. Yet the 0.52 percent quarterly increase was 87.19 percent slower than the 4.06 percent quarterly rise in last year’s fourth quarter.

>In fact, both these slowdowns were the greatest since the fourth quarter of 2010 and the first quarter of 2009 – the latter a time when the Great Recession was bottoming. In the fourth quarter of 2010, the growth rate of total imports sank by 81.87 percent; in the first quarter of 2009, goods imports plunged sequentially at nearly double (87.63 percent) the rate that they fell in the third quarter.

>Real services imports reached $688.3 billion annualized in real terms in the first quarter, a 0.60 percent advance from the fourth quarter amount and a new record as well.

>The new GDP report revealed that trade remained a considerable drag on the U.S. economy’s after inflation expansion since the current recovery began. But the drag fell from the 9.82 percent of real growth cut by the trade deficit’s increase since the recovery began (in mid-2009), to 9.23 percent.

>In real absolute terms, this means that the trade deficit’s rise sliced cumulative recovery-era inflation-adjusted growth by $287.6 billion as of the fourth quarter of 2017, and by $279.6 billion as of the first quarter of 2018.

>The growth drag of the increase in the Made in Washington trade deficit – which focuses on the non-oil goods trade flows most heavily influenced by trade agreements and other trade policies – has been much greater during the recovery. But the exact numbers for the first quarter won’t be known until the March monthly trade data come out early next month.

>As of the fourth quarter of 2017, though, the increase in this trade deficit in real terms had reduced recovery growth by a 18.38 percent, or $538.81 billion

(What’s Left of) Our Economy: A Strong February for U.S. Manufacturing Production – but Big Revisions May be Coming

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

Thanks to an unexpectedly crowded Friday, I wasn’t able to put out a report on yesterday’s Federal Reserve real manufacturing output figures – for February. Which is really a shame, because they signaled a noteworthy reversal to the recent slowdown in manufacturing output. In addition, the American automotive sector – which had led domestic manufacturing’s strong early recovery from its deep recessionary slide – emerged from its latest technical recession.

Two important caveats, though: First, revisions weren’t great, to say the least, so part of February’s strong performance reflected a January that was even weaker than previously reported. Second, next week, the Fed will be putting out its latest annual revisions, which will give us entirely new numbers dating back to 2016. And sometimes these updated figures change the picture significantly.

But now to the manufacturing highlights of yesterday’s intriguing good news/less good news Federal Reserve industrial production report:

>According to the Federal Reserve, after-inflation U.S. manufacturing output jumped by 1.27 perceet month-to-month in February – its best such performance since October’s 1.29 percent, which was boosted by a bounceback effect from last fall’s hurricanes. Taking October out of the picture, the February monthly rise was the biggest since last April’s 1.37 percent.

>At the same time, January’s meager 0.08 percent sequential uptick was downgraded to a 0.18 percent dip, and although December’s downwardly revised monthly dip is now judged to have been a 0.04 percent advance, November and October growth figures were lowered as well.

>Year-on-year, manufacturing grew in February by 2.57 percent – the fastest annual pace since July, 2014’s 2.82 percent. By contrast, between the previous Februarys, manufacturing’s price-adjusted output increased by only 1.13 percent.

>Due to the monthly revisions, full-year 2017’s real manufacturing output growth fell to 2.33 percent. But that still resulted in industry’s best year by this measure since 2012’s 2.58 percent.

>Moreover, February’s monthly growth was torrid enough to bring domestic industry to within 1.49 percent of its last constant dollar production peak – hit at the end of 2007, on the eve of the Great Recession.

>Manufacturing’s February performance was led by the durable goods super-sector, whose after-inflation production advanced by 1.78 percent on month. This growth was the fastest since February, 2014’s 1.80 percent, which was helped by a harsh winter rebound effect.

>Yet January’s sequential production change number for durable goods received a significant downgrade, too – from a 0.15 percent increase to a 0.38 percent decrease. The cumulative December and November revisions were slightly negative as well.

>Due largely to the downward January revisions, the month’s reported annual durable goods manufacturing increase was reduced from 2.47 percent to 1.74 percent – the lowest such figure since last August’s 0.95 percent.

​>But February’s annual durable goods real production increase of 3.46 percent was the best monthly performance since January, 2015’s 3.50 percent – which also stemmed partly from a winter weather bounceback.

>The downward December revisions, moreover, reduced durable goods’ full-year, 2017 inflation-adjusted growth to 2.41 percent – a figure that is still a post-2014 (2.72 percent) high.

>For the smaller non-durable goods super-sector, constant dollar production rose by 0.71 percent on month in February– its best such growth since the 2.34 percent burst in hurricane-affected October.

>Omitting the October performance still shows that February’s after-inflation non-durable goods growth was its strongest since last April’s 0.96 percent.

>Further, in the non-durables sector, revisions were slightly positive.

>On a year-on-year basis, real non-durable goods output improved by 2.18 percent in February. And for full-year, 2017, the positive monthly revisions pushed after-inflation output production up to 2.25 percent – the best such result since 2004’s 3.95 percent.

>The star February performer in manufacturing, was the automotive sector – whose sequential real output shot up by 3.88 percent, to an all-time high.

>That monthly performance was automotive’s best since last April’s 4.16 percent growth jump, and pulled the sector out of a real output technical recession that dates from that month.

>Interestingly, though, automotive’s initially reported 0.58 percent January sequential real output advance was revised down to a 0.22 percent drop, and December’s initially reported 1.13 percent inflation-adjusted production improvement was reduced to a 0.88 percent increase.

(What’s Left of) Our Economy: Important New Backward Steps Revealed for U.S. Manufacturing Output

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

I somehow overlooked the release yesterday of the January industrial production figures, but that’s no reflection on the results’ importance. For they not only revealed that U.S. inflation-adjusted manufacturing output growth has ground to a near halt for the last two months, and has slowed markedly after rebounding strongly after last autumn’s hurricanes. They showed that this weak performance, along with negative revisions, pushed such production farther below its pre-recession peak. Here are the manufacturing highlights of yesterday’s Federal Reserve report:

>According to the Federal Reserve, real sequential growth in U.S. manufacturing in January was a mere 0.08 percent. Combined with a December figure now revised from similar negligible growth to a slight dip, and other negative revisions, domestic industry’s expansion has now slowed to a near-standstill. Moreover, the impressive rebound from last autumn’s hurricane-related setbacks has now petered out.

>December’s manufacturing output figure was downgraded from a 0.08 percent monthly increase to a 0.02 percent contraction. November’s 0.31 percent sequential growth is now judged to be 0.25 percent, and October’s monthly post-hurricane 1.50 percent bounce-back has been reduced to 1.37 percent growth.

>As a result, whereas last month’s industrial production report, reported American domestic manufacturing as 2.25 percent smaller in price-adjusted terms than at its pre-recession peak (reached in December, 2007), it’s now 2.43 percent below that level.

>Constant dollar output in the durable goods super-sector of manufacturing advanced by 0.15 percent on month in January – meaning that its growth has slowed for four straight months. Revisions here were also negative.

>December’s real durable goods production improvement was revised down from 0.27 percent to 0.23 percent, November’s from 0.43 percent to 0.41 percent, and October’s from 0.54 percent to 0.49 percent.

>A similar story has unfolded for the non-durable goods super-sector. Its month-to-month real output was up fractionally in January, and recent months’ revisions were downgrades.

>December’s 0.12 percent monthly after-inflation output dip is now judged to be a 0.29 percent decline, November’s 0.17 percent increase is now estimated at 0.08 percent, and October’s post-hurricane rebound has been revised down from 2.57 percent to 2.34 percent. (Non-durables’ output was most greatly affected by the hurricanes.)

>Year-on-year, manufacturing’s price-adjusted January growth of 2.03 percent was its worst such performance since September’s (hurricane-affected) 1.37 percent.

>In addition, the December monthly downgrade brought the full-year 2017 real growth rate down from 2.64 percent (its best since 2011’s 2.71 percent) to 2.38 percent (now only the best since 2012’s 2.58 percent).

>Durable goods’ yearly January growth was 2.47 percent – its slowest such growth since September’s 2.41 percent.

>Further, its December downward revision also depressed its full-year 2017 growth from 2.65 percent to 2.59 percent. That’s only a post-2014 (2.72 percent) high.

>In non-durable goods, January’s year-on-year growth was 1.56 percent – its worst such performance since September’s hurricane-impacted 0.13 percent.

>For full-year, 2017, its growth is now pegged at 2.14 percent, not the 2.64 percent reported last month.

>That yearly performance is still the best for non-durables since 2004’s 3.95 percent.

>In the automotive sector, which led manufacturing’s strong initial recovery from its deep recessionary dive, real production rose by 0.58 percent sequentially in January. But that strong figure was just over half December’s 1.13 percent.

>Worse, the January figures mean that real automotive output remained in technical recession – that is, six or more months of cumulative decline. The sector is now 0.27 percent smaller than in April, 2017.

(What’s Left of) Our Economy: So the Economy Can’t Grow When the Trade Balance Improves?

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Associated Press, growth, inflation-adjusted growth, Paul Wiseman, real trade deficit, Trade, Trade Deficits, {What's Left of) Our Economy

Yesterday’s release of the December and full-year 2017 U.S. trade figures means that there will be lots of detailed data to mine for the next week or two. But the new numbers, and the press coverage, also create a great opportunity to dispel one of the leading myths surrounding the impact of trade – and especially trade deficits – on the U.S. economy.

The myth was nicely stated in the Associated Press coverage of the new trade report – which matters a lot because the AP is one of the leading sources of news for both the nation and the world. According to reporter Paul Wiseman,

“[W]hen it comes to trade, there’s a flip-side to good times [touted by President Trump and others]: ‘A stronger economy will draw in more imports’ as confident consumers seek out foreign products, says Bernard Baumohl, chief economist at the Economic Outlook Group.

“Recent history shows that the trade deficit tends to grow when times are good and shrink when they turn bad. The trade gap hit a record $762 billion in 2006 toward the end of a six-year economic expansion. It dropped to $384 billion in 2009, in the depths of the Great Recession as American consumers hunkered down and bought fewer imports.

“‘If the goal is to reduce the trade deficit, we know how to do that — just send our economy crashing and we won’t be able to afford to import as much’ says Bryan Riley, director of the conservative National Taxpayers Union’s Free Trade Initiative.”

This relationship holds more often than not. But the notion unmistakably conveyed by Wiseman and especially by the supposed authorities he cites – that it always holds – just doesn’t bear scrutiny.

The U.S. Census Bureau, which tracks the trade deficit, and the Bureau of Economic Analysis (like Census, another division of the Commerce Department), which tracks economic growth, both conveniently provide the historical statistics anyone needs should he or she show some actual curiosity about such claims. And what these figures show is that, for two and half decades – from 1961 till the early 1990s – the U.S. economy regularly managed to grow (and often quite nicely) in years when the trade balance improved. This includes years when a surplus increased, a deficit shrunk, or when a deficit turned into a surplus.

All told, such trade balance improvement took place thirteen times during this period: 1961, 1963, 1964, 1970, 1973, 1975, 1979, 1980, 1981, 1988, 1989, 1990, and 1991

And of these 13 years, the economy grew in nine on an inflation-adjusted basis (the most widely looked at measure): 1961, 1963, 1964, 1970, 1973, 1979, 1981, 1988, and 1990.

Moreover, even though improving trade balances (specifically, falling deficits) have been rarer since, they haven’t been unknown. This development took place in 1995, 2007, 2009, and 2012. And of these years, the economy grew in real terms in all except 2009.

What’s been seen more seldom – though not “never” – is a year-to-year speed-up in growth while the trade balance improves. But this combination has been seen five times since 1960: in 1964, 1973, 1981, 1988, and 2012. For good measure, the trade surplus expanded in 1961, and after-inflation growth remained at its previous-year level of 2.6 percent.

Nor does the picture change much when you look at the annual changes in the inflation-adjusted trade balance. From 1961 through the early 1990s, this trade balance improved in 13 years – the same number as that for the current-dollar trade balances, though the specific list is slightly different. These years were: 1963, 1964, 1970, 1973, 1974, 1975, 1979, 1980, 1987, 1988, 1989, 1990, and 1991

In ten of those years, the economy grew: 1961, 1963, 1964, 1970, 1973, 1979, 1987, 1988, 1989, and 1990

Since the early 1990s, the real trade balance has improved six times: 1995, 2007, 2008, 2009, 2012, 2013. And it remained roughly the same in 2011. In all of those years – except for 2008 and 2009 – the real economy expanded.

Re the accelerating growth criterion, through the early 1990s, it was met in three of the ten years during which the economy expanded and the trade balance improved. In two other years, the trade balance improved and economic growth held steady (1962 and 1987).

More recently, since the early 1990s, the economic grew in price-adjusted terms in four years when the trade balance improved. In addition, the trade balance barely budged (for the worse) in another growth year: 2011.

A bigger difference comes in terms of accelerating growth – an improving real trade balance has coincided with a growth speed-up only once during this period: 2012.

Now a skeptic could (correctly) observe that during the 1960s and 1970s, trade was considerably less important to the economy. At the same time, this observation also means that American economic policymakers have failed to meet the crucial challenge of helping the economy sustain healthy growth as it’s steadily – and sometimes rapidly – internationalized.

But the paramount point is that, contrary to the conventional wisdom, there’s no inherent reason why the economy’s trade position should worsen when it grows. And you can indeed look it up.

(What’s Left of) Our Economy: Trade Returns as a (Big) Drag on U.S. Growth

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

The first estimate of fourth quarter and full-year 2017 U.S. real growth came out Friday, and it completely overwhelmed me for two reasons. The first, and least important, was that I was traveling, so completing my analysis the same day wasn’t possible. The second, and most important, was that it was shot through with trade-related records and multi-year highs – mostly of the kind that hold back the American economy. So today I’ll be presenting an abbreviated version of my usual report, focusing almost entirely on those milestones.

>The new gross domestic product (GDP) figures showed that a sequential surge in the inflation-adjusted annualized trade deficit during the year’s last three months prevented the U.S. economy from achieving a current recovery first: three straight quarters or more of three percent or more annualized growth. In fact, the economy hasn’t seen such a period since late 2004-early 2005.

> That jump in the trade deficit jump cut 1.13 percentage points from the fourth quarter’s disappointing 2.53 percent annualized growth – the biggest such absolute and relative subtraction since the fourth quarter of 2016 (1.61 percentage points from 1.75 percent annualized growth). In fact, trade undermined after-inflation growth in the fourth quarter of 2017 for the first time since that end-of-2016 quarter.

>At the same time, on an annual basis, the trade drag on real GDP fell in 2017 to 0.18 percentage points of 2.25 percent inflation-adjusted growth from 2016’s 0.23 percentage points of 1.49 percent growth. In addition, the 2017 figure was the smallest annual growth drag since the 0.16 percentage point and 2.57 percent numbers of 2014.

>The fourth quarter real annualized trade deficit of $652.5 billion was the highest since the $703.2 billion reached during the third quarter of 2007 – just before the Great Recession’s onset. As a share of real GDP, it hit is highest level (3.78 percent) since the first quarter of 2008 (4.19 percent) – in the recession’s first months.

>For the full year, the trade shortfall’s share of real GDP reached its highest level in 2017 (3.64 percent) since 2008 (3.76 percent).

>New records were set for real total exports and goods exports on a quarterly basis ($2.2295 trillion and $1.5527 trillion on an annual basis, respectively) and for all major import categories ($2.8128 trillion for total imports, $2.3144 trillion for goods imports, and $496.3 billion for services imports – all at annual rates).

>Some rates of change for exports and imports were noteworthy as well. On a quarterly basis, the total imports increase of 13.2 percent annualized was the biggest since the 14.10 percent in the third quarter of 2010. The goods import rise of 15.84 percent annualized was the biggest since the 22.05 percent of the second quarter of 2010.

>For the full year, 2017’s real total exports improvement of 3.36 percent was the best such performance since 2014’s 4.28 percent rise, while the after-inflation goods export increase of 4.54 percent was the biggest advance since 2011’s 6.85 percent.

>On the import side, the 3.94 percent annual constant dollar rise in 2017 was the biggest for goods and services combined since 2014’s 4.96 percent. For goods, 2017’s 4.25 percent import increase in price-adjusted terms was the biggest since 2015’s 5.16 percent.

>The real trade deficit’s sequential fourth quarter jump boosted the trade drag on the current economic recovery from 8.23 percent to 9.82 percent – translating into $286.3 billion in lost constant dollar growth since the expansion began in the middle of 2009.

>The far greater growth drag of the increase in the Made in Washington trade deficit – which focuses on the non-oil goods trade flows most heavily influenced by trade agreements and other trade policies – won’t be known until the December monthly trade data come out early next month. But as of the third quarter, it had reduced cumulative recovery growth by 16.36 percent, or just under $460 billion in price-adjusted terms.

 

(What’s Left of) Our Economy: New Figures Report a Strong 2017 that Ended Weakly for U.S. Manufacturing

Tags

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

The Federal Reserve’s new industrial production figures for December revealed that inflation-adjusted U.S. manufacturing output growth has slowed substantially. Its fractional (0.08 percent) monthly increase represented its worst sequential performance since August’s 0.14 percent dip. December’s near-standstill, moreover, followed a November upwardly revised 0.31 percent improvement that was much slower than October’s upwardly revised hurricane bounceback growth (1.50 percent). In addition, the December weakness was widespread, with real sequential growth in the durable goods supersector decelerating from November levels and such output decreasing in non-durables.

Nonetheless, domestic manufacturing’s full-year 2017 price-adjusted growth of 2.64 percent was its best annual increase since the 2.71 percent registered in 2011. For non-durable goods, its 2.64 percent annual real production advance was its best since 2005’s 3.95 percent. Inflation-adjusted production in the automotive sector rose on-month by 2.03 percent – its best rate since August’s 3.47 percent. Yet combined motor vehicles and parts output after inflation remained in a technical recession, standing 0.16 percent lower in December than in April. The December figures show that, adjusted for inflation, American manufacturing remains 2.25 percent smaller than when the last recession began, a decade ago..

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

>New Federal Reserve industrial production figures showed that a U.S. manufacturing production growth slowdown – which began in November following October’s hurricane bounceback – extended into a second month in December.

>After-inflation manufacturing output rose on month by a bare 0.08 in December, the worst such performance since August’s 0.14 percent sequential dip.

>Real monthly production for November was revised up from 0.22 percent to 0.31 percent, but that figure still represented a major decrease from the 1.50 percent constant dollar sequential growth in October – when industry mounted a comeback from early autumn’s hurricanes. The October figure was also revised up (for the second time) from 1.45 percent.

>The softness in the December manufacturing output figures was widespread. In the durable goods supersector, real production increased sequentially by a respectable 0.27 percent. But that performance was down from November’s 0.43 percent and October’s 0.54 percent.

>Constant dollar output in non-durable goods – the supersector most heavily affected by the hurricanse – fell sequentially in December by 0.12 percent. Its monthly price-adjusted growth in October and November was 2.57 percent and 0.17 percent, respectively.

>Viewed from a year-on-year perspective, manufacturing’s performance was much better. It’s full-year 2017 inflation-adjusted production increase of 2.64 percent was the best since 2011’s 2.71 percent – which was achieved much earlier in the current economic recovery.

>Durable goods’ growth of 2.65 percent in real terms in 2017 was its fastest rate since 2012’s 4.26 percent.

>For non-durable goods, its identical 2.64 percent real year production rise was its best such performance since 2005’s 3.95 percent.

>December was the best month for automotive output – which increased after inflation sequentially by 2.03 percent – since August’s 3.47 percent.

>But this crucial sector remained in technical recession, as its December inflation-adjusted production down by 0.16 percent since April.

>As of the December figures, after adjusting for price changes, American domestic manufacturing still remained 2.25 percent smaller than when the last recession broke out – ten years ago.

(What’s Left of) Our Economy: New Data Show Trade’s Still Fueling U.S. Growth – But a Little Less So

Tags

exports, GDP, gross domestic product, imports, inflation-adjusted growth, Made in Washington trade deficit, real trade deficit, recovery, Trade, trade deficit, {What's Left of) Our Economy

The final (for now) estimate of third quarter real growth, showed that the slight downward revision in the previously reported rate of expansion stemmed partly from a marginally worse trade performance. The combined goods and services shortfall was upgraded from $594.4 billion at an annual rate to $597.5 billion. As a result, trade’s contribution to third quarter expansion was downgraded from a 0.43 percentage point addition to 3.26 percent annualized after inflation growth to a 0.36 percentage point contribution to a 3.12 percent annualized real GDP advance.

Even so, the result remained three straight quarters of constant dollar trade deficit shrinkage for the first time since a 2012-2013 stretch. The combined deficit still shrank on a quarterly basis by the greatest annualized amount (10.50 percent) since the 46.14 percent annualized plummet in the fourth quarter of 2013. And trade’s growth-fueling effects still continued into their third straight quarter – also for the first time since 2012-2013. The composition of quarterly inflation-adjusted trade deficit reduction remained encouraging as well, with the combination of exports improvement and import fall-offs showing that domestic producers were supplying more demand both at home and abroad simultaneously for the first time since the third quarter of 2014.

The biggest downgrades in the trade figures came in services trade – especially a sequential real export increase now judged to have been 2.52 percent at annual rates, not 3.17 percent. The new GDP figures showed constant dollar exports in all major categories remained at record levels, but overall quarterly export growth was revised down from 2.16 percent annualized to 2.07 percent annualized. The price-adjusted quarterly total import decrease was revised down from 1.07 percent at an annual rate to 0.69 percent, but still remained the biggest drop since the fourth quarter of 2012 (3.82 percent annualized).

Because quarterly after-inflation trade shortfall was revised up, the trade drag on the current economic recovery inched up, too – from 8.11 percent to 8.23 percent ($231.2 billion in lost real growth). It’s still down considerably from the second quarter’s 9.24 percent. Similarly, the trade drag of the Made in Washington deficit – which tracks flows heavily influenced by U.S. trade policy – grew from the previously reported 16.32 percent to 16.36 percent ($459.5 billion in lost real growth). That’s still down significantly from the 17.30 percent second quarter drag.

Here are the trade highlights from this morning’s report on the gross domestic product (GDP):

>The Commerce Department’s final (for now) read on third quarter inflation-adjusted economic growth showed that a slightly worse trade performance than previously reported helped slow the economy’s expansion marginally.

>The annualized growth rate fell from 3.26 percent to 3.12 percent in part because the quarter’s real annualized trade deficit was upgraded from a downwardly revised $594.4 billion to $597.5 billion.

>As a result, trade’s contribution to real growth was downgraded from 0.46 percentage points of that 3.26 percent annualized growth to 0.36 percentage points out of 3.12 percent annualized growth.

>All the same, the new results still showed that the after-inflation trade deficit has fallen sequentially for three straight quarters – for the first time since a period in 2012-13.

>They also still showed, therefore, that trade fueled growth on net for three straight quarters for the first time since that 2012-13 period.

>And this morning’s results also still showed that the constant dollar deficit fell sequentially in the third quarter by its fastest rate (10.50 percent) since the 46.14 percent plunge in the fourth quarter of 2014.

>The pattern of real trade deficit shrinkage also remained encouraging. As with the first and second reads for the third quarter, this third report showed that the gap narrowed both because exports grew and imports shrank. In other words, the United States was supplying increased demand both at home and abroad simultaneously – the first time it has achieved that objective since the third quarter of 2014. That’s a much better reason for trade deficit shrinkage than, say, weak growth or contraction that depresses imports.

>The weak spot in these final third quarter GDP and trade figures seems to be services. Originally judged to be growing at an annualized sequential rate of 4.04 percent, this figure has now been downgraded to 3.17 percent and now 2.52 percent.

>Yet the new annualized total of $686.6 billion after inflation remained a quarterly record.

>Real services imports performed somewhat better. But their annualized quarterly decrease was still judged to be smaller than reported last month – 2.73 percent instead of 2.97 percent (for a quarterly annualized total of $494.8 billion).

>Nonetheless, services imports still fell at the fastest quarterly annualized rate since their 7.59 percent annualized swoon in the first quarter of 2011.

>Although the third quarter’s annualized real growth rate for inflation-adjusted total exports was further downgraded from 2.16 percent to 2.07 percent (resulting in a $2.1924 trillion annualized figure) this figure stayed in quarterly record territory.

>Goods exports, however, performed somewhat better on a price-adjusted basis. Their real annualized sequential growth rate was upgraded again – from 1.63 percent to 1.84 percent. And the $1.5073 trillion figure was a new inflation-adjusted quarterly record.

>As with services imports, total and goods imports declined less on a quarterly basis.

>Total inflation-adjusted imports sank by 0.69 percent sequentially at an annual rate in the third quarter, according to the new figures, not the 1.07 percent previously reported. But this decrease was still the biggest since the 3.82 percent quarterly drop in the fourth quarter of 2012 – when real growth was a paltry 0.09 percent annualized.

>The new total real imports figure for the third quarter was $2.7900 trillion.

>The previous GDP report showed inflation-adjusted goods imports falling in the third quarter at a 0.65 percent sequential rate – the fastest since the 4.40 percent pace during that dreary fourth quarter of 2012.

>This morning, this decline was judged to be only 0.24 percent – only the fastest rate since the first quarter of 2016’s 0.47 percent.

>The new third quarter real goods import figure is $2.2929 trillion.

>Since the real trade deficit is now judged to be slightly higher than in the previous third quarter GDP reports, the new numbers also revealed that trade’s drag on the current economic recovery increased a bit.

>As of the second quarter, the inflation-adjusted trade deficit’s increase since the recovery began – in the middle of 2009 – had reduced cumulative growth by 9.24 percent.

>The initial third quarter read lowered this number to 8.18 percent, and the second to 8.11 percent. But today’s figures produce a greater 8.23 percent drag, representing $231.2 billion worth of lost growth.

>The growth-killing effects of the Made in Washington trade deficit have been considerably greater – and inched back up as well per the new third quarter data.

>This trade deficit and its growth drag can be calculated by removing constant dollar oil trade and services trade from trade figures – two areas where trade liberalization’s impact so far has been modest at best. What’s left are the U.S. trade flows most heavily affected by trade agreements and other Washington policy decisions.

>When the first read on third quarter GDP came out, third quarter figures for the Made in Washington deficit were not available, but the second quarter GDP report revealed a drag of 17.30 percent. As of the second read, it had fallen to 16.32 percent.

>Today’s report, however, pushed the drag back up to 16.36 percent, or $459.5 billion in real growth lost since the recovery began.

(What’s Left of) Our Economy: November Figures Show U.S. Manufacturing Upswing Intact

Tags

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

The Federal Reserve’s new industrial production figures for November revealed that the strong bounceback from the previous months’ hurricanes is fading. Sequential growth cooled from an upwardly revised 1.45 percent to 0.22 percent, with most of the deterioration coming in non-durable goods sectors either concentrated heavily in Gulf states, like petroleum refinery, or heavily dependent on oil and natural gas for feedstocks, like chemicals.

Even so, the latest overall monthly expansion in manufacturing, coupled with slightly negative revisions from July through September were enough to produce 2.72 percent year-on-year price-adjusted production growth in November – industry’s best such total since July, 2014’s 2.82 percent. Moreover, the higher October monthly real output increase was represented industry’s best sequential growth since May, 2010’s 1.49 percent. Despite some recent signs of life, the automotive sector – which led domestic manufacturing’s strong early comeback from its deep recessionary dive – remained in a technical recession in November. Real production in motor vehicles and parts combined is down 0.12 percent since July, 2015.

The latest results pulled manufacturing’s real output levels to just 2.38 percent below their prec-recession peak, nearly a data decade ago, in December, 2007.

Here are the manufacturing highlights of the Federal Reserve’s Friday release on November industrial production:

>New Federal Reserve industrial production figures reveal that in November, the hurricanes bounceback effect in after-inflation manufacturing output faded, but real monthly growth was sufficient to push the year-on-year figure to its best level in more than three years.

>Constant dollar production rose 0.22 percent sequentially in November – down substantially from October’s upwardly revised 1.45 percent. But the new October figure amounted to manufacturing’s best month-to-month inflation adjusted growth since the 1.49 percent achieved in May, 2010.

>Moreover, November’s manufacturing production growth sufficed to bring the month’s year-on-year total to 2.72 percent in real terms – the best such growth since July, 2014’s 2.82 percent.

>Most of the slower rate of the real growth slowdown came in the hurricane-affected industries that enjoyed such strong production recoveries in October.

>In one of the most dramatic examples, examples, after-inflation production in organic chemicals sank by 14.92 percent on month in September. October’s results? Up 27.96 percent – a marginal downgrade from the 28.05 percent reported last month, but still the biggest advance on record (going back to 1986). In November, inflation-adjusted production rose again – but by just 1.06 percent.

>In petroleum refining, September’s sequential constant dollar output drop has been downgraded from 2.11 percent to 4.16 percent. In October, it rebounded by an upwardly revised 5.91 percent – the best such performance since October, 2008’s 17.72 percent. In November, however, price-adjusted production dipped on month by 0.50 percent.

>In the huge chemicals sector in which these and many of these hurricane-impacted industries are located, the August and September constant dollar output monthly drops have been upgraded slightly on net. But October’s after-inflation output bounceback, already its best on record (going back to 1972) has been revised upward, too – from 5.82 percent to six percent. In November, it fell back but 0.19 percent.

>In turn, in the non-durable goods super-sector in which chemicals are found, sizable monthly real production fall-offs in August and September were followed by a sequential October spurt initially reported as 2.33 percent – its best such performance since January, 1983.

>Now the October figure has been upgraded to a 2.53 percent rise – the best on record (going back to January, 1972. In November, constant dollar production levels were down sequentially – but by a mere 0.01 percent.

>A small upward revision to October’s real sequential automotive output growth helped end a technical recession (two or more straight quarters of cumulative inflation-adjusted output decline) in a sector that led manufacturing’s overall early recovery comeback from the sharp recessionary downturn.

>But a longer term slump continued, with combined motor vehicle and parts price-adjusted production off 0.12 percent since July, 2015.

>Nonetheless, its 0.09 percent monthly real production increase in November marked the fourth straight month of sequential real output improvements in automotive – the best such stretch since the May-October period of 2016.

>As of November, domestic manufacturing is still smaller in real terms than at the onset of the Great Recession – which began in December, 2007. But they also showed that, since October, the inflation-adjusted output gap has closed from 2.56 percent to 2.38 percent.

(What’s Left of) Our Economy: Welcome Signs of Healthier U.S. Growth

Tags

business investment, Commerce Department, GDP, gross domestic product, growth, housing, inflation-adjusted growth, Obama, personal consumption, real GDP, Republicans, tax reform, {What's Left of) Our Economy

With the Commerce Department having issued last week its second read on U.S. economic growth in the third quarter of this year, RealityChek can update its ongoing examination of a major but sorely neglected economic issue: Is the quality of America’s growth improving or worsening? That is, has the nation managed to generate more output in ways that will make a repeat of the last decade’s financial crisis and ensuing Great Recession likelier? Or is it still relying excessively on the same unsustainable growth engines that made the crisis inevitable?

Happily, the news here is pretty good. Not earthshaking, to be sure. But the new statistics confirm that, so far during 2017, the nation has made gradual (though by no means adequate) progress toward former President Obama’s essential goal of creating “an economy built to last,” rather than one dependent on spending and housing bubbles.

As suggested by that last sentence, RealityChek measures the health of growth by looking at the share of the inflation-adjusted gross domestic product (GDP) made up of consumer spending and housing – the toxic combination whose bloat let to the previous decade’s near meltdown.

These two sectors’ combined share of the after-inflation economy peaked in the third quarter of 2005, at 73.27 percent. Last week’s GDP statistics pegged it at 72.85 percent – the lowest since the 72.70 percent in the third quarter of 2016.

In the fourth quarter of 2016, this figure rose to 72.94 percent, and increased again to 73.14 percent in the first quarter of this year. But since then, it’s dipped for two straight quarters – the first such sequence since the first half of 2014.

The big change hasn’t come from personal consumption. In fact, it’s share of real GDP hit its all-time high in the second quarter of this year: 69.60 percent. And the latest third quarter figure is a still elevated 69.43 percent. What’s happened has been a dramatic shriveling of the housing sector. It peaked as a share of real GDP in the second quarter of 2005 at 6.17 percent. The new GDP report pegs it at just 3.42 percent

Business investment – another pillar of solid, healthy growth – may have picked up in the third quarter, too. The quarter’s first estimate of GDP judged that such spending accounted for 16.33 percent of its 2.96 percent annualized constant dollar growth. That would have continued a string of declining relative importance that began in the second quarter. But the newest data revises the business investment contribution upward to 18.10 percent of a (higher) 3.26 percent annualized price-adjusted growth rate.

This hardly a sterling performance. And it hasn’t lasted very long. But these results are considerably better than those for 2016 (when business spending actually subtracted 5.33 percent from the year’s 1.49 percent real growth) or for 2015 (when such investment’s role was positive, but it fueled only 10.34 percent of that year’s 2.86 percent real growth).

In addition, they could set the stage for an interesting test of the Republican party’s fundamental tax reform strategy: Use tax cuts to put more money into the pockets of businesses and wealthier Americans to encourage the building of more factories and labs and other kinds of productive facilities at home. If the Republican approach survives Congress intact, the GDP numbers will be a big help in seeing whether its promise of producing better and healthier growth is kept.