(What’s Left of) Our Economy: A Spring-y New U.S. Manufacturing Production Report

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aerospace, automotive, Biden, Boeing, CCP Virus, coronavirus, COVID 19, Donald Trump, Federal Reserve, health security, imports, industrial production, inflation-adjusted output, infrastructure, machinery, manufacturing, pharmaceuticals, PPE, real growth, semiconductor shortage, stimulus, supply chain, tariffs, Trade, trade war, vaccines, ventilators, West Coast ports, Wuhan virus, {What's Left of) Our Economy

You might call today’s March U.S. manufacturing production figures from the Federal Reserve a good news/bad news/good news story. Moreover, the new data on inflation-adjusted factory output contained a surprise worth noting.

First the good news/bad news/good news. The Fed report showed that real domestic manufacturing output rose by 2.79 percent on month in March. That was the best such result since July’s 4.25 percent – much earlier during the recovery from the deep CCP Virus- and lockdowns-induced recession. Rebounds from major downturns tend to be strongest earliest, especially for highly cyclical sectors of the economy like manufacturing, and that surely went double for a slump largely caused by an outside shock like a pandemic and dramatic government responses, rather than one caused by a market-based economy’s ordinary fluctuations.

The bad news was that this robust growth followed a February sequential drop of 3.72 percent that was the worst monthly performance since pandemicky April’s 15.83 percent plunge. Moreover, this revised February figure was a significant downgrade from the initially reported 3.12 percent decline. The other revisions, going back to October, were too small to affect the picture over the last few months.

But then there’s that second piece of good news: As the Fed’s release explained this morning, the lousy February numbers “largely resulted from widespread outages related to severe winter weather in the south central region of the country.” So they stemmed from a (temporary) outside shock, too.

The surprise? Although the U.S. automotive industry continues reducing production due to a global shortage of semiconductors, output in price-adjusted terms grew by 2.79 percent sequentially in March. At the same time, the February fall-off was revised down from 8.26 percent to ten percent even. And the shortage is expected to undercut vehicle production until the fall, so that’s a drag likely to weigh on the overall manufacturing figures for months.

The total March manufacturing figure means that domestic industry’s after-inflation production has grown by 22.88 percent since its recent low-point last April, and has climbed back to within 1.73 percent of its last pre-pandemic reading in February, 2020.

Manufacturing’s monthly current dollar output gains were broadbased in March, including in the crucial machinery sector. In this industry, whose products are widely used not only throughout manufacturing, but in many other important segments of the economy like construction and agriculture, price-adjusted production improved by 2.87 percent. And now it actually stands 2.16 percent higher than during that last pre-CCP Virus month of February, 2020.

Although the semiconductor shortage is bound to crimp production in many industries on top of automotive, domestic manufacturing still seems to be benefiting from two headwinds other than the economy’s generally improving strength that seem to have some staying power, too. The first is aerospace giant Boeing’s continuing, but sometimes uneven, progress exiting its protracted recent safety and manufacturing problems. The pandemic’s blow to air travel worldwide clearly didn’t help, either.

But in March, real output in aircraft and parts jumped by 4.09 percent sequentially, and is now fully 5.07 percent above its February, 2020 pre-CCP Virus level.

The picture was more mixed in the pharmaceutical and medicines category – which includes vaccines. Inflation-adjusted output advanced by 2.90 percent on month in March, but the previously reported January and February numbers were both downgraded dramatically – from an upwardly revised 2.57 percent to 0.85 percent, and from a 1.29 percent rise to a 0.05 percent dip. These moves left the sector’s output 5.83 percent higher than in pre-pandemic February, 2020 with the prospect of more impovement to come as vaccine production continues to boom.

Growth is still lagging, however, in the vital medical equipment and supplies sector – which includes virus-fighting items like face masks, face masks, protective gowns, and ventilators. February’s constant-dollar production was revised up from a 0.56 percent monthly decline to a 0.44 percent drop – but it was still a drop. Growth returned in March – but only by 0.61 percent in real terms. So price-adjusted output in this category – which includes many other products – is still slightly (0.39 percent) below pre-pandemic February, 2020’s levels, despite all the national talk of the need to improve America’s health security.

I’m still bullish on manufacturing’s outlook, though. No one should forget headwinds facing industry aside from the semiconductor shortage – chiefly, the fading of vaccine production at some point, the distinct possibility of many more regulations and higher taxes from a Democratic-conrolled federal government, and the supply chain disruptions resulting largely from clogged West Coast ports (which on top of the Trump tariffs are slowing the import of many foreign inputs still needed by Made in the USA companies).

But arguably more than offsetting these dangers is the so far better-than-expected resumption of total U.S. growth, the virtual certainty of even yet another gigantic dose of stimulus an infrastructure spending, along with President Biden’s decision to retain every dollar’s worth of those sweeping, often towering Trump trade curbs.

Yet much more important than my views is the continuing optimism registered by domestic manufacturers in all of the soft data surveys that come out each month from the private sector and from various branches of the Federal Reserve system. If they’re full of confidence, who am I to rain on their parade?

(What’s Left of) Our Economy: Winter Smacks February U.S. Manufacturing Output but Forecast Remains Bright

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aerospace, aircraft, American Rescue Plan, automotive, Biden, Boeing, CCP Virus, China, coronavirus, COVID 19, Covid relief, Donald Trump, facemasks, Federal Reserve, industrial production, inflation-adjusted output, machinery, manufacturing, masks, medical equipment, petroleum refining, pharmaceuticals, plastics, PPE, real growth, resins, semiconductor shortage, semiconductors, stimulus package, tariffs, Texas, Trade, vaccines, winter, Wuhan virus, {What's Left of) Our Economy

Count me as one awfully surprised blogger when I saw this morning’s Federal Reserve U.S. manufacturing production figures (for February), which reported a 3.12 percent sequential drop in industry’s inflation-adjusted output. That was by far the worst such monthly performance since pandemicky April’s 15.83 percent crashdive, and even though the Fed largely blamed harsh winter weather in much of the country, it still contended that manufacturing would have shrunk by about half a percent even in balmier conditions.

A big reason for my surprise was the apparent contrast between these results and the findings of the monthly manufacturing surveys conducted by various of the Fed’s regional branches. They’re soft data, presenting manufacturers’ perceptions rather than actual changes in output (or jobs, or capital spending, or any other indicator), and I’ve written before that soft data are anything but perfect. But not only were the production reads in these surveys strong. They were strong even in Texas, where the storms were so severe. (And the Dallas Fed’s survey was conducted as they were raging.) Moreover, the same held for the February results from the neighboring Kansas City Fed bank.

Further, other hard data – specifically, on jobs – pointed to a good February for manufacturing, too, as industry expanded its payrolls by 21,000.

But the new Fed production numbers shouldn’t be dismissed entirely, so let’s look at the…lowlights, starting with the revisions, which were moderately negative. January’s previously reported 1.04 percent monthly advance is now pegged at 1.29 percent. December’s already once-downgraded inflation-adjusted output growth was lowered again, from 0.94 percent to 0.84 percent. November’s result, which had been upgraded twice (most recently to 1.10 percent) is now judged to have been 1.05 percent. October’s string of upward revisions was stopped, too, as the new report reveals a downgrade from 1.51 percent to 1.39 percent.

Overall, these readings mean that domestic manufacturing’s after-inflation production has grown by 20.26 percent since its April nadir, and stands 3.83 percent below its last pre-pandemic reading, from February.

As not the case with recent Fed industrial production reports, the output changes were highly concentrated in a few industries. Bearing out the central bank’s observation that “some petroleum refineries, petrochemical facilities, and plastic resin plants suffered damage from the deep freeze and were offline for the rest of the month,” most of these sectors saw outsized price-adjusted month-to-month drops in February. For petroleum and coal products, the fall-off was 4.43 percent, and for the huge chemicals sector, 7.11 percent Interestingly, the chemicals decline was even bigger than that it suffered last April, at the depths of the pandemic and related economic activity curbs (6.08 percent).

And as for those resin plants? Their February real output plummeted by fully 28.12 percent – much more than at any time last spring, during the pandemic’s height, and the worst such performance since the 30.64 percent cratering during Great Recessionary September, 2008. In fact, constant dollar output in the industry sank to its lowest level since equally Great Recessionary March, 2009.

Another February real production decrease that looks temporary (but perhaps longer-lasting): the 8.26 percent plunge in constant dollar automotive production. The main culprit is no doubt a global shortage of semiconductors that could well weigh on the entire domestic manufacturing sector going forward.

As known by RealityChek regulars, the machinery sector is a major barometer of manufacturing’s overall health, because its products are used throughout industry. So given February’s poor results for the entire sector, it’s no surprise that real machinery output was off by 2.33 percent on month. But January’s results were upgraded tremendously – from 0.52 percent after-inflation growth to 2.59 percent. So price-adjusted machinery output is still within 1.17 percent of its final pre-pandemic levels.

Because Boeing’s protracted safety-related problems continue to clear up, aircraft and parts production notched another month of growth in real terms in February – an increase of 1.04 percent. Revisions, however, were negative, especially December’s – its previously upgraded production increase (to a strong 3.03 percent) is now judged to be a 0.61 percent decline. Largely as a result, inflation-adjusted output is now just fractionally above its February pre-pandemic level.

The picture was brighter in pharmaceuticals and medicines. This industry, which includes vaccines, saw its after-inflation production climbed by anorther 1.29 percent in February. Moreover, January’s initially reported robust 2.42 percent increase was revised to an even better 2.57 percent. As a result, pharmaceutical and medicines real output is now 5.62 percent higher than just before the pandemic, and should generate even better results in the coming months, as vaccine production will be surging even more strongly.

Unfortunately, the also vital medical equipment and supplies sector – which includes virus-fighting items like face masks, face masks, protective gowns, and ventilators – is still behind the curve. Constant dollar production actually dipped by 0.56 percent on month in February, although in another major revision, January’s performance is now judged to be a 1.08 percent gain rather than a 0.54 percent loss. All the same, real production in this sector (which encompasses many other products as well) is still 1.37 percent less than just before the CCP Virus and the lockdowns arrived in force.

All told, I’m still full of confidence about domestic manufacturing production, due to the Boeing, vaccines, and now the Biden stimulus effects. And don’t forget the administration’s continued reluctance to lift its predecessor’s towering and sweeping tariffs on China, and on metals imports from many countries. Lastly: The weather’s bound to keep getting better!

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                                                              2018-19              2019-20

manufacturing                                                        -1.06                   -2.63

durable goods                                                         -1.70                   -2.97

wood products                                                       +3.58                  +0.38

non-metallic mineral products                               -1.17                   -0.52

primary metals                                                       -2.69                   -7.66

fabricated metals products                                     -1.72                   -5.38

machinery                                                              -2.39                   -3.80

computer & electronics products                          +6.19                  +0.14

electrical equipmt, appliances & components       -1.71                   -1.68

motor vehicles and parts                                        -9.05                  +3.64

aerospace and misc transporation equipment       +0.29                   -8.27

furniture and related product                                +0.34                   -9.86

miscellaneous manufactures                                +0.30                    -3.67

non-durable goods                                                -0.72                    -2.24

food, beverage and tobacco products                  +2.67                   +0.40

textiles and products                                            -2.24                    -5.04

apparel and leather goods                                    -7.50                    -3.64

paper                                                                    -2.37                    -1.91

printing and related activities                              -3.20                  -10.41

petroleum and coal products                               -1.32                  -13.34

chemicals                                                            -2.07                     -1.31

plastics and rubber products                               -3.24                     -0.78

other manufacturing                                           -8.59                      -8.51

(What’s Left of) Our Economy: New Fed Figures Show the U.S. Manufacturing Recovery is Proceeding Nicely

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automotive, CCP Virus, China, coronavirus, COVID 19, Federal Reserve, inflation-adjusted output, lockdowns, manufacturing, manufacturing production, real growth, shutdown, stimulus package, Trump tariffs, Wuhan virus, {What's Left of) Our Economy

It’s not apparent from the overall numbers, but the most important takeaway from this morning’s monthly Federal Reserve report on U.S. manufacturing production is that American industry has continued a steady comeback from the ravages of the CCP Virus and the government-induced shutdown of much of the U.S. economy. And the continuing healthy pace of this comeback is all the more impressive given the stop-and-start nature of so many of the economic restrictions imposed by Washington, D.C. and by the states and localities, and given the recent uncertainty about a new virus-relief bill.

The overall Fed numbers, as indicated above, do show a manufacturing bounceback that’s losing noteworthy steam. In August (the latest available data month), inflation-adjusted manufacturing output grew by 0.96 percent sequentially. That’s definitely a weaker pace than July’s growth (now pegged at 3.97 percent on month), much weaker than June’s 7.64 percent monthly burst, and well short of May’s 3.91 monthly percent production rise.

Grounds for encouragement, though, are justified even by these aggregate figures, as revisions for recent months generally were positive, and July’s was really positive – that month’s previously estimated manufacturing real growth was 3.41 percent.

But the best and most important news comes from the numbers on manufacturing production outside the automotive sector. As known by RealityChek regulars, the wild sequential swings in output from vehicle and parts makers have dominated the Fed manufacturing production reports for nearly the entire CCP virus period. (See., e.g., last month’s post on this subject.) So important though automotive is – both because of its size per se and because it affects the rest of its industry due to its big domestic supply chain – the non-auto results arguably provide a more accurate picture of U.S. manufacturing’s fundamentals. And this picture looks remarkably good, and still displays significant momentum.

Ex-auto, as the cognoscenti put it, constant dollar manufacturing production increased by 1.40 percent on month in August. So since that’s much faster than overall manufacturing’s performance (up 0.96 percent) that means automotive output fell (by 2.13 percent, specifically).

The August sequential improvement for ex-auto manufacturing, moreover, isn’t dramatically lower than July’s (1.93 percent). And it compares pretty well with June’s (now estimated at 3.82 percent) and May’s (now judged to be 2.12 percent).

Even better, all the pre-July results have been revised up except for May’s.

When all is said and done, the August Fed report underscores just how resilient domestic manufacturing has been despite the formidable CCP Virus challenges (which also include major economic slowdowns in the foreign markets U.S. industry has always relied on for much of its sales). As of August, overall price-adjusted American manufacturing output was just 6.39 percent below its levels in February (the final month before virus effects began impacting the economy). Manufacturing ex-auto’s real production was just 7.04 percent less than in February. And automotive’s after-inflation production was a mere 1.98 percent below that February benchmark.

And another factor to consider: Since China’s has been the world’s first major economy to resume growth since the virus struck, and since its recent growth has been so markedly export-led, think of how much worse U.S. industry’s state would be had the steep Trump tariffs on hundreds of billions of Chinese goods normally sent to the United States not been imposed, or left almost completely in place by the Phase One trade deal.

(What’s Left of) Our Economy: Automotive Output Keeps Driving Virus-Era U.S. Manufacturing Production

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

As with the last few Federal Reserve reports on U.S. manufacturing production, today’s release (covering June) is mainly a combined CCP Virus/automotive story. And intriguingly, if worker pressures to re-close at least some of the nation’s vehicle and parts factories succeeds due to the surge seen in virus cases in recent weeks, this pattern could well continue.

The overall results – which measure domestic manufacturing output in inflation-adjusted terms – were decidedly encouraging. Last month, this real production sequentially jumped by 9.06 percent – the biggest such increase on record, and smashing the old mark of 7.03 percent recorded in August, 1997. (File this date  away for future reference.)

Of course, this constant dollar output improvement, along with May’s upwardly revised 5.06 percent advance, have followed historic after-inflation monthly production nosedives. And these revisions have only been slightly mixed (April’s drop is now judged to be 16.94 percent, not the previously reported 15.66 percent, while the March decrease was shaved from 5.27 percent to 4.09 percent.) So the hole out of which U.S. based industry must dig itself out was just about as deep as originally estimated. (Of course, all these figures, along with those for the previous several years, will be further revised by the Fed sometime later this year, so don’t view them as being set in stone.)

But the automotive results keep driving (pun intended?) the overall manufacturing growth figures. In June, combined real output of vehicles and parts soared by 115.02 percent. In other words, it more than doubled in a month. And that surge followed a monthly automotive comeback in after-inflation terms of 117.12 percent – another more-than-doubling. Moreover, this figure has revised down only from a previously reported 120.83 percent .

As with manufacturing in general, though, these remarkable increases have followed deep decreases in April and March (now judged to have been 77.81 percent and 28.05 percent, respectively, with revisions minimal) due to a CCP Virus-led decision by the automakers to suspend most of their operations . Indeed, as of June, constant dollar automotive production is still 25.47 percent below February’s pre-pandemic level.

History, moreover, makes clear that outsized automotive influence on the total manufacturing production numbers is a well-established pattern. For example, the previous record increase for after-inflation monthly overall U.S. manufacturing production (that 7.03 percent rise in August, 1997) stemmed largely from a 49.17 percent increase in real automotive output – which in turn resulted from the end of a strike at General Motors.

And strikes aside, production in the sector fluctuates tremendously during the summer because that’s when factories have often been shut down to get their acts together for the upcoming model year. Don’t expect this kind of boost this year, though, as a number of automakers have decided to skip these annual retooling and maintenance pauses since their virus-related factory closings have already hit them hard enough.

One more sign of how profoundly the auto figures have distorted manufacturing’s overall recent production performance – stripping out this sector, real manufacturing output would have risen on mont in June not by 9.06 percent, but by 5.45 percent. That’s still a great performance, though – in fact, it’s the best since the 6.32 percent improvement in August, 1967.

Indeed, without the automotive sector, U.S. price-adjusted manufacturing output is down only 7.13 percent from its last pre-pandemic reading in February. Add in automotive, and this figure becomes 8.82 percent.  But due the CCP virus, lockdown and reopening decisions, and restiveness in some of the nation’s automotive workforce, the road ahead for domestic manufacturing is anything but clear.    

(What’s Left of) Our Economy: A Major Virus-Related U.S. Economy Hit Confirmed – With Much Worse Numbers Sure to Come

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CCP Virus, coronavirus, COVID 19, exports, GDP, goods, Great Recession, gross domestic product, imports, inflation-adjusted output, lockdown, real exports, real GDP, real imports, recession, services, shutdown, Wuhan virus, {What's Left of) Our Economy

This is a catch-up post on the CCP Virus-induced contraction of the U.S. economy growth, as well as a report on today’s latest update from the Commerce Department. The big news this morning: During the first quarter of this year, the economy’s sequential shrinkage for the first quarter of this year was pegged in this morning’s third, and final (for now) estimate at 5.09 percent at an annual rate in inflation-adjusted terms. That compares with the 4.87 percent drop in real output recorded in the first estimate, and a 5.15 percent decline estimated in the second estimate, which yours truly missed when it came out last month.

So things economic are looking slightly less terrible than previously thought – but still pretty terrible. In fact, this first quarter economic downturn was America’s most severe since the fourth quarter of 2008’s 8.66 percent – when the Great Recession spurred by the financial crisis was at its low point.

And there’s no doubt much worse to come in the second quarter figures, whose initial release will be a month from now (along with a regularly scheduled revision of all the data on the gross domestic product [GDP] and its changes going back to 2015). After all, the first quarter numbers only include the first month (March) during which the CCP Virus and its growth-killing effects began to be fully suffered.

Before delving into the trade-related details, a cautionary/explanatory note should be repeated: The phrases “at an annual rate” and “annualized” mean that an economic contraction of this historic scale didn’t take place al at once. Instead, they mean that in the economy contracted at a rate that would add up to the current 5.09 percent if the shrinkage continued at this pace for an entire year. This qualification is especially important because of the tremendous expected worsening of the slump in the second quarter.

Today’s GDP report revealed that the after-nflation annualized combined goods and services trade deficit during the first quarter was $815.5 billion. That’s a bit worse than the $816.0 billion figure reported last month but a bit better than the $817.4 billion calculated in the first estimate. And this so-far-final number represents a 9.34 percent decline from the $900.7 billion level reported for the fourth quarter of last year.

These results leave the drop-off the steepest since the 18.13 percent quarter-to-quarter nosedive during the second quarter of Great Recession-y 2009. And because the gap between these two results remains so big, it will be fascinating to see the numbers for the second quarter, when impact of mandated shutdown of much of the economy will first become apparent.

The quarterly decrease in total real exports for the first quarter is now judged to be 2.33 percent (non-annualized – as are the following numbers). This decline is worse than that estimated in the two previous first quarter GDP reports (2.24 percent and 2.25 percent, respectively). But as with the trade deficit figures, this slump pales with that suffered the last time constant dollar goods and services exports dropped significantly – the 8.08 percent crash dive during the first quarter of 2009, during the depths of that Great Recession.

On the import side, the 4.17 percent sequential price-adjusted fall-off reported this morning was bigger than either the 4.12 percent decrease previously judged and the 4.08 percent initially estimated. Again, however, that was the biggest such decline since a Great Recession result that was much greater – the 9.88 percent recorded in the first quarter of 2009.

The “final” first quarter figure for the inflation-adjusted goods deficit ($996.8 billion annualized) was 7.64 percent lower than the fourth quarter figure. But in services, the real surplus widened by 1.22 percent – even though the super-sector’s exports plummeted by nine percent. The first quarter annualized total of $714.9 billion annualized was the meagerest since the $706.2 billion level for the fourth quarter of 2013, and the rate of decline (much greater than the 0.49 percent in goods exports) was the fastest ever in a data series going back to 2002. In fact, the previous record was only 2.95 percent (during the Great Recession-y first quarter of 2009) – as with the export figures underscoring the outsized impact of the CCP virus’ impact on the travel industry.

Similar trends can be seen in after-inflation services imports. which sank by a record 8.06 percent in the quarter – much faster than the 3.19 percent fall in goods imports.

(What’s Left of) Our Economy: The Start of a V-Shaped Recovery So Far for Manufacturing Production, Too?

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aircraft, automotive, autos, Boeing, CCP Virus, durable goods, Federa Reserve, inflation-adjusted output, manufacturing, motor vehicles, non-durable goods, real output, recession, recovery, {What's Left of) Our Economy

The May Federal Reserve figures on inflation-adjusted U.S. manufacturing production were released this morning, and what stood out to me right away was how closely the main results resembled those of the remarkable May jobs report from the Labor Department. Not that the surprise factor for manufacturing output was anywhere near that for the jobs report. And of course factories don’t reopen or ramp up production in lockstep with gains in employment (which speak volumes about the economic fortunes of many of their customers). But consider the following figures and what they could be signaling about the pace of recovery:

On a monthly basis, as the CCP Virus pandemic’s effects peaked for the time being, the private sector shed 15.37 percent of its jobs in April, and for manufacturing, the figure was 10.34 percent. That month, real manufacturing output plunged sequentially by 15.66 percent.

In May, as the economy’s reopening sped up, private sector payrolls expanded by 2.86 percent, manufacturing saw a 1.96 percent net jobs gain, and manufacturing production rose by 3.83 percent. It looks an awful lot like an economy that’s bouncing back pretty quickly so far from the worst of the virus-induced shutdowns, but that still has far to go before returning to normal. Call it the possible start of a “V.”

Something else that comes through loud and clear about the latest Fed manufacturing reports – including today’s: They’re being remarkably driven by the stunning gyrations of the automotive sector, and especially price-adjusted vehicles output levels. In fact, in April, production of autos and light trucks – which literally had collapsed according to last month’s preliminary figures – have been revised down to as close to zero as you can get.

But before detailing those results, let’s return to 30,000 feet. That May monthly after-inflation manufacturing output increase was the biggest on record – and by a long shot. But April’s sequential nosedive was revised from 13.28 percent – and therefore is even more of a record-breaker than previously thought. And it’s only slight consolation that the March drop was reduced to 5.27 percent from 5.53 percent. (It was originally reported as 6.27 percent.) At least as bad, as of May, American factories’ monthly output in real terms was their lowest since Great Recession-y July, 2009.

Most of the action continues to be concentrated in the durable goods super-sector, which led manufacturing down in March and especially April, and led it up in May.

As with industry as a whole, the new monthly durable goods production drop for March was smaller than previously estimated (7.73 percent rather than 8.23 percent) and the April disaster was bigger than first judged (with constant dollar output down 21.64 percent rather than 19.27 percent).

Real output in the supersector increased by 5.83 percent sequentially in May – but that record monthly rise still left absolute production levels at their lowest since November, 2009, another Great Recession month.

And the automotive sector continues leading the fluctuations in durable goods production. The revisions for vehicles and parts combined for March and April were both slightly worse than previously judged (30.03 percent vs 29.96 percent for the former, and 76.47 percent versus 71.69 percent for the latter).

The May results (for now preliminary, as are all the May numbers – with April’s set for one more revision next month)? After-inflation output surged by 120.83 percent. That’s not a typo. For comparison’s sake, this latest jump smashed the old monthly record (29.95 percent, in July, 2009) by a factor of four. Even so, inflation-adjusted vehicle and parts output hasn’t been this low since July, 1983 – 33 years ago

As for the numbers for vehicles alone, they’ve been positively fantasmagorical. Cutting to the chase, “nosedived” and “careening” don’t begin to describe the April results. That month, auto and light truck output after inflation practically disappeared – standing 98.87 percent lower than in March and slightly worse than initially reported). Similarly, May’s improvement was less a rebound or even a rocket ride than a restart. What else can you reasonably call a 3,187.39 percent increase? And still, in absolute terms, that only brought output back to its worst level since February, 1982.

This astounding automotive performance, moreover, has clearly moved the needle for manufacturing as a whole. Without the April automotive tailspin, price-adjusted manufacturing production was off by 11.94 percent, not 15.66 percent. In May, without the recovery of the sector, U.S. constant dollar manufacturing production advanced by 1.96 percent – just about half the rate of the 3.83 percent increase recorded with automotive.

The May Fed manufacturing report left the relatively mild March output downturn in the non-durable goods super-sector unrevised at 2.64 percent. But the April decrease was estimates to be worse:  9.59 percent rather than 8.23 percent.

Non-durable factory production rose by 2.07 percent sequentially in May, but interestingly, that advance was only the biggest since October, 2017 2.28 percent – when lots of oil refineries and petrochemicals-using industries came back on line after that autumn’s hurricanes in the Gulf of Mexico.

Finally, some genuinely puzzling results seem to be recorded for the aircraft and aircraft parts sectors, which were troubled for months before the CCP Virus struck by Boeing’s safety woes . Whereas in last month’s Fed manufacturing report, the March monthly inflation-adjusted drop in these industries was reported at 12.09 percent, this morning it was reported to be just 5.38 percent.

More reasonably, the April sequential decline was judged to be slightly smaller – 28.31 percent rather than 28.88 percent. And May’s on-month recovery is estimated to be a robust 9.43 percent.

Since this spring’s manufacturing slump and rebound so closely resembles that of the jobs market, it’s fitting that the same questions hover over it. Will the comeback last, or are we seeing the real economy version of a stock market dead cat bounce? Like the Fed itself, RealityChek‘s judgments will be data-dependent.

Following Up: Inside April’s U.S. Manufacturing Crash II

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aerospace, appliances, automotive, CCP Virus, chemicals, components, computers, coronavirus, COVID 19, durable goods, electrical equipment, electronics, fabricated metals products, Federal Reserve, Following Up, food products, healthcare goods, inflation-adjusted output, machinery, manufacturing, manufacturing output, manufacturing production, medical devices, metals, non-durable goods, paper, real growth, Wuhan virus

A little earlier today, RealityChek presented some lowlights from this morning’s Federal Reserve U.S. manufacturing production report (for April). As promised, here’s a more granular look at the results, which yield even more insights as to how the CCP Virus blow to the economy is reflecting – and probably influencing dramatically changed spending patterns.

The table below shows the findings for durable goods industries, the super-category that covers products with expected usage and shelf lives of three years or more. Included are the original March inflation-adjusted output changes, the revised March data, and the April statistics:

Wood products:                                                -4.22%       -3.15%      -9.04%

non-metallic mineral products:                        -6.56%      -6.50%     -16.26%

Primary metals:                                                -2.82%      -3.95%     -20.37%

Fabricated metal products:                               -8.28%      -4.23%     -11.33%

Machinery:                                                       -5.56%      -3.05%     -10.98%

Computer & electronic products:                     -1.89%      -1.24%      -5.02%

Electrical equip, appliances, components:       -2.24%      -2.83%      -5.99%

Motor vehicles and parts:                               -28.04%    -29.96%    -71.69%

Aerospace/miscellaneous transport equip:      -8.12%      -8.90%     -21.65%

Furniture and related products:                       -9.99%      -6.50%     -20.60%

Miscellaneous manufacturing:                        -9.94%      -7.09%       -9.05%

   (contains most of those non-pharmaceutical healthcare goods)

As in the broader category analysis from earlier today, the automotive collapse – over both March and April – stands out here, although it was joined in the double-digit neighborhood (at much lower absolute levels of course) by six of the other eleven sectors. And as predicted in last month’s post on the March Fed report, the sector that’s held up best has been the computer and electronics industry – though following surprisingly close behind is electrical equipment, appliances, and their components.

It’s also easy to see how the rapid deterioration in automotive and the miscellanous transportation category that includes aerospace (especially in April for the latter) spilled over into supplier industries like metals and fabricated metal products, and machinery.

One durable goods puzzle: the relatively fast April decrease in the miscellaneous manufacturing category, which contains non-pharmaceutical medical goods so crucial for the nation’s CCP Virus response.

The second table shows the same information for the non-durables super-category, where the virus impact has been considerably lighter. Among notable results – the sharp worsening of after-inflation output in the food sector. Although it fared relatively well, there can be little doubt that the worker safety problems in meat-packing plants, along with the cratering of big customers – mainly the restaurant and hotel businesses – played big roles.

The non-durables results also make clear that the sector that’s survived best so far has been paper. Also excelling (at least relatively speaking): the enormous chemicals sector. This industry also contains the pharmaceutical industry, although the any positive CCP Virus impact seems unlikely to date because no vaccines or treatments have been developed yet.

Food, beverage, and tobacco products:          -0.76%      -1.56%       -7.10%

Textiles:                                                        -14.05%      -6.98%     -20.72%

Apparel and leather goods:                          -16.54%    -10.31%     -24.10%

Paper:                                                            -2.04%      -0.08%        -2.58%

Printing and related activities:                    -18.18%    -10.75%      -21.16%

Petroleum and coal products:                       -5.93%      -6.56%      -18.55%

Chemicals:                                                   -1.65%      -1.50%         -5.14%

Plastics and rubber products:                      -7.60%       -4.37%       -11.03%

Other mfg (different from misc above):     -5.37%       -4.29%       -10.37% 

The virus crisis contains so many moving parts (e.g., vaccine and therapeutics progress; infection, fatality, and testing data; uneven state reopening and national social distance practicing; consumer attitudes; second wave possibilities) that extrapolating the manufacturing trends to date seems foolhardy. But tracking industry’s winners and losers as the months pass could still provide important clues as to how much further the economic woes it’s caused will continue; and when, how quickly, and how completely recovery arrives.   

(What’s Left of) Our Economy: Inside April’s U.S. Manufacturing Crash I

Tags

aircraft, auto parts, automotive, Boeing, CCP Virus, coronavirus, COVID 19, durable goods, Federal Reserve, inflation-adjusted output, manufacturing, manufacturing output, manufacturing production, non-durable goods, real growth, vehicles, Wuhan virus, {What's Left of) Our Economy

There was never any point in expecting today’s Federal Reserve manufacturing production figures (for April) to change significantly what’s known about the CCP Virus’ body blow to the American economy overall, and to industry in particular. As with the case last month, however, the details reveal a great deal about how the pandemic is changing patterns of U.S. factory output – which in turn to some extent reflect changing patterns of the spending (by both consumers and businesses) that remains the main driver of the nation’s growth (or, nowadays, contraction).

The big takeaways are that:

>The March revisions show that the virus damage to manufacturing that month was a good deal less (with inflation-adjusted output falling by 5.53 percent on month) than the 6.27 percent drop initially reported.

>The April 13.78 percent month-to-month real production was by far the biggest such decrease on record (going back to 1972) – surpassing March’s previous record.

>As with March, the steepest fall-offs in price-adjusted output came in the durable goods sector – which consists of items whose active use or shelf life is expected to be three years or greater. In March, the sequential production decrease was revised from 9.14 percent to 8.23 percent. But in April, the plunge was more than twice as great: 19.27 percent.

>The March monthly shrinkage of non-durable goods production is also now judged to be smaller than first reported – 2.64 percent rather than 3.21 percent. But in April, the rate of sequential deterioration was even faster than for durable goods, speeding up to 8.23 percent.

>Within durable goods (e.g., steel, autos, computers, industrial machinery, furniture, appliances, aircraft), the automotive sector remained by far the weakest industry. It was bad enough that March’s horrific on-month after-inflation output crash dive was thought to be even greater than first estimated (29.96 percent rather than 28.04 percent). But in April, inflation-adjusted output was down by another 71.69 percent.

>And within the automotive sector, the big story was vehicles, not parts. The former’s constant dollar March production is now judged to have been 37.77 percent, not the originally reported 34.76 percent. But then in April, it careened down by 93.60 percent. That is, it nearly stopped.

>For an idea of how profoundly automotive’s tailspin has affected manufacturing’s performance, if it’s removed from the total, factory output’s April monthly contraction would have been 10.29 percent in real terms, not 13.78 percent. That is, still a terrible (and record) performance, but not quite so terrible.

>As for durable goods, its April sequential production drop would have been 12.65 percent in real terms, not 19.27 percent. Again, an awful performance, but much better than the numbers with automotive.

>Speaking of tailspins, Boeing’s troubles have continued to mount because the virus crisis has decimated U.S. travel and transportation, and they showed up in abundance in the April Fed manufacturing report. March’s monthly after-inflation output decrease for aircraft and parts was revised from 10.36 percent to 12.09 percent. And that rate more than doubled in April, hitting 28.88 percent.

I’ll be following up with more detailed April production data later this afternoon!