(What’s Left of) Our Economy: A Winning Trade War Message from the Last Pre-China Virus Manufacturing Figures

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aerospace, aircraft, Boeing, China, China virus, coronavirus, inflation-adjusted output, manufacturing, manufacturing production, metals, supply chains, tariffs, Trade, trade wars, {What's Left of) Our Economy

The new Federal Reserve industrial production figures are now out, and although they only bring the story up through February, they contain two vital messages: First, taking into account ongoing safety problems with aerospace giant Boeing (and its vast domestic supply chain), they’re very solid – and reinforce the case that the pre-China Virus manufacturing and overall U.S. economies were faring well despite widespread slowdown fears. Second, they also show that, despite the equally widespread tariff alarmism being mongered throughout the Trump years, domestic manufacturing wound up handling the so-called trade wars just fine.

According to the Fed, inflation-adjusted manufacturing output increased by 0.12 percent month-to-month and remained down on a year-on-year basis (by 0.18 percent). January’s monthly constant dollar production dip was revised down from 0.09 percent to 0.23 percent. Yet this real output is up on net by 1.33 percent since its last low point (last October) and by 0.36 percent since the first full month of significant Trump tariffs (April, 2018).

At the same time, these production levels remain 1.28 percent below those of manufacturing’s last peak – in December, 2018. So these are by no means salad days for domestic industry.

Take a look, however, at the main Boeing-related figures. Aircraft production and parts sank by 5.12 percent sequentially in February. It reached its lowest level since October, 2011 and this drop followed January’s 11.36 percent monthly nosedive.

Moreover, although impossible from the Fed figures to quantify precisely, the production halt of Boeing’s popular 737 Max model that began in January is clearly dragging down output in sectors ranging from metals to industrial machinery to plastics to electronics and instruments.

The rapid recent spread of the coronavirus throughout the United States will start generating very different and much worse manufacturing production and other data going forward. But these latest data show domestic industry’s performance even as tariffs on literally hundreds of billions of dollars worth of tariff on Chinese and metals inputs used by manufacturers remained firmly in place. And if that doesn’t signal loud and clear that both American producers and consumers were withstanding the Trump trade wars – a New Normal that’s likely to survive the passing of COVID 19 – quite nicely, and in fact that the entire economy had been winning it, what could?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

2Q 16-1Q 17 :+0.32%

1Q 17-2Q 17: -0.7%

2Q 17-3Q 17: +0.35%

3Q 17-4Q 17: +1.22%

4Q 17-1Q 18: +0.38%

1Q 18-2Q 18: +0.09%

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

3Q 18-4Q 18: +0.38%

4Q 18-1Q 19: +0.43%

1Q 19-2Q 19: -0.38%

2Q 19-3Q 19: +0.67%

*those Trump metals tariffs began in this quarter

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

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

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

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

Making News: Updating the Trade Wars on National Radio Tonight, a Major Video Interview Now On-Line…& More!

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America First, Breitbart.com, Edward Harrison, Federal Reserve, foreign policy, Gordon G. Chang, IndustryToday.com, inflation-adjusted output, John Carney, Making News, manufacturing, Phase One, RealVision.com, The John Batchelor Show, Trade, trade war, Trump

I’m pleased to announce that I’m scheduled to be returning to John Batchelor’s nationally syndicated radio show tonight to help John and co-host Gordon G. Chang figure out where the U.S.-China trade conflict stands after the “Phase One” deal announced recently.  The segment is slated to begin at 10 PM EST, and you can listen live on-line here for what’s sure to be a great discussion and look forward.

In addition, on December 16, John Carney of Breitbart.com quoted from my critical assessment of the agreement in his own (more positive) examination of Phase One.  Here’s the link.

In early December, I recorded a lengthy interview with Edward Harrison of the RealVision.com financial news network on whether or not President Trump is carrying out “America First”-style trade and foreign policies, and why they’re necessary.  Click here to watch.

Finally, yesterday, IndustryToday.com reposted my report on the Federal Reserve’s November manufacturing production figures.  You can see it at this link.

And keep checking in with RealityChek for news of upcoming media appearances and other developments.

(What’s Left of) Our Economy: GM and Boeing Effects Still Affecting U.S. Manufacturing Output

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737 Max, aircraft, aluminum, Boeing, China, durable goods, Federal Reserve, General Motors General Motors strike, GM, inflation-adjusted output, manufacturing, manufacturing production, metals-using industries, steel, supply chain, tariffs, trade war, {What's Left of) Our Economy

Like its immediate predecessor, this morning’s Federal Reserve release on inflation-adjusted U.S. manufacturing output made clear how the recent strike at General Motors have grossly distorted the latest results, as well as how Boeing’s mounting 737 Max aircraft safety woes remain difficult to identify from these production statistics.

First, let’s look at the overall numbers. According to the Fed, constant dollar American manufacturing output in November jumped sequentially by 1.15 percent. That was the best such increase since October, 2017’s 1.36 percent, and quite the turnaround from October’s 0.70 percent monthly drop-off (which was revised slightly downward).

These figures still left domestic industry in a recession, but not much of one. Since July, 2018, its price-adjusted output is down by 0.14 percent.

But the big role of the GM strike’s end in November’s turnaround couldn’t be clearer. In October, combined U.S. combined vehicle and parts output sank by 5.98 percent after inflation from September’s total. That decline was considerably less than the 7.65 percent nosedive reported last month, but still the worst such performance since the 7.18 percent decrease in January.

Last month, however, thanks to the return of the striking workers, real automotive production skyrocketed by a whopping 12.45 percent – the best monthly performance since the 29.95 percent surge of July, 2009 – as the last recession (which was especially woeful for auto and parts makers) came to an end.

Another way to look at the automotive effect: Without the GM strike, October’s 0.70 percent overall manufacturing after-inflation production decrease would have been a much better (but by no means great) 0.28 percent decline. And without the GM strike’s end, the 1.15 percent jump in price-adjusted manufacturing output would have been only 0.25 percent.

But the impact of Boeing’s safety troubles is as unclear as those of the GM strike are obvious. In November, American aircraft and parts production rose another 0.40 percent on month in real terms. Moreover, since March (when governments around the world began grounding the 737 Max or banning it from their airspace), such production is only down a total of 0.34 percent. Since April (the first full data month since that March flood of bad news), it’s actually up by 2.32 percent.

Therefore, as has been the case recently, the aircraft sector as such has kept outgrowing many of the biggest industries making up its domestic supply chain (which extends way beyond finished parts and into the materials they’re made from). Here’s how these big supplier industries’ output has changed since April, with the overall manufacturing sector’s performance and that of the durable goods super-category in which most are found included for comparison’s sake:

overall manufacturing: +0.68 percent

durable goods: +1.25 percent

primary metals: -1.13 percent

fabricated metals products: -0.54 percent

machinery: +0.16 percent

The above results also indicate that at least some of the economy’s biggest metals-using industries still lack the relative production strength they displayed for the first several months after steel and aluminum tariffs were imposed in March, 2018. Here are their latest numbers from April (the first full data month affected by these levies) through November, also with the overall manufacturing and durable goods results included:

                                          Old Ape thru Oct    New Apr thru Oct    April thru Nov

overall manufacturing: –      0.54 percent            -0.81 percent         +0.33 percent

durables manufacturing:    -0.32 percent            -0.40 percent         +1.75 percent

fabricated metals prods:   +1.42 percent           +1.26 percent         +1.48 percent

machinery:                        -0.81 percent            -0.77 percent          -1.02 percent

automotive:                    -12.24 percent           -11.34 percent          -0.30 percent

major appliances:             -9.14 percent            -9.08 percent          -6.31 percent

aircraft and parts:            +3.59 percent           +4.37 percent         +4.79 percent

One interesting bright spot apparent from the above – a nice improvement for production of major appliances, a sector that’s been dealing since February, 2018 with an additional set of product-specific tariffs. But in machinery and fabricated metals products in particular, where output tends to be less volatile than it’s been in automotive and appliances, recent performance clearly has been worse than that from April, 2018 through, say, this past January:

                                                          April, 2018 through January

overall manufacturing:                               +1.07 percent

durables manufacturing:                            +1.74 percent

fabricated metals prods:                            +3.42 percent

machinery:                                                +3.69 percent

automotive:                                               -3.32 percent

major appliances:                                      -1.43 percent

aircraft and parts:                                     +4.19 percent

Will the new “Phase One” trade deal announced with China make it any easier to gauge the impact of tariffs on most of the imports heading to the United States from the PRC? That’s already been difficult enough, because Chinese products have been used so widely, and to such varying extents, as inputs for so many manufacturing industries). And chances are this challenge will become more difficult, given both that it’s far from clear when follow-on talks will begin; and given Treasury Secretary Steven Mnuchin’s suggestion that the next phase may consist of many different phases.

Surely adding to the complications will be the Boeing effect, which seems certain to start appearing more conspicuously in the data now that the company has announced that 737 Max production will be suspended starting next month, as well as its failure to say how long the halt will last.

So just about all that can be said for sure is that domestic manufacturing had a good month in November – however unclear it remains whether this improvement has legs.

(What’s Left of) Our Economy: Trade Wars’ Impact on U.S. Manufacturing Output Still Clouded by GM and Boeing

Tags

737 Max, aircraft, aluminum tariffs, automotive, Boeing, Fed, Federal Reserve, General Motors, General Motors strike, GM, household appliances, inflation-adjusted growth, inflation-adjusted output, manufacturing, metals-using industries, safety, steel tariffs, supply chain, tariffs, Trade, trade wars, {What's Left of) Our Economy

If you read last month’s Federal Reserve report on after-inflation U.S. manufacturing output (for September), then there wasn’t much reason to read yesterday morning’s report on after-inflation manufacturing production (for October). For it described the same puzzling picture: American industrial performance clearly dragged down by the recently ended strike at General Motors (GM), but apparently completely unaffected by Boeing safety woes that have sharply reduced the aviation giant’s enormous exports.

The top-line figures released by the Fed were definitely gloomy. Last month, real U.S. Manufacturing output dropped by 0.62 percent sequentially – the worst such result since April’s 0.87 percent fall-off. Inflation-adjusted motor vehicle and parts output, however, plunged by 7.65 percent – its worst such performance since the 7.97 percent nosedive of April, 2011. Moreover, September’s previously reported 4.22 percent monthly automotive price-adjusted automotive decrease was revised all the way down to a 5.49 percent slump.

As the Fed observed, without the huge October monthly plunge in inflation-adjusted automotive output, the overall manufacturing production decline would have been just 0.14 percent – which obviously doesn’t show any strength, either.

But this is where the Boeing puzzle comes in. There’s still no sign of it in these Fed data. Most curiously, constant dollar production for aircraft and parts production rose a solid 0.57 percent on month in October. It’s down since March, when governments the world over began grounding its popular but now troubled 737 Max jet or banning it from their national air spaces.

But although Boeing’s exports have deteriorated sharply, too, the real output shrinkage has only been 1.48 percent since March, and since April (the first full data month since those March woes), after-inflation production of aircraft and parts has actually risen 1.15 percent. That’s considerably better than the output performance of domestic manufacturing as a whole during this period. And it’s much better than the output of key supplier sectors, although surely they’d been affected by the GM strike as well:

overall manufacturing: -0.19 percent

durable goods: -0.81 percent

primary metals: -1.62 percent

fabricated metals products: -0.60 percent

machinery: +0.37 percent 

It’s true that export sales and production don’t move in lock step for aircraft, or for any other industry.  But with foreign markets representing well over half of Boeing’s revenue last year, the former sinking while the latter keep growing isn’t easy to explain.

Something else that needs to be considered: Whatever the Fed data actually show, they’re not able to show much about how aircraft parts and production would have fared without the Boeing troubles. And they’re even less capable of showing such counterfactuals regarding how supplier sectors might have fared.

As for the impact of the trade wars, as usual, the consequences of the President’s tariffs on aluminum and steel are easiest to gauge, since they’ve been on the longest, and the major metals-using industries (the presumed leading victims) are so easy to identify. The table below represents the changes in their real output since April, 2018 (the first full month in which the levies were in effect), with the data for manufacturing overall used as a control group, and durable goods included because it’s the super-category in which most of the main metals-using industries are located:

                                          Old Apr thru Sept    New Apr thru Sept    Apr thru Oct

overall manufacturing:       +0.09 percent            +0.08 percent         -0.54 percent

durables manufacturing:    +1.25 percent            +0.87 percent         -0.32 percent

fabricated metals prods:    +1.85 percent             +1.63 percent        +1.42 percent

machinery:                            0 percent                 -0.96 percent         -0.81 percent

automotive:                        -3.92 percent             -5.53 percent       -12.24 percent

major appliances:               -2.19 percent            -2.03 percent          -9.14 percent

aircraft and parts:              +5.43 percent           +3.00 percent         +3.59 percent

In absolute terms, the results are still all over the place, and a GM strike effect is clearly evident for supplier industries like fabricated metal products and machinery. The interruption of GM production also seems to have aggravated – but not caused – the loss of relative momentum exhibited by the metals-users – meaning, that their production slowdown has gotten faster relative to that of overall manufacturing, even leaving out the cratering of automotive output. Interestingly, that momentum loss is now affecting aircraft and parts, too – whose September production figures were also revised down significantly.

Also noteworthy – the steep monthly production dive in major appliances in October. Yes, they’ve experienced their own product-specific tariffs (on large household laundry equipment) as well as the metals tariffs. Production of these products is pretty volatile, too. But the 7.26 percent real monthly output drop was the biggest since it plummeted 8.29 percent between September and October, 2013. Even stranger – the housing sector, which drives much appliance buying and therefore indirectly production – registered a major uptick in growth in the third quarter after six quarters of substantial decline.

As for the impact of the China tariffs on manufacturing output, since that’s much more difficult to gauge than the effects of the metals tariffs (e.g., because Chinese products have been used so widely, and to such varying extents, as inputs for so many manufacturing industries) it seems to make less sense than ever to examine them, given the possibility of the Boeing effect lasting months more.

And somewhat depressingly, I find myself wondering if that’s going to be true for following any manufacturing-and-trade-relevant data for at least a month or two more. (Though I’m sure I’ll keep soldering on!)

(What’s Left of) Our Economy: A Thoroughly Muddled Manufacturing Production Figure

Tags

aluminum, Boeing, China tariffs, Federal Reserve, General Motors, General Motors strike, industrial production, inflation-adjusted output, manufacturing, metals tariffs, metals-using industries, recession, steel, supply chains, tariffs, trade war, {What's Left of) Our Economy

The latest U.S. inflation-adjusted manufacturing output numbers (for September) are now out, and they leave more muddled than ever the matter of how much (if any) damage American industry has suffered from President Trump’s tariff-heavy trade policies.

And it’s not just because of ongoing uncertainties about the effects of President Trump’s current and threatened China tariffs, and all the fluctuations in coverage and rates. It’s not just because of the month-long General Motors strike – which could end soon if the union rank-and-file approve the settlement agreed on by their leaders, and which the Federal Reserve itself (which tracks manufacturing output) fingered as a big culprit behind September’s lousy read. It’s also because of the impact of Boeing aircraft’s continuing safety woes (a subject on which the Fed has been strangely silent).

As I’ve reported, the Boeing effect finally showed up in the latest U.S. trade data – which is especially important given the aerospace giant’s reliance on exports. But it hasn’t appeared anywhere else, including the new manufacturing production figures, even though orders for Boeing jets have been dramatically slashed, and even though the company is a huge consumer of materials, parts, and components from other manufacturing sectors.

With all those cautions out on the table, here’s what the new Fed statistics showed. After-inflation domestic manufacturing output slid by 0.48 percent sequentially in September, the worst such result since April’s 0.87 percent decrease, and more than enough to keep industry overall in recession. Since July, 2018, its real output is down a total of 0.38 percent.

GM’s labor troubles clearly dragged the total number down. Constant dollar vehicles and parts production in September sank by 4.22 percent on month, its worst such performance since January’s 7.18 percent nosedive (when the federal government was still shut down, surely depressing consumer confidence).

The Fed made clear that “Excluding motor vehicles and parts, [its] overall [industrial production] index and the manufacturing index each moved down 0.2 percent.” (More precisely, the real manufacturing decline would have been only 0.15 percent without automotive.) Oddly, though, the Fed didn’t mention that any development that depresses vehicle and parts production is bound to ripple through all the industries making up its extensive supply chain, too.

Yet despite the export troubles revealed in the trade figures, the Fed’s statistics show that aircraft and parts production enjoyed a terrific September. Indeed, the 1.82 percent sequential jump was the biggest since March, 2014’s 2.42 percent.

Nor do sectors comprising the aerospace supply chain (which broadly overlaps considerably with automotive’s) seem to be lagging significantly, except for primary metals. For example, below are the inflation-adjusted output figures for some big supplier sectors and control groups since April (the first full data month following actions the world over grounding or banning from various air spaces Boeing’s 737 Max jets):

overall manufacturing: +0.44 percent

durable goods: +0.75 percent

primary metals: -3.38 percent

fabricated metals products: -0.17 percent

machinery: +1.19 percent

As for the impact of the trade wars, as usual, the consequences of the President’s tariffs on aluminum and steel are easiest to gauge, since they’ve been on the longest, and the major metals-using industries (the presumed leading victims) are so easy to identify. The table below represents the changes in their real output since April, 2018 (the first full month in which the levies were in effect), with the data for manufacturing overall used as a control group, and durable goods included because it’s the super-category in which most of the main metals-using industries are located:

                                           Old Apr thru Aug   New Apr thru Aug   April thru Sept

overall manufacturing:        +0.54 percent          +0.57 percent       +0.09 percent

durables manufacturing:     +1.98 percent          +2.00 percent       +1.25 percent

fabricated metals prods:     +1.88 percent          +2.07 percent       +1.85 percent

machinery:                         +0.67 percent          +1.39 percent           0 percent

automotive:                        +0.17 percent          +0.30 percent        -3.92 percent

major appliances:               -2.04 percent           -1.22 percent        -2.19 percent

aircraft and parts:              +4.39 percent          +3.54 percent        +5.43 percent

The results are mixed – and obviously the most recent automotive number has little to do with the metals duties. Otherwise, three of the remaining four metals users have gained momentum versus the rest of manufacturing (durables, appliances, and aircraft), although their output performances remain subdued in absolute terms, and machinery has lost momentum.

Unfortunately, this kind of analysis not only remains much more difficult for the impact of the China tariffs. But every twist and turn in the trade talks saga only increases the challenge. Primarily because of uncertainties stemming from differences between the manufactured goods classification systems used by the U.S. Trade Representative’s office (which publishes the lists of tariff-ed items) and the main system used by other U.S. government agencies (like the Fed), the sectors below are among the handful that are reasonably certain to have faced tariff pressure since the first duties were placed in imports from China in July, 2018. Each column shows the real output changes since their first full month in effect through July, August, and September of this year:

                                                  Aug thru July      Aug thru Aug      Aug thru Sept

overall manufacturing:             -0.89 percent       -0.33 percent       -0.81 percent

ball bearings:                            -2.32 percent       -2.26 percent       -2.30 percent

industrial heating equip:          -4.58 percent       -1.72 percent       -1.01 percent

farm machinery & equip:        -6.91 percent      +9.71 percent       -0.69 percent

oil/gas drilling platform pts:   -0.86 percent       -1.38 percent       -1.38 percent

As is clear, these results are even more mixed than for the metals-using industries – to which all of these products belong. And with the President’s trade policies all too likely to stay ragged as the 2020 elections come closer, “more confusion” looks like the safest prediction possible regarding American manufacturing production 

(What’s Left of) Our Economy: Some Manufacturing Pushback Versus Tariff Gloom-Mongering

Tags

aluminum, Federal Reserve, industrial production, inflation-adjusted output, manufacturing, metals tariffs, metals-using industries, steel, tariffs, Trade, trade war, {What's Left of) Our Economy

Is U.S. domestic manufacturing emerging from its recent funk? This morning’s Federal Reserve industrial production figures (for August) certainly supply some compelling evidence. And some of the nation’s major metals-using industries – widely portrayed as major victims of Trump administration tariffs that have been in place since early 2018 on steel and aluminum – led the pack last month.

August’s 0.53 sequential real output increase wasn’t enough to pull domestic industry out of its current technical recession. But it did shorten the length of the downturn considerably. As of the previous industrial production report, manufacturing had been in recession since April, 2018 – with its inflation-adjusted output down 0.004 percent.

Today’s data revealed that constant-dollar production has now fallen 0.36 percent since the previous August. In addition, since its latest bottom (this April), after-inflation manufacturing output is up 0.89 percent. And sequentially, this production is up three of the last four months.

Moreover, the strong August performance of the metals-using sectors was noteworthy. These industries have faced wide-ranging tariffs on steel and aluminum since March, 2018, with April being the first full month in which the duties were in effect. (Major appliances have been an exception – they have also been coping with separate levies on large household laundry equipment since February, 2018.) As reported by RealityChek last month, some of these metals-users suffered a miserable July, indicating that the metals tariffs were finally taking a measurable toll, either because of the higher input costs they created, the greater uncertainty they generated, the impact of retaliatory foreign tariffs, or some combination of all three.

But as demonstrated by the following table, they regained much of their momentum relative to the rest of manufacturing last month. These figures represent the changes in their real output since April, 2018, with the data for manufacturing overall used as a control group.

                                              April thru June    April thru July    April thru August

overall manufacturing:         +0.42 percent       -0.01 percent        +0.54 percent

durables manufacturing:      +1.57 percent       +1.37 percent       +1.98 percent

fabricated metals products:  +1.89 percent      +0.95 percent        +1.88 percent

machinery:                           +0.78 percent       -0.88 percent        +0.67 percent

automotive:                          +0.69 percent      +1.20 percent       +0.17 percent

major appliances:                 -4.84 percent       -4.39 percent        -2.04 percent

aircraft and parts:                +2.39 percent      +3.59 percent       +4.39 percent

With the exception of the automotive sector (where a big inventory overhang could finally be slowing output significantly) and aircraft and parts (which keeps chugging along, so far despite Boeing’s safety troubles) these major metals-using sectors enjoyed Augusts that were much stronger in terms of growth than their Julys. And in August, durable goods overall (the manufacturing super-sector in which the main metals-using industries are located), major appliances, and aircraft and parts have recaptured the relative growth lead they’d lost the previous month.

The effects of President Trump’s China tariffs have been much more difficult to ascertain for many reasons: Even the earliest have been in effect only since last summer. Their nature has been so on-again-off-again nature. The original tariff levels on some have been increased. Their use is so widely (but often so thinly and non-uniformly) spread throughout American industry. And the official lists of tariff-ed products don’t match up precisely with the classification system used by the Fed (and the rest of the U.S. government) to track trends in manufacturing and the rest of the economy.

All the same, here are results for a handful of sectors reasonably certain to have faced tariff pressure since last August. Each column measures real output changes since that month.

                                                   Aug thru June    Aug thru July    Aug thru Aug

overall manufacturing:              -0.48 percent     -0.89 percent      -0.36 percent

ball bearings:                             -2.48 percent     -2.30 percent      -2.23 percent

industrial heating equip:           -4.96 percent     -4.16 percent      -2.52 percent

farm machinery & equip:         -6.44 percent     -6.91 percent     +9.71 percent

oil/gas drilling platform pts:   +2.18 percent     -0.84 percent       -1.04 percent

The sample size is obviously very small, and the results are almost as obviously a wash.

Looking ahead, domestic manufacturing – and especially the metals-using industries – faces at least two visible possible hurdles: Boeing’s ongoing woes, and a new strike at General Motors. And literally no one outside the Oval Office (assuming President Trump does) knows what the future will bring in terms of tariffs on imports from China, retaliation from Beijing. And don’t forget the Congressional vote on the U.S.-Mexico-Canada [trade] Agreement that may be coming.

But the August manufacturing production data were unquestionably solid. They continued a decent recent streak for the nation’s industries, and indicated considerable resilience – including possibly a growing ability to adapt to a radically different and volatile trade policy environment.

(What’s Left of) Our Economy: New Signs of Life in U.S. Manufacturing Output – Including in Tariff-Affected Industries

Tags

aluminum, China, Federal Reserve, industrial production, inflation-adjusted output, manufacturing, metals tariffs, metals-using industries, real growth, steel, tariffs, Trade, tradewar, {What's Left of) Our Economy

This morning’s Federal Reserve industrial production report provided further evidence that domestic U.S. manufacturing is moving past a spring rough patch. Rebounding also – output in many of the metals-using industries supposedly being decimated by President Trump’s tariffs on aluminum and steel.

As usual, though, because reliable data is so difficult to come by, the impact of U.S. duties on imports from China is much harder to gauge. But certainly there’s no reason to believe claims that industries using tariff-ed Chinese inputs are experiencing anything close to the damage widely reported.

Not that U.S.-based manufacturing is out of the woods. Its real output in June did improve on a monthly basis by 0.43 percent – its best such performance since December’s 0.64 percent gain. But domestic industry remains in a technical recession, with inflation-adjusted production down 0.36 percent since August – a stretch longer than the two straight quarters of cumulative decline that qualify as a downturn for most economists.

The table below presents the output data for the major metals-using sectors for the period since April, 2018 – the first full month in which the steel and aluminum tariffs were in place. As usual, the numbers for manufacturing overall are used as a control group.

                                             April thru April      April thru May      April thru June

overall manufacturing:          -0.14 percent        +0.11 percent         +0.54 percent

durables manufacturing:       +0.60 percent        +0.68 percent         +0.98 percent

fabricated metals products:   +1.93 percent        +1.14 percent         +1.09 percent

machinery:                             -1.28 percent        +0.91 percent          +0.12 percent

automotive:                            -3.94 percent         -1.75 percent          +1.05 percent

major appliances:                   -8.89 percent         -1.64 percent           -5.99 percent

aircraft and parts:                  +3.25 percent        +1.17 percent           +2.37 percent

These figures make clear that better constant-dollar output has been achieved during the last two months for manufacturing as a whole, for durable goods manufacturing (the super-category that contains most of the main metals-using sectors) and for three of the five leading specific metals-users. Especially interesting are the comeback being staged by major appliances (which face both metals tariffs and separate levies on large household clothes washers and dryers that began in February, 2018), and the deterioration apparent in aerospace (which arguably is being undercut by the safety problems experienced by Boeing).

Nonetheless, applause should be muted. For earlier in the post-metals tariffs periods, these metals users were clear production out-performers.

Statistics related to the China tariffs (whose first full month in effect was last August, 2018) continues to be plagued by great variations concerning the tariff-ed goods’ role as inputs for a wide range of domestic U.S. industries, uncertainties stemming from the differing classification systems used in the U.S. Trade Representative’s official tariff list and by the Federal Reserve in classifying manufacturing industries, and both the shorter duration of the levies and the increase in coverage since the first tranche was announced.

Keeping these enormous caveats in mind, here are results for a handful of sectors reasonably certain to have faced tariff pressure since last August. Each column measuring real output changes since last August.

                                                Aug thru April       Aug thru May      Aug thru May

overall manufacturing:            -1.03 percent         -0.79 percent        -0.36 percent

ball bearings:                           -1.77 percent         -2.62 percent        -2.89 percent

industrial heating equip:          -8.00 percent         -4.13 percent        -9.04 percent

farm machinery & equip:      -10.27 percent         -7.51 percent        -6.44 percent

oil/gas drilling platform pts:  +2.41 percent         +3.93 percent       +2.13 percent

On the one hand, these numbers provide the tariff opponents with some ammunition for claiming harmful effects from the levies, but not much. Two of the four specific sectors have lost momentum compared with the rest of manufacturing (ball bearings and industrial heating equipment), one has gained (farm machinery and equipment), and once has displayed a slight momentum loss – but also major monthly variation.

On the other hand, given that widespread (though highly uneven) use of Chinese inputs, the recent bounce-back in overall manufacturing production indicates that, if the China duties have been holding industry back – because of increased uncertainty or whatever other reasons have been offered – the impact has been both minimal and offset by other sources of strength. If true, that’s hardly a trivial consideration in judging the wisdom of and prospects for the Trump China trade war – since with each new batch of its own data, China is finding it more difficult to make that claim about its own economy.

(What’s Left of) Our Economy: The Fed Just Showed that Tariff Alarmism Needs to Wait (At Least) Another Month

Tags

aluminum, China, inflation-adjusted output, manufacturing, metals, metals-using industries, real growth, steel, tariffs, Trade, trade war, Trump, {What's Left of) Our Economy

The Federal Reserve’s new industrial production figures (for February) follow a pattern that’s begun to emerge lately. They provide evidence that the domestic U.S. manufacturing sector is shifting into a slower gear. But they offer scarcely any reason to believe that President Trump’s tariff-centric trade policies are behind this possible soft patch.

As usual, let’s start with the data pertaining to the President’s levies on aluminum and steel. These tariffs have been widely reported to have gut punched American industry – allegedly proving that Mr. Trump’s approach to trade has been totally counterproductive. Yet just as usual, the performance of the nation’s main steel-using industries – supposedly the main victim of the tariffs, since the trade curbs saddled them with extra costs for major inputs they use – utterly demolishes such claims.

The table below shows the inflation-adjusted output changes for U.S. manufacturing as a whole and for the leading metals-using sectors. And the time periods of the columns represent the gains or losses reported last month between April (the first full month the metals tariffs were in place) and January; the revised April-January figures released this morning, and the preliminary April-February statistics also put out today.

The message they send couldn’t be clearer. The overall manufacturing slowdown comes through from the deterioration that took place between the April-January and April-February results. In fact, on a monthly basis, real manufacturing output declined by 0.40 percent in February – a weakening that followed a 0.49 percent drop in January.

The metals-using industries (including the durable manufacturing super-category in which they’re all found) all exhibited weaker sequential performance between January and February, too (except for aircraft and parts). But with the exception of autos and parts, and major appliances (which are also laboring under the burden of a separate tariff on large household laundry machines imposed in late January, 2018), since the onset of the metals tariffs, they’ve all grown faster than manufacturing as a whole (which is included as a control group since it contains many sectors that don’t use especially large amounts of metals).

Even more revealing are the differences between the old and new January figures. In every case – including for the laggards – they’ve been revised considerably higher. So their underlying strength still looks impressive, which would make no sense whatever if they were really suffering terribly from the metals tariffs.

                                                   old thru Jan.      new thru Jan.         thru Feb.

overall manufacturing:            +1.20 percent      +1.15 percent    +0.75 percent

durables manufacturing:          +1.65 percent     +1.88 percent    +1.78 percent

fabricated metals products:      +3.19 percent     +3.35 percent    +3.30 percent

machinery:                               +3.87 percent     +4.63 percent    +2.67 percent

automotive:                               -5.18 percent     -3.78 percent     -3.87 percent

major appliances:                      -2.87 percent     -1.42 percent     -1.79 percent

aircraft and parts:                     +6.35 percent    +7.22 percent    +7.98 percent

Because the Trump China tariffs didn’t begin until August, their impact on domestic American industry is much less clear. In addition, the list of goods on which levies were imposed doesn’t compare well with the industrial production figures because they use different systems for classifying manufacturing sectors. Finally, the number of Chinese import categories tariff-ed in starting in August was relatively small – only $50 billion worth.

The table below presents results from industries where the matchups look solid. This time, I’ve added a column that permits comparing the old and new data for the previous month. And as you can see, the numbers are all over the place. The February figures look especially ugly. But in two cases, the January output results have turned out to be stronger than previously reported (especially in industrial heating equipment).

                                                      old Aug.-Jan.      new Aug.-Jan.      Aug.-Feb.

overall manufacturing:                +0.36 percent      +0.31 percent     -0.09 percent

ball bearings:                                -0.09 percent      +0.05 percent     -0.10 percent

industrial heating equipment:       -3.86 percent      -0.40 percent     -4.17 percent

farm machinery and equipment:  +9.12 percent     +9.12 percent   -12.70 percent

Even here, however, so much volatility is evident that withholding judgment is the best approach for now. For example, the February monthly decrease in after-inflation farm machinery output (twenty percent even) was that sector’s worst such performance since January of 2007 (20.54 percent). That’s a more than twelve-year low. Yet the (unrevised) 6.47 percent monthly production improvement in January was the best since last April’s 13.69 percent. Similar volatility can be seen in industrial heating equipment.

So the trade alarmists will have to wait at least another month at least for convincing evidence that the Trump tariffs have backfired big-time against domestic industry. Not that’s stopped them from spreading this wholly false narrative till now.