(What’s Left of) Our Economy: Flunking the NAFTA Laugh Test

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American Automobile Labeling Act, American Automotive Policy Council, auto parts, autos, Canada, domestic content, GDP, ImpactEcon, Jobs, light trucks, Mexico, Motor & Equipment Manufacturers Association, NAFTA, North American Free Trade Agreement, rules of origin, tariffs, Trade, Trump, {What's Left of) Our Economy

Remember the wonderful David Letterman show feature “Stupid Pet Tricks”? I couldn’t help but think of it while reading various news reports and analyses claiming that the demise of the North American Free Trade Agreement (NAFTA) will bring apocalyptic consequences to three signatory countries: the United States, Canada, and Mexico. But my parents always told me never to use the (needlessly harsh) word “stupid.” So instead, I’ll call them, “Silly NAFTA Studies.” Examining two that have attracted major attention will make clear why.

First, let’s look at findings released in August by a Colorado consulting firm called ImpactEcon, and revised in October, that was mindlessly written up by The New York Times, The Wall Street Journal, CNN.com, The Los Angeles Times, and many other big news organizations. According to this report:

“Overall, the results show that the US’s reversal of NAFTA leads to a decline in real GDP, trade and investment in the US, Canada and Mexico, with most of the losses resulting from Canada and Mexico’s reciprocation. The losses in low skilled employment are most significant, with employment declining by 256,000, 125,000, and 951,000 in the US, Canada and Mexico respectively. Production and specialization of production across the NAFTA region declines, particularly in those sectors with the highest levels of vertical specialization across NAFTA. The motor vehicles and services sectors in all three NAFTA countries decline, along with production of US meat, food, and textiles; Canadian chemicals and metals; and Mexican textiles, wearing apparel, electronics and machinery.”

Sounds awful, right? And especially dumb for President Trump, who won the votes of many American workers without glitzy high tech skills.

But buried here – glossed over in the press accounts – are results that should be screamingly obvious to anyone knowing anything about intra-NAFTA trade balances, the Canadian and Mexican economies, and in particular their heavy dependence on exporting to the United States: Canada and Mexico take much greater growth and employment hits from NAFTA’s termination than does America.

The passage quoted above shows a major gulf between the projected job impacts.  But the differential effects on real growth rates are even greater – and more threatening to Mexico and Canada. (The researchers assume that all three countries return their tariffs to pre-NAFTA levels.)

Real GDP:

U.S.: -0.09 percent

Canada: -0.48 percent

Mexico: -0.88 percent

And keep in mind two other considerations: The Canadian and Mexican economies are much smaller than the U.S.’ So the jobs losses are much more important for them, relatively speaking. Moreover, Mexico is still a developing country with real political stability problems. Growth and employment shocks like this would spell big, and possibly fatal, trouble for its ruling classes.

In fact, the damage to Canada and Mexico is so great that the (closely related) policy conclusions couldn’t be clearer (except to economics reporters). First, America’s NAFTA partners simply can’t afford to retaliate against the United States if the treaty is terminated; and second, as a result, a walk-out by them is wildly improbable unless Washington’s demands are positively draconian.

The second silly study (and related press coverage) comes from the Motor & Equipment Manufacturers Association (MEMA) – the trade association of an industry that has moved massive amounts of production and jobs to Mexico (much of it from the United States), largely to serve the American market, not the Mexican market or third country markets.

So obviously, the group’s findings should be viewed skeptically. Additionally, however, MEMA assumes (along with the ImpactEcon findings and another study – from another offshorers’ organization – the American Automotive Policy Council), that higher NAFTA requirements for origin rules will leave external tariffs low enough to enable auto manufacturers to ignore the standards and keep shipping product with lots of content from outside the hemisphere all around the free trade zone. Worse, without higher enforcement tariffs, the auto industry might also supply American customers to an even greater extent from even lower-cost economies, like those in Asia.

It’s true that the Trump administration hasn’t discussed raising those tariffs to levels that would bite. It’s also true that these moves would violate all three NAFTA countries’ World Trade Organization commitments on bound tariffs, and similar promises they’ve made in their other trade deals. But the folly of preserving that status quo is so clear cut that it’s entirely reasonable to expect a Trump-ian learning curve. And the President does prize his reputation as a disrupter.

Moreover, all he needs to do is look at the situation for sport utility vehicles and other so-called “light trucks.” Since their non-NAFTA U.S. tariff remains at 25 percent, even staunch opponents of a major treaty rewrite conceded that factories will return stateside if this status quo ante comes back. And P.S.: These products are increasingly dominating American passenger vehicle markets.

A second substantive reason for discounting this study concerns the auto parts makers’ claim that “Raising the automotive content thresholds and forcing automakers to verify the North American origin of more electronics and other parts now sourced from Asia would cause some parts manufacturers to forego NAFTA benefits.”

As just mentioned, the second fear is warranted if tariffs for the origin rules stay where they are. But the point about forcing the companies to verify where their inputs come from? Vehicle makers have already required to provide exactly this information for NAFTA’s entire life by the American Automobile Labeling Act. And they clearly view NAFTA as a huge success. Many companies in the parts supply chain are much smaller, and detailed reporting could indeed become an unreasonable burden for them. But many parts makers are plenty big enough to assume this responsibility easily (unless they don’t know where they themselves manufacture?). Much more important: The information would greatly aid policymakers and the public in (finally!) evaluating the impact of trade agreements and related policy decisions with a critical mass of precision.

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(What’s Left of) Our Economy: The Wage Stagnation Mystery Deepens

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inflation-adjusted wages, Jobs, Labor Department, manufacturing, private sector, recovery, Trump, wages, {What's Left of) Our Economy

If, like most of the policy and business establishments, you’re mystified by the continuing failure of American wages to rise healthily despite labor markets that seem unusually tight, you’ve stayed mystified this morning. The Labor Department has just reported that inflation-adjusted pay in September in the private sector and in manufacturing both fell sequentially for the second straight month. Moreover, the new data reveal that real manufacturing wages worsened year-on-year for the first time in three years.

The figures are still preliminary, but according to the Labor Department, after-inflation wages for the private sector dipped on month in September by 0.09 percent. That’s better than the 0.19 percent drop in August (which is still preliminary, and stayed unrevised), but it means that, as of now, U.S. workers on the whole have failed to keep up with the cost of living for two consecutive months. (The federal government doesn’t track wages in the public sector, because they’re set mainly by politicians’ decisions, not economic fundamentals.)

The annual numbers are every bit as discouraging. Real private sector pay was only 0.65 percent higher this September than last. The results between the previous Septembers? A 1.23 percent real wages rise.

As for the longer-term, price-adjusted private sector wages are up 4.56 percent since the current economic recovery officially began in mid-2009.

But as bad as these private sector statistics are, they nearly glow compared with manufacturing pay’s performance. Industry’s real wages fell 0.09 percent on month in September, too – but that decline followed an unrevised 0.91 percent monthly plunge in August that was the worst since November, 2011’s 0.95 percent nosedive.

Even worse, after-inflation manufacturing wages are now down 0.18 percent year-on-year. That’s their first annual deterioration since September, 2014 (0.29 percent). Moreover, between September, 2015 and September, 2016, real manufacturing pay improved by 1.40 percent.

And since the recovery officially began, more than eight years ago, manufacturing pay has stayed ahead of living costs by a grand total of 1.03 percent. Consequently, over the last year, as poorly as real private sector wages have fared, they’ve widened the performance gap with manufacturing wages. As of last September, the former had increased during the recovery by 3.88 percent, compared with 1.21 percent for the latter – or 3.21 times faster. As of this September, overall private sector wages have advanced 4.43 times faster than manufacturing wages.

This manufacturing wage stagnation should be of special concern to President Trump. It’s true that his months in office so far have seen an employment pickup in industry. But if the supposed mystery of wage lag isn’t solved pretty soon, when the next mid-year elections arrive, those “Blue Wall” voters in manufacturing-heavy states that helped put him in the White House last year could still be feeling pretty blue.

(What’s Left of) Our Economy: Hurricanes Muddy September Manufacturing Jobs Results – & Obscure Huge Automotive Revisions

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Bureau of Labor Statistics, chemicals, hurricanes, inflation-adjusted wages, Jobs, manufacturing, non-farm payrolls, petroleum refining, private sector, recession, recovery, wages, {What's Left of) Our Economy

This year’s violent hurricane season contributed in September to American domestic manufacturing’s second sequential jobs in the last three months. Industries with extensive facilities on or near the Gulf coast and in the southeast took especially hard on-month hits, notably chemicals (-2,000), apparel (-1,900), and motor vehicles and parts (-3,200). Yet the heaviest single sector job decline came in printing and related activities (3,600).

September employment levels throughout manufacturing, however, also were greatly affected by enormous July automotive revisions, which prolonged a jobs recession in the sector that began in April, 2016. Initially credited with a 1,600 net job rise in July, automotive’s employment improvement was revised up to 5,300, and then dragged all the way down to a net job loss of 27,100. The overall July manufacturing job totals were downgraded from an initial 16,000 net increase to the 11,000 net loss revealed this morning.

Pre-inflation manufacturing wages in September matched the solid 0.45 percent sequential advance recorded for the private sector as a whole. But in manufacturing, this increase followed a 0.49 percent monthly wage drop in August – industry’s biggest since last November (which rounded down to 0.49 percent). Further, manufacturing’s annual current-dollar wage increase of 1.99 percent represents a striking slowdown from the previous year (2.95 percent). Manufacturing’s share of total nonfarm employment actually ticked up, though, in September and August – to just under 8.49 percent. In July, it matched its all-time low of 8.47 percent.

Here’s my analysis of the latest monthly (September) manufacturing figures contained in this morning’s employment report from the Bureau of Labor Statistics:

>U.S. domestic manufacturing lost jobs on net sequentially in September for the second time in three months, with much of the total 1,000 decline traceable to payroll drops in sectors with many facilities in or near the hurricane-affected Gulf coast and southeastern states.

>For example, significant monthly job hits were taken in the automotive sector (3,200), chemicals (2,000), and apparel (1,900).

>At the same time, the sector with the greatest on-month job losses in September was printing and related support activities (3,600). And the petroleum and coal products industry, another Gulf coast-heavy sector, only lost 100 net jobs from August to September.

>In addition, employment levels throughout manufacturing in September were strongly affected by immense revisions for monthly automotive job changes in July.

>The initial read on vehicle and parts payrolls that month reported a 1,600 monthly jobs gain. The next employment report revised this advance up to 5,300. But this morning, the Bureau of Labor Statistics data tables showed a 27,100 month-to-month net automotive job loss for July.

>As a result, overall monthly manufacturing payroll shifts for July changed dramatically, too – from an initially reported 16,000 improvement to a 26,000 surge to an 11,000 net decrease.

>In fact, these automotive revisions revealed the sector to be mired in a jobs recession that began in April, 2016. Since then, payrolls in the sector have fallen by a cumulative 4,300.

>Manufacturing wages rose a seemingly impressive 0.45 percent sequentially in September on a pre-inflation basis, matching the gain of the overall private sector.

>Yet in manufacturing, this progress was preceded by a 0.49 percent monthly current dollar manufacturing wage drop in August, the biggest such decline since a comparable figure in November. In the private sector, pre-inflation wages rose sequentially in August by 0.15 percent.

>Worse, the September plummet meant that pre-inflation manufacturing wages had risen only 1.99 percent year-on-year – one of the lowest figures of 2017. And this wage gain was much bigger than the 2.95 percent current dollar raise manufacturing workers received between the previous Septembers.

>Moreover, the recovery-era gap between pre-inflation wage increases in manufacturing and in the private sector overall has widened considerably over the last year. In September, 2016, private sector wages had risen 21.55 percent faster than manufacturing pay since the recovery began in June, 2009. This September, the difference was 25.28 percent.

>In absolute terms, during the recovery, current-dollar manufacturing wages are up 15.90 percent in toto and overall private sector wages are up 19.92 percent.

>The latest inflation-adjusted wage data for manufacturing and overall private sector wages go through August, and further darken the pay picture in industry.

>That month, real manufacturing wages plunged by 0.91 percent sequentially – their worst such performance since November, 2011 (0.95 percent). Inflation-adjusted hourly pay for the overall private sector worsened, too – but by just 0.19 percent.

>And since the recovery began more than eight years ago, whereas overall private sector wages have risen by 4.66 percent on a price-adjusted basis, pay has improved by a mere 1.12 percent for manufacturing workers.

>Employment figures tell a similar story. Since hitting its last low point, in February and March of 2010, manufacturing has regained 994,000 (43.35 percent) of the 2.293 million net jobs it had shed since the last recession officially began, in December, 2007.

>Manufacturing employment is still down since that recessionary onset nearly ten years ago, too – by 1.299 million, or 9.45 percent.

>Since its latest employment nadir, in February, 2010, the overall private sector has boosted employment by 17.065 million. That’s nearly twice as many jobs as it lost (8.780 million) during the recession.

>Since the recession began, overall private sector is up by 8.285 million – a 7.14 percent gain over those nearly ten years.

>Somewhat more encouragingly, manufacturing jobs as a share of total non-farm jobs (the Bureau of Labor Statistics’ American jobs universe), rose slightly in September and August (to just under 8.49 percent) from the record low it had matched in July (8.47 percent).

Following Up: Time for a “Truth in Testimony Act” for Think Tanks

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business, civil society groups, Congress, corporations, data, exports, Following Up, globalization, idea laundering, imports, Jobs, labor unions, offshoring, statistics, think tanks, Trade, trade balances, transparency

So far, my work on the problems for our democracy caused by corporate- or other special interest-funded think tanks has emphasized that the media has a special responsibility – and ability — to help solve them. How? By making sure that whenever they quote staffers from these organizations as experts on this or that issue, they reveal who’s signing the tankers’ paychecks.

But another major segment of society also needs to play a role in preventing what I call think tank idea-laundering – posing as objective, academicky-type organizations in order to portray their staffs’ findings as the products of disinterested scholarly research rather than exercises in agenda-pushing. That segment is government.

Legislatures at the local, state, and federal levels should pass what might be called “Truth in Testifying Acts.” That is, whenever they invite input from think tanks in hearings they hold, or in public comment exercises they conduct, the law-making bodies should require these organizations to disclose all their funders with a financial stake in the subject being examined, or the decision that’s pending. As a result, the public or any other consumers of these analyses would have the information they need to judge how much credibility they feel the information deserves, and what kind of material has been deliberately exaggerated or spotlighted or downplayed or ignored altogether.

In fact, these requirements should be imposed on so-called civil society groups, foundations, labor unions, academic institutions, and business organizations, too. Sometimes their biases are obvious from their names, but only sometimes. Best to err therefore on the side of caution – and more disclosure.

Further, while we’re on the subject, I’d like to see something else added to these Truth in Testimony Acts, or follow-on legislation, which is especially relevant to the trade issues I follow so closely: requirements that business groups and their think tank fronts lay out comprehensively their own domestic and international operations and structures, and those of their major funders. They’re needed because representatives of these organizations have long gotten away with literal intellectual murder by presenting legislators with shamelessly cherry-picked data.

For example, when trade agreements and other trade policy decisions are being examined, it’s become standard operating procedure for witnesses in favor of greater liberalization to present figures on exports from the country as a whole, from individual states or Congressional districts (always of major concern to Senators and House members), or from whatever company or industry they represent. And typically, they’re allowed to ignore the import and trade balance sides of the equation. Talk about a total crock.

Similarly, these individuals and organizations are happy to report on how many workers they employ nationally, and in various states and localities, and how many of these jobs depend on exports at a given moment. But they have no interest in discussing how these trends have changed over time, or how many jobs and how much production they’ve sent overseas or have lost to imports, or how these situations have evolved, say, over the life of a certain trade deal.

The companies and industries justify this selectivity by contending that information on imports and offshoring is proprietary, and that keeping it confidential is crucial to their commercial success. That’s often true. But the Truth in Testimony Act should specify that if witnesses wish to keep close to their vest information on one side of the trade ledger (e.g., their firm’s imports), then they can’t brag about their performance on the other side (e.g., their firm’s exports). There’s simply no reason to allow these businesses to play, “Heads, We Win; Tails, You Lose.”

Nor need there be anything the slightest bit coercive about such requirements. If businesses and industries and their various representatives feel so strongly about the secrets to their success, they should be free to decline invites to appear before lawmakers.

Actually, I’d like to extend these requirements to the financial statements public companies need to file with the feds. As with their testimony, such businesses often include flattering trade-related information in quarterly and annual financial statements. If they’re not willing to give investors the full picture, they should need to drop the whole subject.

And why restrict such disclosures to public businesses? Companies of all kinds are required to report all sorts of information to Washington. Their submissions form the basis of much of the economic data that is made publicly available by the federal government. The shield of anonymity provided by the Census Bureau and other statistical agencies to prevent rivals from using the data to gain advantage is entirely reasonable from the standpoint of these businesses. But from a national standpoint, it makes no sense at all. Indeed, it puts policymakers and the public in the position of flying largely blind when it comes to evaluating the impact of trade policy decisions.

The same kind of problem is created by the narrow range of trade-related info that businesses are legally obligated to share. Why not force them to specify their job and production offshoring, the wages of their U.S. and overseas workers, their foreign and domestic procurement, the foreign and domestic content of their products, and similar statistics? And why not demand time series, so that long-term patterns can be identified?  BTW — content information has been required of auto-makers selling in the United States since the 1990s, so major precedent exists. 

The business secrets problem is easily solved: If all firms wishing the privilege of operating in the United States need to share the same information, no one company is put behind the eight-ball. And again, no coercion is involved. Companies would be perfectly free not to comply – and exit the world’s most lucrative market by far in the process. And what about the regulatory burden that would be placed on smaller firms? There’s a strong argument for exempting them, as larger firms dominate U.S. trade flows anyway.

Such a sweeping “Truth in Globalization Act” would probably be a heavier legislative lift than the “Truth in Testimony Act,” so I’d focus first on the former. But both are urgently needed to ensure the soundest possible U.S. policymaking process.  And how could anyone genuinely devoted to the national interest object?  

(What’s Left of) Our Economy: The Real Dreamer Fakeonomics

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Barack Obama, Center for American Progress, DACA, Deferred Action for Childhood Arrivals, Dreamers, illegal immigrants, illegal immigration, Immigration, Jobs, Paul M. Krugman, The New York Times, Trump, wages, {What's Left of) Our Economy

If you’ve been following the heated national debate about President Trump’s decision to rescind former President Obama’s Deferred Action for Childhood Arrivals (DACA) program, you know that an economic conventional wisdom has been quickly established. It holds that, whatever you think about the legality, propriety, or morality of ending its legalization process for the young and young-ish residents of the country who arrived as the children of illegal immigrants, the impact on the nation’s growth, employment, and productivity would be disastrous.

Sadly – but not surprisingly – an examination of the data reveals this conclusion to be quintessential fakeonomics. Worse, these claims have been spread with techniques that have become all too typical in the nation’s political, policy, and media circles – by endlessly and credulously repeating assertions that are based either on no solid data whatever, or on unusually weak data.

Enough examples could be cited to fill a book, so let’s focus for now on one that’s just appeared in America’s leading newspaper (The New York Times) and by no less than a Nobel Prize-winning economist (columnist Paul M. Krugman).

As Krugman argued in this morning’s paper, the Trump administration’s position that DACA has “denied jobs to hundreds of thousands of Americans by allowing those same jobs to go to illegal aliens” is not only “junk economics.” But because it’s based on the (equally false, per Krugman) belief that “immigrant workers compete with less-educated native-born workers, driving their wages down and increasing income inequality,” it’s “irrelevant.”

The reason? “The Dreamers [as beneficiaries of DACA are often called] are a relatively well-educated group, very different from undocumented immigrants who came as adults.” Therefore, “letting Dreamers work is all economic upside for the rest of our nation, with no downside unless you have something against people with brown skin and Hispanic surnames.”

Needless to say, the argument that Dreamers actually tend be valuable economically on top of being young and young-ish, and slated to suffer for the sins of their parents, contributes to the image of Mr. Trump’s policy as a loser on all counts.

But the main evidence cited by Krugman doesn’t justify this conclusion at all. It comes from a Times feature posted on Tuesday that purports to show that “DACA-eligible immigrants have higher-skilled jobs” than other illegal immigrant workers. Two big problems here, however. First, the statistics presented in this post show that this standard represents an awfully low bar. Second, the differences revealed by these numbers between DACA-eligible illegals and other illegals is decidedly unimpressive.

For instance, what’s the occupation of the greatest percentage of workers in both groups? “Food preparation and serving” (16 percent). That sector of the economy sure isn’t known for creating great jobs. Number two for the Dreamers and those eligible for this designation? “Sales and related.” This category also features the biggest absolute occupation gap between the Dreamer-types and non-Dreamers, employing 15 percent of the former but only six percent of the latter. But these kinds of jobs sound pretty dead-end, too. Ditto for “Office and administrative support” (which employs the next greatest share of Dreamer-eligible workers). Worse, both the sales and the office jobs are being killed off left and right these days by automation.

Equally revealing: The next four biggest employers of Dreamer-eligible workers are the kinds of blue-collar-dominated categories that typically don’t require much education, and which therefore place Dreamer types in direct competition with their “less-educated native-born counterparts.” These categories – “Construction and extraction”; “Production”; “Transportation and material moving”; and “Building and grounds cleaning and maintenance” – employ fully 32 percent of the Dreamer types. An additional seven percent work in the comparable occupations of Personal care and service and Installation, maintenance, and repair.

It’s true that, in what’s officially considered a very low unemployment economy, the Dreamer-eligible workers may not be taking jobs from the native-born (or from legal immigrants). At the same time, their presence may well explain some of the nation’s nearly multi-decade low labor force participation rate. Moreover, the laws of supply and demand strongly indicate that the influx of Dreamers into these labor markets is holding down wages, all else equal.

This Times feature reveals something else fishy about the new Dreamer-nomics conventional wisdom. Much is based on a survey that should prompt considerable skepticism – and especially from reporters and editors, who are supposed to be professional skeptics. Here I’m talking about the insistence that DACA recipients (in the words of the liberal, pro-DACA Center for American Progress), thanks to their new status “are making significant contributions to the economy by buying cars and first homes, which translate into more revenue for states and localities in the form of sales and property taxes. Some are even using their entrepreneurial talents to help create new jobs and further spur economic growth by starting their own businesses” as well as earning higher wages.

Yet there are no hard numbers behind this “finding.” Instead, it’s based on a widely cited survey conducted by a researcher employed by the Center and other pro-DACA groups that asks Dreamers about their experiences following the Obama decision. On the one hand, there can be little doubt that workers with some legal protections are going to do better than workers with none. On the other hand, how sustainable will these gains be, especially in an economy with poor recent economic and social mobility? Moreover, because DACA-style legalization is such a boon to recipients for reasons beyond economics, too, don’t the respondents have a strong incentive to play up their progress?

I’ve actually been moving toward the position that the Dreamers should be allowed to stay in the country permanently, and possibly get that proverbial “path to citizenship” – largely because they came out of the shadows and registered with the authorities based on a presidential promise. It’s not their fault that the promise’s legality was dubious at best. Best of all would be a Dreamer amnesty coupled with border security and other immigration policy measures smart enough to prevent yet another powerful illegal immigration magnet from being constructed.

But policy shifts based on clearly hyped and mis-interpreted data rarely turn out well. If Americans do decide to give the DACA recipients the blessings of legal residence in the United States, they should at least do it with their eyes wide open to the likeliest economic impact.

(What’s Left of) Our Economy: Trump & Workers, by the Numbers

Tags

blue-collar workers, construction, healthcare services, Helaine Olen, inflation adjusted wages, Jobs, manufacturing, mining, real private sector, real wages, regulation, Steven Greenhouse, subsidized private sector, The Nation, The New York Times, Trump, unions, wages, workers, {What's Left of) Our Economy

Since Donald Trump first declared his presidential candidacy, he’s been dogged by charges that he’s a phony populist, and that his working class supporters have long been hoodwinked by his promises of restoring factory and other blue collar jobs and living standards. And this past Labor Day inspired the President’s critics to double down, as evinced by this piece by long-time labor reporter Steven Greenhouse in The New York Times and this one by economist Helaine Olen in The Nation.

So it seems appropriate for RealityChek‘s slightly delayed analysis of the latest monthly jobs report to include some data bearing on these questions. The verdict? Whatever anti-union and deregulatory measures the Trump administration has backed, its first months in office overall have been just about as good for blue-collar industries and blue-collar employees as during the latest comparable period during the supposedly worker-friendly Obama administration.

First, the manufacturing highlights of last Friday’s August jobs report:

>August saw the best month of net new job creation in U.S. industry since August, 2014 (36,000 in each month.

>Although the August and July totals are still preliminary, their combined sequential employment increase of 62,000 was the highest such figure since the 68,000 improvement in December, 2011 and January, 2012. This back-to-back total reduces the odds that the August numbers are a fluke.

>On a year-on-year basis, manufacturing’s August gain of 138,000 contrasts strikingly with the 5,000 net job loss in industry between the previous Augusts. In fact, this new annual advance was manufacturing’s strongest since the 139,000 yearly gain in August, 2015.

>Reenforcing this conclusion are the strong upward revisions for monthly manufacturing job growth in June (from an upwardly revised 12,000 to 21,000) and for July (from 16,000 to 26,000)

>Manufacturing has now regained 1.027 million (44.79 percent) of the 2.293 million jobs it lost from the onset of the last recession (at the end of 2007) through its jobs bottom in February and March, 2010.

>Yet manufacturing employment is still down 9.21 percent since the downturn’s beginning. During that period, overall private sector employment is up by 7.23 percent.

>Manufacturing’s wage performance, however, slumped notably in August. Pre-inflation wages sank sequentially by 0.56 percent – the worst such drop since May, 2012’s 0.63 percent.

>It’s true that manufacturing wages have been volatile this year, with July recording a strong month-on-month gain of 0.53 percent. But the yearly August manufacturing wage rise of 1.76 percent not only trailed the previous August-to-August rise of 2.68 percent. It was also the smallest annual increase since July, 2015’s 1.57 percent.

>By contrast, August current dollar wages in the private sector overall were up by 0.11 percent sequentially and 2.53 percent year-on-year. The latter total was just slightly below the 2.55 percent increase achieved between August, 2015 and August, 2016.

>Since the current recovery began, in mid-2009, pre-inflation manufacturing wages have risen by only 15.25 percent total. For the private sector overall, they’ve increased by 19.20 percent.

>As a result, the gap between private sector pre-inflation wage increases and those gains in manufacturing stood at 20.57 percent in August. One encouraging development for manufacturing workers: Last August, the gap was much wider: 27.92 percent.

>On an after-inflation basis, manufacturing’s wage performance remains mixed compared with the rest of the private sector. The latest data are from July, and show a monthly gain of 0.37 percent for manufacturing workers and 0.19 percent for the private sector overall – barely half as much.

>Year-on-year, however, manufacturing’s real wage gains slightly lagged those of the private sector in toto in July – 0.74 percent versus 0.75 percent.

>And the gap is even wider during the current recovery – inflation-adjusted wage gains of only 1.96 percent for manufacturing workers during this more than eight-year period, versus an improvement of 4.75 percent for the entire private sector.

But what about the Trump-Obama comparison? Here are the main numbers, using February as the first plausible month of “Trump-onomics”:

>From this past February through August, total net new U.S. job creation is up by 0.66 percent, versus 0.83 percent from last February through last August – the final such period during Mr. Obama’s presidency. So score one for the previous administration? Maybe. But the economy is also deeper into the recovery, and just about at the official definition of full employment. So it’s natural that job-creation should slow down some.

>Interestingly, the difference is much smaller when looking at private sector job creation. Last February through last August, it grew by 0.84 percent. During the comparable Trump period, it’s increased by 0.79 percent. That’s one sign that the Trump employment performance has been healthier, and therefore more sustainable, because it’s been more private-sector driven, than the late Obama version.

>This difference becomes even more pronounced when looking at trends in the subsidized private sector – those industries traditionally considered private sector (notably healthcare) that nonetheless depend heavily on government subsidies. Hence my decision to place them in a separate category.

>So far this year, under President Trump, subsidized private sector jobs have indeed increased strongly – by 0.95 percent. But that’s a much slower rate of growth than the 1.29 percent recorded during the comparable Obama months.

>As a result, employment growth in the “real” private sector has been faster under Mr. Trump – by 0.76 percent to 0.74 percent – and this, again, despite the arrival of full employment.

>Continuing sector by sector, the statistics show that the some of the biggest employment gains during President Trump’s tenure have taken place in blue-collar heavy industries that performed poorly during the comparable final Obama period.

>Principally, net employment from this past February through August is up by 0.83 percent in manufacturing, by 4.96 percent in mining and logging, and by 0.68 percent in construction.

>The comparable Obama administration numbers: -0.27 percent, -6.90 percent, and +0.63 percent, respectively.

>More broadly, blue-collar employment throughout the entire economy (defined by the Bureau of Labor Statistics as production and non-supervisory workers) has increased at the same pace during the two time periods in question (0.70 percent), though in absolute numbers, the Trump administration gains are a bit larger (714,000) than the corresponding Obama administration advances (701,000) – again, despite the arrival or near-arrival of full employment.

>Where blue-collar workers fared better so far during the Obama period than during the Trump period is on the wage front. But they haven’t fared massively better.

>For all private sector production and non-supervisory workers, pre-inflation wages were up by 1.36 percent during those Obama months, and 1.19 percent during the Trump months.

>The same trends have been visible in the blue-collar industries. During the Obama months in 2016, current-dollar wages rose by 1.78 percent in manufacturing, 0.82 percent in mining and logging, and 2.60 percent in construction.

>The Trump results? 1.26 percent, 0.87 percent, and 1.98 percent, respectively.

>In other words, the only blue-collar sector in which blue-collar workers have outperformed under President Trump has been in the mining sector – which has seen by far the biggest employment outperformance.

Of course, the Trump administration is still pretty young, and any or all of these trends could change, and change dramatically, in the months ahead. But until they do, it’s clear that Mr. Trump’s presidency has neither devastated the workers who supported him so ardently or made their lives Great Again. And any analysts denying that the truth so far lies somewhere in between – including the administration’s own grandstanders – have some explaining to do.

Making News: New Podcast on Globalization, Breitbart Cite – & More!

Tags

agriculture, America Trends, Breitbart.com, globalization, IndustryToday, Jobs, John Carney, Larry Rifkin, Lifezette.com, Making News, manufacturing, NAFTA, North American Free Trade Agreement, Rust Belt, Trade, Trump

I’m pleased to announce some new media appearances this week.

First, here’s a link to a long interview on trade, globalization, the U.S. economy – and, of course, the Trump effect – I gave to Larry Rifkin’s America Trends podcast.  It’s nearly an hour, but I hope lots of you will stick with it for at least a while, because Larry is one of the best interviewers I’ve run across in my decades of experience with the media.

Second, IndustryToday, which I’ll shortly start writing for as a regular columnist, has reposted my RealityChek post documenting what a failure the North American Free Trade Agreement (NAFTA) has been for American agriculture – despite endless claims to the contrary.  Here’s the link.

Third, on Tuesday, John Carney of Breitbart.com (yes, the one and only) quoted my views in a post he put up on the news that a Chinese entity is thinking of buying the prized Jeep division of Fiat Chrysler.  You can read it at this link.

Finally, Lifezette.com featured my views and manufacturing jobs data in this Monday post on what voters in Rust Belt swing states think of President Trump’s performance so far.

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

(What’s Left of) Our Economy: Manufacturing’s Out of its (Short Term) Jobs and Wages Doldrums

Tags

Bureau of Labor Statistics, Employment, inflation adjusted wages, Jobs, manufacturing, non-farm payrolls, recession, recovery, wages, {What's Left of) Our Economy

American domestic manufacturing created 16,000 net new jobs in July on month, its best such performance since February’s 22,000. Coupled with a major (11,000) upward revision for June, the figures demonstrated that U.S. industry has for now emerged from a springtime slump. On an annual basis, manufacturing’s July 66,000 employment improvement was its strongest since February, 2016’s 69,000.

But since the current recovery began, private net job creation has topped manufacturing’s by a factor of nearly 2.5. The same story characterized pre-inflation manufacturing wages. In July, they improved sequentially faster than the private sector’s (0.53 percent to 0.34 percent) but lagged year-on-year (2.42 percent to 2.53 percent) and trailed the previous Julys’ 3.13 percent. And during the current recovery, the private sector’s current dollar wages have increased nearly 20 percent faster than manufacturing’s, although the gap has narrowed year-on-year. But despite its good last two months, manufacturing’s share of total nonfarm employment remained at a record low of 8.47 percent.

Here’s my analysis of the latest monthly (July) manufacturing figures contained in this morning’s employment report from the Bureau of Labor Statistics:

>U.S. domestic manufacturing net new job creation and wage gains both accelerated sequentially in July, pulling the sector out of a sluggish spring on both fronts.

>Industry’s monthly July jobs gain of 16,000 was its best such performance by far since the 22,000 payrolls improvement in February. Moreover, June’s initially reported 1,000 employment increase is is now judged to have been more than ten times greater (12,000).

>Fiurther, the July figures showed that manufacturing payrolls swelled by 66,000 year-on-year in July – the best annual gains since February, 2016’s 69,000.

>Monthly pre-inflation manufacturing wages growth picked up notably as well in July, from an upwardly revised 0.19 percent in June to 0.53 percent. In May, manufacturing paychecks actually fell on a current dollar basis – by an upwardly revised 0.26 percent.

>Manufacturing’s June sequential pre-inflation wage gains equaled those of the overall private sector, and beat the private sector’s 0.34 percent performance in July.

>Over the longer term, however, manufacturing lagged the overall private sector in both respects, although the paycheck gap has been narrowing slightly recently.

>During the current economic recovery, which began in mid-2009, manufacturing employment is now up by 5.96 percent. Private sector jobs as a whole are up by 14.58 percent during this period.

>Since the late-2007 onset of the last recession, manufacturing’s performance is equally poor. From that time to the early 2010 troughs, manufacturing lost 2.293 million jobs and private sector payrolls shrank by 8.801 million.

>Since then, manufacturing has regained just 42.39 percent of those lost jobs (a total of 972,000). The private sector as a whole has boosted employment by 17 million.

>As a result, total private sector employment is now 7.08 percent higher than at the recession’s late-2007 onset, but manufacturing employment is still 9.61 percent lower.

>Therefore, it’s no surprise that manufacturing’s share of total nonfarm employment in July stayed stuck at its all-time low level of 8.47 percent.

>Wage trends reveal the same manufacturing relative weakness. Industry’s July annual current dollar wage gains of 2.42 percent were lower than the overall private sector’s 2.53 percent. They were also much lower than the 3.13 percent increase recorded for manufacturing during the previous Julys.

>Manufacturing wages before inflation have fared little better during the recovery. As of July, they were up by 15.99 percent since the economy resumed expanding in mid-2009. But overall private sector wage increased by 19.06 percent – 19.20 percent faster.

>Last July, though, the gap was bigger – 23.24 percent.

>Manufacturing generally performs even worse on an inflation-adjusted basis. The latest figures are for June, and show a sequential manufacturing gain of 0.18 percent versus a 0.28 percent read for the private sector overall.

>Year-on-year, real manufacturing wages have risen by only 0.55 percent. That’s both slower than the private sector’s 0.94 percent and manufacturing’s own 2.46 percent constant dollar rise between July, 2015 and July, 2016.

>During the entire recovery, overall private sector real wages are up 4.56 percent as of June – 2.87 times faster than the manufacturing real wage improvement (1.59 percent).

>As bad as that comparison looks, it’s actually narrower than the gap last year – when overall private sector wages had increased 3.48 times faster after inflation than manufacturing wages.

(What’s Left of) Our Economy: The Real Promise – & Pitfalls – of Foxconn’s New US Manufacturing Plan

Tags

assembly, Carrier, components, flat panel displays, Foxconn, incentives, innovation, Jobs, manufacturing, Paul Ryan, productivity, regulatory reform, Scott Walker, subsidies, tariffs, tax breaks, tax reform, Terry Gou, Trade, trade policy, Trump, Wisconsin, {What's Left of) Our Economy

Sorry for the recent absence – and during an incredibly newsworthy period!  There’s been lots of important economic data released recently, which I’ll be reporting on in upcoming days.  So what to focus on in this return offering?  One recent story that seems to reflect many of the biggest developments and trends of the Trump administration’s first six months is the announcement this past week that the Taiwanese electronics giant Foxconn will be spending $10 billion to build a new factory for flat panel displays in southeastern Wisconsin. 

Think this is a stretch?  Then consider this:

The announcement, which could become a big win for the American economy – and a big feather in the president’s cap –was completely upstaged by a series of White House personnel shakeups orchestrated by Mr. Trump himself.

Moreover, the Mainstream Media accounts invariably combined their longstanding hostility to the president with their instinctive rejection of the possibility that unconventional economic ideas and policies can have any merit. 

For instance, they uniformly focused on the job-creation effects of the new factory – which, as typical for capital-intensive products and industries, will be relatively modest – to portray the news as ruse by the president to convince voters that he was keeping his campaign promise to revive manufacturing employment.  Their main evidence?  The tax breaks and other subsidies the project would receive, which came to many thousands of dollars per position, which were easy to depict as a first class boondoggle.

Further, the media uniformly depicted employment as the only possible upside to strengthening the nation’s high value manufacturing.  Its major contributions to the economy’s productivity growth – which could use a major helping hand – and to its innovative capacities, were completely ignored. 

At the same time, the reporting overlooked crucial questions that need to be answered to assess whether the new Foxconn factory will live up to its promise.  Principally, will it be engaged in components production – where so much of manufacturing’s value-added comes from?  Or will it simply be assembling final products from imported components, as has been the case with other recent foreign electronics investments?  If the latter, the subsidies it’s garnered will be much more difficult to justify.  And in this vein, have either federal or Wisconsin authorities imposed any conditions that would encourage genuine manufacturing?   

Not that the Foxconn announcement completely vindicates globalization policy critics, either – or at least not those who, like me, have insisted that manufacturing revival that matters will require a thorough recasting of American trade policy.  I’ve been especially skeptical of the idea that jaw-boning a la Trump plus some subsidies could make a real difference – though I’ve insisted since Mr. Trump as president-elect intervened in the Carrier company’s decision to offshore Indiana manufacturing jobs that his use of the bully pulpit could greatly aid the welcome transformation of America’s approach to manufacturing that he seemed to have in mind.  And for the record, I’ve been skeptical that subsidies can be decisive, either – because America’s financial support for manufacturing was so unlikely even to approach the scale of, say, China’s. Finally, I’ve never thought that the kinds of regulatory reform efforts Mr. Trump has launched would matter much, either, given that so many potent American trade rivals are practically regulation-free.  

At this early stage, the jury is still out.  But since the Foxconn announcement has hardly been unique, and no significant changes have taken place in U.S. trade policy other than a withdrawal from the Trans-Pacific Partnership trade agreement, the president so far is doing a pretty good job of proving me wrong.

Nonetheless, I’m still confident that, sooner rather than later, the manufacturing needle won’t be moved without imposing trade curbs of some kind.  Although avowed fiscal conservatives like House Speaker Paul Ryan (of Wisconsin) and his state’s governor, Scott Walker, enthusiastically supported the Foxconn incentives package, their appetite for such measures – even when reduced taxes are involved — is likely to be limited for other parts of the country because of their budget-busting effects.  Indeed, it looks like Ryan may wind up accepting a smaller corporate tax cut in Congress’ tax reform package for precisely this reason.  Moreover, these breaks could easily be offset by similar moves by foreign governments – and added to existing predatory practices like currency manipulation and tariffs of their own.  And I remain convinced that a high-income country, first world country like the United States can never rely heavily on deregulation to compete better against very low-income, largely regulation-free third world countries like China or Mexico. Nor should it want to. But no initiatives could match the power of policies that would limit or close off access to the world’s greatest economic and commercial prize by far, the American market.

In fact, as Foxconn’s CEO has strongly suggested, the threat of U.S. tariffs helped persuade him to promise to manufacture much more in America.  And he’s hardly alone in the corporate world, as I’ve reported.  That’s why I’m somewhat worried about the administration’s reluctance actually to impose tariffs, as opposed to threatening them.  If Mr. Trump keeps hemming and hawing about steel tariffs, and if he keeps opposing ideas like the border adjustment tax, which has just been stripped from Congress’ tax reform package, America’s competitors could easily conclude that his trade policy is largely bluff, and that they can keep using Americans as customers and not workers after all.

(What’s Left of) Our Economy: What “Retail-pocalypse”?

Tags

bricks and mortar, electronic retailing, Employment, hiring, job openings, Jobs, JOLTS, on-line shopping, private sector, retail, {What's Left of) Our Economy

Could the evidence be clearer? President Trump constantly bewails job losses in parts of the economy like manufacturing and coal mining. But he’s ignoring the much larger employment bloodbath in the nation’s retail sector. Worse, the contrast shows what a racist and sexist Trump is, since minorities and women make up much larger shares of the workforce in retail than in factories and mines.

Here’s one answer: The evidence for these propositions could be a lot clearer. Indeed, according to the U.S. government’s employment statistics, it doesn’t exist.

I decided to look at the numbers because the JOLTS data for May came out this morning, and I was once again amazed at the results for retail. As known by RealityChek regulars, these data measure turnover in the labor force, and are highly regarded by no less than Fed Chair Janet Yellen – a leading labor economist. The new figures, which are still preliminary, show that American retailers claimed 638,000 job openings in their businesses, and hired 718,000 new workers (the latter data represent total positions filled, not net new hires).

It’s true that the openings numbers in particular can be dicey. But those for this past May seem pretty consistent with the data going back many years. Moreover, they show that over the last eight years (practically the length of the current economic recovery), retail openings have more than doubled, and hires are up by nearly 31 percent. Both indicators are lower than that for the private sector as a whole (where job openings are up 140.14 percent, and hires are up 45.24 percent since May, 2009). But the gap is hardly yawning. Nor is there any indication from the JOLTS data that retail openings or hires have lost major – or any – momentum in the last few years.

The actual net new job-creation numbers don’t reveal any “retail-pocalyse,” either. Since June, 2009 (when the current recovery officially began) retail payrolls have grown by nine percent. That’s slower than the increase overall private sector employment (14.39 percent). But the gap proportionately was actually greater during the previous recovery, when private sector employment rose by 5.83 percent, and the retail sector’s staffing was up by 3.18 percent.

Maybe this is because, as widely reported, jobs are migrating from bricks and mortars retail stores to on-line shopping businesses? Absolutely. And this trend is indeed rising in importance. During the previous recovery (which only lasted six years, from the end of 2001 through the end of 2007), electronic retail employment rose by 64 percent – just about a third as fast as during the current recovery (174.44 percent).

But in absolute terms, the electronic retail sector is hardly a mass employer. Its workforce totaled less than 260,000 as of this May. Retail overall employed just under 15.85 million that month, and during the recovery, bricks and mortars payrolls grew by a not-too-shabby 1.14 million.

At the same time, the actual employment figures do show that retail hiring is running out of steam, at least for the time being. Year-on-year, the sector boosted payrolls by just 0.12 percent. The previous two May-May annual increases? 1.37 percent between 2015 and 2016, and 1.71 percent the year before. By contrast, employment grew by 12.22 percent in electronic retailing from May, 2016 to May, 2017, and by 12.60 percent the year before. So conventional stores are now losing employees on net.

At the same time, these results are a far cry from a blood-letting. And annual job-creation in the overall private sector has been slowing as well. Further, many observers insist that bricks and mortars companies long built way too many stores. So their payrolls (and overall scale) may, at least to some extent, simply be returning to more sustainable levels. These conclusions obviously won’t satisfy the Trump-haters among us. They’re simply consistent with the facts.