(What’s Left of) Our Economy: The State of the Union’s Productivity is Still Gloomy

Tags

Labor Department, labor productivity, manufacturing, productivity, State of the Union, Trump, {What's Left of) Our Economy

Hooray! Americans and the world just got a new batch of productivity data. You know – those statistics that everyone knowing anything about economics calls a key to sustainable national prosperity, but that are usually ignored when they’re issued even when impeachments and State of the Union speeches and presidential primaries aren’t dominating the headlines.

But as often been the case recently, the news on the whole discouraging. Non-farm businesses (the national economic universe as defined by the Labor Department, which tracks productivity) registered a better performance according to these preliminary figures for the fourth quarter of last year than for the third quarter. Yet the rate of year-on-year improvement slowed. Manufacturing’s figures, moreover, worsened over both time frames.

No better is the big picture revealed by these results: The U.S. economy remains smack in the middle of a major productivity slowdown, which augurs poorly for its ability to keep growing in a healthy (as opposed to a bubble-ized) way.

This productivity report measures labor productivity – the amount of output any sector of the economy or the entire economy can generate for each hour worked by each of its employees. It’s a narrower gauge of business efficiency than multi-factor productivity – which, as suggested by its name, records production as a function of a wide variety of inputs. But the labor number is reported on a timelier basis, and therefore tends to attract the most attention – when it attracts any attention at all!

According to the new release, labor productivity during the last three months of 2019 advanced by 1.40 percent at an annual rate. The final third quarter figure (which went un-revised)? A 0.20 percent annualized drop.

Moreover, on an annual basis, non-farm business labor productivity rose between 2018 and 2019 by 1.79 percent. That’s considerably faster than the 1.01 percent advance during the previous year.

Unfortunately, that’s where the good news stops. Labor productivity in domestic manufacturing – once the economy’s leader on this score (see the table below) – dropped sequentially for the third straight quarter. And this 1.20 percent annualized decrease was worse than the third quarter’s 0.26 percent annualized decline – which itself was revised down from a 0.10 percent increase.

Even worse is the latest year-on-year comparison. Between 2017 and 2018, manufacturing’s labor productivity rose by 0.60 percent – not terrific, but at least an improvement. Last year, it tumbled by 0.68 percent. That’s its worst such performance since 2014-2015’s 1.45 percent dive.

But if you really want to be bummed, check out the trends over the last three economic recoveries (including the current expansion, whose length, at least, keeps setting records). The ever weaker growth rates are troubling enough. Worse still is the slowdown’s acceleration (even in non-farm businesses if you take into account the length of the ongoing recovery.

                                                                         Non-farm business   Manufacturing

1990s expansion (2Q 91-1Q 01):                       +23.74 percent      +45.86 percent

bubble expansion (4Q 01-4Q 07):                      +16.59 percent     +30.23 percent

current expansion (2Q 09 thru prelim 4Q 19):   +13.19 percent      +5.98 percent

President Trump’s State of the Union address Tuesday night boasted about numerous economic achievement during his administration, and as noted in my analysis of yesterday’s U.S. trade figures, on some scores, he’s entitled to do so. But the speech never mentioned productivity, and given today’s new numbers, it’s easy to understand why.

(What’s Left of) Our Economy: New Productivity Data Further Debunk “Tariffs Hurt” Claims

Tags

aluminum, aluminum tariffs, China, durable goods, fabricated metals products, inputs, Labor Department, labor productivity, manufacturing, metals, metals tariffs, multi-factor productivity, productivity, steel, steel tariffs, tariffs, Trade, trade law, World Trade Organization, WTO, {What's Left of) Our Economy

The Trump administration’s announcement last Friday of new tariffs on some metals-using manufactures imports was greeted with the predictable combination of chuckles and gloating from the economists, think tank hacks, and Mainstream Media journalists who keep insisting that all such trade curbs are self-destructive whenever they’re imposed.

If the critics bothered to look at the new official data on multi-factor productivity, however, they’d stop their victory laps in their tracks. For the Labor Department’s latest report on this broadest productivity measure utterly trashes their claims that the tariffs slapped on metals in early 2018 – which unofficially launched the so-called Trump trade wars – have backfired by undercutting most domestic American manufacturing.

In fairness, the Trump administration itself gave the trade and globalization cheerleaders lots of evidence for their triumphalism. Specifically, the levies were justified with statistics showing that various categories of goods made primarily of tariff-ed steel and aluminum had seen major surges of imports since the duties began. The obvious conclusion? Foreign-based producers of these products were capitalizing on their cheaper metals available to their factories to undersell their U.S.-based competition.

As a result, Mr. Trump decided to tariff some of these final products, too – to erase the advantage created for imports from less expensive steel and aluminum.

So in one sense, it’s tough to blame tariff critics for feeling vindicated about predictions that the metals levies might boost the metals-producing sectors themselves, but injure the far larger metals-using sectors. Ditto for their warnings that in an economy with so many connected industries, protection for one or a few would inevitably spur calls for such alleged favoritism by others, threatening a consequent loss of efficiency for all of manufacturing and even the entire economy.

Examine the issue in more detail, though, and you see that it’s entirely possible to arrive at radically different conclusions. For example, the new tariffs appear to be imposed on a limited set of products, and none of them (e.g., nails, tacks, wires, cables, even aluminum auto stampings) qualifies as a major industry. In other words, the chief metals-using industries, like motor vehicles and parts overall, aerospace, industrial machinery (many of which have been complaining loudly about the metals tariffs, even though their overall operational costs have been barely affected) were left out.

Finally in this vein, and as the critics imply, the new Trump tariffs also make the case for trade curbs on any final products whose significant inputs receive duties. Why indeed strap otherwise competitive domestic producers with higher prices for materials, parts, and components? This practice has been a major flaw in the U.S. trade law system, which has prioritized legal over economic and industrial considerations, since its founding. And in fact, my old organization, the U.S. Business and Industry Council, has been urging this reform since at least 2008.

Even better – to prevent cronyism from influencing such trade policy decisions, impose a uniform global tariff on all manufactures, or all non-energy goods.

But it’s just as important to point out a gaping hole in the longstanding argument that cheap imported inputs (including subsidized, and therefore artificially cheap imported inputs) are essential for the overall global competitiveness of U.S. domestic manufacturing. And the hole has been opened (or perhaps it’s more accurate to say, reopened, given this previous RealityChek analysis of earlier data) by those new multi-factor productivity statistics.

They only go through 2018 (such time lags explain why multi-factor productivity trends aren’t followed as closely as labor productivity trends). But they’re the broader of the two productivity measures, as they gauge the effect of many inputs other than hours worked. And via the table below, they make clear that even the wide open access domestic manufacturers enjoyed to artificially cheap metals and other imported inputs have played absolutely no evident role in improving industry’s health. In fact, there’s reason to conclude that the more access domestic industry had to such materials, parts, and components, the less productive it became.

                                                               Total mfg   Durable goods   fabr metals

1990s expansion (91-2000):                   +23.40%       +38.76%         +4.79%

bubble decade expansion (02-07):          +11.74%      +16.61%          +7.62%

current expansion (10-present):                -4.84%         -0.84%           -4.51%

pre-China WTO (87-2001):                   +22.18%      +37.72%           -3.32%

post-China WTO (02-present):               +6.72%      +17.17%           -2.05%

As usual, the time periods chosen to illustrate these trends consist (with one exception) of recent economic expansions (because they enable the best apples-to-apples comparisons to be made). And the 1990s expansion is the first one examined because the relevant Labor Department data only go back to 1987. The products chosen consist of all manufactured goods, durable goods industries (the super-category containing most of the big metals users), and fabricated metals products (the most metals-intensive sectors of all).

The table demonstrates that multi-factor productivity growth across-the-board has weakened dramatically from the 1990s expansion through the current – ongoing – expansion. The slowdown between the 1990s expansion and the previous decade’s expansion was moderate (and multi-factor productivity actually grew faster during the second in fabricated metals, though in absolute terms its improvement lagged badly). But during the current recovery, multi-factor productivity growth has been replaced in all three instances by multi-factor productivity decline. And crucially, during none of this time did any of these manufacturing categories face any shortage of imported inputs of any kind – subsidized or not.

Indeed, one event in 2001 greatly increased the supply of subsidized inputs – China’s admission into the World Trade Organization (WTO). For once China joined, the difficulty of using U.S. trade law to keep these Chinese products out of the U.S. economy became much greater.

Yet at the same time, as shown below, productivity growth was considerably weaker after China’s WTO entry than before in manufacturing overall, and in durable goods. And although its performance actually improved in fabricated metals, that industry’s performance was much worse in absolute terms.

Nor does the inclusion of the 2007-2009 Great Recession in the post-2002 China-related data (which violates the “apples-to-apples rule”) seem to have been a game changer – because the worst performances of all in each case, and by a mile, have been registered during the current expansion. Moreover, since the data stop in 2018, those current expansion results are dominated by the period preceding both the Trump metals tariffs and the Trump China tariffs (most of which target industrial inputs, as opposed to final products).

It’s entirely possible that, for various reasons, the multi-factor productivity statistics would have been even worse if not for the widespread availability of cheap imports. Or maybe multi-factor productivity isn’t much of a measure of manufacturing’s health? Both alternative explanations, however, seem pretty far-fetched (especially given the pre- and post-China WTO results).

Much likelier – as I argued in that post linked above – the availability of cheap inputs has helped retard productivity growth by enabling businesses to achieve cost-savings without investing in research and development into new products and especially processes, and without buying more efficient equipment (including software).

(What’s Left of) Our Economy: Trump’s Real Wage Record Still Needs More Work

Tags

Barack Obama, inflation adjusted wages, Labor Department, manufacturing, private sector, Trump, wages, {What's Left of) Our Economy

The new after-inflation wage figures released this morning by the Labor Department (that bring the story, preliminarily, through November) show that workers’ price-adjusted take home pay remains a feature of President Trump’s economic record that still needs work.

This conclusion comes through loud and clear from the table below. It shows the real hourly wages changes over various periods of time for all private sector workers (Labor doesn’t track public sector wages, since they’re largely set by politicians’ decisions, and therefore say little about the underlying state of the economy), for private sector “production and nonsupervisory” workers (let’s call them “blue-collar” for short) and for all manufacturing and blue-collar manufacturing workers.

                                                                           All workers      Blue-collar workers

November m/m private:                                      0 percent           +0.11 percent

November m/m manufacturing:                      +0.09 percent           0 percent

November y/y private:                                   +1.11 percent         +1.72 percent

November y/y manufacturing:                       +1.02 percent        +1.81 percent

private 1^st 33 Trump months:                         +2.62 percent        +3.16 percent

manufacturing 1^st 33 Trump months:             +0.46 percent        +2.54 percent

private last 33 Obama months:                      +3.69 percent        +4.07 percent

manufacturing last 33 Obama months:          +3.35 percent       +3.46 percent

private since current recovery onset:             +6.40 percent       +7.24 percent

manufacturing since recovery onset:             +1.40 percent       +2.77 percent

The short-term trends look pretty good. In particular, the difference between the latest annual increase in constant dollar private sector wages (1.11 percent) and the increase during the first 33 months of the Trump administration (2.62 percent) makes clear that the last year has a greater average monthly rate of improvement (0.93 percent) than the entire period (0.79 percent). Therefore, there’s been a modest acceleration in real wage increases. (I consider February, 2017 the current administration’s start month, since President Trump was inaugurated on January 20.)

The picture has been even brighter for blue-collar workers, with the average monthly rates of increase standing at 1.56 percent over the last year and (0.96 percent) for Mr. Trump’s entire term in office.

Price-adjusted manufacturing wages have grown slower so far during this Trump term than private sector wages, but acceleration is evident here, too. In fact, it’s been even faster. For all manufacturing workers, after-inflation wages have risen over the past year by an average of 0.85 percent per month. Since Mr. Trump’s inauguration, though, this rate has been only 0.14 percent.

And although also at lower absolute levels of increase, the wage increase pickup has been greater for manufacturing’s blue-collar workers as well – an average monthly gain of 1.51 percent over the last year versus one of only 0.77 percent for the President’s entire tenure.

So what’s the problem? It’s that this wage performance for all categories of workers pales before that from the best comparable Obama administration period – its final 33 months. And the biggest gap has been in manufacturing, for both the total and blue-collar workforces.

It’s entirely possible, as I’ve noted, that the worse record during the Trump years could be due to employers of all kinds, including manufacturing, being forced during a time of super-low joblessness to start hiring workers they’d have never considered before – because they’d likely be so unproductive, at least at first. It’s also entirely possible that this development will yield big long-term benefits for the entire economy. And if it’s true, this thesis would be terrific news for those new workers at first.

But such fine points are even more likely to be ignored or downplayed during an election year than they are normally. Which means that without major progress in the months ahead, Mr. Trump had better hope that his Democratic rivals ignore the details of the wage figures as thoroughly as the media typically do.

(What’s Left of) Our Economy: The Trade Wars’ Bite on Manufacturing Jobs Looks Deeper

Tags

2020 elections, aluminum, China, Jobs, Labor Department, manufacturing, metals tariffs, metals-using industries, private sector, steel, tariffs, Trade, trade war, wages, {What's Left of) Our Economy

Today’s U.S. jobs report (for September) contained much better news for President Trump and his supporters in terms of the economy’s overall performance than it did in terms of his trade policies. American employment on net rose by a decent 136,000 sequentially last month, and the revisions (which boosted the July and August numbers by a total of 45,000) were especially encouraging.

But payrolls in domestic manufacturing – a sector heavily exposed to trade – shrank month-to-month by 2,000. That decline was the first such dip since March’s 3,000. And despite the big positive revisions in overall employment, manufacturing’s left its modest recent hiring record virtually unchanged.

Worse for the President, manufacturing’s metals-using industries in September continued their worrisome recent transition from employment out-performers for the first half year or so after the first duties on steel and aluminum were levied to employment laggards.

Moreover, although manufacturing employment does face two obstacles having nothing to do with the Mr. Trump’s trade wars – Boeing’s safety woes and the strike that began last month against General Motors – damage from the former isn’t yet evident in the jobs data, and the latter probably began too recently to be showing up in the numbers yet.

The impact of the much broader China tariffs remained as elusive as ever, largely because of the on-again, off-again nature of the President’s policies, along with changes and threatened changes in tariff rates on so many goods. But even if Mr. Trump was a model of consistency on this score, the China levies’ effects would be fiendishly difficult to gauge because manufacturing inputs from China are used so broadly but so unevenly by domestic manufacturers.

By contrast, the trends for the metals-using industries look clear enough. This time, I’ll present not only their employment changes since April, 2018 (the first full month in which the metals levies were in effect) and September, but the same employment changes for an earlier post-tariff period. First, the latest numbers:

                                                   Old thru Aug     New thru Aug      Thru Sept

entire private sector:                  +2.30 percent    +2.31 percent    +2.40 percent

overall manufacturing:              +1.73 percent    +1.73 percent    +1.71 percent

durable goods:                           +2.10 percent    +2.10 percent    +2.05 percent

fabricated metals products:        +1.58 percent   +1.56 percent    +1.36 percent

non-electrical machinery:          +2.19 percent    +2.20 percent   +1.95 percent

automotive vehicles & parts:        0 percent         -0.23 percent    -0.69 percent

household appliances*:               not available     -6.31 percent    not available

aerospace products & parts*:      not available    +8.38 percent    not available

*data are one month behind

The loss of the metals-using sectors’ employment momentum in relative and absolute terms can be easily seen. But the more important comparison is between the above figures and those below, which present these trends for the first 10 months of the metals tariffs.

                                                   Old thru Dec    New thru Dec      Thru Jan

entire private sector:                 +1.37 percent   +1.36 percent   +1.60 percent

overall manufacturing:             +1.45 percent   +1.39 percent   +1.49 percent

durable goods:                          +1.67 percent   +1.72 percent   +1.97 percent

fabricated metals products:      +1.75 percent    +1.57 percent   +1.78 percent

non-electrical machinery:        +2.20 percent    +2.33 percent   +2.57 percent

automotive vehicles & parts:  +0.77 percent     +1.07 percent   +1.15 percent

household appliances*:            not available      -2.21 percent     not available

aerospace products & parts*:   not available     +5.51 percent    not available

*data are one month behind

This table shows that except for the household appliances sector (which has faced a separate, product-specific set of tariffs on large household laundry equipment since February, 2018), and automotive, the metals-using sectors were creating new employment at a considerably faster pace than both the overall private economy and overall manufacturing. And automotive was closing the gap.

Aside from trade, the White House, and everyone seeking the best for the U.S. economy, should also be troubled by the drop in September in the year-on-year manufacturing jobs increase to 117,000. That’s the worst such performance since August, 2017’s 112,000 and less than half the rate of the previous September annual improvement (266,000).

Better news for Trump-ers? Manufacturing job creation during the first 31 months of the Trump presidency is still much better (464,000) than during the last 31 months of former President Barack Obama’s administration (198,000).

Matters look better for the President (and manufacturing workers) on the wages front. Although industry’s pre-inflation hourly pay only inched up on month by 0.07 percent, that result beat the 0.04 percent dip for the overall private sector. (The Labor Department, which tracks the employment and wages figures, doesn’t monitor public sector wages since they’re set largely by politicians’ decisions, not largely by market forces. Therefore, they say almost nothing about the state of the labor market or the economic in general.)

Moreover, this relatively good manufacturing’s wage performance continued a slow relative catch up trend that began this year. Since January, current-dollar private sector pay is up 1.92 percent, versus 2.20 percent for manufacturing workers.

All the same, since the current economic recovery began, in mid-2009, private sector wages have risen by 26.87 percent. Manufacturing’s increase? Only 21.03 percent. And these manufacturing wages rose faster during the last 31 months of the Obama presidency (6.04 percent) than during the first 31 months of the Trump administration (5.53 percent). 

The safest economic conclusion seems to be that manufacturing hiring is hardly in the dumps – as suggested by the latest (also September) soft data from the Institute for Supply Management.  Nor does this looks like a “Tariff-mageddon” is upon us. But manufacturing job creation is also well off 2018’s robust pace, and the more so in major trade-affected industries . And its underlying situation will as more difficult to describe the Boeing and General Motors effects become visible (assuming the auto strike isn’t settled quickly).

But as cautious as that analysis is, the political implications as the 2020 presidential campaign heats up are even murkier. For barring a dramatic change in the manufacturing picture, they’ll depend on voters deciding whether the Trump manufacturing, trade, and overall economic record are good enough.   

Im-Politic: Has Trump’s Record on Real Wages Been Good Enough Politically?

Tags

Barack Obama, China, Im-Politic, inflation-adjusted wages, Labor Department, manufacturing, private sector, real wages, tariffs, Trade, trade war, Trump, wages

Given the on-again-off-again nature of President Trump’s tariff policies (which against China went partly off again yesterday in the form of an announced short delay in the imposition of $250 billion worth of levies originally set for October 1), I figured there was no sense in performing my now-standard analysis of this morning’s new monthly U.S. consumer price inflation figures (for August).

Instead, I’ll focus on today’s inflation-adjusted wage data – which is always released by the Labor Department in tandem with the consumer inflation report –  and here there’s definitely some good news for President Trump, his supporters, and for manufacturing workers. One notable qualification: The shorter the memories of Trump working class voters, the better for his political future.

The table below makes clear what I mean. It shows the price-adjusted wage changes for the last three January-thru-August periods for private sector workers overall, for “blue-collar” private sector workers (that is, those not in management or supervisory positions), for manufacturing workers overall, and for blue-collar workers in general and their manufacturing counterparts. (To remind:  The Labor Department doesn’t track wages for public sector employees, since their pay stems mainly from politicians’ decisions, not economic fundamentals.) 

January thru Aug. real wages                  2019                2018                 2017

private sector:                                 +0.55 percent   +0.75 percent    +0.94 percent

private sector blue-collar:               +1.27 percent   +0.76 percent   +0.76 percent

manufacturing:                               +0.65 percent     -0.19 percent   +0.46 percent

manufacturing blue-collar:            +0.23 percent         0 percent      +1.15 percent

As you can see, manufacturing workers in particular have seen January-through-August constant-dollar wage gains in 2019 that were much better than in the comparable last year – but largely because the 2018 results were terrible. Moreover, for blue-collar manufacturing workers, the 2019 improvement was still much weaker than the 2017 increase. Private sector blue-collar after-inflation hourly wages accelerated year-on-year in 2019 as well, but the 2018 gain was at least identical to 2017’s.

Short blue-collar worker memories will also help Trumpworld if the Obama administration’s real wage record is forgotten. For Mr. Trump’s record trails that of his predecessor for all of these major worker categories (although the advance in inflation-adjusted manufacturing blue-collar wages under both Presidents during comparable periods of their terms in office is pretty similar).

                                                   Last 30 Obama months       First 30 Trump months

private sector:                                  +3.39 percent                      +2.62 percent

private sector blue-collar:               +3.97 percent                      +2.72 percent

manufacturing:                                +3.25 percent                     +0.37 percent

manufacturing blue-collar:              +3.22 percent                     +3.11 percent

Let’s end on a fairly positive note for Mr. Trump and his backers: The table below shows that overall, price-adjusted wages in manufacturing fared better after his tariffs’ advent in March, 2018 (for the most part) than during the pre-tariff phrase of his presidency. Because the two time periods have been of different lengths, I’m presenting the results in terms of average monthly changes in absolute dollars and cents terms.

                                                         Pre-tariffs                            Post-tariffs

Manufacturing:                               -0.31 cents                           +0.50 cents

Blue-collar manufacturing:           +0.85 cents                            +0.75 cents

Again, what these statistics mean for the future of American workers is anyone’s guess, especially in trade-heavy manufacturing, since trade policy decisions seem so ragged. And politically, the key question remains: Have times been good enough for working class and other voters during the Trump era to offset other concerns about his leadership sufficiently to bring him a second term?

(What’s Left of) Our Economy: A Good U.S. Manufacturing Jobs Report – for Trump Trade War Critics

Tags

aluminum, Jobs, Labor Department, manufacturing, metals tariffs, metals-using industries, steel, tariffs, Trade, trade war, Trump, {What's Left of) Our Economy

This morning’s August jobs report from the U.S. Labor Department was mediocre news for the American economy as a whole, but it finally brought some good news for opponents of President Trump’s trade policies. For the new monthly numbers, plus the latest set of benchmark revisions, finally revealed some notable damage to hiring in U.S. manufacturing in industries exposed the longest and most consistently to the tariffs he’s imposed.

Although it’s now gotten just about futile to measure the effect of Mr. Trump’s China policies – because of the on-again-off-again nature of his tariff and tariff threats, and because their future is still so cloudy – the President’s levies on steel and aluminum date from March, 2018 and most have stayed in place. Therefore, we have a solid idea over a respectable length of time over how these measures have affected manufacturing overall – as Trump critics have noted, not simply for the industries that have received trade protection, but for those (collectively much larger) sectors that use the two metals to make their final products.

As RealityChek regulars know, for many months following the metals tariffs’ imposition, these sectors had actually been outperforming not only the rest of manufacturing but the rest of the private sector economy on several fronts. (See, e.g., here and here.)

But the August jobs report makes clear that those days are over, at least for now. Below, as usual, are the figures for these main metals-using sectors since April, 2018 (the first full month in which the metals tariffs were in effect), along with the hiring statistics for two control groups: manufacturing overall, and the private sector overall.

                                                        Old thru July      New thru July      Thru August

entire private sector:                      +2.13 percent     +2.22 percent      +2.30 percent

overall manufacturing:                  +1.69 percent     +1.71 percent      +1.73 percent

durable goods:                               +2.10 percent     +2.10 percent      +2.10 percent

fabricated metals products:            +1.71 percent    +1.69 percent      +1.58 percent

non-electrical machinery:              +2.73 percent    +2.34 percent      +2.19 percent

automotive vehicles & parts:         +0.33 percent    -0.01 percent           0 percent

household appliances*:                   not available    -7.57 percent         not available

aerospace products & parts*:          not available   +8.36 percent         not available

*data are one month behind

As these figures demonstrate, except for aerospace (and oddly, because of Boeing’s safety troubles and their impact on this giant manufacturer’s sales and orders), all of the metals-using sectors are now under-performing the rest of industry and the private sector when it comes to net new job creation. And all except aerospace have displayed weaker relative momentum. (Don’t forget that the appliances totals have been affected not only by the metals tariffs, but by a separate set of product-specific tariffs levied on large household laundry equipment the month before.) 

The policy questions raised are whether these results mean either that Trump should rethink his decision to confront China’s economic and technological predation, or whether he should change tactics. My own answer is “No” in each case, since the stakes of countering China are so great, the losses are still small, and since the economy, manufacturing generally, and the metals-using industries could easily be revived – and strongly – with a big domestic infrastructure building and repair program. But the August jobs report does further undercut the President’s claim that “Trade wars are good, and easy to win.”

Meanwhile, the actual August manufacturing numbers and the revisions are worth examining. August’s 3,000 net monthly gain in manufacturing payrolls was the worst such improvement since May’s 2,000. And the revisions for July were nothing less than stunning: An initially reported 16,000 jobs sequential increase has been downgraded to 4,000 (a result that’s still preliminary). June’s downgrade was smaller – from a 12,000 advance to 10,000. But the initial estimate was 17,000, so the trend looks comparably bad.

Moreover, if the new (preliminary) August figure holds, it would produce the worst year-on-year manufacturing jobs performance (up 138,000) since September, 2017 (123,000). Last August’s year-on-year manufacturing employment advance, moreover, was nearly twice as strong – 256,000.

That July revision was so big that it could justify some hope that subsequent reevaluations will generate significantly upside surprises. President Trump, moreover, can still brag that manufacturing job creation during his first thirty months in office (up 467,00, or 3.77 percent since February, 2017) has considerably exceeded that of former President Obama’s final thirty months (up 179,000, or 1.47 percent). But hopes are just that. And many more months like the last few, and the Trump manufacturing jobs record will start looking awfully similar to that of his predecessor – both economically and politically.

(What’s Left of) Our Economy: A Big Fade for Tariffs-Led Consumer Inflation

Tags

aluminum, China, inflation, Labor Department, metals tariffs, metals-using industries, steel, tariffs, Trade, Trump, {What's Left of) Our Economy

Well, that was fast. Last month, when the Labor Department’s consumer price data came out (for June), I observed that they revealed some tariff-led inflation – especially in goods categories that by all rights should be affected by the duties on steel and aluminum that President Trump imposed in March, 2018.

(More such evidence appeared in categories in which tariffs have been placed on Chinese imports. But as continually noted, because of several complications – e.g., shorter duration, great variations in metals-intensity, data classification issues – these results should be considered much less reliable than the metals tariffs statistics.)

Yet this morning’s new consumer price data, for July, shows a significant fade in tariff pricing pressures for the metals users. Part of the reason no doubt is the lifting of the metals tariffs on imports from Mexico and Canada. But they were removed only in late May, so it’s difficult to believe that this decision deserves most of the credit.

Here are the price increases for metals-using industries between June and July, since April, 2018 (the first full month in which the duties were in place), and the year-on-year figures for this June and July. Also included, as always, are statistics for various control groups of goods, including so-called “core inflation” (which strips out volatile food and energy prices), and for the foods and beverages that are sold in metal cans outside of these containers:

                                 June-July      Since April, 2018      y/y June            y/y July

core inflation:      +0.29 percent      +2.79 percent     +2.13 percent   +2.21 percent

fresh fruits           +0.60 percent      +1.67 percent     +0.86 percent   +0.33 percent

  & vegs:

fresh fruits:             0 percent           -1.55 percent      -1.85 percent    -2.74 percent

fresh vegs:           +1.28 percent       +5.49 percent    +4.09 percent   +3.96 percent

processed             -0.68 percent        +0.04 percent    +1.70 percent   +1.45 percent

  fruits & vegs

canned fruits:       -1.56 percent        +2.30 percent    +3.93 percent   +2.87 percent

  & vegs

canned fruits:       -0.44 percent        +0.99 percent     +2.02 percent  +1.89 percent

canned vegs:         -2.33 percent       +3.28 percent     +5.28 percent  +3.13 percent

soups:                   -0.18 percent       +0.28 percent     +0.30 percent   +0.04 percent

malt bevgs           +0.72 percent       +3.13 percent     +1.69 percent   +2.58 percent

  at home:

alcoholic bevgs   +0.38 percent       +1.90 percent     +1.05 percent   +1.43 percent

  away from home:

non-frozen, non-  -0.05 percent       +2.99 percent     +2.71 percent   +2.33 percent

  carbonated non-

  alcoholic rinks:

carbted drinks:      -0.47 percent      +3.39 percent     +3.15 percent   +3.14 percent 

juices & non-        -0.23 percent      +3.11 percent     +2.86 percent    +2.62 percent

  alcoholic drinks

new cars/trucks:    -0.19 percent     +1.17 percent     +0.58 percent    +0.34 percent

motor vehicle        -0.51 percent     +2.07 percent     +1.91 percent    +1.42 percent

  parts:

appliances:            -0.83 percent      +2.00 percent    +2.56 percent    +0.62 percent

major                     -0.98 percent      +4.13 percent    +2.94 percent     -0.75 percent

  appliances:

laundry                     0 percent          +2.83 percent    -3.98 percent     -4.63 percent

  equipment:

non-electric         -1.78 percent          -5.14 percent    -1.94 percent    -2.94 percent

  cookware & tableware:

tools, hardware,  +0.62 percent        +0.83 percent    +1.06 percent   +1.35 percent

  outdoor equipment:

The waning of inflationary pressures can be seen by comparing the core inflation rate since the advent of the metals tariffs with the inflation rates of the metals-using industries.

The latest data show that prices rose faster than that core rate in only six of the sixteen metals-using categories shown. Moreover, in four of these categories (beer and other malt beverages consumed at home; non-frozen, non-carbonated, non-alcoholic drinks; carbonated drinks; and all juices and non-alcoholic drinks), the results need to be treated with caution, since these products are also sold in non-metal containers.

The previous month’s data showed that prices rose faster than core inflation in ten of these metals-using categories – with the results in three complicated by the use of non-metal containers.

That total in turn was up from the nine of sixteen instances of relatively strong inflation in metals-using industries in both February and March (with the non-metal container issue muddying the waters for four of those nine categories in February and three in March).

As for the China-related evidence, I’m hesitant to examine it for the time being not only because of the aforementioned data issues, but because U.S. policy has changed so dramatically in the last few weeks – with the President in early August threatening ten percent tariffs by September 1 for a $300 billion tranche of imports from China that would have been dominated by consumer goods, and then today postponing their imposition until December 15 (or until a satisfactory bilateral trade deal is struck).

Nonetheless, the metals tariff-related data shows that inflation for these levies so far has never been especially strong (except, for a time, in large household laundry equipment – which had faced separate, product-specific duties since February, 2018), and whatever strength it’s shown, hasn’t lasted very long. (In fact, even for those laundry machines, the table shows that their super-charged price hikes are now turning into super-charged price drops.)

And of course, as Breitbart.com‘s John Carney keeps pointing out, the economy’s overall weak rate of inflation means that even when tariffs have pushed prices up, many other forces have been pushing other prices down.  (Further, these low overall inflation rates almost by definition mean that price pressures from the existing China tariffs can’t be impressive, either.)

That’s not to say that Mr. Trump’s trade policies therefore can’t be hurting the U.S. economy in other ways (although the evidence to date here is also pretty feeble). And it’s entirely possible that the widely tariff-mageddon could still hit Americans on a variety of fronts if the trade war with China in particular lasts long enough. But inflation claims have always been central to the Trump trade critics’ case, as made clear by how quickly #tariffsaretaxes became a hashtag, and how it’s persisted. And if the critics have been wrong on this crucial score, why should anyone be confident in any of their other predictions?

(What’s Left of) Our Economy: U.S. Manufacturing’s Productivity Lag Keeps Worsening

Tags

Labor Department, labor productivity, manufacturing, multi-factor productivity, non-farm business, productivity, {What's Left of) Our Economy

They’re not as exciting as the trade data and the jobs data these days. In fact, they rarely generate any excitement. And this year, they had the misfortune of coming out on the 75^th anniversary of D-Day. All the same, last Thursday’s second set of government figures on labor productivity for the first quarter of this year matters because it strengthened the case for a disturbing trend: Although this measure of efficiency – and indirectly, success in fostering healthy growth and sustainably rising living standards – confirmed the initial encouraging results for the economy as a whole, manufacturing’s laggard status looks worse than ever..

As RealityChek regulars know, the labor productivity measured in last week’s report is the narrower of the two productivity gauges regularly published by the Department of Labor. As opposed to multi-factor productivity, which measures how much in the way of a variety of business inputs is needed to generate a unit of output, labor productivity only tells us how much each hour of work put in by an employee achieves that result. But the labor productivity figures come out on a timelier basis, so they’re understandably watched closely.

The release’s headline figure confirmed the solid labor productivity gain originally reported for the first quarter in the “non-farm business” sector – the Department’s definition of the American economic universe when it comes to productivity. Although the 3.4 percent annualized sequential rate of improvement was a little slower than the first 3.6 percent estimate, it remained the best such result since the 3.7 percent recorded for the third quarter of 2014. Moreover, it still left labor productivity growth accelerating since the third quarter of last year.

For manufacturing, however, the first quarter’s sequential labor productivity increase was revised way down – from a pretty good 1.7 percent to a dismal 0.4 percent.

Even worse, whereas non-farm business productivity improved because both output and hours worked rose (the productivity gain recipe we want to see), the much smaller increase for manufacturing stemmed from hours worked dropping even faster than output (the productivity gain recipe we don’t want to see).

As a result of this poor manufacturing performance, the labor productivity gap between industry and the rest of the economy has been widening – and not in a good way for industry. Here’s an updated table showing the total labor productivity gains for non-farm businesses and for manufacturing during the two previous economic expansions and the current expansion (in order to ensure apples-to-apples comparisons).

                                                               Non-farm business       Manufacturing

1990s expansion (2Q 1991-1Q 2001):     +23.74 percent         +45.86 percent

bubble expansion (4Q 2001-4Q 2007):    +16.59 percent        +30.23 percent

current expansion: (2Q 2009 to present): +12.18 percent          +9.59 percent

It’s worrisome enough that the non-farm business increases have been decelerating since the 1990s expansion. But the extent of the manufacturing slowdown has been nothing less than shocking. Indeed, during the current recovery, manufacturing has clearly lost its labor productivity leadership status – and by a considerable margin.

Alternatively put, even though the 1990s expansion and the current expansion have lasted roughly the same amount of time, the rise in non-farm labor productivity during this recovery has been only about half as fast, and that for manufacturing only about a fifth as fast.

American manufacturing has shown some important signs of revival under President Trump – especially in job creation and output (at least until recently). But whatever the results of Mr. Trump’s trade wars, unless its labor productivity performance improves dramatically, its comeback will remain sorely incomplete.

(What’s Left of) Our Economy: U.S. Jobs Report Again Shows Evidence of Tariffs Damage

Tags

China, Jobs, Labor Department, manufacturing, manufacturing jobs, metals tariffs, metals-using industries, tariffs, Trade, Trump, {What's Left of) Our Economy

A speaking engagement yesterday prevented me from posting promptly on that morning’s monthly U.S. jobs report (for May), but after crunching the numbers, two conclusions come through loud and clear. First, the overall results added up to a total stinker. And second, like last month’s release, they contained more evidence that President Trump’s tariff-centric trade policies are taking a toll on hiring in manufacturing.

As with economy-wide (“non-farm”) hiring in May, manufacturing employment creation in general grew weakly – and for the fourth straight month. Industry’s payrolls rose by a measly 3,000 on month in May. The revisions, meanwhile, left the discouraging situation basically intact, as April’s previously reported 4,000 net sequential job gain was upgraded to 5,000, but March’s former flatline is now judged to have been a 3,000 net monthly job decrease.

As usual, however, when it comes to the trade policy implications, the results that count are those in manufacturing sectors actually significantly affected by trade policy moves like Mr. Trump’s tariffs. First let’s examine industry’s major metals-using sectors – both the necessary data for these industries goes back to April, 2018 (the first full month when these levies were in effect) and because the industries themselves are much easier to identify.

Here are the figures for these sectors’ employment changes between that month and this past April (both the originally reported numbers and today’s revisions), and between April, 2018 and May, 2019. (All these results, incidentally, are still preliminary.) Serving as control groups are the results for the entire private sector in the United States, for all of manufacturing, and for the durable goods super-sector (where all the main metals-using industries have been found).

                                                    Old thru April   New thru April   April Thru May

entire private sector:                  +1.79 percent     +1.93 percent      +2.00 percent

overall manufacturing:              +1.58 percent     +1.60 percent      +1.62 percent

durable goods:                           +1.92 percent     +1.94 percent      +1.99 percent

fabricated metals products:       +1.82 percent     +1.71 percent      +1.65 percent

non-electrical machinery:         +2.68 percent     +2.52 percent      +2.64 percent

automotive vehicles & parts:    +0.42 percent     +0.20 percent     + 0.48 percent

household appliances:               not available       -4.57 percent       not available

aerospace products & parts:      not available      +7.02 percent       not available

The pattern is clear. Even in metals-using sectors that had been outperforming the overall private sector and overall manufacturing in absolute terms, hiring momentum has waned. Moreover, it’s recently been slackening at a faster rate than evident in those larger sectors. That’s clear from the narrowing of the gap that can generally be seen between the employment increases in the metals-using sectors and the broader parts of the economy.

The impact of the China tariffs remains a puzzle, though, because they’ve been in place for a briefer period of time, and because the industry classification system used by the Trump administration in developing its tariff lists is different from the system used by the Labor Department to track employment changes. In addition, the level of China content of domestic manufactured goods can vary considerably, meaning that the impact of the tariffs can vary just as considerably.

Nevertheless, some exact and reasonably close matches can be identified, and, at least through April (the latest month for which data are available for the specific sectors below, which are narrower than those in the table for metals-using industries), the same relative hiring weakness can be seen. That is, job creation in the China tariffs-affected sectors has been growing more slowly than job creation in the private sector in toto, or in manufacturing overall. This trend is visible even in sectors that have greatly bested the private sector and manufacturing control groups in absolute levels of job creation.

                                   July-March    Old July-April   New July-April    July-May

private sector:         +1.23 percent   +1.44 percent    +1.39 percent    +1.46 percent

overall                   +0.98 percent  +1.03 percent     +1.02 percent     +1.04 percent  

   manufacturing:

aircraft engines       +1.39 percent    not available    +1.51 percent    not available

   and engine parts:

industrial heating   +2.46 percent     not available    +1.45 percent    not available

    equipment:

oil & gas drilling   +5.83 percent      not available   +5.02 percent    not available

    platform parts:

farm machinery     +1.67 percent      not available   +0.17 percent     not available

    & equipment:

ball bearings:        +1.82 percent       not available   +1.54 percent     not available

These results don’t mean that the Trump tariffs, as some keep predicting, are going to throw the American economy into recession, much less that if they do start biting significantly, that they won’t be a price worth paying for overhauling decades of boneheaded, offshoring-friendly, national security threatening (especially in the case of China) trade policies. In fact, they don’t even add up to evidence that the levies are biting significantly now.

But empirical evidence of some damage is finally emerging, at least on the jobs front, and it should be seen as a warning to tariff supporters – including the President – to stop insisting that the current trade wars will entail no costs or need for sacrifice whatever.

(What’s Left of) Our Economy: Is the Middle Class Killing It Under Trump?

Tags

average hourly earnings, Barack Obama, ECI, election 2020, Employment Cost Index, hourly earnings, Labor Department, middle class, salaries, Trump, wages, working class, {What's Left of) Our Economy

Is the economy under President Trump producing outsized wage gains for working- and middle-class Americans, as the chief executive claims? Or have his policies betrayed the workers who gave him so many votes in the 2016 race for the White House, as his critics charge?  (See this piece for typical views from both vantage points.) 

The latest data say loud and clear that there’s some evidence that every day Americans are faring better in the Trump years. But it’s far from a slam dunk.

The first set of figures comes from this morning’s Employment Cost Index (ECI), a quarterly measure of worker compensation trends published by the Labor Department and the second is the Department’s newest monthly wage numbers.

One complication that emerges right away is that the middle class and the working class are two different groups each of whose composition is anything but homogeneous and each of whose definitions can vary widely. For example, manufacturing includes employees at opposite ends of the skills and therefore wages levels. And managers in numerous service industries earn pretty modest  salaries. (See, e.g., here.) Moreover, don’t forget gaping gaps among different regions of the country. In many major metropolitan areas, families earning six-figure incomes arguably are hard-pressed financially.

In this post, I try to distinguish between “the rich” and the rest by comparing trends for managerial and executive-type workers on the one hand (including professionals and keeping the above qualifications in mind), and non-supervisory workers on the other. As usual with compensation reports, I exclude government workers, because their wages, salaries, and benefits stems from politicians’ decisions, as opposed to the private sector, where compensation has much more to do with the economy’s fundamentals. And in the first table below, presenting calculations from the ECI data, I zero in on wage and salary costs. The reason? The ECI doesn’t directly measure what workers’ receive – instead, it gauges various costs businesses incur to keep them on their payrolls. And unlike benefits costs, wage and salary costs are much likelier actually to wind up in workers’ pockets.

What’s presented here is a number that shows the degree to which increases in wages and salaries for various classes of workers have been rising at a faster or slower pace (or actually fell) between the last nine quarters of President Obama’s administration and the first nine quarters of President Trump’s administration. (I chose these periods because they’re as close as possible to each other in the nation’s current economic cycle.) Call this figure the “wage and salary acceleration rate.” So for example, if a group of workers’ wages and salaries grew by 10 percent during the Obama period used and by 15 percent during the Trump period, the acceleration rate would be 50 percent.

And just FYI, I identify the last quarter of 2016 as Mr. Obama’s final full quarter, and the first quarter of 2017 as Mr. Trump’s first full quarter (since he took office on January 20).

Obama-Trump acceleration rate

All workers: +31.09 percent

Management/professional/related: +15.05 percent

Management/business/financial: -15.78 percent

Professional & related: +32.06 percent

Office/admin support: +15.51 percent

Construction/extraction/ +9.05 percent

farming/fishing/forestry:

  installation/maintenance/repair: +25.57 percent

Production/transportation/ +25.55 percent

  material moving:

Production: +18.26 percent

Transportation & material moving: +33.33 percent

To me, these result are a wash, in large part because the spreads between the results for the second, third, and fourth categories (the upper income categories) and those for the remaining, lower income categories are both pretty wide. Interestingly, only one group within each of these broad categories beat the workforce average of 31.09 percent – professional and related workers, and transportation and material moving workers.

The second table, presented below, compares the hourly earnings (including salaries calculated on an hourly basis) Obama-Trump accelerators for the entire private sector workforce, and for the non-supervisory portion of that workforce. Because these data come out monthly, the two time periods are the final 26 months of the Obama administration (ending in December, 2016) and the first 26 months of the Trump administration (starting in January, 2017).

These results look more clear-cut, with hourly pay for the non-supervisory workers increasing faster during the Trump presidency so far than during the final slightly more than two years of the Obama presidency.

Obama-Trump acceleration rate

All workers: +20.54 percent

Non-supervisory workers: +27.16 percent

As election 2020 so far makes clear, inequality and middle- and working-class-related trends are shaping up as major campaign issues. So far, the bottom line is that neither backers or opponents of President Trump deserve to make major political hay of them.