Following Up: More on Those Great New U.S. Manufacturing Jobs Figures

Tags

Following Up, inflation-adjusted wages, Jobs, Labor Department, manufacturing, real wages, Trump, wages

Friday’s post focused on what the new U.S. jobs report that morning (containing December data) revealed about the Trump tariffs’ impact so far on domestic American manufacturing. (Overwhelmingly, they’ve done no harm.) But it’s also worth noting other industry-related highlights of this Labor Department release – and highlights they were.

First, the headline figure (32,000 net new manufacturing jobs created on-month in December) was the best such performance since last December’s 39,000. And the total revisions for October and November together added 3,000 jobs to the results for those two months. (The November and December figures are still preliminary. Further, starting next month, the Labor Department will start publishing revisions of the key data back to January 2014 – which will further change yesterday’s findings.)

Partly as a result of the last few months’ numbers, 2018 stands preliminarily as the best year for U.S. manufacturing job creation (284,000) since 1997 (304,000). The previous December-to-December manufacturing employment gain was 209,000.

Also, manufacturing jobs as a share of total non-farm jobs (the Labor Department’s definition of the total U.S. employment universe) rose to just under 8.55 percent – their highest level since July, 2016 (8.56 percent). At the start of the Trump administration (February, 2017 was its first full month in office), this figure stood at 8.49 percent. In other words, manufacturing payroll growth has been faster than overall payroll growth under President Trump.

Even so, manufacturing’s prior relative employment creation has been so weak that the sector still remains a laggard on this front for the recovery era as a whole.

Since bottoming out in February and March of 2010, manufacturing has regained 1.389 million (60.58 percent) of the 2.293 million jobs it had lost during the Great Recession and its aftermath. Overall private sector employment sank by 8.785 million during the downturn, but since then has regained 20.608 million jobs.

Manufacturing keeps trailing the overall private sector on the pay front, too. In December, pre-inflation manufacturing wages rose by 0.26 percent – considerably slower than the overall private sector’s 0.40 percent.

Year-on-year, current-dollar manufacturing wages are up by 1.98 percent – their best such performance since September, 2017 (2.18 percent). Between the previous Decembers, manufacturing hourly pay before inflation has advanced by 1.75 percent. But overall current-dollar private sector wages improved by 3.15 percent year-on-year in December.

In fact, since the current recovery began, in mid-2009, pre-inflation manufacturing wages have improved by only 18.60 percent. Overall private sector wages are 24.12 percent higher.

Moreover, the gap has been widening. The above figures show that, as of the latest data, private sector wages had grown 29.68 percent faster than manufacturing wages. As of the previous December, the difference was 24.80 percent.

Manufacturing’s pay performance looks even worse after adjusting for inflation. The latest data are from November – when manufacturing’s sequential increase (0.37 percent) actually topped that of the private sector (0.19 percent). (December’s won’t be published until the middle of this month.) But the November figures also show that, whereas private sector wages inched up year-on-year by 0.84 percent, manufacturing paychecks actually dipped by 0.27 percent.

Indeed, real manufacturing wages are cumulatively down by that amount since February, 2016 – meaning that, technically, they remain mired in a long recession (two or more date quarters of net deterioration).

Moreover, during the current economic recovery, inflation-adjusted manufacturing wages have risen less than a tenth as fast (0.47 percent) as private sector wages (4.95 percent). And the gap has widened significantly over the past year, when it stood at a 0.75 percent real wage increase for manufacturing versus a 4.07 percent rise for the private sector overall.

Advertisements

(What’s Left of) Our Economy: Tariff-Led U.S. Inflation Remains Mythical

Tags

aluminum, appliances, beer, cans, Emily Rauhala, inflation, Labor Department, laundry equipment, metals, metals-using industries, Producer Price Index, steel, tariffs, Trade, Trump, Washington Post, wholesale prices, {What's Left of) Our Economy

Talk about bad timing! Yesterday, the Washington Post ran a piece by Emily Rauhala, who covers Canada and other foreign news for the paper, on how soaring tariff-juiced aluminum prices are already “bruising” the American beer industry. According to her report, “In a vivid example of how Trump’s trade tactics abroad can hurt business at home, the U.S. beer industry, which needs aluminum to make cans, is seeing costs rise.”

But this morning, the U.S. Labor Department came out with data showing that, although prices for aluminum (along with steel, another tariff-ed metal) have jumped from last October to this past October, they’re now actually starting to fall. And special bonus! The same trend seems to be holding for household laundry equipment.  Product-specific tariffs boosted prices for a time, and generated big headlines, but now the price are falling back to earth.

The new Producer Price Index (which measures price changes at the wholesale level) reports that “aluminum mill shapes” last month cost buyers 8.2 percent more than they did in October, 2017. But since July, they’ve dropped on a monthly basis by 2.1 percent, 0.3 percent, and 0.4 percent.

Further, it’s important to remember that, as with steel and the laundry machines, last year’s prices were artificially depressed by foreign dumping. In other words, these prices were set by foreign governments determined to grab market share for their producers at the expense of their American-based rivals. They had nothing whatever to do with market forces.

The statistics for “steel mill products”? Between October, 2017 and October, 2018, prices did indeed surge by 18.2 percent. But the monthly numbers since July reveal price changes of +2.6 percent, zero percent, and -0.8 percent.

Also significant: In lots of metals-using industries, there are no major year-on-year price increases at all. These include hardware, plumbing fixtures, turned products (like bolts and nuts and screws), metal valves, ball bearings, auto parts, aircraft parts, and aircraft engines and parts (which are tracked separately).

The price data for household appliances are found in a another of today’s Labor Department tables, and don’t separate out laundry equipment from other appliances where no special tariffs were applied. But they strongly indicate that any producers thinking they’d gain major pricing power from these levies were utterly delusional.

From October, 2017 through last month, prices in this category were up only 3.3 percent. And the last three months’ worth of sequential changes? Down 0.1 percent, up 1.3 percent, and down 0.7 percent. Think we’ll see this development  generate any headlines?

As with investing, past performance doesn’t always predict future results. But it’s not bupkis, either. At some point, President Trump’s tariffs may indeed supercharge U.S. inflation. To date, however, trade-related inflation reports at best deserve the warning, “Let the buyer beware.”

(What’s Left of) Our Economy: No Signs of Tariff-Led Consumer Price Inflation, Either

Tags

automotive, beer, canned goods, consumer price index, CPI, inflation, Labor Department, Producer Price Index, tariffs, Trade, Trump, washing machines, wholesale prices, {What's Left of) Our Economy

Honestly, I hate to bombard everyone with official U.S. government data showing that President Trump’s tariffs so far have done exactly zero damage to the U.S. economy, contrary to upteen claims. Except official U.S. government data keeps showing that President Trump’s tariffs so far have done exactly zero damage to the U.S. economy, contrary to upteen claims.

Two days ago, this conclusion was borne out by the Labor Department’s latest report on price changes faced by businesses (measured by the Producer Price Index). Yesterday, the same message was sent loud and clear by the Department’s latest report on price changes faced by consumers (measured by the Consumer Price Index), which take the story up to September.

Since Mr. Trump’s first tariffs on imports from China didn’t go into effect until late August, not enough time has passed to assess their impact. But new American levies on steel and aluminum began to be collected in late-March. In addition, separate tariffs have been imposed on imports of large home washing machines since February. So this post focuses on price changes in sectors that use lots of steel and aluminum – the very sectors of course that have complained loudest about the tariffs. And it will present some seasonally adjusted and non-adjusted figures, because the only year-on-year data provided are unadjusted.

First, the main overall results for the Consumer Price Index for All Urban Consumers (not the only U.S. government measure of inflation at the retail level, but one that’s widely cited and that the Labor Department emphasizes). Between August and September, the overall CPI was up 0.1 percent on both adjusted and unadjusted bases. Year-on-year on year, these September prices rose by 2.3 percent (again, on an unadjusted basis).

Most students of the economy more closely follow the so-called “core CPI,” which strips out food and energy prices because of their volatility. But they weren’t much different from the overall CPI results. Between August and September, the core CPI increased by 0.2 percent on an unadjusted basis, by 0.1 percent on an adjusted basis, and on year by 2.2 percent (adjusted).

So these numbers don’t exactly scream “Raging inflation!” But what about products with lots of steel and/or aluminum? In most cases, prices went up considerably less than overall prices and core prices, and especially year-on-year – which provides the best indicator of trends over time.

Take new motor vehicles. Their September year-on-year price increase has been just 0.5 percent – less than a quarter the rate of core inflation. And on both adjusted and unadjusted basis, they were down between August and September – by 0.1 and 0.3 percent, respectively. Don’t forget: Both the adjusted and unadjusted monthly figures show that core inflation rose in September.

Take canned fruits and vegetables. Year-on-year, their price is up 1.9 percent as of September – nearly the rate of core inflation and overall inflation. But look beneath the hood: Most of those higher prices were generated by canned vegetables, which were 3.2 percent more expensive this September than during the previous September. So it sounds very much like the price hikes had little to do with cans made more expensive by more expensive metals.

On a sequential basis, the price changes in canned fruits and vegetables seem to make the tariff-induced inflation claims look more convincing. When seasonally adjusted, in particular, prices for the group rose by 0.7 percent in September – much faster than the overall or core consumer inflation rates. But look even more closely at that line item, and you’ll find a footnote making clear that the size of the sample on which the figure is based is “substantially smaller” than the norm. So presumably its reliability isn’t sterling.

Because the CPI data don’t distinguish between canned beer, soda, and soup, and the uncanned varieties, the impact of higher metals prices on these foods is tougher to figure out.

For example, for carbonated drinks, September year-on-year prices rose by 2.1 percent – again, close, but not quite at the overall CPI rate. And of course, many of these drinks are sold in bottles as well. Both the adjusted and unadjusted monthly September consumer inflation rates for these drinks were actually a good deal higher than the overall rate – 0.3 percent and 0.6 percent, respectively. But how many of the drinks surveyed were cans?

The same question arises for beer. The Labor Department distinguishes between suds consumed at home and away from home. For beer (and “ale and other malt beverages”) drunk at home, prices rose in September at an annualized 1.1 percent – less than half the overall inflation rate. On an adjusted and unadjusted basis on month in September, the increases were greater – 0.5 percent and 0.7 percent, respectively. Indeed, they were both greater than the comparable overall inflation numbers. But what was the can-bottle ratio?

For these malt beverages consumed away from home, the annual September price increase was twice as great as for home-consumed drinks in the beer category (2.2 percent). But the monthly increases were in the same neighborhood as for beer etc drunk at home – 0.5 percent adjusted and unadjusted. And there’s still that can-bottle puzzle.

Therefore, there’s no reason to think that price for canned produce and beer-type drinks are rising through the roof due to the metals tariffs.  The case for tariff-led inflation is even weaker for soups – many of which are canned but some of which are powdered or otherwise dried. On-year, their prices were down by 3.8 percent. On month, prices also dropped on both adjusted and unadjusted bases – by 1.4 percent and four percent, respectively. So if anything, prices for soups are deflating.

And finally, let’s take those washing machines. Year-on-year, their September prices rose by a robust 10.6 percent. But the latest figures show that the pricing trend has actually shifted into reverse.  On month, washing machine prices were down by 1.9 percent on an unadjusted basis and by fully 3.8 percent on an adjusted basis.  Moreover, the rate of monthly price drops has been speeding up.  So although producers tried to jack up prices in response to the tariffs, they’re failing to make those price hikes stick.   

As for the future, who knows? But the tariff-led inflation alarmists still haven’t answered this crucial question: If business thinks it will have great scope to boost prices after tariffs are imposed, why isn’t it raising those prices right now? That is, why will companies have the major extra pricing power on Tariff Day Plus One that they will have lacked up until Tariff Day Minus One?

Once that question is answered, tariff alarmism will start looking highly plausible, even if no tariff-led inflation is visible yet. But not one day before.

(What’s Left of) Our Economy: More Dreary U.S. Real Wages Results – & Manufacturing’s Long Pay Recession Continues

Tags

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

Today’s September real wage figures from the Labor Department show that, by this measure, Americans’ take-home pay advances remain surprisingly sluggish even as the official unemployment rate has reached recent historical lows, and that inflation-adjusted wages in manufacturing remain in a technical recession that began in January, 2016.

On a monthly basis, constant dollar hourly pay in the private sector rose by 0.28 percent – the best such performance since March (when the rate was fractionally higher). The initially reported August sequential increase of 0.09 (which is still preliminary) was unrevised. (Like the Labor Department, I don’t try to track real wage trends in the public sector because that compensation is based largely on politicians’ decisions, not economic fundamentals.)

Year-on-year, the private sector’s after-inflation wage change wasn’t anything to write home about, either. Such pay was up by only 0.46 percent. On the one hand, that number represented the strongest annual growth since January’s 0.66 percent. On the other hand, it was lower than the increase between the previous Septembers – 0.56 percent.

As has long been the case, manufacturing’s pay numbers were far weaker. On a monthly basis, its real wages dipped by 0.09 percent. As a result, constant dollar wages in the sector are now 0.28 percent lower than they were in at the beginning of 2016 – a 32-month stretch that more than qualifies as a technical recession – a period of two or more consecutive quarters of cumulative decline. In addition, the real manufacturing wage flat-line between July and August was unrevised.

The dimensions of manufacturing’s wages woes are also clear from the year-on-year results. In September, the sector’s real wages were down 0.92 percent from the previous September’s level. And that wasn’t even manufacturing’s worst such performance in recent months. Between September, 2016 and 2017, real manufacturing wages decreased by only 0.09 percent.

To add insult to injury, since the current economic recovery began – more than nine years ago, in mid-2009 – real private sector wages have risen by a far-from stellar 4.85 percent. Yet even such a meager advance is more than 25 times faster than the after-inflation wages growth for manufacturing – a rounding error-like 0.19 percent.

P.S. Somewhat disturbing for President Trump and Republicans generally – these are the last real wage figures that will be released before next month’s midterm elections.

(What’s Left of) Our Economy: Metals Tariffs Damage Still Showing Up Everywhere Except the Data

Tags

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

This morning’s September U.S. jobs figures from the Labor Department once again expose as nonsense the long string of news reports claiming that President Trump’s metals tariffs are already causing tremendous damage to American domestic metals-using industries

As with preceding jobs reports, and other official economic data (such as output and capital spending statistics), the new non-farm payrolls reading makes clear that most of the sectors that are major users of the two tariff-ed metals – steel and aluminum – are more than holding their own on the employment front. In fact, most are out-hiring not only the rest of manufacturing. They’re out-hiring the entire private sector.

And although harm may come in the future, these jobs figures place burden of proof on the pessimists. After all, if, as often noted, many metals purchasing contracts are locked in – for, say, six- or twelve-month periods – why would metals users keep hiring robustly if they were certain they’d face devastating price hikes down the road?

So here are the latest numbers showing the relevant rate of employment changes from April (the first full months in which the metals tariffs were in effect) through July (the newest final – for now – data), through August, and through September:

                                                 through July        through Aug.         through Sept.

entire private sector:              +0.47 percent        +0.67 percent       +0.76 percent

overall manufacturing:          +0.52 percent        +0.56 percent       +0.70 percent

durable goods:                       +0.68 percent        +0.75 percent       +0.96 percent

fabricated metals products:    +0.91 percent        +1.19 percent       +1.44 percent

non-electrical machinery:       +1.23 percent       +1.14 percent       +1.29 percent

automotive vehicles & parts:   -0.31 percent        -0.15 percent         -0.19 percent

household appliances :             -0.31 percent       -0.16 percent          not available

aerospace products & parts:    +2.11 percent      +2.54 percent          not available

There continue to be shifts within this list. But what’s also important to note is that even though the metals tariffs have been broadened overall in scope, as countries such as Canada and Mexico had initially received exemptions, the metals-using sectors out-performed as job creators by roughly the same margins in September as in July.

The next major data set that will spotlight the metals-using sector’s performance will be the September industrial production data that the Federal Reserve will release on October 16. They may reveal a major turnabout in the metals-using industries’ fortunes. But unless they do, a heavy burden of proof will remain with the tariff opponents to come up with any serious reasons to think that the new levies are economic losers – or even close.

(What’s Left of) Our Economy: An End to the Private Sector’s Real Wages Recession, but Manufacturing’s Drags On

Tags

inflation-adjusted wages, Labor Department, manufacturing, private sector, real wages, technical recession, wages, {What's Left of) Our Economy

The inflation-adjusted wages situation in the United States has gotten so bad that the only good news contained in this morning’s Labor Department report on the subject was that real private sector hourly pay has now flat-lined since July, 2017. It’s good news because it means that in August its workers exited a real wage recession (a cumulative decline lasting two quarters or more) that they’d experienced starting last July.

Otherwise, by this key measure, American workers’ paychecks remained in the doldrums. For the private sector, constant dollar wages inched up by 0.09 percent between July and August, and year-on-year, they rose by only 0.19 percent. Between the previous Augusts, real private sector wages had increased by 0.65 percent.

Moreover, since the current economic recovery began – more than nine years ago – inflation-adjusted private sector wages have advanced by a mere 4.56 percent.

All the same, these pay improvements have been positively roaring when compared with developments in manufacturing. American industry remained in its real wage recession in August, with price-adjusted hourly pay down by 0.19 percent since January, 2016.

On a monthly basis, real manufacturing wages were flat in August, and year-on-year, they fell by 0.92 percent. Real manufacturing wages were off from August, 2016-August, 2017 as well, but by a mere 0.09 percent.

Perhaps worst of all, over the current nine-plus year old economic recovery, constant dollar manufacturing wages have risen by only 0.28 percent – less than a fifteenth as fast as real private sector wages.

(What’s Left of) Our Economy: Still No Evidence of Noteworthy Inflation from Metals Tariffs

Tags

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

Another day, another set of U.S. government data showing that, so far, claims that President Trump’s metals tariffs are devastating steel- and aluminum-using industries and triggering virulent inflation have no basis in fact other than a few anecdotes.

The latest figures come from the Labor Department and they show changes in the nation’s producer prices – that is, inflation (or the lack thereof) in what businesses pay for the goods and services they buy in order to turn out their final products, as opposed to inflation in the prices that consumers pay for their own purchases.

Conveniently, the monthly Producer Price Index (PPI) release comes with tables that show in considerable detail exactly where and how much prices have changed since April – the first full month following the imposition of the first set of metals tariffs. So nothing could be easier than to look at this morning’s report and see that from May through August (the time period covered), prices of steel mill products have grown sequentially by 1.9 percent, 1.6 percent, and 2.6 percent, respectively. That’s higher than producer price increases for the economy as a whole. But the numbers don’t exactly scream “raging inflation.”

That goes double for aluminum mill products. After rising by 2.1 percent between May and June, they actually dropped in each of the next two months – by three and 2.1 percent, respectively.

As a result, it shouldn’t be the least bit surprising that there’s been no major producer price inflation for any of the metals-using industries tracked by the Labor Department during this period. Here are some representative numbers:

                                     May-June           June-July             July-August

metal containers          0.6 percent         0.4 percent             0.4 percent

hardware                     0.2 percent         0.5 percent             0.0 percent

fabricated structural    0.9 percent        -0.6 percent             0.2 percent

metal products

bolts, nuts, screws,     -0.5 percent         0.5 percent            0.6 percent

rivets, & washers

non-fluid power           0.2 percent        0.1 percent             0.3 percent 

metal valves 

ball & roller bearings   0.0 percent        0.2 percent             0.6 percent

machine shop              -0.1 percent        0.6 percent             0.0 percent   

  products 

motor vehicle parts     -0.1 percent        0.2 percent            -0.1 percent

The only evidence for a significant tariff impact comes from the year-on-year price changes. For aluminum mill products in August, it was 14 percent, for steel mill products 18.6 percent. These figures are not seasonally adjusted, unlike most of the above numbers, which are. But they’re very steep nonetheless. So is this the real evidence for the “devastating tariffs” argument?

No. And here’s why. A year ago, steel and aluminum products were being massively dumped into the U.S. market. That is, thanks to foreign government subsidies, they were artificially low, and by definition had little or nothing to do with free market forces. Naturally, metal-users liked this situation. But is this how we want the American economy to run? On the basis of addiction to foreign government decisions?

Moreover, the monthly numbers indicate some fading even of these price spikes.

As noted above, nothing could be easier than to look up these data – and report on them in news stories. But since other official numbers making clear that tariff fears so far have been nothing-burgers have been studiously ignored by the Mainstream Media, the case for optimism concerning producer prices looks less than convincing.

(What’s Left of) Our Economy: The Rest of the Story on August’s Manufacturing Jobs Figures

Tags

Jobs, Labor Department, manufacturing, non-farm employment, private sector, real wages, wages, {What's Left of) Our Economy

Although the continued strong job growth in most metals-using industries since the Trump tariffs was the most important takeaway from Friday’s latest monthly official U.S. jobs report (for August), it certainly wasn’t the only important manufacturing employment news. So here are some of the other highlights (or lowlights) of the Labor Department release worth noting.

As I wrote Friday, the 3,000 sequential drop in manufacturing’s payrolls in August was the sector’s first monthly dip since July, 2017. And worse, the revisions (which were weak for the entire economy as well), cut the estimates of July and August net jobs gains nearly in half.

As a result, whereas July’s year-on-year manufacturing jobs increase was previously pegged at 327,000, the newest estimate (which is still preliminary) is only 296,000. Yet it’s still the best such advance since May, 1995 (297,000), which ain’t beanbag. Less impressive, though, the August annual increase (which is also preliminary) was lower still (254,000). On the other hand, it still represented a major pickup from between the two previous Augusts (116,000).

The August monthly slip and the downward revisions also slowed manufacturing’s progress in accounting for a growing share of overall non-farm employment (the Labor Department’s U.S. jobs universe).

As of the July jobs report, this share had risen to 8.55 percent – a decided improvement from the 8.47 percent figure from July, 2017. But now the July, 2018 number has been downgraded to 8.53 percent, and August’s dropped to 8.52 percent. As a result, although manufacturing employment has still been growing faster than overall American employment during the Trump administration (in February, 2017 – the President’s first full month in office, it stood at 8.49 percent of non-farm jobs), the degree of out-performance is less than previously judged.

Over the longer term, manufacturing’s status as an employment laggard is much clearer. Since it hit its latest bottom, in February and March, 2010, domestic industry has regained 1.264 million (55.12 percent) of the 2.293 million net new jobs it had lost during the Great Recession and its aftermath. All the same, its payrolls are still 7.49 percent below where they were when the recession officially began, at the end of 2007.

By contrast, the private sector overall lost 8.785 million jobs from the recession’s onset through its employment bottom in February, 2010. Since then, employment has grown by 19.689 million. And there are now 9.40 percent more private sector jobs than there were at the end of 2007.

But although the August jobs report altered the recent manufacturing jobs story somewhat, the discouraging manufacturing wages story remained fully intact. On a sequential basis, pre-inflation wages for the overall private sector increased by 0.37 percent, versus 0.22 percent for manufacturing workers. And on an annual basis, such current dollar private sector pay rose 2.92 percent for the private sector (its best such performance since May, 2009), but only a 1.80 percent improvement for manufacturing workers (the best such performance since January).

In fact, since the current economic recovery began in mid-2009, pre-inflation manufacturing wages are up 17.64 percent. For the private sector overall, they’ve risen by 22.67 percent.

In inflation-adjusted terms, manufacturing’s wages performance during the recovery is even worse. The latest data go up only through July, but they show that, since mid-2009, real private sector wages have risen by 4.46 percent. The increase for manufacturing workers has been only 0.28 percent – less than one-fifteenth as fast.

Yet as suggested by these meager price-adjusted improvements, both the private sector overall and manufacturing have turned in dismal wage performances. In fact, both remain in real wage recessions – i.e., stretches of two straight quarters or more where hourly pay has declined on net. For the entire private sector, after-inflation wages are down by 0.09 percent since July, 2017. For manufacturing, they’re off by 0.19 percent since January, 2016.

(What’s Left of) Our Economy: The New Jobs Report Shows that the Metal Tariffs Sky Keeps Not Falling

Tags

aluminum, core capex, Jobs, Labor Department, manufacturing, metals tariffs, metals-using industries, private sector, steel, tariffs, Trade, {What's Left of) Our Economy

This is getting just embarrassing. Economists and mainstream media reporters and pundits keep claiming that President Trump’s metals tariffs are already damaging the U.S. economy – and especially industries that heavily use the steel and aluminum that have become more expensive because of the levies on imports of those goods. (Here’s a new example.)

And the most authoritative data available keep demonstrating that these claims so far are absolute hokum. (See this RealityChek column for a summary and relevant links.) The latest evidence: this morning’s August jobs report from the Labor Department. It shows emphatically that those metals-using sectors have mainly created net new jobs at a faster pace than domestic manufacturing overall, and that several have boosted payrolls more rapidly than the entire private sector (including service industries that are not heavy metals users).

Here are the numbers showing the relevant rate of employment changes from April (the first full month in which the metals tariffs were in effect) through both July (where they stood as of the previous monthly jobs report) and through August:

                                                       thru July                        thru August

entire private sector:                 +0.53 percent                   +0.64 percent

overall manufacturing:              +0.73 percent                   +0.47 percent

durable goods:                          +0.96 percent                   +0.57 percent

fabricated metals products:      +1.10 percent                   +1.17 percent

non-electrical machinery:         +1.43 percent                   +1.04 percent

automotive vehicles & parts:    +1.06 percent                  -1.08 percent

household appliances (thru June): -0.63 percent           +0.16 percent (thru July)

aerospace products & parts (thru June): +1.05 percent  +2.03 percent (thru July)

 

There have been some shifts within this list. But with the exception of automotive, no metals-using sector has slacked off more than manufacturing as a whole, and three of these industries (fabricated metals products, appliances, and aerospace) have picked up the pace. And even the metals-using durable goods super-sector as a whole didn’t fade much more on the employment front than manufacturing overall.

In addition, yesterday’s official business investment numbers confirmed that, through July, new orders for core capital goods (such machinery and equipment minus demand for defense and the volatile numbers for aircraft) have now advanced sequentially for four straight months. Since “core capex” is rightly viewed as the economy’s best proxy for business’ confidence in its future prospects, these results stuck a new fork in the narrative that the Trump tariffs would vitiate such spending by boosting that predominant bugaboo of corporate planning – uncertainty.

The new jobs report did contain some disquieting news for domestic manufacturing. Payrolls fell on month in August (by 3,000) for the first time since July, 2017. And the revisions pretty much cut the previously reported impressive June and July gains in half. (The new July increase of 18,000 is still preliminary.)

But today’s employment release also made clear that, after several months of metals tariffs, the fears about their impact are no more than fears. Why is that not considered newsworthy?

(What’s Left of) Our Economy: Productivity Growth Slowdown Keeps a Cloud Over U.S. Manufacturing

Tags

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

As made clear once again yesterday by two releases of significant statistics, American manufacturing under the Trump administration remains a puzzling good news/bad news story.

Yesterday, as reported here, the Federal Reserve came out with industrial production data for July showing that domestic industry’s real output growth has sped up during the Trump Era, and remains strong even in those metals-using industries supposedly suffering because of the President’s metals tariffs. These findings are also consistent with figures showing that manufacturing employment under this administration has growing faster than overall employment – increasing its share of the latter from 8.49 percent in February, 2017 to 8.55 percent last month.

But yesterday also saw the issuance of new labor productivity data, and it contained new evidence that manufacturing has changed from a leader in U.S. labor productivity growth to a serious laggard. And that’s entirely consistent with the dismal performance being turned in by manufacturing wages lately.

The latest labor productivity figures (the narrower of the two measures of efficiency tracked by the Labor Department, but the one for which results are published on by far the timeliest basis) provide the preliminary results for the second quarter of this year. They’re the first indication of serious troubles for manufacturing. Quarter-to-quarter, industry’s labor productivity improved by 0.9 percent on an annualized basis, and that was its best such performance since the whopping 4.4 percent jump registered for the fourth quarter of last year (and which, for reasons to be discussed below, seems to have been a major outlier).

But labor productivity for all non-farm businesses (the Labor Department’s U.S. economy’s productivity universe) rose by 2.9 percent sequentially at an annual rate – its best such performance since the first quarter of 2015 (3.1 percent).

Manufacturing’s laggard status showed up in the first quarter revisions, too. Here it’s important to observe that, as of today, these numbers have been revised twice since the initial statistics were released in early May. As is normally the case, the following month, new estimates for that time period came out. But yesterday, as it not normally the case, the Labor Department’s first report on the second quarter includes sweeping revisions of the Labor Department data that go back all the way to 1947! And these include yet another set of figures for the first quarter.

So here’s how the estimates of sequential annualized labor productivity growth have changed since May:

                                             Non-farm business   Manufacturing (both annualized)

1Q 2018 preliminary                    +0.7 percent                     +0.5 percent

1Q 2018 1^st revision                     +0.4 percent                      -1.2 percent

1Q 2018 final (for now!)             +0.3 percent                       -1.0 percent

2Q 2018 preliminary                   +2.9 percent                       +0.9 percent

Any way you cut it, manufacturing’s recent labor productivity growth has trailed that of all non-farm businesses. And since manufacturing is a part of that non-farm business category, non-manufacturing non-farm businesses exceeded manufacturing’s labor productivity growth by an even wider margin.

Now let’s perform the same exercise looking at labor productivity growth for the last three economic recoveries (including the current, ongoing expansion). As known by RealityChek regulars, comparing similar stages of the economic cycle is the best way to get the most reliable long-term insights.

                                                                      Non-farm business     Manufacturing

1990s expansion (2Q 1991-1Q 2001) last pre-big revision estimate:

                                                                        +23.25 percent           +45.86 percent

1990s expansion latest:                                  +23.77 percent                    same

bubble expansion (4Q 2001-4Q 2007) last pre-big revision estimate:

                                                                      +16.03 percent            +30.23 percent

bubble expansion latest:                                +16.60 percent                     same

current expansion: (2Q 2009 to present): (as of preliminary 1^st quarter estimate)

                                                                         +9.70 percent            +9.69 percent

as of first 1^st quarter revision:                          +9.62 percent            +8.28 percent

latest (as of big revision 1^st quarter estimate)  +9.43 percent            +8.36 percent

2d quarter preliminary estimate:                    +10.21 percent            +8.61 percent

The bottom line here: The latest big revision confirms earlier findings that during the current recovery, manufacturing has lost its labor productivity lead, mainly because its labor productivity growth has slowed down compared with that of previous recoveries much more dramatically than the labor productivity growth in non-farm businesses.

As of the first quarter, this relative manufacturing slowdown was not quite as significant as previously thought. But the preliminary second quarter figures show that it’s regained major “momentum.”

Measuring productivity growth if of course still one of the most controversial exercises in economics. But it’s also still the case that the profession hasn’t come up with an alternative that’s attracted widespread support. So the safest assumptions continue to be that American manufacturing’s productivity slump is dragging on, and that until it’s reversed, American manufacturing wages will keep disappointing.