(What’s Left of) Our Economy: No Serious Evidence That Tariffs are Killing U.S. Metals-Using Industries

Tags

aluminum tariffs, appliances, automotive, durable goods, fabricated metal products, Federal Reserve, inflation-adjusted growth, Jobs, Labor Department, machinery, manufacturing, media bias, steel tariffs, tariffs, Trade, Trump, {What's Left of) Our Economy

With the mainstream media filled with articles (see, e.g., here, here, and here) on how President Trump’s current and proposed trade tariffs are already inflicting major damage on the U.S. economy, it’s useful to look at the official data capable of shedding maximum light on the situation. Fortunately, in this respect, Washington just released U.S. employment and manufacturing production statistics that can achieve just such a goal, and their message couldn’t be clearer: Although anecdotal accounts point to possible reasons for concern, the most comprehensive information available portrays these reports as completely unrepresentative – at least so far.

Principally, in late March, the Trump administration began imposed levies on steel and aluminum imports. It’s logical to suppose that the nation’s steel-using industries and their workers in particular would be big losers so far, since the steel tariffs of 25 percent are much higher than the ten percent levies on aluminum. But the data make clear that no such conclusions are justified to this point.

Let’s start with production, where statistics (from the Federal Reserve) go through June (on a preliminary basis). They show that, since April (the first few months during which any tariffs had any effects), overall domestic American manufacturing output (which includes all the industries that aren’t major steel users) has dipped by 0.21 percent.

Real production in durable goods sectors (which include all the big steel-using industries) is down, too – but by a bare 0.05 percent.

And many especially heavy metals-using industries have been doing better still. After inflation output in fabricated metal products rose by 0.90 percent between April and June. Constant dollar machinery production is down 0.75 percent – but that drop clearly reflects some mean reversion from the 2.27 percent jump between March and April. Automotive (combined vehicles and parts production) has fallen by 0.68 percent in real terms since April, but much of the decline stems from the supply chain effects of a fire at a factory producing parts for a popular model.

Appliances look like an important exception. Between April and June, constant dollar production in small appliances has tumbled by 3.31 percent, and in major appliances by 3.16 percent. But both sectors had been struggling for years before the Trump tariffs. In the former, it was down on net since February, 2015; in the latter, since September, 2016. By contrast, real output in the other metals-using industries was up strongly during those periods.

The jobs figures (from the Labor Department, which also go through June, preliminarily) tell a similar story. Overall manufacturing output has advanced by 0.43 percent since April. In durable goods industries, it’s improved by 0.57 percent.

In fabricated metals, however, payrolls have grown by 0.72 percent since April, and in machinery, by 0.95 percent during this period. The automotive sector has trailed these two in job creation, but has still nudged its employment up by 0.04 percent since April. And the 0.47 percent decrease in overall appliance employment (separate figures for small and major products aren’t available) continues that sector’s record as a significant jobs laggard.

What will the future hold? That’s anyone’s guess. It’s also true that tariff-produced price increases tend to take their time working their way through corporate supply chains, and that at the end of May, the administration imposed a second, big round of metals tariffs on three big metals-exporting trade competitors exempted from the first round: the European Union, Canada, and Mexico.

But it’s also true that there’s no statistical evidence to date that the metals tariffs, many of which have been in effect since late March, have harmed upstream industries, and plenty of statistical evidence that these metals consumers have been faring just fine – and then some. Fake News, anyone?

Advertisements

(What’s Left of) Our Economy: A Productivity Collapse in America’s “Industries of the Future”?

Tags

advanced manufacturing, information technology hardware, Labor Department, manufacturing, multifactor productivity, productivity, {What's Left of) Our Economy

To the surprise of exactly no one who’s been following the issue lately, last week’s newest data from the federal government on productivity was literally brimming with bad news.

True, the figures only go up to 2016 – because the report covered multifactor productivity, the broader of the two measures tracked by the Labor Department. These figures take longer to calculate than the narrower productivity measure (labor productivity) because they examine many inputs other than simply hours worked. But the results were entirely consistent with the longstanding story that the U.S. economy’s efficiency keeps growing more and more slowly – that is, where it continues to grow at all.

In fact, America’s recent productivity performance has been so bad that observers could actually take some comfort in the headline finding that multifactor productivity improved between 2015 and 2016 in only 37 of the 86 manufacturing industries looked at in detail by Labor. That’s because this total was significantly higher than in 2014-15 – when multifactor productivity rose in only 21 of those sectors.

I could repeat previous exercises and list the industries with the best and worst latest annual multifactor productivity performances – which as usual, will be full of surprises for those expecting that the stars would be the nation’s technology-intensive “industries of the future.” But for now, let’s focus on what looks like an especially alarming development: Over the last roughly three decades, these crucial chunks of the economy have turned from multifactor productivity growth champs to multifactor productivity disaster areas. Over the same period, several other touted advanced manufacturing industries have also tumbled into the dumps multifactor productivity-wise from much less lofty perches.

The worst examples of literal collapse in multifactor productivity growth are in information technology hardware, and the most dramatic plunge has taken place in computers and computer peripheral equipment. Between 1987 and 2016, these sectors collectively have run away with the American economy’s multifactor productivity growth honors, with their efficiency advancing by this measure by 12.1 percent annually.

Since 2007, however (the year the Great Recession began), their average annual multifactor productivity growth rate has slumped to 1.2 percent, and between 2015 and 2016, it actually fell – by 2.6 percent.

Semiconductors and electronic components fared little better. Their 1987-2016 average annual multifactor productivity growth was 9.1 percent. But it’s fallen throughout the 2007-2016 period, and between 2015 and 2016 – when the current economic recovery was in its seventh year – it also dropped by 2.6 percent.

The ups and downs of multifactor productivity growth in communications equipment (including the gear used by the internet) have been more modest, but undeniably depressing all the same. Average annual growth between 1987 and 2016 was only 2.6 percent, but during the 1990s, it surged to nearly 5.5 percent. But since recession onset year 2007, multifactor productivity has decreased here as well, and declined by 1.6 percent between 2015 and 2016.

The aerospace industry, long America’s biggest net export winner, oddly has never registered robust multifactor productivity growth – at least not since 1987, when the data began to be collected. The average annual multifactor productivity growth rate for finished aircraft, missiles, and their parts? It’s actually -0.1 percent. The golden age (relatively speaking) of multifactor productivity growth for these companies came in between 2000 and 2007, when the average annual advance was 2.7 percent. But since 2007 it’s off slightly (dipping by an average 0.6 percent per year) and between 2015 and 2016 alone, plummeted by 6.7 percent.

Yet even these dismal figures look positively glowing when compared with those of the American pharmaceutical industry – widely viewed (like aerospace) as the global state of the art. From 1987 to 2016, multifactor productivity in this sector has decreased by an average of 2.3 percent every year. That’s by far the worst performance among the 86 industries tracked by the Labor Department. And since 2007, the rate of decline sped up to an annual average of 3.8 percent. Between 2015 and 2016, moreover, the drop-off gained even more momentum, reaching 4.8 percent.

Nor have other manufacturing sectors not typically classified as “technology intensive,” but nonetheless falling into the high value category, been immune from these woes. Here are the average annual multifactor productivity growth (and shrinkage) figures for key time periods for sectors both qualifying for this description, and known for strong exports:

 

agriculture, construction, and mining machinery

1987-2016: -0.2 percent

2007-2016: -2.5 percent

2015-2016: -8.6 percent (the year’s worst nosedive)

 

industrial machinery

1987-2016: 0.3 percent

2007-2016: -1.1 percent

2015-2016: -4.1 percent

 

turbines and power transmission equipment

1987-2016: 0 percent

2007-2016: 0.1 percent

2015-2016: -4.4 percent

It’s always possible that these multifactor productivity numbers have improved substantially over the last two years. But 30-year old trends rarely turn around completely, or even close, in such short time-spans. And multifactor productivity growth trends don’t turn around without the type of capital spending surge – among other developments – that the economy simply hasn’t seen yet. Until business begins spending considerably more, expect multifactor productivity in America to remain depressed – along with the nation’s odds of recreating sustainable prosperity.

(What’s Left of) Our Economy: Industries Claiming Labor Shortages are Productivity as Well as Wage Laggards

Tags

compensation, Labor Department, labor productivity, labor shortages, productivity, restaurants, trucking, wages, {What's Left of) Our Economy

The labor shortage claims from American businesses keep filling the media (even though wages, which are supposed to rise sharply in such circumstances, are improving only sluggishly). So it was more than a little interesting to look over the latest statistics on labor productivity released by the Department of Labor.

After all, companies and industries really facing dire labor shortages, and unwilling or unable to raise wages, are supposed to boost their productivity (generally by introducing labor-saving devices and practices). But the new Labor Department numbers show that they’re doing surprisingly little on this front, either.

Let’s examine two sectors of the economy that say with special vigor that they’re running out of workers: trucking and restaurants.

According to a typical account (from yesterday’s Washington Post), American trucking companies are facing “an extraordinary labor shortage” and their CEOs (including industry veterans) are saying things like “I’ve never seen it like this, ever….It doesn’t matter what the load even pays. There are just not drivers.”

The sector does appear to be raising pay. But not until the last two years have its overall employment costs been rising faster than those for the private sector overall – and the latter’s increases have hardly impressed. These data cover the entire transportation and warehousing sector, but after shooting up from a 2.1 percent annual pre-inflation pace to four percent (between the fourth quarters of 2011 and 2012), total compensation advances slowed to 2.3 percent annually during the next two years, and then to 2.2 percent in 2015 before accelerating.

Moreover, trucking industry productivity growth hasn’t been world-beating, either. The Labor Department reported last week that its overall gain in labor productivity (the narrower of two productivity growth measures tracked by Labor, but the one whose data is more up to date) in 2017 was 0.8 percent. A comparable figure for services industries in general isn’t available, but the Department does track labor productivity for non-farm businesses and for manufacturing.

Since labor productivity productivity for the former increased by 1.3 percent in 2017 and only 0.4 percent in manufacturing, it seems safe to conclude that services sector labor productivity grew by more than 1.3 percent – and therefore much more than trucking’s 0.8 percent. Nor does this picture change much going back to 2013.

Further, a remarkably similar pattern emerges upon examining the restaurant business. Labor shortages are widely claimed and reported, along with examples of the industry starting to improve compensation practices. New technologies are also apparently being tried to improve efficiency in the sector. But according to the data, these responses to the purported shortage of workers have been belated at best.

For example, as with trucking, annual total compensation gains in the accommodation and food services sectors (no restaurant-specific numbers are available) trailed those for the overall private sector for several years until 2016. And their owners and lobbyists have been making labor shortage claims for at least that long.

Data for restaurants (and bars) specifically are available for their labor productivity, and their performance here is only roughly comparable to the dreary results for non-manufacturing non-farm businesses.

Industries like trucking and restaurants may indeed not be able to choose their employees from as many applicants as they would like, or from numbers to which they’ve become accustomed. But if they haven’t been doing anything special, at least until recently either to hike pay, improve productivity, or both, then several explanations are possible. Maybe they’re waiting for another wave of wage-depressing legal and illegal immigrants to save their days without the need to fatten paychecks of invest in new plant and equipment. Maybe they’re don’t know how to improve productivity in particular, in which case, their businesses simply may not be viable, or they’re simply lousy managers.

But unless the Labor Department figures are completely off-base, one explanation we can rule out completely is that, as groups, they’re utterly desperate for workers.

(What’s Left of) Our Economy: Wage Inflation is Everywhere Except the Real Wage Figures

Tags

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

This morning was a bad one for observers of the U.S. economy who keep insisting that wage inflation is either here or around the corner. That means it was also a bad morning for American workers. For the new Labor Department figures on wages adjusted for inflation showed no change – at best – in the historically sluggish constant dollar paycheck increases that employees have seen for most of the current economic recovery.

These new data figures bring the story up through April, when the Department says after-inflation hourly wages were unchanged on month in the private sector, and slipped 0.09 percent in manufacturing. In fact, both numbers represent deceleration from March – when real private sector wages increased sequentially by a downwardly revised 0.28 percent, and real manufacturing wages rose by a downwardly revised 0.19 percent.

Most analysts take the year-on-year numbers more seriously, because they exhibit less random fluctuation. But if anything, they make the wage inflation meme look even loonier. Since last April, price-adjusted private sector wages are up a grand total of 0.19 percent, and in manufacturing, actually down by fully 1.10 percent.

Between the previous Aprils, moreover, inflation-adjusted wages improved by 0.28 percent in the private sector, and by 0.55 percent in manufacturing. For good measure, the latest April yearly decrease in constant dollar manufacturing wages was the biggest since October, 2012’s 2.09 percent drop.

And throughout the current recovery, which is approaching its ninth anniversary, inflation-adjusted private sector wages have advanced by 4.01 percent, while their manufacturing counterparts have inched up only 0.37 percent.

It’s true of course that broader measures of American worker compensation reveal greater improvement. But that’s not to say “great improvement.” Or even close. It’s also true that the Federal Reserve can cite any number of reasons to raise U.S. interest rates after many years at rock-bottom levels. The new real wage figures, however, make clear that wage inflation isn’t yet one of them.

(What’s Left of) Our Economy: Manufacturing Jobs Growth Stays Strong, but Where are the Wages?

Tags

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

According to this morning’s Labor Department jobs report, April was another month of impressive employment gains and sluggish wage growth in manufacturing. Industry added 24,000 net new jobs on month and revisions left recent months’ solid employment growth intact. Further, manufacturing payrolls’ yearly rate of expansion quickened in April (to 245,000) and was still the best such performance since May, 1998’s 262,000. In fact, manufacturing jobs continued their recent trend of increasing faster than overall employment, with their share of non-farm jobs growing from 8.49 percent last April to 8.53 percent.

Yet pre-inflation manufacturing wages advanced by only 0.15 percent on month in April and March’s figure was revised down slightly. Worse, on an annual basis, current dollar manufacturing hourly pay growth fell to 1.36 percent – the slowest such rate since June, 2015’s 1.25 percent. And in inflation-adjusted terms, manufacturing wages are still in technical recession, having fallen on net by 0.28 percent since February, 2016.

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

>American manufacturing’s robust net job creation extended into April, yet swelling payrolls continued having little impact on the sector’s weak wage growth.

>Domestic manufacturers boosted payrolls by 24,000 in April. March’s 22,000 monthly jobs increase was left unrevised, and February’s previously reported 32,000 sequential improvement was downgraded to 31,000.

>Industry’s employment performance was even better on an annual basis. From April, 2017 to April, 2018, manufacturing added 245,000 net jobs – its best such performance since May, 1998’s 262,000.

>Between the previous Aprils, industry created 54,000 net new jobs.

>Further, manufacturing employment continued its recent trend of growing even faster than overall U.S. employment. Last April, manufacturing jobs accounted for 8.49 percent of all American non-farm employment (the Bureau of Labor Statistics’ U.S. employment universe). This April, their share stood at 8.53 percent.

>Manufacturing has now regained 52.42 percent (1.202 million) of the 2.293 million jobs it lost since the late-2007 onset of the Great Recession through the sector’s employment bottom in February and March, 2010.

>But not even their recent hiring spurt has induced domestic manufacturers to raise pay significantly.

>April saw pre-inflation hourly pay in manufacturing increase by just 0.15 percent. In a break with recent trends, this sequential manufacturing wage gain matched that for the private sector overall.

>But manufacturing’s March monthly wage increase was revised down from 0.19 percent to 0.15 percent, and the April private sector figure represents a slowdown from March’s 0.22 percent – which was also downgraded (from 0.30 percent).

>Manufacturing wages performed even worse on an annual basis. Between this April and last, they rose by just 1.36 percent – the slowest such improvement since June, 2015’s 1.25 percent. From April, 2016 to April, 2017, they increased by 1.93 percent.

>As a result, since the start of the current economic recovery, in mid-2009, pre-inflation private sector wages have grown by 25.62 percent more than their manufacturing counterparts. Last April, the gap was considerably less: 18.72 percent.

>In real terms, manufacturing’s recent growth has been even less impressive.

>The latest inflation-adjusted data go through March, when its constant dollar pay rose by 0.19 percent – a downgrade from the initially reported 0.28 percent. Real monthly wage growth for the private sector in toto was downgraded for March, too – but from 0.37 percent to 0.28 percent.

>Year-on-year, real wages in April for manufacturing are actually down – by 0.65 percent. For the private sector overall, they were up 0.28 percent.

>In fact, manufacturing workers have suffered a technical recession in real wages (two straight quarters or more of cumulative decline) since February, 2016. During that more-than-two-year period, their inflation-adjusted hourly pay is off by 0.28 percent.

>The overall private sector is in real wage recession, too, but only since last May. Since then, its after-inflation hourly pay is down by 0.09 percent.

>Further, since the current recovery’s mid-2009 onset, overall real private sector wages have risen nearly ten times faster (4.17 percent) than real manufacturing wages (0.47 percent).

>Despite healthy recent growth, manufacturing remains a longer-term jobs laggard. As reported above, since the current economic recovery began in mid-2009, manufacturing has regained more than half the jobs it lost during the recession and its aftermath. But since shedding 8.780 million positions on net from December, 2007 through February, 2010, the private sector has created 18.856 million net new positions.

>From another perspective, manufacturing payrolls remain 7.94 percent below their immediate pre-recession (December, 2007) level of 13.746 million jobs. But overall private sector employment has risen 9.50 percent during that period.

(What’s Left of) Our Economy: Puzzling New Glimpses into U.S. Manufacturing

Tags

Bureau of Economic Analysis, Bureau of Labor Statistics, Commerce Department, durable goods, Labor Department, labor productivity, manufacturing, non-durable goods, productivity, real value-added, {What's Left of) Our Economy

Two important sets of economic statistics came out today that shed lots of new light on the health of American manufacturing. Unfortunately, little of it is especially encouraging. In fact, some of it’s pretty mystifying.

The Commerce Department’s Bureau of Economic Analysis issued its annual report on the growth rates of different sectors of the U.S. economy. The main manufacturing finding: Industry’s annual growth rate did pick up last year according to a measure called real value-added (which leads off the report, and which attempts to eliminate the double-counting of output that occurs when broader gauges fail to distinguish between final products on the one hand, and their parts, components, and other inputs on the other). Yet the acceleration from a 0.5 percent yearly expansion in 2016 to 2017’s 1.9 percent trailed that output increase of the economy as a whole – which improved from 1.5 percent to 2.3 percent. As a result, the economy became slightly more manufacturing light in 2017.

In addition, within manufacturing, growth leadership shifted dramatically. Whereas the non-durable goods super-sector outperformed its larger durable goods counterpart in 2016 (with the former’s real value-added improving year-on-year by 1.2 percent while the latter’s slipped by 0.2 percent), durable goods rebounded to a 3.4 percent annual growth rate in 2017 while non-durables’ real value-added inched up by just 0.1 percent.

The American economy’s overall growth leader in 2017 in real value-added terms? The mining sector, which jumped by 8.5 percent after plummeting by 13.3 percent the year before. The next fastest-growing industries were administrative and waste management services (4.9 percent), corporate management (4.6 percent), and information services (four percent even).

Today’s second data set (from the Labor Department’s Bureau of Labor Statistics) shows which sectors within manufacturing last year excelled in terms of labor productivity (the narrower of economists’ two main measures of efficiency), and which lagged and, once more, many of the results were surprising. (We already know that industry in toto had a dreary labor productivity year last year.) For instance, computer and computer peripheral equipment led the way last year, generating eleven percent more output per employees hour worked. But next came apparel knitting mills, at 10.5 percent, followed by agriculture, construction, and mining machinery at 10.4 percent, and cutlery and handtools at 9.4 percent.

The biggest productivity loser in 2017? Miscellaneous transportation equipment, where it nosedived by 11.5 percent. In ascending order, the next worst performers were electric lighting equipment (down 9.2 percent), sugar and confectionary products (down eight percent), and beverages (down 7.8 percent).

Other manufacturing sectors whose labor productivity worsened on year in 2017? Pharmaceuticals and medicine (down seven percent), metal-working machinery (which includes machine tools – and where labor productivity declined by 1.3 percent), communications equipment (down 2.2 percent), semiconductors (down 0.7 percent), motor vehicles (down 4.1 percent), and aerospace products and parts (down 3.1 percent).

And if you’re thinking that this list of productivity losers includes lots of so-called industries of the future, you’re of course right. Kudos also if you’ve noted that aerospace is the economy’s biggest trade surplus industry. It’s enough to instill a little humility in those of us who think we’re getting a handle on this gargantuan, complex American economy, or heighten for those who had some already.

(What’s Left of) Our Economy: Some Rare Big Media Realism on Globalization

Tags

globalization, Immigration, Jobs, Labor Department, NAFTA, North American Free Trade Agreement, offshoring, Pankaj Mishra, Sarah Chaney, strikes, The New York Times Magazine, The Race to the Bottom, The Wall Street Journal, Trade, unions, wages, {What's Left of) Our Economy

Every now and then, the Mainstream Media and the establishment conventional wisdom it parrots show some signs of approaching an understanding of how trade liberalization and globalization really work. Happily, this past week was one of those weeks.

The first of these two signs came in The New York Times Magazine, in the form of an article by Pankaj Mishra, who weirdly isn’t identified in the on-line version of the piece, but who appears to be a prominent Indian writer. Its theme: The world’s leading economies – including the United States in the first two-thirds of its history and now China – have nearly all experienced their greatest rises to prosperity and power based on policies that rejected orthodox free trade principles.

To anyone who has seriously followed the trade and globalization debate over the last quarter century, the case for this claim is anything but new. It’s been made by numerous leading scholars and other analysts. What is new is for this argument to be showcased in such a high profile media outlet. On the one hand, if this kind of information was presented to readers remotely as often as the trade and globalization conventional wisdom, American policies today might be vastly different – and the economy much sounder.

On the other, because of Donald Trump’s political success, the chances of moving U.S. trade policy onto a more realistic foundation seem higher than at any time since the 1930s. So if Mishra and The Times Magazine wind up speeding up that process to any extent, and aiding the adoption by Washington, D.C. of policies that factor in this reality, more power to them.

The second sign came in a Wall Street Journal story on findings I’d spotlighted on Friday – a Labor Department study on the virtual disappearance of major labor actions like strikes from the national economic scene. In her own report on the Labor study, Journal correspondent Sarah Chaney quoted a scholar of labor relations as noting that (in her words) “one major impediment to work stoppages…is globalization.”

To which my immediate reaction was “bingo!” – along with a sense of vindication. Way back in the late-1990s, when I was researching my book The Race to the Bottom, it became clear as can be to me that most efforts to measure globalization’s impact on the U.S. economy were missing a key point: A job doesn’t have to be either eliminated by foreign competition (whether predatory or not) or offshored for American trade policies to have affected employment or wage levels. The mere prospect of offshoring in particular, and its increased likelihood as a result of trade agreements aimed at encouraging it, would also matter, and often decisively.

Wages would be the principal victim, since workers aware that their jobs could easily be sent overseas, to lower cost locations like Mexico (via NAFTA, the North American Free Trade Agreement) or China (through numerous trade liberalization decisions taken since the early 1990s) would hardly be aggressive in pressing for better pay either by striking or taking any similar actions.

And in the book, I cited some evidence for this proposition: A 1992 survey by The Wall Street Journal finding that “one-fourth of almost 500 American corporate executives polled admitted they were ‘very likely’ or ‘somewhat likely’ to use NAFTA as a bargaining chip to hold down wages”; and a 1996 report commissioned by NAFTA’s own Labor Secretariat finding that “more than half the firms…surveyed used threats to shut down U.S. operations as weapons to fight union-organizing drives.”

Moreover, it should be just as obvious that mass immigration creates the same kind of wage-depressing force.

The next step for the establishment and its media messengers to take is to recognize that the very national economic openness for which they have pushed means that terms like “the American labor market,” at least used conventionally, have become largely meaningless. In addition, supposed mysteries like continued wage stagnation during a long economic recovery featuring near-historic lows in the headline jobless rate aren’t so mysterious at all.

In fact, that supposed national labor market has for decades consisted both of American workers inside the country’s borders and all the other workers around the world that have been made available to employers by trade and immigration policies. So if you want a labor market truly capable to pushing wage growth back up to historical norms, no measures are more important than turning that labor market more genuinely national once again.

(What’s Left of) Our Economy: U.S. Labor Productivity Resumes Falling

Tags

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

So much for the overall American labor productivity revival (which wasn’t much of a revival). At least so far.

The newest (preliminary) figures for the fourth quarter of last year are just in, and they show that the headline figure (for non-farm businesses) fell sequentially by 0.11 percent on an annual basis. The dip was the first since the first quarter of 2016. Moreover, the third quarter surge that was originally reported at 2.95 percent annualized (the best sequential result since the 4.34 percent of the third quarter of 2014) was revised down to 2.72 percent.

(As RealityChek regulars know, labor productivity is the narrower of the two measures of economic efficiency tracked by the Labor Department and most other national economies. Multi-factor, or total factor, productivity, looks at output as a function of a much wider range of inputs than simply person hours worked, but the data come out on a much less timely basis.)

These results were partly offset by a startling turnaround in manufacturing’s labor productivity. The preliminary fourth quarter, 2017 annualized increase is pegged at a stunning 5.56 percent. If that figure (or close to it) holds, that would be industry’s best such performance since the 6.82 jump in the second quarter of 2010 (early during the current recovery, when productivity tends to bounce back, along with the rest of the economy). The final third quarter result was a 4.77 percent plunge.

Still, the continuing crisis in American labor productivity is made (loud and) clear by comparing the economy’s performance across recent economic expansions (to get the apples-to-apples figures). During the 1990s recovery, which lasted just under ten years, non-farm business labor productivity increased by 23.25 percent. During the 2000s “bubble decade” expansion, which lasted six years, the rise was 16.03 percent – indicating a slight slowing of the growth rate. But during the current recovery, which was eight and one half years old at the end of 2017, labor productivity has been up only 9.34 percent. That is, its growth rate has been much slower – and barely flat cumulatively.

Manufacturing’s labor productivity growth slowdown has even more dramatic – especially lately. During the 1990s expansion, it shot up by 45.91 percent. The growth rate plummeted to 30.08 percent during the shorter recovery of the 2000s decade, and then all the way down to 10.91 percent through the first eight and one half years of the current recovery. In other words, manufacturing’s labor productivity growth since the expansion began has been minimal, too.

The productivity data are among the figures in which economists have the least confidence, and it remains entirely possible that, according to one major critique, they’re missing most of the progress enabled by new technologies whose impact is excruciatingly difficult to measure. (Here’s a report spotlighting a typical version of this argument.) At the same time, these figures – especially for the current expansion – track with reports showing weak capital spending, generally seen as a prime source of productivity growth. And when it comes to manufacturing, the Labor Department’s methodology still considers jobs offshoring as a development that boosts labor productivity – even though the total number of workers worldwide doesn’t change, and therefore the sector’s total efficiency doesn’t, either.

So the challenge remains for American leaders to grow the economy in the healthy way, by relying on increasingly productive workers and businesses and industries. Or it can continue the easy money route chosen since the financial crisis, and hope that, for some unspecified reason, the results will be different this time.

(What’s Left of) Our Economy: Real Wages Just Went into Recession — Again

Tags

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

Perhaps revealingly, almost precisely as the uproar over President Trump’s alleged use of profane and racist language at a White House immigration policy meeting reached firestorm proportions, U.S. government data released on Friday made clear that the American economy had entered another technical wage recession.

The Department of Labor’s report on inflation-adjusted wages for December showed that, when adjusted for price changes, Americans’ hourly paychecks were smaller that month than they were in May. The shrinkage is only 0.09 percent, but with a recession generally defined as two consecutive quarters of cumulative decline in constant dollar growth, it seems fair to say that these real wages are now in a decided downturn.

Further, underscoring the longer-term problem with real wages, the private sector had just recently emerged from a wage recession, with after-inflation hourly pay having fallen on net between July, 2016 and this past February.

The inflation-adjusted wage situation in manufacturing is even worse. The new Labor Department statistics show that price-adjusted hourly pay in industry is down on net since March, 2016 (by 0.19 percent). That’s the longest such stretch since the January, 2012 to September, 2014 period.

The month-to-month changes that produced these results are as follows: Real wages for the private sector overall rose 0.19 percent sequentially in December from an unrevised $10.72 in November. (The Labor Department doesn’t track such pay in the public sector, since its levels and changes predominantly reflect politicians’ decisions, not economic fundamentals.) Real wages in manufacturing dipped by 0.09 percent from an unrevised $10.79 in November.

The December numbers mean that, since the current economic recovery began – more than eight years ago, in mid-2009 – real private sector wages have risen by only 4.17 percent. Meager as that performance is, it’s far better than the increase in manufacturing – a mere 0.56 percent.

This past year – President Trump’s first in office – has registered some noteworthy economic progress. In particular, growth has sped up, job creation rates remain strong even as the official unemployment rate has stayed near multi-decade lows, and manufacturing employment has perked up. Ultimately, however, the most important measure of economic policy’s success is whether it improves people’s lives. The persistence of wage stagnation after so many years of statistical recovery shows that, for way too many Americans, that mission remains woefully unaccomplished.

(What’s Left of) Our Economy: Another Sign of Wage Stagnation – from the Job Turnover Numbers

Tags

Employment, Great Recession, Jobs, JOLTS, Labor Department, leisure and hospitality, non-farm jobs, professional and business services, recovery, retail, wages, {What's Left of) Our Economy

Since the economy has been moving for quite a while now to full employment (at least as conventionally measured), I haven’t been monitoring the Labor Department’s data on job turnover (the “JOLTS” figures, per the acronym of its official label) as in years past. But yesterday I checked out the numbers reported yesterday morning, and see that this lapse has been shortsighted.

For the JOLTS data are still confirming that the purportedly red-hot, super-tight U.S. labor market is still under-performing according to a key measure – wages. Indeed, the new JOLTS numbers (for November) offer one important explanation: The job openings being advertised by businesses in low-wage industries are outgrowing those in better paying sectors.

The best way to show this trend is to look at the share of total non-farm jobs (the Labor Department’s U.S. employment universe) at key recent points in the business cycle that have been comprised of low-wage jobs, and compare them with the job openings figures at those times.

To remind RealityChek regulars and clue in others, my proxy for low-wage jobs consists of the retail sector, the leisure and hospitality sector, and the big low-wage portion of the professional and business services sector (e.g., janitorial services, landscaping services, call centers, bill-collection services, security services, and the like).

As of November, the hourly wages for these sectors, respectively, were (without adjusting for inflation) $18.28, $15.60, and $20.05. For the private sector as a whole, the hourly wage that month was $26.54.

When the Great Recession broke out, at the end of 2007, these parts of the economy combined represented 26.81 percent of total non-farm employment. When it ended, in the middle of 2009, this share had dropped only to 26.23 percent (by 2.16 percent) – even as overall payrolls dropped by 5.34 percent.

Since then, the low-wage share of all U.S. jobs has risen to 27.74 percent. And the JOLTS data tell the same story – especially during the ongoing recovery.

When the recession began, and low-wage jobs were 26.81 percent of total non-farm employment, they represented 31.94 percent of the job openings advertised by American employers.

During the recession, they were actually in less demand, in absolute and relative terms. In June, 2009, with low-wage jobs accounting for 26.23 percent of the total, such positions represented just 28.38 percent of total job openings. (My figure for the low-wage professional and business services positions is based on their share of jobs in that sector for the month in question. It isn’t broken out in the official JOLTS reports.)   

The results for last November (again, the latest available)? Low-wage jobs had grown as a share of total non-farm employment to 27.74 percent. But as a share of job openings, they had risen much higher – to 34.53 percent.

So because wage lag is still such a prominent feature of the American economy, I’m back on the JOLTS case. When the quality of job opportunities in the labor market starts showing sustained improvement, we’ll have grounds for believing that the long national nightmare of stagnant wages is ending.