Im-Politic: On the Economy, Obama’s Record Looks Stronger than Trump’s

Tags

Barack Obama, CCP Virus, coronavirus, COVID 19, election 2020, Employment to Population Ratio, GDP, gross domestic product, Im-Politic, Jobs, Joe Biden, Labor Force Participation Rate, labor productivity, manufacturing, non-farm jobs, private sector, productivity, real GDP, real private sector, real wages, recession, subsidized private sector, Trump, value added, wages, Wuhan virus

Not surprisingly, as this U.S. presidential cycle gets ever more intense, so has the debate over which boasts a better record in helping steer the nation’s economy: the Obama administration in which Democratic presidential nominee Joe Biden served as second-in-command, or the incumbent Trump administration. I’ve just looked over some key data, and the verdict on most counts goes to the Obama administration. The margin of victory here isn’t huge, but it’s anything but razor thin, either. Moreover, any Obama edge is surprising given that the economy is President Trump’s major advantage in nearly all the polls.

All the same, here are the data. They compare performance during the last three full years of the Obama presidency and the first three full years of the Trump presidency. In my view, these time-frames deserve priority because they’re the ones closest to each other in the same expansionary business cycle, making apples to apples results much likelier.

The time-frames of course leave out the CCP Virus period, during which all the Trump numbers sank like stones. But if you regard the virus’ economic effects as purely artificial, having nothing to do with the economy’s fundamentals (as I do), then you want to strip them out.

Other methodological notes: Although the jobs-focused data come out from the federal government on a monthly basis, and therefore permit comparisons between completely identical (and virus-adjusted) three-year periods, the economic growth and productivity data don’t, so I show Trump results both through the first quarter of this year (affected by the shutdowns that began in March) and through the last quarter of 2019. In addition, regarding the monthly figures, because of the January 20 inauguration date, I peg the end of the Obama administration as January, 2017 and the beginning of the Trump administration as February, 2017.

And off we go, starting with overall employment, which consists of the Bureau of Labor Department’s U.S. employment universe – “non-farm jobs.”

Obama: +5.55 percent            Trump: +4.56 percent

But of course, non-farm jobs include all government jobs, and their status has much less to do with the economy’s underlying strengths and weaknesses than with politicians’ decision. So here are the numbers for private sector jobs.

Obama: +6.56 percent            Trump: +5.04 percent

So advantage Obama again. As RealityChek regulars know, however, not all private sector jobs are created equal. In fact, many barely deserve the term at all, because their circumstances depend so heavily on government spending. Healthcare is of course the leading example. Therefore, it’s useful to examine the employment results in what I’ve called the “real private sector”.

Obama +6.22 percent             Trump: + 4.63 percent

It’s another Obama out-performance. This string is broken when it comes to manufacturing jobs, however.

Obama: +2.38 percent           Trump: +3.78 percent

But Obama comes out ahead on inflation-adjusted wages for the entire private sector.

Obama +3.69 percent           Trump: +2.99 percent

And the margin is even bigger for real manufacturing wages.

Obama: +3.15 percent          Trump: +0.74 percent

One problem with looking at jobs gains or losses, or even the unemployment rate, is that these numbers don’t tell the whole story about the health of the labor market. To fill in the gaps, economists like to examine two performance measures called the Labor Force Participation Rate, and the Employment to Population Ratio.

The former, according to well regarded left-of-center economics think tank, reveals “the number of people in the labor force—defined as the sum of employed and unemployed persons—as a share of the total working-age population, which is the number of civilian, non-institutionalized people, age 16 and over.”

The latter, the same source explains, shows “the number of people currently employed as a share of the total working-age population, which is the number of civilian, non-institutionalized persons, age 16 and over.”

For what it’s worth, this reliable economics and finance website claims that the Employment to Population Ratio provides the best indication of job shrinkage or growth. So let’s begin there.

Obama: 58.8 percent to 59.9 percent       Trump: 59.9 percent to 61.1 percent

Pretty much a standoff.

As for Labor Force Participation:

Obama: 62.9 percent to 62.6 percent       Trump: 62.8 percent to 63.4 percent

Advantage, Mr. Trump.

As previously mentioned, the economic growth figures are only reported quarterly. Keeping that in mind, here’s how the two administrations stack up. The most commonly followed measure of the economy’s size and how it changes is inflation-adjusted gross domestic product (GDP).

Obama: +8.19 percent           Trump: +5.75 percent

These data, though, include shutdown-y March, 2020. Taking the story only through the end of 2019 brings the Trump years’ performance up to 7.11 percent – but he still trails.

Interestingly, even including the first quarter of this CCP Virus-y year, Mr. Trump’s record is slightly better when another metric for economic growth is used – value-added. Its value lies in trying to eliminate the double- and even more overcounting that results when the of the parts and other inputs of a complicated product are counted both when they’re turned out individually, and when they’re contained in that final product.

Obama: +12.09 percent          Trump: +12.24 percent

The Trump presidency’s margin is even bigger in manufacturing value-added, and even including the first quarter:

Obama: +7.09 percent            Trump: +10.58 percent

Importantly, all the above value-added numbers are pre-inflation. After-inflation value-added data are tracked by the federal government, too, but they’re not even measured on a quarterly basis. Only full-year numbers are available. So since these make precise comparisons less possible, I’m skipping them.

Finally, here are numbers that hardly ever make the news, but might be the most important of all – the productivity data. These various measures of efficiency are widely viewed by economists are crucial to determining how healthy and durable economic growth is and will be, and therefore how strongly and for how long living standards can rise.

Results aren’t up-to-date enough for the broadest measure of economic efficiency – multi-factor productivity. But they are for the narrower measure, labor productivity – which gauges how much a single worker can produce in a single hour on the job – starting with the overall economy

Obama: +3.97 percent           Trump: +3.95 percent

And if you want to remove the first quarter of this year, because of the virus effect in March, overall labor productivity during the Trump period was up 4.02 percent

Labor productivity is monitored for manufacturing, too, and here are those statistics including the first quarter of this year:

Obama: -2.57 percent           Trump: +0.29 percent .

Oddly, if the first quarter is removed, the Trump years’ performance worsens a bit – and even falls to an overall dip of 0.09 percent. But however poor, it still tops the record of the Obama years.

So why are the Trump economy poll numbers so good? One possible answer: The final year of the Obama presidency was feeble by nearly all measures. Real gross domestic product advanced by only 1.70 percent. Total employment grew by a mere 1.64 percent, versuss 2.19 percent in 2014. National manufacturing employment actually dipped by 6,000 from 2015 levels. Real wage growth overall slowed from 1.26 percent in 2014 to 0.56 percent in 2016. And inflation-adjusted manufacturing wages performed scarcely better.

Moreover, as the New York Times article linked above makes clear, the public’s evaluations of the Trump economic record are incredibly partisan – often conflicting with a respondent’s actual situation.

It’s also possible and legitimate, as I’ve noted, to point to some important reasons for this Trump under-performance.  The President’s trade policies clearly disrupted national and global supply chains, and the consequent inefficiencies surely dragged on GDP and employment in the short term.  Boeing aircraft’s safety woes have undercut national economic performance lately, too.  But good luck to you if you think these considerations are going to have any effect on voters.  

I’m hardly naive enough to think that these or other economic facts will be enough to determine November’s outcome. And I have no idea how voters will factor in the deep CCP Virus-induced recession into their thinking. But the facts aren’t a throwaway, either, and although the Obama record didn’t exactly thump Mr. Trump’s, it’ll certainly provide Biden with considerable ammunition.

(What’s Left of) Our Economy: U.S. Productivity Growth Keeps Lagging Historically, but has Bumped Under Trump

Tags

Barack Obama, election 2020, labor productivity, manufacturing, multifactor productivity, non-farm business, productivity, Trump, {What's Left of) Our Economy

Sure, they’re lagging indicators, and don’t tell us much, if anything, about whatever coronavirus effect the American economy might face. Still, today’s new U.S. government data on labor productivity both say something about where the economy has been until recently before pandemic fears hit, and provide a noteworthy point of comparison between the record of President Trump and his White House predecessor, Barack Obama. And although the news for the economy isn’t good at all (especially for manufacturing), the findings should cheer Mr. Trump and his supporters.

The figures, from the Department of Labor’s Bureau of Labor Statistics (BLS), cover labor productivity – a gauge of output of a good or service per each hour a worker has been on the job trying to create it. It’s the narrower of the two productivity measures calculated by BLS (the other, multifactor productivity, reports on output as a function of many more inputs, like capital and technology), but it’s released on a timelier basis. And the latest numbers not only bring the story up to the fourth quarter of last year (preliminarily). They also incorporate revisions – some of which go back to 1947!

As a result, it’s now possible to take a new look at the nation’s productivity performance during the last three economic recoveries – the most economically valid, apples-to-apples way of comparing trends over significant time spans.

And here’s where the news isn’t good, as will be made clear from the following two tables. The first shows the cumulative productivity changes during those last three expansions before these latest revisions:

                                                                        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 09 thru final 3Q 19):     +12.74 percent        +9.42 percent

The second shows the same developments with the revisions.

                                                                         Non-farm business    Manufacturing

1990s expansion (2Q 1991-1Q 2001):              +23.75 percent        +44.68 percent

bubble expansion (4Q 2001-4Q 2007):             +16.58 percent        +30.92 percent

current expansion (2Q 09 thru final 3Q 19):     +12.74 percent          +6.32 percent

current expansion (2Q 09 thru prelim 4Q 19):  +13.44 percent          +6.11 percent

The big takeaway is that although the revisions leave the picture for both non-farm businesses (BLS’ main definition of the American economic universe) and manufacturing unchanged in terms of a long and substantial productivity slowdown, they downgrade manufacturing’s performance during the current recovery substantially. In fact, industry’s labor productivity growth is now reported to be about a third slower than previously thought.

Since it’s a presidential campaign year, I thought a Trump-Obama comparison would be appropriate, and here’s where the good news for Trump World, at the very least, comes in.

                                                                   Non-farm business          Manufacturing

last 12 Obama quarters                                 +3.31 percent                -2.27 percent

first 12 Trump quarters                                 +4.17 percent                -0.05 percent

The time frames used make sense because they represent identical numbers of quarters for each President that are also the closest to each other in the current (expansionary) business/economic cycle. The productivity performance under Mr. Trump hasn’t been gangbusters historically speaking for either sector of the economy. But it’s clearly been better than that registered during the most comparable Obama period.

Since most serious students of the economy agree that there’s lots of room for improvement in measuring productivity growth (especially for the services sectors), it would be quite the stretch for Mr. Trump to claim credit for these favorable numbers. Yet when have such substantive considerations ever stopped politicians from pretending they wield such power – for economic good or ill? So unless the productivity arrows start moving down markedly, Americans might finally hear something from the President about productivity before too long.

(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: So You Think Trade is an Engine of Productivity Growth?

Tags

economics, economists, European Central Bank, exports, free trade, GDP, gross domestic product, imports, International Monetary Fund, labor productivity, productivity, productivity growth, total factor productivity, Trade, trade openness, World Bank, {What's Left of) Our Economy

The idea that the more international trade a country engages in, the more strongly its productivity will grow, is widely accepted among economists. Indeed, no less than the World Bank, the International Monetary Fund, and the European Central Bank (the eurozone’s version of America’s Federal Reserve) say so.

How then, can these august institutions and other believers explain the following: On the one hand according to the United Kingdom’s Royal Statistical Society, the country’s feeble annual average labor productivity growth of 0.3 percent over the last ten years was its “statistic of the decade”? Worse, it was the poorest decade for British productivity growth since the early 19^th century.

Yet on the other hand, during this period, the United Kingdom’s openness to foreign trade – a data point created by adding a country’s imports and exports and then expressing this sum as a percentage of its entire economy, or gross domestic product (GDP) – has for the most part been hovering near post-1960s highs. In other words, the more foreign trade the UK has been engaging in, the lower its productivity growth seems to have become.

Nor is this phenomenon restricted to the UK. The same pattern can be seen in the United States, although the country’s openness to trade is much lower than the United Kingdom’s in absolute terms (not surprising, since we’re comparing an island with a continental sized economy). RealityChek regulars shouldn’t have to be reminded about America’s discouraging collapse in labor productivity growth.

What about trade? In fairness, America’s openness to trade has been falling recently. But no, that’s not President Trump’s “fault.” The decline began in 2011, when trade’s share of GDP hit a post-1960 high of 30.79 percent. As of 2017 (the latest data year available according to this source), it still stood at 27.09 percent – much higher than the period average of 19.29 percent.   

Also in fairness: Simply because openness to trade for these two big national economies has coincided with lousy productivity growth doesn’t mean that openness to trade causes the problem (or vice versa). It doesn’t even mean that openness to trade is the main productivity culprit, for many different characteristics of an economy influence any single characteristic.

But certainly in light of the American and British experiences, even if the conventional wisdom is right and trade openness does encourage productivity growth, it’s clearly a policy choice that’s often overwhelmed by other features of that same economy. P.S. – it ain’t just the Anglo-Americans. The World Bank’s databases also portray global trade at only slightly off its all-time high as a share of the global economy. And guess what? It turns out that global productivity growth has been crappy lately, too, whether we’re talking labor productivity or total factor productivity (a broader gauge that measures output from the use of many different inputs, not just labor).

As a matter of fact, it’s not difficult to think of ways in which more trade can undermine productivity growth – e.g., if import floods decimate the sectors of the economy that have historically been its manufacturing leaders, or if trade policy fosters their offshoring. (Strong cases can be made for both propositions when it comes to American domestic manufacturing.) 

So the case that trade fosters productivity growth is hardly a slam dunk.  And that’s one more reason to believe that the broader case for free trade isn’t, either.

(What’s Left of) Our Economy: Back into Decline for U.S. Labor Productivity

Tags

durable goods manufacturing, labor productivity, manufacturing, multifactor productivity, nondurable goods, nonfarm business, productivity, total factor productivity, {What's Left of) Our Economy

Well, that didn’t last long. After two straight quarters of encouraging growth, U.S. labor productivity is back in the doldrums, with this morning’s preliminary data from the Labor Department revealing a drop during the third quarter of this year.

At least, however, these latest figures on the narrowest measure of the economy’s efficiency, and ability to grow healthily and generate sustainably rising living standards contained a novel recent twist: U.S.-based manufacturing outperformed the Labor Department’s main definition of the broader economy – the “nonfarm business sector.”

Moreover, the results pointed to a trend I hadn’t recognized till now: Manufacturing’s transformation from a national productivity leader into a laggard, which began during the current economy-wide recovery (and probably began during the Great Recession preceding it) is heavily concentrated in nondurable goods manufacturing. Labor productivity in the larger durable goods super-sector is still growing faster than that of nonfarm businesses, though the gap between the two has shrunk decidedly.

As known by RealityChek regulars, labor productivity measures how much output an American worker turns out for each hour he or she is on the job. It’s not as broad a gauge as “total factor productivity” (AKA “multifactor productivity), which measures output per hour resulting from a wide array of inputs, including not only human beings but capital, energy, materials, and others. But the labor productivity numbers come out on a timelier basis.

The news for the second quarter’s final (for now) data was pretty good. The increase in nonfarm business labor productivity was upgraded from a 2.3 percent annualized rate to 2.5 percent. Manufacturing’s 2.2 percent annualized drop, however, was revised down to a 2.4 percent decrease – its worse such performance since the four percent plunge in the third quarter of 2017.

This morning’s first initial read on third quarter labor productivity reversed this pattern. Nonfarm business labor productivity was down 0.3 percent on an annualized basis – worse than the 0.1 percent dip for manufacturing, and its first shrinkage since the fourth quarter of 2015 (when it fell by 3.5 percent annualized).

But it was the more detailed figures on manufacturing’s third quarter that really caught my eye. Durable goods sectors’ labor productivity performance was in the black, growing at a 1.2 percent annual pace. But the nondurables result was deep in the red – down 1.5 percent.

Nor are these results aberrations, as the table below shows. It presents the total labor productivity growth rates during the previous two economic recoveries and the current upturn (to ensure the best, apples-to-apples findings). The main takeaway: Both super-sectors have suffered major labor productivity growth rates declines since the 1990s expansion. But during the current recovery (the longest on record in the United States), labor productivity growth in nondurables plummeted much faster than in durables (which wasn’t killing it on this front, either).

                                                                                  Durable mfg    Nondurable mfg

1990s expansion (2Q 1991-1Q 2001):                   +66.11 percent  +23.81 percent

bubble expansion (4Q 2001-4Q 2007):                 +34.59 percent  +24.01 percent

current expansion (2Q 2009 thru final 2Q 19):     +15.37 percent    +5.83 percent

current expansion (2Q 2009 thru prelim 3Q 19):  +15.71 percent    +5.44 percent

Moreover, as made clear from the table below, and its comparison of labor productivity growth in nonfarm businesses and in manufacturing as a whole during the same periods, however poor the durables’ performance, it’s still better than that of nonfarm businesses in an absolute sense. Nonetheless, its lead is down considerably.

                                                                         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 09 thru final 2Q 19):     +12.85 percent         +9.00 percent

current expansion (2Q 09 thru prelim 3Q 19):  +12.77 percent         +8.97 percent

Today’s productivity read was the first of three to be released for the third quarter (additional revisions will be made down the road), so it’s possible that the overall labor productivity result will wind up being an upturn rather than a downturn.  But for now, any talk of a new U.S. productivity growth revival looks premature. 

(What’s Left of) Our Economy: Economic and Political Productivity Puzzles

Tags

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

It’s U.S. labor productivity data time – in other words, the point at which all Americans interested in their economy and its future should be examining the latest news about a major measure of economic efficiency that speaks volumes about the nation’s chances of boosting living standards on a healthy, sustainable, rather than bubble-ized and therefore dangerous, basis.

And the Labor Department figures released last week continue to show a split personality performance: decent results for non-farm businesses (the Department’s main category for the economy as a whole), and woeful, worsening results for manufacturing.

According to these revised numbers for the second quarter of the year, output per each hour on the job by each worker (the narrower but most timely of two productivity measures tracked by Labor), increased over the first quarter’s level by the same 2.3 percent annual rate initially reported. In manufacturing, however, the originally published 1.6 percent annualized sequential decline is now judged to be a 2.2 percent drop – the worst such performance since the four percent nosedive in the third quarter of 2017.

As shown in the table below, the new data leave the current economic expansion (which began in mid-2009) as a major labor productivity laggard. After all, the cumulative growth rate for non-farm businesses is little better than half that of the 1990s expansion, even though they lasted for approximately the same period of time. And it’s even slower than the labor productivity growth rate of the bubble decade’s expansion – which was about 40 percent shorter. As for manufacturing, the table makes clear that the deterioration has been much greater.

                                                                          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 thru prelim 2Q 19):  +12.80 percent      +9.19 percent

current expansion (2Q 09 thru revised 2Q 19):     +12.80 percent      +9.02 percent

Nonetheless, the new figures do contain some good news for President Trump. So far during his administration, overall labor productivity has grown faster than during the last comparable period under former President Obama. Manufacturing labor productivity has grown more slowly, but the difference is only fractional:

                                                                         Non-Farm business   Manufacturing

last 8 Obama quarters:                                         +1.33 percent        +0.38 percent

first 8 Trump quarters:                                         +3.46 percent        +0.25 percent

Even better, although the second quarter’s non-farm business annualized 2.3 percent labor productivity growth was lower than the first quarter’s 3.5 percent, the trend under Mr. Trump has generally been up. During those last two Obama years, the growth rate slowed significantly. In manufacturing, however, the momentum picture has been the reverse – modest but overall strengthening under Obama, major weakening under Mr. Trump.

One reason for this recent manufacturing deterioration could actually be good news politically for the President and his supporters: During his months in office so far, manufacturing workers’ compensation cumulatively has risen at more than twice the rate (8.52 percent) than during the final eight quarters of the Obama administration (4.06 percent). And workers, of course, are often voters.

Yet this development brings up a real puzzle: When it comes to non-farm businesses, the Trump productivity performance has been considerably better than the Obama even though compensation under the current administration has also risen much faster (11.30 percent cumulatively) than during the comparable period under the previous administration (6.96 percent).

On the one hand, puzzling productivity results aren’t all that puzzling, since most economists admit that it’s the performance measure that’s the most difficult to track. On the other, these Obama-Trump puzzles look pretty mysterious even by productivity’s standards.

(What’s Left of) Our Economy: U.S. Manufacturing’s Productivity Lag Just Got Even Worse

Tags

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

If there were two of me, I could have reported yesterday on both the new industrial production figures from the Federal Reserve and the new labor productivity data from the Bureau of Labor Statistics (BLS) that came out. Because progress in cloning tech has been incredibly disappointing, and since Washington keeps often pairing such releases, I had to choose one (the former). But the latter’s importance should never be forgotten, especially since it shows manufacturing’s performance on this crucial front has actually deteriorated, at least in a relative sense. This development, in turn, has big implications for President Trump’s tariff-heavy trade policies.

After all, these Trump levies, whether on metals or on products from China, increase cost pressures at various stages of individual companies’ production process or at various stages of industry supply chains when (as they often do) they cross national borders.

As a result, the companies involved can respond with various combinations of the following measures: They can increase the prices they charge to their customers (whether they’re other businesses, in the case of inputs used in producing goods and services, or consumers, in the case of the kinds of products sold by retailers). They can find alternative sources of supply (which rarely happens right away). They can eat the higher costs, and accept lower profits, in hopes of preserving market share. Or they can improve their productivity, and therefore offset the impact of higher costs through improved efficiency.

That last option is (which involves more than simple cost-cutting) is the best for the economy, including for workers, in the long run, since it’s a time-tested formula for boosting growth and living standards on a sustainable basis. But manufacturing’s deteriorating record in this regard indicates that American industry overall is failing this test.

To remind, labor productivity is the narrower of the two such measures of efficiency tracked by the BLS. It simply reveals how much of a particular good or service can be produced by the relevant workforce (adjusted for inflation) per each hour on the job. As the name implies, the broader measure, multi-factor productivity (also called total factor productivity) measures output per worker hour as a function of the use of many different inputs – e.g., capital and energy, as well as labor.

The manufacturing labor productivity lag becomes clear upon examining the latest results. It’s true that the sector’s first quarter sequential growth (at an annual rate) was revised up from 0.4 percent to 1.1 percent. But the comparable figure for non-farm businesses (BLS’ definition of the American economic universe for productivity measurement purposes) was much better – a 3.4 percent annualized gain revised up to 3.5 percent.

The gap widened further in the second quarter, at least according to yesterday’s preliminary results. Non-farm business labor productivity rose again, albeit at a slower 2.3 percent annual rate. But in manufacturing, labor productivity actually fell in absolute terms – by 1.6 percent at an annual rate.

Even more alarming are the longer-term trends, which are especially visible thanks to the labor productivity revisions going back to 2014 released by the Labor Department along with the preliminary second quarter results. Here are the pre-revision results for the last three economic expansions, including the one still ongoing, through the first quarter of this year. (RealityChek regulars know that the most useful economic analyses compare results during similar stages of the business/economic cycle.)

                                                                           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 thru prev 1Q19):    +12.18 percent        +9.59 percent

These numbers demonstrate how the growth rate of labor productivity in manufacturing has slowed much more dramatically than that of the overall non-farm business sector.

Here are the results for the current expansion incorporating the revised first quarter figures:

                                                                          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 09 thru revd 1Q19):      +12.16 percent          +9.64 percent

Manufacturing’s performance ticked up and the non-farm business sector’s performance ticked down, but the big picture didn’t change much. And now for the results incorporating the preliminary second quarter results:

                                                                        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 09 thru prelim 2Q19):  +12.80 percent         +9.19 percent

Because of the second quarter’s non-farm business growth and manufacturing’s decline, the gap between the two became even bigger – and manufacturing’s longer-term slowdown became even more dramatic. 

And as if this big picture wasn’t bad enough, let’s not forget that much of manufacturing’s recent recorded labor productivity gains have come from a methodological oddity that results in the offshoring of production strengthening the labor productivity results.  That’s the kind of productivity improvement that the domestic economy clearly doesn’t need.  And revealingly, for all the claims over the years that offshoring is a plus for that domestic economy, including for its workers, the evidence sure isn’t showing up in the manufacturing labor productivity data.   

An optimist could note that these preliminary second quarter results represented manufacturing’s worst readings since the first quarter of 2018, and that the second quarter results can still be revised upward. A pessimist could reply, especially regarding the latter, “They’d better be.”

(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: A Sort of Mixed U.S. Productivity Report

Tags

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

This morning’s government report on labor productivity for the first quarter of this year contained a valuable reminder that this measure of the economy’s efficiency – and indirectly, its success in fostering healthy growth and sustainably rising living standards – can improve for good and not-so-good reasons. And the complicating factor in an otherwise strong set of data came in manufacturing.

Labor productivity, as RealityChek regulars know, 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.

As suggested above, the overall figures were encouraging. For non-farm businesses (the Labor Department’s U.S. economy universe), labor productivity rose by 2.40 percent between the first three months of 2018 and the first three months of this year. That was the best such performance since the third quarter of 2010 (2.70 percent), and especially good news since that previous mark came much earlier in the current business cycle (i.e., much sooner after the end of the last severe recession), when robust productivity gains are generally easier to generate.

Moreover, these labor productivity advances have accelerated sequentially since the third quarter of last year.

In addition, on a quarter-to-quarter basis, the first quarter’s 3.60 percent increase at an annual rate was this metric’s best performance since the 3.70 percent rise in the third quarter of 2014.

Manufacturing’s 1.20 percent productivity improvement over the first quarter of 2018 wasn’t stellar, but pretty much in line with recent readings. The new quarter-to-quarter reading, though, was solid; industry’s labor productivity was up 1.70 percent annualized – the best such performance since the 4.40 percent pop in the fourth quarter of 2017. And the rate of increase here had sped up since the third quarter of last year as well.

The fly in the ointment concerns why first quarter manufacturing labor productivity even rose at that solid quarter-to-quarter pace. A big part of the reason was that manufacturing output fell during this period – by one percent at an annual rate. In other words, the sector reduced the number of hours its workers worked, but it also saw production fall – just more slowly. That result is certainly better than output falling just as fast or faster than hours worked. But it doesn’t qualify as “good.”

The latest sequential manufacturing annualized output decrease is the first since the 1.50 percent decline in the third quarter of 2017 (when the sector’s productivity sank by a recessionary 4.40 percent at an annual rate). Industry’s labor productivity rebounded sharply in the following quarter (by 4.20 percent annualized, while output shot up by 5.70 percent). So maybe this latest lousy output number is just another bump in the road.

But it’s that combination that represents the best possible labor productivity outcome: Both output and efficiency rising at the same time.

It’s also important to remember, however, that both the economy overall and the manufacturing sector still aren’t close to returning to their labor productivity performances of the recent past. Here are the updated comparisons between the current recovery, and its two most recent predecessors:

                                                                 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):    +12.17 percent          +9.96 percent

The newest quarterly figures brighten the picture slightly. But boasting about the U.S. economy should definitely be muted until these productivity numbers start turning around dramatically.