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(What’s Left of) Our Economy: U.S. Manufacturing Growth is Overcoming the Ukraine War, Too

16 Saturday Apr 2022

Posted by Alan Tonelson in (What's Left of) Our Economy

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aerospace, aircraft, aircraft parts, appliances, automotive, electrical components, electrical equipment, Federal Reserve, furniture, inflation, logistics, machinery, manufacturing, medical devices, medical equipment, metals, monetary policy, non-metallic mineral products, pharmaceuticals, printing, semiconductors, supply chains, textiles, transportation, {What's Left of) Our Economy

My day got away from me yesterday, so I couldn’t finish up my report on that morning’s Federal Reserve’s newest U.S. manufacturing production figures (for March) till now. But they’re worth examining in detail because although they’re the first such data to be released since the Ukraine war broke out and began disrupting global supply chains for important goods, they strongly resembled last month’s statistics – which were the final pre-war figures.

And just as interesting: Many of the results for individual industries illustrated strikingly the roller coaster ride on which much of domestic industry remains, with multi-month bests in particular coming right on the heels of multi-month worsts. Moreover, underscoring much of the uncertainty created by Ukraine-related tumult coming on top of (and in China’s case, alongside) CCP Virus-related tumult, some revisions of previous months’ readings were unusually large.

In inflation-adjusted terms, American manufacturing output grew 0.87 percent sequentially in March. The increase was powered largely by a 7.80 percent monthly jump in real output in the exceptionally volatile automotive sector. But even stripping out vehicles and parts production, price-adjusted manufacturing production improved by 0.40 percent in March.

In addition, revisions were mildly positive. February’s initially reported 1.20 percent constant dollar month-on-month production increase – the best such performance since last October’s 1.71 percent – was upgraded to 1.22 percent. January’s downwardly revised 0.03 percent improvement is now estimated at 0.11 percent. And December’s small dip was revised up again – from -0.06 percent to -005 percent.

Consequently, since the last full data month before the CCP Virus began roiling the U.S. economy (February, 2020), domestic manufacturing has expanded by 4.42 percent – up from the 3.37 percent calculable last month.

At the same time, U.S.-based industry is still 2.91 percent smaller than at its all-time peak – reached just before the Great Recession in December, 2007 – although that’s up from the 3.88 percent deficit calculable last month.

March’s biggest manufacturing production winners were:

>automotive, as mentioned above. That was the biggest sequential gain since last October’s 10.64 percent, but it follows a February drop that’s been downgraded from 3.55 percent to 4.64 percent. And that was the worst monthly figure since last September’s 6.32 percent. All these (and previous) ups and downs left after-inflation vehicle and parts production 3.50 percent below their immediate pre-pandemic (February, 2020) levels;

>aerospace and miscellaneous transportation, where after-inflation production rose by 1.90 percent on month. The February advance, was downgraded substantially, from 3.22 percent to 1.64 percent, leaving the March increase the biggest since last July’s 4.21 percent. These industries are now 16.43 percent larger in real terms than in February, 2020;

>electrical equipment, appliances and components’ price-adjusted production climbed 1.03 percent sequentially and February’s increase was revised all the way up from 0.48 pecent to 1.95 percent– best since last July’s 3.24 percent. Inflation-adjusted output in these sectors is now 5.55 percent above thei February, 2020 levels; and

>plastics and rubber products, which displayed a similar pattern. Real output was up 1.14 percent sequentially in March, and February’s results were more than doubled – from +1.46 percent to +3.14 percent. That burst – the best since August, 2020’s 3.85 percent – left constant dollar production for these industries 3.56 percent greater than in immediate pre-pandemic-y February. 2020

In addition machinery, which is such a bellwether for both the rest of industry and the entire economy because of the widespread use of its products, price-adjusted output in March improved by 0.78 percent over February’s results. And although the February improvement was downgraded from 0.78 percent to 0.54 percent, after-inflation machinery production is still up 8.29 percent since February, 2020.

The biggest March manufacturing growth losers were:

>non-metallic mineral products, whose 1.15 percent March monthly decline was the worst such figure since last May’s 2.29 percent decrease. But this drop-off followed a February monthly surge that was upgraded from 3.46 percent to 3.94 percent – the .best such showing the 4.34 percent of June, 2020 – early in the recovery from the deep economic downturn triggered by the first wave of the CCP Virus and related lockdowns and behavioral curbs. Real output in this sector has now risen by 3.28 percent since February. 2020;

>primary metals, where similarly. March’s 1.69 percent fall was the biggest since January’s 2.46 percent drop – and followed a February 2.26 percent increase that was upgraded from the previously reported 2.10 percent and represented the best monthly performance last April’s 3.48 percent. Primary metals inflation-adjusted output is now 1.16 greater than in Februrary, 2020;

>furniture and related products’ after-inflation production sank by 1.51 percent from February to March – the worst such figure since February, 2021’s 3.21 drop. But March’s lousy results followed a February increase that was also more than doubled – from 2.52 percent to a 5.63 jump that was this sector’s best since June 2020’s 5.66 percent. These results brought real output in furniture and related products to within 0.80 percent of its immediate, February, 2020 pre-pndemic level;

>textiles’ 1.46 percent monthly March real output decrease was its worst monthly result since January’s 2.30 percent drop. But it, too, followed a strong February. That month’s improvement was upgraded from 0.03 percent to 0.97 percent – the biggest monthl increase since September’s 1.36 percent. Yet in real terms, the industry is still 5.84 percent smaller than in February. 2020;

>and printing and related support activities. It’s 1.10 percent March sequential after-inflation output retreat was also its worst since January’s 2.16 percent decrease. But it, too, followed a strong February. Indeed, that months’ inflation-adjusted production increase was revised up from 1.66 percent to 2.66 percent – its best such performance since last May’s 2.75 percent rise. This cluster, though, has still shrunk by 4.69 percent in constant dollar terms since February. 2020.

Growth was solid, too, in industries that consistently have made headlines during the pandemic.

In the aircraft and aircraft parts sector, real production increased in March by 2.31 percent. Because February’s initially reported 2.52 percent monthly rise was marked all the way down to 1.13 percent, the March figure became these industries’ best since last July’s 3.44 percent (which I mistakenly reported last month was an August total). January’s results were downgraded, too – and for a second time, to 0.91 percent. But the sector is still 15.86 percent bigger than it was after inflation than in February, 2020.

The big pharmaceuticals and medicines sector turned in a more mixed performance. March’s 1.17 percent price-adjusted monthly production increase was the best such total since last August’s 2.39 percent. But February’s initially reported 1.08 percent gain is now reported as a 1.15 percent loss. January’s constant dollar production change, however, was revised up from a 0.14 percent drop to a 0.45 percent increase. All told, pharamaceuticals and medicines production is 14.75 percent higher afte inflation than in February, 2020.

But the news was unambiguously good in the medical equipment and supplies sector that contains so many of the products needed to fight the pandemic. The March inflation-adjusted output improvement was 1.81 percent and February’s production growth was upgraded from 1.39 pecent to 1.73 percent. Further, the January after-inflation growth figures – which had already been revised up from 2.50 percent to 3.26 percent – was upgraded further to 3.28 percent. And a December result that was first reported as a decline of 2.75 percent is now estimated to be a dip of just 0.37 percent. All told, output in these sectors has increased by 10.80 percent since immediately pre-pandemic-y February, 2020.

And although the national and global semiconductor shortage persists, U.S. domestic production kept rising healthily. Output in March improved month-to-month by 1.99 percent adjusted for inflation, February’s initially reported rise of 1.96 percent was upgraded to 2.87 percent (the best such growth since April, 2017’s 3.78 percent), and January’s downwardly revised 0.37 percent sequential output decline was revised up to a 0.05 percent gain. As a result, semiconductor production is upfully 25.99 percent over its immediate pre-pandemic levels.

The March manufacturing production figures portray a domestic industry resilient enough to withstand not only pestilence but (so far) war and the beginnings of tighter Federal Reserve monetary policy aimed at slowing U.S. growth in the name of reducing  inflation. No one knows what catastrophes the future may hold, or how much more the aforementioned problems could worsen. But it’s looking like any force powerful enough to derail American manufacturing for long may need to be truly Biblical in its proportions.

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Following Up: Podcast Now On-Line of National Radio Interview on Ukraine War, Manufacturing, & Reshoring

15 Friday Apr 2022

Posted by Alan Tonelson in Following Up

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CBS Eye on the World with John Batchelor, China, Following Up, globalization, Gordon G. Chang, IMF, International Monetary Fund, lockdowns, logistics, manufacturing, reshoring, supply chains, Trade, transportation, Ukraine, Ukraine-Russia war, Zero Covid

I’m pleased to announce that the podcast of my interview Wednesday night on the nationally syndicated “CBS Eye on the World” with John Batchelor is now on-line.

Click here for a timely discussion (with co-host Gordon G. Chang, too) on how U.S. domestic manufacturing is coping with the Ukraine war and other global supply chain snags – including a possible scenario John brings up that clearly throws me for a loop.  We also comment on a new report from the International Monetary Fund questioning whether reshoring industry back to the United States makes sense in the first place. 

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

 

Following Up: Podcast Now On-Line of National Radio Interview on China and Supply Chains

06 Thursday Jan 2022

Posted by Alan Tonelson in Following Up

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CBS Eye on the World with John Batchelor, CCP Virus, China, coronavirus, COVID 19, Following Up, global supply chains, globalization, John Batchelor, logistics, manufacturing, supply chains, transportation, Wuhan virus, zero covid policy

I’m pleased to announce that the podcast is now on-line of my interview last night on the nationally syndicated “CBS Eye on the World with John Batchelor.”

Click here for a timely discussion of whether the continuing and multiple snags in many China-centered global supply chains will prompt U.S. and other foreign-owned companies to hedge their production bets by cutting their reliance on Chinese operations.

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

Following Up: National Radio China Interview Podcast Now On-Line

18 Thursday Nov 2021

Posted by Alan Tonelson in Following Up

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CBS Eye on the World with John Batchelor, China, decoupling, finance, Following Up, Gordon G. Chang, investment, John Batchelor, logistics, supply chain, tariffs, Trade, tradewar, transport, Wall Street

True to my word, I’m pleased to announce that the podcast is now on-line of my appearance last night on John Batchelor’s nationally syndicated radio show. Click here for a terrific discussion among John, co-host Gordon G. Chang, and me on how successfully Washington has – or hasn’t – been decoupling its economy from that of an increasingly hostile and powerful rival.

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

Making News: Back on National Radio on China Trade, Beijing’s Wall Street Funders…& More!

17 Wednesday Nov 2021

Posted by Alan Tonelson in Making News

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CBS Eye on the World with John Batchelor, China, finance, Gordon G. Chang, investment, logistics, Making News, supply chain, tariffs, Trade, tradewar, transport, Wall Street

I’m pleased to announce that I’m scheduled to return to John Batchelor’s nationally syndicated radio show tonight. In fact, I’m especially pleased to announce this because for a change I have enough notice to give RealityChek readers a heads up!

The conversation – which will include co-host Gordon G. Chang – will cover headline subjects like whether U.S. tariffs on China are still working, why Wall Street has been channeling ever more enormous amounts of capital from abroad in China’s state-controlled economy, and where the global supply chain crisis stands.

As usual, I don’t know when exactly the segment will air, but John’s show is on nightly from 9 AM to I PM, and you can listen live at this link. P.S. John’s other interviews are likely to be must-listening, too. Further, if you can’t tune in, I’ll be posting a link to the podcast as soon as one’s available.

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

(What’s Left of) Our Economy: The Case for Transitory U.S. Inflation Just Weakened

10 Wednesday Nov 2021

Posted by Alan Tonelson in (What's Left of) Our Economy

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CCP Virus, consumer price index, core inflation, coronavirus, COVID 19, CPI, inflation, Labor Department, lockdowns, logistics, prices, reopening, stay-at-home, supply chain, transportation, Wuhan virus, {What's Left of) Our Economy

At first glance, this morning’s U.S. inflation report almost had me throwing in the towel in the debate between those (like me) believing that recent price hikes will peter out sooner rather than later, and those believing that they’ll be much longer lasting.

My pessimism stemmed from the indisputable facts not only that by all the major month-on-month and year-on-year measures, the numbers for October were terrible in their own right. They also showed inflation gaining momentum. My case for optimism focused on a loss of momentum I’d identified through September.

Today’s statistics definitely shifted the weight of the evidence in favor of the pessimists. But I still see one possible reason for continued optimism – though the accent is on “possible.” Specifically, the year-on-year numbers may again be partly functions of unusually weak inflation last year, when the CCP Virus pandemic was undermining the economy even more than this year.

Let’s review the main monthly and annual numbers for this calendar year first, though, because it’s worth seeing just how bad they are and how much inflation momentum they reveal. First, the monthly results for overall inflation (as measured by the Labor Department’s Consumer Price Index, or CPI). As you can see, whereas sequential price increases between July and September had been coming in considerably lower than their June peak, in October they shot up past the June peak – to the highest level since June, 2008 (1.05 percent).

Dec-Jan:                          0.26 percent

Jan-Feb:                          0.35 percent

Feb-March:                     0.62 percent

March-April:                  0.77 percent

April-May:                     0.64 percent

May-June:                      0.90 percent

June-July:                      0.47 percent

July-Aug:                      0.27 percent

Aug-Sept:                      0.41 percent

Sept.-Oct:                      0.94 percent

The recent acceleration in the monthly changes in so-called core inflation was even stronger. (This gauge strips out food and energy prices, because however vital these commodities are to daily life, their price levels can be influenced by developments like bad weather or the decisions of the OPEC oil-producing countries’ cartel that supposedly say little about how fundamentally inflation-prone the economy is or isn’t.)

As of October, core inflation is still well below its peak in early spring. But it’s much highe than it’s been in the last three months:

Dec-Jan:                      0.03 percent

Jan-Feb:                       0.10 percent

Feb-March:                  0.34 percent

March-April:                0.92 percent

April-May:                   0.74 percent

May-June:                    0.88 percent

June-July:                     0.33 percent

July-Aug:                     0.10 percent

Aug-Sept:                    0.24 percent

Sept-Oct:                     0.60 percent

The case for acceleration is at least as strong for annual overall inflation. As I wrote last month, the rate of change had been more or less plateauing since May, but clearly shifted into a higher gear in October. Indeed, last month’s yearly increase was the biggest since December, 1990’s increase of 6.25 percent.

Jan:                             1.37 percent

Feb:                            1.68 percent

March:                       2.64 percent

April:                         4.15 percent

May:                          4.93 percent

June:                          5.32 percent

July:                           5.28 percent

Aug:                           5.20 percent

Sept:                          5.38 percent

Oct:                            6.24 percent

The same speed-up can be seen in the annual core inflation figures. And they’ve just hit their highest level since September, 1991 (4.60 percent).

Jan:                            1.40 percent

Feb:                            1.28 percent

March:                       1.65 percent

April:                         2.96 percent

May:                          3.80 percent

June:                          4.45 percent

July:                          4.24 percent

Aug:                          3.98 percent

Sept:                          4.04 percent

Oct:                           4.58 percent

But now the data providing (some) cause for optimism. They cover the annual inflation figures for 2019-2020, and the reason for examining them is that if inflation that year was unusually low, then whatever price hikes are recorded the year after will be unusually – and to some extent, artificially – high.

As clear from the below numbers, those 2019-2020 inflation rates became rock bottom as the CCP Virus began spreading, the economy began locking down, and consumers turned super cautious. From June through September, they rose again as the reopening after that first virus wave proceeded. But numbers like those, with one handles, hadn’t been seen recently since the summer of 2017, and even these were all well above 1.50 percent.

But October saw a sizable dropoff – from 1.41 percent to 1.19 percent.

Jan:                            2.47 percent

Feb:                            2.31 percent

March:                       1.51 percent

April:                         0.34 percent

May:                          0.22 percent

June:                          0.73 percent

July:                          1.05 percent

Aug:                          1.32 percent

Sept:                         1.41 percent

Oct:                          1.19 percent

And possibly as interesting: The November, 2019-2020 overall inflation rate (below) was even lower. December’s was higher, but not by much. So I’d argue that caution is warranted in reading too much into the latest big annual CPI increase.

Nov:                          1.14 percent

Dec:                           1.30 percent

The story told by the core inflation data is similar. Annual price hikes below two percent didn’t reappear until March, 2018 and stayed above that level until the depths of last year’s short but steep pandemic-induced recession. Following that first wave and its dramatic impact, annual 2019-2020 core inflation rates came back, but never approached two percent. And in October, fell back to 1.63 percent.

Jan:                           2.26 percent

Feb:                          2.36 percent

March:                      2.10 percent

April:                        1.44 percent

May:                         1.24 percent

June:                         1.20 percent

July:                         1.56 percent

Aug:                         1.70 percent

Sept:                        1.72 percent

Oct:                          1.63 percent

How did they perform through the end of 2020? Cumulatively, they drifted down further.

Nov: 1.65 percent

Dec: 1.61 percent

In this vein, it will be especially interesting to see how the annual 2021-2022 statistics look when they begin coming in early next year. My bet right now is that they’ll decline simply because this particular CCP Virus effect will be wearing off. And hopefully, progress toward untangling knotted global supply chains will help moderate the monthly numbers. (Until then, though, the holiday shopping season could well keep propping them up.) But if those logistics and transport troubles remain serious, all bets come off. Ditto for energy prices if they stay up.

None of this is to minimize the pain that recent and current inflation have inflicted on Americans, and especially lower income Americans. And the October results suggest that even if these price hikes prove to be a transitory development due largely to one-off CCP Virus-related disruptions, there’s no doubt that the definition of “transitory” keeps expanding chronologically – and possibly making this debate look pretty moot.

Following Up: Podcast of National Radio Interview on Biden China Policy & Supply Chain Chaos Now On-Line

12 Tuesday Oct 2021

Posted by Alan Tonelson in Following Up

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Biden administration, CBS Eye on the World with John Batchelor, China, Following Up, logistics, shortages, supply chain, tariffs, Trade, trade war, transportation

I’m pleased to announce that the podcast of my interview last night on the nationally syndicated “CBS Eye on the World” with John Batchelor is now on-line.

Click here for a timely discussion of the state of the Biden administration’s China trade policy, and the outlook for untangling the CCP Virus-related global supply chain bottlenecks causing shortages and transport delays throughout the U.S. and world economies – and threatening to leave many holiday gifts undelivered.

I’m still hoping that a podcast will be posted of my segment yesterday morning on WAKR-AM’s (Akron, Ohio) “Ray Horner Morning Show,” but haven’t yet seen a recording of our discussion of those same topics. If one does go on-line, I’ll let everyone know ASAP.

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

(What’s Left of) Our Economy: U.S. Manufacturing Hiring’s Sloughing Off Delta – For Now

03 Friday Sep 2021

Posted by Alan Tonelson in (What's Left of) Our Economy

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aerospace, aircraft, aircraft engines, aircraft parts, appliances, automotive, Boeing, CCP Virus, China, coronavirus, COVID 19, Delta variant, electrical equipment, Employment, fabricated metal products, food products, healthcare goods, Jobs, logistics, machinery, manufacturing, medical equipment, metals, non-farm payrolls, pharmaceuticals, plastics and rubber products, PPE, private sector, semiconductor shortage, supply chains, tariffs, transportation, vaccines, {What's Left of) Our Economy

This morning’s official monthly U.S. jobs report (for August) brought a notable departure from recent trends. Athough the overall results were lousy (as total employment rose by just 235,000 during the month), manufacturing hiring soared by 37,000.

It’s true that nearly two-thirds of these gains (24,100) came from the automotive sector, which has been roiled recently by a shortage of semiconductors that’s wreaked havoc on the output of today’s increasingly electronics-stuffed vehicles. It’s also true that this progress might be snuffed out soon by the still widening spread of the CCP Virus’ highly infectious Delta variant and whatever new curbs on economic activity and consumer behavior it might keep prompting.

But it’s also true that domestic industry’s strong hiring in August came during a month when Delta had already become front-page news – which surely expains much of the much-weaker-than expected rise last month in overall non-farm payrolls (NFP – the U.S. jobs universe of the Labor Department that produces the employment data).

And it’s true as well that the major upward revision revealed to the July manufacturing jobs increase (all the way from 27,000 to 52,000 – the best such performance since last August’s 55,000) entailed much more than the vehicles and parts sectors (where the hiring advance was judged to be 10,500 instead of merely 800).

For example, July’s machinery jobs gains were upgraded from 6,800 to 9,100 (its strongest monthly result since last September’s 12,200); those for electrical equipment and appliances was estimated at 1,500 instead of 200; and employment in the plastics and rubber sectors was pegged at 2,300, not 300.

Despite its last excellent two months, U.S.-based manufacturing remained a job-creation laggard during the pandemic period as of August. But it became less of a laggard. Since the deep CCP Virus- and lockdowns-induced downturn of March and April, 2020, when manufacturers shed 1.385 million jobs, these companies have boosted employment by 1.007 million – erasing 72.71 percent of those losses. That share of regained jobs is up from the 68.74 percent level it reached in July.

That’s faster improvement than registered by the private sector, whose regained job percentage rose from 76.96 to 78.72, and by the total non-farm economy, where the advance rose from 74.50 percent to 76.60 percent.

Moreover, it’s important to remember that during the economy’s spring, 2020 woes, manufacturing employment suffered less than payrolls in the rest of the economy. Its job levels fell by 10.82 percent, compared with 16.46 percent for the private sector and 14.66 for the entire non-farm economy.

As with the July revisions, the list of significant manufacturing employment winners in August was hardly confined to the automotive industry. Among the major industry categories used by the U.S. government, fabricated metal products payrolls increased by 6,600 on month (the highest sequential boost since March’s 10,100); plastics and rubber products by 3,100 (its best such performance since February’s 4,500); and food manufacturing (1.600).

The biggest July jobs losers were electrical equipment and appliances (down 3,100, for its worst hiring month since January, when its payrolls fell by 3,400) and miscellaneous durable goods (a category containing personal protective equipment – PPE – and other medical supplies crucial for fighting the CCP Virus), whose 1,800 jobs lost were the worst such total since the entire economy’s spring, 2020 meltdown.

Also somewhat discouraging – job creation in the machinery sector, whose products are used elsewhere in manufacturing and throughout the rest of the economy, flatlined in August following its big 9,100 July spike.

The most detailed employment data for pandemic-related industries is one month behind those in the broader categories, but their July job-creation performance was decidedly mixed. In surgical appliances and supplies (the sector containing PPE and similar goods), May’s previously reported payroll decline of 900 is now judged to be a drop of 1,900, but June’s 500 jobs increase remained intact and was followed by an identical improvement in July. As a result, employment in this crucial national health security sector is now 9.22 percent above immediate pre-pandemic levels.

The overall pharmaceuticals and medicines industry saw hiring slow down notably in July – from a downwardly revised 2,300 in June to 400. May’s downwardly revised loss of 300 jobs stayed intact. These changes left payrolls in the sector 4.72 percent above February, 2020’s immediate pre-pandemic levels.

The story was little better in the pharmaceuticals subsector containing.vaccines. Its May and June employment gains are still judged to be 1,000 each, and no jobs at all were added in July. But its workforce is still 10.21 percent higher than just before the pandemic.

The July results showed that aircraft industry employment is still on a roller coaster, since Boeing is still struggling to overcome the manufacturing and safety issues it’s faced in recent years, along with the CCP Virus-related slump in business and leisure travel. May’s 5,500 monthly plunge in employment was unrevised in this morning’s figures, June’s 4,500 increase was upgraded to 4,700, but payrolls retreated again in July – by 1,500. Due to all these fluctuations, aircraft employment fell to 8.08 percent below its levels just before the pandemic arrived in force in the United States.

The aircraft engines and parts industries added 200 employees on month in July, but June’s previously reported increase of 500 was downgraded to 400. As a result, payrolls are down fully 14.80 percent since immediate pre-pandemic February, 2020.

It’s still possible that the Delta, or some other, CCP Virus variant will lower the boom on domestic manufacturing employment going forward – both because economic activity and therefore demand for manufactured goods will stagnate or drop not only in the United States, but in industry’s important foreign markets. Supply chain snags are no sure bet to clear up any time soon, either.

Nonetheless, U.S.-based manufacturing is still clearly benefiting from the Trump tariffs continued by President Biden that are pricing huge amounts of metals and Chinese-made goods out of the domestic market. Vast amounts of economic stimulus are still pouring into the American and foreign economies. And there remains tremendous pent-up demand among U.S. consumers and businesses alike, due to the lofty heights that household savings have reached and to clogged logistics systems. (A “hard” infrastructure bill will help U.S.-based manufacturers, too. But despite efforts to speed up the permitting process, regulations that can long delay the launch of new projects still may mean that the much of the new work will take months and even years before they’re “shovel ready.”)

And as I keep pointing out, those with the most skin in this game – domestic manufacturers themselves – keep professing optimism. (See, e.g., here and here.) That last consideration still tilts the balance toward manufacturing bullishness for me.

Making News: Podcast of National Radio Interview on China’s Economy Now On-Line

02 Thursday Sep 2021

Posted by Alan Tonelson in Making News

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CCP Virus, China, coronavirus, COVID 19, Delta variant, Donald Trump, exports, globalization, Gordon G. Chang, logistics, Making News, supply chains, tariffs, The John Batchelor Show, Trade, trade war, transportation, Wuhan virus

I’m pleased to announce that the podcast is now on-line of my latest interview on John Batchelor’s nationally syndicated radio show. The segment, which aired last night, can be found here, and focused on China’s economic performance lately – which John, co-host Gordon G. Chang, and I all agreed is showing definite signs of struggling.

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

(What’s Left of) Our Economy: Dangerous New Bubbles or a Virus Mirage?

30 Friday Jul 2021

Posted by Alan Tonelson in (What's Left of) Our Economy

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bubbles, business investment, CCP Virus, consumer spending, coronavirus, COVID 19, Financial Crisis, GDP, Great Recession, gross domestic product, housing, lockdowns, logistics, nonresidential fixed investment, real GDP, recession, recovery, reopening, Richard F. Moody, semiconductor shortage, toxic combination, transportation, West Coast ports, {What's Left of) Our Economy

Here’s a great example of how badly the U.S. economy might be getting distorted by last year’s steep, sharp, largely government-mandated recession, and by the V-shaped recovery experienced since then.as CCPVirus-related restrictions have been lifted. Therefore, it’s also a great example of how the many of the resulting statistics may still be of limited usefulness at best in figuring out the economy’s underlying health.

The possible example?  New official figures showing that, as of the second quarter of this year, the U.S. economy is even more dangerously bubble-ized than it was just before the financial crisis of 2007-08.

As RealityChek regulars might recall, for several years I wrote regularly on what I called the quality of America’s growth. (Here‘s my most recent post.) I viewed the subject as important because there’s broad agreement that a big reason the financial crisis erupted was the over-reliance earlier in that decade n the wrong kind of growth. Specifically, personal spending and housing had become predominant engines of expansion – and therefore prosperity. Their bloated roles inflated intertwined bubbles whose bursting nearly collapsed the U.S. and entire global economies, and produced the worst American economic downturn since the Great Depression of the 1930s.

As a result, there was equally broad agreement that the nation needed to transform what you might call its business model from one depending largely on borrowing, spending, and paying for them by counting on home prices to rise forever, to one based on saving, investing, and producing. As former President Obama cogently put it, America needed “an economy built to last.”

Therefore, I decided to track how well the nation was succeeding at this version of “build back better” by monitoring the official quarterly reports on economic growth to examine the importance of housing and consumption (which I called the “toxic combination”) in the nation’s economic profile and whether and how they were changing.

For some perspective, in the third quarter of 2005, as the spending and housing bubbles were at their worst, these two segments of the economy accounted for 73.90 percent of the gross domestic product (GDP – the standard measure of the economy’s size) adjusted for inflation (the most widely followed of the GDP data. By the end of the Great Recession caused by the bursting of these bubbles, in the second quarter of 2009, this figure was down to 71.55 percent – mainly because housing had crashed.

At the end of the Obama administration (the fourth quarter of 2016), the toxic combination has rebounded to represent 72.31 percent of after-inflation GDP. So in quality-of-growth terms, the economy was heading in the wrong direction. And under President Trump, this discouraging trend continued. As of the fourth quarter of 2019 (the last quarter before the pandemic began significantly affecting the economy), this figure rose further, to 73.19 percent.

Yesterday, the government reported on GDP for the second quarter of this year, and it revealed that the toxic combination share of the economy in constant dollar terms to 74.24 percent. In other words, the toxic combination had become a bigger part of the economy than during the most heated housing and spending bubble days.

But does that mean that the economy really is even more, and more worrisomely lopsided than it was back then? That’s far from clear. Pessimists could argue that recent growth has relied heavily on the unprecedented fiscal and monetary stimulus provided by Washington since spring, 2020. Optimists could point out that far from overspending, consumers have been saving massively. Something else of note: Business investment’s share of real GDP in the second quarter of this year came to 14.80 percent – awfully lofty by recent standards.  During the 2005 peak of the last bubble, that spending (officially called “nonresidential fixed investment”) was 11.62 percent. 

My own take is that this situation mainly reflects the unexpected strength of the reopening-driven recovery and the transportation and logistics bottlenecks it’s created. An succinct summary of the situation was provided by Richard F. Moody, chief economist of Regions Bank. He wrote yesterday that the new GDP data “embody the predicament facing the U.S. economy, which is that the supply side of the economy has simply been unable to keep pace with demand.” The result is not only the strong recent inflation figures, but a ballooning of personal spending’s share of the economy.

Moody expects that both problems will end “later rather than sooner,” and for all I know, he (and other inflation pessimists) are right. But unless you believe that West Coast ports will remain clogged forever, that semiconductors will remain in short supply forever, that truck drivers will remain scarce forever, that businesses will never adjust adequately to any of this, and/or that new CCP Virus variants will keep the whole economy on lockdown-related pins and needles forever, the important point is that these problems will end. Once they do, or when the end is in sight, we’ll be able to figure out just how bubbly the economy has or hasn’t grown – but not, I’m afraid, one moment sooner.

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Terence P. Stewart

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So Much Nonsense Out There, So Little Time....

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Smaulgld

Real Estate + Economics + Gold + Silver

Reclaim the American Dream

So Much Nonsense Out There, So Little Time....

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So Much Nonsense Out There, So Little Time....

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So Much Nonsense Out There, So Little Time....

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So Much Nonsense Out There, So Little Time....

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