Following Up: Inside April’s U.S. Manufacturing Crash II

Tags

aerospace, appliances, automotive, CCP Virus, chemicals, components, computers, coronavirus, COVID 19, durable goods, electrical equipment, electronics, fabricated metals products, Federal Reserve, Following Up, food products, healthcare goods, inflation-adjusted output, machinery, manufacturing, manufacturing output, manufacturing production, medical devices, metals, non-durable goods, paper, real growth, Wuhan virus

A little earlier today, RealityChek presented some lowlights from this morning’s Federal Reserve U.S. manufacturing production report (for April). As promised, here’s a more granular look at the results, which yield even more insights as to how the CCP Virus blow to the economy is reflecting – and probably influencing dramatically changed spending patterns.

The table below shows the findings for durable goods industries, the super-category that covers products with expected usage and shelf lives of three years or more. Included are the original March inflation-adjusted output changes, the revised March data, and the April statistics:

Wood products:                                                -4.22%       -3.15%      -9.04%

non-metallic mineral products:                        -6.56%      -6.50%     -16.26%

Primary metals:                                                -2.82%      -3.95%     -20.37%

Fabricated metal products:                               -8.28%      -4.23%     -11.33%

Machinery:                                                       -5.56%      -3.05%     -10.98%

Computer & electronic products:                     -1.89%      -1.24%      -5.02%

Electrical equip, appliances, components:       -2.24%      -2.83%      -5.99%

Motor vehicles and parts:                               -28.04%    -29.96%    -71.69%

Aerospace/miscellaneous transport equip:      -8.12%      -8.90%     -21.65%

Furniture and related products:                       -9.99%      -6.50%     -20.60%

Miscellaneous manufacturing:                        -9.94%      -7.09%       -9.05%

   (contains most of those non-pharmaceutical healthcare goods)

As in the broader category analysis from earlier today, the automotive collapse – over both March and April – stands out here, although it was joined in the double-digit neighborhood (at much lower absolute levels of course) by six of the other eleven sectors. And as predicted in last month’s post on the March Fed report, the sector that’s held up best has been the computer and electronics industry – though following surprisingly close behind is electrical equipment, appliances, and their components.

It’s also easy to see how the rapid deterioration in automotive and the miscellanous transportation category that includes aerospace (especially in April for the latter) spilled over into supplier industries like metals and fabricated metal products, and machinery.

One durable goods puzzle: the relatively fast April decrease in the miscellaneous manufacturing category, which contains non-pharmaceutical medical goods so crucial for the nation’s CCP Virus response.

The second table shows the same information for the non-durables super-category, where the virus impact has been considerably lighter. Among notable results – the sharp worsening of after-inflation output in the food sector. Although it fared relatively well, there can be little doubt that the worker safety problems in meat-packing plants, along with the cratering of big customers – mainly the restaurant and hotel businesses – played big roles.

The non-durables results also make clear that the sector that’s survived best so far has been paper. Also excelling (at least relatively speaking): the enormous chemicals sector. This industry also contains the pharmaceutical industry, although the any positive CCP Virus impact seems unlikely to date because no vaccines or treatments have been developed yet.

Food, beverage, and tobacco products:          -0.76%      -1.56%       -7.10%

Textiles:                                                        -14.05%      -6.98%     -20.72%

Apparel and leather goods:                          -16.54%    -10.31%     -24.10%

Paper:                                                            -2.04%      -0.08%        -2.58%

Printing and related activities:                    -18.18%    -10.75%      -21.16%

Petroleum and coal products:                       -5.93%      -6.56%      -18.55%

Chemicals:                                                   -1.65%      -1.50%         -5.14%

Plastics and rubber products:                      -7.60%       -4.37%       -11.03%

Other mfg (different from misc above):     -5.37%       -4.29%       -10.37% 

The virus crisis contains so many moving parts (e.g., vaccine and therapeutics progress; infection, fatality, and testing data; uneven state reopening and national social distance practicing; consumer attitudes; second wave possibilities) that extrapolating the manufacturing trends to date seems foolhardy. But tracking industry’s winners and losers as the months pass could still provide important clues as to how much further the economic woes it’s caused will continue; and when, how quickly, and how completely recovery arrives.   

(What’s Left of) Our Economy: Inside April’s U.S. Manufacturing Crash I

Tags

aircraft, auto parts, automotive, Boeing, CCP Virus, coronavirus, COVID 19, durable goods, Federal Reserve, inflation-adjusted output, manufacturing, manufacturing output, manufacturing production, non-durable goods, real growth, vehicles, Wuhan virus, {What's Left of) Our Economy

There was never any point in expecting today’s Federal Reserve manufacturing production figures (for April) to change significantly what’s known about the CCP Virus’ body blow to the American economy overall, and to industry in particular. As with the case last month, however, the details reveal a great deal about how the pandemic is changing patterns of U.S. factory output – which in turn to some extent reflect changing patterns of the spending (by both consumers and businesses) that remains the main driver of the nation’s growth (or, nowadays, contraction).

The big takeaways are that:

>The March revisions show that the virus damage to manufacturing that month was a good deal less (with inflation-adjusted output falling by 5.53 percent on month) than the 6.27 percent drop initially reported.

>The April 13.78 percent month-to-month real production was by far the biggest such decrease on record (going back to 1972) – surpassing March’s previous record.

>As with March, the steepest fall-offs in price-adjusted output came in the durable goods sector – which consists of items whose active use or shelf life is expected to be three years or greater. In March, the sequential production decrease was revised from 9.14 percent to 8.23 percent. But in April, the plunge was more than twice as great: 19.27 percent.

>The March monthly shrinkage of non-durable goods production is also now judged to be smaller than first reported – 2.64 percent rather than 3.21 percent. But in April, the rate of sequential deterioration was even faster than for durable goods, speeding up to 8.23 percent.

>Within durable goods (e.g., steel, autos, computers, industrial machinery, furniture, appliances, aircraft), the automotive sector remained by far the weakest industry. It was bad enough that March’s horrific on-month after-inflation output crash dive was thought to be even greater than first estimated (29.96 percent rather than 28.04 percent). But in April, inflation-adjusted output was down by another 71.69 percent.

>And within the automotive sector, the big story was vehicles, not parts. The former’s constant dollar March production is now judged to have been 37.77 percent, not the originally reported 34.76 percent. But then in April, it careened down by 93.60 percent. That is, it nearly stopped.

>For an idea of how profoundly automotive’s tailspin has affected manufacturing’s performance, if it’s removed from the total, factory output’s April monthly contraction would have been 10.29 percent in real terms, not 13.78 percent. That is, still a terrible (and record) performance, but not quite so terrible.

>As for durable goods, its April sequential production drop would have been 12.65 percent in real terms, not 19.27 percent. Again, an awful performance, but much better than the numbers with automotive.

>Speaking of tailspins, Boeing’s troubles have continued to mount because the virus crisis has decimated U.S. travel and transportation, and they showed up in abundance in the April Fed manufacturing report. March’s monthly after-inflation output decrease for aircraft and parts was revised from 10.36 percent to 12.09 percent. And that rate more than doubled in April, hitting 28.88 percent.

I’ll be following up with more detailed April production data later this afternoon!

(What’s Left of) Our Economy: Good – & Promising – News on Manufacturing Reshoring

Tags

Canada, China, Commerce Department, East Asia, Forbes.com, GDP-by-industry, Kearney, Kenneth Rapoza, manufacturing, manufacturing production, manufacturing trade deficit, Mexico, North America, Trade, Trade Deficits, {What's Left of) Our Economy

When two separate sources of information agree on a conclusion, the conclusion obviously becomes a lot more important than if it’s got only a single supporter. That’s why I’m excited to report that a major economic consulting firm has just released data showing that American domestic manufacturing has been coping just fine with all the challenges it faces from Trump tariffs aimed at achieving the crucial goal of decoupling U.S. industry and the the broader economy from China.

I’m excited because these results track with my own analysis of U.S. trade and manufacturing output data – which I’ve been able to update because of a new Commerce Department release measuring manufacturing production through the end of last year. And you should be excited, too – because the more self-reliant U.S.-based industry becomes, the better able it will be to add to the nation’s growth without boosting its indebtedness. In addition, the more secure the country will be both in terms of traditional national security and America’s ability to provide all the military equipment it needs, and in terms of health security and its ability to provide all the drugs and medical equipment it needs to fight CCP Virus-like pandemics.

The consulting firm data comes from Kearney, and I need to tip my hat to Forbes.com contributor Kenneth Rapoza for initially spotlighting it. According to the company, its seventh annual Reshoring Index reveals that last year, imports from low-cost Asian countries like China (well, none are really “like China,” but you get it) as a percentage of U.S. industry’s output hit its lowest annual level since 2014. The decrease was the first since 2011, and the yearly drop was by far the biggest in percentage terms since 2008.

What’s especially interesting is that the Kearney figures show that manufacturing imports from Asia made inroads even during much of the Great Recession. Last year, their prominence dwindled notably even though the American economy as a whole was growing solidly. And although domestic manufacturing output slowed annually last year – due partly to the inevitable short-term disruptions and uncertainties created by major policy shifts, and partly due to the safety problems of aerospace giant Boeing – the Kearney report noted, it “held its ground.”

Kearney reported even better news on the “trade shifting” front, and its findings also track with mine. One major criticism of the Trump China tariffs in particular entails the claim that they won’t aid American domestic manufacturing because they’ll simply result in the U.S. customers of tariff-ed Chinese products buying the same goods from elsewhere – especially from Asian sources.

The Kearney study refutes that claim, reporting that not only did the role of Asian imports decrease in 2019, but that due to the tariffs, this decrease was led by a China fall-off, that production reshoring rose “substantially,”and that a major import shifting beneficiary was Mexico – which is good news for Americans since it means that the globalization of industry is now doing more to help a next-door neighbor whose problems do indeed tend to spill across the border. (I’ve also found important trade shifting away from East Asia as a whole and toward North America – meaning both Canada and Mexico.) 

As for my own research, the release Monday of the Commerce Department’s latest Gross Domestic Product by Industry report, combined with the monthly trade statistics, these data also shed light on the relationship between U.S.-based manufacturing’s growth, and the economy’s purchases of manufactured goods from abroad.

The big takeaway, as shown by the table below: The relationship has continued its pattern of weakening – suggesting less import dependence – during the Trump years, although production growth did indeed slow because of that aforementioned tariff-related disruption and the Boeing mess.

The figure in the left-hand column represents U.S.-based manufacturing’s growth during the year in question (according to a gauge called “value added), the middle column represents the growth that year of the manufacturing trade deficit, and the right-hand column shows the ratio between the two growth rates (with the trade gap’s growth coming first). The higher the ratio, more closely linked manufacturing output growth is to the expansion of the manufacturing trade deficit. All figures are in pre-inflation dollars.

2011:             +3.93 percent              +8.21 percent                2.09:1

2012:             +3.19 percent              +6.27 percent               1.97:1

2013:             +3.36 percent              +0.77 percent               0.23:1

2014:             +2.93 percent            +12.39 percent               4.23:1

2015:             +3.72 percent            +13.22 percent               3.55:1

2016:              -1.19 percent              +3.07 percent                 n/a

2017:             +3.99 percent              +7.22 percent              1.81:1

2018              +6.23 percent            +10.68 percent              1.71:1

2019              +1.67 percent              +1.09 percent              0.65:1

Domestic manufacturers obviously haven’t completed their adjustments to the new Trump era trade environment, and the CCP Virus crisis clearly won’t make this task any easier. But Kearney expects that the pandemic will wind up moving more U.S.-owned or -related manufacturing out of China, and so do I. And although the Kearney authors don’t say so explicitly, it’s easy to read their report and conclude that the crisis and the resulting national health security needs will help ensure that the domestic U.S. economy will keep getting a healthy share.

(What’s Left of) Our Economy: A Winning Trade War Message from the Last Pre-China Virus Manufacturing Figures

Tags

aerospace, aircraft, Boeing, China, China virus, coronavirus, inflation-adjusted output, manufacturing, manufacturing production, metals, supply chains, tariffs, Trade, trade wars, {What's Left of) Our Economy

The new Federal Reserve industrial production figures are now out, and although they only bring the story up through February, they contain two vital messages: First, taking into account ongoing safety problems with aerospace giant Boeing (and its vast domestic supply chain), they’re very solid – and reinforce the case that the pre-China Virus manufacturing and overall U.S. economies were faring well despite widespread slowdown fears. Second, they also show that, despite the equally widespread tariff alarmism being mongered throughout the Trump years, domestic manufacturing wound up handling the so-called trade wars just fine.

According to the Fed, inflation-adjusted manufacturing output increased by 0.12 percent month-to-month and remained down on a year-on-year basis (by 0.18 percent). January’s monthly constant dollar production dip was revised down from 0.09 percent to 0.23 percent. Yet this real output is up on net by 1.33 percent since its last low point (last October) and by 0.36 percent since the first full month of significant Trump tariffs (April, 2018).

At the same time, these production levels remain 1.28 percent below those of manufacturing’s last peak – in December, 2018. So these are by no means salad days for domestic industry.

Take a look, however, at the main Boeing-related figures. Aircraft production and parts sank by 5.12 percent sequentially in February. It reached its lowest level since October, 2011 and this drop followed January’s 11.36 percent monthly nosedive.

Moreover, although impossible from the Fed figures to quantify precisely, the production halt of Boeing’s popular 737 Max model that began in January is clearly dragging down output in sectors ranging from metals to industrial machinery to plastics to electronics and instruments.

The rapid recent spread of the coronavirus throughout the United States will start generating very different and much worse manufacturing production and other data going forward. But these latest data show domestic industry’s performance even as tariffs on literally hundreds of billions of dollars worth of tariff on Chinese and metals inputs used by manufacturers remained firmly in place. And if that doesn’t signal loud and clear that both American producers and consumers were withstanding the Trump trade wars – a New Normal that’s likely to survive the passing of COVID 19 – quite nicely, and in fact that the entire economy had been winning it, what could?

(What’s Left of) Our Economy: Boeing Woes Finally Smack (Otherwise Encouraging) Fed Manufacturing Data

Tags

737 Max, aircraft, Boeing, China, China trade deal, Commerce Department, Fed, Federal Reserve, industrial production, inflation-adjusted output, manufacturing, manufacturing production, manufacturing recession, Phase One, recession, tariffs, Trump, {What's Left of) Our Economy

The Federal Reserve’s report on January industrial production is out, and it not only finally makes clear the impact on manufacturing output of Boeing’s safety woes. It also strongly suggests that whatever (mild) recession industry has experienced is now over.

I say “whatever (mild recession)….” because several official measures of manufacturing output indicate that no downturn took place at all. For example, the Commerce Department’s GDP-by-Industry data series (which gauge factory production on a quarterly basis, not a monthly basis like the Fed) shows that manufacturing’s real gross output (analogous to the Fed’s inflation-adjusted manufacturing output figures) has not declined for two consecutive quarters during the entire current economic recovery. At the same time, it has registered several two-quarter (and longer) stretches periods during which manufacturing by this measure of inflation-adjusted output fell cumulatively.

Commerce’s tables for real value-added (a measure of manufacturing production that tries to prevent counting the production of inputs both as such, and as parts, components, and materials of finished goods) do report that industry’s production dropped between the fourth quarter of 2018 and the first quarter of 2019, and between the first and second quarters of this year. Cumulatively, moreover, this production level was lower in the second quarter of this year than in the third quarter of 2018 – revealing that on this basis, manufacturing suffered a three-quarter downturn.

At the same time, according to this series, both by the consecutive quarters and the cumulative methodology, the manufacturing recession ended in the third quarter, when it topped both the second quarter level and the output figure for the third quarter of 2018.

And don’t forget: According to the Fed’s real manufacturing output figures, domestic industry’s price-adjusted production peaked in December, 2007 – i.e., it’s never pulled out of the slump that began with the Great Recession. Further, as I documented last month, the Fed’s data show that within this long manufacturing recession, several shorter recessions have begun and ended by the cumulative criterion.

So that’s some of context needed for the Fed finding that after-inflation U.S. manufacturing production fell by 0.09 percent in January. That represented its first sequential decline since October, and left year-on-year production down 0.72 percent. By that standard alone, therefore, manufacturing’s recession has continued.

At the same time, industry’s constant dollar production is up since last April – by 0.70 percent. It’s also up 0.34 percent since April, 2018 – the first full month when the Trump administration’s tariffs on steel and aluminum imports went into effect,  and signaled that the President’s tariffs-heavy approach to trade had begun in earnest.

But the Boeing effect also needs to be considered as well. January saw a nosedive in aircraft and parts production of 1.07 percent sequentially, due to the company’s December announcement that production of its flawed 737 Max model would be suspended. The drop-off was the sector’s biggest monthly decline since the nearly 24 percent plunge in recessionary September, 2008.

I’ve wondered whether Boeing’s troubles had already been dragging down manufacturing output – given the company’s huge domestic supply chain, and given that the 737s had been grounded or banned from national airspaces nearly worldwide since March. But today’s report leaves no doubt that their effects have shown up. Indeed, the Fed explicitly stated that “excluding the production of aircraft and parts, factory output advanced 0.3 percent” on month in January.

So without the Boeing effect, January manufacturing output would be up cumulatively since last February – by 1.09 percent, not by 0.70 percent. And the increase since the advent of the main Trump tariffs would have been 0.74 percent, not 0.34 percent. These figures certainly don’t reveal a manufacturing boom – or even close. But given that even after the Phase One trade deal was signed with China, tariffs on hundreds of billions of dollars worth of Chinese products remain in place (many of them levied against goods that are manufacturing inputs), they cast new doubt on how damaging the President’s trade war has been for domestic industry.

Boeing’s 737 Max crisis will end some day. But the company itself warned that it could last “several quarters” more. Moreover, Boeing’s troubles scarcely end with this ill-fated aircraft. In other words, the company’s woes will keep impacting both all U.S. manufacturing data for the foreseeable future. Therefore, it’s up to the nation’s economists and journalists (along with think tank hacks, no matter who’s funding them) to keep this in mind when judging the effect of the President’s trade wars and other economic policies. Let’s see how many can meet this challenge.

(What’s Left of) Our Economy: Manufacturing’s (Latest) Recession Looks Like It’s Over

Tags

aluminum, China, Commerce Department, Federal Reserve, Great Recession, industrial production, inflation-adjusted output, manufacturing, manufacturing production, metals tariffs, recession, steel, tariffs, Trade, trade war, Trump, {What's Left of) Our Economy

Let’s do something a little different this time in RealityChek‘s monthly examination of the Federal Reserve’s latest domestic U.S. manufacturing output figures – which came out this morning and bring the story through December and therefore through full-year 2019 (at least preliminarily).

Instead of focusing on the industries most seriously affected by President Trump’s tariff-heavy trade policies (mainly the metals tariffs, given big measurement problems with the China duties), let’s look at the question of whether manufacturing remains in recession – which has big, trade war-related implications because this Trump campaign is widely blamed for many of manufacturing’s recent weakness.

There’s considerable evidence that the answer is “Yes” – that industry’s inflation-adjusted production (the measure used by the Fed) is back in growth mode, though just barely.

But the question remains an open one. That’s partly because the answer depends on which baseline date you use for the start of the manufacturing recession, which unit of time you use (along with which particular manufacturing output gauge you favor).

Among that evidence tilting toward “Yes” – today’s Fed data.  Specifically, December’s 0.16 percent monthly increase in constant dollar manufacturing output means that, since June, such production is up. Now it’s only up by 0.04 percent. But since that’s a cumulative increase over the last six months (i.e., two consecutive quarters), the technical definition of recession no longer applies.

Or does it? The same Fed figures show that, between December, 2018 and December, 2019, after-inflation manufacturing output was down – by 1.26 percent. So the recession is still on, right?

Maybe. But use another baseline – April, 2018. As RealityChek regulars know, that’s the first full month in which significant Trump tariffs went into effect (on imports of aluminum and steel). Since then, though, price-adjusted manufacturing production has grown by 0.38 percent. This result, therefore, indicates that, although the President’s trade policies seem to have delivered a hit to domestic manufacturing, it was pretty negligible, and it’s already over (at least for now).

To complicate matters still further, as RealityChek reported last July, according to the Fed’s figures, manufacturing has suffered several recessions since the current economic recovery began (in the middle of 2009).  Indeed, as of this morning, it  still hasn’t recovered from the Great Recession that began at the end of 2007!

At the same time, another set of U.S. government data support the conclusion that there has been no trade war-related manufacturing recession during the Trump years – or manufacturing recession of any kind.

These statistics come from the Commerce Department’s “GDP [Gross Domestic Output] by Industry” reports. They use the same measure used by the Fed for tracking manufacturing growth (or contraction), but they’re kept on a quarterly, not monthly, basis. As a result, these numbers aren’t issued as frequently.

Yet the latest results came out January 9, and although they stop at the third quarter of last year, they show that in real terms, domestic manufacturing under Mr. Trump never shrank on net for two straight quarters, much less over any longer time frame. Here are the quarterly change figures:

2Q 16-1Q 17 :+0.32%

1Q 17-2Q 17: -0.7%

2Q 17-3Q 17: +0.35%

3Q 17-4Q 17: +1.22%

4Q 17-1Q 18: +0.38%

1Q 18-2Q 18: +0.09%

2Q 18-3Q 18: +1.38%*

3Q 18-4Q 18: +0.38%

4Q 18-1Q 19: +0.43%

1Q 19-2Q 19: -0.38%

2Q 19-3Q 19: +0.67%

*those Trump metals tariffs began in this quarter

Indeed, what comes through loud and clear from them is that not only has there been no manufacturing recession on President Trump’s watch, but there hasn’t even been an output slowdown.

It’s always possible to point to the counter-factual – that is, in this instance, to try to figure out how matters would look without any Trump tariffs, or similar Trump efforts to transform U.S. trade policy. And it’s certainly conceivable that domestic industry would have fared even better had Trump abjured all tariffs.

But that’s not the only counter-factual. For example, what if the rest of the world had been able to deal with the pressure created by China’s steel dumping by dumping its own steel into the United States (which hasn’t happened because the Trump metal tariffs were global)? What if China itself had remained completely free to send artificially low-priced (because heavily subsidized) product into the US market? What if President Trump had kept the United States in the Trans-Pacific Partnership trade agreement (TPP), with its wide open back door for imports with lots of Chinese content, while China remained under no obligation whatever to open its market to U.S. products? It’s easy to see that U.S.-based manufacturing could have gone on the critical list.

What’s certain, however, is that according to the most authoritative data available, claims of tariffs-led disaster for U.S. manufacturing have been either much ado about nothing, or much ado about very little. Could the coming months finally bear out the worst fears of cheerleaders for pre-Trump trade policies and other globalists? Of course. But that’s simply speculation, which counts much less than facts.

(What’s Left of) Our Economy: GM and Boeing Effects Still Affecting U.S. Manufacturing Output

Tags

737 Max, aircraft, aluminum, Boeing, China, durable goods, Federal Reserve, General Motors General Motors strike, GM, inflation-adjusted output, manufacturing, manufacturing production, metals-using industries, steel, supply chain, tariffs, trade war, {What's Left of) Our Economy

Like its immediate predecessor, this morning’s Federal Reserve release on inflation-adjusted U.S. manufacturing output made clear how the recent strike at General Motors have grossly distorted the latest results, as well as how Boeing’s mounting 737 Max aircraft safety woes remain difficult to identify from these production statistics.

First, let’s look at the overall numbers. According to the Fed, constant dollar American manufacturing output in November jumped sequentially by 1.15 percent. That was the best such increase since October, 2017’s 1.36 percent, and quite the turnaround from October’s 0.70 percent monthly drop-off (which was revised slightly downward).

These figures still left domestic industry in a recession, but not much of one. Since July, 2018, its price-adjusted output is down by 0.14 percent.

But the big role of the GM strike’s end in November’s turnaround couldn’t be clearer. In October, combined U.S. combined vehicle and parts output sank by 5.98 percent after inflation from September’s total. That decline was considerably less than the 7.65 percent nosedive reported last month, but still the worst such performance since the 7.18 percent decrease in January.

Last month, however, thanks to the return of the striking workers, real automotive production skyrocketed by a whopping 12.45 percent – the best monthly performance since the 29.95 percent surge of July, 2009 – as the last recession (which was especially woeful for auto and parts makers) came to an end.

Another way to look at the automotive effect: Without the GM strike, October’s 0.70 percent overall manufacturing after-inflation production decrease would have been a much better (but by no means great) 0.28 percent decline. And without the GM strike’s end, the 1.15 percent jump in price-adjusted manufacturing output would have been only 0.25 percent.

But the impact of Boeing’s safety troubles is as unclear as those of the GM strike are obvious. In November, American aircraft and parts production rose another 0.40 percent on month in real terms. Moreover, since March (when governments around the world began grounding the 737 Max or banning it from their airspace), such production is only down a total of 0.34 percent. Since April (the first full data month since that March flood of bad news), it’s actually up by 2.32 percent.

Therefore, as has been the case recently, the aircraft sector as such has kept outgrowing many of the biggest industries making up its domestic supply chain (which extends way beyond finished parts and into the materials they’re made from). Here’s how these big supplier industries’ output has changed since April, with the overall manufacturing sector’s performance and that of the durable goods super-category in which most are found included for comparison’s sake:

overall manufacturing: +0.68 percent

durable goods: +1.25 percent

primary metals: -1.13 percent

fabricated metals products: -0.54 percent

machinery: +0.16 percent

The above results also indicate that at least some of the economy’s biggest metals-using industries still lack the relative production strength they displayed for the first several months after steel and aluminum tariffs were imposed in March, 2018. Here are their latest numbers from April (the first full data month affected by these levies) through November, also with the overall manufacturing and durable goods results included:

                                          Old Ape thru Oct    New Apr thru Oct    April thru Nov

overall manufacturing: –      0.54 percent            -0.81 percent         +0.33 percent

durables manufacturing:    -0.32 percent            -0.40 percent         +1.75 percent

fabricated metals prods:   +1.42 percent           +1.26 percent         +1.48 percent

machinery:                        -0.81 percent            -0.77 percent          -1.02 percent

automotive:                    -12.24 percent           -11.34 percent          -0.30 percent

major appliances:             -9.14 percent            -9.08 percent          -6.31 percent

aircraft and parts:            +3.59 percent           +4.37 percent         +4.79 percent

One interesting bright spot apparent from the above – a nice improvement for production of major appliances, a sector that’s been dealing since February, 2018 with an additional set of product-specific tariffs. But in machinery and fabricated metals products in particular, where output tends to be less volatile than it’s been in automotive and appliances, recent performance clearly has been worse than that from April, 2018 through, say, this past January:

                                                          April, 2018 through January

overall manufacturing:                               +1.07 percent

durables manufacturing:                            +1.74 percent

fabricated metals prods:                            +3.42 percent

machinery:                                                +3.69 percent

automotive:                                               -3.32 percent

major appliances:                                      -1.43 percent

aircraft and parts:                                     +4.19 percent

Will the new “Phase One” trade deal announced with China make it any easier to gauge the impact of tariffs on most of the imports heading to the United States from the PRC? That’s already been difficult enough, because Chinese products have been used so widely, and to such varying extents, as inputs for so many manufacturing industries). And chances are this challenge will become more difficult, given both that it’s far from clear when follow-on talks will begin; and given Treasury Secretary Steven Mnuchin’s suggestion that the next phase may consist of many different phases.

Surely adding to the complications will be the Boeing effect, which seems certain to start appearing more conspicuously in the data now that the company has announced that 737 Max production will be suspended starting next month, as well as its failure to say how long the halt will last.

So just about all that can be said for sure is that domestic manufacturing had a good month in November – however unclear it remains whether this improvement has legs.

(What’s Left of) Our Economy: New Fed Manufacturing Figures Mock Tariff-Mageddon Claims

Tags

aluminum, aluminum tariffs, appliances, automotive, China, China tariffs, durable goods, Federal Reserve, manufacturing, manufacturing production, metals, metals-using industries, non-durable goods, steel, steel tariffs, tariffs, Trade, Trump, {What's Left of) Our Economy

With this morning’s release of the Federal Reserve’s new real manufacturing output figures, we just got more data indicating both the impact of President Trump’s metals tariffs and his China levies. And, as with other manufacturing numbers, like employment statistics, the Fed output release mocks widespread claims that both kinds of trade curbs are already undermining U.S. domestic industry.

Here are the results for major metals-using sectors – with one caveat. Because it includes many goods so diminutive and stuffed with electronics that they’re clearly no longer using much steel or aluminum (unlike the large appliances), placing the small household appliances category on this list seems to have been mistaken all along. But I’m leaving them on so you can make up your own mind. The data start with April (because the first metals tariffs were imposed in late March) and go through October (the latest month covered by this Fed series). And I’m presenting the previously reported and revised September results in order to provide a sense of the trends’ momentum.

                                              old through Sept   new through Sept   through Oct

overall manufacturing:           +0.76 percent        +0.98 percent     +1.30 percent

durables manufacturing:        +1.41 percent       +1.46 percent      +1.93 percent

fabricated metals products:    +1.28 percent       +1.83 percent      +2.06 percent

machinery:                             +2.84 percent       +3.80 percent      +5.09 percent

automotive:                            +1.39 percent       +0.35 percent       -2.42 percent

small appliances:                    -1.23 percent        -3.67 percent        -6.62 percent

major appliances                    -0.87 percent        -0.99 percent        -3.32 percent

Superficially, the picture is somewhat mixed. But as I just said, in my view, the small appliances category should be ignored. Accelerating deterioration clearly characterizes the major appliances sector, but do tariffs (which include not only the metals levies but separate tariffs on household laundry machines that result from a trade law case initiated during the Obama years) deserve most of the blame? Maybe not, considering that the domestic housing sector – a big generator of major appliance sales – is in the middle of a noteworthy slowdown.

Momentum is clearly weakening in the automotive sector as well (where even the seasonally adjusted monthly Fed production numbers are notoriously volatile and subject to significant revisions). But it’s likely that sagging output is reflecting sales that are sagging overwhelmingly because of the industry’s own cyclical dynamics.

Indeed, these industry-specific developments look all the stronger considering that two other major metals-using sectors – fabricated metals products and non-electrical machinery – are gaining production momentum. So something other than the price of metals must be kneecapping the laggard sectors.

The new Fed data also shed noteworthy light on the impact of the President’s China tariffs. Levies on a total of $50 billion worth of goods began in July, and tariffs on $200 billion more worth of merchandise imports were imposed in September. So many products have been tariff-ed, and the lists contain so many producer as well as consumer goods, that even a genuinely deep dive into the data might not yield firm conclusions.

But here’s what we know from the 30,000-foot level about after-inflation domestic manufacturing output during the three months preceding the first China tariffs, and the three months following them:

                                             April-July                            July-Oct

overall manufacturing:     +0.29 percent                     +1.02 percent

durable goodsL                 -0.28 percent                      +2.22 percent

non-durable goods:          +0.87 percent                      -0.21 percent

Good luck finding much China damage on net from these numbers.

Back in the 18^th century, Jonathan Swift lamented that “Falsehood flies, and the truth comes limping after it.” Will Mainstream Media coverage of the industrial production figures and Trump tariffs prove him right once again?

(What’s Left of) Our Economy: Early Signs of Manufacturing Trade Progress Under Trump

Tags

manufacturing, manufacturing production, manufacturing trade deficit, Trade, Trade Deficits, Trump, value added, {What's Left of) Our Economy

Since President Trump has focused so much of his trade policy on reducing America’s enormous and chronic deficits, it’s not surprising that the press has noted that, under his presidency so far, the trade gap has widened.

And oddly, in one respect, they just got some data showing that in the one area where the President had been able to claim progress (but hasn’t to my knowledge) – slowing growth in the deficit despite accelerating growth in the economy as a whole. As of the last monthly U.S. trade figures, the trend has once again gone south, though the economy’s still strong growth plus a stronger dollar – which makes American-origin goods and services more expensive than their foreign counterparts – are no doubt overwhelmingly responsible.

But a closer examination of the statistics reveals an important new front on which Mr. Trump’s efforts appear to be succeeding – manufacturing trade, which still dominates overall U.S. trade flows. Specifically, signs have emerged that, under his administration, domestic manufacturing is regaining the ability to boost output without relying more and more on inputs from foreign factories (which of course boost the trade shortfall) In fact, during the Trump administration’s first full data year, American manufacturing’s production has grown faster than its trade deficit – indicating that domestic goods have been replacing imports. And this progress has been made despite a speed-up in manufacturing production growth, and that stronger dollar.

Continuation of this trend would be great news for the nation’s economy. Further, it would represent a major departure from the record of the previous administration, during which the growth of the manufacturing trade deficit vastly exceeded industry’s own growth.

Actually, manufacturing trade deficit has been greatly outgrowing the sector’s output for nearly twenty years. In 2000, the trade gap represented 25.54 percent of total domestic manufacturing production (according to an output measure called value added). As of the second quarter of this year (the latest available data), that figure stood at 42.02 percent. In absolute terms, the trade gap increased by a factor of 2 and a half, while manufacturing production grew by a little over 50 percent. (All figures are stated in pre-inflation dollars.)

But this manufacturing trade deficit’s “out-performance” really took off during the Obama years. Let’s give the former President’s trade record a break by throwing out the data for the first year of the economic recovery (and his first year in office). After all, the global trade contraction during the last recession was so dramatic that the trade “snapback” effect once the recovery began was unusually strong, and couldn’t last.

From 2010 through 2016, however, while American manufacturing output advanced by 16.04 percent, the manufacturing trade deficit jumped by 52.47 percent. That’s more than three times faster. In fact, between 2015 and 2016, the manufacturing trade deficit increased by 3.23 percent even though manufacturing output actually fell by 1.78 percent.

Between 2016 and 2017 (the Trump administration’s first year), the manufacturing trade deficit rose less than twice as fast (7.31 percent) as industry’s output (4.53 percent). And I don’t think it’s coincidence that this manufacturing growth rate represented the best annual performance since that first recovery year of 2009-2010 (5.58 percent), which was surely strengthened by the aforementioned snapback effect.

We only have partial 2018 figures, of course, but they show even more improvement along these lines. Between the second quarter of last year and the second quarter of this year, manufacturing output was up a sizzling 8.08 percent. But the manufacturing trade deficit grew more slowly – by 7.83 percent. That combination hasn’t been seen since 2012-2013, when industry’s output improved by 3.36 percent while the trade gap widened by only 0.77 percent.

The following year, though, manufacturing’s trade shortfall soared more than four times faster than its production. For all I know, this coming year could be a repeat of that depressing precedent. For now, however, it’s definitely evidence that the Trump trade and manufacturing policies are winning.

(What’s Left of) Our Economy: Worsening Automotive Recession Drives Down Manufacturing Output

Tags

aluminum, automotive, Federal Reserve, industrial production, inflation-adjusted output, manufacturing, manufacturing production, recession, steel, tariffs, Trade, Trump, vehicles, {What's Left of) Our Economy

According to the Federal Reserve’s new industrial production figures, a sharp automotive drop-off in July helped pull real U.S. domestic manufacturing output down on month (by 0.06 percent) for the third time this year. Since May, 2015, sector’s inflation-adjusted production is down 2.33 percent – a period much longer than the two-consecutive-quarter definition of recession. July’s annual automotive real output decrease (4.98 percent) was the biggest since September, 2009’s 7.21 percent. And the sector’s 3.64 percent sequential output fall was its biggest since August, 2015’s 3.82 percent.

The vehicle sector performed even worse. Its year-on-year July constant dollar production plunge (9.20 percent) was its greatest since August, 2009 (12.54 percent). And vehicles’ July monthly after-inflation production slide (5.92 percent) was the steepest since August, 2015’s 6.31 percent. Largely as a result, July’s real vehicles production was the lowest monthly total since October, 2014.

With President Trump postponing his decision on tariffs for the import-battered steel and aluminum sectors, their price-adjusted production remained weak in July. The former’s sequential real production slumped by 1.50 percent, and although the annual figure rose by a strong 5.50 percent, the sector is still nearly 20 percent smaller in real terms than at the last recession’s onset. The latter’s July monthly real output inched down while growing slightly on a year-on-year basis, but this industry remains less than half its size when the recession struck. Indeed, for the entire manufacturing sector, after-inflation production in July was down four percent from the level hit as the recession broke out – back at the end of 2007.

Here are the manufacturing highlights of the Federal Reserve’s new release on July industrial production:

>The worst U.S. real automotive production performance in many years – especially in vehicles – helped pull the nation’s after-inflation manufacturing output down 0.06 percent on month in July. Although small, the sequential decline was the third so far this year.

>Leading the way was an automotive sector that had led manufacturing’s strong rebound from a deep recessionary dive.

>Combined vehicles and parts output sank by 3.64 percent on month in July, its biggest such downturn since August, 2015’s 3.82 percent.

>Year-on-year, constant dollar total automotive output was down in July by 4.98 percent – the worst such deterioration since September, 2009’s 7.21 percent.

>Largely as a result, real automotive production in July hit its lowest level since June, 2015.

>The automotive output drop in turn was led by vehicles. Final price-adjusted production in this sector plunged by 5.92 percent sequentially in July – its worst output month since August, 2015 (6.31 percent).

>The year-on-year figures for vehicles were much worse. Compared with the previous July, they plummeted by 9.20 percent – the biggest such decline since August, 2009 (12.54 percent).

>Largely as a result, as of July, real vehicle output stood at its lowest level since October, 2014.

>The new Fed figures also show that the American steel and aluminum industries continue to pay a price for floods of imports widely thought to benefit from government subsidies – and from the Trump administration’s hesitation to impose tariffs.

>July iron and steel production decreased on month by 1.50 percent in real terms. The 5.50 percent year-on-year result was much better, but was helped by favorable comps.

>Moreover, the steel sector’s real output is still 19.70 percent smaller than at the last recession’s onset – more than eight years ago.

>July primary aluminum production declined on month by 1.02 percent, but advanced by 2.90 percent on year.

>Yet primary aluminum production is down 53.49 percent since the last recession began.

>In fact, since that December, 2007 watershed, U.S. manufacturing’s output is down by four percent – meaning that it still hasn’t recovered from the recession.