(What’s Left of) Our Economy: U.S. Manufacturing’s Not Only Decoupling from China

Tags

737 Max, aircraft, Boeing, China, Commerce Department, decoupling, GDP-by-industry, manufacturing, output, Trade, Trade Deficits, {What's Left of) Our Economy

The Commerce Department’s GDP-by-Industry series is almost always overlooked by followers of the economy, and partly that’s the Commerce Department’s fault. Its updates are invariably a quarter behind, so it’s what analysts call a (seriously) lagging indicator that says relatively little about the more important question of what’s in store.

Nonetheless, even when they’re lagging, distinctive and detailed indicators can clarify long-term trends considerably, and that’s why I like GDP-by-Industry and track it so closely. Because it sheds lots of light on some of the most important economic and trade-related issues of the day – and especially on the impact of President Trump’s tariff-heavy policies. Specifically, the latest set of figures, which were issued January 9, reveal that during the Trump administration, the United States has continued to progress toward the worthy goal of reducing domestic manufacturing’s dependence on imports (and especially imports from increasingly hostile countries like China) for acceptable levels of growth. 

In other words, the People’s Republic isn’t the only country from which American manufacturing is decoupling. 

According to the new data, the latest year-on-quarter results show that between the third quarter of 2018 and the third quarter of 2019, U.S. manufacturing output (measured according to a gauge called gross value added) increased by 1.21 percent. That’s not much. But the manufacturing trade deficit during this period rose by only 2.55 percent. (Both figures are in pre-inflation dollars, because inflation-adjusted manufacturing trade figures aren’t available.)

Although this growth rate is lower than that achieved between the second quarter of 2018 and the second quarter of 2019 (2.03 percent), that figure was accompanied by a much faster increase in the manufacturing trade deficit (7.83 percent). The first quarter to first quarter results? Manufacturing production growth of 2.76 percent, and manufacturing trade deficit increase of 1.29 percent. That is, manufacturing output actually grew faster than the trade deficit. So from that standpoint, the third quarter result are disappointing.

They look even more disappointing when compared with the results from the first two years of the Trump administration. In 2017, manufacturing production also grew somewhat faster (3.99 percent) than the increase in manufacturing’s trade gap (3.16 percent), and in 2018, output grew much faster (6.23 percent to 3.96 percent).

These Trump presidency figures, in turn, have been much better than those reported for President Obama’s administration. Once the current economic recovery entered a normal phase (2011), the manufacturing trade deficit grew much faster than output ever year except for 2013.

So what’s the case for the latest third quarter 2018-third quarter 2019 figures representing continued progress? And why should anyone be happy with 1.21 percent annual manufacturing output growth no matter what’s happening on the trade deficit side?

Two answers suggest themselves. First, since the President began imposing tariffs in earnest (essentially, in April, 2018), importers have been “front-running” their purchases from abroad.  Their efforts to secure these deals before various sets of tariffs kicked in has produced several short-term distortions in the trade deficit in particular. Second, since the spring, Boeing’s safety woes have exerted a major drag both on domestic manufacturing output and on industry’s trade performance – since the aircraft giant has long been America’s leading exporting company.

Just one example of the difference Boeing has made: Between the third quarters of 2018 and 2019, the U.S. civilian aircraft trade surplus dropped from just under $10 billion to just under $6.5 billion. Civilian aircraft is of course the product category containing Boeing’s troubled 737 Max jet, and the plane was grounded worldwide, or banned from many national airspaces, starting in March.

The relationship between trade balances and production is never one-to-one, especially over relatively short time frames. And the matter becomes more complicated in sectors like aircraft, with its long lead times and generally large backlogs. But it’s difficult to believe that the 737 Max crisis and the narrowing of the aircraft trade surplus hasn’t impacted American civilian aircraft production and exports at all. (In fact, between those two quarters civilian aircraft exports, which are strongly related to output levels, sank by $2.75 billion, or nearly 22 percent.)

Moreover, for the purposes of comparing manufacturing output growth and the manufacturing’s trade deficit growth, the aircraft troubles are significant. Had the category’s trade performance simply remained the same between the third quarters of 2018 and 2019, the trade shortfall would have increased not by 2.55 percent, but 1.25 percent – less than half the rate. As result, during that period, manufacturing’s output (1.21 percent) and trade deficit would have grown at very nearly the same pace.

What does the future hold for this key ratio? On the one hand, civilian aircraft production is bound to decrease for the foreseeable future due to the 737 Max production halt announced by Boeing in mid-December. On the other, numerous signs indicate that industry overall has come out of the recession that dogged it for much of the last year and a half (and that by some output measures, never happened at all). Moreover, the Phase One trade deal signed by the United States and China last week could well reduce at least some of the tariff-related uncertainty that’s clearly slowed manufacturing-heavy capital spending decisions by American business in general, and certainly in manufacturing itself.

That looks like a modest case for domestic manufacturing continuing its longer term trend of becoming more self-sufficient while growing adequately – a development that makes major sense in a world that’s far more uncertain.

Making News: A Washington Post Cite on Manufacturing, China Trade Deal Interviews…& More!

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Breitbart.com, China, Heather Long, i24News, John Carney, Making News, manufacturing, Market Wrap with Moe Ansari, Phase One, tariffs, trade deal, Trump, Washington Post

I’m pleased to report that I got quoted in this morning’s Washington Post on the new Federal Reserve industrial production figures (released yesterday).  Reporter Heather Long mentioned my observation that U.S. domestic manufacturing’s recent recession seems to be over.  She could have also noted the evidence I’d presented indicating that this slump never even happened, but what the heck.

Also yesterday, I was interviewed on “Market Wrap with Moe Ansari” on the new trade deal President Trump has signed with China.  You can listen to the podcast at this link;  my segment begins just after the 27-minute mark.

That same day, Breitbart.com‘s John Carney gave me a very nice shout-out in his very important piece noting new research showing that he (and I) have been right all along about the Trump trade wars having minimal-at-best effects on prices for consumer goods.  Incidentally, Post reporter Heather Long also deserves much credit for first reporting these academic findings.  Read the piece here.

On Thursday night, the U.S.-Israeli TV network i24News also interviewed me on that “Phase One” China trade deal.  To watch the interview, click here and download the file.  As usual with i24News, be sure to download the link within a week, because after that, your freebie access will be gond.

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

 

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

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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: U.S. After-Inflation Wages Could Still Use More Inflation

Tags

Barack Obama, election 2020, inflation-adjusted wages, manufacturing, private sector, real wages, recovery, Trump, wages, {What's Left of) Our Economy

This morning’s real wages figures from the Labor Department (for December) contained an unusually diverse grab bag of results, and with a presidential election year now officially underway, perhaps the most newsworthy are those that could well affect the race for the White House – and which on balance seem unfavorable to President Trump.

In addition, though, some other results undermine a major belief about how after-inflation paychecks have fared during the current (record length) economic recovery versus its two immediate predecessors.

Not that the news was all bad for the President and his supporters (and anyone else rooting for a stronger American economy). Yes, overall, inflation-adjusted wages in the private sector dipped sequentially for the second time in three months – by 0.09 percent. (The Labor Department doesn’t track real public sector wages because their trends say more about politicians’ decisions than about economic fundamentals).

But if these preliminary figures hold tightly enough, the 2019 year-on-year improvement of 0.64 percent will be higher than 2018’s 0.56 percent increase.

At the same time, wage growth decelerated throughout 2019 – from 0.37 percent between January and June to 0.27 percent between June and December.

Real manufacturing wages fared better, continuing a year-long trend. Month-to-month in December they climbed by 0.18 percent, and their year-on-year increase and improvement were stronger than that of the private sector, too. The latest annual rise was 0.74 percent – up from the previous year’s flatline. And throughout 2019, they increased at the same 0.37 percent rates during both halves of the year.

But the results were less encouraging for non-supervisory workers in both the private sector overall and in manufacturing. By certain measures, paychecks for the lowest paid U.S. workers have been improving faster than those for the workforce overall. And using the Labor Department’s methodology of distinguishing supervisory from non-supervisory workers provides some support for that finding.

For example, on an annual basis, in 2019 and 2018, inflation-adjusted wages increased faster for both non-supervisory manufacturing and blue-collar workers than those wages for all workers, as shown here:

                                     Total private     N/S private     Total mfg      N/S mfg

Year-on-year, 2019:         +0.64%           +0.75%          +0.74%        +0.45%

Year-on-year, 2018:        +0.56%           +1.63%                0%          +1.14%

Yet the table also shows 2018-19 deceleration for both groups.

Moreover, on month in December, real wages for these blue-collar workers performed worse in absolute terms than for all private sector and manufacturing workers – actually falling by 0.21 percent for the former (the biggest decline since October, 2018’s 0.22 percent drop) and increasing by just 0.11 percent for the latter.

And deceleration continued through the year. Between the first and second halves of 2019, constant dollar wages increases for the private sector fell from 0.53 percent to 0.21 percent, and from 0.23 percent to 0.22 percent for manufacturing.

The impact of Boeing’s safety-related woes on aircraft manufacturing per se and on the company’s huge domestic supply chain could explain some of these disappointing figures for industry. But so could the uncertainties created either by Mr. Trump’s tariff-centric trade policies, or by their ragged implementation, or both. Further, as the numbers indicate, real wage weakness isn’t simply a manufacturing problem.

Perhaps most important for Mr. Trump, real wages’ performance during the first 34 months of his term in office (starting with February, 2017, his first full month), have lagged their increases during the most comparable period in Barack Obama’s presidency – his last 34 months in office (ending in January, 2017). Here are the results:

                                       Total private      N/S private      Total mfg        N/S mfg

1^st 34 Trump months:         +2.53%           +2.72%           +0.65%          +2.77%

last 34 Obama months:      +3.50%           +3.97%          +3.05%           +2.97%

Finally, the new real wages data show that when it comes to this gauge, the current economic recovery stacks up unexpectedly well with the two previous expansions where a reasonable amount of statistics exist – for non-supervisory workers. The comparison is especially striking between the current expansion and the 1990s expansion – which is widely viewed as an excellent one for both the economy and America’s employees.

                                                               Private    N/S private    mfg     N/S mfg

1990s expansion (2Q 91-1Q 01):             n/a           +6.37%       n/a      +2.18%

bubble expansion (4Q 01-4Q 07):           n/a            +0.35%       n/a      -2.77%

current expansion (2Q 09 – present):  +6.30%        +6.79%   +1.59%   +3.01%

Unfortunately for President Trump and Trump-ers, though, this longer-term picture isn’t likely to impress voters as much as more recent developments. And when it comes to workers’ after-inflation wages, he clearly has more work to do.

(What’s Left of) Our Economy: Is Manufacturing Employment Being Undercut by Boeing Along with Trade Wars?

Tags

737 Max, aerospace, aircraft, aluminum, Boeing, China, Jobs, manufacturing, metals, metals tariffs, metals-using industries, steel, supply chain, tariffs, trade war, {What's Left of) Our Economy

One of the biggest questions raised by the new (lousy) manufacturing results of this morning’s monthly U.S. jobs report concerns whether industry’s dismal recent performance is being impacted more by President Trump’s tariff-heavy trade policies or by Boeing’s aircraft safety woes. The bulk of the evidence released this morning seems to point to the trade wars as the continuing main culprit, but also to some Boeing-related puzzles. 

Overall, the sector lost 12,000 jobs on month in December – its worst such result (excluding October, whose figures were distorted by the General Motors strike) since August, 2016’s 23,000 decrease).  Moreover, the year-end annual manufacturing jobs gain of 46,000 was the lowest such figure since 2016’s 7,000 loss.  (For comparison’s sake, 2018’s annual manufacturing employment increase of 264,000 was the best such result since 1997’s 304,000.  

The trade wars evidence for the recent deterioration comes in the form of comparisons between the major metals-using industries during the early months following the imposition of tariffs on steel and aluminum, and afterwards (when many Trump critics argue that the trade curbs’ impact began sinking in). As always, the impact of Mr. Trump’s levies on imports from China remain too diffused throughout the manufacturing sector – and too unevenly so – to be gauged reliably. For good measure, they’ve also been threatened and applied in a confusing, on-and-off manner, and the recent Phase One trade deal and announcement of follow-on negotiations looks unlikely to end much of the measurement uncertainty.

First, here are the data on employment changes in those metals-using sectors from April, 2018 (the first full month during which the tariffs were in effect) through last month. Figures for the U.S. private sector overall, manufacturing overall, and manufacturing’s durable goods super-sector (in which most of the main metals users are classified) are included for comparison’s sake. Keep in mind that the results for household appliances also reflect a separate set of tariffs for large household laundry machines that have been in place since February, 2018.

                                                  Old thru Nov      New thru Nov       Thru Dec

entire private sector:                +2.82 percent      +2.81 percent    +2.92 percent

overall manufacturing:            +1.83 percent      +1.84 percent    +1.75 percent

durable goods:                         +1.99 percent      +2.02 percent    +1.94 percent

fabricated metals products:     +1.51 percent       +1.45 percent   +0.96 percent

non-electrical machinery:       +1.26 percent       +1.56 percent   +1.37 percent

automotive vehicles & parts:   -0.45 percent        -0.73 percent    -0.81 percent

household appliances*:            not available        -5.84 percent     not available

aerospace products & parts*:  not available        +9.02 percent     not available

*data are one month behind

There’s no mistaking that net new hiring in the metals-using sectors has been slower than in the rest of manufacturing and the private sector. As is clear from the table below, that’s a substantial change from the early post-metals tariffs period (presented here as April, 2018 through December, 2018 and January, 2019), when most metals-users were leaders in boosting payrolls:

                                                                Thru December           Thru January

entire private sector:                                +1.36 percent            +1.60 percent

overall manufacturing:                            +1.39 percent            +1.49 percent

durable goods:                                         +1.72 percent            +1.97 percent

fabricated metals products:                     +1.57 percent            +1.78 percent

non-electrical machinery:                        +2.33 percent           +2.57 percent

automotive vehicles & parts:                   +1.07 percent           +1.15 percent

household appliances:                              -2.05 percent –           2.52 percent

aerospace products & parts:                    +5.47 percent           +5.87 percent

But what about the Boeing effect – which figures to be considerable given the major role played by the aircraft and aerospace giant not only in American industry but the entire economy? As the data below show, the impact of the company’s production slowdown and more recent suspension of the previously best-selling but flawed 737 Max model (not to mention worldwide groundings) is anything but clear-cut. Presented here are the job change figures for aircraft and related parts industries, along with the numbers for other major supplier industries and the usual comparison sectors for the eight months preceding and following the announcement of global 737 Max groundings last March. The latest available data for the aerospace-specific industries only go through November, so that’s the final month used for the entire table.

                                                 July, 2018 thru March           March thru Nov

entire private sector:                     +1.38 percent                    +1.03 percent

overall manufacturing:                 +0.98 percent                    +0.28 percent

durable goods:                              +1.17 percent                    +0.11 percent

fabricated metals products:          +0.89 percent                     -0.31 percent

non-electrical machinery:            +1.38 percent                     -1.16 percent

aerospace products & parts:        +4.34 percent                    +2.27 percent

aircraft:                                        +6.59 percent                    +2.09 percent

aircraft engines & engine parts:  +1.04 percent                    +3.67 percent

non-engine aircraft parts/equip: +3.06 percent                     +1.22 percent

The pattern seems to show employment slowdowns nearly across the board. But the two non-aerospace-specific supplier industries – fabricated metals and non-electrical machinery – saw net hiring increases turn into net hiring decreases. Moreover, in aircraft engines and engine parts, payroll improvements actually accelerated.

At least some of this apparent paradox might result from the November end date used here. Boeing didn’t decide to suspend outright production of the troubled model until December 16, and the decision won’t even go into effect until sometime this month. Indeed, the company initially announced that no layoffs were accompanying the halt, although significant workforce reduction plans were finally made public yesterday. In this vein, reports of actual supply chain employment effects didn’t begin appearing until mid-December. Moreover, it’s possible that employment pain has been felt by the non-aerospace-specific companies in Boeing’s vast domestic supply chain before it spread to the aerospace-related firms.

So the safest bottom line so far seems to be this: Contributors to manufacturing’s recent jobs slump might now include both trade war- and non trade war-related developments. And anyone singling out one or the other deserves considerable skepticism.

(What’s Left of) Our Economy: The New U.S. Trade Figures Validate Trump’s (Previous?) Hard Line

Tags

aircraft, Boeing, China, civilian aircraft, goods exports, goods imports, goods trade, manufacturing, merchandise exports, merchandise imports, merchandise trade, Mexico, North America, services trade, soybeans, tariffs, Trade, trade deficit, Trump, {What's Left of) Our Economy

The new U.S. monthly trade data, which bring the story up through November, are teaching President Trump and the rest of the country a crucial lesson about his total trade strategy and his approach to China trade, along with their impact on the economy as a whole. Specifically, the hard line he was pursuing with the People’s Republic before the announcement of the “Phase One” trade agreement was working like a charm.

The new numbers also make clear that many of U.S. domestic manufacturing’s troubles this year, including its mediocre trade performance, have had nothing to do with the Trump tariffs whatever – whether on Chinese products or foreign aluminum and steel. Instead, they owe to the (apparently mounting) safety woes of aircraft giant Boeing.        

The initial Phase One announcement (on October 11) revealed that the United States would hold off on an increase of tariffs from 25 percent to 30 percent on $250 billion worth of goods imports from China (largely advanced manufactures inputs) that was scheduled to go into effect on October 15. On December 13, Mr. Trump added that new levies scheduled to go into effect on December 15 on an additional $160 billion worth of merchandise imports would be canceled as well.

In return, according to the President, Beijing has agreed to “many structural changes and massive purchases of Agricultural Product, Energy, and Manufactured Goods, plus much more.” Moreover, 7.5 percent tariffs would remain on most of the rest of China’s imports along with the two governments agreeing to follow-on negotiations to address further China’s wide range of predatory trade and broader economic practices.

The new trade figures show that U.S. merchandise exports to China have indeed risen since October – by 13.69 percent month-to-month. Also up sequentially (by 21.89 percent) are total worldwide U.S. exports of soybeans – a crop whose trade performance was damaged severely by Chinese retaliatory tariffs since the latest phase of the bilateral trade war broke out.

But whether the Phase One deal and the related prospects for an enduring U.S.-China trade truce deserve much, if any, credit is open to serious doubt. For example, American goods exports to China rose sequentially four times in 2018 through September – before even the initial Phase One announcement. And two of these increases (in March and May) were bigger in percentage terms than the November improvement.

Moreover, although the November monthly shrinkage of the China’s huge bilateral goods trade surplus with the United States was substantial (15.65 percent), the surplus fell at faster rates in February and March.

Yet the cumulative success of Mr. Trump’s tariff-centric policies are clear from the new year-to-date results. On a January-through-November basis, U.S merchandise exports to China are indeed off 11.94 percent. But the much larger amount of American goods imports from China have fallen by 15.22 percent. As a result, the year-to-date merchandise trade deficit is down 16.17 percent.

Further, this progress has been made as the growth of the American global goods deficit has actually been reversed – indicating that attacking the prime source of the U.S. worldwide goods deficit is indeed helping address the global shortfall effectively.

On a year-to-date basis, the global goods deficit is down fractionally. If the trend continues for a month more, the merchandise trade gap will have narrowed on an annual basis for the first time since 2013 – a year during which the overall economy grew at a considerably slower pace (1.8 percent after inflation) than it’s been growing this year (well in excess of two percent so far in real terms).

Much of this improvement is due to America’s emergence as an oil trade surplus country (which has almost nothing to do with trade deals or other elements of trade policy, since oil trade is rarely directly affected by trade policy decisions). Yet the massive U.S. global deficits in goods other than oil have been shrinking steadily since August – from $72.75 billion that month to $63.82 billion in November, the lowest monthly total since June, 2018).

Just as important, the makeup of the remaining American merchandise deficit is becoming concentrated in North America – which benefits the United States significantly, since Mexico’s economic problems in particular often become America’s problems. And year-to-date, the total U.S. goods deficit with North America (Canada and Mexico), widened by 27.05 percent, led by a 27.64 percent rise in the Mexico gap.

Nonetheless, the merchandise deficit with Pacific Rim countries excluding China has grown by 22.47 percent year-to-date, so much more regionalization progress can clearly be made.

In other important developments revealed by today’s November trade report, the monthly U.S. combined goods and services deficit shrank sequentially by 8.31 percent to $43.09 billion from a downwardly adjusted $46.94 billion. The November figure was the lowest monthly total since October, 2016 ($42.00 billion).

November’s $63.90 billion global goods deficit (which includes oil) also represented its lowest level since October, 2016 ($62.02 billion).

Yet U.S. services trade continued to experience a weak year, as the surplus decreased sequentially in November (by 0.19 percent) and is running 4.72 below 2018’s total so far.

Total U.S. exports advanced by 0.66 percent on month in November, but are so far down fractionally on a year-to-date basis. (During the previous January-through-November period, they’d risen by 6.98 percent.)

Total U.S. imports dropped by 0.98 percent sequentially in November, and so far are down 0.14 percent year-to-date. (During the previous January-through-November period, they’d increased by 8.20 percent.)

Encouraging news came on the manufacturing trade front, too, as this sector’s enormous, longstanding deficit fell on month by 12.70 percent, to $80.93 billion. That was the lowest monthly level since March’s $76.96 billion and the biggest monthly percentage drop since February’s 20.00 percent.

U.S. manufactures exports declined by 3.81 percent on month in November, but the much greater amount of imports sank by 8.16 percent.

Year-to-date through November, the manufacturing trade deficit is up 1.69 percent – from $935.74 billion to $951.55 billion. In other words, another $1 trillion annual trade deficit is almost certainly in store for U.S. domestic manufacturing.

At the same time, this rate of increase is much slower than that from the same period in the year before: 10.98 percent.

In addition, this manufacturing progress has been recorded despite a major deterioration in U.S. civilian aircraft trade fueled undoubtedly and largely by the safety problems experienced by Boeing. 

The company – America’s only producer of wide-body civilian jetliners – has long been a major export and trade surplus champion.  But U.S. exports of civilian aircraft dropped by 5.77 percent on month in November, and have nosedived by fully 21.77 percent year-to-date.  Civilian craft imports declined at an even faster rate sequentially in November – fully 39.59 percent.  But the numbers are much smaller, and year-to-date through November, they’ve soared by 19.39 percent.

As a result, the U.S. civilian aircraft trade surplus last year through November stood at only $27.22 billion.  That’s a 33.02 percent plunge from 2018’s comparable total of  $40.64 billion.  And it means that, all else equal, if this sector’s 2019 trade performance simply equalled that of the year before, the overall manufacturing trade deficit would have barely grown at all.   

 

 

Making News: Podcast Now On-Line of a Trade Policy Debate with Obama’s Former Top Economic Advisor

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Barack Obama, China, decoupling, Jason Furman, Jobs, Making News, manufacturing, metals tariffs, Munk Debates, tariffs, Trade, Trade Deficits, trade war, Trump, wages

I’m pleased to start off the New Year by announcing that a podcast is now on-line of a major debate over trade and globalization in which I participated in late this fall.  It was sponsored by Munk Debates – a series of policy exchanges that since 2008 have featured some of the world’s leading thinkers and policymakers in head-to-head events dealing with issues like the future of capitalism, the China threat, the rise of populism, and the emergence of political correctness.

I wasn’t crazy about the clickbait-y title (“Be it resolved, tariffs are terrific.”).  But I say “major” because my interlocutor was no less than Jason Furman, whose previous positions include chief economic advisor to former President Barack Obama. In addition to clashing over various individual on Trump tariffs (e.g., on metals), we also crossed verbal swords over the possibility and desirability of decoupling America’s economy from Chiina.

You can listen to the debate at this link, and given the importance of the subject and the prominence of my opponent, I’d be especially interested in your own reactions.

As usual, moreover, keep checking in with RealityChek for news of upcoming media appearances and other developments.

Following Up: New National Radio Interview Podcast on the U.S.-China Trade Conflict Now On-Line!

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Boeing, China, General Motors, Gordon G. Chang, Making News, manufacturing, Phase One, The John Batchelor Show, Trade, trade deal, trade war

I’m pleased to announce that the podcast is now on-line of my interview last night on John Batchelor’s nationally syndicated radio show.  Click here for a timely, information-packed analysis of the current status of and outlook for the U.S.-China trade conflict.  Special bonus:  John, co-host Gordon G. Chang, and I go into detail on what the latest government figures are saying about the state of America’s manufacturing sector.

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

Making News: Updating the Trade Wars on National Radio Tonight, a Major Video Interview Now On-Line…& More!

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America First, Breitbart.com, Edward Harrison, Federal Reserve, foreign policy, Gordon G. Chang, IndustryToday.com, inflation-adjusted output, John Carney, Making News, manufacturing, Phase One, RealVision.com, The John Batchelor Show, Trade, trade war, Trump

I’m pleased to announce that I’m scheduled to be returning to John Batchelor’s nationally syndicated radio show tonight to help John and co-host Gordon G. Chang figure out where the U.S.-China trade conflict stands after the “Phase One” deal announced recently.  The segment is slated to begin at 10 PM EST, and you can listen live on-line here for what’s sure to be a great discussion and look forward.

In addition, on December 16, John Carney of Breitbart.com quoted from my critical assessment of the agreement in his own (more positive) examination of Phase One.  Here’s the link.

In early December, I recorded a lengthy interview with Edward Harrison of the RealVision.com financial news network on whether or not President Trump is carrying out “America First”-style trade and foreign policies, and why they’re necessary.  Click here to watch.

Finally, yesterday, IndustryToday.com reposted my report on the Federal Reserve’s November manufacturing production figures.  You can see it at this link.

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

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

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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.