(What’s Left of) Our Economy: New Fed Manufacturing Figures Show Industry is Still Nicely Withstanding the Metals Tariffs

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aluminum, China, durable goods, Federal Reserve, growth, industrial production, inflation-adjusted growth, manufacturing, metals tariffs, metals-using industries, real growth, steel, tariffs, {What's Left of) Our Economy

This morning brought another poor result for U.S. domestic manufacturing – specifically, a 0.52 percent decrease in inflation-adjusted output that was its worst such performance since January’s 0.66 percent sequential decline. As a result, the temptation is to blame the Trump tariffs that have so dominated economic and business news headlines, but as usual, the data simply don’t support this claim.

Unquestionably, these new figures from the Federal Reserve point to a problem with American industry. Tariffs, however, look beside the point. Instead, the numbers reveal what looks like an April problem and an automotive problem, and especially where tariffs on metals are concerned – the major Trump-era levies that have been longest lasting, and where the affected manufacturing sectors are easiest to identify.

Here are the numbers for the economy’s chief metals-using industries. They start in April, 2018 (the first full months when the steel and aluminum levies went into effect). They show the growth rates between then and the last three data months. They include the statistics for overall manufacturing as a control group. And I’ve added two new pieces of information: the year-on-year real production changes for these sectors, and the data for durable goods manufacturing stripped of the automotive industry’s performance.

                                           Apr thru Feb   Apr thru March    Apr y/y prev  Apr y/y

overall manufacturing:          +0.48%             +0.52%              0.00%         +2.33%

durables manufacturing:       +1.31%            +1.35%             +0.40%         +2.49%

fabricated metals prods:       +2.87%            +2.72%             +2.14%         +4.44%

machinery:                           +1.49%            +1.92%              -0.69%         +4.05%

automotive:                          -1.71%             -1.93%              -4.43%          +3.07%

major appliances:                 -1.43%            -6.77%            -10.44%          +0.03%

aircraft & parts:                   +4.89%           +6.08%             +4.82%           -1.30%

durable mfg ex-automotive:  +1.82%        +1.91%              +1.21%          +2.41%

Comparing the automotive and the durables ex-automotive lines clearly shows both the automotive and April effects – with the latter suggesting the possibility of a production hiccup. Strengthening that interpretation: except for the major appliance category, nearly all the April, 2018-March, 2019 growth rates exceeded the April, 2018-February, 2019 growth rates. Moreover, the April automotive nosedive (which has taken place both on a month-on-month and year-on-year basis), is especially important because vehicle and parts production use so much in the way of machinery and fabricated metals products.

In addition, the safety issues encountered by Boeing may be responsible for the April aviation growth slowdown that may also have contributed to manufacturing’s broader woes that month.

The major appliances figures above continue to stick out like a sore thumb.  But of course, this sector has faced not only metals tariffs, but separate product-specific levies that went into effect in February, 2018.  In addition, America’s slumping housing sector has surely depressed sales and therefore production for reasons having nothing to do with tariffs.

As known by RealityChek regulars, gauging the impact of the tariffs on products from China is much more difficult for numerous reasons. Their role as inputs for manufacturing industries varies. The manufacturing classification system used by Washington for designating the tariff-ed products differs from that used for the Fed production statistics. The levies have been in place for a shorter period of time. And their scope has changed since the first batch went into effect in August.

Further, let’s not forget that the China tariff regime is due for some big changes starting in June, when President Trump has just decided that levies will rise on $200 billion worth of products from the People’s Republic. So the data below may tell us little about what to expect going forward. Here they are nevertheless for the handful of industries for which I’m sure the numbers create a reasonably accurate picture.

                                                      Aug thru Feb    Aug thu March    Aug thru April

overall manufacturing:                     -0.33%                -0.38%                -0.90%

ball bearings:                                  +0.32%                +0.25%               +0.14%

industrial heating equip:                 -2.60%                 -1.85%                -5.69%

farm machinery & equip:             -16.86%               -11.65%              -10.40%

oil/gas drilling platform pts:         +4.59%                +4.35%                +2.68%

Something of an April slump can be seen here, too (which in theory is hard to connect to the China tariffs), except for the farm machinery sector. 

The classic Wall Street sales pitch warns (eventually) that “Past performance is no guarantee of future results.” So especially considering the higher China tariffs on the way in two weeks, and the possibility that all goods imports from China will be hit by levies at some future date, predicting manufacturing’s growth performance for the rest of this year seems unusually chancy.

Yet the April figures unmistakably show (yet again) that domestic U.S. manufacturing continues to withstand the metals tariffs with ease.

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(What’s Left of) Our Economy: Are Trump’s Metals Tariffs Starting to Backfire?

Tags

aluminum, China, Jobs, manufacturing, metals, metals-using industries, steel, tariffs, Trade, trade war, Trump, {What's Left of) Our Economy

Friday’s monthly U.S. jobs report (covering April) not only included the third straight month of weak manufacturing employment gains. It contained the first notable evidence that President Trump’s tariffs (at least on imports of steel and aluminum) contributed to a payroll slowdown.

Industry created only 4,000 new jobs sequentially in April. The February and March revisions were positive (the latter from an increase of 1,000 to 8,000, and the latter from a decrease of 6,000 to no change. But these single-digit (at best) results represented manufacturing’s poorest three-month employment performance stretch (producing a cumulative net gain of 12,000 since January) since the September-December, 2016 period (when the increase was 11,000).

At least as important, the greatest weakness came in those manufacturing sectors that most heavily use the metals for which tariffs have been imposed by Mr. Trump since April, 2018. Whereas until the April, 2019 data, these industries (the main ones are listed in the table below) were generally creating jobs at a faster pace than less metals-reliant manufacturing sectors and even the private sector economy overall, that out-performance came to an end for the industries where April figures are available.

                                                 Old thru March      New thru March      Thru April

entire private sector:                +1.78 percent          +1.79 percent      +1.98 percent

overall manufacturing:            +1.48 percent          +1.58 percent      +1.61 percent

durable goods:                         +1.85 percent          +1.92 percent      +1.92 percent

fabricated metals products:     +1.60 percent          +1.82 percent      +1.80 percent

non-electrical machinery:       +2.76 percent          +2.68 percent      +2.44 percent

automotive vehicles & parts:  +0.40 percent          +0.42 percent     +0.27 percent

household appliances:              not available           -4.10 percent      not available

aerospace products & parts:     not available          +6.56 percent      not available

In other words, as the private sector and manufacturing in general both generated greater employment increases in April than in March (the latter just barely), the metals-using sectors’ April gains were smaller than March’s, and the durable goods super-sector in which they’re all found could only match its March jobs improvement rate.

Further, one point to bear in mind about the numbers for household appliances. This sector includes the large household laundry machines that saw a separate set of tariffs imposed starting in February, 2018.

As usual, the impact of the President’s tariffs on products made in China are more difficult to judge for at least four reasons. First, an enormous number of manufacturing industries use Chinese inputs – and to greatly varying extents. Second, these levies only began in July, and then on a relatively small scale. Third, the list of products tariff-ed beginning in July matches up imperfectly at best with the sectoral classification scheme used by the Labor Department to track manufacturing employment. And fourth, most of the affected products are found in relatively narrow categories of manufactures, where the jobs data is one month behind.

To muddy the waters further, in late February, the President decided to suspend an increase slated to go into effect March 1 on tariffs that began in late September on $200 billion in imports from China. His stated reason: progress in the bilateral trade talks. The levies were to rise from 10 percent to 25 percent.

This morning, however, came another apparent about-face: Mr. Trump announced that the tariff hike suspension would end this coming Friday, and that 25 percent tariffs would go into effect on the remaining $325 billion worth of imports from China “shortly.”

So with all those provisos, here are the latest available employment statistics for some major manufacturing sectors that use the Chinese parts, components, and materials that have been slapped with tariffs since July. As far as I can tell, no clear trend jumps out.

                                July-Feb     Old July-March    New July-March    July-April

private sector:     +1.11 percent   +1.24 percent      +1.25 percent     +1.44 percent

overall mfg:        +1.00 percent   +0.90 percent      +1.00 percent     +1.03 percent

aircraft engines   +0.93 percent    not available       +1.39 percent      not available

  & engine parts:

industrial            +2.46 percent    not available       +2.46 percent      not available 

  heating equip:

oil & gas            +5.83 percent    not available       + 6.11 percent     not available

  drilling platform parts:

farm mach         +1.67 percent     not available       +0.33 percent     not available

   & equipment:

ball bearings:    +1.82 percent     not available       +1.42 percent      not available

Anyone seeking to evaluate the economic effects of the Trump tariffs in a serious manner should recognize that a useful verdict may not be visible for years. But all trends (and their reversals) begin at specific points in time. Further, until the release of the April jobs numbers, tariff supporters could easily demonstrate that the apocalyptic predictions of tariff opponents had not yet come close to appearing. At least for now, that particular case has become somewhat harder to make.

(What’s Left of) Our Economy: A Sort of Mixed U.S. Productivity Report

Tags

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

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

Labor productivity, as RealityChek regulars know, is the narrower of the two productivity gauges regularly published by the Department of Labor. As opposed to multi-factor productivity, which measures how much in the way of a variety of business inputs is needed to generate a unit of output, labor productivity only tells us how much each hour of work put in by an employee achieves that result. But the labor productivity figures come out on a timelier basis, so they’re understandably watched closely.

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

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

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

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

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

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

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

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

                                                                 Non-farm business     Manufacturing

1990s expansion (2Q 1991-1Q 2001):       +23.74 percent         +45.86 percent

bubble expansion (4Q 2001-4Q 2007):      +16.59 percent        +30.23 percent

current expansion (2Q 2009 to present):    +12.17 percent          +9.96 percent

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

(What’s Left of) Our Economy: U.S. Manufacturing Trade Seems Back on a Winning Track

Tags

manufacturing, manufacturing output, Trade, trade deficit, Trump, {What's Left of) Our Economy

Even as the Mueller Report and its aftermath and the intensification of the 2020 presidential campaign  suck up most of the media oxygen, evidence keeps coming in that President Trump’s trade policies are achieving many of the successes they’ve targeted.

A little over a week ago, I reported on how the overall U.S. trade data have resumed showing that the nation’s economy is closing the gap between its growth and that of its trade deficit – a feat accomplished way too seldom in recent decades, and that indicates that domestic production is beginning to replace imports. That development in turn mean that such output is starting to replace spending as the main engine of expansion. If the trend continues, American prosperity will gain a much stronger foundation.

The same week that those encouraging combined goods and services trade numbers came out, the federal government also released data confirming that manufacturing is making similar progress. That’s important because industry still dominates U.S. trade flows, because its historic (though not recent) productivity growth has been so strong, because it’s so crucial to the nation’s high tech future. Manufacturing also boasts a healthy jobs multiplier – that is, the creation of each new manufacturing position adds many more jobs throughout the rest of the economy. And it’s long displayed the potential to enable working class Americans to live middle class lives (even though its recent wage performance has been relatively weak.)

The statistics showing the narrowing gap between the growth of the huge, chronic manufacturing trade deficit and the expansion of manufacturing output came out in the Commerce Department’s April 19 findings on “Gross Domestic Product by Industry.” They bring the story through the end of 2018, and here’s the bottom line:

Last year, domestic manufacturing output rose by 7.11 percent before adjusting for inflation. (The growth measure being used here is value-added, which minimizes the double-counting that can occur when economists calculate the production increases of final products, and of the parts, components, and materials comprising them.) That’s incidentally the best such figure since 2006’s 5.93 percent.

Even more important, though, in 2018, the current-dollar manufacturing trade deficit widened by 10.98 percent. So it increased 1.54 times faster than manufacturing production. But the difference between the two was less than in 2017. That year, pre-inflation manufacturing output improved by 4.53 percent, but the manufacturing trade deficit worsened by 7.31 percent, or 1.61 times faster.

That doesn’t sound terribly impressive. But recall that the 2018 results clearly have been distorted by the front-running of import purchases produced by the Trump tariffs in the second half of the year – i.e., by U.S. businesses seeking to buy products from China in particular before previously announced levies went into effect and boosted their prices. As a result, imports surged, and brought to a temporary halt the progress on this front that represented a major contrast with the figures for the Obama administration years, as shown in this post.

The front-running effect can easily be seen in the numbers for each quarter of last year:

                                   mfg output           mfg trade deficit (both at annual rates)

4Q 17-1Q 18:         +1.20 percent                         -7.49 percent

1Q 18-2Q 18:         +2.51 percent                        +4.42 percent

2Q 18-3Q 18:         +1.03 percent                      +10.81 percent

3Q 18-4Q 18:         +1.34 percent                      +10.05 percent

The good news for domestic manufacturing and for the economy in general: The early 2019 monthly trade figures show that the front-running is over. Indeed, the February manufacturing trade deficit of $71.29 billion was the lowest monthly total since April, 2017’s $70.15 billion. And manufacturing imports in February fell on month by a very big 9.14 percent while exports eaked out a 1.85 percent sequential gain.

It would be great to compare the manufacturing trade and growth numbers for the first quarter of this year with those of spring, 2017. But the former won’t be out until May 9 and we’ll need to wait until July for the latter.

For now, though, the latest statistics make clear that the Trump trade strategy is back on a winning track. And logic at least indicates that, all else equal, it should remain so, provided the President stays the general course.

(What’s Left of) Our Economy: Manufacturing’s Productivity Leaders Continue to Surprise

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aerospace, aluminum, appliances, Bureau of Labor Statistics, durable goods, labor productivity, manufacturing, non-durable goods, pharmaceuticals, productivity, semiconductors, steel, {What's Left of) Our Economy

One of my favorite sets of U.S. government statistics came out this morning – “Productivity and costs by industry: manufacturing and mining industries.” However boring it sounds, it’s useful because it sheds lots of light on which specific sectors within domestic American manufacturing should be seen as winners and losers or “industries of the future” (presumably the productivity stars) versus smokestack and other allegedly outmoded types of activity (the productivity laggards).

In addition (and this will be covered in an upcoming post), these detailed figures on manufacturing labor productivity (the narrowest of the two types of productivity tracked by the feds, but the measure that comes out on the timeliest basis) go far toward showing whether job loss in manufacturing lately has mainly been due to trade and globalization, or to industry’s improved efficiency. This debate of course has long been near or at the heart of the broader, decades-long debate about the effectiveness of American trade policies.

First let’s look at the overall numbers – which are anything but flattering to manufacturing. According to the Bureau of Labor Statistics (which compiles these data), in 2018, when manufacturing’s labor productivity as a whole rose by 0.80 percent, it fell in absolute terms in 67 out of the 86 sectors examined. That was a worse performance than in 2017. Even though that year, overall manufacturing labor productivity improved by slightly less (0.70 percent), it decreased in 54 of those 86 industries.

Broken down by super-categories, in 2018, in the 51 durable goods industries followed by the Bureau, labor productivity declined in 41. In the non-durables super-sector, labor productivity dropped in 26 of 35 sectors studied. For 2017, the comparable numbers were 34 of 51 and 20 of 35, respectively.

Even more interesting, in my view, are the results for these 86 individual industries. First, the ten best labor productivity performers in 2018 and their annual percentage gains. As you’ll see, the list that isn’t exactly dominated by advanced technology, at least according to the most popular definitions and portrayals. (FYI, “magnetic media” are a fancy name for products like audio tapes and compact disks – which this aging baby boomer is constantly told are hopelessly outdated.)

magnetic media mfg & reproducing:               +9.1 percent

computer & peripherals mfg:                          +7.7 percent

leather/hide tanning & finishing:                    +6.5 percent

grain & oilseed milling:                                  +5.3 percent

miscellaneous textile product mills:               +5.2 percent

turbine & power transmission equip:             +4.6 percent

resin, rubber, & artificial fibers:                    +3.5 percent

cut and sew apparel:                                      +3.2 percent

agricultural chemicals:                                  +2.2 percent

miscellaneous transport equip:                      +2.1 percent

And here’s a list of the 2018’s ten worst labor productivity performers. Most appear to be “lower tech.” But look at aerospace at Number Five! That’s the economy’s biggest trade surplus winner! The huge automotive sector had a terrible labor productivity year, too.

lime & gypsum products:                             -11.8 percent

textile fabric & finishing mills:                    -11.3 percent

motor vehicle bodies & trailers:                  -10.1 percent

sawmills & wood preservation:                    -9.5 percent

aerospace products & parts:                         -8.1 percent

petroleum & coal products:                         -7.8 percent

motor vehicles:                                            -7.6 percent

sugar & confectionary products:                 -7.1 percent (tie)

apparel knitting mills:                                 -7.1 percent (tie)

audio & video equipment:                           -6.9 percent

beverages:                                                    -6.1 percent

Finally, here are some labor productivity numbers for some manufacturing sectors of special interest. Pharmaceuticals seems a logical choice to kick it off, given the role that healthcare and drug-pricing issues have been playing lately in national policy and political debates. Its 2018 labor productivity fall-off indicates that if the industry improved its efficiency, it wouldn’t need such sky-high prices for many of its products to achieve what it considers adequate profitability. 

pharmaceuticals & medicines:                    -3.4 percent

iron & steel mills & ferroalloys:                 -2.4 percent

alumina & aluminum production:               -2.3 percent

household appliances:                                +1.6 percent

The next three sectors have been prominent in trade policy controversies. The two metals sectors faltered on the labor productivity front last year. (In 2017, both produced considerably better results). But if you look at their labor compensation costs (also provided in today’s productivity release), you’ll see that they’ve at least shared many of the benefits of the protective tariffs they’ve received with their workforces.

Such compensation rose by 7.2 percent for iron and steel-makers, and five percent for the aluminum industry. Both increases handily beat the 1.70 percent average for all manufacturing, and the 1.40 percent for durable goods production.

Household appliances – which include tariff-ed large household laundry machines) – turned in the opposite performance. Labor productivity was up at a relatively strong pace. But labor compensation was off by 2.20 percent. (Even more unusual, its labor productivity fell in 2017, while labor compensation surged.)

Finally, let’s examine the semiconductor sector, since it’s commonly described as a main “building block” of the entire high tech portion of the American economy. In 2018, its labor productivity fell (by 1.20 percent) – and for the third straight year. But here, labor compensation was way up (by 5.60 percent).

Intellectually honest economists will admit that measuring productivity is one of their most challenging tasks. But it’s also inescapable.  And the new detailed manufacturing labor productivity data make clear that identifying the nation’s most and least valuable and promising manufacturing industries remains just as challenging. 

(What’s Left of) Our Economy: The New Data Contain More Good Trade News for Trump – & the Economy

Tags

China, economic growth, GDP, goods trade deficit, gross domestic product, Made in Washington trade deficit, manufacturing, merchandise trade deficit, non-oil goods trade deficit, Trade, trade deficit, Trump, {What's Left of) Our Economy

The most reasonable conclusion to draw from today’s new U.S. trade figures (which cover February) is that, although evidence keeps growing that President Trump’s trade policies are returning to a success track, even only a fairly clearcut verdict won’t be possible until the March numbers come in.

The reason? By then, we’ll get at least the preliminary official read on the gross domestic product (GDP) for the first quarter of this year, and that will enable some significant light to be shed on a crucial (but almost completely ignored) measure of the Trump trade record – whether on his watch so far, the economy has been able to break or at least change the relationship between the growth of various measures of the trade deficit on the one hand, and overall economic growth on the other.

The answer matters because most economists have long insisted that an expanding economy and an improving trade balance almost never coexist. That claim is belied by the data, but the belief persists.

Further, good growth accompanied by better trade numbers would be of much more than academic interest. For the weaker the relationship between the worsening of the trade deficit and the growth of the economy, the more American growth would be stemming from domestic production, rather than domestic spending and borrowing, and vice versa.

As of the middle of last year, the economy had shown signs of notable progress along these lines. But in the last few months, as serious Trump tariffs on metals and especially on goods from China came on stream, the data started being distorted by front-running – i.e., importers rushing to procure affected goods before the levies kicked in and their prices rose.

Last month’s trade statistics contained important signs that these effects were ebbing, and the trend continued this month.  (A second distortion, however, is influencing these results – the China business slowdown that takes place each year with the arrival of the spring holiday.) All the same, January’s initially reported 14.61 percent monthly drop in the total trade gap (the biggest such decrease since March) was followed by a 3.43 percent decline in February (and from a January level that was revised down slightly). And at $49.38 billion, the overall trade shortfall was the smallest for a single month since last July’s $51.44 billion.

Meanwhile, the total two-month fall-off in the total trade gap (17.56 percent) was the biggest such decrease since March-May, 2015 (20.50 percent). And this is where we come to the main unknown: How do these instances of trade deficit shrinkage compare with the economy’s overall performance? Although Washington doesn’t track GDP on a monthly basis, it’s worth noting that from the second quarter of 2015 to the third quarter (the period roughly corresponding with that earlier trade deficit narrowing, growth on a pre-inflation annualized basis was 1.40 percent.

What about such growth during the first part of this year? That’s the figure we’ll need to wait for until later this month. At the same time, even then, an even more important question will remain unanswered for a while longer: Can the combination of an improved trade performance and continued growth last? In 2015, it was short-lived. Indeed, the current dollar U.S. economic growth rate in full-year, 2016 (2.44 percent) was less than half of the full-year, 2015 pace (5.07 percent). Unfortunately, the durability of this trend won’t be known for many more months at a minimum.

Nonetheless, there’s an even more rigorous test that the Trump trade policies need to pass – whether they can manage to maintain healthy overall economic growth while encouraging a reduction in that portion of the U.S. trade deficit that’s strongly influenced by trade policy decisions in the first place. As known by RealityChek regulars, that Made in Washington trade deficit strips out oil (because it’s almost never the subject of trade policymaking) and services (because trade liberalization of that activity remains in its infancy). On this front, signs of Trump trade progress haven’t shown up yet.

From January-February, 2017 (a period during which the Trump presidency began) to January-February, 2018, this Made in Washington deficit rose at the considerable pace of 18.47 percent. On the imperfect first-quarter-to-first-quarter basis, pre-inflation GDP was up 4.58 percent. That ratio was actually worse than during former President Barack Obama’s last year in office. Then, GDP expanded by 4.09 percent but the Made in Washington deficit actually dipped – by 0.50 percent.

As with the overall trade deficit, the Obama years sometimes witnessed strong economic growth during which the Made in Washington trade deficit worsened only moderately. For example, between the first quarters of 2011 and 2012, current dollar GDP improved by 4.80 percent and the Made in Washington trade deficit only widened by 9.80 percent. But growth slowed sharply thereafter. The January-February, 2009 to January-February, 2010 period was another time of Made in Washington trade shortfall shrinkage – by 3.13 percent. But GDP climbed by only a weak 2.27 percent.

Between January-February 2018 and January-February 2019, the Made in Washington deficit was up by a modest 2.48 percent. Can respectable growth be maintained? Tune in.

In the meantime, legitimate encouragement from the February trade figures can be drawn from the nature of the improvement. Sequential combined goods and services import growth was just 0.23 percent, while exports rose 1.13 percent – nearly five times faster.

On month, the Made in Washington deficit shrunk by 1.96 percent. That improvement combined with its 10.01 percent sequential drop in January made for the biggest such two-month decrease (11.86 percent) since that March-May period of 2015 (13.36 percent).

Good news came on the China trade front as well. February saw the biggest month-to-month reduction in the chronic, immense U.S. goods deficit with the People’s Republic (28.17 percent) since February, 2017 (36.04 percent). In addition, the resulting two-month decline in this trade gap (32.77 percent) was the biggest such figure since January-March, 2013 (36.16 percent) and the second biggest going all the way back to October-December, 2001 (39.87 percent).

An 18.21 percent surge in American merchandise exports helped (especially since it followed a 22.31 percent monthly plunge). But the 20.21 percent monthly falloff in the much greater amount of goods imports was the biggest contributor – and represented the biggest such decrease since February, 2017 as well, not to mention the second biggest since recessionary February, 2009 (23.84 percent).

February’s manufacturing trade performance was excellent as well – relatively speaking, of course, since the deficit remains enormous in absolute terms (topping $1 trillion last year).

But industry’s trade gap plummeted by 20.02 percent on month in February, as exports rose 1.85 percent and imports sank by 9.14 percent. And the gap shows signs of stabilizing on a year-on-year basis as well, as it’s up a mere 0.37 percent during the first two months of this year compared with the first two months of 2018.

(What’s Left of) Our Economy: Real Wages are Still Far from Great Again – Especially in Manufacturing

Tags

election 2020, inflation adjusted wages, manufacturing, private sector, real wages, wages, {What's Left of) Our Economy

No doubt about it – this week’s government report on U.S. real wages was a dog. (No offense to canine lovers – of which I’m one!) And the news, as usually the case, was particularly bad for manufacturing workers, as their inflation-adjusted hourly pay in March dipped back into technical recession territory. That is, their real wages are down on net since January, 2016 – a much longer time-span than the two straight quarters of cumulative growth contraction that comprise most economists’ definition of a recession.

Manufacturing’s real wage recession returned thanks largely to a sizable 0.65 percent sequential drop between February and March. That was the worst such deterioration since November, 2011’s 0.95 percent. The only consolation for manufacturing workers – the decrease followed a 0.56 percent monthly improvement in February. That was the best such performance since August, 2015’s 0.57 percent.

But underscoring manufacturing’s real wage problems was the March year-on-year decline. It was only 0.09 percent. And the rate of decrease was slower than that between the previous Marches – 0.46 percent. All told, however, such price-adjusted hourly compensation in industry is now down by that 0.09 percent figure for more than three years.

Moreover, manufacturing’s real wage performance remains much worse than for the private sector as a whole. (These after-inflation wage analyses omit the numbers for public sector workers’ because their pay largely reflect politicians’ decisions, not the workings of free market forces. In fact, the Bureau of Labor Statistics, which compiles and publishes these figures, doesn’t even track real wages for government employees.)

Private sector workers overall didn’t enjoy a great hourly pay month in March, either. Their constant dollar wages fell sequentially by 0.27 percent – the first such decline since October’s 0.09 percent, and the biggest since February, 2013’s 0.49 percent. Moreover, the private sector’s monthly wage performance can’t be explained by good February numbers – since that month they were only up by a so-so 0.18 percent.

Yet private sector real wages in March were 1.21 percent higher than in the previous March, which continued a solid run for this indicator. And the new March year-on-year figure was considerably better than that between the previous Marches – 0.47 percent.

The manufacturing-private sector real wage comparison looks even worse when their changes during the course of the current recovery are examined. Since mid-2009, after-inflation private sector hourly wages are up 5.72 percent. That’s hardly gangbusters. But it’s a pace more than ten times faster than that for manufacturing – a barely detectable 0.47 percent.

More discouraging for the manufacturing sector: That gap has been widening. From the onset of the current recovery through March, 2018 overall real private sector wages had risen about 7.8 times faster than real manufacturing wages. Through this past March, the exact size of that growth difference was 12.2 times faster.

I’m still convinced that at least some of manufacturing’s relatively bad recent real wage performance (despite strongly growing payrolls) stems from the unusually low quality of workers the sector has needed to attract lately. But as the next presidential election approaches, what I think matters even less than usual, at least politically. The big question is whether the manufacturing workers who turned out for President Trump will be satisfied with this explanation.

Im-Politic: Why His Adversaries Could be Underestimating Trump Again

Tags

202 election, B.J. Bethel, blue-collar workers, defense manufacturing, General Motors, Im-Politic, Lima, Lordstown, Mainstream Media, manufacturing, manufacturing workers, Midwest, non-college whites, Ohio, public sector unions, tanks, Trump, unions, WDTN TV

Although the Democratic Party often seems to have gone identity politics-crazy, even many in its identity-obsessed progressive wing believe that President Trump won’t be defeated in the 2020 Presidential election unless the party improves its performance with non-college educated white voters, many of whom work in so-called blue collar industries like manufacturing and fossil fuel extraction. Many of these progressives (including the Mainstream Media journalists who often carry their water) have claimed that this constituency is ripe for the retaking thanks to alleged Trump policy failures or blunders on trade, tax reform, and healthcare, and proceed to cite evidence that the President’s backing in this segment of his coalition is fading significantly.

Given the latest Trump healthcare position – which I agree is block-headed – and his penchant for inconsistency on core issues like immigration as well as trade, I’d be the last person to dismiss this analysis as naive. The more so if Democrats nominate a 2020 candidate with at least some credibility on blue collar social and cultural as well as economic concerns.

But if you’re looking for reasons for deep skepticism, look no farther than a recent account of a Trump Ohio factory visit from B.J. Bethel, of Dayton, Ohio’s WDTN TV. Bethel, (who in the interest of full disclosure, is also a personal friend), covered the President’s March 20 appearance at a Lima, Ohio tank factory.

Mr. Trump’s prospects in Lima seemed mixed. On the one hand, his defense budget proposals have kept the factory open following talk during the Obama administration of closing it. On the other, his trip came two weeks after General Motors completed (for now) the shutdown of a big auto assembly plant in Lordstown in northeastern Ohio – despite Mr. Trump’s campaign pledge to keep the facility open. Moreover, since the Lima factory makes weaponry, its non-supervisory workers belong to government employee unions, which have been especially critical of the President at least partly since their members haven’t been directly affected by the kinds of offshoring-friendly trade policies and Open Borders immigration policies of his predecessors.

Nonetheless, as Bethel wrote for WDTN’s website, “Trump received a rousing ovation when he entered the floor where the speech was held.” His speech was “loved” by the attendees he interviewed. And the President seems to have received his biggest cheers when he “hit hard at union leaders while praising union workers, stating the leaders often say one thing and do another.”

According to Bethel, “‘They’re [the union leaders] good guys, but they’re Democrats,’ Trump said.

“He mentioned ‘high union dues’ paid by workers and the shifting of blue collar allegiances from Democrats to Republicans.

“This was the only instance of his speech where the crowd chanted ‘Trump, Trump.'”

In some subsequent Twitter direct messages, Bethel elaborated:

“Trump goes off on Lordstown, and blames the union leadership for some of the issues GM had at the plant, which I think is debatable, but Trump is savy, he knows what he’s doing.

“He talks about union leadership, and he’s so casual in this speech, and he says, ‘I’ve invited union leaders into the White House, I asked them what can we do, they’re extremely nice people, THEY AREN’T LIKE US, THEY’RE DEMOCRATS THOUGH and they’re always going to be democrats, so you know, they go with Hillary while I’m trying to save jobs.’

“Then he pivots to this and it’s the most amazing thing I’ve heard a politician do.

“He starts hammering union leadership on the basis of how they treat the rank and file in the union. Basically they aren’t doing what’s necessary to back up the money they make and aren’t doing everything they need to do to. And look at the dues you pay, how much do you pay in dues a week or year and how much do you get out of it?

“So how does the crowd react?

“It roars, ‘TRUMP, TRUMP, TRUMP, TRUMP’ – only time during the entire speech he had his name cheered.

“This is a huge union plant. It’s public union, as solid as it gets, their own committeeman are sitting around with them, and they’re cheering Trump as he bashes the leadership.”

As Bethel concludes, “so the GOP is working the unions hard, even the public unions. Trump beats up the leadership, while the rest go in soft. it’s a strategy to completely usurp union workers and complete taking over the working class.”

What’s especially interesting is that this Trump event was extensively covered by the Mainstream Media – as is almost all presidential travel. But the overwhelming focus of the coverage was the President’s attacks on his longtime political adversary, the late Republican Senator John McCain. (See, e.g., here and here.) 

I can’t possibly fault the journalists attending the speech from zeroing in on the McCain remarks. But revealingly, none of the coverage I’ve read (produced mostly by White House correspondents who tend to be politics-oriented, especially as national political campaigns heat up), mentioned the crowd’s reactions to the union-leader bashing by Trump.

The President has been erratic enough to render hazardous any predictions about the 2020 election. But the same Mainstream Media correspondents who overlooked the union rank-and-file response to the President in Lima belong to the same journalistic complex that was taken completely by surprise by Mr. Trump’s 2016 victory – and especially by his strength in the industrial Midwest. Their Lima coverage raises the question of whether they’re about to miss the mark again.

(What’s Left of) Our Economy: Hold the Gloating on Tariffs and Manufacturing Jobs

Tags

aluminum, China, Jobs, manufacturing, metals tariffs, metals-using industries, steel, tariffs, Trade, Trump, {What's Left of) Our Economy

Even though today’s March U.S. jobs figures overall improved dramatically on their February counterparts, the employment story in domestic manufacturing remained remarkably similar: Generally speaking the results were dismal. But the internals still don’t reveal any connection with President Trump’s tariff-heavy trade policies.

Let’s start by reviewing the manufacturing-wide March jobs performance. Industry’s payrolls dropped by 6,000 month-to-month – their first such decrease since July, 2017’s 3,000 dip. At least as bad, the weak 4,000 sequential jobs gain initially reported for February was revised down to 1,000.

As a result, March’s 209,000 year-on-year employment increase in manufacturing was the sector’s worst annual advance since February, 2018’s 206,000 net drop.

But the tariff-test effect can only be seen upon examining the results for the manufacturing sectors most heavily affected. The best evidence comes in metals-using industries. That’s partly because Mr. Trump’s steel and aluminum tariffs marked their first birthday in March and now we have data (though still preliminary) for eleven months of their first year in effect. But it’s also because the jobs data so precisely tracks trends in those sectors.

The first table below presents the results since last April – the first full month during which the tariffs were imposed – for leading metals-using sector. As has been the case consistently during the metals tariffs era, the latest figures show that most of the metals-using industries (three out of five) have out-hired the manufacturing as a whole (non-electrical machinery, fabricated metals products, and aerospace through February) and two (non-electrical machinery and aerospace through March) have created jobs at a faster pace even than the entire private sector.

The big automotive sector, of course, is a noteworthy laggard on both scores, and suffered an especially bad March. Appliances are dealing with not only metals tariffs, but separate levies on household washing machines. But in terms of momentum, fabricated metals products (whose payrolls exceed automotive’s) have held their own, and non-electrical machinery (which also employs more than motor vehicles and parts makers) has actually picked up the pace.

So because the industries most seriously affected by metals tariffs have generated such disparate employment results, blaming the metals tariffs for whatever problems they’ve been displaying seems unjustified. Clearly, their performance is explained by many other, including many other more important, factors.

                                                     Old thru Feb       New thru Feb       Thru March

entire private sector:                  +1.64 percent      +1.64 percent       +1.78 percent

overall manufacturing:              +1.58 percent      +1.53 percent       +1.48 percent

durable goods:                           +2.04 percent      +1.94 percent      +1.85 percent

fabricated metals products:       +1.60 percent      +1.60 percent      +1.60 percent

non-electrical machinery:         +2.82 percent      +2.71 percent       +2.76 percent

automotive vehicles & parts:   +1.11 percent       +1.04 percent       +0.40 percent

household appliances:               not available        -3.63 percent        not available

aerospace products & parts:      not available      +6.40 percent         not available

The same range of employment results emerges from the manufacturing sectors that seem to be most seriously impacted by the Trump administration’s tariffs on imports from China. But much less confidence should be placed in these figures for three reasons. The first levies imposed have only been in place since last July. The match-ups between the products on that first tariff list and the categories tracked by the Bureau of Labor statistics are much less exact. And statistics for many of these categories are available only through February.

Nonetheless, here’s the best I could come up with. And this month, I’ve added overall private sector data, plus two more items I could identify from that first tariff list, to provide one more point of comparison.

                                                             Old July-Feb   New July-Feb   July-March

entire private sector                           +1.10 percent   +1.10 percent   +1.24 percent

overall manufacturing                       +1.00 percent   +0.94 percent   +0.90 percent

aircraft engines and engine parts:      not available    +0.93 percent    not available

industrial heating equipment:            not available    +2.35 percent    not available

oil and gas drilling platform parts:    not available    +5.97 percent    not available

farm machinery and equipment:        not available    +1.83 percent   not available

ball bearings:                                     not available    +1.54 percent   not available

med/surgical/personal aid devices:   not available    +1.34 percent   not available

X-ray & electro-medical equip:        not available    +2.91 percent   not available 

If anything, when it comes to employment, the China-affected sectors have outperformed the rest of manufacturing and the overall private sector to an even greater extent than the metals-using sectors. (Interestingly, moreover, all these China-affected sectors are heavy metals users as well – so like appliances, they’re impacted by two sets of tariffs.)

So it’s starting to look like President Trump, and the economy as a whole, are looking at diminishing domestic manufacturing jobs mojo. But so far, his trade policy doesn’t belong on the list of culprits.

(What’s Left of) Our Economy: New Trade Figures Indicate Trump Progress Back on Track

Tags

Census Bureau, China, exports, imports, manufacturing, real trade deficit, tariffs, Trade, trade deficit, trade war, Trump, {What's Left of) Our Economy

Of course it’s a coincidence – but what a coincidence! The same week that the Special Counsel and the Attorney General have issued highly favorable reports about President Trump’s alleged campaign collusion with Russia and related obstruction of justice charges, the Census Bureau has issued a monthly U.S. trade figures report full of evidence that the President’s tariff-centric policies have resumed making progress toward one of his major promises to voters: bringing America’s chronic, gargantuan, and growth- and jobs-killing trade deficits under control.

Even better, this trade deficit progress has come as the economy continues to grow – once again contradicting the economic conventional wisdom that trade deficits only shrink when the economy weakens and even falls into recession.

Today’s trade figures (for January) revealed monthly improvements in the combined goods and services and China trade flows big enough to establish numerous multi-year bests and even a new all-time record. Moreover, they cleaned up some (but not all) of the short-term statistical noise created by Mr. Trump’s recent levies on imports from China. This conclusion is clear from the large number of trade flows in which much better results in trade balances, and in exports and imports, followed comparably dismal results in December.

Let’s start with the overall figures. In January, the nation’s total trade gap narrowed month-to-month by the greatest extent (14.61 percent) since last March (14.84 percent). This drop-off came right after the biggest such increase in the trade shortfall (18.55 percent) since March, 2015’s 35.63 percent nosedive.

The deficit in goods – which represent the vast majority of U.S. two-way trade, and which has attracted special attention from President Trump – experienced its biggest sequential decrease in January (10.10 percent) since March, 2016’s 11.82 percent decline. And this plunge again followed an unusually big monthly increase in December – 12.30 percent, the largest since March, 2015’s 21.35 percent.

At least as interesting, given the seasonality of much U.S. trade: The combined goods and services trade gap narrowed on a January-January basis for the first time (3.66 percent) since 2014 (5.27 percent). As for the goods deficit, its drop between the last two Januarys was only the first since 2016. But the magnitude was much bigger (2.77 percent versus 0.83 percent).

Also important: The January trade deficit progress came partly from stronger exports, not simply falling imports.

The January on-month export rise (0.95 percent) was the strongest since September’s 1.52 percent. The increase in merchandise exports (1.31 percent) was also the biggest since September (when they advanced by 2.02 percent sequentially).

Yet the same kind of possible mean reversion was visible in these accounts as well. For the new export gains came right after the biggest goods and services export decline (1.88 percent) since January, 2016’s 1.98 percent. And the merchandise exports increase also followed their biggest decrease (2.87 percent) since January, 2016 (4.11 percent).

As for imports, in January, the overall total sank sequentially by its greatest extent (2.56 percent) since November’s 2.76 percent. And the goods imports monthly fall-off (2.97 percent) was the biggest since February’s 2.38 percent.

Here, too, however, the January results amounted to sharp reversals of the December figures. For overall trade, December saw the biggest monthly import rise (2.36 percent) since February’s 2.49 percent. For goods trade alone, the comparable drop was bigger (2.97 percent), but that result in turn directly followed a 3.45 percent sequential decline November.

The impact of Mr. Trump’s trade policies is even more apparent from examining trade flows minus oil and services. Since the former is rarely the subject of trade diplomacy or policymaking, and liberalization in the latter is still in early stages, the remaining trade in non-oil goods represents the U.S. foreign commerce most directly influenced by trade policy decisions.

In January, the non-oil goods deficit (which RealityChek regulars know can be called the Made in Washington trade deficit) recorded its biggest month-to-month decrease (10.01 percent) since March, 2016’s 10.93 percent. And revealingly, the improvement followed the biggest sequential widening of the non-oil goods trade gap (12.03 percent) since March, 2015 (27.52 percent).

Adjusting non-oil goods trade flows for inflation matters greatly, because these so-called real results are used to calculate the most widely followed statistics tracking the growth (or shrinkage) of the entire economy – the after-inflation gross domestic product (GDP). But the adjustment doesn’t change the story significantly.

As with the non-price-adjusted data, the January drop in the real non-oil goods deficit (also 10.01 percent) was the biggest sequential decrease since March, 2016 (10.85 percent). But December’s 12.40 percent monthly increase was the biggest since March, 2015’s 29.55 percent.

America’s bilateral goods trade deficit with China – its largest bilateral merchandise shortfall by far – in January hit its lowest monthly level ($34.47 billion) since June ($33.48 billion). In addition, on a January-January basis, this trade gap recorded its first decline (4.13 percent) since 2016’s 0.64 percent. In addition, the January-January decrease in strongly seasonal U.S.-China goods trade was only the second since 2010.

This China deficit improvement came despite the lowest monthly level of American goods exports to China ($7.13 billion) since September, 2010’s $7.11 billion. In addition, the scale of the January sequential export decrease (22.31 percent) was the biggest since last January’s 27.92 percent.

Nonetheless, blaming the trade war and China’s retaliatory tariffs on U.S. goods probably doesn’t tell the entire story. After all, between the previous two Januarys – well before Mr. Trump’s initial tariffs – U.S. goods sales to the PRC plummeted by 32.70 percent on month.

The China goods import figures do seem strongly trade war-related. American merchandise purchases from China in January ($41.60 billion) were the lowest since April ($38.23 billion). Much more revealing: The January-January shrinkage in goods imports from China (9.14 percent) was the biggest reported since 1985, when this data series began. Moreover, it was only the second such decrease since recessionary 2009 – when the fall-off was only 5.53 percent. (Between January, 2015 and January, 2016, such imports also fell – but by a much smaller 3.74 percent.)

Oddly, since manufacturing dominates U.S.-China trade, the huge global American manufacturing trade deficit actually rose on month in January – from $87.35 billion to $89.13 billion, or 2.04 percent. U.S. manufactures exports were down 5.10 percent sequentially in January, while imports were off by only 1.59 percent.