(What’s Left of) Our Economy: A Curious Trade War Omission from the New York Fed

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(What's Left of) Our Economy, China, exports, Made in Washington trade flows, manufacturing, New York Fed, tariffs, Trade, trade war, Trump

If you were writing an economics blog item for a major government institution in America, and your subject was a trend that for two years now has been a major controversy in America, wouldn’t you include information on how that trend actually was affecting America?

Not apparently if you’re Hunter L. Clark, and you work for the New York branch of the Federal Reserve system – which hasn’t exactly been shy about weighing in on this controversy (President Trump’s tariffs on China) before (See, e.g., here and here.) Even more unusual: that previous New York Fed contribution to the trade war debate had emphatically concluded that the President’s policies have been an abject failure. Had this new item presented U.S.-relevant data, the clear conclusion would have been that the trade war has succeeded in at least one crucial respect.

Specifically, in a post last Friday, Clark wrote on how China’s export performance so far this year has been “supercharged” by the CCP Virus pandemic (which of course originated in one of its major cities).

Clark also noted various (convincing) reasons that this surge might be temporary, and even observed that some other counties had actually out-performed China export-wise. But China’s exports to the United States – which of course the tariffs (along with the rest of the President’s trade policies) aimed to curb and ultimately reduce) – went completely unmentioned. And that’s an awfully odd omission because combining Clark’s figures with readily available U.S. Census data shows that this wave of China export increases completely missed the United States.

According to Clark, compared with the same quarters last year, China’s overall goods exports this year “slightly increased in the second quarter and are currently forecast to grow by close to 6 percent in the third and fourth quarters of this year.” He italicized “increased” because forecasts generally expected a ten percent decline in Chinese overseas sales during these periods.

But despite that slight increase in China’s global merchandise exports between the second quarter of 2019 and the second quarter of 2020, during that year, official U.S. data show that these exports to the United States fell by 6.67 percent. And in contrast to the six percent improvement in China’s worldwide exports between the third quarter of 2019 and the third quarter of this year, its exports to the United States were down by 2.98 percent.

Also relevant to the trade war debate – did the Trump tariffs simply result in shifting the makeup of U.S. imports from China to other countries, therefore accomplishing nothing (at best) economically for the nation according to one of the Trump’s (and Trumpers’) favorite scorecards? Clark more reasonably doesn’t investigate this question, but the official American data make the Trump record look awfully good according to this standard, too.

As known by RealityChek regulars, the best global proxy for U.S.-China goods trade is U.S. non-oil China goods trade, and that’s especially true on the import side, since the United States buys no oil from China. And the numbers for this “Made in Washington” import flow (so named because commerce in these goods is strongly influenced by government trade policy) make clear that, whatever import shifting has taken place hasn’t prevented overall U.S. purchases of these foreign products from falling also.

Between the second quarter of 2019 and the second quarter of 2020, they fell by a whopping 18.92 percent. Since the U.S. September trade figures won’t be out until early next month, full third quarter results aren’t yet available. But on a July-August basis, these global Made in Washington imports were off by 2.13 percent.

These subjects, moreover, clearly are of more than academic or political score-settling interest. Despite facing the same CCP Virus-induced disruptions as the rest of the economy, domestic manufacturing – which is heavily exposed to Chinese and other foreign competition – has held up well. In inflation-adjusted terms, it’s production from its February peak through September is down just over six percent. Employment has been relatively resilient, too, along with capital spending.

Imagine how much worse its troubles would have been if it experienced the kind of Chinese export flood that’s washed over other economies. Indeed, this counter-factual seems eminently worthy of study. Including by the New York Fed.

Making News: New Article Spotlights America’s Second-Rate Semiconductor Manufacturing

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Asia-Pacific, China, globalism, innovation, Intel, Making News, manufacturing, offshoring, semiconductors, Taiwan, Taiwan Semiconductor Manufacturing Company, technology, The National Interest

I’m pleased to report that a new article of mine has just been published in the November-December, 2020 issue of The National Interest. The focus: America’s loss of its longtime global lead in manufacturing semiconductors. Given the central role played by microchips to the constantly acclerating information technology revolution, this setback threatens both the nation’s prosperity and its security — especially since the world’s most advanced semiconductors are now produced a grand total of 100 miles from China.

Click here to read.

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

(What’s Left of) Our Economy: Has the U.S. Seen Peak Manufacturing Output for the Virus Era?

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(What's Left of) Our Economy, appliances, automotive, capex, capital spending, CCP Virus, coronavirus, COVID 19, Federal Reserve, furniture, household appliances, housing, inflation-adjusted growth, Institute for Supply Management, machinery, manufacturing, real growth, recession, recovery, Wuhan virus

Today’s monthly Federal Reserve report on U.S. manufacturing production was full of surprises, but not enough were of the good kind. And with signs of economic slowing on the rise, the new figures – for September – could mean that, for the time being, industry’s relative out-performance during the pandemic era will begin weakening markedly as well.

The surprises start with the overall figure for the September monthly change in inflation-adjusted output for American factories. Despite an abundance of encouraging data from so-called soft surveys like those issued by the private Institute for Supply Management and the Fed system’s regional banks (see, e.g., here) real manufacturing production dropped by 0.29 percent sequentially. The decrease was the first since April, when national economic activity as a whole bottomed due to the spread of the CCP Virus and resulting shutdowns and stay-at-home orders.

The biggest bright spot in the report came from the upward nature of most revisions. August’s initially reported 0.96 percent monthly gain is now judged to have been 1.13 percent. The July result was upgraded from 3.97 percent to 4.30 percent. And June’s previous 7.64 percent improve was reduced to 3.61 percent. Further, these advances built on similar upward revisions that accompanied last month’s Fed report for August.

In fact, the revisions effect was strong enough to leave domestic industry’s cumulative after-inflation production performance during the virus-induced downturn better than the Fed’s estimate from last month. As of that industrial production report (for August), manufacturing constant dollar production had fallen 6.39 percent from its levels in February – the final month before the pandemic began impacting the economy. Today’s new September release now pegs that decline at only 5.81 percent, and even the monthly September decrease left it at 6.08 percent.

Nevertheless, the breadth of the September monthly decrease in overall price-adjusted manufacturing output unmistakably disappointed. Yes, the automotive sector (vehicles and parts combined) saw its on-month production tumble by 4.01 percent. But in contrast to most of the manufacturing data during the CCP Virus period, automotive didn’t move the overall manufacturing needle much, as real output ex-auto rose only fractionally in September.

Also discouraging –and unexpected, considering the good recent capital spending data reported by the Census Bureau (see, e.g., the “nondefense capital goods excluding aircraft” numbers for new orders in Table 5 in this latest release) – was the 0.41 inflation-adjusted production decline in the big machinery sector following five months of growth.

And even though the U.S. housing sector has been booming during the recession, real output of furniture also slumped for the first time in six months (by 0.96 percent), while price-adjusted household appliances production was down 4.99 percent after its own good five-month run.

As indicated by today’s revisions, these glum September manufacturing output figures could be upgraded in the coming months. Yet given the CCP Virus’ return – which will at best greatly complicate the challenge of maintaining recovery momentum for industry and the entire national economy – no one can reasonably rule out the possibility that, for now, Americans have seen peak post-virus manufacturing production.

(What’s Left of) Our Economy: The Trade Wars Would’ve Been Much Easier to Win if Not for Boeing

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(What's Left of) Our Economy, aerospace, aircraft, aircraft parts, Boeing, manufacturing, metals tariffs, tariffs, Trade, trade wars, Trump

Today’s grim news about recent Boeing aircraft orders and deliveries is just the latest valuable reminder that any evaluation of the Trump record on manufacturing and trade policy has to take into account the entire aircraft and parts industry’s transformation from a slight to a bigtime industrial laggard. Moreover, Boeing’s weakness – which has nothing to do with the President’s trade or any other policies — seems likely to continue for the foreseeable future, at least according to Boeing. The company’s latest long-term forecast for the global aircraft market affirms that it will take years for aviation worldwide to return to pre-CCP Virus levels.

The degree of the pain inflicted by Boeing’s troubles – which also include major safety woes that started making headlines in early 2019 – on the whole of domestic industry, and how unrelated manufacturing’s overall Trump era performance has been to the President’s tariff-heavy trade policies, becomes clear from diving into the most detailed U.S. manufacturing output figures available: the Federal Reserve’s industrial production data.

For example, the Fed numbers show that, during the Obama administration, adjusting for inflation, manufacturing output increased by 14.65 percent. Real aircraft and parts production output growth was just slightly slower: 12.39 percent.

But from the start of the Trump years until the arrival of the pandemic (February, 2017 through February, 2020), whereas the manufacturing sector as a whole expanded by 3.60 percent in price-adjusted terms, the aircraft and parts industry shrank by 13.10 percent.

Since the virus struck (from February through the latest available – August – numbers)? Manufacturing output is down by 6.39 percent after inflation, and aircraft and parts production is off by 10.81 percent.

As for the trade war impact, from March, 2018 (the first full month of President Trump’s metals tariffs and a good place for marking the start of the broader trade wars) until February, 2020 (the last month before the virus began significantly affecting manufacturing and the entire domestic economy), overall manufacturing production grew by a bare 0.83 percent. But that poor performance was clearly dragged down by the nation’s aircraft and parts factories – which turned out 10.74 percent less in terms of constant dollar product value.

Aircraft and parts were major industrial also-rans, too, during the comparable 23-month period preceding the first full month of the Trump metals tariffs. Their real production slumped by 4.11 percent, as manufacturing’s overall production rose by 4.07 percent.

The bottom line, then, couldn’t be clearer. The President was wrong in insisting that trade wars for big deficit countries like the United States are “easy to win.” But the facts also demonstrate that the victories the nation has won in these conflicts – which have been significant – would have been come much easier had the aerospace sector and its long-time leader Boeing not turned into such major losers.

(What’s Left of) Our Economy: So Much for That Pre-Virus Trump Manufacturing Recession?

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(What's Left of) Our Economy, Barack Obama, election 2020, Federal Reserve, GDP, gross domestic product, gross output, industrial production, Joe Biden, manufacturing, manufacturing recession, real GDP, real value added, tariffs, Trade, Trump, value added

A funny thing happened when the U.S. Commerce Department released its latest report on gross domestic product (GDP) by industry last Wednesday: Most of the evidence that American domestic manufacturing suffered a recession – even a mild one, as widely reported – before the CCP Virus struck disappeared.

The new figures also reveal that President Trump’s manufacturing record before most of the U.S. economy was literally ordered closed due to virus-related fears looks even better than previously thought in comparison with that of the Obama administration – in which the President’s Democratic rival for the White House, Joe Biden, served as vice president.

Focusing on this pre-virus data is anything but grasping at straws – unless you think the CCP Virus and its impact will last forever. For manufacturing’s fortunes have been closely connected to President Trump’s tariff-centric trade policies throughout his time in office because manufacturing is so thoroughly exposed to foreign competition both at home and abroad. And as this article (which featured unusual balance) made clear, recent evidence that industry had slumped last year – even before the virus’ arrival and the deep downturn it caused – was widely viewed as a major sign not only that the “trade war” was failing, and undermining Mr. Trump’s .broader determination to revive the sector.

Yet the new GDP by Industry numbers (which take the story through the second quarter of this year, and incorporate revisions going back to the first quarter of 2015 and which were part of a broader release of four different measures of manufacturing production) generally revised that recession away. So presumably, judgments about the effectiveness and impact of the Trump tariffs and similar trade decisions during normal economic times should turn much more positive.

Understanding that the federal government uses four different measures of manufacturing production is the key to understanding why those manufacturing recession claims now look largely mistaken, and why some uncertainty remains. The four measures are: gross output and inflation-adjusted (real) gross output, and value added and real value added. The latter two measures try to eliminate the double-counting in the gross output numbers that economists generally agree results from including in its results both the parts and components and other manufactured inputs of final products, along with the final products themselves.

As of now, the only one of these gauges that still shows a pre-virus Trump-era manufacturing recession (defined as two straight quarters of declining output) is current dollar (pre-inflation) gross output. According to these data, this downturn began in the second quarter of 2019 and continued through the end of the year – and of course into this year. But a recession doesn’t show up in any of the other measures, and its absence in the new real gross output figures is especially important, since that’s the measure that the Federal Reserve uses to measure manufacturing production in its closely followed monthly industrial production reports.

At the same time, those real gross output figures still leave one manufacturing production uncertainty remaining. For even though the Commerce Department’s tables, and their quarterly numbers, show no pre-virus Trump era recession by this measure, the Fed’s monthly numbers do. Specifically, they report three consecutive quarters of manufacturing production decrease last year – from the first through the third.

Yet the quarterly figures reported by the Commerce Department show that real gross output in manufacturing fell between the first and second quarters of 2019, but rose between the second and third before dropping again between the third and fourth. Even odder: Although these Commerce numbers show a weakening manufacturing output picture for the fourth quarter of last year, the Fed figures show a brighter one.

As for the comparison between administrations, here’s what the new numbers show for the two most comparable pre-virus periods (because they’re closest together in the same business cycle) – the last three years of the Obama administration and the first three years of the Trump administration. And they demonstrate that, whether due to Mr. Trump’s policies or not, industry performed considerably better during his watch. The Trump numbers are all the more impressive since 2019 was marked in part by major production woes at Boeing that greatly undercut the output numbers for the huge U.S. aerospace industry and its vast domestic supply chain.

last 3 Obama years first 3 Trump years

Gross output: -6.50 percent +12.71 percent

Real gross output: +1.40 percent +4.63 percent

Value added: +5.41 percent +11.72 percent

Real value-added: +2.33 percent +9.00 percent

This year, of course, has been terrible for domestic U.S. manufacturing. Between the first and second quarters, in real gross output terms it decreased by 1.03 percent at an annual rate between the fourth quarter of 2019 and the first quarter of 2020, and by 9.47 percent between the first and second quarters.

Interestingly, put together, those are about the same as the declines suffered by the entire U.S. private sector (1.11 percent and 9.14 percent, respectively), even though manufacturing employment during this that period held up notably better than its overall private sector counterpart. During the first and second quarters of this year, the private sector lost 9.92 percent of its jobs, compared with 6.25 percent for manufacturing.

The GDP by Industry figures for the third quarter won’t be out until well after the election (December 22), so voters won’t be able to judge the full Trump manufacturing output record during the CCP Virus period. But from what’s known so far, it looks like something the President can point to during the rest of the campaign as a promise kept.

(What’s Left of) Our Economy: The New U.S. Jobs Report Underscores Manufacturing’s Resilience – & Possibly Tariffs’ Value

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automotive, China, Jobs, machinery, manufacturing, manufacturing jobs, non-farm jobs, non-farm payrolls, private sector jobs, tariffs, Trade, Trump

The headline figure for today’s September U.S. jobs report might have been lousy, but America’s manufacturers delivered excellent results, continuing a show of resilience that’s lasted throughout the CCP Virus era, and that could be closely connected with President Trump’s tariff-heavy trade policies.

Industry added 66,000 net new jobs from month to month – its best totally since June (now confirmed for the time being at a 333,000 gain. And revisions overall were positive.

August’s previously reported manufacturing jobs increase of 29,000 is now estimated to have been 36,000. And July’s results held at 41,000.

Moreover, although the automotive sector’s payroll improvements once more dominated the manufacturing results, the dominance was, as with the data since June, much less pronounced than during the spring. Combined vehicle and parts payrolls rose by 14,300.

Another encouraging development – the broad machinery sector, which is so closely connected with other segments of manufacturing as well as with much of the non-manufacturing economy (e.g., construction and agriculture) – added 13,800 new jobs on net. That’s a major acceleration from previous months’ results.

The other significant manufacturing monthly jobs winners in September included non-metallic mineral products (+6,200), the continually strong food products sector (+5,000), printing and related activities (+4,700), and fabricated metals products (4,200).

By far the the worst September sequential manufacturing jobs performance came in primary metals (-3,400), followed by the huge chemicals sector (-2,000).

September’s advances mean that manufacturing has now regained 716,000 (52.53 percent) of the 1.363 million jobs it lost in March and April, as the CCP Virus was peaking. (Those earlier job losses represented 10.61 percent of the last pre-virus – February – manufacturing employment level.)

The total decrease in nonfarm payrolls (NFP – the U.S. government’s definition of the nation’s jobs universe) in March and April was 22.16 milion – 14.53 percent of the February total and thus a steeper drop than suffered in manufacturing. Since then, 11.417 million, or 51.52 percent, of those jobs have been recovered.

As for private sector employment (which, unlike non-farm jobs, omits public sector employement, which is affected far more by government decisions rather than economic fundamentals), its levels fell by 21.191 million, or 16.34 percent , during the worst of the pandemic. Since April, 11.39 million, or 53.75 percent, of these jobs have been regained.

Given U.S. manufacturing’s extensive exposure to foreign competition, this relative strength is difficult to imagine absent Mr. Trump’s tariffs, especially the high levies remaining on most imports of goods from China. Without the tariffs, it’s easy to imagine a much greater flood of Chinese manufactures into the U.S. market once the People’s Republic and its factories emerged from their own pandemic shutdown, and depressing demand for domestic U.S. produced manufactures – as well as for the employees that make them.

Making News: Last Night’s National Radio Interview on China, Manufacturing, & the Election Now On-Line

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China, election 2020, Gordon G. Chang, Joe Biden, Making News, manufacturing, reshoring, The John Batchelor Show, Trade, Trump

I’m pleased to announce that the podcast of my interview last night on John Batchelor’s nationally syndicated radio show is now on-line.  Click here to listen to a timely, wide-ranging discussion involving John, co-host Gordon G. Chang, and me covering the presidential election, China, trade policy, and bringing manufacturing back to America.

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

Making News: Back on National Radio Tonight, a New Podcast…& More!

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Angela Merkel, Cato Journal, CCP Virus, China, collusion, coronavirus, COVID 19, election 2020, Germany, Gordon G. Chang, Joe Biden, journalism, Making News, manufacturing, Market Wrap with Moe Ansari, natural gas, Nord Stream 2, presidential debate, recession, recovery, reshoring, Russia, stimulus package, Ted Galen Carpenter, The John Batchelor Show, Trade, trade war, Trump, Trump-Russia, Wuhan virus

I’m pleased to announce that I’m scheduled to return to national radio tonight when I guest on The John Batchelor Show.  The subjects for John, co-host Gordon G. Chang, and me will be China, trade, manufacturing, and the election.

The pandemic is still forcing John and Gordon to pre-record segments, so I’m not yet sure about air-time.  But it seems that you can listen live to the show on-line at this all-purpose link starting at 9 PM EST.  And of course, if you can’t tune in, I’ll post a link to the podcast as soon as one’s available.

In addition, yesterday, I was interviewed on the popular Market Wrap with Moe Ansari radio show on the election (including the debate!), trade policy, the future of the entire U.S. economy, the fate of CCP Virus relief legislation, and a surprising recent example of collusion with Russia.  To listen to the podcast, click here and then on the show with my name on it.  My segment starts at about the 23:38 mark.

Finally, my friend Ted Galen Carpenter has just published in the Cato Journal a fascinating piece on the history of U.S. news coverage of U.S.-China relations – which certainly has seen its ups and downs in recent decades.  It was great, moreover, to see Ted cite two of my writings along the way.  Here’s the link.

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

Making News: Featured in The Los Angeles Times & Industry Today

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Brookings Institution, CCP Virus, China, coronavirus, COVID 19, election 2020, IndustryToday.com, Joe Biden, Making News, manufacturing, Michael Hiltzik, recession, recovery, The Los Angeles Times, Trade, Trump, working class, Wuhan virus

I’m pleased to report that my views have been presented three times in important news outlets in recent weeks.

Yesterday, Los Angeles Times business columnist Michael Hiltzik cited some of my research findings and perspectives in this essay on the economic policy differences between President Trump and his Democratic challenger, former Vice President Joe Biden.

Hiltzik’s piece, incidentally, reveals a great deal about how many journalists – including opinion journalists – work, at least in my experience.  He’s a clear Never Trumper, and so would need a lot of convincing to reach the conclusion that the President has done a commendable job of keeping his campaign promises to his working class supporters. (For the record, there’s nothing wrong with that, since everyone has his or her particular slant on life, everyone has every right to them, and Hiltzik is in the opinion business.)

Hiltzik did take the time to consult with someone like me, who does give Mr. Trump solid marks in this respect.  And during our conversation, he was genuinely interested in what I discovered when I looked at recent income trends in “Trump flip counties” – those that voted for Barack Obama in both 2008 and 2012, and then backed the President in 2016.  (I know the interest was genuine because he questioned me at length on the subject.)

All the same, if you read the entire column, you’ll see that he pooh-poohed Trump achievements like outdoing the Obama administration record on manufacturing job creation, and placed lots of weight on the findings of folks at the Brookings Institution, a mainstream establishment (and therefore pretty Never Trump-y) think tank, even when the opinions they expressed to him were flat wrong.  (In particular, there is no set of official data showing that U.S. after-inflation manufacturing output was “higher than it has ever been” right after the 2016 election.)

On balance, though, since my perspectives, however on target or not, are definitely minority perspectives, Hiltzik deserves praise for paying some attention to them.

The second and third instances were IndustryToday.com‘s re-publication of RealityChek posts on the latest government data on the (still-robust) recovery of U.S. manufacturing production, and on evidence that the President’s tariff-centric trade policies have performed effectively during the CCP Virus period in shielding domestic American manufacturing from predatory Chinese trade practices.

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

 

(What’s Left of) Our Economy: New Fed Figures Show the U.S. Manufacturing Recovery is Proceeding Nicely

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automotive, CCP Virus, China, coronavirus, COVID 19, Federal Reserve, inflation-adjusted output, lockdowns, manufacturing, manufacturing production, real growth, shutdown, stimulus package, Trump tariffs, Wuhan virus, {What's Left of) Our Economy

It’s not apparent from the overall numbers, but the most important takeaway from this morning’s monthly Federal Reserve report on U.S. manufacturing production is that American industry has continued a steady comeback from the ravages of the CCP Virus and the government-induced shutdown of much of the U.S. economy. And the continuing healthy pace of this comeback is all the more impressive given the stop-and-start nature of so many of the economic restrictions imposed by Washington, D.C. and by the states and localities, and given the recent uncertainty about a new virus-relief bill.

The overall Fed numbers, as indicated above, do show a manufacturing bounceback that’s losing noteworthy steam. In August (the latest available data month), inflation-adjusted manufacturing output grew by 0.96 percent sequentially. That’s definitely a weaker pace than July’s growth (now pegged at 3.97 percent on month), much weaker than June’s 7.64 percent monthly burst, and well short of May’s 3.91 monthly percent production rise.

Grounds for encouragement, though, are justified even by these aggregate figures, as revisions for recent months generally were positive, and July’s was really positive – that month’s previously estimated manufacturing real growth was 3.41 percent.

But the best and most important news comes from the numbers on manufacturing production outside the automotive sector. As known by RealityChek regulars, the wild sequential swings in output from vehicle and parts makers have dominated the Fed manufacturing production reports for nearly the entire CCP virus period. (See., e.g., last month’s post on this subject.) So important though automotive is – both because of its size per se and because it affects the rest of its industry due to its big domestic supply chain – the non-auto results arguably provide a more accurate picture of U.S. manufacturing’s fundamentals. And this picture looks remarkably good, and still displays significant momentum.

Ex-auto, as the cognoscenti put it, constant dollar manufacturing production increased by 1.40 percent on month in August. So since that’s much faster than overall manufacturing’s performance (up 0.96 percent) that means automotive output fell (by 2.13 percent, specifically).

The August sequential improvement for ex-auto manufacturing, moreover, isn’t dramatically lower than July’s (1.93 percent). And it compares pretty well with June’s (now estimated at 3.82 percent) and May’s (now judged to be 2.12 percent).

Even better, all the pre-July results have been revised up except for May’s.

When all is said and done, the August Fed report underscores just how resilient domestic manufacturing has been despite the formidable CCP Virus challenges (which also include major economic slowdowns in the foreign markets U.S. industry has always relied on for much of its sales). As of August, overall price-adjusted American manufacturing output was just 6.39 percent below its levels in February (the final month before virus effects began impacting the economy). Manufacturing ex-auto’s real production was just 7.04 percent less than in February. And automotive’s after-inflation production was a mere 1.98 percent below that February benchmark.

And another factor to consider: Since China’s has been the world’s first major economy to resume growth since the virus struck, and since its recent growth has been so markedly export-led, think of how much worse U.S. industry’s state would be had the steep Trump tariffs on hundreds of billions of Chinese goods normally sent to the United States not been imposed, or left almost completely in place by the Phase One trade deal.