(What’s Left of) Our Economy: Politico’s Failed Takedown of Trump’s Auto Jobs Policies

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automotive, Bureau of Labor Statistics, Department of Transportation, domestic content, General Motors, GM, Jobs, Lordstown, manufacturing, Ohio, tariffs, Trade, Trump, Youngstown, {What's Left of) Our Economy

Let’s all hope that Politico doesn’t start a new publication called “Economico.” Because its latest venture into economic policy reporting – yesterday’s examination of President Trump’s trade-centric approach to strengthening America’s automotive industry – had about as much in common with sound economic analysis as Beto O’Rourke’s current talking points have with the Gettysburg Address.

The headline nicely sums up the piece’s theme: “Trump facing failing strategy on auto jobs as he heads to Ohio.” And the news hook is the President’s trip today to Ohio, where the announced closure of a long-time General Motors factory in the northeastern town of Lordstown has understandably attracted national attention given Mr. Trump’s 2016 campaign promise to ensure its survival, and given the importance of Lordstown-type manufacturing workers to his political success.

But the article’s treatment of the Lordstown decision and the broader Trump auto industry record is based almost entirely on cherry-picked facts presented in such stark isolation as to produce a thoroughly misleading picture to readers.

First, the piece doesn’t say that, for all the disrupted lives already caused and sure to continue due to GM’s Lordstown decision, Reuters reported the day before that

“GM Chief Executive Officer Mary Barra has said the automaker expects to have 2,700 job openings by early 2020 at other thriving plants, enough to absorb nearly all of those displaced in plants in Maryland, Ohio and Michigan willing or able to uproot for work hundreds of miles away. GM said another 1,200 affected hourly workers are eligible for early retirement.

“Based on a plant-by-plant count provided by GM, if every worker displaced or soon to be displaced volunteers for or accepts a new job – and those eligible to retire do so – that would potentially leave up to 500 GM workers jobless, far fewer than the thousands decried by the UAW [United Auto Workers union] and Trump.”

No one should underestimate the economic and other difficulties of relocation – especially from an economically struggling area like northeastern Ohio, where homes on the market don’t exactly command primo relative prices. And GM’s claims should be closely monitored going forward. But the Politico article, and all the coverage of Lordstown, should have mentioned that, based on what’s been promised, most of the released employees won’t be left on the streets (figuratively speaking).

By contrast, the Politico reporters unquestionably swallowed the claims by GM as well as Ford about the Trump administration’s metals tariffs crippling the auto companies’ prospects. Had they asked the obvious question about how the higher metals prices compared with the auto-makers’ overall costs, they’d have discovered that the tariffs barely moved the needle on overall figures – and that the companies’ could easily have found (and still can find) other economizing options to offset them.

Nor did the authors ask the equally obvious questions about overall trends in Lordstown-area and Ohio automotive and manufacturing employment. A five-minute dive into Bureau of Labor Statistics (BLS) data would have found that, during President Trump’s first 23 data months in office, the state’s manufacturers have added more jobs (20,400) than during the final three years (36 months) of former President Obama’s administration (19,700). The Trump-era gains are especially impressive since they’ve come later in the business cycle, when expansions typically lose momentum. (These time periods are chosen since they’re the stretches of each administration closest to each other during the same business cycle.)

In addition, although the latest figures only go up to September, 2018, the two Ohio counties in which Lordstown and nearby Youngstown (another victim of the GM decision) – Trumbull and Mahoning, respectively), have fared relatively well during the Trump years as well.

Specifically, during the first 19 data months under Trump, Trumbull County lost 569 manufacturing jobs. (BLS doesn’t track automotive employment at the county level.) During the final 19 months of the Obama administration, manufacturing payrolls fell by 1,150. For Mahoning, the comparable numbers are: Trump, up 294, Obama, down 468. Those are hardly gangbuster results during the Trump years. But failure?

In automotive specifically, from the state-level perspective. President Trump’s impact looks more mixed – but hardly failed, either. During his first 23 data months in office, Ohio vehicle makers added only 800 jobs. But during Mr. Obama’s final 23 months in office, they shed 1,300. In parts, the “Obama effect” looks better – Ohio-based facilities increased their payrolls by 3,600 during his last 23 months, whereas they boosted employment by only 800 under the Trump administration so far.

Interesting, a similar mixed picture emerges on a nation-wide basis. During Mr. Obama’s last 23 data months in office, U.S. auto and light truck producers increased employment by 21,400, versus a 23,400 improvement during the first 23 Trump months. But the Obama numbers for auto parts are much better – a gain of 34,900 during his last 23 months versus an 11,900 rise for the first 23 Trump months.

At the same time, are the lagging overall Trump national numbers due entirely or even mainly to his allegedly failed trade policies? Or to the topping out of American light vehicle sales that began in the fall of 2015? The Politico authors never give readers a chance to decide.

In fact, the changing automotive cycle surely accounts for much and maybe all of the declining rate of auto industry investment during the Trump years so far, especially compared with the big numbers racked up during the Obama years. Most of that spending of course came much earlier in the auto and broader economic cycle, when the sector and the rest of the nation were rebounding (with decisive federal aid) from a near-death economic experience.

The Politico article also repeats the canard that “International trade makes it difficult to distinguish between what’s truly American and what’s truly foreign.” Actually, it’s not difficult at all. U.S. Transportation Department data annually presents the U.S./Canadian and foreign content figures for every auto and light truck model sold in America. As reported by a recent analysis of the figures:

“Detroit has the bulk of cars with high domestic content. GM, Ford and Fiat Chrysler Automobiles build 37 of the 57 U.S.-assembled cars with 60 percent or higher domestic content. Foreign-based automakers are responsible for dozens of imported cars with zero percent domestic content, according to the National Highway Traffic Safety Administration [NHTSA]. Detroit automakers have just two cars below 5 percent….”

Finally, the authors express puzzlement that despite “the threat of auto tariffs….the foreign automakers who would be targeted by the tariffs are bolstering bolstering manufacturing in the U.S. with investments in auto plants across the Midwest and South.” To which anyone not infected with Trump Derangement Syndrome would respond, “Exactly.”

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(What’s Left of) Our Economy: The Fed Just Showed that Tariff Alarmism Needs to Wait (At Least) Another Month

Tags

aluminum, China, inflation-adjusted output, manufacturing, metals, metals-using industries, real growth, steel, tariffs, Trade, trade war, Trump, {What's Left of) Our Economy

The Federal Reserve’s new industrial production figures (for February) follow a pattern that’s begun to emerge lately. They provide evidence that the domestic U.S. manufacturing sector is shifting into a slower gear. But they offer scarcely any reason to believe that President Trump’s tariff-centric trade policies are behind this possible soft patch.

As usual, let’s start with the data pertaining to the President’s levies on aluminum and steel. These tariffs have been widely reported to have gut punched American industry – allegedly proving that Mr. Trump’s approach to trade has been totally counterproductive. Yet just as usual, the performance of the nation’s main steel-using industries – supposedly the main victim of the tariffs, since the trade curbs saddled them with extra costs for major inputs they use – utterly demolishes such claims.

The table below shows the inflation-adjusted output changes for U.S. manufacturing as a whole and for the leading metals-using sectors. And the time periods of the columns represent the gains or losses reported last month between April (the first full month the metals tariffs were in place) and January; the revised April-January figures released this morning, and the preliminary April-February statistics also put out today.

The message they send couldn’t be clearer. The overall manufacturing slowdown comes through from the deterioration that took place between the April-January and April-February results. In fact, on a monthly basis, real manufacturing output declined by 0.40 percent in February – a weakening that followed a 0.49 percent drop in January.

The metals-using industries (including the durable manufacturing super-category in which they’re all found) all exhibited weaker sequential performance between January and February, too (except for aircraft and parts). But with the exception of autos and parts, and major appliances (which are also laboring under the burden of a separate tariff on large household laundry machines imposed in late January, 2018), since the onset of the metals tariffs, they’ve all grown faster than manufacturing as a whole (which is included as a control group since it contains many sectors that don’t use especially large amounts of metals).

Even more revealing are the differences between the old and new January figures. In every case – including for the laggards – they’ve been revised considerably higher. So their underlying strength still looks impressive, which would make no sense whatever if they were really suffering terribly from the metals tariffs.

                                                   old thru Jan.      new thru Jan.         thru Feb.

overall manufacturing:            +1.20 percent      +1.15 percent    +0.75 percent

durables manufacturing:          +1.65 percent     +1.88 percent    +1.78 percent

fabricated metals products:      +3.19 percent     +3.35 percent    +3.30 percent

machinery:                               +3.87 percent     +4.63 percent    +2.67 percent

automotive:                               -5.18 percent     -3.78 percent     -3.87 percent

major appliances:                      -2.87 percent     -1.42 percent     -1.79 percent

aircraft and parts:                     +6.35 percent    +7.22 percent    +7.98 percent

Because the Trump China tariffs didn’t begin until August, their impact on domestic American industry is much less clear. In addition, the list of goods on which levies were imposed doesn’t compare well with the industrial production figures because they use different systems for classifying manufacturing sectors. Finally, the number of Chinese import categories tariff-ed in starting in August was relatively small – only $50 billion worth.

The table below presents results from industries where the matchups look solid. This time, I’ve added a column that permits comparing the old and new data for the previous month. And as you can see, the numbers are all over the place. The February figures look especially ugly. But in two cases, the January output results have turned out to be stronger than previously reported (especially in industrial heating equipment).

                                                      old Aug.-Jan.      new Aug.-Jan.      Aug.-Feb.

overall manufacturing:                +0.36 percent      +0.31 percent     -0.09 percent

ball bearings:                                -0.09 percent      +0.05 percent     -0.10 percent

industrial heating equipment:       -3.86 percent      -0.40 percent     -4.17 percent

farm machinery and equipment:  +9.12 percent     +9.12 percent   -12.70 percent

Even here, however, so much volatility is evident that withholding judgment is the best approach for now. For example, the February monthly decrease in after-inflation farm machinery output (twenty percent even) was that sector’s worst such performance since January of 2007 (20.54 percent). That’s a more than twelve-year low. Yet the (unrevised) 6.47 percent monthly production improvement in January was the best since last April’s 13.69 percent. Similar volatility can be seen in industrial heating equipment.

So the trade alarmists will have to wait at least another month at least for convincing evidence that the Trump tariffs have backfired big-time against domestic industry. Not that’s stopped them from spreading this wholly false narrative till now.

(What’s Left of) Our Economy: Bullish Signals from Manufacturing About the U.S. Economy

Tags

machine tools, manufacturing, Trade, Trump, {What's Left of) Our Economy

U.S. machine tool orders – for anyone who’s not a manufacturing junkie, could anything sound more boring? And yet, because machine tools of various kinds are what manufacturers use to make a wide range of industrial products, their sales are a key indicator of the sector’s health, and especially its future prospects. After all, if manufacturing companies aren’t feeling optimistic about their businesses, they’re not likely to be ordering many of these generally expensive devices, either to replace worn out equipment or add capacity. If orders are rising strongly, that’s strong evidence that industrial production is likely to strengthen or at least remain strong.

And even if you don’t care much about manufacturing, machine tool orders data speak volumes about whether the economy as a whole is thriving or not – a subject that’s attracted unusual attention lately because the current American recovery has lasted so long, and because some recent statistics are pointing to a growth slowdown – or worse. More specifically, these statistics can reveal whether President Trump’s trade policies are succeeding or failing to achieve one of their prime stated goals – bolstering domestic industry.

The January numbers were released today by the machine tool trade association that tracks them, and the verdict? Thumbs up on all counts. Year-on-year, new business grew by five percent, and there was even a silver lining in the 10.5 percent monthly decline from December levels: January figures almost always fall on a monthly basis (because manufacturers tend to bunch their new orders markedly toward the end of each calendar year), and this January’s decline was half the post-1998 average. In fact, the $396 million figure was the second largest January total in the 22 years during which the industry has been compiling these statistics. Particularly noteworthy: January was the month when most of the last partial federal government shutdown took place. That’s when it was hard to find many Americans optimistic about anything.

Moreover, although these numbers are incredibly volatile month-to-month, the strong surge in machine tool orders that began in early 2017 (coinciding, incidentally, with the advent of the Trump administration) continued apace through 2018 (when he began tariff-ing imports in earnest).

Since manufacturing still only makes up a little less than 11.5 percent of the whole U.S. economy (though it punches way above its weight as a jobs creator), robust machine tool orders are hardly a guarantee against a slowdown – even a significant one. And the future of the President’s trade policy, especially regarding China, remains highly uncertain. But at best, domestic manufacturers’ interest in continuing to buy the stuff that’s used to make other stuff signals that current economic pessimism is a stretch — and that if the economy does run into trouble, neither manufacturing nor President Trump’s approach to trade (which is dominated both ways by industrial goods) will deserve much blame.

Making News: New Op-Ed on Why Trump is Still Winning on Trade

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aluminum, China, Making News, manufacturing, metals, steel, tariffs, The Washington Times, Trade, Trade Deficits, trade wars, Trump

I’m pleased to announce the publication of a new freelance article of mine.  This morning, The Washington Times posted my op-ed explaining why the huge increase in the monthly and annual U.S. trade deficits reported on Wednesday masked some surprising trends.  Specifically, the data made clear that President Trump’s trade policies continue progressing toward their two of their biggest goals.  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: Why the Lousy February Jobs Numbers Don’t Vindicate Tariff Alarmism

Tags

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

The stunningly poor February overall and manufacturing jobs figures released by the Labor Department today surely caused rejoicing in the ranks of America’s trade alarmists. Here, finally, was evidence that President Trump’s tariff-centric policies are backfiring on the U.S. economy and especially its manufacturing sector.

Actually, however, the new employment data show that the alarmists will need to wait at least another month for the statistics even remotely to justify their claims and warnings. For however disappointing the 20,000 net monthly increase in total American job creation and the 4,000 improvement in manufacturing payrolls, the internals provide no reason to assign significant – or any – blame to trade.

The first clue of course was the steep sequential drop in non-farm employment (the Labor Department’s U.S. jobs universe) generally speaking recorded in this first survey of February trends. After all, if the trade wars were mainly behind February’s results, why was the monthly drop-off in job creation nearly three times steeper in the overall economy (most of which has little global trade exposure) than in manufacturing (which has lots of it)?

At least as important, although the President began imposing tariffs on imports of steel and aluminum eleven months ago, manufacturing sectors heavily reliant on these metals keep outperforming the rest of manufacturing in employment terms. And similar trends are becoming apparent for the enormous number of industries that use various inputs from China that have been tariff-ed starting in July.

Below are the net hiring increases since April (the first full month of the new metals trade regime) for the American private sector as a whole, for all of manufacturing, and for the main heavy metal-using industries.

                                                   Old thru Jan.         New thru Jan.         Thru Feb.

entire private sector:                +1.36 percent         +1.62 percent      +1.64 percent

overall manufacturing:            +1.39 percent         +1.55 percent      +1.58 percent

durable goods:                         +1.72 percent         +1.97 percent      +2.04 percent

fabricated metals products:     +1.57 percent         +1.80 percent      +1.60 percent

non-electrical machinery:       +2.57 percent         +2.54 percent      +2.82 percent

automotive vehicles & parts:  +1.15 percent         +0.97 percent      +1.11 percent

household appliances:             not available           -2.52 percent        not available

aerospace products & parts:    not available          +5.93 percent        not available

The only metals-using sector that seems to have encountered employment trouble in February was the fabricated metals industry. And even in this segment of manufacturing, hiring since April has been slightly stronger than in manufacturing overall.

Automotive job creation has been weak as well, but actually enjoyed a relatively good February, relatively speaking. And although the appliance employment picture remains very weak, it needs to be remembered that it’s been laboring under an additional set of product-specific tariffs since late January.

Yet the entire durable goods sector continued to punch above its job creation weight in February, including the crucial machinery and (at least through January), aerospace industries. Why haven’t higher metals prices darkened their employment picture.

As for the impact of the China tariffs, that’s harder to judge for 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.

So the following table shows the post-July employment performance of some major manufacturing sectors that use the Chinese parts, components, and materials tariff-ed that month. But it should be viewed with caution. Nonetheless, they show a heavy burden of proof on the tariff alarmists to identify any damage resulting from the China levies – especially since most of the July-January gains have been so strong.

                                                Old July-Jan.       New July-Jan.          July-Feb.

overall manufacturing           +0.91 percent      +0.98 percent        +1.00 percent

aircraft engines/engine parts: not available       +0.70 percent         not available

industrial heating equipment: not available      +3.02 percent         not available

oil/gas drilling parts:              not available      +3.93 percent         not available

farm machinery/equipment:   not available     +2.67 percent         not available

ball bearings:                         not available     +2.32 percent          not available

“Even a stopped clock is right twice a day” is a popular expression explaining why individual accurate statements or correct predictions shouldn’t automatically signal an information source’s broader credibility. The February jobs figures indicate once again that the trade alarmists haven’t even met this rock-bottom bar.

(What’s Left of) Our Economy: Pssst! Some Good News on Productivity!

Tags

Labor Department, labor productivity, manufacturing, multi-factor productivity, non-farm business, productivity, total factor productivity, Trump, {What's Left of) Our Economy

Here’s a peculiar new twist in ongoing media coverage and more general establishment commentary on the U.S. economy: The conventional wisdom among both these intertwined crowds holds that the American trade deficit doesn’t matter much economically. Yet the apparently poor trade numbers reported yesterday by the Census Bureau was the talk of these towns.

The conventional wisdom held by the establishmentarians also holds that productivity is incredibly important. Indeed, it’s widely described as a key to future prosperity. But the improving productivity figures released today by the Labor Department were virtually ignored.

Of course, a moment’s reflection reveals why. President Trump has made a very big deal out of the need to reduce the trade deficit, and the newest data indicate he’s failing. (Special note: You’ll be hearing more from me on this score very soon.) But Mr. Trump has said nothing about productivity. (That’s actually typical for politicians.) So even had the statistics been poor, there would have been no opportunity for a mass “Gotcha!” festival.

These latest numbers concern labor productivity which, as known by RealityChek regulars, is the narrowest of two productivity measures tracked by the Labor Department. But they’re also published in a much more timely fashion than the total factor (also called multi-factor) productivity statistics, which as their name implies, require collecting more information in order to calculate.

The improvement is most apparent upon examining recent annual changes in labor productivity (which tells us how many units of output a single person working for a single hour can turn out). The new figures bring the story up to the end of 2018, and show a year-to-year gain in the fourth quarter of 1.90 percent for non-farm businesses – the Labor Department’s American economic universe when it comes to productivity.

That increase may not sound like much, but it’s the biggest such advance since the first quarter of 2015 (1.60 percent), and the second biggest since the third quarter of 2010 (2.70 percent). And the trend has been upward since the second half of 2015.

Manufacturing’s labor productivity performance wasn’t quite so good. For the fourth quarter of 2018, it rose at a 1.00 percent annual rate. That increase represented a slowdown from the third quarter’s 1.50 percent. But even though industry’s productivity has been climbing only sluggishly in general since the beginning of 2016, that’s represented a major and positive change from the end of 2014 through 2015 – when manufacturing labor productivity fell on-year for five straight quarters.

Nonetheless, no one should assume that all’s well with labor productivity in America, either for non-farm businesses or for manufacturers. In fact, as the table below makes clear, the nation remains smack in the middle of a deep long-term labor productivity slump in relative terms. Specifically, over the last three economic expansions (the best way to measure trends over time, since it compares like stages of the business cycle), labor productivity gains for the non-farm business and manufacturing sectors have drifted steadily downward.

Especially discouraging: Although the current economic recovery is now just about as long as its 1990s predecessor, the cumulative non-farm business productivity rise for this expansion is less than half as strong. As for manufacturing, its labor productivity performance has been so weak (increasing by just over a fifth the rate of the 1990s expansion), that it’s lost its long-time productivity improvement lead.

When productivity improves strongly, all sorts of good things follow. In particular, workers’ wages can rise robustly without triggering inflation – which in an economy dominated by consumption, can help set the stage for equally vigorous, non-inflationary growth, and therefore more wealth for everyone to share. Does that sound boring to you? I’m shaking my head “No,” as well, which is why whether they keep getting overlooked or not, I’ll keep following the productivity news closely.

                                                                   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):      +11.28 percent              +9.70 percent

(What’s Left of) Our Economy: Evidence that Tariffs Front-Running has Stalled Trump Trade Progress

Tags

aluminum, China, Commerce Department, imports, manufacturing, manufacturing output, manufacturing trade deficit, steel, tariffs, Trade, trade war, Trump, value added, {What's Left of) Our Economy

Yesterday’s post on the morning’s slew of manufacturing data released by the federal government could have included one more report: the Commerce Department’s latest sounding on gross domestic product by industry. And although this read on how different major sectors of the economy have been growing (or not) isn’t a market mover, it’s useful for analyzing the trade policy debate – for it enables calculations on how changes in the U.S. manufacturing trade deficit (a major concern of President Trump’s) compare with changes in manufacturing output.

Because this perspective provides the kind of context lacking when trade deficit increases or decreases are examined in isolation, it represents a much better way to judge whether the president’s trade policies are succeeding or failing according to one of his own main yardsticks.

And the verdict stemming from this new Commerce report? Progress that had been taking place during Mr. Trump’s tenure in boosting domestic manufacturers’ trade-related fortunes has come to a halt – probably because of what’s been called tariff front-running. That is, the President’s actual trade curbs and, doubtless much more important, his threats of additional curbs, have led overseas producers and their U.S. customers to boost greatly shipments to the American market in order to avoid paying as many of the levies as possible.

Consequently, as of the third quarter of last year (the latest data made available by Commerce), the U.S. manufacturing trade deficit resumed its long-term pattern of growing faster than domestic manufacturing production.

Specifically, between the third quarter of 2017 and the third quarter of 2018, U.S.-based industry increased its output by 7.23 percent according to a measure of growth called value-added (before inflation). During the same period, however, the manufacturing trade deficit jumped by 12.45 percent.

As made clear by my previous post on the subject, these results both contrast with the second quarter findings – when manufacturing production grew by 8.02 percent while the trade deficit widened by just 7.23 percent – and reversed a trend that began pretty much when the Trump administration did.

Just as clear – the first major Trump tariffs (on steel and aluminum imports) were slapped on in late March. So their arrival, along with China levies that began in early July and the much more sweeping duties imposed in late September and strongly hinted at in June, surely super-charged America’s import system.

Even with this step backward, it’s still evident that, so far during the the Trump years, domestic manufacturing is much less dependent on imports than before.  During the last year of former President Obama’s administration, for example, American manufacturing imports rose by 7.31 percent, while output expanded by only 4.53 percent – a pattern in place for most of the last twenty years.

But the real test of the Trump tariffs – at least concerning the manufacturing trade deficit – will come if and when U.S. trade flows settle into a new, post-tariff, normal, or one that follows the conclusion of the new, improved trade deals the President has promised. In that vein, the next chance to check these data will be April 19, when Commerce is scheduled to publish its fourth quarter and full-year, 2018 figures. Stay tuned!

(What’s Left of) Our Economy: So Much Manufacturing Data…So Few Trade War Answers

Tags

Census Bureau, core capex, Federal Reserve, Jerome Powell, manufacturing, Markit.com, Philadelphia Fed, tariffs, Trade, trade war, Trump, {What's Left of) Our Economy

What a day for U.S. manufacturing data! It no doubt raises major questions over whether President Trump’s tariff-centric trade policies are finally showing signs of damaging American domestic manufacturing (as has been widely claimed for months, despite an almost total lack of statistical evidence). Unfortunately, it’s a mixed and pretty muddy verdict that’s delivered by the separate reports from the Census Bureau (on national spending on the kinds of “core” capital goods made by U.S. manufacturers), the Philadelphia Federal Reserve Bank (on manufacturing in the mid-Atlantic states), and private sector consultancy Markit.com (on the overall state of domestic industry).

To be sure, the headline figures collectively were worrisome. The Census reading was both worse than expected, and strengthens the case that there’s been a softening on business expenditures on machinery and equipment not meant to build defense-related products (which, after all, reflect government decisions, not economic fundamentals) or aircraft (where demand is thought to be unusually volatile, and therefore likely to produce results that distort the figures for industries as a whole).

The Philadelphia Fed reading was the first such monthly reading since May, 2016 showing regional industry to be contracting rather than expanding. And the Markit report – something of a national version of the Philadelphia survey – signaled “the slowest improvement in business conditions since September, 2017.”

But the obstacles to drawing any broad conclusions, much less trade- and tariff-related conclusions – are formidable to say the least.

In the first place, it’s always dangerous to place major emphasis on a single month’s worth of results. In addition, the three surveys cover different time periods. The Philly Fed and Markit results purport to show conditions for February. The Census capital spending release only brings the story up to December. Not to mention that it came 35 days late due to the partial federal government shutdown.

Moreover, the Markit and Census results are preliminary. Revisions are rarely game-changers, but can sometimes turn contractionary readings expansionary – and vice versa.

It’s also crucial to distinguish between absolute drops in activity and relative drops. The Philly Fed report – which provides the most recent data – and the Census results describe absolute contractions in their indicators. But the Markit headline figure remains in expansion territory – it’s just not quite so expansionary.

As RealityChek regulars are used to reading, “Don’t ignore the internals.” And all three releases were filled with intriguing details. On the positive side, for example, the February Philly Fed report found that hiring by regional manufacturers not only kept increasing – it increased at a faster pace. That’s unusual for a manufacturing sector that’s supposedly contracting. And in fact, respondents professed to be slightly more optimistic about their future prospects in February than they were in January. Markit also reported strong February manufacturing employment along with other signs that “manufacturers remain firmly in expansion mode.” 

On the negative side, the Philly Fed reported big drops (both into absolute contraction) in both new orders and shipments. The former in particular seems like bad news for future business. And the Census capital spending results also are viewed as a forward-looking indicator – although they’re two months old.

Most challenging of all is figuring out what role the Trump tariffs have been playing, since they’re hardly the only development influencing manufacturing’s health. The economist who writes the Markit reports sums up the situation aptly, in my opinion:

“Businesses that experienced a soft patch for production cited a range of factors holding back growth, including adverse weather, worries about the global economic outlook and ongoing international supply chain uncertainty.” That last phrase refers to trade conflicts and their possible impacts. But of course, even assuming that such uncertainty was indeed a major cause of the soft patch, let’s not forget that soft patches often firm up quickly.

And don’t forget the Federal Reserve! Last October, Chairman Jerome Powell spooked investors by suggesting that the central bank would keep raising interest rates well into this year. Such “tightening” usually slows down growth by increasing the cost of borrowing for consumers and businesses. But in mid-November, Powell indicated he was having second thoughts and, after financial markets suffered through a terrible December, in early January convinced investors that he was serious about continuing easy money with an early January statement.

So as I see it, there’s still no significant evidence that the Trump tariffs themselves have already been hurting American manufacturing, and no compelling evidence yet that they will. But since no one has a whizbang crystal ball, and the stakes are so big, the intellectually honest course to take is to keep monitoring the data and report on them as accurately and as dispassionately as possible.

Making News: Back on National Radio to Update the U.S.-China Trade War…& More!

Tags

China, Gordon G. Chang, Making News, manufacturing, Thaddeus McCotter, The John Batchelor Show, Trade, trade war, Trump

I’m pleased to announce that I’m scheduled to return to John Batchelor’s nationally syndicated radio show tonight to provide an update on the latest twists and turns in the U.S.-China trade conflict.  Click here to listen on-line to what’s sure to be a timely discussion among John, co-host Gordon G. Chang, former Michigan Republican Congressman Thaddeus McCotter, and me.  The segment is slated to start at 10:15 PM EST.

In addition, the podcast is now on-line of my Monday night interview on the Batchelor Show.  Our main subject?  Can the U.S. divorce itself economically, and if so, how thoroughly and how fast?  Here’s the link.

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

(What’s Left of) Our Economy: Manufacturing’s Real Wage Recession Hits Third Birthday

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inflation-adjusted wages, Labor Department, manufacturing, private sector, real wages, wages, {What's Left of) Our Economy

As I’ve written previously, I’m becoming convinced that badly lagging wages for U.S. manufacturing workers stem in part from companies inevitably hiring less and less qualified workers who need lots of time and training to get up to snuff. But that doesn’t mean I have to be overjoyed about it.

So although I remain hopeful that these hiring practices will eventually produce the kind of highly skilled and productive manufacturing workforce the country needs, it seems justified to point out that last week’s Labor Department report showed industry’s inflation-adjusted wages nearing historically awful territory – certainly for an economy that’s expanding. 

The worst news (and the competition was keen): Manufacturing’s real wage recession got longer at both ends. Because constant-dollar hourly pay fell by 0.37 percent on month in January (the worst sequential performance since last August, 2017’s 0.64 percent drop), the downturn not only extended another month. It also pushed back the start date to January, 2016.

In other words, the manufacturing real wage recession just turned three years old. During that period, after-inflation hourly pay has declined by a cumulative 0.09 percent.

Some more (depressing context): If you go back further in the figures, you see that real manufacturing wages haven’t budged at all since February, 2009. That’s nearly ten years of outright stagnation.

In fact, since the current economic recovery began, in mid-2009, inflation-adjusted manufacturing wages have risen by only 0.47 percent.

If you’re desperate for a silver lining, here’s the only one I could find. Manufacturing’s year-on-year real wage decrease was slightly less (0.09 percent), than that between the previous Januarys (0.19 percent). So technically, that’s progress.

Real wage gains for the overall private sector continued to outpace those in manufacturing by a wide margin, especially the longer the time period you examine. On a monthly basis, the private sector’s 0.46 percent December price-adjusted pay hike was revised down to 0.37 percent. But that still beat manufacturing’s (0.37 percent). The same holds for January – when private sector wages after inflation climbed by another 0.18 percent.

On annual basis, the private sector left manufacturing in the dust, real wage-wise. Its January-January 1.68 percent improvement was its best since July, 2014’s 1.81 percent. Moreover, it nearly tripled the constant dollar wage increase of 0.66 percent between January, 2017 and January, 2018.

Worse still, since the current recovery began, real private sector wages are up 5.82 percent. Although not an eye-popper, given that it represents the change over more than nine years, this rate of increase was 12.38 times faster than its manufacturing counterpart – 0.47 percent.

Even worse, the gap is widening. During the recovery through last January, real private sector wages had only risen 7.27 times faster than real manufacturing wages.

If you believe the low-skills explanation for the manufacturing wages’ dismal performance in absolute and relative terms, you could legitimately hope that training and education can turn the picture around. At the same time, if you’re a low-paid manufacturing worker, you could legitimately wonder how much longer some payoff of more knowledge and experience will take.