(What’s Left of) Our Economy: Today’s Really Recession-y U.S. Manufacturing Production Report

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aircraft, aircraft parts, Federal Reserve, machinery, manufacturing, medical devices, medical equipment, miscellaneous transportation equipment, nonmetallic mineral products, output, petroleum and coal products, pharmaceuticals, primary metals, printing, production, real output, recession, semiconductors, soft landing, {What's Left of) Our Economy

A U.S. recession is either imminent or already here – that’s the main message being strongly suggested by today’s release by the Federal Reserve on inflation-adjusted manufacturing production (for December).

Not only did industry’s real output sink by 1.30 percent sequentially – the worst such result since February, 2021’s 3.64 percent weather-affected plunge. But November’s initially reported 0.62 percent retreat was revised down to one of 1.10 percent.

Two straight monthly drops of one percent or more each haven’t been recorded by U.S.-based manufacturers since the February through April, 2020 period – when the arrival of the CCP Virus began roiling American life and the national economy, and indeed threw the latter into a deep downturn.

The new figures pushed price-adjusted U.S. manufacturing production into contraction for full-year 2022 – by 0.41 percent. That’s a major deterioration from the 4.19 percent constant dollar gain in 2021 – the strongest such showing since the 6.48 percent achieved in 2010, during the recovery from the Global Financial Crisis and ensuing Great Recession.

Moreover, since just before the pandemic arrived in force in the United States (February, 2020), after-inflation manufactuing has now grown by just 1.21 percent. As of last month’s industrial production release, this figure stood at 3.07 percent.

Of the twenty broadest manufacturing sub-sectors tracked by the Fed, only three boosted monthly inflation-adjusted production in December: aeropace and miscellaneous transportation equipment (0.96 percent), primary metals (0.84 percent), and nononmetallic mineral products (0.65 percent).

The biggest losers among their 17 other counterparts were machinery and printing and related support activities (3.37 percent each), and petroleum and coal products (3.13 percent).

Especially concerning, and continuing a pattern identified last month – for machinery and printing, these results were the worst since April, 2020, at the peak of the CCP Virus’ devastating first wave, when their real output collapsed month-to-month by 18.64 percent and 23.10 percent, respectively. Meanwhile, the monthly decrease in petroleum and coal products was its biggest since weather-affected February, 2021.

And as known by RealityChek regulars, machinery’s tumble last month is a particularly bright red flag. Because its products are used so widely in sectors inside and outside of manufacturing – including by growing companies or firms counting on continued or faster growth – its fortunes are seen as a good predictor of the economy’s future. Therefore, a big machinery production decrease (the second in a row) could well mean that business activity across the national board is at least slowing markedly and won’t be reviving any time soon.

The December numbers were only somewhat better for sectors of special interest since the CCP Virus’ arrival stateside. Sequential increases were registered in pharmaceuticals and medicine (by 1.10 percent) and aircraft and parts (by 1.49 percent). But price-adjusted output fell in automotive (by 1.03 percent), the shortage-plagued semiconductor industry (by 1.20 percent), and the medical equipment and supplies sector that encompasses products heavily used to fight the pandemic (by 2.50 percent).

In addition, the slippage in medical equipment and supplies was one of those that was the greatest since the peak of the CCP Virus’ first wave (when it nosedived by 17.76 percent).

Since manufacturing is only about fifteen or sixteen percent of the total U.S. economy (depending on how you count output), a downturn in industry doesn’t necessarily presage an overall recession. But the new industrial production statistics aren’t the only signs of shrinkage. Consumer spending comprises nearly 71 percent of the economy according to the latest (third quarter, 2021) data, and today’s advance official retail sales report (for December) indicates that they’ve now fallen consecutively for two months. Possibly weaker inflation (indicated most recently by today’s wholesale price report, which I’ll post about tomorrow), also signals gloomy times ahead.

Since the new Fed manufacturing production results will be revised several times over the next few months, it’s possible that the real picture in industry could brighten somewhat. But likelier, in my view (as I wrote yesterday), is for a recession-averse Washington to move to stimulate consumer spending without seeking similar results for production – in other words, a time-tested formula for stagflation at best for the foreseeable future.

P.S. As alert readers may have noticed, this post contains many fewer manufacturing production details than its recent predecessors. My aim is to ensure that I can get this info to you on a same-day basis. Do you like this simpler format better? Or should I return to going deeper into the weeds? Please let me know if you get a chance.         

        

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(What’s Left of) Our Economy: U.S. Manufacturing Dispels Recession Fears

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aircraft, aircraft parts, apparel, automotive, CCP Virus, computer and electronics products, coronavirus, Federal Reserve, inflation-adjusted growth, machinery, manufacturing, medical equipment, miscellaneous durable goods, non-metallic mineral products, paper, personal protective equipment, petroleum and coal products, pharmaceuticals, PPE, printing, recession, semiconductors, Wuhan virus, {What's Left of) Our Economy

If the U.S. economy is still in recession, or getting uncomfortably close to one, it seems no one’s told the nation’s manufacturers. Yesterday’s latest figures from the Federal Reserve show that domestic industry expanded its inflation-adjusted output by 0.43 percent on month in September. Moreover, revisions at this 30,000-foot level were modestly positive (as opposed to some for manufacturing sectors which, as you’ll see, were pretty dramatic).

August’s initially reported gain of just 0.09 percent – which seemed to indicate that the sector was heading into a downturn – is now judged to have been one of 0.38 percent. July’s originally reported 0.72 percent advance was revised down slightly again – from 0.62 percent to 0.60 percent. And June’s results were downgraded a third straight time – from an initially reported dip of 0 05 percent to a drop of 0.58 percent.

These new and revised figures pushed real U.S. manufacturing production is up 4.19 percent from 2020 – just before the CCP Virus and assorted mandated and voluntary behavioral curbs sparked a short but scary downturn and touched off waves of distortion that persist to this day. As of last month’s Fed report, industry’s inflation-adjusted production had risen by 3.49 percent during the pandemic period.

Among the broadest manufacturing sub-sectors tracked by the Fed, the biggest September winners in terms of after-inflation output were:

>apparel and leather goods, whose monthly constant dollar output jumped 1.56 percent. Revisions, moreover were strongly positive. August’s initially reported 0.53 percent downturn was lowered to a slump of 1.85 percent. But July’s results rebounded from a 1.46 percent gain to one of 1.66 percent, after having been revised down from 1.60 percent.

And get a load of the June figures! The initially reported 1.44 percent drop was revised to a boom of 6.09 percent (which would have been the best such increase since August, 2020’s 8.04 percent), then back down to a rise of just 1.46 percent, and finally (for now) back up to a 5.98 percent advance.

Apparel and leather goods’ real output is now 5.39 percent higher than in immediately pre-pandemic-y February, 2020, versus the 4.98 percent calculable last month;

>non-metallic mineral products, where inflation-adjusted production was up 1.41 percent for these companies’ best month since May’s 1.69 percent. Revisions, though, were moderately negative, with August’s initially reported 0.09 percent monthly dip being downgraded to a drop of -0.22 percent; July’s initially reported 0.52 percent increase revised down to a slip of 0.09 percent to a fractional decline; and June’s initially reported 1.07 percent fall-off significantly upgraded to a 0.48 percent increase, then revised down to growth of 0.46 percent, to a fractional decrease.

Still, price-adjusted output in non-metallic mineral products is now 1.48 percent higher than just before the CCP Virus arrived in force, versus the 0.12 percent calculable last month;

>petroleum and coal products, which grew inflation-adjusted output by 1.13 percent in September, and which saw overall positive revisions. August’s initially reported 3.54 percent is now judged to be an advance of 4.13 percent (the strongest since March, 2021’s 11.49 percent). July’s initially estimated 0.94 percent decrease has now been upgraded first to one of 0.25 percent and now to one of 0.23 percent. And June’s results stayed at a significantly downgraded 2.80 percent tumble.

Real output in these sectors is now 3.20 percent higher than in February, 2020, versus the 1.45 percent calculable last month; and

>computer and electronics products, whose constant-dollar production climbed 1.07 percent – now the best growth since February’s 1.20 percent. Yet revisions were negative, as August’s initially reported increase of 1.27 percent (which had been the best since May, 2021’s 2.44 percent) has been downgraded to one of 1.05 percent; July’s initially reported drop of 0.65 percent downgraded to one of 0.68 percent and now to one of 0.89 percent; and June’s results settling in at a 0.45 percent increase after the initially reported 0.21 rise was upgraded to 0.67 percent and then revised down to 0.46 percent.

After inflation production in these industries is now 6.78 percent higher than in that last pre-CCP virus data month of February, 2020 versus the 6.11 percent calculable last month.

September’s biggest price-adjusted growth losers were:

>printing and related support activities, where real output sank by 1.67 percent – its worst such perfomance since January’s 2.09 percent retreat. Just as bad, revisions were negative on net. August’s initially reported 0.27 percent decrease was revised up all the way to a 0.59 percent gain, but July’s loss is now judged to have been 1.60 percent after having been upgraded from on of 1.67 percent to one of 1.50 percent. And June’s initially reported 1.68 increase (then the best such performance since February’s 3.13 percent advance) has been revised since to a decrease of 0.51 percent, 0.40 percent, and 0.41 percent.

Conseqently, this hard-hit sector’s output is 11.81 percent smaller than in February, 2020, versus the 11.02 calculable last month.

>miscellaneous durable goods, the broad category that includes the personal protective equipment and other medical devices used so widely to fight the CCP Virus. Its inflation-adjusted production fell by 1.29 percent in September – the first decrease since March’s fractional dip. Even better, this decline comes off overall positive revisions of already excellent results.

August’s initially reported 1.71 percent increase is now estimated to have been one of 2.86 percent the – best since growth rate since July, 2020’s 5.96 percent, as the economy recovered from the pandemic’s first wave and medical equipment production was prioritiezed. July’s initially reported 1.23 percent improvement was downgraded to one of 0.89 percent and then back up to 0.95 percent, and June’s initially reported 2.25 percent growth stayed at a downwardly revised 0.67 percent following a downgrade to 0.87 percent.

Still, in constant dollar terms, production in this broad category is now 13.78 percent greater than in immediately pre-pandemic-y February, 2020, versus the 13.92 percent calculable last month; and

>paper, where real output in September sank by 0.92 percent. Revisions were mixed, with August’s initially reported 0.80 percent increase (the best such performance since February’s 2.26 percent jump) revised down to 0.69 percent; July’s initially reported 0.64 percent decrease upgraded for a second time, to one of 0.58 percent and now to 0.51 percent; and June’s numbers following a similar pattern, with an initially reported shrinkage of 0.88 percent revised up to losses of 0.62 percent and 0.57 percent, respectively.

Yet paper’s real output is now down by 3.78 percent since just before the pandemic arrived, versus the 2.83 percent worse calculable last month.

Good Septembers were also recorded in two manufacturing sectors of long-time special importance to the economy.

Machinery’s economic role is critical because of how widely its products are used throughout the economy and because its output largely reflects business’ expectations of future demand and growth. So it was good news that this diverse sector’s constant dollar output rose by 0.32 percent in Sept, and that revisions were positive on net.

August’s initially reported 0.99 percent increase (mistakenly reported in my last post as 0.91 percent), which had been the best such growth since April’s 1.97 percent was upgraded all the way up to 2.64 percent! That’s now the best production month since July, 2021’s 2.76 percent. This July’s initially reported 0.50 percent growth was upgraded again – from 0.68 percent to 0.78 percent – but June’s data has been revised down overall from a drop of 1.49 pecent to one of 1.27 percent, and back down to 1.75 percent and 1.83 percent.

These developments have now pushed up machinery’s post-February, 2020 real output to 7.23 percent, versus the 5.07 percent calculable last month.

The automotive sector has greatly influenced the manufacturing production statistics throughout the pandemic era, and its volatility continued in September, with after-inflation output up by one percent. Yet that result followed an August whose production decrease was revised down from 1.44 percent to one of 1.48 percent; a July whose output increase was downgraded from an initially reported 6.60 percent to one of 3.24 percent and now back up to 3.57 percent; and a June whose results have changed from -1.49 percent to -1.27 percent to -1.31 percent to -1.84 percent.

Real vehicle and parts production, however, is now back in the black since February, 2020, now aving risen by 0.89 percent, versus the 0.89 percent slippage calculable last month.

The news also was generally good in September for industries prominent in the news during the CCP Virus era.

Constant-dollar production in the shortage-plagued semiconductor sector rose by 0.45 percent, and revisions overall were mixed. August’s initially reported decline of 0.57 percent (the first in three months) is now judged to have been only 0.39 percent. July’s initially reported 1.16 percent growth has been revised down to 0.77 percent and now a measly 0.02 percent. But June’s initially reported 0.18 percent advance is now judged to have been one of 0.86 percent, after being revised way up to 2.09 percent, and then back down to 0.88 percent.

Real semiconductor production is now 17.29 percent higher since February, 2020, versus the 17.46 percent improvement calculable last month.

Inflation-adjusted production of aircraft and parts grew 0.59 percent in September, and revisions were mixed. August’s initially reported 3.11 percent surge (the best since January, 2021’s 8.61 percent) was downgraded significantly to 1.69 percent. But July’s numbers have been upgraded from an initially reported gain of 1.02 percent to one of 1.52 percent and now to one of 1.90 percent. And June’s initially reported 0.26 percent growth has been revised to a 0.18 percent advance, back up to a rise of 0.24 percent, and again to one of 0.56 percent.

Aircraft and parts production, therefore, has now increased by 31.18 percent since just before the pandemic’s arrival, versus the 30.60 percent rise calculable last month.

Pharmaceutical and medicines companies boosted their real monthly production by 0.64 percent in September, and revisions were mixed. August’s initially reported 1.62 percent improvement (the best since August, 2021’s 1.96 percent) was upgraded to 1.81 percent. But July’s initially reported 0.29 percent increase, which had been revised up to 0.30 percent, is now judged to have been a 0.55 percent loss – the first such setback since February’s 1.35 percent fall). And June’s results have gone from 0.39 percent to unrevised to a gain of 0.32 percent and now a rise of 0.43 percent.

As of last month, phamaceuticals’ and medicines’ after-inflation production level had grown by 16.56 percent since February, 2020.  Now the figure is 16.58 percent.

The lone exception to these good September results was medical equipment and supplies – where the personal protective devices and other pandemic fighting equipment is found. Its 1.33 percent after-inflation production fall-off last month was its first since last December (0.71 percent) and the worst such performance since the 15.08 percent crash dive in April, 2020 – at the height of the CCP Virus’ devastating first wave.

But August’s initially reported three percent increase was revised up to 4.40 percent – the best such result since July, 2020’s 9.84 percent. This July’s initially reported 1.90 percent rise was downgraded to 1.58 percent but then upgraded to 1.69 percent. And although June’s figure was revised down from an initially reported 3.12 percent to 1.01 percent and then to 0.67 percent, it was nudged back up to 0.68 percent yesterday.

These net gains pushed medical equipment and supplies’ real production to 17.95 percent above their February, 2020 levels, versus the 17.81 percent improvement calculable last month.

For what it’s worth, the normally pretty reliable forecasters at the Atlanta branch of the Federal Reserve system believe that the economy has now exited the recession it experienced in the first half of this year, and that will grow at a very respectable 2.9 percent after inflation at annual rates in the third quarter of this year. We’ll find out for sure starting October 27, when the first official read on third quarter growth comes out. But at this point, these new manufacturing production data support the idea that economic expansion is back for the time being – and certainly augur well for domestic industry’s prospects at least for the short term.

(What’s Left of) Our Economy: U.S. Manufacturing Growth is Overcoming the Ukraine War, Too

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aerospace, aircraft, aircraft parts, appliances, automotive, electrical components, electrical equipment, Federal Reserve, furniture, inflation, logistics, machinery, manufacturing, medical devices, medical equipment, metals, monetary policy, non-metallic mineral products, pharmaceuticals, printing, semiconductors, supply chains, textiles, transportation, {What's Left of) Our Economy

My day got away from me yesterday, so I couldn’t finish up my report on that morning’s Federal Reserve’s newest U.S. manufacturing production figures (for March) till now. But they’re worth examining in detail because although they’re the first such data to be released since the Ukraine war broke out and began disrupting global supply chains for important goods, they strongly resembled last month’s statistics – which were the final pre-war figures.

And just as interesting: Many of the results for individual industries illustrated strikingly the roller coaster ride on which much of domestic industry remains, with multi-month bests in particular coming right on the heels of multi-month worsts. Moreover, underscoring much of the uncertainty created by Ukraine-related tumult coming on top of (and in China’s case, alongside) CCP Virus-related tumult, some revisions of previous months’ readings were unusually large.

In inflation-adjusted terms, American manufacturing output grew 0.87 percent sequentially in March. The increase was powered largely by a 7.80 percent monthly jump in real output in the exceptionally volatile automotive sector. But even stripping out vehicles and parts production, price-adjusted manufacturing production improved by 0.40 percent in March.

In addition, revisions were mildly positive. February’s initially reported 1.20 percent constant dollar month-on-month production increase – the best such performance since last October’s 1.71 percent – was upgraded to 1.22 percent. January’s downwardly revised 0.03 percent improvement is now estimated at 0.11 percent. And December’s small dip was revised up again – from -0.06 percent to -005 percent.

Consequently, since the last full data month before the CCP Virus began roiling the U.S. economy (February, 2020), domestic manufacturing has expanded by 4.42 percent – up from the 3.37 percent calculable last month.

At the same time, U.S.-based industry is still 2.91 percent smaller than at its all-time peak – reached just before the Great Recession in December, 2007 – although that’s up from the 3.88 percent deficit calculable last month.

March’s biggest manufacturing production winners were:

>automotive, as mentioned above. That was the biggest sequential gain since last October’s 10.64 percent, but it follows a February drop that’s been downgraded from 3.55 percent to 4.64 percent. And that was the worst monthly figure since last September’s 6.32 percent. All these (and previous) ups and downs left after-inflation vehicle and parts production 3.50 percent below their immediate pre-pandemic (February, 2020) levels;

>aerospace and miscellaneous transportation, where after-inflation production rose by 1.90 percent on month. The February advance, was downgraded substantially, from 3.22 percent to 1.64 percent, leaving the March increase the biggest since last July’s 4.21 percent. These industries are now 16.43 percent larger in real terms than in February, 2020;

>electrical equipment, appliances and components’ price-adjusted production climbed 1.03 percent sequentially and February’s increase was revised all the way up from 0.48 pecent to 1.95 percent– best since last July’s 3.24 percent. Inflation-adjusted output in these sectors is now 5.55 percent above thei February, 2020 levels; and

>plastics and rubber products, which displayed a similar pattern. Real output was up 1.14 percent sequentially in March, and February’s results were more than doubled – from +1.46 percent to +3.14 percent. That burst – the best since August, 2020’s 3.85 percent – left constant dollar production for these industries 3.56 percent greater than in immediate pre-pandemic-y February. 2020

In addition machinery, which is such a bellwether for both the rest of industry and the entire economy because of the widespread use of its products, price-adjusted output in March improved by 0.78 percent over February’s results. And although the February improvement was downgraded from 0.78 percent to 0.54 percent, after-inflation machinery production is still up 8.29 percent since February, 2020.

The biggest March manufacturing growth losers were:

>non-metallic mineral products, whose 1.15 percent March monthly decline was the worst such figure since last May’s 2.29 percent decrease. But this drop-off followed a February monthly surge that was upgraded from 3.46 percent to 3.94 percent – the .best such showing the 4.34 percent of June, 2020 – early in the recovery from the deep economic downturn triggered by the first wave of the CCP Virus and related lockdowns and behavioral curbs. Real output in this sector has now risen by 3.28 percent since February. 2020;

>primary metals, where similarly. March’s 1.69 percent fall was the biggest since January’s 2.46 percent drop – and followed a February 2.26 percent increase that was upgraded from the previously reported 2.10 percent and represented the best monthly performance last April’s 3.48 percent. Primary metals inflation-adjusted output is now 1.16 greater than in Februrary, 2020;

>furniture and related products’ after-inflation production sank by 1.51 percent from February to March – the worst such figure since February, 2021’s 3.21 drop. But March’s lousy results followed a February increase that was also more than doubled – from 2.52 percent to a 5.63 jump that was this sector’s best since June 2020’s 5.66 percent. These results brought real output in furniture and related products to within 0.80 percent of its immediate, February, 2020 pre-pndemic level;

>textiles’ 1.46 percent monthly March real output decrease was its worst monthly result since January’s 2.30 percent drop. But it, too, followed a strong February. That month’s improvement was upgraded from 0.03 percent to 0.97 percent – the biggest monthl increase since September’s 1.36 percent. Yet in real terms, the industry is still 5.84 percent smaller than in February. 2020;

>and printing and related support activities. It’s 1.10 percent March sequential after-inflation output retreat was also its worst since January’s 2.16 percent decrease. But it, too, followed a strong February. Indeed, that months’ inflation-adjusted production increase was revised up from 1.66 percent to 2.66 percent – its best such performance since last May’s 2.75 percent rise. This cluster, though, has still shrunk by 4.69 percent in constant dollar terms since February. 2020.

Growth was solid, too, in industries that consistently have made headlines during the pandemic.

In the aircraft and aircraft parts sector, real production increased in March by 2.31 percent. Because February’s initially reported 2.52 percent monthly rise was marked all the way down to 1.13 percent, the March figure became these industries’ best since last July’s 3.44 percent (which I mistakenly reported last month was an August total). January’s results were downgraded, too – and for a second time, to 0.91 percent. But the sector is still 15.86 percent bigger than it was after inflation than in February, 2020.

The big pharmaceuticals and medicines sector turned in a more mixed performance. March’s 1.17 percent price-adjusted monthly production increase was the best such total since last August’s 2.39 percent. But February’s initially reported 1.08 percent gain is now reported as a 1.15 percent loss. January’s constant dollar production change, however, was revised up from a 0.14 percent drop to a 0.45 percent increase. All told, pharamaceuticals and medicines production is 14.75 percent higher afte inflation than in February, 2020.

But the news was unambiguously good in the medical equipment and supplies sector that contains so many of the products needed to fight the pandemic. The March inflation-adjusted output improvement was 1.81 percent and February’s production growth was upgraded from 1.39 pecent to 1.73 percent. Further, the January after-inflation growth figures – which had already been revised up from 2.50 percent to 3.26 percent – was upgraded further to 3.28 percent. And a December result that was first reported as a decline of 2.75 percent is now estimated to be a dip of just 0.37 percent. All told, output in these sectors has increased by 10.80 percent since immediately pre-pandemic-y February, 2020.

And although the national and global semiconductor shortage persists, U.S. domestic production kept rising healthily. Output in March improved month-to-month by 1.99 percent adjusted for inflation, February’s initially reported rise of 1.96 percent was upgraded to 2.87 percent (the best such growth since April, 2017’s 3.78 percent), and January’s downwardly revised 0.37 percent sequential output decline was revised up to a 0.05 percent gain. As a result, semiconductor production is upfully 25.99 percent over its immediate pre-pandemic levels.

The March manufacturing production figures portray a domestic industry resilient enough to withstand not only pestilence but (so far) war and the beginnings of tighter Federal Reserve monetary policy aimed at slowing U.S. growth in the name of reducing  inflation. No one knows what catastrophes the future may hold, or how much more the aforementioned problems could worsen. But it’s looking like any force powerful enough to derail American manufacturing for long may need to be truly Biblical in its proportions.

(What’s Left of) Our Economy: No Winter of Discontent for U.S. Manufacturing Production

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aerospace, aircraft, aircraft parts, automotive, CCP Virus, coronavirus, COVID 19, Federal Reserve, food products, inflation-adjusted output, machinery, manufacturing, medical equipment, Omicron variant, pharmaceuticals, real output, semiconductor shortage, semiconductors, supply chains, textiles, Wuhan virus, {What's Left of) Our Economy

Today’s Federal Reserve report on industrial production (for January) showed once again that if you’re looking for clickbait-y news about the economy, don’t look at U.S. manufacturing. The new figures showed not only that inflation-adjusted domestic manufacturing output grinded out another pretty good monthly gain (0.22 percent), but that whatever Omicron-related hit to industry’s growth was delivered in December was much smaller than first estimated (a decline of just -0.07 percent instead of -0.28 percent). And revisions overall for previous months were positive.

This performance left real manufacturing production 2.49 percent above the levels it hit in February. 2020 – the last full data month before the CCP Virus and its effects began impacting the economy (and everything else). December’s revision, moreover, pushed industry’s constant dollar expansion in 2021 up from 3.71 percent to 4.06 percent. That’s still the highest level since 2011’s 6.48 percent, but this strong growth also partly reflected one of those CCP Virus baseline effects – since between 2019 and 2020, domestic manufacturing shrank by 1.94 percent after inflation.

With January’s price-adjusted monthly production increases broad-based, the list of significant winners was longer than usual. For the major industry groupings tracked by the Fed, it includes (in descending order):

>the 1.43 percent monthly jump in textiles and products’ constant dollar production, which continued a strong recent run. All the same, these industries remain 1.61 percent smaller in real terms than in pre-pandemic-y February, 2020;

>an especially encouraging 1.37 percent real output rise in miscellaneous durable goods – a category that contains the personal protective equipment and respirators so crucial to the pandemic response. This advance did follow a big sequential production drop in these products in September, but at least it’s now judged to be 1.91 percent, rather than 2.68 percent. As a result, the miscellaneous durable goods industries put together are now 7.20 percent larger than in February, 2020;

>a 1.08 percent rise in inflation-adjusted machinery production that’s also encouraging because this sector’s products are used so widely throughout the rest of manufacturing and the non-manufacturing economy. This increase was the best since July’s 2.85 percent pop, and December’s good initially reported 0.68 percent improvement is now pegged at 0.87 percent;

>food products’ 0.90 percent after-inflation growth, which continues a long stretch of steady improvement. Inflation-adjusted output in this sector is only 1.25 percent higher than in February. 2020 – but it never suffered the huge downturn of spring 2020 that the rest of manufacturing and the economy experienced, So it’s never benefited much from any baseline effect;

>a 0.87 percent increase in the aerospace and miscellaneous transportation sector. January’s performance didn’t make up for the 0.97 percent December drop that was these industries’ worst since August’s 2.31 percent nosedive. But output in this cluster is still 13.08 percent greater after inflation than in February, 2020.

Manufacturing’s biggest January production losers included:

>petroleum and coal products, where a 1.47 percent monthly after-inflation slump was its second consecutive significant decrease (although December’s decrease is now judged to be 1.46 percent, not 1.58 percent). Price-adjusted production in this sector is now down by 5.92 percent since February, 2020, just before the pandemic rocked the economy;

>the 1.44 percent retreat registered by printing and related support activities. December’s initially reported 1.82 percent downturn is now estimated at just 1.02 percent, but real output in these sectors is still down 4.95 percent since Febuary, 2020;

>and a 0.89 percent constant dollar monthly production fall-off in automotive, which keeps struggling with the global semiconductor shortage. Both the December and November results received big upgrades (from a 1.29 percent decrease to a 0.38 percent slide in the former, and from a 1.69 percent drop to a 0.41 percent decline in the latter). But real output of vehicles and their parts is 6.25 percent short of their February, 2020 figure.

January’s generally good manufacturing output results carried over into industries that have been prominent in the news during the pandemic.

In aircraft and parts, price-adjusted monthly production rose 1.37 percent – the best rate since August’s 3.44 percent. Revisions were mixed, with December’s 0.38 percent decrease revised down to a 0.74 percent fall-off, and November’s once-upgraded 1.04 percent decrease pushed up again to a 0.69 percent dip. Even so, inflation-adjusted output in these industries is now 13.14 percent higher than in pre-pandemicky February, 2020, as opposed to the 10.71 percent growth calculable from last month’s Fed release.

Pharmaceuticals and medicines saw a January constant dollar output advance of 0.27 percent, and December’s previously reported 0.13 percent decrease was revised all the way up to a 0.81 percent gain. In real terms, therefore, these industries are 14.91 percent bigger than in February, 2020, as opposed to the 13.42 percent calculable last month.

In line with the pattern revealed in their miscellaneous durable goods super-sector, inflation-adjusted output of medical equipment and supplies rebounded in January, with its 2.50 percent increase representing the best monthly performance since July, 2020’s 10.78 percent burst. (In last month’s report, I mistakenly wrote that April, 2020 had seen the previous best.)

Moreover, the initially reported 2.75 percent after-inflation output swoon for December has been upwardly revised to a decrease of 1.97 percent. These developments were enough to leave real medical equipment and supplies production 4.43 percent above their levels of February, 2020. As of last month, they were 1.50 percent below.

Finally, let’s add semiconductors to the list of pandemic industries examined. In tandem with “other electronic components” (the joint category tracked by the Fed), their real output declined fractionally on month in January, which broke a streak of steady growth that resumed last June. Price-adjusted output in this group of industries is fully 20.66 percent above its immediate pre-pandemic level – and was never significantly depressed by the steep virus-induced recession of early spring, 2020.

Especially if the CCP Virus actually moves to the rear-view mirror in upcoming weeks and months (in the form of becoming endemic, not disappearing altogether), then the outlook seems bright for domestic manufacturing. Granted it’s benefited from gigantic stimulus from fiscal and monetary policy, and those spigots are being tightened and crimped. But historically speaking, they’re by no means tight or closed, and there’s no reason to believe that if smaller amounts of stimulus start slowing growth meaningfully, that Washington won’t open the floodgates again. In addition, consumers’ finances still seem healthy, and Americans’ determination to spend seems unchecked (which is in part why inflation has been so persistent).

A return to public health normality should further untangle supply chain snags, ease labor shortages, and open recovering foreign economies wider to U.S. exports (though U.S. imports can be expected to rise as well). Just as important, it will remove most of the unprecedented uncertainty manufacturers have faced for the last two years and counting.

And although inflation is still likely to be elevated (not least because of energy prices, which are a big major cost to many manufacturing industries), so far domestic industry has shown the ability to handle it. As they say on Wall Street, past performance is no guarantee of future returns. But it’s at the least impressive evidence for optimism.

(What’s Left of) Our Economy: U.S. Manufacturing Returns to Growth – On Automotive’s Back

Tags

aerospace, aircraft, aircraft parts, appliances, automotive, Boeing, CCP Virus, climate change, consumers, coronavirus, COVID 19, election 2021, electrical equipment, Federal Reserve, inflation, inflation-adjusted output, machinery, manufacturing, medical devices, medical equipment, monetary policy, petroleum and coal products, pharmaceuticals, printing, real output, Wuhan virus, {What's Left of) Our Economy

Just as earlier in this CCP Virus-whipsawed economy of ours, as goes the U.S. automotive sector, so goes domestic manufacturing when it comes to output (at least to a great extent). That’s the main story told not only by the inflation-adjusted manufacturing production figures released by the Federal Reserve this morning (for October), but by virtually this entire data series this year.

Domestic industry grew in price-adjusted terms by a healthy 1.30 percent on month in October, snapping a two-month losing streak, and the results were pulled up powerfully by combined vehicle and parts production – which shot up by 10.98 percent. That was its biggest sequential increase since July, 2020’s 29.39 percent, when industry and the entire economy were snapping back strongly from the steep but short virus-induced recession. Without this automotive spurt, real manufacturing output would still have risen nicely in October, but that 0.62 percent monthly gain was less than half the total with automotive.

Complicating the picture still further: Mainly because of the semiconductor shortage, after-inflation automotive output has been on a nothing less than a roller coaster this year. Here are the monthly results for 2021 so far:

January:         +0.63 percent

February:      -10.65 percent

March:            -3.99 percent

April:              -7.23 percent

May:              +5.20 percent

June:               -4.97 percent

July:               +8.54 percent

August:           -2.95 percent

September:     -7.12 percent

October:       +10.98 percent

And for a change, revisions didn’t make a big difference in either the recent overall manufacturing or automotive statistics.

Aside from automotive, manufacturing’s biggest growth winners among the big categories tracked by the Fed were petroleum and coal products (up 4.97 percent), chemicals (up 1.93 percent), printing and related support actvities (1.41 percent) and aerospace and miscellaneous transportation (1.36 percent).

The biggest losers? Electrical equipment, appliances and components (down 1.53 percent), machinery (down 1.27 percent), and miscellaneous durable goods (a grouping that includes much pandemic-related medical equipment – down 0.88 percent).

The machinery drop – the biggest since February’s 2.59 percent – was particularly discouraging, as its products are used throughout manufacturing and big non-manufacturing sectors (like agriculture and construction) alike.

As for manufacturing industries that have been prominent in the news during the pandemic, their October performance was decidedly unimpressive.

Aircraft and parts was the best of the lot. Their real output expanded by 1.43 percent on month in October, but September’s initially reported 1.83 percent increase was revised down considerably, to 0.45 percent. In all, price-adjusted aircraft and parts production is now 14.59 percent above its levels in February, 2020 – the U.S. economy’s last full pre-CCP Virus data month.

Moreover, the sector’s giant, Boeing, has had an excellent news week this past week – especially reports that China may end its two-year ban on buying the company’s jets. So even though aircraft and parts output after inflation has already topped February, 2020’s levels by 14.59 percent, even better times may lie ahead.

Pharmaceuticals and medicines, however, have lost significant growth momentum recently. Following August’s strong (but downwardly revised) 2.46 percent sequential real production increase, the sector has now slumped for two straight months. September’s previously reported 0.74 percent decline is now pegged as a 1.04 percent drop, and inflation-adjusted production sank another 0.51 percent in October. As a result, measured in constant dollars, these industries are just 11.86 percent bigger than just before the pandemic struck – and this despite massive vaccine production.

The news was only slightly better in the crucial medical equipment and supplies sector – which includes virus-fighting items like face masks, protective gowns, and ventilators. After-inflation production was off 1.08 percent in October from September levels, and September’s own initially reported 1.53 percent real monthly output growth is now estimated at just 0.73 percent. Since February, 2020, therefore, real output of these products has advanced by just 2.57 percent.

Whereas I was somewhat pessimistic about U.S. manufacturing’s near-term prospects in my post last month on the output data, the picture now looks brighter. As mentioned just above, the aircraft industry may be back after some very difficult years caused by the CCP Virus-caused slump in travel and Boeing’s safety problems. An infrastructure bill has been passed (though its impact is unlikely to be felt in a major way for many months). Strong overall economic growth seems likely for the fourth quarter of this year. And although the pandemic is by no means over, its main growth-depressing effects may well be past.

Moreover, most of the remaining threats to domestic industry – big business tax hikes and stricter environmental and climate-change regulations – seem less likely due to Republican victories in so many of this year’s elections. And manufacturing’s continued growth seems to indicate that, however serious supply chain snags have been, and however much longer they may last, companies are managing their way through them reasonably well.

The biggest cloud hanging over manufacturing – and the entire economy – looms bigger than ever, though: a tightening of monetary policy to try to tame heated inflation that looks less transitory with each passing month, and that also could curb consumers’ so-far-raging appetites all by itself. Don’t be surprised if volatile automotive stays a major key.  

(What’s Left of) Our Economy: U.S. Manufacturing Hiring’s Sloughing Off Delta – For Now

Tags

aerospace, aircraft, aircraft engines, aircraft parts, appliances, automotive, Boeing, CCP Virus, China, coronavirus, COVID 19, Delta variant, electrical equipment, Employment, fabricated metal products, food products, healthcare goods, Jobs, logistics, machinery, manufacturing, medical equipment, metals, non-farm payrolls, pharmaceuticals, plastics and rubber products, PPE, private sector, semiconductor shortage, supply chains, tariffs, transportation, vaccines, {What's Left of) Our Economy

This morning’s official monthly U.S. jobs report (for August) brought a notable departure from recent trends. Athough the overall results were lousy (as total employment rose by just 235,000 during the month), manufacturing hiring soared by 37,000.

It’s true that nearly two-thirds of these gains (24,100) came from the automotive sector, which has been roiled recently by a shortage of semiconductors that’s wreaked havoc on the output of today’s increasingly electronics-stuffed vehicles. It’s also true that this progress might be snuffed out soon by the still widening spread of the CCP Virus’ highly infectious Delta variant and whatever new curbs on economic activity and consumer behavior it might keep prompting.

But it’s also true that domestic industry’s strong hiring in August came during a month when Delta had already become front-page news – which surely expains much of the much-weaker-than expected rise last month in overall non-farm payrolls (NFP – the U.S. jobs universe of the Labor Department that produces the employment data).

And it’s true as well that the major upward revision revealed to the July manufacturing jobs increase (all the way from 27,000 to 52,000 – the best such performance since last August’s 55,000) entailed much more than the vehicles and parts sectors (where the hiring advance was judged to be 10,500 instead of merely 800).

For example, July’s machinery jobs gains were upgraded from 6,800 to 9,100 (its strongest monthly result since last September’s 12,200); those for electrical equipment and appliances was estimated at 1,500 instead of 200; and employment in the plastics and rubber sectors was pegged at 2,300, not 300.

Despite its last excellent two months, U.S.-based manufacturing remained a job-creation laggard during the pandemic period as of August. But it became less of a laggard. Since the deep CCP Virus- and lockdowns-induced downturn of March and April, 2020, when manufacturers shed 1.385 million jobs, these companies have boosted employment by 1.007 million – erasing 72.71 percent of those losses. That share of regained jobs is up from the 68.74 percent level it reached in July.

That’s faster improvement than registered by the private sector, whose regained job percentage rose from 76.96 to 78.72, and by the total non-farm economy, where the advance rose from 74.50 percent to 76.60 percent.

Moreover, it’s important to remember that during the economy’s spring, 2020 woes, manufacturing employment suffered less than payrolls in the rest of the economy. Its job levels fell by 10.82 percent, compared with 16.46 percent for the private sector and 14.66 for the entire non-farm economy.

As with the July revisions, the list of significant manufacturing employment winners in August was hardly confined to the automotive industry. Among the major industry categories used by the U.S. government, fabricated metal products payrolls increased by 6,600 on month (the highest sequential boost since March’s 10,100); plastics and rubber products by 3,100 (its best such performance since February’s 4,500); and food manufacturing (1.600).

The biggest July jobs losers were electrical equipment and appliances (down 3,100, for its worst hiring month since January, when its payrolls fell by 3,400) and miscellaneous durable goods (a category containing personal protective equipment – PPE – and other medical supplies crucial for fighting the CCP Virus), whose 1,800 jobs lost were the worst such total since the entire economy’s spring, 2020 meltdown.

Also somewhat discouraging – job creation in the machinery sector, whose products are used elsewhere in manufacturing and throughout the rest of the economy, flatlined in August following its big 9,100 July spike.

The most detailed employment data for pandemic-related industries is one month behind those in the broader categories, but their July job-creation performance was decidedly mixed. In surgical appliances and supplies (the sector containing PPE and similar goods), May’s previously reported payroll decline of 900 is now judged to be a drop of 1,900, but June’s 500 jobs increase remained intact and was followed by an identical improvement in July. As a result, employment in this crucial national health security sector is now 9.22 percent above immediate pre-pandemic levels.

The overall pharmaceuticals and medicines industry saw hiring slow down notably in July – from a downwardly revised 2,300 in June to 400. May’s downwardly revised loss of 300 jobs stayed intact. These changes left payrolls in the sector 4.72 percent above February, 2020’s immediate pre-pandemic levels.

The story was little better in the pharmaceuticals subsector containing.vaccines. Its May and June employment gains are still judged to be 1,000 each, and no jobs at all were added in July. But its workforce is still 10.21 percent higher than just before the pandemic.

The July results showed that aircraft industry employment is still on a roller coaster, since Boeing is still struggling to overcome the manufacturing and safety issues it’s faced in recent years, along with the CCP Virus-related slump in business and leisure travel. May’s 5,500 monthly plunge in employment was unrevised in this morning’s figures, June’s 4,500 increase was upgraded to 4,700, but payrolls retreated again in July – by 1,500. Due to all these fluctuations, aircraft employment fell to 8.08 percent below its levels just before the pandemic arrived in force in the United States.

The aircraft engines and parts industries added 200 employees on month in July, but June’s previously reported increase of 500 was downgraded to 400. As a result, payrolls are down fully 14.80 percent since immediate pre-pandemic February, 2020.

It’s still possible that the Delta, or some other, CCP Virus variant will lower the boom on domestic manufacturing employment going forward – both because economic activity and therefore demand for manufactured goods will stagnate or drop not only in the United States, but in industry’s important foreign markets. Supply chain snags are no sure bet to clear up any time soon, either.

Nonetheless, U.S.-based manufacturing is still clearly benefiting from the Trump tariffs continued by President Biden that are pricing huge amounts of metals and Chinese-made goods out of the domestic market. Vast amounts of economic stimulus are still pouring into the American and foreign economies. And there remains tremendous pent-up demand among U.S. consumers and businesses alike, due to the lofty heights that household savings have reached and to clogged logistics systems. (A “hard” infrastructure bill will help U.S.-based manufacturers, too. But despite efforts to speed up the permitting process, regulations that can long delay the launch of new projects still may mean that the much of the new work will take months and even years before they’re “shovel ready.”)

And as I keep pointing out, those with the most skin in this game – domestic manufacturers themselves – keep professing optimism. (See, e.g., here and here.) That last consideration still tilts the balance toward manufacturing bullishness for me.

(What’s Left of) Our Economy: Winter Smacks February U.S. Manufacturing Output but Forecast Remains Bright

Tags

aerospace, aircraft, American Rescue Plan, automotive, Biden, Boeing, CCP Virus, China, coronavirus, COVID 19, Covid relief, Donald Trump, facemasks, Federal Reserve, industrial production, inflation-adjusted output, machinery, manufacturing, masks, medical equipment, petroleum refining, pharmaceuticals, plastics, PPE, real growth, resins, semiconductor shortage, semiconductors, stimulus package, tariffs, Texas, Trade, vaccines, winter, Wuhan virus, {What's Left of) Our Economy

Count me as one awfully surprised blogger when I saw this morning’s Federal Reserve U.S. manufacturing production figures (for February), which reported a 3.12 percent sequential drop in industry’s inflation-adjusted output. That was by far the worst such monthly performance since pandemicky April’s 15.83 percent crashdive, and even though the Fed largely blamed harsh winter weather in much of the country, it still contended that manufacturing would have shrunk by about half a percent even in balmier conditions.

A big reason for my surprise was the apparent contrast between these results and the findings of the monthly manufacturing surveys conducted by various of the Fed’s regional branches. They’re soft data, presenting manufacturers’ perceptions rather than actual changes in output (or jobs, or capital spending, or any other indicator), and I’ve written before that soft data are anything but perfect. But not only were the production reads in these surveys strong. They were strong even in Texas, where the storms were so severe. (And the Dallas Fed’s survey was conducted as they were raging.) Moreover, the same held for the February results from the neighboring Kansas City Fed bank.

Further, other hard data – specifically, on jobs – pointed to a good February for manufacturing, too, as industry expanded its payrolls by 21,000.

But the new Fed production numbers shouldn’t be dismissed entirely, so let’s look at the…lowlights, starting with the revisions, which were moderately negative. January’s previously reported 1.04 percent monthly advance is now pegged at 1.29 percent. December’s already once-downgraded inflation-adjusted output growth was lowered again, from 0.94 percent to 0.84 percent. November’s result, which had been upgraded twice (most recently to 1.10 percent) is now judged to have been 1.05 percent. October’s string of upward revisions was stopped, too, as the new report reveals a downgrade from 1.51 percent to 1.39 percent.

Overall, these readings mean that domestic manufacturing’s after-inflation production has grown by 20.26 percent since its April nadir, and stands 3.83 percent below its last pre-pandemic reading, from February.

As not the case with recent Fed industrial production reports, the output changes were highly concentrated in a few industries. Bearing out the central bank’s observation that “some petroleum refineries, petrochemical facilities, and plastic resin plants suffered damage from the deep freeze and were offline for the rest of the month,” most of these sectors saw outsized price-adjusted month-to-month drops in February. For petroleum and coal products, the fall-off was 4.43 percent, and for the huge chemicals sector, 7.11 percent Interestingly, the chemicals decline was even bigger than that it suffered last April, at the depths of the pandemic and related economic activity curbs (6.08 percent).

And as for those resin plants? Their February real output plummeted by fully 28.12 percent – much more than at any time last spring, during the pandemic’s height, and the worst such performance since the 30.64 percent cratering during Great Recessionary September, 2008. In fact, constant dollar output in the industry sank to its lowest level since equally Great Recessionary March, 2009.

Another February real production decrease that looks temporary (but perhaps longer-lasting): the 8.26 percent plunge in constant dollar automotive production. The main culprit is no doubt a global shortage of semiconductors that could well weigh on the entire domestic manufacturing sector going forward.

As known by RealityChek regulars, the machinery sector is a major barometer of manufacturing’s overall health, because its products are used throughout industry. So given February’s poor results for the entire sector, it’s no surprise that real machinery output was off by 2.33 percent on month. But January’s results were upgraded tremendously – from 0.52 percent after-inflation growth to 2.59 percent. So price-adjusted machinery output is still within 1.17 percent of its final pre-pandemic levels.

Because Boeing’s protracted safety-related problems continue to clear up, aircraft and parts production notched another month of growth in real terms in February – an increase of 1.04 percent. Revisions, however, were negative, especially December’s – its previously upgraded production increase (to a strong 3.03 percent) is now judged to be a 0.61 percent decline. Largely as a result, inflation-adjusted output is now just fractionally above its February pre-pandemic level.

The picture was brighter in pharmaceuticals and medicines. This industry, which includes vaccines, saw its after-inflation production climbed by anorther 1.29 percent in February. Moreover, January’s initially reported robust 2.42 percent increase was revised to an even better 2.57 percent. As a result, pharmaceutical and medicines real output is now 5.62 percent higher than just before the pandemic, and should generate even better results in the coming months, as vaccine production will be surging even more strongly.

Unfortunately, the also vital medical equipment and supplies sector – which includes virus-fighting items like face masks, face masks, protective gowns, and ventilators – is still behind the curve. Constant dollar production actually dipped by 0.56 percent on month in February, although in another major revision, January’s performance is now judged to be a 1.08 percent gain rather than a 0.54 percent loss. All the same, real production in this sector (which encompasses many other products as well) is still 1.37 percent less than just before the CCP Virus and the lockdowns arrived in force.

All told, I’m still full of confidence about domestic manufacturing production, due to the Boeing, vaccines, and now the Biden stimulus effects. And don’t forget the administration’s continued reluctance to lift its predecessor’s towering and sweeping tariffs on China, and on metals imports from many countries. Lastly: The weather’s bound to keep getting better!

(What’s Left of) Our Economy: Manufacturing Job Growth Kept Slowing Last Month

Tags

737 Max, aerospace, automotive, Boeing, CCP Virus, China, coronavirus, COVID 19, Department of Labor, Jobs, Joe Biden, machinery, manufacturing, medical equipment, non-farm employment, pharmaceuticals, PPE, private sector, stimulus package, tariffs, trade war, Trump, vaccines, Wuhan virus, {What's Left of) Our Economy

The manufacturing employment growth slowdown that began in early summer continued in November, according to the latest monthly U.S. jobs report released by the Labor Department this morning. Moreover, industry’s cumulative employment-creation rate of increase during the CCP Virus rebound period fell further behind that of the overall American private sector.

Domestic manufacturers added a net 27,000 workers to their payrolls in November – the weakest rise since August’s 30,000. As recently as June, such industrial jobs jumped by 333,000. Moreover, revisions were slightly negative. September’s monthly 60,000 gain was unchanged, but the October improvement was reduced from 38,000 to 33,000.

In a return to early rebound-period patterns, automotive employment dominated the November picture for manufacturing, as vehicle and parts makers accounted for well over half (15,400) of the sequential payrolls expansion.

Other job-creation winners for November included plastics and rubber products (4,600 of the total 5,000 job gains for the non-durable goods super-sector); furniture (3,100); and miscellaneous durable goods manufacturing (2,500 – this category includes much virus-related medical equipment, more on which below).

Monthly employment losses in manufacturing were small by sector, but widespread. The worst results were turned in by fabricated metals products (2,000), the big chemicals sector (1,900), primary metals (1,700), and apparel (1,500).

Somewhat encouragingly, the large bellwether machinery sector managed to add to its payrolls, but the increase was just 1,900, and the October rise was revised down from 3,900 to 3,000.

As of November, manufacturing had regained 764,000 (56.05 percent) of the 1.363 million jobs lost during the worst of the pandemic-induced downturn in March and April. Its employment drop during those months represented 10.61 percent of its payrolls level in February – the last pre-virus month.

That rate of improvement is still faster than that of the economy overall: Non-farm payrolls (the Labor Department’s U.S. employment universe) have recovered 12.326 million (55.62 percent) of their March and April losses.

But this economy-wide total was held back by the 99,000 public sector jobs lost in November, due overwhelmingly to the federal government’s release of 93,000 workers hired temporarily to help conduct the 2020 Census. At the same time, state and local government employment levels were little changed last month, and they could wind up implementing major job cuts unless Washington approves CCP Virus relief for them. So the cumulative manufacturing numbers may well continue looking better than the overall non-farm payrolls numbers for the next few months at least, but for all the wrong reasons.

And accordingly, as of November, the overall private sector has regained 12.670 million (59.79 percent) of the 21.191 million jobs it shed during the worst pandemic months.

The employment figures for the CCP Virus-related medical manufacturing categories only go through October, but given the scale of the pandemic and the demand for these products, their jobs gains have been surprisingly negligible since the worst of the virus-induced recession.

For example, the broad pharmaceuticals and medicines sector added only 100 workers on net in October, and has increased its payrolls by only 0.74 percent since February and 1.01 percent since April. It’s true that its job losses were minimal (0.26 percent in March and April). But the recent increases still look meager given the nation’s months-long health emergency.

Within this category, the sub-sector including vaccines hired 600 net new employees in October, bringing its jobs gains to 1.26 percent since February, and 3.42 percent since April – also reflecting modest job losses suffered in February and March. And of course, due to recent announcements of promising vaccines and the likelihood of huge production ramps, the employment picture here will bear close watching in the months ahead.

The employment performance of the manufacturing category containing PPE goods like face masks, gloves, and medical gowns has been stronger. In October, its payrolls expanded by 400, and they’re up 7.38 percent since February, and actually grew slightly during March and April, too.

Of course, numerous wild cards are likely to impact domestic industry’s job-creation record going forward. But their net effect is difficult to forecast now, for any number of reasons. How much bigger will the virus’ second wave become? Will pandemic relief be approved in Washington, and how big will any package be? Will economic growth continue whether such legislation is passed or not?

That vaccine sector doesn’t look big enough to affect overall manufacturing job totals. But resumed production of Boeing’s safety-troubled 737 Max model and of aerospace manufacturing generally due to an overall national and global recovery would be substantial. And finally, will apparent President-elect Joe Biden lift any of President Trump’s steep, sweeping China tariffs? With this many uncertainties still clouding the picture, it could be many months before a manufacturing New Normal emerges – and with it, the prospect of figuring out exactly how healthy or sickly domestic industry’s fundamentals really are.

(What’s Left of) Our Economy: Without Supply Chain Transparency, There’s No Supply Chain Security

Tags

Bureau of Economic Analusis, Defense Department, Defense Innovation Unit, defense manufacturing, election 2020, FDI, foreign direct investment, GAO, Government Accountability Office, health security, Joe Biden, medical equipment, national security, offshoring, Pentagon, supply chains, Trump, {What's Left of) Our Economy

Earlier this month, I criticized Joe Biden’s new plan to strengthen U.S. domestic manufacturing with a special eye toward boosting the security of key supply chains for holding out as a model the Pentagon’s work on defense-related manufacturing. Just this week, I found even more evidence to support the view that if the presumptive Democratic presidential nominee is really serious about achieving this goal (and given his longstanding record on trade and globalization issues, ample doubt is warranted) he’ll need a dramatically new model.

By the way, these findings show that the Trump administration also remains too far from getting its own supply chain act together.  And the main reason is a dangerous – and wholly unnecessary – lack of supply chain transparency.

The evidence comes from a September, 2019 report from the U.S. Government Accountability Office (an investigative arm of Congress) that summarizes the views of a panel of specialists convened to discuss foreign threats to the U.S. defense manufacturing base, and presents findings on the subject from various U.S. government agency, private sector, and university studies. The threats include the offshoring of the production of key defense-related goods; takeovers by foreign entities of U.S.-based facilities that supply these products, along with important services, or foreign acquisitions of significant stakes in these facilities; and the loss of U.S. competitiveness in these areas for market- and competition-related reasons and the resulting turns to foreign suppliers.

And crucially, the panelists consulted (listed on p. 40 of the report) include no notable supposed globalization alarmists or China hawks. In fact, one panelist was a senior executive of the U.S.-China Business Council, which has been a major pillar of what I call the nation’s Offshoring Lobby.

The report correctly noted that the use of foreign-origin goods and services can benefit U.S. national security interests. Specifically, it can “lower costs and provide better access to foreign workers and markets [which can help the companies in question gain the benefits of economies of scale by winning more customers].” Moreover, “When companies that offshore contract with DOD [the Departent of Defense], they can pass those benefits along. Foreign investment can help U.S. companies grow.”

So as in all areas of public policy, the key is finding the best balance, and reasonable people can always legitimately disagree on where it’s found. But here’s what’s really alarming about the message sent by the GAO report – and collectively by all the specialists and materials consulted: Neither the Defense Department nor any other branch of the U.S. government has the ability needed to achieve this goal partly because they lack the information needed to identify vulnerabilities, and partly because much helpful information is kept confidential at the request of private industry.

Here are the main relevant observations and conclusions presented in the report making emphatically clear that the nation lacks the supply chain transparency vital to improving supply chain security:

>”[T]he absence of a common definition of offshoring makes it difficult to analyze the extent to which offshoring is occurring in general as well as its effect on the defense supplier base. As such, the extent of offshoring and its effects are largely unknown.”

>”[P]ublicly available data do not provide granularity to analyze foreign direct investments in industry subsectors that comprise the defense supplier base.”

>”Pentagon “industrial policy officials told us that BEA’s [the Commerce Department’s Bureau of Economic Analysis] publicly available data are not complete enough to assess foreign investments in U.S. defense industrial subsectors. We also found that BEA does not disclose certain data for industry subsectors if the data would disclose the identity of individual companies, as these data are considered confidential. For example, BEA data on new foreign direct investment from China in the U.S. industry subsector “electrical equipment, appliances and component manufacturing” are not publicly available for 3 of the 5 years we reviewed.”

>”[A]ccording to BEA, new foreign direct investment data do not capture foreign investment transactions that involve less than 10 percent voting ownership in a U.S. enterprise. This may include data on venture capital investments in U.S. start-ups. According to a report by the Defense Innovation Unit (DIU) within DOD, there are an increasing number of investments in U.S. venture-backed startups from China-based investors that are not tracked by the U.S. government. This limits full visibility into foreign investors and the technologies they are investing in, as well as any increase or decrease in investment flows.”

>The DIU “echoed concerns about the limitations of U.S. government data and stated that the U.S. government does not comprehensively track all available data on investments, including those from private sources to assemble a complete picture of the level of foreign investment in U.S. companies.”

One big takeaway from the above is that the Defense Department is far from the only culprit here. Much more important, though, nothing could be clearer from this list of information gaps than that the Pentagon that Biden would rely on hasn’t made much of an effort to close them. And although the Trump administration has rhetorically prioritized reshoring manufacturing back to the United States in part for national security-related reasons, and can boast noteworthy progress in changing the U.S. trade policies that have encouraged so much defense-related offshoring, it’s clearly made little progress in making sure that it has the most fundamental information it needs to make sound decisions.

Also critical to recognize: It’s not that this information doesn’t exist. As I’ve previously noted, the companies that produce these goods and provide these services know exactly they, and most of their own contractors and subcontractors, are doing. Fully understanding and optimizing their own operations, after all, is one of the main ways they make money.

And the best way to extract what the government needs is to require legally what I’ve described as “Truth in Globalization” – and require it fast. Otherwise, no matter who wins the Presidency in November, the U.S. government will needlessly keep flying blind on supply chain security.

(What’s Left of) Our Economy: New Fed Manufacturing Figures Show No Burst So Far in Anti-CCP Virus Goods Output

Tags

(What' Left of) Our Economy, CCP Virus, coronavirus, COVID 19, facemasks, Fed, Federal Reserve, healthcare goods, industrial production, inflation-adjusted growth, manufacturing, manufacturing output, medical devices, medical equipment, PPE, protective gear, ventilators, Wuhan virus

No one should have been surprised by this morning’s manufacturing output report from the Federal Reserve, which judged that industry’s inflation-adjusted production tumbled by 6.27 percent in March from February’s levels – which was revised downward slightly from a 0.12 percent gain from a 0.02 percent dip. In other words, “Thanks, China!” for the CCP Virus that’s caused an unprecedented shutdown of huge sections of the U.S. economy.

Lately, however, some manufacturing sectors of special concern have emerged – the healthcare goods sectors. And the results are below.

Unfortunately, the statistics in the relevant sectors aren’t very granular. In particular, they don’t enable us to distinguish between, say, masks and ventilators, or between final pharmaceutical products and vaccines, or between CAT-scan and MRI machines and non-medical high tech instruments. Still, the following sequential results must have some significance, given the overall skid in after-inflation manufacturing production. And for February-March, they are:

soaps, cleaning compound, & toilet preparation:      +1.85 percent

pharmaceuticals & medicines:                                  +0.50 percent

  (includes vaccines)

medical equipment & supplies:                                 -1.55 percent

  (includes everything from ventilators to facemasks)

Less helpful is learning that constant dollar output in a category called “navigational, measuring, electromedical and control instruments” decreased by 2.39 percent on month.

Keep in mind that since these data were compiled, all manner of manufacturing companies have volunteered, or been officially pressured, either to ramp up their existing healthcare goods production greatly, or to enter the field. So next month’s Fed industrial production report – for April – should be more revealing. For now, however, the March numbers don’t show much in the way of surge production.

Nor should anyone expect the Fed’s figures on manufacturing capacity and capacity utilization to shed much light on healthcare-related surge performance and surge capacity. The categories simply aren’t this detailed.

Maybe one of the CCP Virus-induced changes in government will be involve tracking healthcare-related manufacturing data in more detailed? Stay tuned. And send all such suggestions to

Jerome Powell, Chair, Board of Governors of the Federal Reserve System, 20th St. and Constitution Ave. NW, Washington, D.C.  20551