(What’s Left of) Our Economy: Manufacturing’s Recession Lengthens but Tariffs’ Role Stays Fuzzy

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aluminum, China, Fed, Federal Reserve, industrial production, manufacturing, metals, metals tariffs, metals-using industries, real output, steel, tariffs, Trade, Trump, {What's Left of) Our Economy

The modest momentum showed by domestic manufacturing in the previous two Federal Reserve industrial production reports disappeared in this morning’s edition of the monthly survey, as overall real manufacturing output in July fell month-to-month (by 0.36 percent) for the first time since April. Worse, the new data lengthened domestic industry’s recession, with inflation-adjusted production now off by a hair (0.004 percent) since April, 2018 – a stretch much longer than the two straight quarters of cumulative decline that qualify as a downturn for most economists.

This morning’s Fed numbers also provide some additional evidence that President Trump’s tariff-centric trade policies have begun to erode manufacturing’s performance. But only some. Specifically, whereas in the first months following the imposition of metals tariffs in particular, metals-using sectors were handily beating the rest of manufacturing by every major metric, July’s industrial production numbers showed that their more recent relative performance continues to have been much more mixed.

As usual, nearly all of the best evidence concerns the impact of the tariffs on steel and aluminum, for reasons including their relatively long duration (April, 2018 was the first full month they were in place), and the ease with which metals-using sectors can be identified. And as usual, the table below presents the output data for these sectors since April, 2018, with the data for manufacturing overall used as a control group.

                                              April thru May      April thru June       April thru July

overall manufacturing:          -0.20 percent        +0.36 percent             0 percent

durables manufacturing:       +0.96 percent        +1.47 percent        +1.23 percent

fabricated metals products:  +1.34 percent         +1.89 percent        +0.95 percent

machinery:                            +0.86 percent        +0.57 percent         -0.57 percent

automotive:                           -1.88 percent         +0.60 percent        +0.43 percent

major appliances:                  -2.00 percent          -4.47 percent        -5.99 percent

aircraft and parts:                 +0.73 percent         +2.46 percent        +4.23 percent

These figures show that for three of the five major metals-using sectors tracked (fabricated metals products, machinery, and major appliances), constant dollar output has worsened compared with such production in manufacturing as a whole. Relative performance for automotive and aircraft and parts, however, has improved – as it has for the durable goods super-sector in which the metals users are located.

Keep in mind also that results for the major appliance sector also remain affected by a separate set of product-specific levies on large household laundry equipment that began in February, 2018.

In contrast with the metals tariffs, the first full month for China tariffs of any kind was August, 2018, and the set of goods involved was relatively small. Complicating matters further is the U.S. Trade Representative’s office’s practice of listing the dutied products according to a classification scheme that differs significantly from that used by the rest of the U.S. government to monitor most major indicators of economic performance – including industrial production.

And as previously noted, most of the Made in China products tariff-ed so far have been intermediate goods (parts, components, materials, etc.) whose use by American manufacturers varies widely. Therefore, the impact of tariffs on these products undoubtedly varies widely, too. Moreover, the number of Chinese goods facing tariffs has increased dramatically since last August. Not only were the levies extended to an additional $200 billion worth of such imports from China in late September, 2018, but these duties were raised from ten percent to 25 percent in May, 2019. (See this time-line for the specifics.)

All the same, here are results for a handful of sectors reasonably certain to have faced tariff pressure since last August. Each column measuring real output changes since last August.

                                         August thru May     August thru June     August thru July

overall manufacturing:     -1.09 percent            -0.55 percent           -0.90 percent

ball bearings:                    -2.20 percent            -2.46 percent           -2.27 percent

industrial heating equip:   -4.11 percent            -5.16 percent           -5.21 percent

farm machinery & equip: -7.51 percent            -6.53 percent           -6.91 percent

oil/gas drilling platform: +4.03 percent            +2.22 percent           -0.17 percent      parts

A greater percentage of these sectors (three of four) generated worse performance versus manufacturing overall than was the case for the metals-using sectors. But the sample size is so small, and the the uncertainties so considerable, that these more downbeat results should still be viewed with the utmost caution. Ditto for claims that the Trump tariffs are killing U.S. manufacturing.

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(What’s Left of) Our Economy: A Big Fade for Tariffs-Led Consumer Inflation

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

Well, that was fast. Last month, when the Labor Department’s consumer price data came out (for June), I observed that they revealed some tariff-led inflation – especially in goods categories that by all rights should be affected by the duties on steel and aluminum that President Trump imposed in March, 2018.

(More such evidence appeared in categories in which tariffs have been placed on Chinese imports. But as continually noted, because of several complications – e.g., shorter duration, great variations in metals-intensity, data classification issues – these results should be considered much less reliable than the metals tariffs statistics.)

Yet this morning’s new consumer price data, for July, shows a significant fade in tariff pricing pressures for the metals users. Part of the reason no doubt is the lifting of the metals tariffs on imports from Mexico and Canada. But they were removed only in late May, so it’s difficult to believe that this decision deserves most of the credit.

Here are the price increases for metals-using industries between June and July, since April, 2018 (the first full month in which the duties were in place), and the year-on-year figures for this June and July. Also included, as always, are statistics for various control groups of goods, including so-called “core inflation” (which strips out volatile food and energy prices), and for the foods and beverages that are sold in metal cans outside of these containers:

                                 June-July      Since April, 2018      y/y June            y/y July

core inflation:      +0.29 percent      +2.79 percent     +2.13 percent   +2.21 percent

fresh fruits           +0.60 percent      +1.67 percent     +0.86 percent   +0.33 percent

  & vegs:

fresh fruits:             0 percent           -1.55 percent      -1.85 percent    -2.74 percent

fresh vegs:           +1.28 percent       +5.49 percent    +4.09 percent   +3.96 percent

processed             -0.68 percent        +0.04 percent    +1.70 percent   +1.45 percent

  fruits & vegs

canned fruits:       -1.56 percent        +2.30 percent    +3.93 percent   +2.87 percent

  & vegs

canned fruits:       -0.44 percent        +0.99 percent     +2.02 percent  +1.89 percent

canned vegs:         -2.33 percent       +3.28 percent     +5.28 percent  +3.13 percent

soups:                   -0.18 percent       +0.28 percent     +0.30 percent   +0.04 percent

malt bevgs           +0.72 percent       +3.13 percent     +1.69 percent   +2.58 percent

  at home:

alcoholic bevgs   +0.38 percent       +1.90 percent     +1.05 percent   +1.43 percent

  away from home:

non-frozen, non-  -0.05 percent       +2.99 percent     +2.71 percent   +2.33 percent

  carbonated non-

  alcoholic rinks:

carbted drinks:      -0.47 percent      +3.39 percent     +3.15 percent   +3.14 percent 

juices & non-        -0.23 percent      +3.11 percent     +2.86 percent    +2.62 percent

  alcoholic drinks

new cars/trucks:    -0.19 percent     +1.17 percent     +0.58 percent    +0.34 percent

motor vehicle        -0.51 percent     +2.07 percent     +1.91 percent    +1.42 percent

  parts:

appliances:            -0.83 percent      +2.00 percent    +2.56 percent    +0.62 percent

major                     -0.98 percent      +4.13 percent    +2.94 percent     -0.75 percent

  appliances:

laundry                     0 percent          +2.83 percent    -3.98 percent     -4.63 percent

  equipment:

non-electric         -1.78 percent          -5.14 percent    -1.94 percent    -2.94 percent

  cookware & tableware:

tools, hardware,  +0.62 percent        +0.83 percent    +1.06 percent   +1.35 percent

  outdoor equipment:

The waning of inflationary pressures can be seen by comparing the core inflation rate since the advent of the metals tariffs with the inflation rates of the metals-using industries.

The latest data show that prices rose faster than that core rate in only six of the sixteen metals-using categories shown. Moreover, in four of these categories (beer and other malt beverages consumed at home; non-frozen, non-carbonated, non-alcoholic drinks; carbonated drinks; and all juices and non-alcoholic drinks), the results need to be treated with caution, since these products are also sold in non-metal containers.

The previous month’s data showed that prices rose faster than core inflation in ten of these metals-using categories – with the results in three complicated by the use of non-metal containers.

That total in turn was up from the nine of sixteen instances of relatively strong inflation in metals-using industries in both February and March (with the non-metal container issue muddying the waters for four of those nine categories in February and three in March).

As for the China-related evidence, I’m hesitant to examine it for the time being not only because of the aforementioned data issues, but because U.S. policy has changed so dramatically in the last few weeks – with the President in early August threatening ten percent tariffs by September 1 for a $300 billion tranche of imports from China that would have been dominated by consumer goods, and then today postponing their imposition until December 15 (or until a satisfactory bilateral trade deal is struck).

Nonetheless, the metals tariff-related data shows that inflation for these levies so far has never been especially strong (except, for a time, in large household laundry equipment – which had faced separate, product-specific duties since February, 2018), and whatever strength it’s shown, hasn’t lasted very long. (In fact, even for those laundry machines, the table shows that their super-charged price hikes are now turning into super-charged price drops.)

And of course, as Breitbart.com‘s John Carney keeps pointing out, the economy’s overall weak rate of inflation means that even when tariffs have pushed prices up, many other forces have been pushing other prices down.  (Further, these low overall inflation rates almost by definition mean that price pressures from the existing China tariffs can’t be impressive, either.)

That’s not to say that Mr. Trump’s trade policies therefore can’t be hurting the U.S. economy in other ways (although the evidence to date here is also pretty feeble). And it’s entirely possible that the widely tariff-mageddon could still hit Americans on a variety of fronts if the trade war with China in particular lasts long enough. But inflation claims have always been central to the Trump trade critics’ case, as made clear by how quickly #tariffsaretaxes became a hashtag, and how it’s persisted. And if the critics have been wrong on this crucial score, why should anyone be confident in any of their other predictions?

(What’s Left of) Our Economy: The Jobs Fog of Trade War

Tags

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

Domestic U.S. manufacturing turned in a mixed job creation performance in July, with this morning’s figures containing fodder both for the optimists and the pessimists. And the ambiguousness extended to interpreting the results of President Trump’s tariff-centric trade policies – which is not entirely surprising, especially given the nature of the China duties, which have been imposed in phases, and where threats have displayed an on-again-off-again nature.

Overall, the optimists could point out that the new Bureau of Labor Statistics (BLS) data showed a fourth straight sequential gain for manufacturing employment, as industry added 16,000 net new jobs in July. Moreover, the monthly rate of payroll increases is up from 3,000 in April. In fact, the July sequential gain was the sector’s best since January, when manufacturers grew net employment by 17,000.

Nonetheless, the revisions were decidedly negative, with May’s increases being downgraded from 4,000 to 2,000, and June’s all the way down from 17,000 to 12,000. Moreover, July’s 157,000 year-on-year manufacturing employment improvement was the lowest in absolute terms since October, 2017’s 146,000.

Identifying a clear bottom line from the trade war-specific manufacturing employment results is just as difficult. First, let’s look at the performance of the major metals-using sectors, which have faced varying levels of tariffs on steel and aluminum since spring, 2018. (April was the first full month in which they were in place.) Here’s the comparison between their employment changes since then, and those of manufacturing overall and the American private sector overall. Also included are the figures for home appliances (where producers of large household laundry machines have been dealing not only with the metals tariffs but with separate, product-specific levies that began that February). It’s also important to note that figures for these goods and for aerospace products and parts are one month behind the rest. So for those two sectors, the results are for (from left to right), the previously reported May figures, the latest May figures, and the June figures.

An optimist could observe that two of the durable goods sectors, fabricated metals products and automotive, have increased their hiring momentum versus the broader economy, the overall manufacturing sector, and even the durable goods super-sector (where the main metals-using industries are found).

The pessimists, however, could say that through the end of 2018, the metal users in general were clearly besting all of their counterparts in job creation, and that their relative strength has faded since.

                                                       Old thru June     New thru June     Thru July

entire private sector:                     +2.14 percent      +2.13 percent   +2.25 percent

overall manufacturing:                 +1.74 percent      +1.69 percent   +1.82 percent

durable goods:                              +2.11 percent      +2.10 percent   +2.25 percent

fabricated metals products:          +1.49 percent      +1.71 percent   +1.74 percent

non-electrical machinery:            +2.92 percent      +2.73 percent   +2.40 percent

automotive vehicles & parts:       +0.27 percent      +0.33 percent   +1.06 percent

household appliances*:                -4.73 percent        -4.89 percent    -6.15 percent

aerospace products & parts*:      +7.46 percent       +7.44 percent   +7.64 percent

*data are one month behind

And two final complications: First, the low (in absolute terms) hiring gains for the automotive sector surely in large measure reflect not only tariffs on metals, but the slow decline of auto and light truck sales that began back in the summer of 2015 after a strong post-recessionary comeback – and well before any metals duties. And with the automotive sector such a big consumer of machinery and fabricated metals products, its troubles undoubtedly bleed into those industries and have dragged down their results for equally non-trade-related reasons.

Second, the aerospace industry is another big purchaser of inputs from throughout domestic manufacturing, and especially from other metals-using industries. So although its employment levels appear to have held up exceedingly well, they might be better still if not for the safety problems encountered by Boeing.

The case for optimism looks much stronger for those industries that seem to be most greatly affected by the China tariffs. But as usual, the results are surrounded by much greater uncertainties – mainly because the scope and level of these levies has changed so significantly since the first batch went into effect in July, 2018; because the use of Chinese inputs in domestic manufacturing is so widespread but also varies so considerably; and because the list of products hit by China tariffs uses a manufacturing classification system different from that used by the BLS to track jobs.

So the following China figures – presenting employment changes for what look like some of the main China-affected industries since July, 2018, plus those for broader parts of the economy to provide some context – should still be viewed with extreme caution. (I’ve added the results for non-durables, too, since the use of Chinese inputs is so widespread.) Moreover, as indicated below, the results for those main China-affected sectors are always one month late.

                                      July-May       Old July-June     New July-June   July-July

private sector:           +1.45 percent    +1.46 percent     +1.59 percent +1.71 percent

overall mfg:              +1.02 percent    +1.16 percent     +1.11 percent +1.24 percent

durable goods:          +1.22 percent     not available     +1.36 percent +1.51 percent

non-durable goods:  +0.67 percent     not available    +0.70 percent  +0.80 percent 

aircraft engines &     +1.51 percent    not available     +1.86 percent   not available

  engine parts:

industrial heating      +1.12 percent    not available     +2.24 percent   not available

  equip:

oil & gas drilling      +4.88 percent     not available    +5.56 percent    not available

  platform parts:

farm machinery        -1.00 percent     not available         0 percent      not available

  & equip

ball bearings:           +2.39 percent     not available    +3.16 percent    not available

At least through June, however, all of the apparent China tariff-specific industries have displayed much stronger recent hiring strength relative to industry and the economy as a whole. This greater momentum, moreover, is especially noteworthy given that the scale of the China duties has broadened so dramatically since July, 2018, and the tariff rates for so many products have been increased a second time.

Nonetheless, the China-related data are especially dodgy. And of course, President Trump just yesterday threatened a big new set of tariffs on the imports from China not already hit with duties. Which may or may not actually be imposed. And that may contain plenty of exemptions. All good reasons for analysts to remain data dependent – and prudent in the extreme – when judging how the U.S. economy is faring as the trade wars rage on.

(What’s Left of) Our Economy: New Signs of Life in U.S. Manufacturing Output – Including in Tariff-Affected Industries

Tags

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

This morning’s Federal Reserve industrial production report provided further evidence that domestic U.S. manufacturing is moving past a spring rough patch. Rebounding also – output in many of the metals-using industries supposedly being decimated by President Trump’s tariffs on aluminum and steel.

As usual, though, because reliable data is so difficult to come by, the impact of U.S. duties on imports from China is much harder to gauge. But certainly there’s no reason to believe claims that industries using tariff-ed Chinese inputs are experiencing anything close to the damage widely reported.

Not that U.S.-based manufacturing is out of the woods. Its real output in June did improve on a monthly basis by 0.43 percent – its best such performance since December’s 0.64 percent gain. But domestic industry remains in a technical recession, with inflation-adjusted production down 0.36 percent since August – a stretch longer than the two straight quarters of cumulative decline that qualify as a downturn for most economists.

The table below presents the output data for the major metals-using sectors for the period since April, 2018 – the first full month in which the steel and aluminum tariffs were in place. As usual, the numbers for manufacturing overall are used as a control group.

                                             April thru April      April thru May      April thru June

overall manufacturing:          -0.14 percent        +0.11 percent         +0.54 percent

durables manufacturing:       +0.60 percent        +0.68 percent         +0.98 percent

fabricated metals products:   +1.93 percent        +1.14 percent         +1.09 percent

machinery:                             -1.28 percent        +0.91 percent          +0.12 percent

automotive:                            -3.94 percent         -1.75 percent          +1.05 percent

major appliances:                   -8.89 percent         -1.64 percent           -5.99 percent

aircraft and parts:                  +3.25 percent        +1.17 percent           +2.37 percent

These figures make clear that better constant-dollar output has been achieved during the last two months for manufacturing as a whole, for durable goods manufacturing (the super-category that contains most of the main metals-using sectors) and for three of the five leading specific metals-users. Especially interesting are the comeback being staged by major appliances (which face both metals tariffs and separate levies on large household clothes washers and dryers that began in February, 2018), and the deterioration apparent in aerospace (which arguably is being undercut by the safety problems experienced by Boeing).

Nonetheless, applause should be muted. For earlier in the post-metals tariffs periods, these metals users were clear production out-performers.

Statistics related to the China tariffs (whose first full month in effect was last August, 2018) continues to be plagued by great variations concerning the tariff-ed goods’ role as inputs for a wide range of domestic U.S. industries, uncertainties stemming from the differing classification systems used in the U.S. Trade Representative’s official tariff list and by the Federal Reserve in classifying manufacturing industries, and both the shorter duration of the levies and the increase in coverage since the first tranche was announced.

Keeping these enormous caveats in mind, here are results for a handful of sectors reasonably certain to have faced tariff pressure since last August. Each column measuring real output changes since last August.

                                                Aug thru April       Aug thru May      Aug thru May

overall manufacturing:            -1.03 percent         -0.79 percent        -0.36 percent

ball bearings:                           -1.77 percent         -2.62 percent        -2.89 percent

industrial heating equip:          -8.00 percent         -4.13 percent        -9.04 percent

farm machinery & equip:      -10.27 percent         -7.51 percent        -6.44 percent

oil/gas drilling platform pts:  +2.41 percent         +3.93 percent       +2.13 percent

On the one hand, these numbers provide the tariff opponents with some ammunition for claiming harmful effects from the levies, but not much. Two of the four specific sectors have lost momentum compared with the rest of manufacturing (ball bearings and industrial heating equipment), one has gained (farm machinery and equipment), and once has displayed a slight momentum loss – but also major monthly variation.

On the other hand, given that widespread (though highly uneven) use of Chinese inputs, the recent bounce-back in overall manufacturing production indicates that, if the China duties have been holding industry back – because of increased uncertainty or whatever other reasons have been offered – the impact has been both minimal and offset by other sources of strength. If true, that’s hardly a trivial consideration in judging the wisdom of and prospects for the Trump China trade war – since with each new batch of its own data, China is finding it more difficult to make that claim about its own economy.

(What’s Left of) Our Economy: Tariffs-Led Consumer Inflation Grows…from Non-Existent to Slight

Tags

aluminum, Bureau of Labor Statistics, China, consumer price inflation, consumer prices, core inflation, inflation, metals, metals tariffs, metals-using industries, steel, tariffs, Trade, tradewar, Trump, {What's Left of) Our Economy

After a several-month lapse, I finally had a chance to review in detail the latest batch of official U.S. consumer price data, which came out yesterday. The big takeaway seems as follows: Whereas through April there was no evidence that President Trump’s tariffs per se were pushing up consumer prices, now there’s some. But the evidence certainly doesn’t paint a picture of the American shopper’s living standards tumbling steeply because of Mr. Trump’s various trade wars.

As usual, let’s examine the metals-using industries, since the Trump tariffs on steel and aluminum have been in place for a relatively long period (April, 2018 was their first full month) and for reasons to be explained below, because it’s much easier to identify these sectors than those presumably impacted by the China tariffs.

The table below presents the relevant figures for major metals-using industries sequentially for the latest data month (June), since the duties’ onset, and year-on-year for the two latest data months. In addition, the results for control groups (like for overall core inflation, and for foods sometimes packaged in metal cans in their fresh forms):

                             May-June        Since April, 2018       y/y May           y/y June

core inflation:   +0.22 percent      +2.39 percent        +1.99 percent   +2.13 percent

fresh fruits         -1.67 percent      +0.31 percent        +1.85 percent   +0.87 percent

  & vegs:

fresh fruits:        -2.06 percent      -2.85 percent         -0.95 percent     -1.85 percent

fresh vegs:         -1.24 percent     +4.10 percent        +5.20 percent    +4.09 percent

processed          +0.39 percent     +1.61 percent        +1.28 percent    +1.70 percent

  fruits & vegs

canned fruits:     -0.38 percent     +4.47 percent        +4.04 percent    +3.93 percent

& vegs

canned fruits:     -0.09 percent     +2.11 percent        +1.00 percent    +2.02 percent

canned vegs:     +1.26 percent     +6.04 percent        +5.49 percent    +5.28 percent

soups:                +0.26 percent     +2.59 percent        +0.37 percent    +0.30 percent

malt bevgs          -0.62 percent     +1.77 percent        +0.84 percent    +1.84 percent

  at home:

alcoholic bevgs  +0.20 percent     +1.34 percent        +2.17 percent    +1.46 percent

  away from hom:

non-frozen, non- -0.21 percent     +1.96 percent        +3.09 percent    +3.03 percent

  carbonated non-

  alcoholic rinks

carbted drinks:     -1.95 percent    +3.33 percent        +5.75 percent    +2.71 percent

  juices & non-     -0.96 percent    +2.49 percent        +4.16 percent    +2.86 percent

  alcoholic drinks

new cars/trucks:  +0.17 percent    +1.13 percent        -1.61 percent    +0.74 percent

motor vehicle      +0.07 percent    +2.60 percent       +1.94 percent    +1.91 percent

  parts:

appliances:          +0.21 percent    +2.93 percent       +2.43 percent    +2.56 percent

major                   -1.40 percent    +3.95 percent        +3.80 percent    +2.94 percent

  appliances:

laundry                -0.70 percent    +4.00 percent        -1.55 percent      -3.98 percent

  equipment:

non-electric         +0.73 percent –   4.07 percent        -5.22 percent      -1.94 percent

  cookware & tableware:

tools, hardware,   +0.06 percent   +0.12 percent       +0.88 percent     +1.22 percent

  outdoor equipment:

The most revealing comparison is that between the post-tariffs (April, 2018) rate of core inflation (which excludes the historically volatile categories of food and energy) and the inflation rates for the metals-using sectors. And they show that for the 15 metals-using industries tracked, prices rose faster than core inflation in ten – a sign of tariff-led price-hiking.

At the same time, as previously noted, the figures for three of these 10 groups – soups, carbonated drinks, and juices and non-alcoholic drinks – need to be viewed cautiously, because their packages are hardly restricted to metals. Thus my conclusion that the tariff effects have been modest.

And another interesting conclusion emerging from these statistics: the price of laundry equipment is dropping dramatically after surging following the imposition in February, 2018 of a separate set of levies on large household clothes washers and driers. These prices are still way up (by 13.75 percent) since the tariffs began. But the May and June data show unusually rapid price drops. And these decreases are much greater than the slight reduction in these tariffs that began this year.

As for the China tariffs, definitive conclusions remain difficult to draw for several reasons. Chiefly, the first full data month for the relevant duties (for consumer products) is only last October. The goods on the U.S. Trade Representative’s list for those levies are categorized with a classification system different from that used by the Bureau of Labor Statistics in measuring inflation – so the match-ups are far from exact. And the scale of tariff price effects can differ dramatically from product to product because China’s presence in a particular market can vary so greatly.

Another complicating factor (though clearly trade war-related): Some of the China categories have also been affected by the metals tariffs (e.g., auto parts). Further, the appliance categories have been impacted by the separate household laundry equipment duties.

Nonetheless, here’s the China data for May-June, since last October, and year-on-year for this June and last June. As with the metals tariff table, they include figures for control categories like the core inflation rate:

                            May-June       Since Oct.    June y/y 2017-18     June y/y 2018-19

core inflation: +0.22 percent  +1.59 percent   +2.13 percent           +2.26 percent

food:                -0.02 percent   -0.12 percent   +1.43 percent           +1.91 percent

frozen/freeze-  -0.42 percent  +0.52 percent    -0.23 percent            -0.09 percent

  dried prepared foods:

fish/seafood:    -0.74 percent  +0.89 percent   +1.43 percent           +1.66 percent

processed fish/ -0.98 percent         0 percent   +0.39 percent            +2.13 percent

  seafood:

frozen fish/      -1.32 percent   -0.61 percent    -0.91 percent            +1.68 percent

  seafood:

fruits/vegs:      -1.24 percent   +0.03 percent   +0.25 percent             +1.04 percent

fresh fruits/    +1.67 percent    -0.63 percent   +0.62 percent             +0.87 percent

  vegetables:

fresh fruits:      -2.06 percent   -2.49 percent   +1.87 percent             -1.85 percent

fresh vegs:       -1.24 percent   +1.54 percent    -0.82 percent           +4.09 percent

processed        +0.39 percent   +2.49 percent    -1.04 percent           +1.70 percent

  fruits/vegs:

frozen fruits/   +1.84 percent   +0.54 percent    -3.88 percent           +0.24 percent

  vegetables:

non-carb/          -0.21 percent   +0.61 percent   -0.37 percent           +2.71 percent

  non-frozen juices/drinks:

personal care    -0.27 percent    -0.59 percent   -0.30 percent            -0.60 percent

  products:

household         -0.11 percent    +0.13 percent  -7.87 percent            -0.03 percent

  furnishings:

recreation         -0.34 percent     -2.49 percent   -8.22 percent           -5.60 percent

  goods:

men’s                -1.24 percent     -2.94 percent   -0.69 percent          +1.53 percent

  sportswear:

women’s           -2.01 percent     -1.25 percent   -1.33 percent           -0.03 percent

  sportswear

computers,        -1.91 percent    -4.09 percent    -3.70 percent          -5.86 percent

  peripherals, etc.:

window/floor    -1.19 percent    -5.03 percent   +0.43 percent          -2.75 percent

  coverings:

furniture &       +0.82 percent   +2.64 percent   +0.02 percent         +3.15 percent

  bedding:

appliances:       +0.21 percent     -0.37 percent  +1.15 percent         +2.56 percent

major                 -1.40 percent    +0.33 percent  +5.62 percent         +2.94 percent

  appliances:

laundry              -0.70 percent     -0.22 percent +13.12 percent         -3.98 percent

  equipment

misc                 +1.19 percent      -0.84 percent    -1.05 percent        +2.28 percent

  appliances:

non-electric      +0.73 percent      -2.78 percent    -2.64 percent         -1.94 percent

  cookware/tableware:

tools/                +0.06 percent     +1.27 percent    -0.74 percent          +1.06 percent

  hardware &

  outdoor equip:

household          -0.14 percent     +1.14 percent  +0.60 percent          +1.52 percent

  cleaning products:

televisions:        -1.23 percent    -14.25 percent  -19.09 percent        -19.65 percent

misc video         -1.98 percent      -1.19 percent    -2.53 percent          -2.17 percent

  equipment:

pets &               +0.08 percent     +2.72 percent   +0.67 percent         +2.84 percent

  pet products:

sporting           :+0.39 percent     +2.79 percent   +0.07 percent         + 0.66 percent

  goods:

photo equip       +0.24 percent     -2.04 percent    -6.29 percent          +2.72 percent

  & supplies:

sewing              +0.41 percent     +8.21 percent   +7.54 percent          +4.63 percent

  machines/

  fabrics:

motor               +0.14 percent      +2.09 percent   +0.29 percent          +1.91 percent

  vehicle parts:

tires:                 +0.15 percent     +2.09 percent     -1.56 percent          +2.03 percent

stationery/        +0.59 percent     +4.95 percent    +1.16 percent           -1.31 percent

  gift wrap:

Even given the above uncertainties, the bases for claims that the China levies are creating a tariff-mageddon for American consumers look awfully weak, though they’re not nonexistent. Chiefly, since the tariffs’ onset last October, only eight of the 30 affected products saw prices rising faster than core inflation.

At the same time, more product categories seem to be displaying such characteristics. This conclusion seems clear from the two sets of year-on-year statistics. Between June, 2017 and June, 2018, prices were stronger in only three of the 30 categories (including products for which prices were falling at a slower rate). Between the following Junes, their number grew to eight.

Similarly, forgetting about comparisons with the core, 23 of the 30 groups experienced higher inflation rates during the June, 2018-June, 2019 period (largely post-China tariffs) than during the June, 2017-June, 2018 period (entirely pre-China tariffs).

Of course, Mr. Trump’s trade policy, especially regarding China, has never been about economics alone. The administration has repeatedly emphasized that national security is at stake as well. But these new consumer price figures make clear that the economic costs paid by Americans have so far been meager. And especially with overall inflation so weak, they hardly look like reasons for the President to ease up on the trade front.

(What’s Left of) Our Economy: New Fed Manufacturing Figures Nudge Tariffmageddon a Bit Further Away

Tags

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

Today’s industrial production figures from the Federal Reserve showed not only that U.S. domestic manufacturing regained some strength in May following a string of poor monthly results. They also provided more evidence that President Trump’s tariffs have had little, if any, effect on the performance of either the metals-using industries impacted by levies on steel and aluminum imports, or of sectors supposedly affected by China-related duties.

Two more points come through pretty loud and clear from the new figures on domestic industry’s inflation-adjusted growth. First, the weakness displayed in April by manufacturing as a whole and by metals-using sectors could well have been confined to that month. Second, the safety problems revealed in the Boeing Company’s aircraft have begun to influence the picture and may distort the readings for several more months.

The overall readings for manufacturing were mildly encouraging, with the 0.22 percent sequential rise in real output representing domestic industry’s best reading since December’s 0.64 percent improvement. Revisions were ever so slightly positive.

Most of the leading metals-using industries – where the role played by tariffs is relatively easy to identify – fared better in May than in April, too, as the following table shows. The columns show the changes in after-inflation output for these sectors starting with April, 2018 (the first full month the metals levies went into effect) and each of the last three data months of this year. And as usual, the numbers for manufacturing overall are used as a control group.

                                             April thru March   April thru April   April thru May

overall manufacturing:          +0.45 percent        -0.07 percent      +0.89 percent

durables manufacturing:       +1.34 percent       +0.68 percent      +0.98 percent

fabricated metals products:   +2.76 percent      +1.88 percent       +1.73 percent

machinery:                            +2.31 percent       -0.12 percent       +0.11 percent

automotive:                            -3.10 percent       -3.86 percent        -1.55 percent

major appliances:                   -5.27 percent       -8.24 percent        -3.27 percent

aircraft and parts:                  +5.75 percent      +3.34 percent       +1.15 percent

durable mfg ex-automotive: +2.10 percent       +1.48 percent       +1.41 percent

In general, it’s clear that the metals-using industries are still losing growth momentum versus the rest of manufacturing. But do the duties deserve all or even much of the blame? If so, then why did so many of these sectors turn in better growth numbers in May than in April – especially automotive and major appliances? The latter’s relative comeback is especially striking, given that it’s been experiencing not only metals tariffs, but separate levies on large household laundry equipment and a weakness in U.S. housing. Ditto for automotive, where output has been highly volatile for many months.

The Boeing effect is apparent, too, from the falling output numbers since March, when safety problems started generating grounding decisions and airspace national airspace bans for its widely used 737 Max models. Further, both automotive and aerospace are major users of machinery and fabricated metals products.

The impact of the tariffs on products from China remains much more of a puzzle, and for the same reasons that have been apparent since their onset, in August, 2018. They have covered thousands of products, most of which so far have been intermediate goods, and their role as these kinds of inputs for manufacturing industries varies dramatically from final product to final product. In addition, Washington uses different manufacturing classification systems for designating the tariff-ed products and for measuring manufacturing production. The levies have been in place for a shorter period of time than the metals duties. And their scope has widened since the first batch went into effect in August, along with many rates having changed.

Nonetheless, here are some figures for the handful of industries for which I’m sure the numbers create a reasonably accurate picture, with each column measuring real output changes since last August.

                                        August thru March   August thru April   August thru May

overall manufacturing:       -0.45 percent           -0.96 percent         -0.75 percent

ball bearings:                     +0.22 percent          +0.11 percent        +0.01 percent

industrial heating equip:     -0.83 percent          -5.41 percent          -4.70 percent

farm machinery & equip: -11.65 percent         -10.27 percent         -7.51 percent

oil/gas drilling platform    +4.08 percent          +2.58 percent         +4.59 percent

   parts

Unfortunately, no consistent trend emerges. Two of the sectors’ improved between March and May (farm machinery and equipment, and oil and gas drilling platform parts), and two worsened (ball bearings and industrial heating equipment).

And although as long as the China tariffs continue , the future will provide results over a more statistically significant time frame, because the footprint of Chinese inputs in most of U.S. Manufacturing sectors will continue to be so broad and deep, their costs are likely to remain just as hard to discern.

(What’s Left of) Our Economy: Tariffs-Led Wholesale Price Inflation Going, Going….

Tags

aluminum, China, inflation, metals, metals-using industries, Producer Price Index, steel, tariffs, Trade, trade war, Trump, wholesale prices, {What's Left of) Our Economy

Amid all the recent trade policy-related news, I’ve struggled (unsuccessfully) to keep up with the U.S. inflation data, but kept my nose to the grindstone this week and have now managed to scrutinize the new producer price figures (for May) in detail. These Bureau of Labor Statistics (BLS) figures contain unmistakable signs that whatever tariff-led inflation had begun to be generated in the American wholesale sector has been dramatically dissipating lately – which no doubt has much to do with continuingly weakening core inflation on the consumer side.

As usual, let’s start with the impact of President Trumps metals tariffs, which have lasted the longest (their first full month was April, 2018), and it’s easiest to identify the industries affected, since steel and aluminum-heavy sectors are pretty obvious (along with the metals themselves), and since we’re not dealing with the dependency on metals from any one trade competitor.

And a special bonus: It’s with steel and aluminum prices per se that the loss of any inflationary momentum comes through most clearly. Specifically, after rising 12.37 percent between April and their most recent (September) peak, prices for steel mill shapes fell 6.44 percent through May. As a result, they’re now 5.14 percent higher than during their first tariffs month. In their control group (the processed goods minus foods and feeds – or “core” – super-category) prices rose by 3.41 percent from April through their peak (in October), and have since declined by 2.62 percent. Consequently, they’re now 0.70 percent higher than during the first metals tariffs month.

So although in absolute terms, steel prices remain higher than those in their super-category, they peaked earlier and have come down faster.

Aluminum prices have been much weaker for much longer. After rising by 6.66 percent between April and their (latest) June peak, aluminum mill shapes prices are down by 6.53 percent. As a result, they’re now actually 0.30 percent lower than during their first full tariffs month.

Significantly, signs of markedly decelerating inflation are just as evident in numerous metals-using manufacturing sectors. In past posts on producer price trends, I looked first at industries where price increases since the metals tariffs onset had initially been faster than that for their super-category – final demand goods minus food and energy products.

The table below makes plain that a sizable, widespread slowdown has taken place. The columns show the percentage price changes between April and whichever month saw such prices hit their latest peak; and such changes for such goods since January. In every instance, the percentage changes for the latter have been much smaller than for the former. And in the cases of mining machinery and equipment and construction machinery and equipment, the slowdowns were more dramatic even than that for the super-category (which was awfully dramatic).

                                                               April to peak (month)          Since Jan.

Final demand less food and energy:       +1.73 (May, 2019)              +0.17

pumps/compressors:                               +3.82 (May, 2019)              +0.57

mining mach & equipment:                    +7.52 (April, 2019)            +0.03

construction machinery & equipment:   +5.75 (April, 2019)            +0.04

metal-forming machine tools:                +3.77 (Feb.,2019)              +0.77

But it would be reasonable to counter that four manufacturing sectors are too few to show anything conclusively. So here are results for nine more whose early inflation numbers were stronger than that of the core final demand super-category. Every single one has experienced an inflation slowdown since January, and except for railroad equipment and possibly oil and gas field machinery, all involved several orders of magnitude.

                                                                  April to peak (month)       Since Jan.

agricultural machinery & equipment:        +4.18 (April, 2019)          +0.04

tools, dies, jigs, fixtures, molds:                +2.82 (Feb., 2019)           +0.51

industrial material handling equipment:    +3.83 (May, 2019)          +0.22

oil and gas field machinery:                      +1.99 (March, 2019)       +1.01

household appliances:                               +4.53 (Feb., 2019)          +1.39

lawn & garden equipment:                        +2.19 (May, 2019)          +0.13

truck trailers:                                             +6.96 (May, 2019)          +0.81

aircraft:                                                      +2.20 (May, 2019)         +0.52

railroad equipment                                    +2.76 (March, 2019)      +2.67

For good measure, a slowdown is also occurring for metals-using industries where price increases have been relatively weak since the metals tariffs were imposed, as apparent from the table below: 

                                                                 April to peak (month)    Since Jan.

metal-cutting machine tools:                     +1.75 (May, 2019)        +0.69 

passenger cars:                                          +1.20 (Oct., 2018)         -0.30

heavy trucks:                                             +1.22 (Jan., 2019)           0.00

light trucks:                                                +2.43 (Nov., 2018)       -1.72

motor vehicle parts:                                   +0.71 (April, 2019)      +0.31

travel trailers & campers:                          +2.24 (March, 2018)    +0.42

Switch over to “intermediate demand” goods and you find a broad-based, often dramatic inflation deceleration as well – even though price increases in this super-category have accelerated!

                                                                 April to peak (month)    Since Jan.

core intermediate demand:                       +1.11 (May, 2019)         +1.26

metal containers:                                      +5.01 (May, 2019)         +2.95

fab wire products:                                  +11.49 (March, 2019)     +0.23

non-fluid power valves:                          + 4.01 (May, 2019)        +0.98

bolts, nuts, screws, rivets, washers:        +7.98 (April, 2019)        -0.43

fabricated structural metals products:     +5.10 (May, 2019)        +2.18

hardware:                                                 +5.10 (May, 2019)       +0.49

heating equipment:                                  +6.99 (May, 2019)       +1.85

fluid power equipment:                           +4.54 (May, 2019)       +1.33

mechanical power transmission equip:   +3.73 (May, 2019)      +0.40

A/C & refrigeration equip:                     +4.16 (April, 2019)     +1.37

ball and roller bearings:                          +5.85 (March, 2019)   +2.96

The first Trump China tariffs weren’t imposed until early July, so the sample size is smaller. And as previously noted, it’s relatively difficult identifying their precise effects because the list of tariff-ed sectors uses an industry classification system different from that used by BLS to monitor price changes, and the China content of these products can vary significantly. In addition, the group of tariff-ed goods have grown since then, the level of levies differs widely, and the original duties for many have been increased (not to mention the suspension of this major increase for several months earlier this year.  For the exact phases of the U.S.-China trade war until the latest – May 10 – Trump tariff increase, see here.).

But on this policy front, too, the exact same recent wholesale inflation slowdown is apparent as documented above for metals and metals-using industries. And for goods in the core intermediate demand super-category, the China tariff-affected goods have also seen produce price inflation slow as price inflation for the super-category has sped up. The only exceptions are the transformer category (where the inflation levels have been very low in absolute terms and the speed-up marginal) and possibly the oil and gas field machinery sector (where the monthly inflation rates for the two periods seem to be about the same_. Here, again, are the results for the entire August, 2018-May, 2019 period (covering the full duration of the China tariffs in toto), and for the post-January period.

                                                                              Aug.-May            Since Jan.

core intermediate demand goods:                     -1.85 percent       +1.26 percent

aircraft engines and engine parts:                    +1.32 percent       +0.35 percent

ball bearings:                                                   +4.23 percent       +2.96 percent

electric generators:                                          +2.41 percent       +0.18 percent

medical, surgical & personal aid devices:      +0.94 percent         -0.05 percent

core commodity final demand:                      +1.12 percent          0.00 percent

industrial heating equipment:                        +3.50 percent        +1.85 percent

oil and gas drilling platform parts:                +1.84 percent        +1.01 percent

farm machinery and equipment:                   +2.29 percent           0.00 percent

paper-making machinery:                             +2.92 percent         +0.88 percent

electricity transformers:                                +0.61 percent         +0.70 percent

X-ray and electro-medical equipment:         +0.35 percent          +0.12 percent

It might be an exaggeration to say “If you blinked, you missed tariffs-led inflation in the wholesale economy.” But as the above figures make clear, for now, it’s not much of an exaggeration.

(What’s Left of) Our Economy: U.S. Jobs Report Again Shows Evidence of Tariffs Damage

Tags

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

A speaking engagement yesterday prevented me from posting promptly on that morning’s monthly U.S. jobs report (for May), but after crunching the numbers, two conclusions come through loud and clear. First, the overall results added up to a total stinker. And second, like last month’s release, they contained more evidence that President Trump’s tariff-centric trade policies are taking a toll on hiring in manufacturing.

As with economy-wide (“non-farm”) hiring in May, manufacturing employment creation in general grew weakly – and for the fourth straight month. Industry’s payrolls rose by a measly 3,000 on month in May. The revisions, meanwhile, left the discouraging situation basically intact, as April’s previously reported 4,000 net sequential job gain was upgraded to 5,000, but March’s former flatline is now judged to have been a 3,000 net monthly job decrease.

As usual, however, when it comes to the trade policy implications, the results that count are those in manufacturing sectors actually significantly affected by trade policy moves like Mr. Trump’s tariffs. First let’s examine industry’s major metals-using sectors – both the necessary data for these industries goes back to April, 2018 (the first full month when these levies were in effect) and because the industries themselves are much easier to identify.

Here are the figures for these sectors’ employment changes between that month and this past April (both the originally reported numbers and today’s revisions), and between April, 2018 and May, 2019. (All these results, incidentally, are still preliminary.) Serving as control groups are the results for the entire private sector in the United States, for all of manufacturing, and for the durable goods super-sector (where all the main metals-using industries have been found).

                                                    Old thru April   New thru April   April Thru May

entire private sector:                  +1.79 percent     +1.93 percent      +2.00 percent

overall manufacturing:              +1.58 percent     +1.60 percent      +1.62 percent

durable goods:                           +1.92 percent     +1.94 percent      +1.99 percent

fabricated metals products:       +1.82 percent     +1.71 percent      +1.65 percent

non-electrical machinery:         +2.68 percent     +2.52 percent      +2.64 percent

automotive vehicles & parts:    +0.42 percent     +0.20 percent     + 0.48 percent

household appliances:               not available       -4.57 percent       not available

aerospace products & parts:      not available      +7.02 percent       not available

The pattern is clear. Even in metals-using sectors that had been outperforming the overall private sector and overall manufacturing in absolute terms, hiring momentum has waned. Moreover, it’s recently been slackening at a faster rate than evident in those larger sectors. That’s clear from the narrowing of the gap that can generally be seen between the employment increases in the metals-using sectors and the broader parts of the economy.

The impact of the China tariffs remains a puzzle, though, because they’ve been in place for a briefer period of time, and because the industry classification system used by the Trump administration in developing its tariff lists is different from the system used by the Labor Department to track employment changes. In addition, the level of China content of domestic manufactured goods can vary considerably, meaning that the impact of the tariffs can vary just as considerably.

Nevertheless, some exact and reasonably close matches can be identified, and, at least through April (the latest month for which data are available for the specific sectors below, which are narrower than those in the table for metals-using industries), the same relative hiring weakness can be seen. That is, job creation in the China tariffs-affected sectors has been growing more slowly than job creation in the private sector in toto, or in manufacturing overall. This trend is visible even in sectors that have greatly bested the private sector and manufacturing control groups in absolute levels of job creation.

                                   July-March    Old July-April   New July-April    July-May

private sector:         +1.23 percent   +1.44 percent    +1.39 percent    +1.46 percent

overall                   +0.98 percent  +1.03 percent     +1.02 percent     +1.04 percent  

   manufacturing:

aircraft engines       +1.39 percent    not available    +1.51 percent    not available

   and engine parts:

industrial heating   +2.46 percent     not available    +1.45 percent    not available

    equipment:

oil & gas drilling   +5.83 percent      not available   +5.02 percent    not available

    platform parts:

farm machinery     +1.67 percent      not available   +0.17 percent     not available

    & equipment:

ball bearings:        +1.82 percent       not available   +1.54 percent     not available

These results don’t mean that the Trump tariffs, as some keep predicting, are going to throw the American economy into recession, much less that if they do start biting significantly, that they won’t be a price worth paying for overhauling decades of boneheaded, offshoring-friendly, national security threatening (especially in the case of China) trade policies. In fact, they don’t even add up to evidence that the levies are biting significantly now.

But empirical evidence of some damage is finally emerging, at least on the jobs front, and it should be seen as a warning to tariff supporters – including the President – to stop insisting that the current trade wars will entail no costs or need for sacrifice whatever.

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

Tags

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                                      Aug thru Feb    Aug thu March    Aug thru April

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

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

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

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

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

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

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

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

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

Tags

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

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

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

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

                                                 Old thru March      New thru March      Thru April

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

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

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

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

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

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

household appliances:              not available           -4.10 percent      not available

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

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

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

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

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

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

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

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

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

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

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

  & engine parts:

industrial            +2.46 percent    not available       +2.46 percent      not available 

  heating equip:

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

  drilling platform parts:

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

   & equipment:

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

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