(What’s Left of) Our Economy: Former White House Economists Serve Up Steel Trade Fakeonomics

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competitiveness, durable goods manufacturing, imports, manufacturing, multi-factor productivity, national security, productivity, steel, steel-using industries, subsidies, tariffs, Trade, Trump, White House Council of Economic Advisers, {What's Left of) Our Economy

Just because none of the signers displayed the slightest ability to foresee the approach of an horrific national and global economic crisis is no reason to laugh off the letter released by former White House economists warning President Trump not to impose national security-related tariffs on steel imports. Instead, the letter should be laughed off because none of the signers appears to know anything about manufacturing competitiveness.

According to the letter, endorsed by fifteen former Chairs of the White House Council of Economic Advisers, steel tariffs of any kind “actually damage the U.S. economy” partly because they “would raise costs for manufacturers, reduce employment in manufacturing….”

If you think about it for just a minute, what these economists are really arguing is that American steel-using industries can’t possibly achieve reasonable levels of competitiveness without continuing supplies of a key input that are kept artificially cheap by massive subsidies from governments in China and elsewhere. That’s some recipe for preserving and extending free market and free trade practices around the world.

Even worse, however, is that even this dubious claim is directly contradicted by the best data available – including the newest multi-factor productivity statistics released by the Labor Department yesterday.

These data in particular strongly reinforce worries not only that American manufacturing is suffering major productivity problems, but that these problems have been worsening for many years. And just as important, they show that the steel users in particular have suffered from absolutely no shortage of artificially cheap steel.

For example, from 2009 (when the current economic recovery began) through 2015 (the latest data, multi-factor productivity in these industries (which measures the output resulting from a wide range of inputs, including materials like steel) has fallen by 2.17 percent. In durable goods industries as a whole (a super-sector that uses a lot of steel), it rose by 3.92 percent, which sounds OK. But it’s much weaker multi-factor productivity growth than these sectors achieved during the last recovery (which was considerably shorter): 22.27 percent.

What happened to steel imports from 2009 through 2015, measured by value? They surged by 71.87 percent. And these purchases were kept at that level mainly because during the last year of that stretch, steel imports sank by 20.91 percent. In other words, between 2009 and 2014, steel imports jumped by 117 percent – and presumably left over lots of steel for use by durable goods manufacturers the following year.

Steel imports soared during the previous, 2001-2007 recovery as well (by 156 percent). But whereas they increased at roughly double the rate during the first six years of the current recovery, steel users recorded multi-factor productivity gains that were 5.7 times greater.

During the long 1990s expansion (which technically lasted from 1991 to 2001), steel imports increased by only 28.67 percent. And even so, durable goods manufacturers managed a total productivity gain of 22.72 percent – just about the same improvement as during the import-happy early 2000s, even though import growth was only a seventh as great. And this productivity advance was orders of magnitude better than that of the current recovery, even though import growth has been less than a third as strong.

Now it’s true that durable goods productivity numbers have been boosted significantly by the spectacular performance of the information technology hardware sector (whose use of steel is relatively modest). But examining multi-factor productivity trends for much bigger steel users also yields head-scratching results if you take the former White House economists as gospel.

For example, during the first six years of the current recovery, when steel imports rose by nearly 72 percent, multi-factor productivity for fabricated metal makers actually sank by 4.02 percent. In machinery, it was down 0.93 percent. In electrical equipment, appliances, and components, multi-factor productivity dipped fractionally.

Transportation equipment is the only big steel-using sector where multi-factor productivity grew impressively during this period – by a total of 11.09 percent. But during the final year – 2014-15 – it dropped by 4.39 percent. And again, these companies were benefiting from plenty of artificially cheap steel.

So it’s clear that the former White House advisers’ steel trade analysis is anything but data-dependent. That leaves as their only anti-tariff argument their fears about setbacks in American diplomacy – where they possess no special expertise or even knowledge. Far better for these macro-economists to stick to macro-economics – though again, the overall U.S. performance here should inspire no confidence in their judgment, either.

(What’s Left of) Our Economy: U.S. Productivity Remains in the Doldrums

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China, Labor Department, labor productivity, living standards, manufacturing, multi-factor productivity, offshoring, productivity, reshoring, World Trade Organization, WTO, {What's Left of) Our Economy

The Labor Department reported earlier this week that America’s labor productivity flat-lined at an annual rate between the last quarter of last year and the first quarter of this year. And relatively speaking, that was good news. The initial study of this measure of economic efficiency – and key determinant of the nation’s living standards – estimated that business labor productivity in the non-farm business sector (the government’s main proxy for the entire economy) fell at an annualized 0.6 percent.

Labor productivity, you may recall, is the narrowest of two measures of productivity. It gauges how much in the way of stuff or services Americans produce per hour of work from each worker. So the resulting picture isn’t as complete as that provided by multi-factor productivity – which as the name suggests looks at production per man or woman hour generated by many different inputs. But the labor numbers come out on a much timelier basis (each quarter), and for all the unusual amount of uncertainty that economists admit when they analyze productivity, they’re viewed as being reasonably reliable.

One small consolation, especially if you value manufacturing highly (as you should): Industry’s labor productivity not only grew quarter-to-quarter during the first three months of 2017 (by 0.50 percent annualized). It grew faster than the original estimate of 0.40 percent.

Manufacturing’s role as the economy’s productivity leader is also crystal clear upon reviewing the longer-term trends. During the 1990s expansion (as known by RealityChek regulars, comparing similar phases of the business cycle produces the most informative data), non-farm business labor productivity increased by 23.25 percent, while manufacturing labor productivity improved by 46.18 percent.

That recovery was America’s longest on record – just under ten years. The next expansion, during the bubble decade that preceded the financial crisis, lasted only six years. Non-farm business labor productivity rose by about the same annual pace as during the 1990s – 16.03 percent. But manufacturing labor productivity grew even faster year-by-year, advancing by 41.22 percent during the entire period.

The story is as different during this recovery as it is depressing. Although it’s so far been nearly as long as the 1990s recovery (having started nine years ago), the improvement in non-farm business labor productivity has been just 8.05 percent overall. For manufacturing, it’s been much higher – 21.55 percent – but relatively speaking, it’s a big fall-off.

Incidentally, undoubtedly one big reason for manufacturing’s excellent productivity performance during that bubble decade has to do with production offshoring. As I’ve written repeatedly, the way labor productivity is calculated results in productivity gains being recorded when businesses send jobs overseas, as well as when they use other techniques for saving labor or using their employees more effectively. And because the United States helped China enter the World Trade Organization at the start of that decade, and thus assured multinational companies that they’d remain overwhelmingly free to supply the American market from Chinese factories, that bubble decade was a major manufacturing offshoring decade.

The fall in productivity growth could indicate that, as widely claimed, manufacturing offshoring has dropped off significantly. But the evidence is mixed at best. What’s much more apparent is that, if Americans want their country’s productivity performance to rebound, they’ll press their leaders to make robust growth in domestic manufacturing a much higher priority.

(What’s Left of) Our Economy: U.S. Manufacturing Productivity Growth is Not Only Weak, but Low Quality

Tags

inflation-adjusted growth, Labor Department, labor productivity, manufacturing, multi-factor productivity, offshoring, Trade, {What's Left of) Our Economy

Granted, the Labor Department’s latest detailed data on American manufacturing productivity isn’t as exciting as the news about President Trump’s firing of FBI Director James Comey. But if you attach any importance to the future of the U.S. Economy, you need to pay attention. For these figures simply trash the standard claims that American manufacturing is in great shape except for its workforce, which is steadily being replaced by labor-saving technologies and brilliant management innovations.

We already know that manufacturing productivity has slowed to a crawl in recent years. That’s been true both on the labor productivity front (the data that comes out on the timeliest basis, which measures output per hour worked) and on the multi-factor productivity front (the figures that take longer to calculate, and that measure how much output results from a broad range of inputs). What the new statistics reveal is that its sluggishness may not be the most worrisome aspect of manufacturing’s labor productivity lately. For the quality of that productivity growth has been very low quality, too.

By high quality labor (or multi-factor) productivity growth, I mean better efficiency that’s accompanied by more output. That’s the kind of productivity growth that the conventional wisdom apparently assumes domestic manufacturing has been generating. Low quality productivity growth means that better efficiency is taking place while output is shrinking. When we’re talking about low quality labor productivity growth, we’re talking about industries that are getting less efficient while turning out fewer goods. And that description applies to exactly half of the categories used to classify American manufacturing at the most detailed level that’s commonly used by the government.

The new Labor Department report tracked labor productivity, output, and a variety of related performance indicators for 86 manufacturing sectors. Exactly 16 managed to boost both their labor productivity and inflation-adjusted output in 2016. One sector grew in real terms with no improvement in labor productivity (motor vehicle bodies and trailers). But fully half – 43 – recorded falling productivity and falling output. The rest were judged to have either become less productive while growing after inflation, or more productive while contracting in real terms.

Moreover, as was the case the previous year, the lists of winners and losers aren’t what you’d expect. In the former (higher productivity and price-adjusted growth) we see for example fabric mill products; saw mill products; petroleum and coal products; lime and gypsum products; iron and steel mill products; miscellaneous non-ferrous metals; and paints, coatings, and adhesives. Rightly or wrongly, few would make many rosters of “industries of the future.”

Other high quality labor productivity industries appear less surprising – like computers and parts, plastics resins, and agricultural chemicals (the best performer when you add up productivity and output growth). But can you really imagine an American president rewarding any company in the latter category with a factory visit?

The list of low quality labor productivity industries is at least as surprising. It includes pharmaceuticals and medicines, metal working machinery (which contains machine tools and related products), turbines and power generation equipment, motor vehicles (the sector whose growth has led the manufacturing comeback for most of the current economic recovery), semiconductors and electronic components, and aerospace products. The worst performer on a combined basis was audio and video equipment.

Overall, only 27 of the 86 manufacturing sectors surveyed improved their labor productivity last year, whether they expanded output or not. Fifty nine suffered labor productivity declines and, again, labor productivity among motor vehicle body and trailer makers flat-lined.

A final point: Never forget that, if anything, these bleak results are probably overstating American manufacturing’s productivity performance. For the Labor Department states that the offshoring of manufacturing production has boosted industry’s labor productivity figures by more than 20 percent annually between 1997 and 2006. (Here’s a layman’s explanation.) Apparently, the Department hasn’t examined the situation for later years, but it’s tough to avoid concluding that, if the nation is serious about solving its manufacturing productivity problem, ending the longstanding offshoring focus of U.S. trade policy would be a great place to start.

(What’s Left of) Our Economy: Latest Data Show America Still Has a Big Productivity Problem

Tags

2016 election, labor productivity, living standards, manufacturing, multi-factor productivity, productivity, {What's Left of) Our Economy

There’s been so much earth-shaking political news in the last few weeks that I’ve neglected some of the key U.S. economic data series I’ve been following. Let’s rectify that with some abbreviated updates, starting with the productivity statistics that are the most widely followed: the labor productivity figures.

These data measure the American economy’s output in terms of just one input (worker hours), and therefore don’t tell us nearly as much as the multi-factor productivity numbers, which look at capital, material, technology, and a variety of other ingredients of what businesses turn out. But the labor figures come out on a much timelier basis, and are widely regarded as a gauge of the nation’s ability to improve living standards on a sustainable basis.

So it was definitely goods news that these numbers went up in the third quarter (at least preliminarily) on a sequential basis for the first time in four months. The preceding three-quarter stretch of sequential declines was the first such period since 1979 – which few Americans who lived through it remember fondly. But in the third quarter of this year, that string was broken, and labor productivity rose by 3.03 percent on an annualized basis. That was the best such performance since the 4.09 percent annualized sequential advance in the third quarter of 2014. And a little bonus: The second quarter’s most recent 0.60 percent decline reading at an annual rate was revised up to a 0.15 percent dip.

Sadly, though, this uptick still leaves the current economic recovery as a major labor productivity laggard. Here’s how it compares with its two predecessors:

1990s recovery: +23.01 percent

2000s recovery: +16.07 percent

current recovery: +7.50 percent

And let’s not forget – the current recovery is already longer than the 2000s expansion.

Manufacturing’s third quarter labor productivity growth (just under one percent annualized over the second quarter) wasn’t nearly as good as the overall U.S. number (which measures the performance of non-farm businesses). But manufacturing’s over the last year hasn’t been nearly as bad – though its second quarter sequential labor productivity loss was revised down to a 0.50% decline.

At the same time, manufacturing’s productivity gains during this expansion have been pretty feeble compared to its recent predecessors as well, as the numbers make depressingly clear:

1990s recovery: +46.78 percent

2000s recovery: +41.08 percent

current recovery: +22.93 percent

If you’re thinking to yourself something along the lines that “I didn’t hear much about productivity during this last presidential campaign,” you’re absolutely right. Both major party candidates did, however, speak continually about the need to revive domestic manufacturing. The chattering classes on both sides of the aisle seem convinced that this goal is (take your pick) incredibly cynical or incredibly naive. That’s a sure sign that they’ve been thinking even less seriously about productivity – and about the leadership role even a stagnant manufacturing sector has unmistakably been playing.

Tomorrow: the latest real wage figures.

And of course I hope everyone had a great Thanksgiving!

(What’s Left of) Our Economy: Manufacturing Should Indeed be a US “Obsession”

Tags

Binyamin Appelbaum, Donald Trump, Federal Reserve, innovation, manufacturing, manufacturing production, manufacturing wages, multi-factor productivity, multiplier, productivity, research and development, STEM workers, The New York Times, Trade, Trade Deficits, {What's Left of) Our Economy

You have to give New York Times economic correspondent Binyamin Appelbaum credit. He decided to go the flood of recent media attacks on trade policy critics one better by not only charging that Republican presidential candidate Donald Trump and others are economic know-nothings, but belittling them for an ignorantly nostalgic focus on American manufacturing. Less admirable – Appelbaum’s decision to broach the subject before learning anything important about it, or much of the broader economy.

In an October 4 Times Magazine article, Appelbaum repeated standard claims that American politicians’ “obsession” with manufacturing misses the mark because the sector is doing better than ever, and because its only major problem is actually a sign of progress – its falling payrolls reflect higher productivity, and thus outstanding technological progress. His new wrinkle: a contention that U.S. leaders should spend less time trying to revive manufacturing employment (and wages, which have lagged badly, too?), and more on turning the low-wage service sector jobs into family wage jobs.

But Appelbaum’s own assessment of manufacturing badly misses the mark. His claim of record output, for example, is belied by Federal Reserve data clearly showing that industry’s output is down 4.45 percent in real terms since the Great Recession started – more than eight years ago. Nor does Appelbaum seem familiar with the productivity figures. They show manufacturing’s performance stagnating recently by the broadest measure (multi-factor productivity).

Industry’s record in international trade is another flag that’s at least deep orange. Manufacturing keeps racking up record annual trade deficits, and yesterday’s U.S. government figures revealed that August saw the latest in a string of monthly record shortfalls. These trade balances matter because standard trade theory teaches that one of international commerce’s main virtues is fostering the best possible international division of labor. By its logic, America’s failure to produce anywhere near as many manufactures as it consumes – including in numerous high-value industries like semiconductors, advanced telecommunications gear, pharmaceuticals, construction equipment, machine tools, and ball bearings – unmistakably signals that such activity has a grim future in the United States.

And if such pessimism is warranted, the entire American economic picture will look grim as well. For no other sector appears poised to replace manufacturing as the nation’s productivity growth champ. And it’s hard to identify major new employment prospects for science and technology workers if manufacturing continues stagnating (at best). After all, the sector conducts 70 percent of the private sector’s research and development, and its STEM workers comprise 60 percent of the national total.

Moreover, this funding and these workers seem to be doing an awfully good job on the innovation front, as they generate nine out of every ten U.S. patents.

But perhaps strangest of all is Appelbaum’s call for downplaying efforts to foster manufacturing employment and dramatically raising the wages and improving the living standards of America’s fast-food workers, home healthcare aides and the like via government fiat. At least he recognizes that such steps will have nothing to do with the free market principles so widely used to justify laissez-faire approaches to manufacturing’s woes. But why does he evidently suppose that productivity improvements and especially technological innovation won’t displace many of these jobs, too, especially if employment costs get high enough? And what kind of formula for boosting national competitiveness – and therefore hopes for longer term, sustainable prosperity – would this be?

Ironically, promoting domestic manufacturing looks like the best, most market-friendly way to help these low-wage workers, too. For the sector boasts the economy’s greatest multiplier effect for overall economic activity (which by definition creates new jobs) and one of the largest for employment itself. In other words, manufacturing punches far above its weight in generating new jobs throughout the rest of the economy (e.g., in transportation, construction, retail, and wholesale). Even better, most of these sectors already pay considerably more than those singled out by Appelbaum – and without new government props.    

(What’s Left of) Our Economy: Still More Evidence of Flagging Manufacturing Productivity

Tags

labor productivity, manufacturing, multi-factor productivity, productivity, {What's Left of) Our Economy

In April, I reported on the government’s release of detailed, industry-by-industry figures for labor productivity growth (or contraction!) in manufacturing, and noted that “these new 2015 figures show a head-scratching list of out-performers, mediocrities, and laggards. Specifically, the champs include lots of sectors that few would consider ‘high tech’ or “industries of the future’ or ‘knowledge-intensive,’ and the mediocrities include many that would be lumped into those glitzy categories.”

Today came comparably detailed statistics on multi-factor productivity in manufacturing – a broader measure of efficiency – and the results (for 2014, since multi-factor productivity takes longer to calculate) are at least as puzzling. The reasons are similar, too: They’re arguably strange enough, including over the long term, to warrant rethinking concepts like “advanced manufacturing.”

To recap, labor productivity tracks the amount of goods and services produced for each hour on the job by American workers. Multi-factor productivity looks at that same output-per-hour question, but measures the contribution of many other inputs as well, like capital and energy, and materials.

Because technology is so widely assumed to be the big driver of productivity – and multi-factor productivity in particular, you’d think that the list of 2014’s biggest winners in terms of annual growth would dominated by glitzy, tech-ie, futuristic type stuff. And how wrong you’d be!

Here they are, along with their specific 2014 figures:

magnetic computer drives: +7.4%

audio and video equipment: +7.3%

seafood product preparation & packaging: +7.1%

miscellaneous textile mill products: +6.2%

misc leather products: +5.6%

electric lighting +4.5%

household appliances +4.5%

misc furniture-related products: +4.5%

petroleum & coal products: +4.4%

basic chemicals: +4.1%

soaps/cleaners/toiletries: +3.2%

boilers/tanks/shipping containers: +3.1%;

textile & fabric finishing mills: +3.1%

Even the electronics items don’t scream “Silicon Valley!” It’s more like “computer hardware that mainly went to Asia long ago.” And what were the ten biggest productivity losers of 2013-2014?

tobacco processing: -9.8%

agricultural chemicals: -8.3%

miscellaneous transport equipment: -8.3%

ship & boat-building: -7.2%

apparel knitting mills: -4.9%

resin, rubber & artificial fibers: -4.4%

computer & peripheral equip: -4.3%

grain and oilseed milling: -3.5%

iron & steel mills: -3.1%

dairy products: -3.0%

communications equipment: -2.9%

household & institutional furniture: -2.9%

This list looks a little more as expected. But what’s communications equipment doing on it? That includes all the advanced internet gear. And iron and steel and resin are huge producers of high value goods.

Would looking at longer-term trends yield more comforting results? You be the judge. Here are the top ten performers when it comes to average annual multi-factor productivity growth between 1987 and 2014:

computer & peripheral equipment: +12.8%

semiconductors & electronic components: +9.6%

communications equipment +2.9%

audio & video equipment: +2.7%

magnetic computer drives: +2.1%

household appliances: +1.6%

miscellaneous transport equipment: +1.2%

coating/engraving/heat-treating metals: +1.3%

glass & glass products: +1.1%

electronic instruments +1.1%

tied at 1.0 percent: misc furniture-related products; motor vehicle parts; machine shops/threaded products; iron & steel mills; miscellaneous non-metallic mineral products; agricultural chemicals

It’s certainly good to see communications equipment and semiconductors up there. The rest? Not so sure about them.

The list of ten worse 1987-2014 annual averages seems even more sensible. Or at least much of it:

pharmaceuticals & medicines: -2.2%

cut & sew apparel: -1.9%

accessories/miscellaneous apparel: -1.7%

miscellaneous leather products: -1.1%

apparel knitting mills -1.0%

leather & hide tanning -1.0%

tobacco products: -0.9%

hardware: -0.8%

bakeries/tortilla products: -0.7%

paints, coatings & adhesives: -0.6%

textile finishing mills: -0.5%

footwear: -0.5%

You’re not alone, though, if you were stunned to see pharmaceuticals at the top of this list. That’s about as high-value and research-intensive as you get. And domestic producers face lots of foreign competition. At the same time, as I’ve noted in my posts on industries dependent on government subsidies, pharma benefits from gargantuan levels of public sector support for health care. Could there be some cause-and-effect working here?

Optimists can legitimately point out that these multi-factor productivity numbers are two years old. But overall manufacturing multi-factor productivity fell annually for three of the four years through 2014, and is actually down on net since 2005. Also bearish:  Although it’s often (and not completely unreasonably) claimed that the growth of intangibles-based services industries make economy-wide productivity data suspect, no such complications should be plaguing the manufacturing numbers. Consequently, there’s a heavy burden of proof on bulls who claim that a turnaround on this critical front in the cards soon – much less that it’s already begun.

(What’s Left of) Our Economy: Productivity Figures Could be Flashing “Disaster”

Tags

Labor Department, labor productivity, multi-factor productivity, productivity, recovery, {What's Left of) Our Economy

For several months, now, students of the economy have started using “productivity” and “crisis” in the same sentence. That’s both alarming in its own right – given how crucial strong productivity growth is to ensuring America’s prosperity over the long term – and because productivity can be such an eyes-glazing term that most students of the economy usually ignore it.

Today, the Labor Department made clear that we may need to start substituting “disaster” for “crisis.” For the revised read it just released on labor productivity in the second quarter of this year showed that the nearly historically bad results in the initial estimate were in fact worse than first reported.

To recap quickly, these new Labor data focused on labor productivity – how much output (of anything) can be produced with each hour of work. These numbers aren’t as comprehensive as the multi-factor productivity trends also tracked by Labor, which report on how efficiently a wide variety of inputs are used. But labor productivity figures come out on a much timelier basis.

The headline development revealed by the advance report (which actually made some headlines) was that U.S. labor productivity fell sequentially for the third straight quarter – the kind of deterioration that hadn’t been seen since 1979. Those old enough will remember that the American economy was a complete mess back then.

What we learned this morning was that on a quarter-to-quarter basis, the latest decline in labor productivity wasn’t 0.50 percent at an annual rate. It was 0.60 percent. The first quarter sequential decrease was left unchanged at 0.60 percent. (These data cover the “non-farm” business sector, which is the Labor Department’s main definition of the U.S. productivity universe.)

The manufacturing-specific results were no better. Last month’s advance estimate pegged the second quarter’s sequential decline in labor productivity in industry at 0.20 percent annualized. According to this revision, it was twice as bad – 0.40 percent. And whereas Labor had previously judged that first quarter manufacturing productivity was up by 1.50 percent annualized over the fourth quarter of 2015, it revised this gain down to 1.30 percent.

And for some more historic perspective, let’s see where the new productivity data leave the current economic recovery’s performance versus that of previous expansions. Here are the cumulative labor productivity increases for non-farm business for each of the last three economic recoveries:

1990s recovery: +23.01 percent

2000s recovery: +16.07 percent

current recovery: +6.56 percent

Don’t forget, moreover – the current recovery, which as of the second quarter of this year had lasted for seven years – was longer than its predecessor (which ran for six years). The 1990s expansion lasted for nearly ten years, and at this rate, its labor productivity performance looks totally out of reach.

As RealityChek regulars know, economists are still actively debating how well the productivity data are measuring America’s efficiency in an era where intangibles, like information technology services, clearly have become more important economically. But however difficult these new offerings are for statisticians to monitor, it’s even harder to see how they could be responsible for the labor productivity growth drop of some 75 percent America has now seen over a two-decade period.

(What’s Left of) Our Economy: Productivity Growth Now Stuck in Reverse

Tags

labor productivity, manufacturing, multi-factor productivity, productivity, productivity growth, {What's Left of) Our Economy

Since America’s productivity growth has been terrible for several years, it’s surely big news that today’s Labor Department report on this measure of efficiency was almost historically terrible.

In its release on labor productivity (for the second quarter of this year), the department announced that the U.S. economy’s ability to turn out a unit of goods or services per hour worked fell sequentially for the third straight quarter. A performance that bad hasn’t been registered since 1979 – when under then-President Jimmy Carter, the nation was struggling with double-digit inflation and unemployment.

These results are preliminary, and therefore the final statistics could be better. But since American businesses keep on hiring at a relatively healthy clip (as revealed by last Friday’s jobs report), and the U.S. economy keeps growing slowly (as revealed in the latest gross domestic product report), a significant upward revision would be a major surprise.

It’s also possible that when we get second quarter data on multi-factor productivity, which gauges efficiency based on several inputs in addition to labor, the picture will look brighter. But these multi-factor numbers won’t be out until next year, since they take longer to calculate. And so far, they’ve been no better than the labor productivity data.

The new Labor Department report presents four sets of figures deserving attention. First came the actual second quarter results – which showed that non-farm business labor productivity dropped by 0.50 percent at an annual rate from first quarter levels, and that manufacturing’s performance (a subset of non-farm businesses) dipped by 0.20 percent.

Second came the revisions for the first quarter. The non-farm business figure stayed the same, at -0.60 percent annualized, but manufacturing saw its sequential labor productivity improvement upgraded from 1.30 percent at an annual rate to 1.50 percent.

Third, the government revised the last few years of annual productivity growth results, and, as with the first quarter manufacturing figure, these new overall numbers also came in a little better, while industry’s results were mixed:

Non-farm Business labor Productivity Growth    Old             New

2013                                                                     0.00%       +0.30%

2014                                                                   +0.80%      +0.80%

2015                                                                   +0.70%      +0.90%

Manufacturing Labor Productivity Growth         Old             New

2013                                                                  +0.70%       +0.20%

2014                                                                 +1.50%        +1.70%

2015                                                                 +0.20%        +0.30%

Finally, this morning’s productivity report permits a new comparison of the economy’s performance during the last few recoveries – the best way to measure trends over time. And here, the changes aren’t big, but they’re tilted to the downside – and the biggest negative revisions are in manufacturing:

Non-farm Business Labor Productivity Growth      Old           New

1990s recovery                                                     +23.01%    +23.01%

2000s recovery                                                     +16.08%    +16.07%

current recovery (through first quarter)                 +6.58%      +6.73%

Keep in mind, however, that the newest (second quarter) results drag the total improvement for this recovery down to 6.58 percent.

And now for the revisions to manufacturing labor productivity:

                                                                               Old              New

1990s recovery                                                  +49.96%      +46.65%

2000s recovery                                                  +41.09%      +41.07%

current recovery (through first quarter)            +24.85%       +22.82%

And the new second quarter results reduce the cumulative manufacturing improvement during the current recovery to 22.76 percent.

Some economists still believe that these official data are largely missing the productivity-boosting effects of new technologies, and they could still be right. But interestingly, I’m not seeing his objection nearly as much these days as in months and years past. A strong consensus seems to be consolidating that the U.S. economy – including its once productivity-leading manufacturing sector – in mired in a major productivity slowdown. There’s no consensus on how to fix the problem, but at least we seem to be moving past the denial stage.

(What’s Left of) Our Economy: New Report Suggests Historic Problems with Manufacturing Productivity

Tags

Labor Department, labor productivity, living standards, manufacturing, multi-factor productivity, productivity, {What's Left of) Our Economy

For several months at least, major economists – though not major politicians – have worried about slumping American productivity growth, and with good reason: As I’ve written many times in covering the subject, improvements in this measure of economic performance represent the nation’s best hope for boosting living standards in a sustainable way, as opposed to relying on financial and similar gimmicks as during the previous bubble decade.

So it’s big news that this morning’s Labor Department report on multi-factor productivity in U.S. manufacturing provides the latest validation of these fears. It shows both that, by this broadest measure, America’s industrial efficiency fell in 2014 for the third time in four years and for the the fourth time during the current economic recovery, and that overall, manufacturing productivity change between 2011 and 2013 was much worse than previously reported.  Further, the new report suggests that manufacturing is losing its position as the U.S. economy’s productivity leader.

The exact numbers: Multi-factor manufacturing productivity – which measures the sector’s use of a variety of inputs – fell in 2014 by one percent. (These data come out with a longer time lag than those for labor productivity, which measures only one input.) It’s true that 2013’s figure was revised up, from a 0.7 percent decline to a 0.1 percent gain. But for 2012, multi-factor manufacturing productivity is now judged to have fallen by 2.8 percent, not 0.8 percent. That’s the biggest annual drop-off on record by a wide margin. (The data, though, only go back to 1987.)

Also making clear that manufacturing’s productivity struggles are no passing fancy are the numbers during the last few economic recoveries – the methodology that yields the best apples-to-apples results. Since the manufacturing multi-factor statistics are only published on an annual basis, and recoveries don’t respect the calendar much, these numbers won’t be perfect. But they’ll certainly be close enough.

During the 1990s economic expansion – which lasted from early 1991 to early 2001 – manufacturing multi-factor productivity increased by a total of 14.91 percent. The bubble decade expansion was shorter (late-2001 to late 2007), but manufacturing’s total multi-factor productivity growth was only a little slower – 14.73 percent. Through 2014, the current recovery had been even shorter – just five years. But so far, manufacturing’s multi-factor productivity has fallen by 1.29 percent.

Here, moreover, is a trend at least as disturbing: During the 1990s and 2000s expansion, manufacturing multi-factor productivity grew faster than overall non-farm business multi-factor productivity (which rose by 11.50 and 9.51 percent, respectively). But during the first five years of the current recovery, as manufacturing multi-factor productivity fell, non-farm business productivity kept rising – albeit by a slower 4.66 percent.

Subsequent figures could show these trends reversing themselves. But if they don’t, manufacturing will not only seem to be suffering serious productivity woes in its own right. It will start looking like a productivity laggard in an economy whose overall efficiency performance is faltering.

(What’s Left of) Our Economy: America’s Productivity Doldrums Drag On

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Labor Department, labor productivity, multi-factor productivity, productivity, recovery, {What's Left of) Our Economy

Think of the kind of face you make when you’ve just eaten something that tastes awful. That’s the kind of face you should make upon reading the Labor Department’s new report on the widest measure of American productivity growth. Because the nation’s performance on this crucial front last year puts its efforts to foster greater efficiency – and therefore sustainably higher living standards – right back in the toilet.

As now well known by all long-time readers of RealityChek, these figures – on multi-factor productivity (MFP) – show how well the economy takes a wide range of inputs (including human labor, capital, energy, and materials) and turns it into the output of goods and services. The big drawback is that because this gauge is so much more complicated to calculate than labor productivity alone, it comes out much less frequently than the latter.

Nonetheless, because we’re still in the first quarter of the current year, the new MFP numbers are timelier than usual, offering a preliminary look at 2015. And they make clear that, as with labor productivity, the major slump in multi-factor productivity that began at the turn of the century keeps deepening.

Between 1995 and 2000, according to the Labor Department, the average annual growth of multi-factor productivity peaked at 1.50 percent. (These data only go back to 1987, and the statistics I focus on here are for non-farm businesses.) During the bubble expansion that followed, through 2007, this rate slowed to 1.40 percent. Once the economy began tanking, however, MFP’s average annual growth rate plunged to 0.40 percent. And unusually, once the current recovery began, MFP gains didn’t bounce back much at all.

Since 2008, MFP has grown by more than one percent annually only once – in 2010 (early in the recovery). In 2013, it actually fell slightly (by 0.10 percent), improved to a still blah 0.70 percent the following year, and in 2015, dropped back to 0.20 percent.

The only possible bright spot in the report was the annual increase seen in how capital-intensive the rise in MFP became. Every year since 2010, capital’s role in MFP gains had either flat-lined or actually decreased – results that are consistent with claims that the current economic recovery has been slowed in large part by unusually weak business investment. But in 2015, capital’s role rose by 0.40 percent.

During this expansion, the American economy has demonstrated that it can grow modestly after receiving historically unheard of amounts of stimulus from the president and Congress and, much more important, the Federal Reserve. If the economy wants to show the ability to grow without incurring the massive resulting debts, much faster gains in both labor and multi-factor productivity are essential.