Following Up: Many (and Maybe Most) U.S. Manufacturers Aren’t Buying the Tariff Fear-Mongering

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capex, Dallas Federal Reserve, exports, Following Up, growth, Jobs, manufacturing, NAM, National Association of Manufacturers, Sikich, tariffs, Trade, trade wars

What a week for polls seeking to shed some light on whether and how much President Trump’s tariffs-heavy trade policies have affected American domestic manufacturing! Monday’s post reported on findings from the Dallas Federal Reserve bank pointing to the answer, “Not nearly as much damage as widely supposed, and some benefits.”

Since then, the results of two more surveys have been published, and they, too, indicate that the situation is much more complicated than portrayed by the gloom and doom claims and predictions from globalization cheerleaders in politics, the media, and the U.S. Offshoring Lobby. And one of them shows that more domestic American manufacturers are expecting net gains, not net losses, from the trade wars – and even that many are coping with more and higher tariffs by boosting their production at home. 

Let’s start with the poll supporting the “tariffmageddon” narrative most strongly. It’s the National Association of Manufacturers’ (NAM) Quarterly Outlook Survey for the second quarter of 2019. The headline number for trade mavens: 56 percent of the 689 respondent companies called “Trade uncertainties” their “primary current business challenge.” This concern trailed only “Attracting and retaining a quality workforce” (68.6 percent). During the first quarter, trade uncertainties were the top concern of only 52.6 percent of respondents – so that number’s up, but not dramatically.

For good measure, along these lines, the expected growth rate for exports over the next year was just 0.4 percent – the lowest such figure provided in eleven quarters (going back to the third quarter of 2016).

In addition, respondents’ expectations of major performance indicators also weakened from the first quarter’s results, including their own company’s outlook, and the growth of sales, production, hiring, and capital spending.

But again, the difference between the first and second quarter responses wasn’t game-changing. Indeed, nearly 80 percent of the companies described their outlooks as positive (down from nearly 90 percent in March, sales growth predictions declined from 4.4 percent to 3.4 percent, ditto for production growth, full-time payroll growth dropped from 2.1 percent to 1.6 percent, and capital spending from 2.8 percent to 2.2 percent. The only indicator that slipped into negative territory was inventories (from 0.4 percent growth to 0.1 percent contraction).

So that’s the glass-half-empty evidence. And now for something if not completely different, pretty substantially so. It’s a survey of manufacturers from Sikich, a Chicago-based accounting and consulting firm, and its headline finding: More executives reported feeling optimistic about the impact of recent and ongoing trade developments (38 percent) than expected a negative impact (35 percent). And the most optimistic respondents came from larger companies (45 percent) and “companies with operations outside the U.S.” (51 percent).

Even better for the Trump administration and its trade policy supporters – Sikich’s findings about how companies are responding to these trade developments: “The action cited most often was manufacturing more products, or components, in the United States (45%).” At the same time, “a substantial portion of companies are looking to diversify procurement by sourcing purchased materials from new countries (36%) and sourcing raw materials from new countries (33%).” (Note: These answers aren’t necessarily mutually exclusive.)

In terms of their overall assessment of the economy, only 27 percent of the Sikich respondents believe that a U.S. recession over the next year is “extremely or very likely.” Interestingly, in light of their above trade-related responses, 49 percent of executives from larger companies – nearly twice as great a percentage – were expecting such a downturn.

And especially encouraging for all Americans: Not only were 63 percent of respondents nonetheless preparing for the possibility of a recession. But 53 percent of the total said they were “increasing the efficiency of production/business processes to reduce costs.” Such productivity-boosting measures are much more constructive – and economically beneficial – actions than whining about an imminent end to access to government-subsidized, artificially cheap inputs from places like China.

Nor do the Dallas Fed and Sikich results look like outliers. Their results are very much in line with those of polls I reported on last September – from the big Swiss-owned investment bank UBS, and Yahoo Finance.

(What’s Left of) Our Economy: The Real Messages of that Business Letter Opposing Tariffs on China

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American Chamber of Commerce in China, Business Roundtable, China, currency manipulation, National Association of Manufacturers, offshoring, protectionism, tariffs, Trade, Trump, U.S. Chamber of Commerce, US-China Business Council, {What's Left of) Our Economy

Forty-five American business groups have just sent a letter to top Trump administration officials urging them not to impose “sweeping tariffs” on China in response to its longstanding and widespread theft of U.S. “trade secrets and other intellectual property.” That’s not especially newsy, since large elements of the American business community have long opposed any measures that would rock what they consider to be a highly profitable boat – the business they do with the People’s Republic.

Here’s what’s much more newsworthy: The list of signers is missing some of the leading lights of the U.S. trade association world, including the Business Roundtable, the National Association of Manufacturers, and two leading China-specific groups – the US-China Business Council, and the American Chamber of Commerce in China (which is distinct from the U.S. Chamber of Commerce, an organization that did sign).

Since the membership of the U.S. Chamber in particular is so all-inclusive, it’s possible that its name on the letter was thought to suffice for many companies belonging to those other groups that are absent. But these companies have never been shy about practicing double- and even triple-counting. So it’s also possible that the above absences indicate that the American business community – and especially the multinational companies that have so powerfully influenced U.S. Trade policy with China for decades – is seriously divided on the tariff issue.

What’s also noteworthy is the letter’s statement that “Tariffs would not only affect Chinese shippers but also harm U.S. companies that sell component pieces of final products exported from China.” In other words, the letter is implicitly acknowledging that many of its signers have been among those companies that have long spearheaded the offshoring of American jobs and entire supply chains to China.

Their offshoring focus of course explains much of their staunch opposition to vigorous Washington responses to such cut-and-dry protectionist Chinese practices as currency manipulation: Although this trade predation has damaged America’s domestic production base, these businesses’ China-based operations have been major beneficiaries.

Similarly, the strong interest of so many of these companies in continuing to coddle China’s mercantilism at the domestic economy’s expense explains the seeming paradox of their main policy message to President Trump: On the one hand, they “continue to have serious concerns regarding China’s trade policies and practices” and admit that their persistence endangers “U.S. global competitiveness, innovation, productivity, and cybersecurity.”

And on the other, they insist that American countermeasures be limited to steps – like “measured, commercially meaningful actions consistent with international obligations” and working “with like-minded partners to address common concerns with China’s trade and investment policies” – that have been tried for years, and that so far have produced nothing but failure.

(What’s Left of) Our Economy: Is it the National Association of Manufacturers or the National Association of Offshorers?

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auto parts, automotive, China, domestic content, exports, fast track, Gregg Sherrill, imports, India, Jobs, manufacturers, manufacturing, Mexico, NAM, National Association of Manufacturers, Obama, offshoring, production, Tenneco, TPP, Trade, Trade Promotion Authority, Trans-Pacific Partnership, {What's Left of) Our Economy

Here’s hoping that the National Association of Manufacturers (NAM) gets to testify in Congress on President Obama’s trade agenda – and soon. That’s not because there’s any reason to expect the organization voluntarily to shed any genuine light on the likely impact of granting the president fast track negotiating authority or the Trans-Pacific Partnership (TPP). Instead, it’s because it will be a great opportunity for lawmakers with some smarts to find out whether and to what extent, like the rest of the big business organizations pressing for new trade deals, NAM’s views are shaped by offshoring interests.

NAM’s focus on maximizing opportunities to send American jobs and production overseas rather than boosting them at home could become especially apparent if the organization sends its new board chairman, Tenneco chief Gregg Sherrill, to Washington. By its count, his auto parts giant currently runs 101 production-related facilities around the world – and only 19 are in the United States.

According to Tenneco, this breaks down into 16 U.S. factories out of a global total of 86, and three engineering centers out of a global total of 14. The company’s only software development center is in India.  (It couldn’t find any qualified Americans to do the work?)

Tenneco explains its location decisions by declaring that “We are where our customers are.” At first glance, the figures bear out the firm. Tenneco makes a wide range of auto parts, and according to the latest figures I could find, the United States in the second quarter of 2014 accounted for only 13.14 percent of global auto and truck production (by units). That was second behind China – by a wide margin. China’s 11.783 million vehicle output represented 26.06 percent of the global total. And the company maintains 18 factories and one engineering center in the PRC.

Similarly, India produced 4.22 percent of the world’s motor vehicles in the second quarter of 2014, and accounted for just under seven percent of Tenneco’s worldwide factories (along with the software center). And Mexico’s 4.65 percent of the company’s manufacturing locations seems appropriate given its 3.68 percent of world vehicle output.

But when it comes to trade, the subject of trade policy hearings, Tenneco’s strategy raises big questions. For example, if its aim is to produce close to its customers, it would seem that expanding exports isn’t a high priority. Yet boosting these U.S. overseas sales, and thus increasing American growth and hiring clearly is the Obama administration’s top stated trade priority. So why is the NAM, now headed by Tenneco’s boss, so enthused about new trade deals?

Perhaps more important, is Tenneco’s factory location pattern in fact related to its trade behavior? The company doesn’t disclose that information, so it’s clearly a question Members of Congress and Senators should ask. Moreover, Tenneco is far from the only parts maker in NAM’s ranks. Sherrill (or whatever surrogate is sent) should be asked comparable questions about the entire industry, especially since sector-wide trade data is eminently available, and it shows clearly that the United States has steadily turned into an import magnet from low-wage countries where Tenneco (and other parts makers) have lots of factories.

Let’s take China. True, it’s now far and away the world’s vehicle output leader. And indeed, total U.S. parts exports to the People’s Republic rose by nearly 107 percent between 2007 (chosen as a baseline since it’s the year the American recession began) and 2013. Year-to-date 2013 to 2014 (we won’t have full 2014 data for another week), these exports are up another 13.90 percent.

Yet between 2007 and 2013, American auto parts imports from China were up nearly as fast – nearly 96.50 percent. And their value in 2014 was 5.77 times the value of U.S. parts exports. The same trends describe U.S.-India auto parts trade. The 2014 import-export ratio for the much larger amount of U.S.-Mexico auto parts trade is smaller – 2.20:1. But an enormous number of parts imports from Mexico are contained in the enormous number of finished vehicles America buys from the country. Vehicle imports from China and India are still small.  Given Tenneco’s stated aim of producing near its customers – a strategy that many other American-owned manufacturers also profess to be following – why such a large and growing gap in trade flows?

Tenneco’s Sherrill could certainly clear up all such questions about his own company by telling Congress how much the firm exports and imports nowadays annually, and how those numbers have changed since the North American Free Trade Agreement (also strongly supported by NAM) launched the current era of U.S. trade policymaking. He should also disclose the levels of domestic and foreign content in his company’s products and how they’ve changed during this period.

Sherrill should add how the company’s domestic and foreign output and employment levels have changed during this period. Similar figures for all the other companies and industries represented by NAM would be helpful, too – from Sherrill or any of the organization’s other spokespersons.

Any witnesses from NAM – or the other offshorer-dominated business groups favoring the president’s trade agenda – will no doubt claim that such information represents valuable commercial secrets, and can’t be revealed without surrendering major strategic advantages to rivals. But that problem is easily solved by requiring such disclosures from all companies, foreign or domestic-owned, above a certain size that do business in the United States.  That way, no one would come out on top on net.

NAM claims that it’s devoted to creating “job across the United States” – and presumably production, too. But without details about its companies’ actual performance, the official trade figures show that Congress and the public are entitled to wonder whether the organization’s name should be changed to the National Association of Offshorers.

Following Up: Settling the Debate over Manufacturing Pay

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benefits, Following Up, manufacturing, National Association of Manufacturers, National Employment Law Project, wages

Remember Monday’s post on a debate over pay in the manufacturing sector? One of the frustrations I expressed was that U.S. government data on manufacturing compensation that includes non-wage benefits and that’s adjusted for inflation didn’t seem to be available. Therefore, it was difficult to judge whether benefits were (at least) making up for the decline in real wages suffered by manufacturing workers (as insisted by the National Association of Manufacturers), or whether this drop-off in hourly pay genuinely is cause for worry (as insisted by the National Employment Law Project).

Yet thanks to yesterday morning’s release of new labor productivity figures by the Labor Department, I saw that this missing data isn’t missing after all. As part of its efforts to track productivity, Labor compiles figures on real hourly compensation for major sectors of the economy, and manufacturing is one of them. And the statistics seem to prove beyond reasonable doubt both that there’s a major problem with manufacturing pay, and that most of the latest labor productivity gains achieved by the sector have resulted from skimping on compensation, not by some combination of more advanced technology and smarter management.

As shown in the Bureau of Labor Statistics’ interactive database, during the current recovery, which has seen labor productivity rise by 15.29 percent in manufacturing, real hourly compensation in the sector has fallen by three percent.

That’s a striking contrast with the previous economic expansion, which lasted from the final quarter of 2001 to the final quarter of 2007. Then, hourly compensation in manufacturing actually increased – by 6.44 percent in real terms. But labor productivity grew much faster than in the current recovery – by 26.32 percent.

Similar results emerge after adjusting for the different lengths of the two expansions. Over the first five years of the current recovery, inflation-adjusted hourly compensation in manufacturing fell by 3.11 percent, and productivity improved by 14.47 percent. Over the first five years of the previous recovery (which lasted a total of six years), inflation-adjusted hourly compensation in manufacturing increased by 5.28 percent, and manufacturing productivity rose by 21.85 percent.

The composition of productivity gains is best gleaned from Labor Department data on multi-factor productivity, which includes all inputs into all sectors of the economy, not just labor. For manufacturing, the latest of these statistics only goes up to 2012, which limits the conclusions that can validly be drawn about the current recovery. But the declining contribution made by capital-intensivity since 2007 (shown in Table B) certainly reinforces the idea that spending on new machinery and equipment – including on “information processing equipment” and “intellectual property products” – has been anything but central to manufacturing’s efficiency lately.

As I keep noting, few have ever called American domestic manufacturing during the previous bubble decade a sector on the upswing. And yet it managed a feat apparently beyond the ken of this decade’s supposedly renaissance-ing industry – increasing productivity and pay at the same time. Hmmm.

(What’s Left of) Our Economy: What’s the Real Story with Manufacturing Pay?

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benefits, Bureau of Labor Statistics, competitiveness, data, Employment Cost Index, manufacturing, manufacturing renaissance, National Association of Manufacturers, National Employment Law Project, wages, {What's Left of) Our Economy

Thanks to the Pittsburgh Post-Gazette’s Len Boselovic, I got dragged (willingly, to be sure) into a dust-up about manufacturing wages that recently broke out between the National Employment Law Project (NELP) and the National Association of Manufacturers.

Len did an excellent job of explaining how the former organization could come out with a report lamenting wage decline in manufacturing and the sector’s steady transformation into a low-wage employer, while the latter could respond by insisting that American industry “continues to be a pathway to the middle class.” As is often the case, it depends largely on which data you look at.

But it’s still worth elaborating on some points that Len was only able to touch on, especially since all data aren’t created equal. In the first place, the NELP report really should have looked at benefits as well as wages. They’ve been integral parts of compensation packages for workers throughout the economy for decades, and powerfully effect families’ living standards and financial health. I’m also still scratching my head as to why the NELP omitted white-collar manufacturing workers from its survey. They represent nearly half of all U.S. manufacturing employment.

But there’s also less to the NAM’s retort than meets the eye. As Len pointed out, the total compensation figures cited by its chief economist, Chad Moutray, aren’t adjusted for inflation. That’s a main reason I focus in my own analyses of manufacturing pay on wages – for which inflation-adjusted data is kept by the Bureau of Labor Statistics.

It’s also true that total compensation (as measured by the BLS’ Employment Cost Index), is up more during the current recovery for all manufacturing workers (by 11.91 percent) than for all private sector workers (by 11.14 percent). But in addition to being unadjusted for inflation, these ECI figures are only available going back to 2001. Therefore, they don’t permit any examinations or comparisons of longer-term trends – which for real wages, show multi-decade stagnation.

In addition, given how free many companies have felt to cut pensions in particular, it’s fair to ask how much longer manufacturing’s benefits package will remain so impressive. And finally, the NELP deserves credit for spotlighting the growing use by domestic manufacturers of temporary workers – whose wages are typically less than those of full-timers, who rarely receive any non-wage benefits at all, and who aren’t included in the manufacturing wage or total compensation data. (They’re considered instead as employees of job placement or temp firms). Obviously, if these workers were reclassified, manufacturing pay would be lower whatever measurement is used.

Bottom line? It’s still valid to claim that manufacturing’s rebound from an horrific recession has taken place largely on workers’ backs. Until domestic industry starts boosting production while raising, not cutting, real wages and overall compensation, talk of a manufacturing renaissance, or any regained competitiveness, will remain a grim joke.