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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(What’s Left of) Our Economy: November Figures Show U.S. Manufacturing Upswing Intact

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automotive, chemicals, Federal Reserve, hurricanes, industrial production, inflation-adjusted growth, manufacturing, non-durable goods, petroleum refining, recession, recovery, {What's Left of) Our Economy

The Federal Reserve’s new industrial production figures for November revealed that the strong bounceback from the previous months’ hurricanes is fading. Sequential growth cooled from an upwardly revised 1.45 percent to 0.22 percent, with most of the deterioration coming in non-durable goods sectors either concentrated heavily in Gulf states, like petroleum refinery, or heavily dependent on oil and natural gas for feedstocks, like chemicals.

Even so, the latest overall monthly expansion in manufacturing, coupled with slightly negative revisions from July through September were enough to produce 2.72 percent year-on-year price-adjusted production growth in November – industry’s best such total since July, 2014’s 2.82 percent. Moreover, the higher October monthly real output increase was represented industry’s best sequential growth since May, 2010’s 1.49 percent. Despite some recent signs of life, the automotive sector – which led domestic manufacturing’s strong early comeback from its deep recessionary dive – remained in a technical recession in November. Real production in motor vehicles and parts combined is down 0.12 percent since July, 2015.

The latest results pulled manufacturing’s real output levels to just 2.38 percent below their prec-recession peak, nearly a data decade ago, in December, 2007.

Here are the manufacturing highlights of the Federal Reserve’s Friday release on November industrial production:

>New Federal Reserve industrial production figures reveal that in November, the hurricanes bounceback effect in after-inflation manufacturing output faded, but real monthly growth was sufficient to push the year-on-year figure to its best level in more than three years.

>Constant dollar production rose 0.22 percent sequentially in November – down substantially from October’s upwardly revised 1.45 percent. But the new October figure amounted to manufacturing’s best month-to-month inflation adjusted growth since the 1.49 percent achieved in May, 2010.

>Moreover, November’s manufacturing production growth sufficed to bring the month’s year-on-year total to 2.72 percent in real terms – the best such growth since July, 2014’s 2.82 percent.

>Most of the slower rate of the real growth slowdown came in the hurricane-affected industries that enjoyed such strong production recoveries in October.

>In one of the most dramatic examples, examples, after-inflation production in organic chemicals sank by 14.92 percent on month in September. October’s results? Up 27.96 percent – a marginal downgrade from the 28.05 percent reported last month, but still the biggest advance on record (going back to 1986). In November, inflation-adjusted production rose again – but by just 1.06 percent.

>In petroleum refining, September’s sequential constant dollar output drop has been downgraded from 2.11 percent to 4.16 percent. In October, it rebounded by an upwardly revised 5.91 percent – the best such performance since October, 2008’s 17.72 percent. In November, however, price-adjusted production dipped on month by 0.50 percent.

>In the huge chemicals sector in which these and many of these hurricane-impacted industries are located, the August and September constant dollar output monthly drops have been upgraded slightly on net. But October’s after-inflation output bounceback, already its best on record (going back to 1972) has been revised upward, too – from 5.82 percent to six percent. In November, it fell back but 0.19 percent.

>In turn, in the non-durable goods super-sector in which chemicals are found, sizable monthly real production fall-offs in August and September were followed by a sequential October spurt initially reported as 2.33 percent – its best such performance since January, 1983.

>Now the October figure has been upgraded to a 2.53 percent rise – the best on record (going back to January, 1972. In November, constant dollar production levels were down sequentially – but by a mere 0.01 percent.

>A small upward revision to October’s real sequential automotive output growth helped end a technical recession (two or more straight quarters of cumulative inflation-adjusted output decline) in a sector that led manufacturing’s overall early recovery comeback from the sharp recessionary downturn.

>But a longer term slump continued, with combined motor vehicle and parts price-adjusted production off 0.12 percent since July, 2015.

>Nonetheless, its 0.09 percent monthly real production increase in November marked the fourth straight month of sequential real output improvements in automotive – the best such stretch since the May-October period of 2016.

>As of November, domestic manufacturing is still smaller in real terms than at the onset of the Great Recession – which began in December, 2007. But they also showed that, since October, the inflation-adjusted output gap has closed from 2.56 percent to 2.38 percent.

(What’s Left of) Our Economy: New Fed Figures Show U.S. Manufacturing Blowing Past Hurricane Setbacks

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automotive, chemicals, Federal Reserve, Great Recession, hurricanes, industrial production, inflation-adjusted growth, manufacturing, nondurable goods, petroleum refining, recovery, {What's Left of) Our Economy

The Federal Reserve’s new industrial production figures for October (released last Thursday) illustrated the perils of measuring economic performance month-by-month – especially where hurricanes and other individual shocks are concerned. For most of the industries hit hardest by the recent storms staged strong and even record sequential production bouncebacks in October.

At the same time, the data also make clear that the strong output momentum exhibited by America’s domestic manufacturing before the hurricanes continued even as they undercut sectors highly concentrated on the Texas and Louisiana Gulf coasts; and that this strength extended into October.

The month’s strong (1.29 percent) monthly inflation-adjusted production gain, combined with upward revisions, lifted manufacturing out of its latest output recession. And the October year-on-year in real output increase (2.73 percent) was industry’s best July, 2012’s three percent. The technical recession into which the automotive sector has fallen continued into its fifteenth month in October, but even here some good news emerged, as constant dollar output rose for the fourth straight month – the best such stretch since last May through October.

Overall, manufacturing’s strong recent after-inflation output performance has brought the sector to within 2.56 percent of the production levels it reached just before the last recession struck – nearly ten years ago, at the end of 2007.

Here are the manufacturing highlights of the Federal Reserve’s October industrial production report: 

>American domestic manufacturers overcame their hurricane-related losses and then some in October, according to new Federal Reserve industrial production data that show month-on-month real output gains and revisions strong enough to life the entire sector out of its latest technical recession.

>After-inflation production rose by 1.29 percent on month in October, the Fed reported – the best such improvement since April’s 1.37 percent.

>Positive revisions buoyed manufacturing as well. September’s constant dollar production – which was initially reported to have advanced by 0.10 percent sequentially despite the hurricanes – is now estimated as a 0.38 percent rise. August’s monthly real output decline was revised down again, from a 0.20 percent dip to 0.16 percent. And rather than decreasing by 0.35 percent in July, that month’s real manufacturing output is now judged to have flat-lined.

>Keying the October monthly real production surge in manufacturing were the sectors hit hardest by the recent hurricanes because they are heavily concentrated along the Texas and Louisiana coasts of the Gulf of Mexico, and especially because they rely on oil and natural gas as feedstocks.

>For example, price-adjusted production in organic chemicals cratered by a downwardly revised 14.92 percent on month in September. But in October, the sector’s after-inflation production skyrocketed by 28.05 percent – the biggest improvement on record (in this case, going back to 1986).

>Inflation-adjusted petroleum refinery output dropped sequentially in September by an upwardly revised 2.11 percent. October’s monthly 4.60 percent increase was the sector’s best since October, 2008’s 17.72 percent.

>In the huge chemicals sector in which many of these hurricane-impacted industries are located, constant dollar output in August and September is now reported to have dropped month-to-month by 2.57 percent and 2.22 percent – slightly better results that initially pegged, but still the worst since recessionary December, 2008’s 4.85 percent shrinkage. But October’s 5.82 percent sequential real production increase was its best monthly figure on record (in this case, going back to 1972).

>And in the non-durable goods sector in which chemicals are found, two sizable monthly production fall-offs in August and September were followed by a 2.33 percent sequential spurt in output in October – its best such performance since January, 1983.

>Nonetheless, some hurricane-affected sectors continued to lag. In plastics materials and resins, September real output tumbled by 8.16 percent sequentially – its worst month since recessionary December, 2008 (11.72 percent).

>In October, however, inflation-adjusted production slipped by another 4.65 percent sequentially, making for the worst two-month drop (12.43 percent) since November and December, 2008 (23.31 percent).

>In the automotive sector, a technical recession (more than two straight quarters of cumulative real output decline) continued into its fifteenth month in October. Since July, 2016, inflation-adjusted production is off by 0.23 percent.

>But the industry, which led manufacturing’s overall early recovery comeback from its sharp recessionary downturn, has shown some signs of life in recent months.

>The October Fed figures showed that its constant-dollar output is now up for three straight months. That kind of improvement hasn’t been seen since the May-October period of 2016.

>Further, revisions have been positive, including a September upgrade all the way from 0.07 percent to 1.69 percent.

>October’s Fed figures still left domestic manufacturing considerably smaller than at the onset of the Great Recession – which began in December, 2007. But the October monthly figures plus the revisions produced major catch-up. Last month’s Fed industrial production report showed that real manufacturing output remained 4.26 percent lower than when the last recession broke out. The October report shows the gap has narrowed to 2.56 percent.

(What’s Left of) Our Economy: September Sees Bigger Hurricane Toll for U.S. Manufacturing but Fractional Overall Production Gain

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automotive, chemicals, Federal Reserve, Great Recession, hurricanes, industrial production, inflation-adjusted growth, manufacturing, non-durable goods, petroleum refining, recovery, {What's Left of) Our Economy

The Federal Reserve’s new industrial production figures show greater hurricane-related damage to real U.S. manufacturing output in September than in August, with the losses in chemical industries using oil and gas feedstocks great enough to plunge all of domestic industry into a technical recession. Inflation-adjusted manufacturing production is now 0.14 percent lower than in February. Yet on month, overall after-inflation manufacturing output eked out a 0.10 percent gain.

Most seriously affected by the devastation of the energy-rich Texas and Louisiana Gulf coasts were organic chemicals (where monthly production plunged by 14.71 percent), and plastics materials and resins (down 8.16 percent) — both post-recession worsts. The volatile artificial and synthetic fibers and filaments sector, whose after-inflation sequential output was reported to have sunk by 11.25 percent on month in August saw that figure upgraded to an 8.44 percent decline and boosted its monthly real output in September by 5.83 percent – its best since last September (9.67 percent). Price-adjusted oil refinery production for August was slightly downgraded to a 2.52 percent fall-off (its biggest since January, 2010’s 2.75 percent), but September monthly production dipped only fractionally.

The non-durable goods supersector containing these chemical industries saw its constant dollar output slump by the greatest rate (0.89 percent) since January, 2015 (1.20 percent). Revisions for real manufacturing output as a whole were negative, with August’s reading slightly upgraded but July’s downgraded from a slight increase to a significant drop.

Good news came from the automotive sector, however, especially its first back-to-back monthly real production increases since the May-October period last year, and a strongly upgraded August gain (3.56 percent) that was the sector’s best since June, 2016 (3.89 percent). As of September, however, in inflation-adjusted terms, American manufacturing is 4.26 percent smaller than when the last recession began at the end of 2007 – more than nine years ago.

Here are the manufacturing highlights of the Federal Reserve’s new release on September industrial production:

>Although September’s manufacturing production figures showed hurricane-related damage to American industry to be considerably worse than in August, and indeed bad enough to plunge the entire sector into a technical recession, industry managed an overall 0.10 percent real monthly production increase during the months.

>Due to major constant dollar output drops in chemicals and especially sectors heavily reliant on oil and gas feedstocks from the storm-struck Texas and Louisiana Gulf coasts, domestic manufacturing output after inflation was 0.14 percent lower in September than in February – a seven-month stretch that conforms with the standard definition of a recession (two consecutive quarters of economic contraction).

>The worst September sequential real output losses were suffered by organic chemicals (14.71 percent), and plastics materials and resins (8.16 percent). These decreases were the biggest experienced by these industries since recessionary September, 2008 (24.92 percent), and December, 2008 (11.72 percent), respectively.

>Interestingly, an artificial and synthetic filaments and fibers sector whose (volatile) real production fell sequentially by an initially reported 9.10 percent saw that result now judged as an 8.44 percent drop (still its biggest since recessionary November, 2008’s 11.25 percent). Moreover, its September production is now pegged as rising by 5.83 percent – the best such on month increase since last September’s 9.67 percent.

>Similarly, although inflation-adjusted petroleum refinery output in September dropped sequentially by 2.52 percent (the biggest such fall-off since January, 2010’s 2.75 percent), the monthly August decrease was revised up from 1.93 percent to a minimal 0.06 percent.

>All the same, these results were enough to depress monthly constant dollar output in the enormous chemicals industry by a downwardly revised 2.31 percent in August and another 2.62 percent in September. The latter result was the sector’s worst such result since recessionary December, 2008’s 4.85 percent shrinkage.

>And in the larger non-durable goods supersector, although August’s monthly production was upgraded modestly to a 0.63 percent decline in real terms, real output decreased by another 0.89 percent – its worst such figure since winter-affected January, 2014’s 1.20 percent.

>Despite the fractional inflation-adjusted September production uptick in manufacturing overall, , and August’s upward revision from a 0.26 percent sequential decline to 0.20 percent, July’s results were changed from a 0.04 percent rise to a 0.35 percent drop – big enough to turn overall revisions negative.

>Nonetheless, the automotive sector produced some good news.

>It’s true that July real output for this industry, which has led manufacturing’s bounceback during most of the current economic recovery, was revised down from a 4.16 percent drop to 4.85 percent – its worst since winter-affected January, 2014’s 5.87 percent. But August’s month-on-month improvement – revised all the way up from 2.16 percent to 3.56 percent – was its best since June, 2016’s (3.89 percent).

>Moreover, although September’s sequential output rise was a mere 0.07 percent, it produced the first two-month stretch of automotive output improvements since the May-October stretch of 2016.

>As of September, however, domestic manufacturing still had not yet completed its recovery from the historic Great Recession. Real production was 4.26 percent lower than when that slump began, more than nine years ago, in December, 2007.

(What’s Left of) Our Economy: Hurricanes Muddy September Manufacturing Jobs Results – & Obscure Huge Automotive Revisions

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Bureau of Labor Statistics, chemicals, hurricanes, inflation-adjusted wages, Jobs, manufacturing, non-farm payrolls, petroleum refining, private sector, recession, recovery, wages, {What's Left of) Our Economy

This year’s violent hurricane season contributed in September to American domestic manufacturing’s second sequential jobs in the last three months. Industries with extensive facilities on or near the Gulf coast and in the southeast took especially hard on-month hits, notably chemicals (-2,000), apparel (-1,900), and motor vehicles and parts (-3,200). Yet the heaviest single sector job decline came in printing and related activities (3,600).

September employment levels throughout manufacturing, however, also were greatly affected by enormous July automotive revisions, which prolonged a jobs recession in the sector that began in April, 2016. Initially credited with a 1,600 net job rise in July, automotive’s employment improvement was revised up to 5,300, and then dragged all the way down to a net job loss of 27,100. The overall July manufacturing job totals were downgraded from an initial 16,000 net increase to the 11,000 net loss revealed this morning.

Pre-inflation manufacturing wages in September matched the solid 0.45 percent sequential advance recorded for the private sector as a whole. But in manufacturing, this increase followed a 0.49 percent monthly wage drop in August – industry’s biggest since last November (which rounded down to 0.49 percent). Further, manufacturing’s annual current-dollar wage increase of 1.99 percent represents a striking slowdown from the previous year (2.95 percent). Manufacturing’s share of total nonfarm employment actually ticked up, though, in September and August – to just under 8.49 percent. In July, it matched its all-time low of 8.47 percent.

Here’s my analysis of the latest monthly (September) manufacturing figures contained in this morning’s employment report from the Bureau of Labor Statistics:

>U.S. domestic manufacturing lost jobs on net sequentially in September for the second time in three months, with much of the total 1,000 decline traceable to payroll drops in sectors with many facilities in or near the hurricane-affected Gulf coast and southeastern states.

>For example, significant monthly job hits were taken in the automotive sector (3,200), chemicals (2,000), and apparel (1,900).

>At the same time, the sector with the greatest on-month job losses in September was printing and related support activities (3,600). And the petroleum and coal products industry, another Gulf coast-heavy sector, only lost 100 net jobs from August to September.

>In addition, employment levels throughout manufacturing in September were strongly affected by immense revisions for monthly automotive job changes in July.

>The initial read on vehicle and parts payrolls that month reported a 1,600 monthly jobs gain. The next employment report revised this advance up to 5,300. But this morning, the Bureau of Labor Statistics data tables showed a 27,100 month-to-month net automotive job loss for July.

>As a result, overall monthly manufacturing payroll shifts for July changed dramatically, too – from an initially reported 16,000 improvement to a 26,000 surge to an 11,000 net decrease.

>In fact, these automotive revisions revealed the sector to be mired in a jobs recession that began in April, 2016. Since then, payrolls in the sector have fallen by a cumulative 4,300.

>Manufacturing wages rose a seemingly impressive 0.45 percent sequentially in September on a pre-inflation basis, matching the gain of the overall private sector.

>Yet in manufacturing, this progress was preceded by a 0.49 percent monthly current dollar manufacturing wage drop in August, the biggest such decline since a comparable figure in November. In the private sector, pre-inflation wages rose sequentially in August by 0.15 percent.

>Worse, the September plummet meant that pre-inflation manufacturing wages had risen only 1.99 percent year-on-year – one of the lowest figures of 2017. And this wage gain was much bigger than the 2.95 percent current dollar raise manufacturing workers received between the previous Septembers.

>Moreover, the recovery-era gap between pre-inflation wage increases in manufacturing and in the private sector overall has widened considerably over the last year. In September, 2016, private sector wages had risen 21.55 percent faster than manufacturing pay since the recovery began in June, 2009. This September, the difference was 25.28 percent.

>In absolute terms, during the recovery, current-dollar manufacturing wages are up 15.90 percent in toto and overall private sector wages are up 19.92 percent.

>The latest inflation-adjusted wage data for manufacturing and overall private sector wages go through August, and further darken the pay picture in industry.

>That month, real manufacturing wages plunged by 0.91 percent sequentially – their worst such performance since November, 2011 (0.95 percent). Inflation-adjusted hourly pay for the overall private sector worsened, too – but by just 0.19 percent.

>And since the recovery began more than eight years ago, whereas overall private sector wages have risen by 4.66 percent on a price-adjusted basis, pay has improved by a mere 1.12 percent for manufacturing workers.

>Employment figures tell a similar story. Since hitting its last low point, in February and March of 2010, manufacturing has regained 994,000 (43.35 percent) of the 2.293 million net jobs it had shed since the last recession officially began, in December, 2007.

>Manufacturing employment is still down since that recessionary onset nearly ten years ago, too – by 1.299 million, or 9.45 percent.

>Since its latest employment nadir, in February, 2010, the overall private sector has boosted employment by 17.065 million. That’s nearly twice as many jobs as it lost (8.780 million) during the recession.

>Since the recession began, overall private sector is up by 8.285 million – a 7.14 percent gain over those nearly ten years.

>Somewhat more encouragingly, manufacturing jobs as a share of total non-farm jobs (the Bureau of Labor Statistics’ American jobs universe), rose slightly in September and August (to just under 8.49 percent) from the record low it had matched in July (8.47 percent).