(What’s Left of) Our Economy: Why Today’s Fed U.S. Manufacturing Report is So Bullish

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737 Max, aircraft, aluminum, automotive, Boeing, China, Federal Reserve, inflation-adjusted growth, Joe Biden, machinery, manufacturing, medical supplies, metals, pharmaceuticals, PPE, real output, steel, tariffs, Trade, vaccines, {What's Left of) Our Economy

Think for a moment about this morning’s very good manufacturing production figures from the Federal Reserve (for December) and a case for major optimism about U.S. industry’s foreseeable future is easy to make. Not only has the advent of highly effective vaccines greatly boosted hopes for a return to normality sooner rather than later. But much of the underlying data was collected before the vaccine production surge began.

Moreover, although Boeing aircraft is still dealing with manufacturing problems, its popular 737 Max model is being recertified or nearly recertified for flight by numerous countries (including the United States) and any continued significant rebound in air travel levels is sure to help the company’s order book for all of its jets.

And again, the data themselves were strong. According to this first Fed read for the month, American inflation-adjusted manufacturing output rose by 0.95 percent sequentially. Moreover, November’s initially reported 0.79 percent improvement was upgraded to 0.83 percent, and October’s results were revised upward for a second time – to 1.34 percent.

These noteworthy advances – which add up to eight straight months of increases – brought price-adjusted U.S. manufacturing production to 22.05 percent above the levels it hit during its CCP Virus-induced nadir in April, and to within 2.40 percent of its last monthly pre-pandemic numbers (for February).

Especially interesting, and another cause for optimism: The December manufacturing growth was so broad-based that it was achieved despite a 1.60 percent monthly drop in constant dollar automotive production. Combined vehicle and parts output has rebounded so vigorously since its near-evaporation last spring (by just under six-fold) that on a year-on-year basis, it’s actually grown by 3.64 percent. But today’s Fed report represents evidence that many other sectors are now catching up.

The crucial (because its products are used so widely throughout the entire economy) machinery sector enjoyed a good December, too, with after-inflation production increasing by 2.07 percent sequentially. That welcome news more than offset a downward revision in the November results, from a 0.51 percent to 0.99 percent shrinkage. Due to this growth, this real domestic machinery output is now just 1.53 percent off its pre-pandemic level.

As for the pharmaceutical industry, its price-adjusted output expanded by a solid 2.12 percent sequentially in December, but November’s disappointing initially reported 0.76 percent fall-off was downgraded to a 0.84 percent decrease, and October’s results stayed at minus 1.01 percent.

Moreover, year-on-year constant dollar pharmaceutical production is up only 0.18 percent – anything but what you’d expect for a country suffering through an historic pandemic.

But the first batch of Pfizer anti-CCP Virus vaccines didn’t leave the factory until December 13, and key data behind this first read on the month’s performance were gathered beforehand. So it’s likely that the huge ramp in vaccine out could start showing up in the revised December results in next month’s Fed manufacturing report (for January), which will reflect more relevant statistics.

Similar optimism seems warranted for the U.S. civilian aerospace industry and especially its beleaguered collosus, Boeing. Despite the safety woes of the popular 737 Max model and its consequent production suspension, the domestic aircraft and parts sectors have actually staged a powerful real output recovery since a 32.85 percent nosedive in February and March. Since then, inflation-adjusted production has boomed by 52.30 percent, fueled in part by December’s 2.78 percent sequential jump and November’s upwardly revised 2.39 percent growth.

In fact, constant dollar output in civilian aerospace is now actually 2.27 percent higher than its last pre-CCP Virus level. The 737 effect isn’t over yet, as made clear by the 11.49 percent real production decline since last December. But it seems evident that the industry is and will remain on the upswing barring any new seriously bad news.

Unfortunately, little such optimism appears justified in the case of medical equipment and supplies – including face masks, protective gowns, ventilators, and the like. Inflation-adjusted production in their larger subsector sank in December by 0.36 percent on month, and although the November increase has been revised up from 1.56 percent to 1.60 percent, October’s growth has been downgraded again – from an initially judged 3.54 percent all the way down to a decidedly non-pandemic-y 1.75 percent.

And since April, the after-inflation production recovery has been only 21.02 percent – still less than that for all of manufacturing. The year-on-year December result is no better, as it’s down 5.44 percent. And of course, those 2019 levels were revealed by the pandemic to have been dangerously inadequate.

But before ending, I couldn’t forgive myself if I didn’t say something about tariffs, and as with last month’s Fed manufacturing figures, the performance of the primary metals sectors for December is sending this loud and clear message to President-Elect Joe Biden: Keep them on.

For in constant dollar terms, these protected industries have recorded strong monthly growth since June, and November’s upwardly revised sequential 3.98 percent pop has now been followed by a 2.51 percent increase in December.

All told, since the April bottom, price-adjusted production has risen by 29.01 percent – expansion that looks inconceivable without the trade curbs preventing the U.S. market from being flooded with Chinese steel and aluminum along with product transshipped through the ports of those U.S. allies with whom Biden is so keen on repairing tattered Trump era ties, and greater metals shipments they often send America’s way to offset their own China-related losses.

(What’s Left of) Our Economy: More Manufacturing Jobs Strength – & Vindication of Trump Tariffs

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737 Max, aerospace, automotive, Boeing, CCP Virus, China, coronavirus, COVID 19, Employment, Jobs, machinery, manufacturing, manufacturing jobs, non-farm payrolls, pharmaceuticals, PPE, private sector, tariffs, Trade, trade war, Trump, vaccines, Wuhan virus, {What's Left of) Our Economy

This morning’s official U.S. jobs report, for December, shows that, to paraphrase that unforgettable battery ad slogan, domestic manufacturing just keeps hiring and hiring and….

As a result, the December data also add to the already compelling case that domestic industry’s continued resilience – including an ongoing hiring out-performance – owes significantly to the Trump tariffs that have prevented imports from China from flooding U.S. markets and massively depriving Made in America products of customers as they had before his presidency.

The nation’s manufacturers boosted their payrolls by 38,000 on month in December, even as the private sector shed 95,000 jobs and government at all levels lost 45,000.

Moreover, in line with the strong overall employment revisions for October and November, industry’s previously reported 33,000 hiring improvement for the former (which had already been downgraded from 38,000) is now judged to be 43,000. And November’s figure has been upgraded from 27,000 to 35,000.

Although this performance pales compared with the 333,000 jobs added in manufacturing in June, the sector continues to punch above its employment weight, and in fact has now won back a status it apparently had lost in the fall.

As of December, U.S.-based industry had regained 60.16 percent (820,000) of the 1.363 million jobs it had lost during the worst (so far) of the pandemic-induced downturn in March and April.

That’s slightly ahead of the total private sector, which has recovered 59.91 percent (12.696 million) of its 21.191 million drop last spring.

And its considerably ahead of the overall economy’s record. Non-farm payrolls (the definition of the American employment universe used by the Labor Department, which issues these jobs reports) have risen by 12.321 million since April, a bounceback reprsenting only 55.60 percent of their 22.160 million plunge that month and in March.

The big reason is the slump in government jobs at all levels, and especially in states and localities. Public sector employment sank by 45,000 sequentially in December and by 81,000 the month before. And the outlook for public sector employment remains clouded by the brightening (due to the nearly final 2020 election results) but still uncertain prospects for a federal bailout of state and local governments, whose December monthly job losses totaled 49,000. (The federal government actually added positions.)

Manufacturing’s biggest monthly employment winners in December were plastics and rubber products (up 6,900), the automotive sector (6,700), non-metallic mineral products (6,100), food manufacturing (5,500), and apparel (4,000).

Especially encouraging were the 2,800 jobs created by domestic machinery makers, since the equipment they make is so widely used throughout the rest of manufacturing and elsewhere in the economy. November’s on-month machinery jobs gains were revised up from 1,900 to 2,500, but October’s totals were revised down for a second time, from 3,000 to 2,700.

December’s biggest manufacturing job losers were miscellaneous non-durable goods (down 11,200 sequentially) and primary metals (down 2,100).

Also on the encouraging side: Better progress has been made in job-creation for the CCP Virus-related medical manufacturing categories. These only go through November, but they show that the the broad pharmaceuticals and medicines sector added 1,000 new jobs that month, and its October figure was upgraded all the way from 100 to 1,100.

In addition, the sub-sector containing vaccines increased payrolls in December by 1,100, and its October performance was revised up from 600 to 1,100.

But in the manufacturing category containing PPE goods like face masks, gloves, and medical gowns, along with cotton swabs, the previously reported October employment increase stayed unreivsed at 400, and the November growth was only 500.

These results, however, still mean that the PPE category’s job gains since February have been much stronger (7.85 percent) than those of the vaccines category (a disappointing 2.82 percent) and of the broader pharmaceuticals industry (an even weaker 1.40 percent).

Finally, other than the prospect of a vaccine-related return to normal in the U.S. and global economies (for domestic manufacturing is a big exporters), the biggest reason for further manufacturing employment optimism concerns the aerospace sector. It’s been pummeled by both the pandemic-induced nosedive in air travel around the world, and by Boeing’s safety woes.

The U.S. aerospace giant isn’t out of the woods yet. Its troubled 737 Max model has now been recertified by the federal government as safe to return to flight, but new production-related problems have cropped up, too. Moreover, who can say with any confidence when “normal,” or enough of it to help, Boeing, returns?

Yet assuming some substantial Boeing recovery in the foreseeable future, a major restart of its own manufacturing could give a big boost to domestic industry as a whole, given its many and long domestic supply chains.

(What’s Left of) Our Economy: A Fed Snapshot of U.S. Manufacturing at the CCP Virus Turning Point?

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737 Max, aircraft, aircraft parts, aluminum, Boeing, capital goods, CCP Virus, China, coronavirus, COVID 19, Federal Reserve, industrial production, Joe Biden, machinery, manufacturing, medical devices, metals, pharmaceuticals, PPE, safety, steel, tariffs, Trump, Wuhan virus, {What's Left of) Our Economy

If the Federal Reserve’s monthly industrial production report for February (released in March) was the last such data set assessing domestic U.S. manufacturing’s health before the full force of the CCP Virus pandemic struck the American economy, today’s release (covering November) might be viewed in retrospect as marking the close of the industry’s virus-induced slump – or at least the beginning of the end.

Clearly, the entire U.S. economy remains far from fully recovered from the pandemic and the shutdowns and lockdowns and behavioral changes it produced. Moreover, the virus’ second wave could well prompt renewed restrictions – though lockdown fatigue will probably keep them more limited than their springtime predecessors.

But shortly after the Fed compiled the figures for November came two developments capable of boosting domestic manufacturing output considerably – Washington’s certification clearing Boeing’s troubled 737 Max model jetliner for flight once again, and the announcements that large-scale final-phase clinical trials for two anti-CCP Virus vaccines revealed amazing efficacy rates and reassuring safety results.

At the same time, these last pre-737 and vaccine manufacturing production numbers showed once again how relatively well domestic industry has held up during the CCP Virus period so far, and how strong its post-April recovery has been. By the same token, the data once more make clear the benefits of the Trump administration’s sweeping tariffs on products from China and its levies on steel and aluminum imports – which sharply limited the extent to which U.S. demand for these goods could be met from abroad.

The 0.79 percent November monthly increase in after-inflation manufacturing output recorded by the Fed was weaker than the October figure. But that month’s increases was revised up from a strong 1.04 percent to an even better 1.19 percent. September’s previously reported fractional increase remained basically the same.

As of November, therefore, real manufacturing production has improved by 20.67 percent above its April pandemic-induced trough and, just as important, stands just 3.50 percent lower than its final pre-CCP Virus level in February.

The November numbers are also notable for the outsized role played once again by the automotive sector. Although its October sequential inflation-adjusted output performance has been revised from a virtual “no change” to a 1.14 percent drop, these first November results show a 5.32 percent surge. More important than this volatility, though, is that combined vehicle and parts output is now just 0.38 percent lower than its final pre-pandemic level in February.

One indication of at least short-term concern from the November results: Constant-dollar production in the big machinery sector slipped by 0.51 percent on month. This industry matters greatly because its products are used so widely throughout the economy (e.g., construction, agriculture), and because it contains the capital goods products on which manufacturers themselves rely so heavily to turn out their own goods.

Longer term, the machinery picture looks better, though, as in line with the generally strong capital investment data kept by Washington, its price-adjusted output is now off by just 3.52 percent since February.

As for the tariff angle mentioned above, its importance is evident not simply from the strong overall manufacturing recovery, but from the performance of the primary metals sector, whose performance since March, 2018 has been profoundly affected by levies on steel and aluminum from most major exporting countries.

Constant dollar output of primary metals plunged by 25.46 percent during the peak pandemic months of March and April – a rate faster than that of manufacturing’s total 20.03 percent. Since then, however, its grown in real terms by 25.63 percent (faster than manufacturing’s total 20.67 percent advance).

November, moreover, was no exception, as primary metals’ inflation-adjusted production rose by a robust 3.75 percent. These numbers might give apparent President-elect Joe Biden pause if he’s thinking of lifting the steel and aluminum levies as part of his announced goal of repairing U.S. alliance relations he believes have been gravely damaged by President Trump.

If the beginning of the end of pandemic really is at hand, the November Fed figures show that it can’t come soon enough for the nation’s beleaguered aircraft industry as well as for its pharmaceutical sector. The latter’s after-inflation output remained steady last month, but the levels themselves remained remarkably subdued. November’s 0.76 percent monthly constant dollar production decline followed a downwardly revised 1.01 percent October decrease, and year-on-year, inflation-adjusted output is off by 2.37 percent.

Despite Boeing- and travel-related woes, the aerospace industry has fared considerably better. After a real output nosedive of 32.85 percent in February and March, such production is up by a spectacular 47.75 percent since. And thanks partly to the 2.07 percent on-month improvement in November, real output is down just 3.77 percent since the last pre-pandemic figure in February.

Nonetheless, the 737 Max news and any sign a significant air travel comeback will be welcome for civilian aircraft and parts makers, as after-inflation production is still 15.40 percent less than it was last November.

But despite the number of inspiring anecdotal accounts of medical equipment and supplies manufacturers boosting production of face masks, protective gowns, ventilators, and the like in response to the medical emergency, overall real production of these vital products remained uninspiring in November. Real output rose on-month by 1.56 percent, but the October’s initially reported 3.54 percent after-inflation sequential production increase has now been downgraded to 2.04 percent.

Since April, moreover, the price-adjusted production rebound has been a mere 21.75 percent – not much stronger than that for the total manufacturing recovery. Perhaps most discouraging: Real output in this sector is actually down 5.60 percent – from levels revealed by major continuing reliance on imports to have been dangerously inadequate.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(What’s Left of) Our Economy: U.S. Manufacturing Output Held its Own in October

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automotive, Boeing, CCP Virus, civilian aircraft, coronavirus, COVID 19, durable goods, Federal Reserve, industrial production, manufacturing, masks, medical devices, non-durable goods, pharmaceuticals, PPE, vaccines, Wuhan virus, {What's Left of) Our Economy

This morning’s monthly Federal Reserve industrial production report is an object lesson in not counting your real manufacturing output chickens too soon – that is, before the revisions hatch.

So keeping in mind that today’s data will be revised further several times as well, it looks like my concerns last month about manufacturing turning from a CCP Virus-era economic leader into a laggard might have been premature.

Not that today’s release, which brings the story through October, showed gangbuster results. Inflation-adjusted manufacturing output increased by 1.04 percent over September’s levels. Much more encouraging, though, were the continually positive overall revisions and especially those for September. Its initially reported 0.29 percent constant dollar monthly output decline is now reported as a fractional (0.01 percent) increase.

As a result, after having sunk by just over twenty percent from February (the last month before the virus began seriously weakening the economy’s performance) through its April bottom, after-inflation manufacturing production is up by 19.35 percent. Alternatively put, it’s 4.56 percent below the February level, and 3,61 percent lower than last October’s.

Today’s October release also provided more evidence that the automotive sector’s dominant role role in determining overall manufacturing growth has just about faded away. Combined vehicles and parts production remained virtually flat in October, after falling an upwardly revised 3.02 percent sequentially in September.

In addition, October’s figures confirmed that, within manufacturing, the non-durable goods supersector has outperformed its durable goods counterpart – mainly because its first-wave pandemic dropoff was so much less dramatic.

Between February and April, price-adjusted durable goods output (including automotive and the troubled aerospace sector – due to Boeing’s woes and the virus-related travel shutdown) plunged by 27.99 percent, versus a 11.53 percent decline in non-durables (which contains industries like food, healthcare goods, and paper products manufacturing).

Since April real durables output has rebounded by 31.22 percent. But it’s still 5.51 percent lower than in February, and 4.19 percent lower than last October.

Since April, non-durables’ real output is up by 9.06 percent. But since its decline was so much less severe than durables’, in after-inflation terms its production is just 3.51 percent off the February level, and 2.97 percent below last October’s figure.

And what of some of the obvious drivers – for good or ill – of manufacturing output during this CCP Virus era?

Between February and April, aircraft and parts production plunged by 32.85 percent. An astonishing 43.31 percent recovery since has left the sector only 3.77 percent production-wise than in February. But because Boeing’s woes predated the pandemic, this output remains down 17.79 percent year-on-year.

Oddly, constant dollar production of medical equipment and supplies (a category including face masks, protective gowns, and ventilators) dropped by 19.75 percent as the CCP Virus was surging between February and April. And since then, it’s risen only 23.20 percent – including an encouraging 3.54 percent monthly improvement in October. Year-on-year, moreover, these sectors have seen 2.73 percent real output growth, but that improvement suggests how modest – and in retrospect, how inadequate – production was before the pandemic.

Finally, pharmaceutical and medicines production has been steady all year long in inflation-adjusted terms, and advanced by a modest 0.12 percent sequentially in October. Year-on-year, moreover, output has grown by just 0.39 percent – which makes these industries of special interest in the months ahead as mass production of recent promising vaccines ramps up.

For now, though, overall, domestic manufacturing production more than held its own in October. But except for that vaccine production, as the virus second wave strengthens, its near-term future could be just as challenging as that of the rest of the economy and nation

Those Stubborn Facts: A Strange Definition of a Broken Trump Promise

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Associated Press, CCP Virus, coronavirus, COVID 19, health security, Mainstream Media, manufacturing, masks, medical supplies, PPE, supply chain, textiles, Those Stiubborn Facts, Trump, Wuhan virus

“Shortages of meltblown textiles, key to N95 mask-making, illustrate ‘the failure of this administration to take necessary steps to fulfill’ its promise of restoring critical manufacturing capacity lost to China.”

– Associated Press, September 10, 2020

“Pre-pandemic, five U.S. producers were making about 42 million N95 masks a month. By October, that is projected to have increased to 11 U.S. producers making 168 million a month, which could amount to 2 billion a year….”

–Associated Press, September 10, 2020

“Also pre-pandemic, 24 U.S. companies were making meltblown, with 79 machine lines in operation….But only a fraction of that was going into medical respirators….By the end of 2021… there will be 28 new lines in the U.S., representing a 35% increase, with almost all of the newly produced textile going into medical supplies.”

–Associated Press, September 10, 2020

(Source: “Scarcity of key material squeezes medical mask manufacturing, by Martha Mendoza, Juliet Linderman, Thomas Peipert, and Irena Hwang,” Associated Press, September 10, 2020, https://apnews.com/02a0542e8a05176bd5d79757134bc277)

Im-Politic: On Biden’s New Plan for Medical & Other Supply Chain Security

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alliances, Biden, CCP Virus, China, coronavirus, COVID 19, Defense Department, Defense Production Act, DPA, election 2020, health security, healthcare goods, Im-Politic, manufacturing, offshoring, Pentagon, pharmaceuticals, PPE, supply chains, tariffs, taxes, Trade, Wuhan virus

Joe Biden’s plan for rebuilding U.S. supply chains to ensure American access to critical products like healthcare goods came out yesterday, and any fair reading would have to conclude that these proposals are about as serious as the presumptive Democratic Presidential nominee’s proposals in related areas – like China policy. That is to say, they’re not terribly serious at present.

As with China policy, the first concern entails credibility. In 2011, when Biden was Barack Obama’s Vice President, the Commerce Department issued a report detailing all sorts of dangerous vulnerabilities in U.S. supplies of all manner of vital healthcare goods. The “Obama-Biden administration” did absolutely nothing in response – unless you count avidly pursuing offshoring-friendly trade deals, like the Trans-Pacific Partnership (TPP) that were bound to worsen these vulnerabilities. You could also throw in a record of continually coddling the trade and broader economic predation practiced by China, which surely fostered similar results.

As a result, it’s legit to ask whether any of these proposals will survive Day One of a Biden presidency.

In this vein, it’s more than a little disturbing that Biden proposes to use the Defense Department’s policies to minimize supply chain vulnerabilities as his model for addressing such problems for a wide variety of products –not just healthcare-related goods. These include “energy and grid resilience technologies, semiconductors, key electronics and related technologies, telecommunications infrastructure, and key raw materials.”

Unfortunately, the principal lessons taught by the Defense Department’s record on supply chains are how to duck the problem or define it out of existence, and the administration in which Biden served was no exception. Some of the biggest specific problems (as made clear in this Obama administration report):

>The Pentagon’s overall assessments prioritized financial metrics, not specific domestic production capabilities, as measures of the defense manufacturing base’s health.

>Its treatment of globalization’s challenges placed major emphasis on taking “advantage of emerging capabilities, regardless of where they originate,” not maximizing domestic production capabilities.

>Although specific vulnerabilities – and the related need to maintain or rebuild adequate domestic capabilities – were acknowledged, this vulnerabilities were consistently portrayed as isolated holes that could somehow be plugged without taking into account the dependence of these narrowly defined products on their own supply chains. Indeed, Biden’s new plan seems to reveal a similar flaw when it describes itself as “a set of targeted proposals to ensure the United States has the domestic manufacturing capacity necessary for critical supply chains.”

>Moreover, the Department has long supported objectives such as interoperability with allies’ armed forces and maintaining traditional – pre-Trump – global systems of what it defined as free trade, both of which often clashed with the goal of incentivizing domestic production. These goals were explicitly stated in this George W. Bush administration report, and here’s no evidence that the Obama-Biden Pentagon ever disagreed.

Indeed, the new Biden blueprint indicates that the former Vice President’s definition of supply chain security is pretty global, instead of national, as well:

“Instead of insulting our allies and undermining American global leadership, Biden will engage with our closest partners so that together we can build stronger, more resilient supply chains and economies in the face of 21st century risks. Just like the United States itself, no U.S. ally should be dependent on critical supplies from countries like China and Russia. That means developing new approaches on supply chain security — both individually and collectively — and updating trade rules to ensure we have strong understandings with our allies on how to best ensure supply chain security for all of us.”

If America’s allies were proven reliable suppliers of these products themselves, Biden’s perspective would make sense. But the list of countries that have recently hoarded medical goods for themselves as soon as the CCP Virus pandemic’s full dangers became apparent included most of these allies – meaning that the U.S. vulnerability problem far exceeds “China and Russia.”

Nor is it entirely evident how clearly Biden has thought though the tax policy provisions of his plan. Tax policy’s role is clearly viewed as crucial, as the plan emphasizes that

“Pharmaceutical offshoring has been heavily driven by tax code provisions that have encouraged companies to locate pharmaceutical production in low-tax countries even where those countries have labor and other costs comparable to the U.S.”

Consequently, Biden says he will “eliminate Trump Administration tax incentives for offshoring and pursue other tax code changes that will encourage pharmaceutical production in the U.S.”

At the same time, Biden favors raising the overall U.S. corporate tax rate from the 21 percent to which it has recently been lowered to 28 percent, along with a 15 percent “minimum tax” on large corporations. So good luck to drug companies – or any other companies making goods deemed critical by Biden – gleaning clear reshoring or domestic production ramping signals from this combination.

Perhaps any confusion will be cleared up by other alleged Biden measures to boost U.S.-based production – like “new targeted financial incentives, including tax credits, investments, matching funds for state and local incentives, R&D support, and other incentives to encourage the production of designated critical materials such as semiconductors in the United States”? At best, business will surely need to see many more details along these lines before committing the needed capital.

Unless maybe as President, Biden will simply mandate that the needed new facilities will be built when all else fails (as well as in tandem with those other policies)? That’s obviously the implication of his promise to use the Defense Production Act (DPA) “to its fullest extent to rebuild domestic manufacturing capacity in critical supply chains, using the lessons learned from the COVID-19 pandemic and applying them to our national needs.”

Or does Biden actually view the DPA as his primary tool for “generating the domestic mobilization we need”? That seems like a reasonable conclusion, especially given that it’s the first specific measure he mentions. Maybe instead he’s really talking about using the Act simply “to direct U.S. companies to ramp up production of critical products that will be needed over the near-term.”

Regardless of Biden’s real intentions, though, it’s anything but clear how Biden believes the DPA can be used to increase U.S. production in many of the industries he mentions as vital where such output has largely migrated overseas That’s especially true for the “semiconductors, key electronics and related technologies, [and] telecommunications infrastructure” he specifies. It’s sure going to be far more difficult than, say, ordering auto companies, to make ventilators.

It’s just as unclear how these Biden’s ideas can succeed without a much stronger trade policy dimension – and specifically, continued and even expanded tariffs. And it shouldn’t be limited to straightening out the muddled views mentioned above. 

Specifically, maintaining levies on chronically subsidized and dumped products like metals, along with sweeping tariffs on systemically protectionist China (and on other similar countries) would send the all the companies and sectors concerned an invaluable message. Bipartisan endorsement of these protections would demonstrates that they really can have confidence that new investments won’t be decimated by trade and broader economic predation. Just as important, an enduring commitment to tariffs would help convince overseas competitors (domestic and foreign owned) that if they want to sell the products in which they have big edges to Americans, they’ll need to make these products in America.

The good news is that at least some of these mysteries may be cleared up “soon,” when this Biden plan promises the former Vice President will release his “comprehensive strategy to create American jobs through modern American manufacturing.” The bad news is that if he what he’s said and written so far is any indication, he’ll have a lot of rewriting to do.

(What’s Left of) Our Economy: Is the New U.S. Trade Report a Virus Portent or Anomaly?

Tags

China, decoupling, Europe, healthcare goods, high tech goods trade, Ireland, manufacturing, pharmaceutical, pharmaceuticals, PPE, protective gear, services trade, Trade, trade deficit, travel services, {What's Left of) Our Economy

Were this morning’s latest monthly U.S. trade figures (for March) just one of those things? Or a sign of CCP Virus-affected trade patterns to come? Evidence for both propositions can be found in the weeds, though on balance I remain confident that as the nation’s economy remains gravely wounded (and could well face worse), its trade shortfall will continue its recent (and highly beneficial) Trump-era trend of narrowing.

The reasons for dismissing the new trade report as an outlier stem from the tendency (with numerous exceptions) of the gap to narrow when the economy weakens and to expand when it strengthens. So it was a real surprise to find that, from February to March, when all indicators showed that a major downturn was beginning thanks to the pandemic, the trade deficit rose a strong 11.57 percent – from a downwardly adjusted $39.81 billion to $44.42 billion.

Also surprising for a U.S. economy that’s not very export focused but that’s usually voracious importer: The main reason for the deficit’s growth both in absolute and percentage terms was a drop-off in the former. In March, total U.S. overseas sales sank on month by 9.63 percent, from an upwardly adjusted $207.75 billion to $187.75 billion. That was the lowest monthly total since November, 2016’s $185.49 billion. Combined goods and services imports were down, too – but by a smaller 6.22 percent, from an upwardly adjusted $247.56 billion to $232.16 billion. That total was the lowest for a month since December, 2016 ($234.56 billion).

Moreover, in terms of the trade balance, March’s worse U.S. performance can’t be pinned on the virus-produced collapse in travel. Make no mistake about it – international travel both to and from the United States did collapse. In value terms, two-way travel sank from $28.77 billion in February to $13.49 billion. In other words, it was more than cut in half. But the travel services trade surplus actually improved during that period – from $4.53 billion to $4.72 billion. That means not only that, on net, legal visitors to the United States (including students) as usual spent more in America than Americans spent overseas between February and March. It means that foreign spending in the United States exceeded Americans’ spending abroad by an even greater amount.

Another puzzling result that doesn’t have obvious staying power – at least not to me: The biggest single contibutor to the March trade deficit increase was a more than doubling of the monthly goods trade shortfall with Europe – from $11.37 billion to $22.97 billion. That’s the biggest monthly total ever and the biggest absolute increase ever (the figures go back to 1997), and the third biggest percentage increase of all time (after July, 1997’s 418.80 percent and March, 1998’s 205.89 percent – both totals coming when trade volumes were much smaller, and big percentage increases therefore much easier to generate).

The big Europe merchandise trade deficit surge, moreover, came on the the import side. These soared to $56.04 billion in March (another record), and the 26.42 percent sequential rise was the biggest since March, 2011’s 29.35 percent.

U.S. goods exports to Europe didn’t do badly – they hit $33.07 billion in March, the third best total ever. But the monthly increase was a bare 0.26 percent.

Some of the Europe trade results were due to a much bigger goods deficit and much greater goods imports from Ireland – which is a major foreign supplier of pharmaceuticals to the United States. Despite the overall sequential decrease in American merchandise exports and imports in March, trade in pharmaceutical preparations rose both coming and going. The trade shortfall increased by 13.25 percent, with imports rising by 14.92 percent. And the goods trade gap with Ireland (not all due to pharmaceuticals, to be sure) soared by 45.81 percent with imports up 41.91 percent.

It’s true that both the deficit with Ireland and imports from the Emerald Isle fell sharply on month in February. But both totals were all-time highs.

At the same time, India is another big pharmaceutical supplier to the United States, and although its March merchandise trade deficit with America shot up by 47.87 percent month-to-month, imports actually dipped (by 0.37 percent).

And what about March U.S. trade with China – which gave the world the virus, and remains a major supplier of the chemical building blocks of pharmaceutical products as well as protective medical gear?

In an unmistakably good development for those who recognize both the health security and broader economic dangers of doing extensive business with a predatory trader that’s increasingly hostile geopolitically, the U.S. merchandise trade deficit with the People’s Republic plummeted dramatically again – by just over 26 percent month-to-month, to $11.83 billion. You’d have to go back to March, 2004 to find a lower monthly figure ($10.44 billion).

U.S. goods exports to China actually improved sequentially in March – by 16.98 percent, to $7.97 billion. That’s far from the biggest absolute or percentage monthly increase on record. But with China’s economic growth at multi-decade lows due largely to the virus and the Trump tariffs, it’s encouraging that America’s goods exports to China have held up since the Phase One trade deal was signed in January.

U.S. goods imports from China, meanwhile, fell by 13.18 percent on month in March, to $19.81 billion. That total is the lowest since February, 2009 ($18.85 billion), during the depths of the Great Recession.

On a year-to-date basis, the American merchandise merchandise deficit with the People’s Republic is now down an astonishing 32.61 percent. That’s nearly three times more than the comparable drop in the global U.S. goods deficit, and a clear sign that trade diversion and decoupling from China are taking place even as the overall American trade gap narrows – and are likely to continue taking place.

Two other oddities worth noting in the March trade report. First, the manufacturing deficit rebounded from February’s $63.01 billion (the lowest total since February, 2017’s $60.47 billion) to $75.80 billion. That’s a very big 20.30 percent higher. Even though overseas markets for America’s domestic manufacturers are tumbling into recession and maybe worse along with the U.S. economy, manufacturing exports still managed a monthly gain of 3.55 percent in March – to $93.26 billion. But despite signs of weakness in domestic U.S. manufacturing and the overall economy, manufacturing imports shot up by 10.45 percent, to $169.06 billion. It’s difficult to see how either trend lasts until the CCP Virus is brought under control.

Incidentally, the March totals bring the manufacturing trade gap to $220.75 billion so far this year – down 7.01 percent from last year’s comparable $237.38 billion. Manufacturing exports year-to-date as of March are down four percent, and imports have declined 5.38 percent.

Similarly, the longstanding U.S. trade shortfall in high tech goods more than doubled sequentially in March, from $5.13 billion to $10.30 billion. Sure, this increase followed a 55.62 percent plunge in February, but the turnaround is still stunning. And although high tech exports rose in March on month by a healthy 8.55 percent, the big change, as in February, was on the import side – where U.S. purchases from abroad jumped by 22.24 percent.

More detailed March trade data — particularly shedding more light on U.S. trade in healthcare-related goods — should be out from the federal government shortly, and I’ll be sure to keep you up to date on those developments.   

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

Tags

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

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

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

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

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

pharmaceuticals & medicines:                                  +0.50 percent

  (includes vaccines)

medical equipment & supplies:                                 -1.55 percent

  (includes everything from ventilators to facemasks)

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

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

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

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

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

 

Making News: On National Radio Tonight on America’s Healthcare Goods Foreign Dependency

Tags

CCP Virus, coronavirus, COVID 19, drugs, health security, Making News, medical devices, pharmaceuticals, PPE, protective gear, The Jim Bohannon Show, Westwood One, Wuhan virus

I’m pleased to announce that I’m slated to appear tonight on “The Jim Bohannon Show” on the nation-wide Westwood One network.  The segment, scheduled to begin at 10 PM EST, will deal with America’s dangerous reliance on imports for vital medicines, medical devices, and protective gear for healthcare workers.

You can listen live on-line at this link to this timely discussion of the nation’s at-risk health security.  And as usual, I’ll post a link to the podcast when it’s available.

Also, keep checking in with RealityChek for news of upcoming media appearances and other developments.