(What’s Left of) Our Economy: A Valentine’s Day Bust for Tariff Alarmists

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aluminum, inflation, Labor Department, manufacturing, metals, metals-using industries, PPI, Producer Price Index, producer prices, steel, tariffs, Trade, wholesale prices, {What's Left of) Our Economy

If trade alarmists and tariff fear-mongers were hoping for a Valentine’s Day gift from Thursday’s producer price inflation report, they’re now nursing broken hearts. For the new numbers from the Labor Department continue the string of official data releases showing that President Trump’s trade curbs on imports of metals and various goods from China have generated no significant inflationary pressure in the economy overall. Indeed, there’s only the scantest evidence that they’ve created upward price pressure even in the products most directly affected.

As has been the case for months for this Producer Price Index (PPI) data – along with the statistics on consumer prices – the most reliable figures are the Trump tariffs on steel and aluminum imports, because they’ve been in place since March. But when it comes to the producer price results – which look at the economy from the wholesale sector’s standpoint – it’s worth examining the China-related data as well, since the first tariffs on producer goods from China were imposed in July. (P.S.: Keep in mind that the new statistics, which bring the story up to January, incorporate an annual set of revisions that in this case impact the seasonally adjusted numbers going back to 2014).

Prices for steel remain elevated through, January, but increases have lost noteworthy momentum. True, they rose sequentially in January by 0.50 percent and their initially reported monthly decline of 0.63 percent in December was revised to a 0.18 percent dip. Moreover, steel prices have risen by 11.02 percent since April – the first full month they were in effect. By contrast, the super-category in the PPI report in which they’re placed – processed goods minus foods and feeds – saw its prices decline by 0.55 percent during that period.

But most of the steel price increases took place over the summer. Since September, they’re down 1.20 percent. That’s not nearly as big a fall-off as for their super-category overall (where prices were off by 3.83 percent during this period). But it’s a decrease nonetheless.

Upon moving to aluminum prices, however, the notion that tariffs have been mainly behind these high and still rising prices breaks down completely – because aluminum pricing trends have been so completely different.

Whereas wholesale steel prices increased on-month in December, wholesale aluminum prices fell – by an unrevised 0.40 percent. Both metals registered a 0.50 percent sequential price rise in January.

But aluminum’s period of strong pricing power was considerably shorter than steel’s, and ended in June. And since that month, they’re down by 6.40 percent. That’s almost double the price slump experienced by its core processed goods super-category (the same as steel’s) – 3.37 percent. So something other than tariffs clearly has been driving the price movements of these metals on the wholesale level.

Important divergences also appear in the data for metals-using industries. Last month, for example, we found that prices for sectors like pumps, compressors, and related equipment; mining machinery and equipment; construction machinery and equipment; and metal-forming machine tools, rose faster on month than prices in their super-category – final demand goods minus food and energy.

In January, these trends continued for construction machinery and that machine tools sector. But the new monthly increases for other metals-using sectors, like agricultural machinery and equipment (0.21 percent), metal-cutting machine tools 0.30 percent), industrial materials handling equipment (0.17 percent), and machine tool parts and mold-making equipment (flat), were considerably weaker, and completely in line or softer than the latest monthly price increase for the core final demand goods category (0.26 percent). That’s significant given recent solid output growth for the entire manufacturing sector, and especially the durable goods industries that rely heavily on metals as inputs.

Nonetheless, increases pushed through earlier in the year helped most metals-using sectors produce price hikes on a January-to-January basis considerably stronger than that for the core final demand goods super-category (2.40 percent).

Switch over to “intermediate demand” goods and you find mixed results, too. Big annual price hikes have been seen in sectors like metal containers, fabricated wire products, and certain kinds of valves (for January, 5.58 percent, 15.56 percent, and 5.77 percent, respectively). These increases all exceeded that for their core intermediate demand super-category (0.97 percent). Yet they were all lower than the December figures (6.46 percent, 16.42 percent, and 6.03 percent). (The intermediates super-category figure was 3.29 percent for that month.) So some inflation momentum has been lost.

Since the metals tariffs were imposed, prices of metal containers have risen 2.01 percent, prices of fabricated wire products have risen 10.16 percent, and prices of those valves are 2.82 percent higher. All these inflation rates are much faster than that of the intermediate demand super-category (where prices overall fell 0.55 percent during that period). But as with the annual figures, they vary considerably, with the wire products sticking out like an especially sore thumb.

The first Trump China tariffs weren’t imposed until early July, so the sample size is smaller. But the case for tariff-led wholesale inflation on this front is just as weak as in the metals-related sectors.

The evidence for tariffs-led producer price inflation is much weaker for goods imported from China – perhaps because the levies haven’t been in place for nearly as long as the metals tariffs. The table below shows the PPI changes for some of the leading products found on the Trump administration’s initial China tariff list. They were imposed on July 6, so the numbers show the cumulative price changes since August. (Note: Because the administration’s Trump announcement used a different classification system than that used in the PPI reports, the below data don’t match up exactly with that tariff list. But the following goods are all at the least main parts of the items on the Trump list, or vice versa. The same holds for the super-category figures used, as with metals tariff-related products, for comparison’s sake.)

                                                                                  Aug.-Dec.            Aug.-Jan.

core processed goods for intermediate demand:   -0.88 percent       -2.50 percent

aircraft engines and engine parts:                         +0.04 percent      +0.44 percent

ball bearings:                                                         +1.01 percent     +1.24 percent

electric generators:                                                +1.61 percent     +1.66 percent

medical, surgical & personal aid devices:            +0.34 percent      +0.93 percent

core commodity final demand                              +0.64 percent      +1.13 percent

industrial heating equipment:                               +1.79 percent      +2.41 percent

oil and gas drilling platform parts:                              0 percent              0 percent

farm machinery and equipment:                           +2.26 percent      +2.55 percent

paper-making machinery:                                     +0.31 percent      +0.52 percent

electricity transformers:                                        +0.12 percent      +0.68 percent

medical, surgical, and personal aid devices:         +0.33 percent      +0.93 percent

X-ray and electro-medical equipment:                  +0.12 percent     +0.37 percent

In a phrase, these results are all over the place – strongly indicating that the tariffs have not been the leading cause of their price changes. The only consistent pattern suggesting a notable tariff effect emerges after comparing the August-December and August-January results. In the core intermediate demand grouping, prices dropped at a faster pace between the two periods. But for the China-related goods, they rose, albeit at different rates.

In the core final demand grouping, prices rose at a faster pace for the super-category, and for all the specific goods within it except for oil and gas drilling platform parts. Interestingly, though, the acceleration for two other sectors – farm machinery and equipment and paper-making machinery – was slower than for the super-category as a whole. In addition, during the latest, August-to-January, period, prices for no less than five of the seven sectors rose more slowly than for the super-category for a whole – again signaling the strong influence of non-tariff factors.

America’s globalist elites haven’t lost credibility solely or even mainly because of trade policy. But that’s surely been part of the mix. And if they want to start regaining some, they might think about admitting that facts really do matter, and that scarcely any of them support their tariff fear-mongering.

(What’s Left of) Our Economy: Tariffs-Led Inflation, Where are You?

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aluminum, China, consumer price index, CPI, inflation, Labor Department, metals, metals-using industries, producer prices, steel, tariffs, Trade, Trump, {What's Left of) Our Economy

If you’re a baby-boomer or a fan of old sitcoms, you know the show Car 54, Where Are You? It came to mind as I was examining the new consumer price inflation data that came out of the Labor Department this morning. Because these consumer price index (CPI) should make the country’s tariff-mageddon-mongers ask, in an equally plaintive tone, “Tariffs-led inflation where are you?” That is, the results at best offer scarcely any evidence that the Trump trade levies are eating away much at American shoppers’ buying power.

As usual, let’s first look over the statistics for metals-using industries, because they’ve been dealing with tariffs on steel and aluminum since late March, when they were first imposed. The table below compares price changes for their products with price changes for overall “core inflation” (which excludes food and energy prices, supposedly because they’re volatile for reasons that have little to do with whatever overall upward or downward general pricing pressures are shaping the economy). For good measure, I’ve included related products in an effort to distinguish between price changes due to fluctuating metals costs, and price changes due to costs of other materials or substances in the product in question – e.g., fresh produce and canned produce.

And as RealityChek regulars will notice, I’ve not only included autos and parts here, but added appliances and some other metals-using goods.

As for the dates, they cover the latest monthly price changes (through January), the changes from April (the metals tariffs’ first full month) through January, the year-on-year changes for April, and the year-on-year changes for January. The last two are probably the best measures of whether the impact of the trade curbs has been intensifying – for better or worse.

                                      Dec.-Jan.       Since April         y/y April           y/y Jan.

core CPI:                  +0.24 percent   +1.67 percent   +2.12 percent   +2.15 percent

fresh fruits                 -0.19 percent   +0.07 percent   -0.43 percent   +1.25 percent

& vegs:

fresh fruits:                +1.14 percent   -0.28 percent   +1.38 percent   -0.74 percent

fresh vegetables:         -1.66 percent  +3.01 percent    -2.50 percent  +3.64 percent

processed fruits           -0.88 percent   -0.64 percent   -1.29 percent    -0.46 percent

& vegs:

canned fruits:              -0.05 percent   +0.94 percent   -0.14 percent   +0.70 percent

& vegs:

canned fruits:              -1.59 percent    -0.56 percent    -1.60 percent   +0.35 percent

canned vegs:              +0.45 percent    +1.44 percent  +1.00 percent   +1.11 percent

soups:                         +0.34 percent    +0.80 percent   -0.38 percent   -0.81 percent

malt beverages           +0.07 percent    +1.66 percent  +0.84 percent  +2.23 percent

at home:

alcoholic                      -0.04 percent    +1.34 percent  +2.17 percent  +2.25 percent

beverages away:

non-frozen, non-         +1.32 percent    +2.45 percent   -0.52 percent  +1.80 percent

-carbonated non-

alcoholic rinks:

carbonated drinks:       +2.08 percent   +4.92 percent  +0.04 percent  +5.53 percent

juices & non-               +1.84 percent   +3.39 percent   -0.26 percent  +3.31 percent

alcoholic drinks:

new cars & trucks:       +0.22 percent   +0.93 percent   -1.61 percent +0.06 percent

motor vehicle               +0.33 percent   +1.92 percent   -0.74 percent +2.12 percent

parts:

appliances:                   +1.36 percent   +4.56 percent   +0.27 percent +6.43 percent

major appliances:         +0.99 percent  +7.47 percent  +1.55 percent  +9.66 percent

non-electric                  +0.67 percent   -0.84 percent   -1.57 percent  +3.59 percent

cookware & tableware:

tools, hardware,            +0.98 percent  +0.77 percent  +0.19 percent  +1.57 percent

outdoor equipment:

The two sets of year-on-year figures do reveal some evidence of hotter inflation in metals-using products between April and January. Also apparent, however, is accelerating inflation in several of the non-canned versions of these products. As has been the case in previous months, prices change for all sorts of reasons; tariffs are only one and nothing indicates that, generally speaking, they stand out.

The evidence is more mixed for other food sectors that offer lots of canned products, like soups and beverages. The trouble is, they also offer lots of products in other kinds of containers or packages. So tariff alarmists can point to the beverages as examples of prices rising at a faster annual pace since the metals levies were imposed. But when it comes to soup, prices have been falling at a faster pace.

Moreover, if the metals tariffs have been so important, why is January year-on-year inflation for all three of the canned products so much lower than January year-on-year overall core inflation?

Moving away from foods, faster inflation can also be seen in automotive products, appliances, cookware and tableware, and tools and hardware. But as with some of the food categories, the January-January inflation rate for the tools section is below that for the economy’s “core” overall, and appliance prices also have been affected by a separate set of tariffs slapped on large household laundry machines last February. So consumer prices are still rising strongly for these goods, although it’s hard to see why year-old washing machine tariffs or ten-month old metals tariffs would be major factors behind the big December-January increases shown above.

In recent previous posts on consumer price data and the Trump tariffs, I’ve been providing information on products that will be affected by levies on imports from China. But the more I think about it, the less confident I am that the effects can be accurately gauged at this point. For one, the first full month of tariffs on goods from China came in August. The amount was relatively small ($34 billion). The first full tariff month for another $16 billion worth of Chinese import categories came in September, but none of the products in either tranche belonged in the consumer categories. (Because they were producer goods – the kinds of parts, components, and materials that go into consumer and other products –  confident about measuring their effect on U.S. producer prices – the next set of which come out tomorrow.)

A major set of tariffs containing many consumer goods levies was announced in mid-September, but they only went into effect late that month, so only four months worth of data for those products is available. And plaguing analysis of any of these price statistics, they’re issued using a classification system that’s different from that used in the list of tariff-ed Chinese goods. In a fair number of cases they line up; in most cases, they don’t, and finding satisfactory matches is challenging.

So as I see it, more patience is needed before a useful verdict on the China tariffs can be delivered. But metals tariff-led inflation clearly remains mythical – which of course only strengthens the case for President Trump’s determination to overhaul American trade policy.

(What’s Left of) Our Economy: Tariffs-Led Inflation Remains a Manufactured Crisis

Tags

China, inflation, metals, metals tariffs, producer prices, tariffs, Trade, trade war, wholesale, {What's Left of) Our Economy

Economy followers who are fans of facts have ample reason to be grateful that the partial federal government shutdown has left the Labor Department open. As a result, the Bureau of Labor statistics can keep churning out data showing that the next valid claim of tariff-led damage to the U.S. economy that’s supported by authoritative statistics will also be the first. And today’s producer price numbers (for December) are the latest case in point.

The Department’s producer price index (PPI) measures price changes at the wholesale level, and neither the results for products heavily affected by President Trump’s metals tariffs or by his tariffs on goods from China show any evidence of contributing to inflation that will at some point be passed on to consumers.

Let’s start with metals-using products supposedly vulnerable to the U.S. levies on imports of steel and aluminum, which began to be imposed in late March. As with the situation as of last month, steel itself continues to demonstrate strong pricing power on an annual basis, starting with a 7.4 percent increase in April that’s since soared to 18.5 percent in December.

Even so, on a monthly basis, steel prices have actually fallen on net since August (by 0.36 percent), and dropped by 0.63 percent on month in December. So its price momentum seems to be cooling significantly – and possibly at an accelerating rate.

Further, much weaker pricing power – and therefore inflation – can be seen in various goods that use lots of steel. On the one hand, the December figures still showed robust price increases in products like pumps, compressors, and related equipment; and mining machinery and equipment. Wholesale inflation was 4.1 percent in the former on month in December, and 8.5 percent in the latter. By contrast, in the super-category in which both products are found (“final demand goods”), yearly wholesale inflation was only 2.5 percent in December.

Switch over to “intermediate demand” goods and you find big annual price hikes in sectors like metal containers (6.5 percent), fabricated wire products (16.4 percent), and certain kinds of valves (six percent). Yearly December inflation in that super-category was three percent.

But as in steel itself, the latest monthly figures are generally much lower – e.g., since August, 1.57 percent cumulatively for pumps, compressors, and related equipment; -0.55 percent for metal containers; 0.12 percent for fabricated wire products; and 2.32 percent for the valves.

Mining equipment is a conspicuous exception: Its prices were up 6.21 percent from August through December. But it was a strange exception, since all of the increase took place from October to November.

And the tariff alarmists still need to account for all the steel-using goods where wholesale inflation has been weak for the entire year and looks to be going nowhere: machine tools; oil and gas field machinery; agricultural machinery; motor vehicles; motor vehicle parts; ships; railroad equipment.

It’s true that the markets for all these producer goods vary tremendously, as does their dependence on steel. But that’s the point: Tariffs are only one of many trends and developments that influence their prices.

As for aluminum, its pricing momentum has slowed considerably – from 11.9 percent on an annual basis in April, to 6.3 percent in December. And since August, aluminum wholesale prices are off by fully 3.20 percent.

The first Trump China tariffs weren’t imposed until early July, so the sample size is smaller. But the case for tariff-led wholesale inflation on this front is just as weak as in the metals-related sectors.

Here are the PPI changes for some of the leading products found on the Trump administration’s initial China tariff list. They were imposed on July 6, so the numbers show the cumulative price changes since August. (Note: Because the administration’s Trump announcement used a different classification system than that used in the PPI reports, the below data don’t match up exactly with that tariff list. But the following goods are all at the least main parts of the items on the Trump list, or vice versa.)

aircraft engines and engine parts: 0.04 percent

industrial heating equipment: 1.15 percent

oil and gas drilling platform parts: 0.46 percent

farm machinery and equipment: 2.26 percent

paper-making machinery: -0.13 percent

ball bearings: 1.01 percent

electric generators: 1.85 percent

electricity transformers: 0.35 percent

medical, surgical, and personal aid devices: 0.33 percent

X-ray and electro-medical equipment: 0 percent

As with the metals-using products, some strong price increases are apparent. But so are some very weak increases, a flat-line, and a price drop. So it’s tough to argue that the tariffs have been make-or-break in the wholesale pricing sphere. I’ll keep tracking the China angle with unusual alacrity, though, since the number of tariff-ed imports expanded greatly later in 2018.

Lastly, there are the tariffs on large household laundry machines. Their retail prices keep increasing strongly, as shown in the latest (December) consumer price data – though not as strongly as in the immediate aftermath of the product-specific tariffs slapped on their imports in late January.

But at the wholesale level, inflation has been much weaker lately – a 0.84 percent monthly December increase for “household appliances” (the laundry equipment isn’t broken out), but only a 1.61 percent advance since August, and a comparatively meager 3.7 percent increase year-on-year. Call me a cynic, but it looks like consumers have been paying much more for these products this past year mainly because the retailers have been making a killing, not because of tariff hikes.

(What’s Left of) Our Economy: Still Desperately Seeking Tariff-Induced Inflation

Tags

aluminum, China, consumer prices, inflation, metals tariffs, producer prices, steel, tariffs, Trump, washing machines, {What's Left of) Our Economy

There’s especially bad news for trade war alarmists contained in this morning’s government report on producer prices. Not only does it contain yet more evidence that any inflation from President Trump’s metals tariffs keeps fading, but it’s now possible to show that his China tariffs aren’t fueling price hikes that are noteworthy, either – let alone increases likely to last.

Regarding the levies on steel and aluminum, which began to be imposed in late March, the weakest pricing trends have been apparent in aluminum. In April, its year-on-year price increases at the wholesale level stood at 11.9 percent, peaked at twenty percent in June, and as of November (the latest data reported this morning), the rate was down to 5.9 percent. That’s largely because wholesale aluminum prices have dropped on a monthly basis for five straight months, including by 1.5 percent from October to November.

More pricing power has been demonstrated in steel. Year-on-year wholesale prices for this metal advanced by 7.4 percent in April and have continued upward since, though at a much slower pace since August’s 18.6 percent. In November, the annual increase was 19.8 percent.

On a monthly basis since August, steel prices have dipped on net, even though between October and November, they increased by 0.5 percent.

Importantly, these higher metals prices don’t seem to be transferring uniformly into higher prices for metals-heavy products, including parts and components. For example, some mounting price pressure is apparent in pumps, compressors, and equipment; and mining machinery and equipment. But these sectors were greatly outnumbered by those in which price momentum seemed weak at best and going nowhere – such as construction machinery; machine tools; oil field and gas field machinery; aircraft; and motor vehicles and parts.

And if the price increases aren’t at least roughly comparable, then it’s hard to justify singling out tariffs as a major problem to this point.

The Trump China tariffs began in early July, but evidence that they’re igniting much inflation is even more elusive. On the one hand, it’s true that China’s currency is down versus the U.S. dollar since July – by a little over four percent – which all else equal will depress the prices of Chinese-made goods and services versus their American competitors all over the world. On the other, that’s a sign that, when it comes to China, many special variables influence prices (like a wide range of subsidies), along with the usual supply and demand forces.

Most important, here are the wholesale price changes for some leading products on the Trump administration’s list of the first 818 imports from China slapped with tariffs on July 6. So they represent the changes from July through November.

aircraft engines and engine parts:                                  0.35 percent

industrial heating equipment:                                       0.89 percent

oil and gas drilling platform parts:                               0.46 percent

farm machinery and equipment:                                   2.08 percent

paper-making machinery:                                            0.54 percent

ball bearings:                                                                1.12 percent

electric generators:                                                      1.71 percent

electricity transformers:                                              0.35 percent

medical equipment incl X-rays, pacemakers:                  0 percent

Three arguably major price spikes are apparent, but the big question remains whether these increases will stick. We’ll be watching.

Finally, there are the washing machine tariffs. As previously noted, at the retail level, prices of these appliances shot up shortly after they were first imposed in late January – to the unmistakable glee of supporters of the pre-Trump trade policy status quo. But at the wholesale level, home appliance prices (washing machines aren’t broken out from this category) have climbed only 0.76 percent from February through November. And during the last two months, they’ve fallen by 0.7 percent and 0.6 percent sequentially. So good luck with claiming that levies at the border deserve blame for whatever higher prices were paid by American consumers who had the misfortune to buy washing machines earlier this year.

As for the November consumer price data (measuring changes at the retail level), the data don’t come out until tomorrow. But on a monthly basis, they fell by 0.2 percent from July to August and by 3.8 percent between August and September before recovering by 0.2 percent between September and October.

In other words, there’s been deflation in washing machine prices lately. As these and the wholesale price figures make clear, that continues to be a fate richly deserved to date by tariff-led inflation claims.

(What’s Left of) Our Economy: Productivity-Challenged U.S. Manufacturers Want Their Cheap Foreign Metals Crutch Back

Tags

aluminum, Canada, China, consumer prices, inflation, manufacturing, metals tariffs, Mexico, overcapacity, producer prices, productivity, quotas, steel, tariffs, total factor productivity, Trade, Trump, {What's Left of) Our Economy

Anyone genuinely concerned with the long-term health of the American economy and its manufacturing sector in particular should be thankful for the letter sent Monday to the Trump administration by 33 business organizations asking for removal of the tariffs imposed earlier this year on steel and aluminum imports from Mexico and Canada.

For the letter – signed by groups from many sectors of the economy but principally by manufacturing organizations – unwittingly reveals the extent to which American industry has become addicted to supplies of metals whose prices have been artificially cheapened mainly by a global glut still primarily fed by subsidized over-supply from China. As a result, the letter also suggests a reason why American manufacturing productivity growth has been so lousy lately – in the process undermining the economy’s ability to generate lasting, as opposed to bubbly, prosperity.

To begin with, however, the signers’ leading claim is demonstrably, and whoppingly, false. They contend that the metals tariffs have caused significant harm to American manufacturers, consumers and workers. They have raised costs significantly for a wide array of industries….” Yet as I have repeatedly shown, (most recently here) since the levies began to be imposed, at the end of March, nothing in the official data on domestic manufacturing’s performance points to any harm whatever. In fact, in most respects, recent months have actually seen out-performance by metals-using industries – which logically should be where the greatest problems stemming from metals tariffs are concentrated.

Especially false is the insistence that because “Many manufacturing industries rely on imported inputs to produce goods competitively in the United States,” the tariffs “raise the costs of manufacturing in the U.S. and place our manufacturers at a competitive disadvantage with respect to finished products which are made outside of the U.S. and imported without being affected by the tariffs.  Further, consumers are starting to feel the pinch of higher prices across the board, as evidenced by recent increases in the CPI [Consumer Price Index].”

Indeed, this contention has been borne out neither by the consumer price numbers nor the producer price statistics.

But an examination of steel import figures and productivity performance suggests the real motive of the manufacturing signers in particular: They hope to resume relying on cheap foreign government-subsidized foreign metals for their growth and profits, rather than the kinds of productivity improvements that will do the most to strengthen both their bottom lines and the entire economy’s foundations over any significant time span.

The evidence comes from comparing total U.S. steel imports on the one hand, and total factor productivity (the broadest of the two main measures of efficiency tracked by the Labor Department) for the main metals-using industries on the other, during the previous and current American economic recoveries (the best way to generate apples-to-apples results).

That previous recovery officially lasted from late 2001 to late 2007, and through 2006, measured by quantity, steel imports increased by nearly 28 percent – largely fueled by a purchases from China that jumped more than 260 percent. (As the impact of the housing bubble’s bursting spread throughout the economy, steel imports from China and the rest of the world fell sharply before the recession’s official onset in the fourth quarter of 2007.)

And here are the total factor productivity increases for that 2001-2006 period for the American private sector for a whole, manufacturing overall, the metals industries themselves, and the key metals-using sectors:

private sector:                                      +9.19 percent

manufacturing:                                  +13.55 percent

durable goods manufacturing:          +19.44 percent

primary metals:                                   +5.72 percent

fabricated metals products:                 +6.35 percent

non-electrical machinery:                  +11.01 percent

transportation equipment:                 +13.38 percent

The figures for the current recovery look markedly different. Let’s examine the results from its 2009 start through 2016 (the year for the latest available detailed total factor productivity statistics). During that period, total national steel imports soared by just under 104 percent by quantity. Purchases from China sank like a stone (by more than 63 percent) between 2015 and 2016, because of China-specific anti-dumping tariffs. But clearly many other countries and their subsidized steel sectors picked up the slack, because total U.S. imports dropped off by only 17.31 percent. And continuing Chinese over-production kept exerting downward pressures on prices worldwide.

And how did total factor productivity fare during that big steel import run-up?

private sector:                                      +5.93 percent

manufacturing:                                     -4.48 percent

durable goods manufacturing:            +1.24 percent

primary metals:                                   +5.76 percent

fabricated metals products:                  -7.68 percent

non-electrical machinery:                     -7.08 percent

transportation equipment:                    +9.67 percent

That is, as artificially cheap foreign steel poured into the U.S economy, total factor productivity growth in most of the chief metals-using sectors shifted into reverse – and by startling extents. The only exceptions were transport equipment and durable goods as a whole, with the former clearly holding up the latter. And even in both these cases, total factor productivity growth slowed dramatically.

True, the letter’s signatories claim that they support continued tariffs on steel and aluminum imports from China – the main overcapacity and over-production culprit. They also say they back “negotiation of global arrangements to deal with overcapacity.”

But this position looks phony given their opposition to import quotas for steel from countries where tariffs have been lifted (South Korea, Brazil, and Argentina) because these measures allegedly have “placed severe supply constraints on U.S. manufacturers and created even more business uncertainly than tariffs regarding exports from these countries.” In other words, the signatories are opposed to the very policies that have helped ensure that all other metals-producing countries don’t simply keep transshipping China’s over-production into the U.S. market, or respond to China’s glutting their steel market by ramping up their own exports to the United States.

So the real message being sent by the manufacturers’ metals tariffs letter couldn’t be clearer: “We want to regain access to that artificially cheap foreign steel, regardless of its impact on the entire economy’s future.” Arguably, that’s an appropriate, or at least understandable, priority for companies viewing their prime obligation as maximizing shareholder value at any given moment. But just as understandably, it’s the type of priority that America’s political leaders should emphatically reject.

(What’s Left of) Our Economy: Raging Tariffs-Led Inflation Still Isn’t a Thing – or Even Close

Tags

aluminum, Canada, household appliances, housing, inflation, metals-using industries, Producer Price Index, producer prices, softwood lumber, steel, tariffs, Trump, washing machines, {What's Left of) Our Economy

Good luck to everyone trying to find some signs in this morning’s producer price report of President Trump’s tariffs igniting ruinous, raging inflation throughout the U.S. economy. How come? Because they aren’t there. Yet again.

Let’s quickly examine some of the main products in the tariff spotlight, starting with washing machines, imports of which were slapped in February with levies aimed at countering sharp surges of product streaming into U.S. markets that harm domestic producers (called “safeguard tariffs).

Even though this Producer Price Index (PPI) data from the Labor Department focus on inflation or lack thereof for wholesalers, it does contain information on the consumer goods in which wholesalers deal. This morning’s report shows that prices for “household appliances” (including several products aside from the tariff-ed washing machines) rose by 4.1 percent from September, 2017 to September, 2018. That’s higher than the 2.7 percent year-on-year overall advance for such goods less the volatile food and energy sectors. But it’s anything but the steepest price rise in this category.

Moreover, on a monthly basis, household appliance prices don’t seem to be going anywhere lately. Between June and July, they actually fell by 0.2 percent. From July to August, they dipped another 0.1 percent. From August to September, they increased by 1.3 percent. Again, that’s greater than the 0.1 percent average for “Final demand goods less foods and energy.” But not excessively so. P.S.: Household appliance prices are affected by many factors other than tariffs.

How about steel and aluminum, where a series of tariffs began to be imposed in late March? Steel mill product prices did indeed jump by 18.1 percent year-on-year in September. But here are the last three monthly prices changes: +1.6 percent, +2.6 percent, and zero percent. So let’s hold off on the inflation alarmism here, too. And don’t forget: Thanks to Chinese and other foreign subsidies, steel prices have long been depressed for reasons having almost nothing to do with free market forces. So the tariffs have mainly been encouraging the restoration of accurate price signals – something that all free market supporters should regard as key to long-term economic health and prosperity.

The ebbing of inflation is even more striking when it comes to aluminum mill shapes. In September, their prices rose by a sharp 10.1 percent on an annual basis. But over the last three months? They’ve actually fallen significantly – by three percent, 2.1 percent, and 0.3 percent, sequentially. So thanks to the tariffs, normality seems to be returning to the aluminum market, too.

Much the same story is being played out in metals-using sectors – where reports of tariffs-caused devastation have been widespread. The pricing developments in fabricated structural metals products are a typical example: up 8.3 percent year-on-year in September, down sequentially by 0.6 percent in July, up by 0.2 percent in August, up by 0.5 percent in September.

Softwood lumber from Canada is another important economic input being tariff-ed by President Trump – this time since last November. Of course, they resulted in forecasts of impending disaster for the U.S. housing industry. But the PPI report shows that softwood lumber prices were up only 5.4 percent on year in September, and have been dropping sharply on month since July – by 2.5 percent, 9.6 percent (I repeat: 9.6 percent!), and 0.4 percent. That looks like deflation, not inflation.

To repeat a point I’ve made often, it’s entirely possible that these pricing trends could reverse themselves in the months ahead. But since we’ve seen nothing of the kind so far, it’s also entirely legitimate to suppose that current trends will continue – and important to start examining possible reasons why. Even though such an exercise will doubtless be more difficult and less fun that repeating forecasts of Tariffs-mageddon.

(What’s Left of) Our Economy: Producer Price Data Undercut the Recovery’s Weather Excuse

Tags

energy revolution, GDP, producer prices, recovery, winter, {What's Left of) Our Economy

OK, time to take a break from trade issues (though given the ongoing flood of fakeonomics surrounding Congressional renewal of negotiating authority for the president and Mr. Obama’s proposed Pacific Rim trade deal, it could be a short one!) and refocus on other economic news. This morning’s subject is a new one for RealityChek – producer prices – but worth spotlighting today because the new data seriously undermine claims that a second straight horrible winter largely explains America’s latest bout of economic doldrums.

These PPI figures reveal how much American businesses pay for the various goods and services they use to make what they sell to customers (other businesses and government, as well as households). They’re mainly useful for forecasting the economy’s future prospects both on the overall growth front and the related inflation front (since prices tell us lots about how much of these goods and services businesses think their customers will want in the months ahead). But since these purchasing decisions also affect business’ production decisions in the here and now, PPI numbers are a window into current (along with recent) economic activity, too.

The Labor Department usefully tracks these price change for both final demand (which is simply consumed and economically speaking goes no further), and for demand in intermediate goods and services (which are used to make the goods and services that are in turn finally consumed). Both are extremely important, but given the half-truth that America’s economy is consumer-fueled, let’s examine the situation with final demand – first for goods.

The new report, issued April 23, shows that the total market for these products did indeed worsen markedly over the winter. (See Table A to follow along.) A monthly price gain of 0.3 percent in December was followed by a big 0.7 percent plummet in January and another sizable 0.5 percent drop in February. In March, producer prices for final demand goods resumed rising (by 0.2 percent). So the case for blaming winter looks pretty solid after all, right?

Not exactly. In warmer April, these producer prices fell once more – by 0.4 percent over their levels in colder March. More important, stripping out food and especially energy prices shows how flimsy the winter excuse for America’s feeble recent recovery is. Although food and energy clearly are huge chunks of the U.S. economy and need to be counted to get a full picture, energy prices in particular have experienced huge swings lately (mainly decreases) that surely can’t be adequately accounted for even by the government’s standard ways of adjusting for changing seasons.  To complicate matters further, these fluctuating energy prices also reflect not only America’s appetite for fuels, but a still-growing recent global glut stemming significantly from the nation’s domestic energy production revolution.

When food and energy are omitted, the January through April monthly producer price changes for final demand have been 0 percent, -0.1 percent, 0.2 percent, and -0.1 percent. Not much different from each other, that is, and not very robust. Just as important, they don’t differ much from the pre-winter November and December figures: -0.1 percent and 0 percent, respectively. In fact, these price changes also closely resemble those going back to April, which have all hovered around the flat line.

And in case you’re wondering whether this focus on goods distorts the picture because services now dominate the U.S. economy – don’t. Producer prices for final demand services sank during winter, too, but have showed little strength since then and showed just as little during the previous few months.

The clear message from these producer price trends: America’s weather has finally warmed up after that frigid winter. But an economic thaw is nowhere on the horizon.