(What’s Left of) Our Economy: Automotive’s Still in the U.S. Manufacturing Growth Driver’s Seat

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aircraft, aluminum, appliances, automotive, CCP Virus, China, coal, coronavirus wuhan virus, COVID 19, Delta variant, electrical equipment, facemasks, Federal Reserve, industrial production, inflation-adjusted growth, inflation-adjusted output, infrastructure, lockdowns, machinery, manufacturing, masks, medical devices, metals, petroleum refining, pharmaceuticals, PPE, real growth, recovery, reopening, steel, stimulus, tariffs, Trump, vaccines, {What's Left of) Our Economy

Talk about annoying! There I was last Thursday morning, all set to dig into the new detailed Federal Reserve U.S. manufacturing production numbers (for June) in order to write up my usual same-day report, and guess what? None of the new tables was on-line! Fast forward to this morning: They’re finally up. (And here‘s the summary release.) So here we go with our deep dive into the results, which measure changes in inflation-adjusted manufacturing output.

The big takeaway is that, as with last month’s report for May, the semiconductor shortage-plagued automotive sector was the predominant influence. But there was a big difference. In May, domestic vehicles and parts makers managed to turn out enough product to boost the overall manufacturing production increase greatly. In June, a big automotive nosedive helped turn an increase for U.S.-based industry into a decrease.

The specifics: In May, the sequential automotive output burst (which has been revised up from 6.69 percent in real terms to 7.34 percent) helped push total manufacturing production for the month to 0.92 percent after inflation (a figure that’s also been upgraded – from last month’s initially reported already strong 0.89 percent). Without automotive, manufacturing’s constant dollar growth would have been just 0.47 percent.

In June, vehicle and parts production sank by an inflation-adjusted 6.62 percent , and dragged industry’s total performance into the negative (though by just 0.05 percent). Without the automotive crash, real manufacturing output would have risen by 0.40 percent.

Counting slightly negative revisions, through June, constant dollar U.S. manufacturing production in toto was 0.60 percent less than in February, 2020 – the economy’s last full pre-pandemic month.

Domestic industry’s big production winners in June were primary metals (a category that includes heavily tariffed steel and aluminum), which soared by 4.02 percent after inflation; the broad aerospace and miscellaneous transportation sector, which of course contains troubled Boeing aircraft, (more on which later), and which turned in 3.75 percent growth, its best such performance since January’s 5.62 percent pop; petroleum and coal products (up 1.36 percent); and miscellaneous durable goods, which includes but is far from limited to CCP Virus-related medical supplies (up 1.21 percent).

The biggest losers other than automotive? Inflation-adjusted production of electrical equipment, appliances, and components, which dropped sequentially by 1.73 percent in real terms; the tiny, remaining apparel and leather goods industry (1.44 percent); and the non-metallic minerals sector (1.07 percent).

Especially disappointing was the 0.55 percent monthly dip in machinery production, since this sector’s products are used so widely throughout the rest of manufacturing and in major parts of the economy outside manufacturing like construction and agriculture.

But in one of the biggest surprises of the June Fed data (though entirely consistent with the aforementioned broad aerospace sector), real output of aircraft and parts shot up by 5.24 percent – its best such performance since January’s 6.79 percent. It’s true that the May production decrease was revised from 1.47 percent to 2.61 percent. But with Boeing’s related and manufacturing and safety-related woes continuing to multiply, who would have expected that outcome?

And partly as a result of this two-month net gain, after-inflation aircraft and parts output as of June is 7.83 percent higher in real terms than in pre-pandemicky February, 2020 – a much faster growth rate than for manufacturing as a whole.

The big pharmaceuticals and medicines sector (which includes vaccines) registered a similar pattern of results, although with much smaller swings. May’s originally reported 0.22 percent constant dollar output improvement was revised down to 0.15 percent. But June saw a 0.89 percent rise, which brought price-adjusted production in this group of industries to 9.33 percent greater than just before the pandemic.

Some good news was also generated by the vital medical equipment and supplies sector – which includes virus-fighting items like face masks, face masks, protective gowns, and ventilators. Its monthly May growth was upgraded all the way up from the initially reported 0.19 percent to 1.18 percent. And that little spurt was followed by 0.99 percent growth in June.

Yet despite this acceleration, this sector is still a mere 2.27 percent bigger in real terms than in February, 2020, meaning that Americans had better hope that new pandemic isn’t right around the corner, that the Delta variant of the CCP Virus doesn’t result in a near-equivalent, or that foreign suppliers of such gear will be a lot more generous than in 2020.

As for manufacturing as a whole, the outlook seems as cloudy as ever to me. Vast amounts of stimulus are still being pumped into the U.S. economy, which continues to reopen and overwhelmingly stay open. That should translate into strong growth and robust demand for manufactured goods. The Trump tariffs are still pricing huge numbers of Chinese goods out of the U.S. market. And the shortage of automotive semiconductors may actually be easing.

But the spread of the Delta variant has spurred fears of a new wave of local and even wider American lockdowns. This CCP Virus mutation is already spurring sweeping economic curbs in many key U.S. export markets. Progress in Washington on an infrastructure bill seems stalled. And for what they’re worth (often hard to know), estimates of U.S. growth rates keep coming down, and were falling even before Delta emerged as a major potential problem. (See, e.g., here.)

I’m still most impressed, though, by the still lofty levels of optimism (see, e.g., here)  expressed by U.S. manufacturers themselves when they respond to surveys such as those sent out by the regional Federal Reserve banks (which give us the most recent looks). Since they’re playing with their own, rather than “other people’s money,” keep counting me as a domestic manufacturing bull.

(What’s Left of) Our Economy: It’s an Autos Story Again for U.S. Manufacturing Production

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aerospace, aircraft, aluminum, apparel, automotive, Boeing, CCP Virus, chemicals, China, computers, coronavirus, COVID 19, Donald Trump, electronics, facemasks, Federal Reserve, health security, inflation-adjusted output, machinery, manufacturing, medical supplies, paper, pharmaceuticals, PPE, printing, real growth, semiconductor shortage, semiconductors, shutdowns, steel, stimulus, tariffs, vaccines, Wuhan virus, {What's Left of) Our Economy

Earlier in the CCP Virus era, the U.S. manufacturing production story was largely an automotive production story – because the industry shut down so suddenly and completely during the pandemic’s first wave and the deep economic downturn it triggered, and then began reopening at a record pace. And today’s Federal Reserve figures show that domestic industry’s growth is being driven by dramatically fluctuating vehicles and parts output once again – but this time it seems due significantly to the global semiconductor shortage that’s deprived the sector of critical parts.

Also noteworthy about today’s Fed manufacturing release (which covers May): It incorporates the results of the benchmark revision of these data for the 2017-19 period. As explained in yesterday’s post on the subject, the new numbers create a new baseline for pre-pandemic manufacturing growth, and therefore a new picture of how big the virus-induced downturn was, and how strong the recovery has been – at least until the next benchmark revision. And of course, the new figures therefore supersede those in the April Fed release I reported on last month.

Automotive’s influence on the May numbers is clear from the following: Total inflation-adjusted sequential growth for U.S.-based manufacturing hit a strong 0.89 percent last month. Without automotive (whose 6.69 percent monthly output pop followed a 5.57 percent April drop), the increase would have been just over half that – a still solid 0.50 percent. Don’t be surprised if the microchip shortage keeps these results on a roller coaster.

Its May increase brought total real domestic manufacturing output back within 0.31 percent of its last pre-pandemic level, in February, 2020. In March and April, such production plummeted by 19.41 percent. Since then, it’s surged by 23.90 percent. For the record, as I wrote yesterday, the pandemic-spurred Spring, 2020 nosedive was slightly shallower (0.92 percent) than judged before the revisions (1.42 percent) but the comeback through this past April was a bit weaker (22.81 percent versus 23.27 percent).

Machinery making enjoyed a good month in May, and as known by RealityChek regulars, that’s good news for all domestic manufacturing and the rest of the economy, since its products are so widely used. Constant dollar output improved by 0.78 percent last month, and consequently, the sector is now 2.35 percent bigger in these terms than just before the virus started depressing the economy. One downside should be noted, though: The new revision indicates that the machinery recovery has actually be significantly slower than previously estimated.

Manufacturing’s list of other big inflation-adjusted production winners in May featured some real surprises. The apparel and leather goods industries remain shadows of their historic selves, but their real output last month jumped 2.59 percent – their best such result since January’s 2.06 percent. Moreover, this sector has grown in real terms by 6.74 percent since just before the pandemic – much faster than manufacturing as a whole.

After-inflation production in the small printing and related activities industry grew by 2.59 percent – also its best result since January (3.99 percent).

But some big sectors saw healthy gains in May, too – notably chemicals (whose products are also used throughout the economy) and computer and electrnics products. The former saw real production advance by 2.19 percent sequentially last month – its best such result since March’s weather-aided 4.08 percent. And the latter grew in May by 1.60 percent.

The biggest losers? Paper led this pack by far, with May constant dollar production sinking by 1.59 percent on month – its worst such showing since January’s 1.78 percent decrease.

Likely due to Boeing’s continuing production and safety problems (more on which later), the aerospace and miscellaneous transportation sector’s after inflation production sank by 0.95 percent sequentially in May – and that followed a 2.55 percent nosedive (no pun intended) in April. And wood products real output fell by 0.82 percent.

But the losers’ list contains a big surprise, too. Complaints keep coming that that the domestic steel and aluminum industries (and especially the steel-makers) have responded to tariffs simply by enjoying the higher resulting prices and sitting on these winnings. So it’s noteworthy that even after a 0.82 percent monthly real output decline in May, primary metals production after inflation is slightly (0.15 percent) higher than in immediate pre-pandemic-y February, 2020 – another such performance that’s bested that for all manufacturing.

The aforementioned problems suffered by Boeing keep coming through in the real output data for the aircraft and parts sub-sector of the aerospace and miscellaneous transportation industry. In May, inflation-adjusted output was down 1.47 percent on month – much bigger than the larger industry fall-off. And that came on the heels of April’s 2.21 percent decrease. Real aircraft and parts production is still 4.36 percent above its immediate pre-pandemic level, but given the ongoing post-CCP Virus worldwide rebound in air travel, these figures are definitely disappointing – and moving in the wrong direction.

By contrast, the big pharmaceuticals and medicines sector is still benefitting from reopening headwinds. May’s 0.22 percent monthly real output increase was admittedly modest, especially since this sector includes vaccine production. But it’s grown by 8.44 percent since the virus began spreading rapidly in the United States. on g – also delivered a disappointing performance in April, especially since it includes vaccines.

But both the May real production numbers and the benchmark revision left the vital medical equipment and supplies sector a conspicuous production laggard. This industry – which includes virus-fighting items like face masks, face masks, protective gowns, and ventilators – grew in real tems by just 0.19 percent sequentially in May, and April’s after inflation output was down 1.66 percent. As a result, this sector is turning out only 0.35 percent more product than just before the pandemic’s arrival – which doesn’t seem to augur well for national preparedness for the next pandemic.

If I was a betting person (I’m not), I’d still wager on better days ahead for U.S. domestic manufacturing – because so many powerful supportive trends and developments remain in place, ranging from massive government spending and other forms of stimulus to the virus’ continuing retreat to waning consumer caution to huge amounts of pandemic-era consumer savings to ongoing Trump tariffs that keep pricing huge numbers of Chinese goods out of the U.S. market.

But no one should forget about a list of threats to the pace of manufacturing growth, if not growth itself – like the prospect of higher taxes and more regulations, and the possibility that consumer demand will keep growing but switch away from goods to the hard-hit but quickly reopening service sectors (which of course do buy manufactures). Inflation isn’t good for strong (real) growth, either, though I’m an optimist on this front.

Ultimately, though, I’m most struck by evidence of domestic manufacturers’ continuing optimism about the prospects of their businesses. If they’re still confident about their futures, that remains good enough for me.

(What’s Left of) Our Economy: Normalizing Signals from the New U.S. Manufacturing Growth Data?

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aerospace, aircraft, automotive, Boeing, CCP Virus, China, coronavirus, COVID 19, Covid relief, Federal Reserve, inflation-adjusted growth, infrastructure, machinery, manufacturing, pharmaceuticals, real growth, semiconductor shortage, stimulus package, tariffs, vaccines, Wuhan virus, {What's Left of) Our Economy

Do the April data just released by the Federal Reserve show that U.S. manufacturing output is settling into a post-CCP Virus normal? Despite achieving solid (0.42 percent) month-to-month growth in real terms, I’m not so sure. That’s mainly because although one of the big drags on domestic industry’s recent performance that resulted from weather rather than economic fundamentals is clearly past us, the impact continues of similar, likely temporary, developments that economists call “exogenous shocks.” And although plainly temporary, they may turn out to be pretty long-lasting.

The drag that’s out of the way is the amazingly harsh winter weather that crippled state economies in the south central states. Even so, the Fed now estimates the damage produced on a nation-wide basis as having been even worse than initially judged. The monthly plunge in February after-inflation manufacturing production keyed by the blizzards and power outages is now pegged at 4.12 percent – down from the original -3.12 percent and last month’s -3.72 percent. That’s still the wors monthly performance since April’s 15.83 percent nosedive, during the height of the pandemic and the depths of the recession.

The silver lining is that the March rebound first judged to be 2.79 percent is now believed to have been 3.22 percent.

So that 0.42 percent sequential increase in price-adjusted manufacturing production for April could be interpreted as an end to the winter aftershocks period. Except the Fed is now telling us that a new problem – the recent global semiconductor shortage – depressed U.S. automotive output so greatly last month (by 4.28 percent), that without such disruption, total constant dollar factory production would have been nearly twice as strong (0.75 percent). Moreover, the microchip shortage shows no sign of ending any time soon. And don’t forget about those still congested West Coast ports! 

According to the Fed, moreover, U.S.-based industry seems to be dealing with another distinctly non-normal situation – those “supply chain difficulties” generated by the same dramatic reopening of the economy that are distorting the inflation figures. Much more government money is bound to be injected into the economy on top of the already enormous virus relief and stimulus funds that have already been provided (and are still working their way through the system), So manufacturers and other businesses will surely continue facing various bottlenecks as they all try to keep up with the new customer demand all at once. Of course, complicating matters still further – and prolonging the return to normality – is that very massive government spending, which all else equal will keep propping up that demand and manufacturing and other output.

Thanks to the April advance and the cumulative impact of the revisions, domestic manufacturing production is now up 23.27 percent after inflation from its low last April, and is now back to within 1.42 percent of its last pre-pandemic reading in February, 2020.

One sign for manufacturing and the rest of the economy that remained genuinely bullish in April was the 0.65 percent sequential output growth of the big machinery sector – whose products are used extensively not only throughout the rest of manufacturing, but in big non-manufacturing sectors like construction and agriculture. That April increase was much smaller than March’s 3.55 percent surge – the best such performance since July’s 5.56 percent jump. But the March result was upgraded from an initially eported 2.87 percent. And in inflation-adjusted terms, the machinery sector is now 3.72 percent bigger than in February, 2020, just before the pandemic arrived.

Other significant April manufacturing production winners were the big chemical industry (up 3.17 percent on month, but still recovering from the huge 8.64 percent sequential output drop resulting mainly from those winter storms), primary metals (whose 1.68 percent monthly improvement followed a 2.20 percent rise that’s still left the sector 3.11 percent smaller in real terms than just before the pandemic), and petroleum and coal products (1.57 percent – but in a chemicals-like recovery situation).

The biggest losers were miscellaneous non-durable goods (off 1.08 percent) and plastics and rubber products (down 0.83 percent).

Although reopening measures in the United States and around the world are reviving air travel, the April Fed report shows that Boeing’s continuing production troubles may have again undercut growth in the big American aerospace industry. Price-adjusted output in aircraft and parts dipped by 0.23 sequentially last month – the first such decrease since December’s 1.43 percent. And March’s initially reported 4.09 percent increase has been downwardly revised all the way to 1.92 percent. Nonetheless, after inflation, aircraft and parts production is still up 4.98 percent from its final pre-CCP Virus levels.

Another big industry that should be benefitting from reopening-related headwinds – pharmaceuticals and medicines – also delivered a disappointing performance in April, especially since it includes vaccines. Real output rose by just 0.33 percent on month, and March’s initially reported 2.90 percent rise was trimmed back to 2.87 percent. In addition, previous and dramatic downward revisions for January and February were downgraded on net yet again – though modestly. Consequently, inflation-adjusted production in the sector has grown by 5.95 percent during the pandemic.

Growth in the vital medical equipment and supplies sector – which includes virus-fighting items like face masks, face masks, protective gowns, and ventilators – remained nothing to write about either. April’s real growth was a so-so (0.42 percent). And although March’s initially estimated 0.61 percent constant dollar output increase got a nice upgrade to 1.11 percent, February’s results – which had been revised up from a 0.56 percent decline to a 0.44 percent drop – was revised back down to a 0.64 percent decrease. Consequently, real output here is just 0.56 percent higher than in that final pre-CCP Virus month of February, 2020, despite all the national talk of the need to improve America’s health security.

An optimistic outlook for domestic manufacturing still seems justified for me, if only because government-fueled growth and reopening still seem to be the most powerful influences on the entire economy, and President Biden has still kept in place the sweeping Trump tariffs are still pricing hundreds of billions of dollars of manufactured goods from China out of the U.S. market. That latest Boeing glitch seems to have been resolved. The need for more protective medical equipment and more vaccines (especially abroad) certainly haven’t gone away for good . And maybe a serious infrastructure rebuild and expansion is on the way. 

But just as a big enough number of anecdotes can deserve being seen as a trend, a big enough number of temporary disruptions can deserve being seen as a new, and more difficult, normal.

(What’s Left of) Our Economy: A Spring-y New U.S. Manufacturing Production Report

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aerospace, automotive, Biden, Boeing, CCP Virus, coronavirus, COVID 19, Donald Trump, Federal Reserve, health security, imports, industrial production, inflation-adjusted output, infrastructure, machinery, manufacturing, pharmaceuticals, PPE, real growth, semiconductor shortage, stimulus, supply chain, tariffs, Trade, trade war, vaccines, ventilators, West Coast ports, Wuhan virus, {What's Left of) Our Economy

You might call today’s March U.S. manufacturing production figures from the Federal Reserve a good news/bad news/good news story. Moreover, the new data on inflation-adjusted factory output contained a surprise worth noting.

First the good news/bad news/good news. The Fed report showed that real domestic manufacturing output rose by 2.79 percent on month in March. That was the best such result since July’s 4.25 percent – much earlier during the recovery from the deep CCP Virus- and lockdowns-induced recession. Rebounds from major downturns tend to be strongest earliest, especially for highly cyclical sectors of the economy like manufacturing, and that surely went double for a slump largely caused by an outside shock like a pandemic and dramatic government responses, rather than one caused by a market-based economy’s ordinary fluctuations.

The bad news was that this robust growth followed a February sequential drop of 3.72 percent that was the worst monthly performance since pandemicky April’s 15.83 percent plunge. Moreover, this revised February figure was a significant downgrade from the initially reported 3.12 percent decline. The other revisions, going back to October, were too small to affect the picture over the last few months.

But then there’s that second piece of good news: As the Fed’s release explained this morning, the lousy February numbers “largely resulted from widespread outages related to severe winter weather in the south central region of the country.” So they stemmed from a (temporary) outside shock, too.

The surprise? Although the U.S. automotive industry continues reducing production due to a global shortage of semiconductors, output in price-adjusted terms grew by 2.79 percent sequentially in March. At the same time, the February fall-off was revised down from 8.26 percent to ten percent even. And the shortage is expected to undercut vehicle production until the fall, so that’s a drag likely to weigh on the overall manufacturing figures for months.

The total March manufacturing figure means that domestic industry’s after-inflation production has grown by 22.88 percent since its recent low-point last April, and has climbed back to within 1.73 percent of its last pre-pandemic reading in February, 2020.

Manufacturing’s monthly current dollar output gains were broadbased in March, including in the crucial machinery sector. In this industry, whose products are widely used not only throughout manufacturing, but in many other important segments of the economy like construction and agriculture, price-adjusted production improved by 2.87 percent. And now it actually stands 2.16 percent higher than during that last pre-CCP Virus month of February, 2020.

Although the semiconductor shortage is bound to crimp production in many industries on top of automotive, domestic manufacturing still seems to be benefiting from two headwinds other than the economy’s generally improving strength that seem to have some staying power, too. The first is aerospace giant Boeing’s continuing, but sometimes uneven, progress exiting its protracted recent safety and manufacturing problems. The pandemic’s blow to air travel worldwide clearly didn’t help, either.

But in March, real output in aircraft and parts jumped by 4.09 percent sequentially, and is now fully 5.07 percent above its February, 2020 pre-CCP Virus level.

The picture was more mixed in the pharmaceutical and medicines category – which includes vaccines. Inflation-adjusted output advanced by 2.90 percent on month in March, but the previously reported January and February numbers were both downgraded dramatically – from an upwardly revised 2.57 percent to 0.85 percent, and from a 1.29 percent rise to a 0.05 percent dip. These moves left the sector’s output 5.83 percent higher than in pre-pandemic February, 2020 with the prospect of more impovement to come as vaccine production continues to boom.

Growth is still lagging, however, in the vital medical equipment and supplies sector – which includes virus-fighting items like face masks, face masks, protective gowns, and ventilators. February’s constant-dollar production was revised up from a 0.56 percent monthly decline to a 0.44 percent drop – but it was still a drop. Growth returned in March – but only by 0.61 percent in real terms. So price-adjusted output in this category – which includes many other products – is still slightly (0.39 percent) below pre-pandemic February, 2020’s levels, despite all the national talk of the need to improve America’s health security.

I’m still bullish on manufacturing’s outlook, though. No one should forget headwinds facing industry aside from the semiconductor shortage – chiefly, the fading of vaccine production at some point, the distinct possibility of many more regulations and higher taxes from a Democratic-conrolled federal government, and the supply chain disruptions resulting largely from clogged West Coast ports (which on top of the Trump tariffs are slowing the import of many foreign inputs still needed by Made in the USA companies).

But arguably more than offsetting these dangers is the so far better-than-expected resumption of total U.S. growth, the virtual certainty of even yet another gigantic dose of stimulus an infrastructure spending, along with President Biden’s decision to retain every dollar’s worth of those sweeping, often towering Trump trade curbs.

Yet much more important than my views is the continuing optimism registered by domestic manufacturers in all of the soft data surveys that come out each month from the private sector and from various branches of the Federal Reserve system. If they’re full of confidence, who am I to rain on their parade?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(What’s Left of) Our Economy: New U.S. Growth Figures Leave Pandemic Trade Distortions Fully Intact

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CCP Virus, coronavirus, COVID 19, exports, GDP, global financial crisis, goods trade, Great Recession, gross domestic product, imports, inflation-adjusted growth, real exports, real GDP, real growth, real imports, real trade deficit, recession, services trade, Trade, trade deficit, Wuhan virus, {What's Left of) Our Economy

Fittingly, because this morning’s release of the first (of two short-term) revisions of the official figures on fourth quarter U.S. gross domestic product (GDP) tell us only a little more than the first about the U.S. economy’s growth at the end of last years, they also revealed little change in what was reported about U.S. trade flows – and how they were affected in 2020 by the CCP Virus.

The fundamental story remains the same: The pandemic has distorted the nation’s international trade tremendously. What today’s report – which describes growth in inflation-adjusted terms (the most widely followed) – shows is that real exports suffered a bit more than previously judged, and their import counterparts were a bit higher. As a result, the overall price-adjusted trade deficit was slightly greater than first estimated.

In addition, the new figures – which will be revised again next month, and several times down the line – indicate that the trade flow deterioration worsened toward the end of the year.

To set the context, the sequential growth rate for the fourth quarter was upgraded in the new release from the previously reported 3.95 percent at an annual rate after-inflation to 4.03 percent. Normally, that would be an excellent performance, but coming after the roughly 30 percent annualized rubber-band-like economic snap back between the second and third quarters, it’s still a major disappointment.

Moreover, the revisions were too small to affect the annual contraction rate for all of 2020, which stayed at 3.50 percent in constant dollars. That’s still the worst yearly downturn since the 11.60 percent nosedive in 1946, when the nation was transitioning from a war-time to a peacetime footing. In fact, 2020’s slump was much worse than the real GDP decline of 2009 – which was part of what’s now known as the Great Recession. That year, America’s output of goods and services after inflation fell by just 2.53 percent.

(Incidentally, sharp-eyed readers will note that this 2020 real GDP figure doesn’t match up with the one I cited here. That’s because that post’s number represented fourth quarter to fourth quarter constant-dollar output change, which tends to produce different results than those generated by comparing the annual figures, which sum up the collective change for all of a year’s four quarters.)

Luckily, the main reason for optimism remains intact, too, despite the humdrum fourth quarter: The pandemic-driven recession was driven by a virus, and by the widespread shutdowns of economic activity literally ordered by government at all level. That appears much less worrisome than the economic circumstances of the bubble decade of the 2000s, when bloated lending and spending masked fundamental weaknesses in the economy. When the finance sector essentially decided that the resulting Ponzi scheme had grown way too risky even for its tastes, a collapse was triggered that nearly took the entire global economy down.

Once again, the magnitude of the distortion of the GDP figures’ trade component came through loud and clear in this morning’s release. Even though the economy shrank – which typically depresses the trade deficit – the shortfall hit a new record in last year. This morning’s reported $926.3 inflation-adjusted level was marginally larger than the $925.8 billion estimated last month, and represents a 0.95 percent increase over 2019.

It’s true that 2020’s price-adjusted trade deficit wasn’t the largest ever as a share of real GDP. At 5.03 percent, it was well behind the all-time worst of 5.95 percent, set in bubbly 2005. But this percentage was astronomical for a recession year. In fact, you’d have to go back to 2002 (which was only partly recessionary) to find a figure even as high as 4.95 percent.

Since the pandemic and restrictions have hit service industries much harder than goods industries, with the travel and tourism sectors experiencing veritable decimation, it’s no surprise that most of the trade deficit deterioration took place in those parts of the economy. Specifically, between 2019 and 2020, the inflation-adjusted goods trade deficit rose by just $830 million, while the services surplus shrank by $24.7 billion. (And now for an apology – last month I reported the reverse, because I accidentally reported the services change in millions, not billions, of dollars.)

The real trade deficit increased last year in part because total constant dollar exports fell, with the new revisions reporting the drop at 12.97 percent, rather than the 12.96 percent estimated last month. That decrease is the biggest in percentage terms since 1958’s 13.49 percent plunge, and the $2.2165 trillion level was the lowest since 2012’s $2.193 trillion.

The 2020 decrease in goods exports was revised this morning from 9.46 percent to 9.48 percent, and this slide – the steepest since 2009’s 11.86 percent – brought the year’s level to $1.6136 trillion, the lowest since 2013’s $1.57 trillion. (Goods and services trade figures began to be reported separately by the Commerce Department only since 2002).

The new revisions actually showed a marginally better performance for real services exports. Rather than sinking by 19.20 percent in 2020, the dropoff is now judged to be 19.16 percent. But the fall is still a record by a long shot, and the new $620.2 billion level still the lowest since 2010’s $609.2 billion.

Total after-inflation constant dollar U.S. imports were lower in 2020 than in 2019, too, but the contraction was smaller than that for total exports. Today’s revisions report the annual decrease as 9.28 percent versus the previously reported 9.29 percent. This drop was still the biggest in percentage terms since recessionary 2009’s 13.08 percent, and the $3.1426 trillion absolute level was still the weakest since 2015’s $3.0948 trillion.

The reduction in goods imports was as relatively modest as that in goods exports, as they came in 5.45 percent lower in 2020 than in 2019. But last month, the drop was reported at a bigger 6.05 percent – still the biggest since recessionary 2009’s 15.30 percent. And the new $2.7642 trillion level is still the lowest since 2016’s $2.6477 trillion.

The annual services imports decrease in 2020 was also smaller than initially reported – 22.54 percent versus 22.59 percent. Nonetheless, this yearly shrinkage, too, was still by far the greatest ever, and the $420.7 billion level still the lowest since 2009.

On a quarter-to-quarter basis, the previously reported quarterly record $1.1211 trillion total real trade deficit at annual rates for the last three months of 2020 is now estimated at $1.1230 trillion. And the increase over the third quarter level has gone up from ten to 10.2 percent.

Quarterly total real exports today were judged to be 5.06 percent higher than the third quarter level, not 5.10 percent higher, but the new $2.2761 trillion annualized figure was still 8.78 percent below the level of last year’s first quarter – the final pre-pandemic figure.

The fourth quarter’s sequential rise in real goods exports was also revised down this morning – from 7.65 percent to 6.95 percent. But at $1.7224 trillion annualized, they’re just 2.94 percent below the first quarter total.

Not surprisingly, the quarterly export lag in services was much worse. The fourth quarter’s price-adjusted real sequential improvement was only revised down from 1.07 percent to 1.04 percent. But the annualized figure of $587.4 billion was a whopping 19.55 percent below that final first quarter pre-pandemic level.

Total constant dollar imports for the fourth quarter are now judged to have risen by 6.71 percent over the third quarter, not 6.67 percent. At $3.3991 trillion at an annual rate, they’re now 3.53 percent higher than during that immediate pre-CCP Virus first quarter.

After-inflation goods imports are estimated to have risen a bit more slowly on a quarter-to-quarter basis – by 5.25 percent between the third and fourth quarters instead of the previously reported 5.27 percent. Even so, as of the end of last year, they were running fully 8.49 percent higher at an annual rate ($3.0230 trillion) than during the first quarter.

Real services imports, however, expanded faster than previously reported – by 5.52 percent over third quarter levels, not 5.16 percent. But even though they’re now up to $415 billion at annual rates, in real terms, they still 17.41 percent below their pre-pandemic levels.

(What’s Left of) Our Economy: As Trump’s Tariffs Stay in Place, U.S. Manufacturing Output Keeps Surging

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aerospace, aircraft, aircraft parts, Boeing, CCP Virus, China, coronavirus, COVID 19, Federal Reserve, gloves, imports, industrial production, inflation-adjusted output, manufacturing, masks, pharmaceuticals, PPE, real growth, recession, tariffs, Trump, Wuhan virus, {What's Left of) Our Economy

It’s tough to describe this morning’s manufacturing production figures from the Federal Reserve (for January) as anything but excellent, and anything but another strong endorsement of the stiff, sweeping tariffs former President Trump imposed on goods, especially from China. By shielding industry from a flood of imports from the People’s Republic, these trade curbs have undoubtedly contributed to a manufacturing recovery that entered its ninth straight month in January, and brought its production to within a whisker of pre-CCP Virus levels.

Moreover, as noted last month, the sector’s prospects seem bright, since not only has the entire economy kept recovering as CCP Virus vaccination proceeds and accelerates, but the aerospace industry revives both from its Boeing safety-related woes and the pandemic-related travel slump, and vaccine production surges.

Domestic manufacturers’ real output rose by 1.04 percent sequentially, increases were broad-based, and revisions were strongly positive. Although December’s previously reported 0.95 percent growth was downgraded to 0.94 percent, November’s was revised up for the second straight time (from 0.83 percent to 1.10 percent), and October’s for a third straight time (from 1.34 percent to 1.51 percent).

Due to these revisions, despite the severely recessionary impact of the CCP Virus both at home and abroad, domestic manufacturing’s inflation-adjusted 2020 production decline now comes in at just 2.01 percent, rather than the 2.63 percent reported last month. In addition, price-adjusted manufacturing output has advanced by 24.11 percent since its April nadir, and is now a mere 0.75 percent below its last pre-pandemic level last February.

As encouraging as the January figures and revisions were was their breadth. In fact, for the second straight month, the constant dollar output improvement came despite a small (0.72 percent) sequential dip in the automotive sector, whose major ups and downs have heavily influenced overall manufacturing production results for much of the pandemic period.

One cautionary note: January monthly after-inflation output growth for the big machinery category – which turns out production equipment for the rest of manufacturing, and devices crucial for other major industries like construction and agriculture – was only 0.52 percent, just half that for the entire manufacturing sector. And revisions were mixed.

More encouraging: Machinery’s growth has been strong enough that its real output is now back to within 1.12 percent of its February pre-pandemic levels.

January also saw accelerating growth in aircraft and parts production. Monthly output in expanded by 2.89 percent in January, December’s strong initially reported 2.78 percent increase is now judged to have been 3.03 percent, and November’s has been upgraded from 2.39 percent to 2.50 percent.

In fact, recovery in these aerospace sectors has been so vigorous that their output is now 6.77 percent greater than their February pre-pandemic levels.

Probably reflecting the vaccine effect, price-adjusted production of pharmaceuticals and medicines increased by 2.42 percent on month in January – the best showing since July’s 2.57 percent. But revisions were mixed, and this vital sector’s real output is only 4.11 higher than in February, just before the pandemic struck the U.S. economy in full force. On the brighter side, immense vaccine demand makes clear that the industry’s upside is enormous for the time being.

As for medical equipment and supplies – including virus-fighting items like face masks,face masks, protective gowns, and ventilators – their production performance keeps lagging badly. Inflation-adjusted output for this category (which encompasses many other products as well) actually fell in January for the second straight month – and by 0.54 percent. In fact, constant dollar output in this sector is 2.18 percent lower than during the last pre-pandemic month of February, 2020.

(What’s Left of) Our Economy: The Virus Leaves U.S. Growth and Trade Figures Still Distorted After All These Months

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CCP Virus, coronavirus, COVID 19, exports, GDP, goods trade, Great Recession, gross domestic product, imports, inflation-adjusted growth, real GDP, real growth, real trade deficit, recession, recovery, services trade, trade deficit, U.S. Commerce Department, Wuhan virus, {What's Left of) Our Economy

The final (for now) official read for America’s economic growth in the third quarter came out this morning, and it confirmed again that both the gross domestic product (GDP) and the country’s major trade flows changed (and were distorted by) historic rates during that phase of the CCP Virus pandemic.

At the same time, the new inflation-adjusted GDP data (the measure most closely followed by serious students of the economy) and the related trade figures make clear that in these 30,000-foot macroeconomic terms, trade has been a minor part of the post-virus growth picture. (In terms of specific products, like healthcare-related goods, the story is of course different, because their availability has affected the severity of the pandemic and resulting deep economic slump, and the expected schedule for recovery.)

Not surprisingly, given the slightly faster real expansion reported by the Commerce Department this morning (33.4 percent at an annual rate, versus the previously judged 33.1 percent), and continued economic sluggishness overseas, the quarter’s after-inflation overall trade deficit came in slightly higher, too – $1.0190 trillion annualized as opposed to $1.0164 trillion.

That’s a new quarterly record by an even wider margin than reported in the previous GDP report. So is the sequential increase – 31.47 percent as opposed to 31.13 percent. Just for some perspective, the next biggest quarterly jump in the constant dollar trade gap was just 13.18 percent (between the first and second quarters of 2010).

But as noted in last month’s RealityChek GDP post, 2010 was when the U.S. economy was recovering from the Great Recession that followed the global financial crisis, and annualized growth during that second quarter was just a ninth as fast (3.69 percent) as this year’s third quarter.

The subtraction from real economic growth generated by the latest surge in the trade deficit was big in absolute terms (3.21 percentage points), increased slightly over the previously reported 3.18 percentage points), and still stands just shy of the all-time biggest trade bite (3.22 percentage points, in the third quarter of 1982). But set against 33.4 percent annualized growth, it’s clearly not very big at all.

Combined goods and services exports and imports changed to roughly the same modest degree as the overall trade deficit. The quarter-to-quarter price-adjusted export increase was revised down from 12.56 percent to 12.41 percent, and the total real import increase is now judged to be 17.87 percent, not 17.89 percent. As a result, both figures remained multi-decade worsts and bests.

Somewhat greater relative changes took place in the service trade data – which isn’t surprising, with the service sector having been hit much harder by the pandemic than goods sectors.

All the same, whereas the previous GDP report showed that after-inflation services exports edged up on quarter by 0.21 percent (from $582.1 billion annualized to $583.3 billion), this morning’s release recorded slippage – by 0.14 percent, to $581.3 billion. Consequently, they now stand at their lowest quarterly level since the third quarter of 2009 – just as that Great Recession recovery was beginning.

As for real services imports, their quarterly price-adjusted increase was revised down from 5.91 percent to 5.70 percent, and their $393.3 billion level was the lowest since the third quarter of 2006.

Unfortunately, the prospect that these CCP Virus-related distortions in economic growth and trade figures will soon come to an end still seems as remote as the prospect that the virus itself will soon be tamed – even with the beginning of mass vaccination. As a result, for the time being, tracking these numbers will be useful for getting a sense of those distortions’ scale, but the underlying health of the economy, and of its trade flows, will remain elusive.

(What’s Left of) Our Economy: Has the U.S. Seen Peak Manufacturing Output for the Virus Era?

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(What's Left of) Our Economy, appliances, automotive, capex, capital spending, CCP Virus, coronavirus, COVID 19, Federal Reserve, furniture, household appliances, housing, inflation-adjusted growth, Institute for Supply Management, machinery, manufacturing, real growth, recession, recovery, Wuhan virus

Today’s monthly Federal Reserve report on U.S. manufacturing production was full of surprises, but not enough were of the good kind. And with signs of economic slowing on the rise, the new figures – for September – could mean that, for the time being, industry’s relative out-performance during the pandemic era will begin weakening markedly as well.

The surprises start with the overall figure for the September monthly change in inflation-adjusted output for American factories. Despite an abundance of encouraging data from so-called soft surveys like those issued by the private Institute for Supply Management and the Fed system’s regional banks (see, e.g., here) real manufacturing production dropped by 0.29 percent sequentially. The decrease was the first since April, when national economic activity as a whole bottomed due to the spread of the CCP Virus and resulting shutdowns and stay-at-home orders.

The biggest bright spot in the report came from the upward nature of most revisions. August’s initially reported 0.96 percent monthly gain is now judged to have been 1.13 percent. The July result was upgraded from 3.97 percent to 4.30 percent. And June’s previous 7.64 percent improve was reduced to 3.61 percent. Further, these advances built on similar upward revisions that accompanied last month’s Fed report for August.

In fact, the revisions effect was strong enough to leave domestic industry’s cumulative after-inflation production performance during the virus-induced downturn better than the Fed’s estimate from last month. As of that industrial production report (for August), manufacturing constant dollar production had fallen 6.39 percent from its levels in February – the final month before the pandemic began impacting the economy. Today’s new September release now pegs that decline at only 5.81 percent, and even the monthly September decrease left it at 6.08 percent.

Nevertheless, the breadth of the September monthly decrease in overall price-adjusted manufacturing output unmistakably disappointed. Yes, the automotive sector (vehicles and parts combined) saw its on-month production tumble by 4.01 percent. But in contrast to most of the manufacturing data during the CCP Virus period, automotive didn’t move the overall manufacturing needle much, as real output ex-auto rose only fractionally in September.

Also discouraging –and unexpected, considering the good recent capital spending data reported by the Census Bureau (see, e.g., the “nondefense capital goods excluding aircraft” numbers for new orders in Table 5 in this latest release) – was the 0.41 inflation-adjusted production decline in the big machinery sector following five months of growth.

And even though the U.S. housing sector has been booming during the recession, real output of furniture also slumped for the first time in six months (by 0.96 percent), while price-adjusted household appliances production was down 4.99 percent after its own good five-month run.

As indicated by today’s revisions, these glum September manufacturing output figures could be upgraded in the coming months. Yet given the CCP Virus’ return – which will at best greatly complicate the challenge of maintaining recovery momentum for industry and the entire national economy – no one can reasonably rule out the possibility that, for now, Americans have seen peak post-virus manufacturing production.

(What’s Left of) Our Economy: New Fed Figures Show the U.S. Manufacturing Recovery is Proceeding Nicely

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automotive, CCP Virus, China, coronavirus, COVID 19, Federal Reserve, inflation-adjusted output, lockdowns, manufacturing, manufacturing production, real growth, shutdown, stimulus package, Trump tariffs, Wuhan virus, {What's Left of) Our Economy

It’s not apparent from the overall numbers, but the most important takeaway from this morning’s monthly Federal Reserve report on U.S. manufacturing production is that American industry has continued a steady comeback from the ravages of the CCP Virus and the government-induced shutdown of much of the U.S. economy. And the continuing healthy pace of this comeback is all the more impressive given the stop-and-start nature of so many of the economic restrictions imposed by Washington, D.C. and by the states and localities, and given the recent uncertainty about a new virus-relief bill.

The overall Fed numbers, as indicated above, do show a manufacturing bounceback that’s losing noteworthy steam. In August (the latest available data month), inflation-adjusted manufacturing output grew by 0.96 percent sequentially. That’s definitely a weaker pace than July’s growth (now pegged at 3.97 percent on month), much weaker than June’s 7.64 percent monthly burst, and well short of May’s 3.91 monthly percent production rise.

Grounds for encouragement, though, are justified even by these aggregate figures, as revisions for recent months generally were positive, and July’s was really positive – that month’s previously estimated manufacturing real growth was 3.41 percent.

But the best and most important news comes from the numbers on manufacturing production outside the automotive sector. As known by RealityChek regulars, the wild sequential swings in output from vehicle and parts makers have dominated the Fed manufacturing production reports for nearly the entire CCP virus period. (See., e.g., last month’s post on this subject.) So important though automotive is – both because of its size per se and because it affects the rest of its industry due to its big domestic supply chain – the non-auto results arguably provide a more accurate picture of U.S. manufacturing’s fundamentals. And this picture looks remarkably good, and still displays significant momentum.

Ex-auto, as the cognoscenti put it, constant dollar manufacturing production increased by 1.40 percent on month in August. So since that’s much faster than overall manufacturing’s performance (up 0.96 percent) that means automotive output fell (by 2.13 percent, specifically).

The August sequential improvement for ex-auto manufacturing, moreover, isn’t dramatically lower than July’s (1.93 percent). And it compares pretty well with June’s (now estimated at 3.82 percent) and May’s (now judged to be 2.12 percent).

Even better, all the pre-July results have been revised up except for May’s.

When all is said and done, the August Fed report underscores just how resilient domestic manufacturing has been despite the formidable CCP Virus challenges (which also include major economic slowdowns in the foreign markets U.S. industry has always relied on for much of its sales). As of August, overall price-adjusted American manufacturing output was just 6.39 percent below its levels in February (the final month before virus effects began impacting the economy). Manufacturing ex-auto’s real production was just 7.04 percent less than in February. And automotive’s after-inflation production was a mere 1.98 percent below that February benchmark.

And another factor to consider: Since China’s has been the world’s first major economy to resume growth since the virus struck, and since its recent growth has been so markedly export-led, think of how much worse U.S. industry’s state would be had the steep Trump tariffs on hundreds of billions of Chinese goods normally sent to the United States not been imposed, or left almost completely in place by the Phase One trade deal.