(What’s Left of) Our Economy: U.S. Manufacturing Output Keeps its Head Above Water

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aircraft, aircraft parts, appliances, automotive, CCP Virus, computer and electronics products, coronavirus, COVID 19, electrical components, electrical equipment, fabricated metal products, Federal Reserve, furniture, housing, inflation-adjusted growth, machinery, manufacturing, medical devices, miscellaneous durable goods, petroleum and coal products, pharmaceuticals, real growth, recession, semiconductor shortage, semiconductors, transportation equipment, wood products, Wuhan virus, {What's Left of) Our Economy

Yesterday’s figures from the Federal Reserve showed that U.S.-based manufacturing is still growing – by the barest of margins.

The data, covering August, revealed that domestic industry expanded in inflation-adjusted terms by just 0.09 pecent. Revisions were slightly negative.

As a result, after adjusting for prices, U.S. manufacturing output is 3.49 percent higher than in February, 2020 – just before the CCP Virus and assorted mandated and voluntary behavioral curbs sparked a short but scary downturn and touched off waves of distortion that persist to this day. As of last month’s Fed report, industry’s inflation-adjusted production had risen by 3.69 percent during the pandemic period.

Among the broadest manufacturing sub-sectors tracked by the Fed, the biggest August winners were:

>petroleum and coal products, whose 3.54 percent constant dollar monthly output surge was its best since the 11.49 percent jump of March, 2021, when the industry was bouncing back from the damage inflicted by that winter’s Texas blizzards. Revisions were mixed. July’s originally reported after-inflation drop of 0.94 percent upgraded to one of 0.25 percent. June’s preliminary figure, revised up last month from a real decrease of 1.92 to one of 1.50 percent revised back down to a 2.80 percent decline. But May’s initially reported 2.33 percent constant dollar sequential monthly shrinkage of 2.61 pcerent now standing as a fall of 1.30 percent.

Since immediately pre-pandemic-y February, 2020, inflation-adjusted production by these companies is up by 1.45 percent, versus the 1.27 decrease calculable last month;

>aerospace and miscellaneous transportation equipment, which rose month-to-month by 2.08 percent in real terms for its best such performance since February’s 2.52 percent. Revisions were slightly positive. June’s initially reported 1.54 percent improvement is now pegged at 1.55 percent. June had advanced from a fractional increase to a 0.14 percent dip to a 0.20 percent increase. But May’s results have deteriorated here, too – from an initially reported 0.85 percent decrease to a 1.25 percent drop.

In price-adjusted terms, this cluster is now 24.07 percent larger than in February, 2020, versus the 21.30 percent calculable last month;

>miscellaneous durable goods, a diverse sector containing the personal protective equipment and other medical gear used to widely to fight the CCP Virus saw inflation-adjusted production grow by 1.71 on month in August, its best such performace since last December’s 1.85 percent. Revisions, however, were negative. July’s initially reported 1.23 percent increase was revised down to one of 0.89 percent. June’s results have been downgraded from an advance of 2.25 percent to one of 0.87 percent to the 0.67 percent reported yesterday. And May’s improvement, first estimated at 1.17 percent, is now just to have been 0.63 percent.

Consequently, real production in miscellaneous durable goods has now increased by 13.92 percent since February, 2020, just before the pandemic’s arrival in force, versus the 13.38 percent calculable last month; and

>computer and electronics products, where constant dollar output climbed by 1.27 sequentially for their best month since May, 2021 (2.44 percent). Revisions were slightly negative, July’s results were downgraded from a decrease of 0.65 percent to one of 0.68 percent. June’s initially reported 0.21 percent was upgraded to a 0.67 percent gain before dropping back to one of 0.46 percent. And the initially reported May monthly rise of 0.50 percent is now recorded as a decrease of 0.11 percent.

After-inflation growth in this broad sector is now reported at 6.11 percent since that last CCP Virus data month of February, 2020 versus the 5.93 percent calculable last month.

Not so coincidentally, August’s two worst manufacturing production losers among the biggest manufacturing sub-sectors were closely related to the nation’s hard-pressed housing sector:

>furniture and related products, which suffered it sixth straight monthly price-adjusted production decrease. Moreover, the 2.13 percent shrinkage was the worst since February, 2021’s 2.77 percent. Moreover, revisions were overall negative. July’s initially reported retreat of 1.57 percent was revised up to one of 0.80. percent. But the June losses have been downgraded from one of 0.55 percent to one of 1.33 percent and then to one of 1.87 percent. And May’s initially reported 0.94 percent increase is now judged to have been a 0.96 percent decrease.

The furniture cluster is now 7.30 percent smaller after accounting for inflation since February, 2020, versus the 5.56 percent calculable last month’

>wood products, whose inflation-adjusted production slip of 1.70 percent was its second month-to-month decrease in a row and its worst since April’s 1.89 percent. Revisions were mixed. July’s initially reported 0.72 percent increase is now pegged as a -0.03 decline. June’s initially reported 0.73 percent rise has been revised down to one of 0.42 percent and yesterday to a 0.62 loss. But May’s results have been upgraded from a 2.64 plunge to a decrease of just 0.28 percent.

Whereas last month’s Fed release showed this sector to be 6.79 percent bigger since just before the pandemic began roiling and distorting the economy, this month’s estimates this increase to have been just 2.67 percent;

>automotive, whose roller-coaster ride continued with real output sinking by 1.44 percent in August. Worse, July’s initially reported 6.60 percent monthly production burst was cut by more than half – to an increase of 3.24 percent. June’s initially reported 1.49 percent decrease was first upgraded to one of 1.27 percent but now stands at 1.31 percent. And May’s initially reported 0.06 percent on month real output dip is now judged to have been a decrease of 1.96 percent.

As of last month’s Fed report, inflation-adjusted vehicle and parts production was recorded as being up by 4.73 percent since February, 2020. Now it’s pegged as being off by 0.20 percent; and

>electrical equipment, appliances (also related to housing), and components, whose inflation-adjusted production contraction (1.01 percent) was its second straight. Revisions, though, were overall positive. July’s initially reported 1.41 percent fall-off is now estimated as one of 1.44 percent., but June’s results have been upgraded a second consecutive time – from an advance of 1.34 percent to one of 1.42 percent to yesterday’s 1.45 percent. And although May remained an output loser, the decrease has been upgraded from an initially reported 1.83 percent to one of 1.68 percent (which was still its worst results since December’s 2.48 percent slump).

All told, though, this cluster’s price-adjusted shrinkage since that last pre-pandemic data month of February, 2020 fell to just 4.53 percent, versus the 4.83 percent fall-off calculable last month; and

>fabricated metal products, another volatile industry. After-inflation production was off by 0.95 percent sequentially in August, after improving by a figure of 1.79 percent that was revised down from an initially reported 2.05 percent but was still the best such result since February’s 2.49 percent jump. Other revisions were mixed, with June’s initially reported decrease of 0.83 percent revised down first to one of 1.40 percent and now to one of 1.59 percent, and May’s initially reported drop of 1.16 percent now pegged at just 0.98 percent.

As of last month’s Fed report, fabricated metals products’ constant dollar output had closed to within 0.14 percent of its immediate pre-CCP virus level. Now it’s off by 1.42 percent.

Better news came from the big and diverse machinery sector, which is a bellwether for both the rest of manufacturing and the rest of the entire economy, since so many industries use its products. It grew in real terms sequentially in August by 0.91 percent – its best such result since April’s 1.97 percent. Revisions were mixed. July’s initially reported 0.50 percent increase is now estimated to have been 0.68 percent. June’s results, first downgraded from a 1.14 percent decrease to one of 2.16 percent were revised back up to one of 1.75 percent. And May’s initially reported drop-off of 2.55 percent is now recorded as one of 3.20 percent – the worst since the 18.64 percent nosedive of April, 2020, during the height of the pandemic’s first wave.

Machinery has now grown by 5.07 percent during the pandemic period, versus the 2.82 percent calculable last month.

Interestingly, except for the still-shortage-plagued semiconductor industry, August was a banner output month for the sectors that consistently have made headlines during the pandemic.

Real output of microchips and related products did decrease by 0.57 percent, but the decline was the first in three months. Revisions were negative, though. July’s initially reported 1.16 percent rise has been downgraded to one of 0.77 percent and following a major upward revision from 0.18 percent growth to 2.09 percent, June’s real output now stands at 0.88 percent. But after a massive downgrade from 0.52 growth to 2.24 percent shrinkage, May’s performance is now recorded as a just a 0.72 percent loss.

After-inflation semiconductor production is now up 17.46 percent since pre-pandemic-y February, 2020, versus the 21.98 percent calculable last month.

Aircraft and parts surged by 3.11 percent sequentially in August after inflation, these industries’ strongest such performance since the 8.61 percent burst in January, 2021. Revisions were mixed, as July’s initially reported 1.02 percent real monthly output rise to one of 1.52 percent, but June’s initially reported 0.26 percent advance revised down to one of 0.18 percent and then back up to just 0.24 percent, and May’s initially reported 0.33 percent advance now judged to be have been a 0.47 percent retreat.

Even so, constant dollar aircraft and parts output is up by 30.60 percent since February, 2020, versus the 26.67 percent calculable last month.

In pharmaceuticals and medicines, real production was up month-to-month in August by 1.62 percent, these sectors’ best such performance since last August’s 1.96 percent. Revisions here, too, were mixed. July’s initially reported 0.29 percent increase was bumped up to growth of 0.30 percent. June’s results stayed at a 0.32 percent increase after being downgraded from 0.39 percent. But May’s initial growth figure of 0.35 percent now stands at 1.20 percent after some ups and downs.

Since just before the CCP Virus’ arrival in force, pharmaceuticals and medicines output (including vaccines) is now up 16.56 percent in real terms, versus the 14.69 percent calculable last month.

And medical equipment and supplies firms (including those that make anti-CCP Virus products) boosted their price-adjusted production in August by three percent in constant dollar terms – their best such performance since January’s 3.15 percent. Revisions were negative on net. July’s initially reported inflation-adjusted improvement of 1.90 percent was downgraded to an increase of 1.58 percent. June’s original 3.12 percent real growth figure has now been revised down twice – to 1.01 and 0.67 percent. May’s initial estimate of 1.44 percent real growth is now pegged at 1.36 percent.

Yet real production in this sector is now 17.81 percent higher than in immediately pre-pandemic-y February, 2020, versus the 16.15 percent calculable last month.

At this point, it’s easy to make the case that the headwinds facing domestic manufacturing are stronger than the tailwinds. There’s not only continued tighter inflation-fighting and growth-slowing monetary policies being pursued by the Fed along with mounting evidence that America’s overall economic growth will remain slow at best. There’s the end of the mammoth government deficit spending that’s also supported that growth for so long, and especially during the CCP Virus emergency. And don’t forget the continually darkening outlook for the global economy – and for the export markets on which U.S.-based industry relies significantly (nearly 18 percent of its gross output in 2021 by my calculations).

U.S.-based industry has been resilient since the pandemic arrived, but it wasn’t able to escape the undertow of the domestic and overseas economic downturns it generated. That seems like as good a forecast as any for domestic manufacturing output over the next few months, too.   

(What’s Left of) Our Economy: Revisions Take U.S. Manufacturing’s Solid Pandemic-Era Performance Down a Notch

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aerospace, aircraft, aircraft parts, apparel, appliances, CCP Virus, chemicals, computer and electronics products, coronavirus, COVID 19, durable goods, electrical components, electrical equipment, fabricated metal products, Federal Reserve, furniture, inflation-adjusted output, machinery, manufacturing, medical devices, miscellaneous durable goods, miscellaneous nondurable goods, nondurable goods, nonmetallic mineral products, paper, petroleum and coal products, pharmaceuticals, plastics and rubber products, printing, real growth, recession, semiconductors, textiles, wood products, Wuhan virus, {What's Left of) Our Economy

Sharp-eyed RealityChek readers have no doubt noticed my habit of noting that “final” versions of official U.S. economic data are typically final only “for now.” That’s because Washington’s statistics gathering agencies, to their credit, look back regularly on several years’ worth of figures to see where updates are needed because new information has come in, and this morning, the Federal Reserve released its own such “benchmark” revision of its manufacturing production data.

The results don’t contain any earthshaking changes, but they do alter the picture of domestic industry’s inflation-adjusted growth during the pandemic period, as well as of the performance of specific sectors, in non-trivial ways.

The main bottom lines: First, the Fed previously estimated that U.S.-based manufacturers had increased their constant dollar production from February, 2020 (the month before the CCP Virus’ arrival in force began roiling the entire American economy) through last month, by 4.94 percent. Today, the Fed told us that the advance was just 4.12 percent.

Second, as a result, domestic industry has further to go in real terms to recover its all-time high than the central bank had judged. As of the last regular monthly industrial production increase, U.S.-based manufacturing was 2.41 percent smaller after inflation than in December, 2007 – still its peak. But the new figures show that these manufacturers are still three percent behind the after-inflation output eight-ball.

Third, and especially interesting given the recent, significant U.S. growth slowdown and distinct possibility of a recession before too long, the revisions add (though just slightly) to the evidence that the overall economy’s woes this year are indeed beginning to affect manufacturing. Before the revision, the Fed judged that real manufacturing output had expanded by 2.68 percent between last December and this May, and slipped by 0.07 percent between April and May. The new figures: 2.46 percent and -0.22 percent, respectively.

The virus-era downward revisions affected durable goods and nondurable goods industries alike. The previous price-adjusted growth figure for the former during the pandemic period was 6.31 percent. Now it’s pegged at 5.18 percent. For the latter, the downgrade was from 3.42 percent to 2.99 percent.

Before the revisions, of the twenty broadest sub-sectors of manufacturing tracked by the Fed, only five suffered inflation-adjusted production declines from immediate pre-pandemic-y February, 2020 through this May, and all were found in the nondurables super-category. They were miscellaneous non-durable goods (down 11.43 percent), textiles (down 3.80 percent), paper (2.33 percent), printing and related activities (1.89 percent), and petroleum and coal products (1.21 percent).

The new data show that the number of growth losers has expanded to eight;. Four sectors were added: fabricated metals products (down 1.30 percent), nonmetallic mineral products (1.06 percent), apparel and leather goods (off by 0.59 percent), and furniture and related products (0.17 percent). And petroleum and coal products’ contant dollar production was upgraded from a 1.21 percent decrease during the pandemic period to a 2.96 percent gain.

The names on the list of top five pandemic period growers remained the same, with after-inflation production actually improving in aerospace and miscellaneous transportation (from 18.99 percent to 19.69 percent), miscellaneous durable goods (from 11.41 percent to 12.43 percent), and machinery (from 6.29 percent to 6.52 percent). But real production gains were revised down in computer and electronics products (from 10.42 percent to 7.38 percent), and chemicals (from 8.48 percent to 7.55 percent).

In absolute tems, the biggest price-adjusted output upgrades were registered in miscellaneous nondurable goods (from an 11.43 pecent nosedive to a smaller drop of 7.56 percent), electrical equipment, appliances and components (from a 2.19 percent rise to one of 4.95 percent), the aforementioned petroleum and coal products sector, wood products (from a 5.24 percent increase to 6.45 percent), and plastics and rubber products (from 1.78 percent growth to 2.76 percent).

The biggest real production downgrades came in the printing sector (all the way from a 1.89 percent inflation-adjusted output shrinkage to one of 9.52 percent), apparel and leather goods (from a 4.59 percent real production rise to a 0.59 percent dip), nonmetallic mineral products (from 2.58 percent price-adjusted growth to a 1.06 percent decline), and the aforementioned computer and electronics product sector.

RealityChek has been following with special interest narrower sectors that have attracted unusual attention since the CCP Virus arrived, and the new industrial production revision shows that constant dollar output climbed by more than previously estimated in aircraft and parts (24.89 percent versus 19.08 percent) and medical equipment and supplies (14.48 percent versus 11.51 percent), and by less in semiconductors and other electronic components (22.48 percent versus 23.82 percent) and in pharmaceuticals and medicine (12.79 percent versus 14.78 percent).

These Fed revisions are hardly a reason to push the panic button about U.S. manufacturing. But because domestic industry’s fortunes during the pandemic era have been so closely tied to blazing hot demand for its products, it’s hardly great news to learn that with signs abounding of a slumping American economy, manufacturing is approaching this apparent downturn in less robust shape than thought as late as yesterday.   

(What’s Left of) Our Economy: Will Inflation and a Hawkish Fed Finally Undermine U.S. Manufacturing?

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aerospace, aircraft, aircraft parts, appliances, automotive, capital spending, CCP Virus, coronavirus, COVID 19, electrical components, electrical equipment, Federal Reserve, furniture, inflation, inflation-adjusted output, machinery, manufacturing, medical devices, medicines, non-metallic mineral products, petroleum and coal products, pharmaceuticals, real growth, semiconductor shortage, semiconductors, wood products, {What's Left of) Our Economy

The new (May) U.S. manufacturing production report from the Federal Reserve doesn’t mainly indicate that industry may be facing a crossroads because the sector’s inflation-adjusted output dropped on month for the first time since January.

Instead, it signals that a significant slowdown may lie ahead for U.S.-based manufacturers because its downbeat results dovetail with the latest humdrum manufacturing jobs report (also for May), with results of some of the latest sentiment surveys conducted by regional branches of the Fed (e.g., here), and with evidence of a rollover in spending on machinery and equipment by the entire economy (which fuels much manufacturing output and typically reflects optimism about future business prospects).

Domestic industry shrank slightly (by 0.07 percent) in real output terms month-to-month in May. On the bright side, the strong results of recent months stayed basically unrevised, and April’s very good advance was upgraded from 0.75 percent to 0.77 percent.

Still, the May results mean that real U.S. manufacturing production is now up 4.94 percent since just before the CCP Virus began roiling and distorting the American economy (February, 2020), rather than the 5.07 percent calculable from last month’s report.

May’s biggest manufacturing growth winners were:

>Petroleum and coal products, where after-inflation jumped by 2.53 percent sequentially in May. The improvement was the fourth straight, and the increase the best since February’s 2.68 percent. As a result, constant dollar production in these sectors is now 1.21 percent higher than in immediately pre-pandemic-y February, 2020;

>Non-metallic mineral products, whose 1.78 percent sequential growth in May followed an April fall-off that was revised way down from -0.67 percent to -1.72 percent. March’s 0.76 percent decrease was downgraded to a 1.29 percent retreat, but February’s sequential pop was revised down just slightly to a still outstanding 4.37 percent surge. All told, the sector has grown by 2.58 percent after inflation since February, 2020 – exactly the same result calculable from last month’s Fed release; and

>Furniture and related products, whose 1.23 percent May inflation-adjusted output rise was its first such increase since February’s, and its best since that month’s 4.96 percent surge. Moreover, the May advance comes off an April performance that was revised up from a -0.60 percent sequential dip to one of -0.12. In all, these results were enough to move real furniture production above its Februay, 2020 level – by 0.08 percent.

May’s biggest manufacturing production losers were:

>wood products, whose 2.56 percent real monthly output decline was its first decrease since January and its worst since February. 2021’s 3.65 percent. Moreover, April’s previously reported 1.13 percent advance is now estimated to have been just 0.97 percent – all of which means that constant dollar production by these companies is now 5.24 percent higher than just before the pandemic arrived, not the 7.85 percent calculable last month;

>machinery, whose May inflation-adjusted output sank by 2.14 percent – the biggest such setback since February, 2021’s 2.59 percent. As known by RealityChek readers, machinery production is one of those aforementioned indicators of capital spending because it’s sold to customers not just in manufacturing but throughout the economy.

It’s true that machinery’s revisions were mixed. April’s after-inflation production increase was upgraded all the way fom 0.85 percent to 1.69 percent – its best such performance since last July’s 2.85 percent. But March’s performance was revised down from 0.36 percent to one percent shrinkage, and February’s increase was revised up again, but only from 1.17 percent to 1.22 percent. Consequently, whereas as of last month, machinery production was 8.31 percent higher in real terms than in February, 2020, this growth is now down to 6.29 percent.

>electrical equipment, appliances and components, where real output sagged for the second consecutive month, and by a 1.83 percent that was its worst such monthly performance since February, 2021’s 2.34 percent decrease. Revisions were modest and mixed, with April’s previously reported 0.60 percent sequential drop upgraded to -0.42 percent, March’s downgraded 0.04 percent dip upgraded to a 0.19 percent gain, and February’s real output revised up again – from 2.03 percent to 2.08 percent. These moves put real growth in the sector post-February, 2020 at 2.19 percent, less than half the 5.55 percent calculable last month.

By contrast, industries that consistently have made headlines during the pandemic delivered solid May performances.

Aircraft- and aircraft parts-makers pushed their real production up 0.33 percent on month in May, achieving their fifth straight month of growth. Moreover, April’s excellent 1.67 percent sequential production increase was upgraded to 2.90 percent (the sector’s best such result since last July’s 3.44 percent), March’s estimate inched up from a hugely downgraded 0.47 percent to 0.50 percent, and the February results were upgraded again – from 1.34 percent to 1.49 percent. This good production news boosted these companies’ real output gain since immediately pre-pandemic-y 16.37 percent to 19.08 percent.

The big pharmaceuticals and medicines industry performed well in May, too, as after-inflation production increased by 0.42 percent. Revisions were overall negative but small. April’s initially reported 0.20 percent real output slip is now judged to be a0.15 percent gain, but March’s upwardly revised 1.23 percent increase is now pegged at only 0.32 percent, and February’s downwardly revised 0.96 percent constant dollar output drop revised up to -0.86 percent. All told, inflation-adjusted growth in the pharmaceuticals and medicines sector is now up 14.78 percent since February, 2020, as opposed to the 14.64 percent increase calculable last month.

Medical equipment and supplies firms fared even better, as their 1.44 percent monthly real output growth in May (their fifth straight advance) was their best such result since February, 2021’s 1.53 percent. Revisions were positive, too. April’s previously recorded 0.06 percent dip is now estimated as a 0.51 percent increase, March’s downgraded 1.28 percent figure was upgraded to 1.41 percent, and February’s 1.46 percent improvement now stands at 1.53 percent. These sectors are now 11.51 percent bigger in terms of constant dollar output than they were just before the CCP Virus arrived in force – a nice improvement from the 8.92 percent figure calculable last month.

May also saw a production bounceback in the shortage-plagued semiconductor industry. Its inflation-adjusted production climbed 0.52 percent on month, but April’s previously reported 1.85 percent drop – its worst such performance since last June’s 1.62 percent – is now judged to be a 2.25 percent decline. At least the March and February results received small upgrades – the former’s improving from a previously downgraded 1.83 percent rise to 1.92 percent, and February’s upgraded growth of 2.91 percent now estimated at 2.96 percent. The post-February, 2020 bottom line: After-inflation semiconductor production is now 23.82 percent higher, not the 23.38 pecent increase calculable last month.

And since the automotive industry’s ups and downs have been so crucial to domestic manufacturing’s ups and downs during the pandemic era, it’s worth noting its 0.70 percent monthly price-adjusted output growth in May.

Revisions overall were negative. April’s previously reported 3.92 percent constant dollar production growth was revised down to 3.34 percent, March’s 8.28 percent burst was upgraded to 8.99 percent (the best such result since last October’s 10.64 percent jump), and February’s previously upgraded 3.86 percent inflation-adjusted production decrease was downgraded to a 4.24 percent plunge.

But given that motor vehicle- and parts-makers are still dealing with the aforementioned semiconductor shortage, these numbers look impressive, and real automotive output is now 1.17 percent greater than in pre-pandemic-y February, 2020, as opposed to the 0.77 percent increase calculable last month.

Domestic manufacturing has overcome so many obstacles since the CCP Virus’ arrival that counting it out in growth terms could still be premature. But an obstacle that it hasn’t faced since the pandemic-induced downturn have s looming again — a major economy-wide slowdown and possible recession that could result from monetary tightening announced by the Federal Reserve to fight torrid inflation.  And with the world economy likely to stay sluggish as well and limit export opportunities (see, e.g., here), the possibility that industry’s winning streak finally ends can’t be dismissed out of hand.  

(What’s Left of) Our Economy: A Deeper U.S. Contraction and a Bigger Trade Bite

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exports, GDP, goods, gross domestic product, imports, inflation-adjusted growth, real GDP, real growth, real trade deficit, services, trade deficit, {What's Left of) Our Economy

This morning Americans and the rest of the world found out that the U.S. government now believes that the American economy shrank a little more during the first quarter of this year than first estimated. And the details show that the nation’s towering and still-soaring trade deficit was a major culprit.

According to today’s release from the Commerce Department, the combined goods and services trade gap for the quarter totaled $1.5435 trillion at annual rates adjusted for inflation. That new record total – the seventh straight such all-time high – was 0.12 percent greater than the $1.5417 trillion dollar gap reported by Commerce in its first look at the changing size of the economy (termed the gross domestic product, or GDP).

And accompanying this finding was the news that the first quarter’s inflation-adjusted contraction was 1.52 percent at annual rates – not the 1.42 percent previously reported. So last month’s thoroughly depressing picture of an economy shrinking as its trade deficit surges (which last occurred in the first quarter of 2020) became slightly grimmer.

The swelling trade deficit reduced first quarter real GDP by 3.23 percentage points – more than the 3.20 percentage point subtraction estimated in the initial first quarter GDP report. For good measure, this growth loss was the worst in absolute terms since the 3.25 percentage point hit suffered during the third quarter of 2020 – when the economy roared back from the short but deep CCPVirus-induced downturn earlier that spring.

Yet that lost growth figure was dwarfed by the actual expansion that occurred (an a blazing 30.19 percent annualized in real terms). The trade deficit’s impact on the first quarter of this year helped turn slow growth into shrinkage. Specifically, had the already astronomical trade shortfall simply not gotten worse between the fourth quarter of last year and this year’s first quarter, the economy would have expanded by 1.71 percent

Worse, the growth toll exacted by the ballooning trade deficit in relative terms reached a new record. The 3.23 percentage point drag on an economy that shriveled by a total of 1.52 percent was slightly bigger than the 3.22 percent drag on the 1.53 percent total contraction recorded in the second quarter of 1982 – the previous all-time high.

Moreover, the quarter-to-quarter swing in the trade gap’s growth impact – from a 0.23 percentage point hit during the fourth quarter – was the biggest since mid-2020, when the 1.53 percentage point boost to growth in the second quarter became a 3.25 percentage point subtraction in the third quarter.

Because the real trade deficit during the first quarter was rising faster than first thought even as the overall economy was shrinking faster, the gap’s share of real GDP set a new record, too – 7.82 percent, compared with the 7.81 percent calculable from last month’s initial first quarter numbers. And the increase in this figure over its fourth quarter counterpart was a full percentage point.

In line with that latter result, the latest first quarter trade deficit figure now exceeds the fourth quarter level by 14.32 percent, not the 14.19 percent calculable from last month’s GDP release. That sequential increase remained the biggest since the 31.81 percent jump between the second and third quarters of 2020 – again, when the economy was bouncing back rapidly from that pandemic-induced cratering, not getting smaller.

And all told, the after-inflation trade deficit is now up 82.10 percent since the fourth quarter of 2019, the last quarter before the CCP Virus’ arrival began seriously affecting and especially distorting the economy.

The first quarter U.S. constant dollar goods trade deficit actually came in fractionally smaller in this morning’s government release than reported last month – $1.6680 trillion at annual rates versus $1.6685 trillion. Still a seventh straight record, this total now tops that of the fourth quarter by 13.61 percent, not the 13.65 percent calculable last month. Nonetheless, that increase remained the biggest since the 20.40 percent surge between that second and third quarter of 2020. And since that last pre-pandemic fourth quarter of 2019, the goods trade deficit has swelled by 55.58 percent.

By contrast, the new estimate shows that the chronic U.S. services trade surplus reached only $119 billion – 1.57 percent lower than the initially reported $120.9 billion. This new figure produced the first sequential decline in this surplus since the second quarter of 2021. Since the fourth quarter of 2019, this surplus has been cut nearly in half – by 47.51 percent, to be precise – as the virus has hit global activity in this sector unusually hard.

As for total inflation-adjusted exports, they’re now judged to be 0.14 percent higher in the first quarter than initially reported – $2.3577 trillion annualized versus $2.3545 trillion. But they’re still 1.38 percent lower than in the fourth quarter, and the sequential decrease remained the fourth in the nine quarters since that first pandemic-affected quarter – the first quarter of 2020. Moreover, in real terms, combined goods and services exports are still off by 7.66 percent since pre-pandemic-y fourth quarter, 2019.

Total inflation-adjusted first quarter imports are also now estimated as higher than initially reported (by 0.13 percent). Therefore, the $3.9012 trillion annual level still represents the fifth consecutive quarterly record. Meanwhile, the new 4.29 percent quarterly increase was the biggest since the 7.04 percent recorded between the third and fourth quarters of 2020 – when the economy was growing. As a result, total real imports are now 14.71 percent greater than in the fourth quarter of 2019.

After-inflation goods exports of $1.7519 trillion were slightly (0.12 percent) higher in the first quarter than previously reported, but still down 2.29 percent from the fourth quarter level. That decrease, moreover, was still the biggest since the 23.08 percent nosedive between the first and second quarters of 2020 – when the CCP Virus-induced downturn hit. And they, too, have fallen on a quarterly basis for four of the nine quarters that have passed since the pandemic first arrived in force in early 2020. In all, goods exports are now 1.72 percent lower than their immediate pre-pandemic levels.

Price-adjusted goods imports were also slightly (0.09 percent) higher in the first quarter than initially reported. The $3.4199 trillion annualized total was still the second straight all-time high and the second straight increase, and the 4.87 percent quarterly rate of increase still the fastest since the 6.80 percent rise in the fourth quarter of 2020. These overseas purchases have now increased by 19.83 percent since that final pre-pandemic fourth quarter of 2019.

Real services exports, however, were 0.05 percent weaker in the first quarter than initially judged – $633.3 billion at annual rates as opposed to $633.6 billion. Even so, that total climbed for the second quarter in a row (by 0.89 percent), and represented the best level since the $695.3 billion annualized recorded for the first quarter of 2020. All the same, and again, reflecting the outsized CCP Virus blows taken by the sector, constant dollar services exports have fallen by 18.15 percent since the last pre-pandemc quarter.

Yet price-adjusted services imports were revised up by a significant 0.31 percent during the first quarter, and the $514.3 bi1lion annualized level was 1.32 percent higher than the fourth quarter total and represented the strongest real services import total since the $547 billion annualized figure for the fourth quarter of 2019.

These new overall GDP numbers confirm that the U.S. economy’s growth has been slowing markedly (as does this usually pretty on-target forecast for the second quarter). But with one possible exception, all the forces and developments cited in my trade and GDP post last month pointing to continued increases in the inflation-adjusted U.S. trade deficit remain in place, ranging from the strong dollar, the Federal Reserve’s stated determination to reduce growth in order to fight inflation, and continued economic troubles in major U.S. trade partners like the European Union and China – which, along with the robust greenback, figures to curb American exports.

The possible exception – recent stock market declines start to crimp American consumer spending in a reversal of the wealth effect. But even if such caution appears, purchases of imports would need to fall much faster than buys of domestically produced goods and services in order even to retard the trade deficit’s surge, and this kind of favorable outcome for the economy is hardly a guarantee.

(What’s Left of) Our Economy: New U.S. GDP Data Still Show Trade Normalization — Pre-Delta

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CCP Virus, China, coronavirus, COVID 19, exports, GDP, goods trade, gross domestic product, growth, imports, inflation-adjusted growth, lockdowns, real growth, real trade deficit, services trade, Trade, trade deficit, vaccine mandates, Wuhan virus, {What's Left of) Our Economy

Today’s third (and final, for now) official read on U.S. economic growth in the second quarter confirms that at least as of June, the nation’s trade flows had made impressive progress toward returning to a pre-CCP Virus form of normality. The trouble still is, though, that these data cover a three-month stretch that came just before the highly infectious Delta variant of the virus arrived state-side in force, kicking off a new round of mandated and voluntary curbs on business and consumer behavior that will clearly impact the third quarter’s exports, imports, and trade balances – among other measures of economic performance.

The key sign of such trade normalization – the dramatically slowing rate at which the total U.S. deficit is increasing. It’s the same pattern that U.S. public health authorities spoke about early in the pandemic when they focused on “bending the curve.” The idea is that huge, powerful trends rarely reverse themselves overnight, or even quickly. When they’re harmful, the most realistic early aim policy- and other decision-makers can seek is slowing the rate at which they become worse.

And these latest second quarter numbers add to the evidence that trade deficit worsening has nearly stopped. Last month’s previous government estimate of the gross domestic product (GDP), its change, and how its individual components have grown or shrunk in inflation-adjusted terms (the terms most widely watched) revealed that the combined goods and services trade shortfall was only 1.71 percent wider ($1.2471 trillion at annual rates) than in the first quarter ($1.2261 trillion).

This morning, though, the overall trade gap was pegged at a smaller $1.2445 trillion – just 1.50 percent more than in the first quarter. The absolute level of the deficit remains enormous. In fact, as such, it’s still the biggest ever (and still the fourth straight record quarterly total). More important, at 6.43 percent the size of the total economy, it’s still the biggest trade gap ever in relative terms, too.

In addition, the second quarter’s inflation-adjusted overall trade deficit was a full 46.83 percent greater than the $847.6 billion annualized figure recorded in the fourth quarter of 2019 – the last full quarter before the CCP Virus began distorting U.S. trade flows by weakening the economy of enormous trade partner China.

But between the second and third quarters of last year, when the economy was rebounding strongly from its short but dizzying pandemic- and lockdown-induced recession, the real trade deficit skyrocketed by 31.81 percent. So the curve has not only been bent – it’s nearly flattened. And in price-adjusted terms, the government’s U.S. economic growth estimate for that April-through-June period this year came in this morning at 6.56 percent at annual rates – a bit better than last month’s 6.40 percent.

Slightly better trade deficit improvement coupled with slightly stronger economic growth is definitely good news, and it’s confirmed by the figures on the impact on growth of the trade deficit change. Last month, the Commerce Department (which compiles and reports the GDP statistics) announced that the constant dollar trade gap’s modest sequential increase over the first quarter level cut after-inflation U.S. growth by 0.24 percentage points. In other words, had the deficit simply remained the same, second quarter growth would have been 6.64 percent annualized, not 6.40 percent.

The new numbers show that the deficit’s smaller increase reduced second quarter growth by just 0.18 percentage points. So if the trade gap hadn’t worsened at all, real economic growth would have hit 6.74 percent, not 6.56 percent.

The manner in which the second quarter’s constant dollar trade gap improved over the second read was encouraging, too – although the pattern was not quite as positive as that reported last month.

That GDP release judged that total exports improved by 1.60 percent (to $2.298 trillion annualized) over the first quarter’s level, not by the originally reported 1.47 percent. Total imports, by contrast grew more slowly – by l.64 percent, not 1.90 percent (and reached $3.5457 trillion).

According to today’s GDP report, the total sequential export increase was a faster 1.85 percent (to $2.3042 trillion at annual rates), but the total import increase was as well (1.73 percent, to a slightly higher $3.5487 trillion).

Just as important, after-inflation total exports are still 9.76 percent below their immediate pre-virus (fourth quarter, 2019) levels, but total imports are 4.35 percent higher, and the latest second quarter figure is still a second straight quarterly record.

Goods trade accounts for the vast majority of U.S. trade flows and today’s second quarter revisions saw the longstanding constant dollar deficit level rise marginally, from $1.4014 trillion annualized to $1.4020 trillion. This figure remained the fourth straigh all-time high for this indicator, but was a mere 0.44 percent worse than its first quarter counterpart, and thus represented a major slowdown from the 20.40 percent spike seen during last year’s third quarter GDP boom.

For a change, even though the service sector has been the hardest hit by the virus by far, its new real trade surplus figures improved over the previous read – from $151.2 billion at annual rates, to $152.4 billion. Nonetheless, this still represented the weakest quarterly performance since the third quarter of 2010’s $161.7 billion – when the economy’s recovery from the 2007-2008 financial crisis and Great Recession remaine in early stages.

The rapid spread of the Delta variant and consequent business restrictions and renewed consumer caution are widely forecast to depress U.S. growth considerably (see, e.g., here) – which usually heralds a considerable reduction in the trade deficit. But even if economic form follows, the unpredictability of the pandemic and the responses it generates means that it’s anyone’s guess as to how long any particular trend will last.

(What’s Left of) Our Economy: No Delta Effect on U.S. Manufacturing Growth In Sight. Yet.

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aerospace, aircraft, aircraft parts, appliances, automotive, Boeing, CCP Virus, coronavirus, COVID 19, Delta variant, electrical components, electrical equipment, fabricated metal products, Fed, Federal Reserve, inflation-adjusted growth, inflation-adjusted output, machinery, manufacturing, medical supplies, medicines, personal protective equipment, petroleum and coal products, pharmaceuticals, plastics, PPE, real growth, recovery, reopening, rubber, textiles, vaccines, {What's Left of) Our Economy

The after-inflation U.S. manufacturing production data reported today by the Federal Reserve revealed plenty of newsy developments. But my choice for biggest is the finding that, in price-adjusted terms, domestic manufacturers’ output finally nosed back above its last pre-CCP Virus (February, 2020) level.

The new number isn’t an all-time high – that came in December, 2007, just as the financial crisis was about to plunge the entire U.S. economy into its worst non-pandemic-related downturn since the Great Depression of the 1930s. As of this July, real manufacturing production is still 5.94 percent below that peak.

Measured in constant dollars, however, such output is now 1.15 percent greater than just before the virus arrived in the United States in force. Not much, and of course any Delta variant-prompted curbs on economic activity or extra caution in consumer behavior could wipe out this progress. But you know what they say about a journey of a thousand miles.

Had this milestone not been reached, I’d have led off this post by noting that although some really unusual seasonal factors in the volatile automotive sector definitely juiced the excellent July sequential output gain, U.S.-based industry outside automotive performed impressively during the month as well.

Specifically, as the Fed’s press release noted, the whopping 11.24 percent jump in the price-adjusted output of vehicles and parts contributed about half of overall manufacturing’s 1.39 percent growth. That automotive figure was the best monthly improvement since the 29.39 percent rocket ride the sector generated in July, 2020 – when the whole economy was staging its rebound from that spring’s deep but brief virus-induced recession. And that overall real on-month production advance was the best for manufacturing in general since the 3.39 percent achieved in March – earlier in the initial post-pandemic recovery.

But in July, the rest of domestic industry still expanded by a strong 0.70 percent after inflation – its best inflation-adjusted growth since the 3.31 percent also recorded in March.

The revisions in this morning’s Fed data for the entire manufacturing sector were mixed. June’s initially reported 0.05 percent decline is now judged to be a 0.10 percent increase, and April’s previously reported 0.39 percent drop now stands as a 0.21 percent decrease. But May’s last reported increase – upgraded slightly to a strong 0.92 percent – is now estimated at just 0.65 percent.

Looking at broad industry categories, the big real output July winners in domestic manufacturing’s ranks aside from automotive were electrical equipment, appliances, and components (up 2.31 percent); plastics and rubber products (up 2.02 percent); machinery (1.91 percent); the broad aerospace and miscellaneous transportation sector (think “Boeing”), which rose by 1.90 percent; textiles (up 1.67 percent); and miscellaneous durable goods, which includes but is hardly confined to many pandemic-related medical supplies (up 1.55 percent).

As I keep noting, good machinery growth is especially encouraging, since its goods are used both throughout manufacturing and the economy as a whole, and strong demand signals optimism among manufacturers about their future prospects – which tends to feed on itself and impart continued momentum to industry.

The list of significant losers was much shorter, with real fabricated metal products output 0.42 percent lower than June levels and petroleum and coal products shrinking by 0.60 percent.

Turning to narrower manufacturing categories that remain in the news, despite Boeing’s still serious manufacturing and safety problems, and ongoing CCP Virus-created weakness in air transport, inflation-adjusted production of aircraft and parts continued its strong recent run. June’s initially reported 5.24 percent monthly output surge was revised down to 3.57 percent. But that’s still excellent by any measure. And July saw production climb another 2.78 percent. As a result, real output in this sector is now 9.95 percent higher than it was just before the pandemic’s arrival in the United States in February, 2020.

Real output in the pharmaceuticals and medicines sector (which includes vaccines) grew by 0.77 percent sequentially in July, and its real output is now 11.35 percent greater than just before the pandemic. But those revisions!

June’s initially reported 0.89 percent increase is now judged to be a 0.34 percent decrease, and May’s previously downgraded 0.15 percent rise has now been upgraded all the way to 1.54 percent.

An even better July was registered by the vital medical equipment and supplies sector – which includes virus-fighting items like face masks, face masks, protective gowns, and ventilators. Monthly growth came in at 1.71 percent. But revisions here were puzzling, too.

June’s initially reported 0.99 percent sequential real production improvement is now seen as a major 1.54 percent falloff. And May’s monthly constant dollar growth, already upgraded from 0.19 percent to 1.18 percent, is now pegged at 1.86 percent.

I’m still optimistic about domestic manufacturing’s outlook, and that’s still based on domestic manufacturers’ own continued optimism – which as shown by the two major private sector monthly manufacturing surveys remained strong in July. (See here and here.)

But I also continue to view U.S. public health authorities’ judgment as suspect when it comes to the balance that needs to be struck between fighting the virus and keeping the economy satisfactorily open. So as long as new virus variants pose the threat of higher infection rates (though not at all necessarily of greater damage to Americans’ health), my own optimism has become more tempered.

(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?