(What’s Left of) Our Economy: America’s Real Wage Recession Continues, and Manufacturing Pay Hits a Downbeat Milestone

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inflation-adjusted wages, manufacturing, private sector, recession, recovery, wages, {What's Left of) Our Economy

Although this morning’s data from the Labor Department showed that the inflation-adjusted wages picture brightened marginally in June, they also revealed that two underlying trends on the American compensation front remained as discouraging as ever – especially in manufacturing. Further, the statistics confirmed that real hourly pay in industry has reached a milestone that factory workers clearly won’t want to celebrate.

The two underlying trends have to do with the technical real wage recessions (two or more consecutive quarters of net decline) that private sector workers overall, and their manufacturing counterparts, continue to suffer.

For the former, constant dollar hourly pay is down on net since last July – by 0.19 percent. For manufacturing, the real wage recession began two-and-one half years ago. Since January, 2016, after -inflation hourly wages are off by 0.09 percent.

The milestone? Real hourly pay in manufacturing has lately been performing so much worse than pay in the overall private sector that the two figures have now converged for the first time since these statistics have been tracked (beginning in 2006).

In May, price-adjusted wages in manufacturing and the overall private sector both stood at $10.75 per hour in 1982-84 dollars. This morning, those preliminary May readings remained intact, and the preliminary June numbers revealed both categories of workers to be earning $10.76 per hour in real terms.

By comparison, when the last recession began, at the end of 2007, constant dollar manufacturing wages topped their overall private sector counterparts by 2.79 percent. When the current recovery began, in mid-2009, the gap had actually grown – to 3.98 percent.

But during the current expansion, real private sector wages have now improved by 4.36 percent, whereas in manufacturing, constant dollar hourly pay is up only 0.37 percent – less than a tenth as fast.

On a sequential basis, real wages in manufacturing and the overall private sector both increased in June by 0.09 percent. On an annual basis, however, real private sector wages are flat, and real manufacturing wages are down 1.10 percent.

Between the previous Junes, constant dollar private sector wages advanced by 0.84 percent, and their manufacturing counterparts climbed by 0.46 percent.

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(What’s Left of) Our Economy: Manufacturing Job Creation Softened a Bit in May; Wages (Literally) Went Nowhere

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Employment, inflation-adjusted wages, Jobs, manufacturing, non-farm jobs, private sector, recession, recovery, wages, {What's Left of) Our Economy

I was on some travel yesterday and couldn’t put out my usual same-day, post. But here’s my analysis of the latest monthly (May) manufacturing figures contained in that morning’s employment report from the Bureau of Labor Statistics:

>U.S. manufacturing job creation shifted into a somewhat lower gear in May, with its 18,000 sequential gain the smallest such improvement since last September’s 6,000. Revisions left the last February through April monthly totals unchanged on net.

>Worse news, moreover, came on the manufacturing wages front. Pre-inflation hourly pay flat-lined on month in May – its worst such results since last November’s similar performance. In addition, April’s previously reported 0.15 percent monthly manufacturing constant dollar wage gain was revised down to 0.15 percent.

>By contrast, overall current dollar private sector wages saw their best monthly improvement (0.30 percent) since December’s 0.38 percent.

>As a result, May’s year-on-year manufacturing wage improvement before inflation totaled only 1.85 percent. Between the previous Mays, pre-inflation manufacturing wages advanced by 2.12 percent.

>These increases also lagged those for the overall private sector, where current dollar wages rose by 2.71 percent on year in May. That was the best such performance since January’s 2.77 percent. And it exceeded the 2.46 percent private sector wage gain between May, 2016 and May, 2017.

>Consequently, the wage gap between manufacturing and the overall private sector widened significantly between last May and this. As of last May, during the current economic recovery, pre-inflation private sector wages had increased 21.24 percent faster than manufacturing wages. This May, the difference was up to 28.13 percent.

>Despite May’s somewhat weaker manufacturing employment growth, the sector’s share of total non-farm employment (the Bureau of Labor Statistics’ U.S. jobs universe) remained at just under 8.53 percent. Last May, manufacturing accounted for just under 8.49 percent of total non-farm employment, meaning that during the last year, manufacturing payrolls have grown slightly faster than American payrolls in general.

>In fact, manufacturing’s May year-on-year job creation (259,000) was a tremendous improvement from the figure between the previous Mays (78,000) and the best annual gain since May, 1998’s 262,000.

>Over the longer-term, however, manufacturing remains a significant job-creation laggard. Since it’s latest employment bottom, in February and March, 2010, it’s regained 1.22 million (53.21 percent) of the 2.293 million jobs lost during the recession and its immediate aftermath.

>The overall private sector lost 8.780 million jobs from the year-end 2007 onset of the recession through February, 2010. Since then, it’s created 19.086 million net new jobs.

>Moreover, since the recession’s onset, the private sector has boosted its employment by 8.88 percent. But manufacturing payrolls are still down 7.81 percent from their December, 2007 levels.

>Manufacturing has been an even worse real wage laggard. The latest inflation-adjusted data go through April, and show that manufacturing couldn’t even match the monthly flat-line in private sector wages. In manufacturing, pay between March and April dipped by 0.09 percent.

>Year-on-year, private sector after-inflation wages inched up only 0.19 percent in April, but even that negligible growth handily beat manufacturing’s 1.10 percent decline. Between the previous April’s inflation-adjusted manufacturing wages improved by 0.55 percent.

>Indeed, both the private sector and manufacturing continue to experience technical real wage recessions (periods of cumulative shrinkage lasting at least two quarters). But in the private sector, such pay is off only 0.09 percent since last May. In manufacturing, real wages are down by this amount since January, 2016.

>And whereas private sector wages are up 4.17 percent in real terms during the current economic recovery (which is nearly nine years old), their manufacturing counterpart gained only 0.37 percent – less than a tenth as much.

(What’s Left of) Our Economy: New Fed Manufacturing Production Figures Produce Mixed Picture

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

Domestic U.S. manufacturing grew on month in April in real terms for the third straight month, according to the Federal Reserve’s new industrial production figures. Moreover, April’s 0.47 percent sequential after-inflation production increase was the best such result since October’s 1.31 percent – which was boosted by a bounce-back effect from last fall’s hurricanes. Monthly constant dollar output gains were recorded for both durable goods (0.42 percent) and non-durable goods (0.52 percent).

Yet moderately negative revisions generated an annual April real growth rate for overall manufacturing (2.01 percent) that was the lowest since January’s 0.99 percent, and slightly more sluggish than the previous April-to-April’s 2.18 percent. Adjusted for inflation, domestic U.S. manufacturing output remains 3.31 percent smaller than at its peak before the last recession began – more than ten years ago.

Here are the manufacturing highlights of the Federal Reserve’s release today on April industrial production:

>The new April Federal Reserve industrial production figures showed mixed results for domestic manufacturing, with inflation-adjusted output expanding sequentially for the third straight months, but annual real growth showing some signs of slowing.

>Industry’s constant dollar output improved on month by 0.47 percent in April – the best such performance since a hurricane bounce-back effect helped spur a 1.31 percent sequential spurt last October.

>April’s real monthly production improvement was broad-based, including both the durable goods (0.42 percent) and non-durable goods (0.52 percent) super-sectors.

>Yet the latest revisions were moderately negative. March’s meager 0.07 percent monthly output rise was downgraded to 0.02 percent, February’s 1.51 percent jump is now judged to have been 1.40 percent, and January’s 0.37 percent sequential drop is now reported as a 0.59 percent decrease.

>Largely as a result, April’s year-on-year real manufacturing production increase was only 2.01 percent – the lowest since January’s 0.99 percent.

>Between the previous Aprils, constant dollar manufacturing output expanded by 2.18 percent.

>In addition, the new Fed figures reveal that, in price-adjusted terms, domestic manufacturing is still 3.31 percent smaller than at its pre-recession peak at the end of 2007 – more than ten years ago.

>More encouragingly, April’s monthly manufacturing production improvement was broad-based.

>For durable goods, the larger of manufacturing’s two super-sectors, real output advanced by 0.42 percent sequentially in April.

>Nonetheless, revisions were negative as well, with March’s previously reported 0.39 percent increase downgraded to 0.17 percent, February’s 1.84 percent increase to 1.59 percent, and January’s 0.25 percent dip to a 0.40 percent decrease.

>Durable goods’ year-on-year results were no better. April’s 1.94 percent annual production increase was the lowest inflation-adjusted figure since January’s 0.74 percent. It was also significantly worse than the 2.77 percent figure recorded between the previous Aprils.

>Durable goods real production is now 0.78 percent above the level it hit at the outset of the last recession, at the end of 2007. It rose slightly the following month, and is now 0.75 percent above that January, 2008 levels.

>Non-durable goods have turned in a somewhat better recent performance.

>In April, their price-adjusted output rose by 0.52 percent on month.

>Moreover, March’s previously reported 0.27 percent sequential real production decrease was revised up to a 0.13 percent decline, and February’s 1.16 percent increase was revised up to 1.20 percent. Only January’s results were downgraded – from a 0.50 percent monthly decrease to a 0.79 percent drop.

>On an annual basis, non-durables after-inflation output rose by 2.10 percent in April – a decided improvement from the 1.54 percent increase between the previous Aprils.

>Further, although the latest year-on-year non-durables’ real output increase is also the lowest since January’s (1.26 percent), the deceleration has been smaller than that in durable goods.

>Nonetheless, constant dollar non-durables output is now fully 8.13 percent below its pre-recession peak – hit in July, 2007.

(What’s Left of) Our Economy: Manufacturing Jobs Growth Stays Strong, but Where are the Wages?

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Bureau of Labor Statistics, inflation-adjusted wages, Jobs, Labor Department, manufacturing, non-farm payrolls, recession, recovery, wages, {What's Left of) Our Economy

According to this morning’s Labor Department jobs report, April was another month of impressive employment gains and sluggish wage growth in manufacturing. Industry added 24,000 net new jobs on month and revisions left recent months’ solid employment growth intact. Further, manufacturing payrolls’ yearly rate of expansion quickened in April (to 245,000) and was still the best such performance since May, 1998’s 262,000. In fact, manufacturing jobs continued their recent trend of increasing faster than overall employment, with their share of non-farm jobs growing from 8.49 percent last April to 8.53 percent.

Yet pre-inflation manufacturing wages advanced by only 0.15 percent on month in April and March’s figure was revised down slightly. Worse, on an annual basis, current dollar manufacturing hourly pay growth fell to 1.36 percent – the slowest such rate since June, 2015’s 1.25 percent. And in inflation-adjusted terms, manufacturing wages are still in technical recession, having fallen on net by 0.28 percent since February, 2016.

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

>American manufacturing’s robust net job creation extended into April, yet swelling payrolls continued having little impact on the sector’s weak wage growth.

>Domestic manufacturers boosted payrolls by 24,000 in April. March’s 22,000 monthly jobs increase was left unrevised, and February’s previously reported 32,000 sequential improvement was downgraded to 31,000.

>Industry’s employment performance was even better on an annual basis. From April, 2017 to April, 2018, manufacturing added 245,000 net jobs – its best such performance since May, 1998’s 262,000.

>Between the previous Aprils, industry created 54,000 net new jobs.

>Further, manufacturing employment continued its recent trend of growing even faster than overall U.S. employment. Last April, manufacturing jobs accounted for 8.49 percent of all American non-farm employment (the Bureau of Labor Statistics’ U.S. employment universe). This April, their share stood at 8.53 percent.

>Manufacturing has now regained 52.42 percent (1.202 million) of the 2.293 million jobs it lost since the late-2007 onset of the Great Recession through the sector’s employment bottom in February and March, 2010.

>But not even their recent hiring spurt has induced domestic manufacturers to raise pay significantly.

>April saw pre-inflation hourly pay in manufacturing increase by just 0.15 percent. In a break with recent trends, this sequential manufacturing wage gain matched that for the private sector overall.

>But manufacturing’s March monthly wage increase was revised down from 0.19 percent to 0.15 percent, and the April private sector figure represents a slowdown from March’s 0.22 percent – which was also downgraded (from 0.30 percent).

>Manufacturing wages performed even worse on an annual basis. Between this April and last, they rose by just 1.36 percent – the slowest such improvement since June, 2015’s 1.25 percent. From April, 2016 to April, 2017, they increased by 1.93 percent.

>As a result, since the start of the current economic recovery, in mid-2009, pre-inflation private sector wages have grown by 25.62 percent more than their manufacturing counterparts. Last April, the gap was considerably less: 18.72 percent.

>In real terms, manufacturing’s recent growth has been even less impressive.

>The latest inflation-adjusted data go through March, when its constant dollar pay rose by 0.19 percent – a downgrade from the initially reported 0.28 percent. Real monthly wage growth for the private sector in toto was downgraded for March, too – but from 0.37 percent to 0.28 percent.

>Year-on-year, real wages in April for manufacturing are actually down – by 0.65 percent. For the private sector overall, they were up 0.28 percent.

>In fact, manufacturing workers have suffered a technical recession in real wages (two straight quarters or more of cumulative decline) since February, 2016. During that more-than-two-year period, their inflation-adjusted hourly pay is off by 0.28 percent.

>The overall private sector is in real wage recession, too, but only since last May. Since then, its after-inflation hourly pay is down by 0.09 percent.

>Further, since the current recovery’s mid-2009 onset, overall real private sector wages have risen nearly ten times faster (4.17 percent) than real manufacturing wages (0.47 percent).

>Despite healthy recent growth, manufacturing remains a longer-term jobs laggard. As reported above, since the current economic recovery began in mid-2009, manufacturing has regained more than half the jobs it lost during the recession and its aftermath. But since shedding 8.780 million positions on net from December, 2007 through February, 2010, the private sector has created 18.856 million net new positions.

>From another perspective, manufacturing payrolls remain 7.94 percent below their immediate pre-recession (December, 2007) level of 13.746 million jobs. But overall private sector employment has risen 9.50 percent during that period.

(What’s Left of) Our Economy: Why Investors Shouldn’t Blame U.S. Workers for Inflation

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bonds, budget deficits, Federal Reserve, Financial Crisis, inflation, interest rates, manufacturing, monetary policy, quantitative easing, recession, recovery, stock market, stocks, wage inflation, {What's Left of) Our Economy

Thanks to the U.S. government’s new inflation data, we can cross one often fingered culprit off the list of developments being blamed for the recent turbulence in American, and therefore global, financial markets – wage inflation. For by a crucial indicator, real hourly pay in the United States is not only failing to lead prices upward – it’s been trailing overall inflation recently and indeed has been in recession lately by one commonsense standard.

Of course, market turmoil (like most big developments) springs from several, overlapping reasons. The first is one I discussed last Friday, and which I consider the most important: Investors fear that the Federal Reserve and other world central banks will start tightening monetary policy faster than expected, in order to prevent (more of) the kinds of reckless investments that tend to mushroom when credit is super cheap, and that can often trigger financial crises like the near global meltdown roughly a decade ago. (Happy Anniversary!)

If credit becomes more expensive, then economic growth and corporate profits will struggle to maintain their current rates of increase, and stocks will become less attractive investments, all else equal. In addition, the very increase in interest rates almost certain to result from such central bank “tightening” heightens the appeal of bonds and dims that of equities.

To complicate matters further, another engine of higher rates might be a combination of the great increase in federal budget deficits likely from the new tax cuts proposed by the Trump administration and passed by Congress, and the big-spending budget deal reached by the lawmakers and the President. The consequent budget gap will boost federal borrowing needs (and all else equal, push up the rates Washington will need to pay lenders for all this new debt) at a time when the U.S. central bank has started selling the ginormous amount of government bonds it’s been purchasing and holding since late 2008 (a practice called “quantitative easing) in order to halt the Great Recession and speed up recovery . This version of tightening – which also stems from financial stability concerns – will raise the supply of bonds even further.

The second reason for the turmoil is investor concern that rising inflation will spur central banks to raise rates regardless of the above financial stability concerns – because excessive inflation can produce its own economic disaster. And in fact, the proximate cause of the current bout of market instability seems to be those very inflation fears, and in particular, the possibility of wage inflation.

Higher compensation costs could deal their own blow to stock prices by reducing corporate profits; or by sending upward price pressures rippling throughout the entire economy (as companies tried to pass higher costs on to their customers either elsewhere in the business world or in consumer ranks); or through some combination of the two. (Interestingly, the chances seem pretty low that companies could absorb higher wages through greater efficiency, as productivity improvement has been very slow at best recently.)

So that’s why today’s widely anticipated (to put it mildly) U.S. government inflation data is so important. The inflation figures were somewhat “hotter” than most investors were predicting. But it couldn’t be clearer that wage inflation has nothing to do with these higher prices.

The numbers that most observers – whether investors or not – are looking at are the year-on-year numbers, and they do seem to signal some wage inflation. From January, 2017 to last month, the Labor Department’s headline reading showed a 2.14 percent rise in prices nationwide, and a 1.85 percent increase in “core” prices (which stripped out from the headline food and energy prices because they’re considered so volatile in the short-term that they can generate readings regarded as somewhat misleading).

During that same year, wages adjusted for inflation for the overall private sector were up 0.75 percent – which means they rose faster than overall prices. Moreover, between previous Januarys, real wages actually declined fractionally (by 0.09 percent). So in principle, investors (and other economy watchers) have reasons to be nervous about wage inflation.

But a more recent time frame tells a very different story. For since last May, private sector wages have been down on net. Although the cumulative decline is only 0.19 percent, this means that on a technical basis, real wages are in recession. (I feel justified in using this term because when economists talk about growth, a decline for two consecutive quarters is defined as a recession. So a six-month cumulative downturn seems close enough.) Indeed, more accurately, real wages are still in recession, since this development was apparent last month, too.

And the latest month-to-month figures indicate that real wage pressure is weakening, not strengthening. From December to January alone, they dropped by 0.19 percent, after rising by that amount from November to December.

The picture looks even grimmer when you go back to the start of the current economic recovery – in mid-2009. Since then, real private sector wages have risen by only 4.07 percent. And that’s over more than eight years!

But private sector real wages are practically torrid when they’re compared with inflation-adjusted pay in manufacturing. Such compensation has been in technical recession for two full years, as it’s fallen by 0.09 percent since January, 2016. On a monthly basis, after-inflation manufacturing pay plummeted by 0.46 percent in January, its worst such performance since August’s 0.64 percent tumble. At least the December figure was revised up – though only from a 0.09 percent dip to a 0.09 percent increase.

Over the current economic recovery’s eight-plus years, real manufacturing wages have risen by a mere 0.37 percent – less than a tenth as fast as those of the private sector overall.

Yet although inflation – and especially wage inflation – doesn’t seem to warrant a quicker pace of Federal Reserve interest rate hikes (or even the current, “gradual” pace), a case can still be made for tightening on a financial stability basis. And those massive federal deficits, which will need to be funded by equally massive increases in bond supplies, seem here to stay for many years. So as has been the case for so long, assuming these moves do slow U.S. economic growth, American workers appear certain to pay many of the costs for disastrous policy mistakes they never made.

(What’s Left of) Our Economy: A Turning Point for U.S. Job Quality?

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Employment, healthcare services, Jobs, private sector, public sector, recession, recovery, subsidized private sector, {What's Left of) Our Economy

Although the numbers are still preliminary, the release earlier this month of the January U.S. jobs report provides an unusually good reason to check in on one of RealityChek‘s favorite sets of statistics – the ones that permit calculating the importance of what I call the subsidized private sector (those parts of the economy, notably healthcare services, that are typically considered part of the private sector, but that rely heavily on government spending for its performance in employment and other areas) in the American jobs creation picture.

This distinction matters because most Americans (rightly) believe that private sector employment and its strength or weakness is a much better measure of the economy’s overall health than public sector employment – which largely reflects the decisions of politicians. So if the private sector is being over-counted – which is clear from the failure of most analysts to draw this distinction – that’s big news, and this over-count has been a major feature of most discussions of the current economic recovery.

This latest data bring the story up to the first month of the new year. They include a second (though still preliminary) look at the December numbers (and consequently the full-year 2017 numbers). And they incorporate some revisions going back to the early part of last year. The bottom line is similar to that of RealityChek‘s last update: after surging during the middle part of the recovery, subsidized private sector job creation slowed markedly during the first year of the Trump administration. But another significant development comes through loud and clear, too: During Year One of Trump, growth in payrolls in the public sector proper has ground to a near halt.

First, the new subsidized private sector number, expressed as a share of total job creation for the last few years:

2013: 11.34 percent

2014: 15.97 percent

2015: 23.67 percent

2016: 24.77 percent

2017: 21.49 percent

For good measure, the figure for last month (which will be revised at least twice more): 19.00 percent.

On a standstill basis, here’s how the subsidized private sector’s share of total employment has looked looks at the onset of the last recession (at the end of 2007), at the start of the current recovery, and at the end last year:

December, 2007: 13.22 percent

June, 2009: 14.97 percent

December, 2017: 15.85 percent

For comparison’s sake, in December, 2016, the subsidized private sector’s share of total payrolls was 15.76 percent.

And this is where the dramatic slowdown in government hiring comes in. Here’s how the actual number of government jobs (at all levels) in the U.S. economy has changed annually in recent years:

2013: -57,000

2014: +129,000

2015: +151,000

2016: +206,000

2017: +18,000

Because government jobs are included in the economy-wide job total, much of the reason that the subsidized private’s share in American employment overall kept growing between 2016 and 2017 (from 15.76 percent to 15.85 percent, as shown above), was because the government share fell from 15.34 percent to 15.12 percent.

Yet because the numbers are so big in absolute terms, even this government hiring slowdown has only bent down slightly the growth curve of the subsidized private sector’s importance over the last year, not stopped it, much less thrown it into reverse. That becomes evident upon examining the subsidized private sector’s share of total employment at the start of the recession, the start of the recovery, and for every December starting with 2013:

December, 2007: 13.22 percent

June, 2009: 14.97 percent

December, 2013: 15.43 percent

December, 2014: 15.44 percent

December, 2015: 15.60 percent

December, 2016: 15.76 percent

December, 2017: 15.85 percent

So the type of good news/bad news story that’s been characteristic of many economic trends during the current recovery holds for the prominence of subsidized private sector employment, too. It’s hard to imagine that growth will return to a sound footing until and unless the hiring trends turn decisively in favor of the real private sector.

(What’s Left of) Our Economy: A Banner Month and Year for Trade (Deficits)

Tags

Canada, China, exports, gross domestic product, high tech goods, imports, Made in Washington trade deficit, manufacturing, Mexico, NAFTA, non-oil goods trade deficit, North American Free Trade Agreement, recession, recovery, Trade, trade deficit, Trump, {What's Left of) Our Economy

This morning’s U.S. trade figures revealed numerous records and multi-year highs set for the month of December and full-year 2017, but few represented good news. The monthly overall U.S. trade deficit hit its highest level ($53.12 billion) since October, 2008 ($70.14 billion) – just as the Lehman Brothers bankruptcy plunged financial markets and the entire economy into a tailspin. On an annual basis, the combined goods and services trade shortfall was the highest ($566.03 billion) since 2008’s $708.73 billion. And its yearly increase (12.13 percent) was the greatest since 2010’s 28.89 percent. New annual records were also set for total monthly imports ($256.47 billion) and annual imports ($2.895 trillion), as well as for monthly exports ($203.35 billion). But annual exports ($2.329 trillion) fell short of 2014’s record $2.376 trillion.

America’s manufacturing trade deficit fell for the second straight month in December, to $78.24 billion. But that performance was enough to send the annual total into record territory ($927.48 billion). The U.S. goods deficit with China in December took its biggest monthly tumble (13.05 percent) since February’s 26.64 percent. The December total ($30.81 billion) also was the lowest since May’s $31.61 billion, and resulted largely from an all-time high for U.S. goods exports ($13.67 billion). Nonetheless, the $375.22 billion annual merchandise shortfall with China set a new record as both goods exports to and imports from China hit new records of $505.60 billion and $130.37 billion, respectively.

In addition, as President Trump continued to try renegotiating the North American Free Trade Agreement (NAFTA), the American goods deficit with Mexico increased in 2017 to $71.06 billion – its highest level since 2007’s $74.80 billion.

Another all-time high was set by the U.S. deficit in high tech goods. At $110.38 billion, it featured both record exports ($353.87 billion) but also record imports ($464.26 billion). Monthly high tech exports also entered record monthly territory in December ($33.53 billion).

The new trade figures also showed that monthly trade deficit surge helped boost the growth drag of the “Made in Washington” trade deficit to 18.47 percent during the current economic recovery. This is the shortfall in trade flows heavily influenced by U.S. trade policy, and its increase since the last recession ended has sliced $538.89 billion after inflation from the cumulative expansion of real gross domestic product.

Here are selected highlights of the latest monthly (December) and full-year 2017 trade balance figures released this morning by the Census Bureau:

>The combined U.S. goods and services trade deficit rose on month in December by 5.32 percent to hit $53.12 billion – its highest level since October, 2008 ($70.14 billion), when the bankruptcy of Wall Street investment giant Lehman Brothers sparked a dizzying tailspin in financial markets and the real economy.

>December’s shortfall helped push the annual U.S. trade deficit for 2017 to its highest yearly total ($566.03 billion) since 2008 ($708.73 billion). Moreover, the overall trade deficit’s annual increase of 12.13 percent represented its fastest growth since 2010 (28.89 percent).

>The new trade figures showed that monthly imports in December reached an all-time high of $256.47 billion – their second monthly record in a row and a 2.49 percent increase from November’s $250.24 billion.

>Last year’s total imports set a new annual record as well. At $2.895 trillion, they were 6.73 percent higher than 2016’s total and 1.02 percent greater than the previous record of $2.866 trillion set in 2014.

>December monthly overall exports were a new record, too – rising 1.77 percent sequentially to $203.35 billion.

>But 2017’s annual combined goods and services exports of $2.329 trillion, though 5.49 percent higher than the 2016 figure, were lower than the annual record of $2.376 trillion, set in 2014.

>The huge, chronic American trade deficit in manufacturing fell sequentially in December for the second straight month, with its $78.24 billion level representing a 9.23 percent improvement.

>Manufacturing exports advanced on month by 2.16 percent, from $92.88 billion to $94.89 billion, while imports sank by 3.32 percent, from $179.08 billion to $173.13 billion.

>On an annual basis, however, the manufacturing deficit set its latest record high by climbing 7.46 percent percent to $927.48 billion.

>Between 2016 and 2016, manufacturing exports advanced by 4.34 percent, but imports swelled by 5.75 percent.

>The behavior of the manufacturing-heavy American merchandise trade deficit with China mirrored that of the overall manufacturing shortfall.

>December’s $30.81 billion U.S. goods trade deficit with China was 13.05 percent lower than November’s total, a sequential decrease that was the fastest since February’s 26.64 percent. The December figure was also the lowest since May’s $31.61 billion.

>Moreover, December’s U.S. goods exports of $13.67 billion were a record – eclipsing the previous peak of $13.15 billion, set in October, 2013, by 4.20 percent.

>Nonetheless, the full-year 2017 U.S. merchandise trade shortfall with China widened by 8.13 percent on year to a new record of $375.23 billion. That figure topped the old (2015) all-time high of $367.26 billion by 2.17 percent.

>U.S. goods exports to the strongly growing Chinese economy grew by 12.75 percent in 2017 to $130.37 billion – another record, and 5.43 percent better than 2014’s former all-time best of $123.66 billion.

>U.S. goods imports from China, however, hit a new record, too. At $505.60 billion, they were up 9.29 percent on year, and topped the previous (2015) record by 4.64 percent.

>The new trade figures could reenforce President Trump’s determination to renegotiate the North American Free Trade Agreement (NAFTA).

>As with China, the U.S. merchandise trade deficit with Mexico fell on month in December to $5.37 billion. That level was the lowest since July’s $4.92 billion, and a sequential drop of 10.14 percent from November’s levels.

>But year-on-year, this goods shortfall increased by 10.41 percent, to $71.06 billion – the highest level since 2007’s $74.80 billion.

>The goods trade deficit with Canada more than doubled on month, to $2.20 billion, and the annual total rebounded by 60.46 percent, to $17.58 billion after plunging by 28.73 percent on year in 2016, to $10.96 billion.

>The 2016 Canada goods deficit is the highest since 2014, but it’s less than half the level of that year’s $36.47 billion.

>America’s trade in high tech goods roughly duplicated this pattern, too. The monthly deficit plummeted by 36.65 percent from the record $15.63 billion in November to $10.06 billion. That monthly drop was the biggest since February’s 46.39 percent nosedive.

>This improvement stemmed from a 10.84 percent increase in exports to $33.53 billion – a new monthly record – and a five percent drop in imports from November’s record $45.88 billion to $43.59 billion.

>On an annual basis, though, the high tech goods deficit surged to a new all-time high of $110.38 billion in 2017 – up 31.93 percent on year and 11.82 percent higher than the previous record of $98.72 billion, set in 2011. The 2017 annual jump in the deficit was also the biggest since 2010’s 44.07 percent, when the current U.S. recovery was in its early stages.

>U.S. advanced technology exports rose on year in 2017 by 2.42 percent, to a record $353.87 billion, while imports increased by 8.17 percent to their own record – $464.26 billion.

>According to the new trade figures, which make fourth quarter, 2017 calculations possible, the growth drag on the U.S. economic recovery of the “Made in Washington” trade deficit worsened significantly from its third quarter levels.

>This shortfall is comprised of trade flows influenced heavily by American trade agreements and similar policies – i.e., trade in non-oil goods, where these measures have had much greater effects on imports and exports than they have in services trade and energy trade.

>As of the third quarter of 2017, the increase in this deficit since the current recovery began in mid-2009 had cut cumulative American inflation-adjusted growth by 16.36 percent, or $459.9 billion.

>The new trade figures peg this lost growth at 18.47 percent of the recovery total, or $538.89 billion.

(What’s Left of) Our Economy: Manufacturing Employment Starts the New Year Sluggishly

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automotive, Bureau of Labor Statistics, Employment, inflation-adjusted wages, Jobs, manufacturing, non-farm payrolls, private sector, recession, wages, {What's Left of) Our Economy

January saw U.S. manufacturing employment rise by 15,000 sequentially, but this monthly gain was the smallest since September’s 6,000 and combined with negative revisions, indicated that the sector’s healthy recent jobs growth might be cooling.

More encouragingly, manufacturing wages before adjusting for inflation rose sequentially for the second straight month (by 0.11 percent), and revisions on this front were positive. Yet industry remained a wage laggard, as overall private sector pay improved by 0.34 percent on month, and topped manufacturing’s annual wage increase by 2.89 percent to 1.90 percent. That manufacturing figure, moreover, represented a deceleration from the 2.73 percent increase between the previous Januarys. Between January, 2016 and 2017, the private sector’s wages increase of 2.40 percent actually trailed the manufacturing wages hike.

Despite the relatively weak employment start to 2018, manufacturing payrolls continued rising slightly faster than those of the economy overall, as its share of total non-farm employment (8.49 percent) was higher than last January’s level (8.47 percent). Automotive employment remained a trouble spot within manufacturing; combined motor vehicles and parts payrolls dipped (by 300) for the first time since October. Worse, the sector remained in a jobs recession, as employment is down on net by 4,600 since July, 2016.

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

>Signs of a manufacturing employment slowdown appeared in January’s non-farm payrolls report, as the monthly jobs gain of 15,000 was the lowest such figure since September’s 6,000.

>In addition, December’s 25,000 on-month employment increase was revised down to 21,000, November’s 31,000 improvement is now judged to be 30.000, and October’s 23,000 rise was revised down to 20,.000.

>Pre-inflation manufacturing wages did rise sequentially in January for the second straight month, but industry’s status as a paycheck laggard continued, and the gap between its wage increases and those of the private sector overall widened further.

>The January monthly wage increase of 0.11 percent trailed the private sector’s 0.34 percent.

>December’s 0.11 percent sequential wage rise was revised up to 0.30 percent and November’s 0.15 percent decrease is now judged to be a flat-line.

>But the initially reported December private sector wage advance of 0.34 percent was revised up, too – to 0.41 percent.

>Viewed on a year-on-year basis, manufacturing’s 1.90 percent current dollar wage improvement badly trailed the 2.89 percent increase recorded by the private sector – its best such figure since May, 2009’s 2.93 percent.

>Between the previous Januarys, manufacturing wages rose faster than the private sector’s as a whole – 2.73 percent to 2.40 percent.

>As a result, since the start of the current economic recovery, in mid-2009, pre-inflation private sector wages are up 25.56 percent more than manufacturing wages. A year ago, the gap was only 20.93 percent.

>Although manufacturing employment may be slowing, it’s still increased at a slightly faster rate than total non-farm employment (the U.S. government’s jobs universe) over the last year. In January, 2017, manufacturing jobs represented 8.47 percent of total American jobs. This January, the figure is up to 8.49 percent.

>The January jobs report, however, revealed continuing problems in automotive employment. This sector led industry’s strong growth and employment rebound from the deep recession that ended in mid-2009. But in January, its payrolls shrank sequentially (for the first time since October) by 300, keeping the combined motor vehicle and parts industries in a technical jobs recession.

>Since April, 2016, automotive employment is down on net by 4,600.

>On an annual basis, total manufacturing employment still showed some momentum.

>The January year-on-year payrolls increase of 186,000 was the best such figure since May, 2015’s 189,000. Between the previous Januarys, manufacturing lost 15,000 jobs.

>And since its employment bottom, in February and March of 2010, manufacturing has regained 48.06 percent (1.102 million) of the 2.293 million jobs it had lost since the December, 2007 start of the recession.

>But the overall private sector’s longer-term jobs performance continues to be much better. Since its February, 2010 jobs bottom, employers in this sector have boosted their payrolls by a net 18.232 million – more than twice the 8.780 million net positions lost during the recession and its aftermath.

>And whereas manufacturing employment remains 8.66 percent (or 1.191 million jobs) lower than when that recession began at the end of 2007, private sector employment is up by 8.14 percent (9.447 million jobs).

>On the wage front, moreover, manufacturing’s performance in price-adjusted terms is even worse than in pre-inflation terms.

>The latest figures are for December, and despite rising sequentially by 0.19 percent, real manufacturing wages remained in a long recession.

>Since March, 2016, they are down on net by 0.09 percent.

>Year-on-year, the 0.28 percent December decline in real manufacturing wages contrasts sharply with their 0.93 percent increase between December, 2015 and December, 2016.

>December’s monthly improvement in constant dollar private sector wages (0.28 percent) also exceeded manufacturing’s (0.19 percent).

>As a result, during the current recovery (which is now more than eight years old) real private sector wages are up by 4.27 percent – a meager improvement, but more than five times faster than the 0.84 percent advance in inflation-adjusted manufacturing wages.

(What’s Left of) Our Economy: Both Trump and Critics Could be Wrong About the Business Spending Rebound

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Barack Obama, business spending, Center for Economic and Policy Research, Dean Baker, energy, recession, regulation, Trump, {What's Left of) Our Economy

Economist Dean Baker of the Washington, D.C.-based Center for Economic and Policy Research has just performed a valuable service. He’s looked under the hood of U.S. economic data and found a major, under-reported feature of the economy’s business spending performance under President Trump so far: A lot of the improvement has come in the energy sector, and therefore stems from energy price increases that have little to do with Washington policy decisions.

And if the story ended there, Baker would be justified in dousing “Trump capex (capital expenditures) rebound” claims with lots of cold water. But it doesn’t.

As Baker points out, energy-related capital spending accounted for more than 40 percent of the total increase in all capital spending recorded in the official government data since last year. That is indeed big-time out-performance, and there’s no doubt that (like the energy-related business investment bust that began in late 2014) it’s largely due to energy price changes. When the price of oil and natural gas goes up, businesses (understandably) conclude that demand is rising, drill more, and need more drilling equipment and the like. When energy prices fall, this spending just as understandably tends to sink.

Even so, if you look at the policy landscape, there’s a case for giving the administration some credit for the energy investment recovery. Specifically, it’s rolled back some important regulations in the industry, and has spoken repeatedly of eliminating more. And interestingly, this latest increase in energy-related business spending has taken place much faster than the previous surge, under former President Barack Obama – who was not exactly a fossil fuels booster.

Yet developments outside the energy sector indicate even more powerfully that the economy could be seeing a Trump effect on capex. The key is examining spending on equipment. Whatever the effect of energy-related spending on the business investment totals, equipment’s is much bigger. Even after the latest spurt in energy, it still represents less than four percent of the business spending total (officially called non-residential private fixed investment). The latest figures show the equipment share is more than ten times larger – nearly 48 percent.

So although equipment spending has increased by only 5.93 percent during the Trump era, that rise amounts to just over $62 billion – much more than the energy-related spending increase. And more telling, this advance follows a 3.38 percent yearly drop in this spending category in 2016. In fact, equipment capex was down on net from the third quarter of 2014 through the fourth quarter of last year. The last time it fell for that long a stretch was during the last (historically terrible) recession (when the plummet was much greater and lasted considerably longer).

All the same, let’s not forget that the Trump administration is still only one year old. So a wait-and-see attitude is probably best for both sides of the Trump effect capex debate. And to the extent that any patterns can be discerned, not surprisingly, the truth so far seems to lie somewhere in between.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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