(What’s Left of) Our Economy: More Evidence of Biden-Flation’s Toll

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American Rescue Plan, Biden administration, Covid relief, energy prices, Federal Reserve, food prices, hunger, inflation, monetary policy, progressives, recession, supply chain, Ukraine War, {What's Left of) Our Economy

Left-of-center critics of the Federal Reserve’s inflation-fighting efforts keep insisting that risking recession to tame prices would unnecessarily harm the most vulnerable Americans and their struggling working class counterparts. Instead,  many have claimed that living costs can be cut sufficiently by forcing greedy corporations to charge less through windfall profits taxes, price controls, and the like.

And they’ve bridled in particular at charges that the Biden administration’s American Rescue Plan (ARP) greatly worsened the problem by handing trillions of dollars of CCP Virus relief – and therefore purchasing power – to U.S. consumers well after economic growth had already rebounded strongly and unemployment had already nosedived.

Any development that can engulf the gargantuan American economy, like historically high inflation, almost by definition has many different causes. But anyone doubting the economic overheating role of the ARP should check out the graph below, which is found in this Reuters piece from over the weekend.

The article adds to the evidence that still-towering inflation rates are devastating low-income Americans by super-charging the prices of that most basic of basics: food. But the graph makes clear as can be how the ARP contributed to the problem.

As it shows, prices of food (the darker line) began taking off just about the time that the ARP’s strings-free child tax credit payments started to be sent out (July 15, 2021, to be precise) – and not just to the needy, but to considerably better off households as well. Not so coincidentally, the share of American families with children reporting to U.S. Census Bureau surveys being “sometimes or often” short of food (the lighter line) started taking off soon after. And also noteworthy – these food price rises began many months before Russia’s February, 2022 invasion of Ukraine began playing its own major food inflation role. 

As the article also emphasizes, between 2020 and 2022, “as pandemic restrictions eased, so did the appetite for congress and some states to fund hunger prevention efforts.” But continuing federal purchases for “pantries, schools and indigenous reservations” were needed in the first place largely because food – not to mention other necessities – kept becoming so much more expensive.

The lesson here isn’t that no pandemic assistance should have been provided at all. After all, genuine suffering was widespread in its early phases and no one knew how long they would last. And the Fed’s left-of-center critics are correct that ongoing CCP Virus-related and Ukraine War-related energy supply disruptions have greatly boosted prices recently, too.

But as noted here previously, the supply- and demand-side roots of inflation are very closely related (because businesses can be relied on to continue raising prices as long as they can find enough buyers, and to cut them when customers start balking). Moreover, although in economists’ lingo, some prices are “inelastic” (because they’re for goods and services that are essential enough to prevent purchasing cutbacks even after major price increases), when they rise high enough, they can still foster lower prices for other purchases that are deemed less important.

Therefore anything, like big government checks, that fills consumer pockets will strongly tend to spur inflation sooner or later. So when help does need to be provided, it should be much more precisely focused on relieving genuine privation than pandemic relief was.

Even more important: The inflationary effects of supporting household consumption can be offset – and are best offset – by policies to support more production. When the Fed’s left-of-center critics start addressing defects in that supply side of the economy, rather than trafficking in gimmicks sure to exacerbate them, their complaints about excessive central bank monetary medicine will deserve a much bigger audience. In the process, they’ll be able to deliver lasting assistance to those whose plight they rightly emphasize.        

(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: U.S. Manufacturing Job Creation Enters the Goldilocks Zone

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aircraft, aircraft engines, aircraft parts, chemicals, computer and electronics products, dollar, Employment, exchange rates, exports, fabricated metal products, Federal Reserve, food products, inflation, Jobs, machinery, manufacturing, non-metallic mineral products, pharmaceuticals, recession, semiconductors, surgical equipment, textile product mills, vaccines, {What's Left of) Our Economy

For now, the term “Goldilocks” seems to be an increasingly popular and accurate way to describe the U.S. economy. (See, e.g., here.) As in the Three Bears-y it’s not running too hot (and therefore unlikely to prompt the Federal Reserve to step up its inflation-fighting efforts enough to trigger a recession). And it’s not running too cold (and prompting the Fed to accept current inflation levels for fear of sparking a really deep slump).

So it wasn’t entirely surprising that yesterday’s official U.S. manufacturing jobs figures were pretty Goldilocks-y themselves.

They showed that domestic industry boosted its payrolls on month in August by 22,000 – the smallest amount since May’s 19,000, but still representing growth. Further, the revisions of the solid June and July gains were modestly positive. The former received its second downgrade – from an initially reported 29,000 to 27,000 to 25,000. But the latter was upgraded from 30,000 to 36,000.

As a result, manufacturing employment is now 0.52 percent greater than in February, 2020 – the last full month before the CCP Virus pandemic struck the United States in full force and, along with lockdowns and voluntary behavioral curbs, generated a brief but historic depression. As of last month’s jobs report, manufacturing employment had grown by 0.32 percent during this period.

That’s a slower employment recovery than that staged by the overall private sector (0.68 percent). But U.S.-based industry shed fewer jobs proportionately than the rest of the private economy during that pandemic nosedive.

Moreover, because government employment is still down 2.82 percent since the virus arrived, manufacturing’s job creation has been way ahead of the performance of the non-farm sector (the federal government’s definition of the American jobs universe). That measure’s headcounts have advanced only 0.16 percent.

These results have left manufacturing at the same 9.85 percent of total private sector jobs as last month (and up from its 9.83 percent share in February, 2020), and at the same 8.41 percent share of all non-farm jobs as last month (and up from its 8.38 percent share just before the pandemic economy began).

Another indicator of manufacturing’s relatively strong recent jobs performance – at 12.852 million, its workers’ ranks are at their highest level since November, 2008’s 13.034 million. Last month’s initially reported 12.826 million manufacturing workers were the highest figure only since August, 2019’s 12.827 million.

August’s biggest manufacturing jobs winners among the broadest sub-sectors tracked by the U.S. Labor Department were:

>fabricated metals products, which added 4,700 workers on net last month. And this big sector has been on a hot streak lately. July’s results were revised up from a gain of 4,200 to one of 4,600, June’s unrevised 600 job loss is now judged to be an increase of 200, and May’s robust figures have only been revised down from 7,100 to 6,600.

These companies’ payrolls have now advanced to within 1.64 percent of their immediately pre-pandemic level, versus the 2.04 percent deficit calculable last month;

>computer and electronics products, which contains shortage-plagued semiconductor sector, added 4,500 employees sequentially in August, and revisions were strong. July’s initially reported 3,400 gain is now estimated at 3,900. June’s results rebounded from a downgrade of 2,300 to 2,000 to an upgrade to 2,900. And May’s final (for now) upwardly revised 5,300 increase stayed unchanged.

This sector now employs just 0.96 percent more workers than in February, 2020, versus the 0.41 percent rise calculable last month. But it’s important to recall that computer and electronics firms’ headcounts fell only minimally during the first sharp pandemic downturn;

>the very big chemicals industry, which boosted hiring by 3,500 on month in August. Revisions were somewhat negative but still left good growth in their wake. July’s initially reported improvement of 3,700 was downgraded to 2,900. June’s initial huge upgrade from 1,200 to 4,500 fell back to an increase of 3,900 and May remained at 5,100.

Since February, 2020, chemicals companies have increased employment by 6.09 percent, versus the 5.84 percent calculable last month;

>machinery, which is such a manufacturing- and economy-wide bellwether because its products are used by so many industries. Its firms’ payrolls climbed by 2,800 sequentially in August. Revisions, moreover, were encouraging. July’s initially reported 3,400 improvement was revised down slightly to 3,300. But June’s totals have now been upgraded from 1,000 to 1,600 and now to 2,400. And May’s initially reported monthly drop of 3,200 is now pegged at one of just 800.

Machinery employment is now off by just 1.15 percent since immediate pre-pandemic-y February, 2020, versus the 1.47 percent calculable last month; and

>non-metallic mineral products, whose monthly jobs advance of 2,800 in August was its best such performance since February’s 3,100. July’s initially reported gain of 1,000 was revised up to 1,100. June’s initially reported 400 loss has stayed at an upgraded 700 gain. And May’s totals have settled at an increase of 2,100 as opposed to the 1,900 first reported.

Thanks to its strong August and positive revisions, the non-metallic minerals workforce is now a mere 1.05 percent smaller than in February, 2020, vs the 1.85 percent calculable last month

Manufacturing’s biggest August jobs losers among this same group of broad categoies were:

>food manufacturing, whose August monthly 2,400 jobs decline was its worst such performance since last August’s 2,600. In addition, revisions were negative overall. July’s initially reported 1,800 jobs advance was downgraded to 1,600. June’s initially reported jump of 4,800 has been revised down a second time – to 3,400. And after an upgrade from an increase of 6,100 to one of 7,600, May’s result is now pegged at a 7,000 gain.

Whereas food manufacturing’s employment was calculable as having grown since February, 2020 by 2.86 percent as of last month, now the figure is 2.64 percent; and

>textile product mills, whose payrolls fell by 1,000 in August for their worst such performance since July, 2020’s 2,500 decline. Revisions in this small industry were negligible. July’s initially reported dip of 300 is now judged to be a gain of 100. June’s initially reported decrease of 700 stayed unchanged after being revised up to one of 600, and May’s initially reported 100 monthly job loss has stayed unrevised.

Textile product mill employment has now shrunk by 6.44 percent since February, 2020, versus the 5.51 percent calculable last month.

As always, the most detailed employment data for pandemic-related industries are one month behind those in the broader categories, and their July performances were generally in line with that month’s continued overall manufacturing hiring.

The recent employment upswing in that shortage-plagued semiconductor industry continued in July, as the month’s payroll increase of 2,300 was the best such performance since June, 2020’s 3,000. Revisions were positive, too, with June’s initially reported advance of 1,700 now estimated at 1,900 and May’s total staying at a slightly upgraded 1,000..

Semiconductor employment is now 4.56 percent higher than in February, 2020, on the eve of the CCP Virus-era economy, versus the 3.22 percent calculable last month. And it should be kept in mind that semiconductor companies kept hiring modestly on net during the worst of the pandemic.

The workforces of these companies are now 4.36 percent larger than in February, 2020, versus the 3.69 percent calculable last month.

Most of the aerospace cluster in July kept regaining the unusually large numbers of jobs lost during the pandemic period due largely to the steep CCP Virus-related travel downturn.

Aircraft production companies hired another 2,400 workers that month – their best such performance since June, 2021’s 4,400. June’s initially reported 1,500 employment increase was downgraded to 1,200, but May’s net new job creation remained at an upgraded 1,600.

In all, aircraft manufacturing payrolls advanced to within 8.69 percent of their immediate pre-pandemic levels, versus the 9.64 percent shortfall calculable last month.

In aircraft engines and engine parts, firms added 900 employees on net in July, and although June’s initially reported 800 increase was revised down to 700, May’s results remained at a 900 improvement after being upgraded fom 700.

Aircraft engines and engine parts-makers now employ just 8.94 percent fewer workers than in immediately pre-pandemic-y February, 2020, versus the 9.81 percent deficit calculable last month.

Non-engine aircraft parts and equipment makers stayed jobs laggards, though, as they shed 600 workers in July – their worst such performance since last December’s 900 loss. June’s initially reported jobs gain of 600 was upgraded to a 900 increase, and May’s initially reported growth of 300 remained unrevised for a second straight month. But payrolls in this industry are now 14.88 percent below their February, 2020 levels, versus the 14.62 percent calculable last month.

Most healthcare manufacturing, however, experienced an off month hiring-wise in July.

In surgical appliances and supplies (which includes all the personal protective equipment and other medical goods so widely used to fight the CCP Virus), 700 net new jobs were created in July. June’s 800 net job loss stayed unrevised July, as did May’s slightly upgraded monthly increase of 500.

Since February, 2020, this sector’s headcount is up by 4.36 percent, versus the 3.69 percent calculable last month.

Yet the large pharmaceuticals and medicines industry lost 500 jobs in July – although this dip followed a downwardly revised 4,000 employment surge in June that was still the best monthly result for the sector going back to the 1990 start of this data series. Moreover, May’s upwardly revised employment increase of 1,200 remained the same.

Still, whereas employment in this sector was up by 11.58 percent since the pandemic’s economy-shaking arrival as of last month’s jobs report, that increase had slipped to 11.32 percent as of this month’s release.

And the medicines subsector containing vaccines lost 200 jobs in July, and revisions were slightly negative. June’s initially reported 1,100 increase was downgraded to one of 900, and May’s slightly upgraded 700 monthly gain stayed unchanged.

Vaccine manufacturing employment has still climbed by 25.89 during the CCPVirus period. But as of last month, this figure was 26.29 percent.

For the foreseeable future, industry’s employment prospects seem likely to be buffeted by the same crosswinds it’s been dealing with for many months now – on the one hand, ongoing (but possibly fading) supply chain issues, high (but possibly fading) inflation, and a Federal Reserve evidently bent on cooling price increases even if it slows economic growth considerably; on the other hand, demand for manufactures by consumers and businesses that keeps displaying impressive strength.

And let’s not forget a U.S. dollar that’s the strongest in decades, and that should be undermining domestic manufacturing because it still relies so heavily on exports, and the greenback’s rise damages the price competitiveness of everything made in America.

Yet U.S.-based manufacturers keep hiring – usually a sign of confidence – and I’ll keep assuming that since it’s their fortunes that are most directly on the line, I’ll view their prospects as pretty bright, and even Goldilocks-y, too.  

(What’s Left of) Our Economy: An Up-Side Surprise for U.S. Manufacturing Output

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aircraft, aircraft parts, apparel, appliances, automotive, CCP Virus, coronavirus, COVID 19, electrical components, electrical equipment, fabricated metal products, Federal Reserve, furniture, machinery, manufacturing, medical devices, pharmaceuticals, printing, recession, semiconductors, transportation equipment, {What's Left of) Our Economy

Just as it’s looking like the U.S. economy as a whole may have skirted the danger of a near-term recession, domestic American manufacturing saw a revival of its fortunes last month, according to yesterday morning’s latest official report on its after-inflation output in July.

Following two consecutive months of falling real production, U.S.-based industry grew by 0.74 percent in price-adjusted terms sequentially last month – its best such performance since March’s 0.74 percent. Revisions were mixed but modest.

These new figures mean that constant dollar U.S. manufacturing output is now 3.69 percent greater than in February, 2020, the last month before the CCP virus and assorted mandatory and voluntay burbs on economic behavior triggered a steep but brief recession and began distorting the economy. As of June’s release, domestic manufacturing had grown by an inflation-adjusted 2.98 percent since then.

Among the broadest manufacturing sub-sectors tracked by the Fed were:

>the automotive industry, whose volatility fueled many of U.S.-based manufacturing’s ups and downs earlier during the pandemic, boosted its real output by 6.60 percent on month – and this burst was only its best such result since March’s 9.04 percent. Revisions here were generally negative, with June’s initially reported monthly loss of 1.49 percent revised up to one of 1.27 percent, but May’s results downgraded again to a drop of 1.92 percent, and April’s originally reported gain of 3.92 percent is pegged at 2.98 percent. All told, though, vehicle and parts production -though still dealing with semiconductor shortages – once again rose back above its immediate pre-pandemic level by 4.73 percent. As of last month, it was still down by 1.07 percent;

>fabricated metal products, which lifted real output on month in July by 2.05 percent – its best such result since February’s 2.49 percent. Revisions were mixed, with June’s initially reported decline of -0.83 percent now estimated as a decrease of 1.40 percent, May’s initially reported shrinkage of 1.16 percent downgraded further to a 1.18 tumble before being upgraded to one of 1.02 percent, and April’s initially 0.85 percent rise previously revised down to a 0.46 percent advance before recovering to one of 0.65 percent. Inflation-adjusted production in this sector has now come to within 0.14 percent of its February, 2020 levels, as opposed to 2.11 percent below them calculable last month;

>aerospace & miscellaneous transportation equipment, where constant dollar production jumped 1.54 percent month-to-month, and where revisions were mixed, too. June’s initially reported fractional improvement is now judged to have been a dip of 0.14 percent, May’s advance estimate of a 0.85 percent decrease bouncing back from a downgrade to a 1.25 percent drop to one of 1.05 percent, and April’s initially reported 2.15 percent increase getting upgaded to one of 3.47 percent before settling back to one of 3.34 percent. In after-inflation terms, this cluster of industries is 21.30 percent bigger than just before the CCP Virus’ arrival in force, versus the 19.47 percent calculable last month; and

>apparel and leather goods, which recorded a second straight excellent growth month. July constant dollar production increased on month by 1.60 percent, and June’s initially reported 2.54 percent surge was revised all the way up to 6.09 percent – its best such result since the 8.04 percent recorded in August, 2020, when the economy’s recovery from the first virus wave was still underway. But May’s initially reported 0.88 percent price-adjusted output rise was revised down a second time – to a 0.24 percent dip. And April’s advance figure, a 0.18 percent climb, is now estimated to have been a 0.43 percent decrease. Still, thanks to the last two months’ results, this long-beleaguered sector has now grown in real terms by 5.71 percent, as opposed to the 0.56 percent calculable last month; and

July’s worst performing of the major sub-categories tracked by the Fed?

>printing and related support activities, where price-adjusted production sank by 1.67 percent on month. Revisions overall were positive, with June’s first reported loss of 2.16 percent revised up to one of 0.51 percent, May’s advance estimate of a 0.35 percent retreat upgraded a second time, to one of only 0.09 percent, and April’s initially reported 0.49 percent gain now standing at 0.69 percent. All the same, this group of companies still 10.50 percent smaller in real terms than it was in February, 2020, versus the11.37 figure calculable last month;

>furniture and related products,where real output sagged by 1.57 percent sequentially, the worst such result since the 2.77 percent decrease in February, 2021. Revisions on the whole were just as bad, with June’s initially reported fall-off of -0.55 percent now judged to have been one of 1.33 percent, May’s initially reported 0.94 increase (the biggest since this past February’s 4.75 percent pop) revised down second time to ai 0.99 decrease, and April’s initially reported -0.59 percent drop now pegged at a slightly smaller one of 0.41 percent. These results dragged down the furniture complex’s performance down to a 5.56 percent inflation-adjusted output shrinkage since immediately pre-pandemic-y February, 2020, versus a 0.91 percent decline calculable last month; and

>electrical equipment, appliances and components, where after-inflation production was off 1.41 percent from June’s levels. Revisions, though, were on the whole positive. June’s originally reported production increase of 1.34 percent was revised up to 1.42 percent (the best such performance since February’s 2.29 percent), May’s downgrade from an advance decrease of 1.83 percent to one of 2.35 percent was upgraded to a 1.93 percent retreat, and April’s initially reported -0.60 percent drop is now judged to have been a 0.57 percent advance. Yet constant dollar production in this cluster is now up only 4.83 percent over its last pre-pandemic reading, versus the 5.59 percent figure calculable last month.

As known by RealityChek regulars, the very big and diverse machinery sector is seen as a bellwether for both the rest of manufacturing and the rest of the entire economy, since so many industries use its products. So it’s encouraging to report that in July its companies notched their first monthly real output gain (0.50 percent) since April. Revisions, however, were overall sigificantly negative terrible. June’s initially reported 1.14 percent decrease is now pegged at 2.16 percent, and May was downwardly revised again to a 3.53 percent loss (the sector’s worst since the 18.64 percent collapse in April, 2020, during the worst of the economy’s pandemic-induced downturn). Only April broke the pattern even somewhat. Its initially reported 0.85 percent price-adjusted sequential output rise was upgraded all the way to 2.27 percent in May. It’s been downgraded since, but still stands at a 1.88 percent advance (the best since January’s 1.95 percent.

These results mean that wherewas last month, inflation-adjusted machinery production was up 4.70 percent during the pandemic era, now it’s only 2.82 percent higher.

The industries that consistently have made headlines during the pandemic performed well in July, too.

Measured in constant dollars, production by aircraft- and aircraft parts-makers was up 1.02 percent on month, but revisions were modesty negative. June’s initially reported after-inflation output growth of 0.26 percent is now pegged at only 0.18 percent, and May’s real production was unchanged at down 0.23 percent after having been downgraded from a 0.33 percent improvement. After having been upgraded twice, from an initially reported 1.67 percent advance to one of 3.13 percent, the April results dipped to a 2.96 percent rise. But this was still the best monthly result since January, 2021’s 8.60 percent surge). Nonetheless, the aircraft and parts sector is now 26.67 percent larger in real terms, since February, 2020 – up from the 25.58 percent figure calculable last month.

In the big pharmaceuticals and medicines industry, real production climbed on month by 0.29 percent n July and revisions were generally positive. June’s initially reported 0.39 percent increase was slightly downgraded to 0.32 percent, but after having its initially reported 0.42 percent increase was revised down to only 0.01 percent, it was upgraded all the way to a 1.20 percent improvement. And April’s initially reported -0.20 percent after-inflation monthly production dip was revised up a third time to a 0.08 percent increase. Due to these results, real output of aircraft and parts has now grown by 14.69 percent during the pandemic period, versus the 12.98 percent calculable last month.

Medical equipment and supplies firms (who make so many of the products used to fight the CCP Virus) enjoyed a banner July, expanding after inflation by 1.90 percent – its best such result since January’s 3.15 percent jump. June’s initially reported from 3.12 percent rise was downgraded to one of 1.01 percent, but after a downward revision from 1.44 percent real growth to 1.01 percent, May’s results wee revised back up to 1.66 percent, and after two straight upward revisions and one downward, April’s final (for now!) result is now judged to be 0.44 percent growth. But this cluster’s virus era inflation-adjusted production growth now stands at 16.15 percent versus the 17.27 percent calculable last month.

For the shortage-plagued semiconductor industry, price-adjusted output improved on month in July by 1.16 percent. Revisions were positive – but all over the place. June’s initially reported 0.18 percent rise is now pegged at 0.49 percent. But after a massive downgrade from 0.52 growth to 2.24 percent shrinkage, May’s performance is now recorded as a 0.37 gain. And the April sequential results are now as follows: down 1.85 percent, down 0.88 percent, down 2.71 percent, and down 2.68 percent – still the worst production month since the 11.26 percent plunge in December, 2008 – in the middle of the Great Recession that followed the global financial crisis. After all this movement, though, constant dollar semiconductor production is now up 21.98 percent since pre-pandemic-y February, 2020, up dramatically from the 15.22 percent calculable last month.

Even by pandemic-era standards, the outlook for domestic manufacturing looks unusually murky to me. The reasons for pessimism abound (like the near certainty of more growth-slowing monetary tightening by the Federal Reserve in order to tame inflation, darkening growth prospects in all of export-heavy manufacturing’s foreign markets, and continuing supply chain woes, industry’s still ginormous trade deficit). But so do reasons for (cautious) optimism (like U.S. unemployment at 50-year lows and all the personal spending this level supports, the chance that the Fed will ultimately chicken out in its anti-inflation campaign, and the ongoing fade of the pandemic).

Moreover, and maybe most important, all recent bets so far against U.S.-based manufacturing’s resilience have been losing bets. Unless you think that the nation’s manufacturers have suddenly lost their chops, or are about to, it’s reasonable to suppose that, at least for now, they remain horses worth riding.       

(What’s Left of) Our Economy: Are High Prices Starting to Cure Wholesale Inflation, Too?

Tags

consumer inflation, consumer price index, consumer prices, core inflation, core PPI, cost of living, CPI, energy, energy prices, inflation, living standards, PPI, Producer Price Index, productivity, recession, wholesale inflation, wholesale prices, {What's Left of) Our Economy

In Wednesday’s post, I wrote that I was somewhat surprised about the new (and somewhat encouraging) official U.S. data for consumer inflation in July because June’s figures for what’s often called wholesale inflation were so bad. Because when the prices businesses charge each other to turn out the goods and services they sell, they typically compensate by passing these higher costs on to consumers.

But I actually shouldn’t have found those latest Consumer Price Index (CPI) numbers so unexpected. As I’ve pointed out before (e.g., here) such higher costs can be passed along only if consumers go along. So I should have recognized the better (but still far from good) CPI results as a sign that consumers are starting to balk – by cutting back their spending to some extent.

And significantly, yesterday’s official Producer Price Index (PPI) results for July suggest that businesses themselves began protesting higher prices and cutting back on purchases of their own inputs. That is, they may represent another example backing the adage that the best cure for high prices is high prices. 

In fact, in all the important ways, the new figures for both “headline” producer inflation and its “core” counterpart (which strips out energy and food prices supposedly because they’re volatile for reasons having little at best to do with the economy’s fundamental vulnerability to inflation) strongly resembled those for consumer inflation.

Both the headline and core PPI indices barely rose sequentially (reflecting a bit of “price rebellion,” and worsened on annual bases at a pace that was the slowest in many months, but still alarmingly high in absolute terms. Further, as with the CPI, the big reason for this improvement was the drop in energy prices. And both annual CPI and PPI rates remain worrisome because they’re coming off results for the previous year that were also historically torrid.

One prime indicator of how dramatically energy has affected these results comes from the month-to-month headline PPI numbers.

By this measure, producer prices sank by 0.50 percent (yes, “sank” – didn’t just “rise more slowly”) in July– the first such drop since April, 2020 (1.27 percent) when the first wave of the CCP Virus was wreaking its maximum damage on the economy. And this milestone followed a June monthly increase of 1.01 percent. The percentage-point swing between these two figures (1.51) was the greatest on record (though to be fair, this data series only goes back to late 2009).

The evidence for energy’s leading role? The July sequential fall-off of 8.96 percent (the first such decline since last December’s 1.42 percent and the biggest since since the 16.85 percent nosedive in peak pandemic-y April, 2020) came on the heels of June’s 9.41 percent increase – the biggest since June, 2020’s 9.99 percent, as the economy was recovering rapidly from that first virus wave, related lockdowns and other mandated restrictions, and voluntarily reduced activity. In addition, the percentage-point swing of 18.37 was the biggest since the 18.40 shift between the April, 2020 energy price crash and the May, 2020 rebound.

As for core producer prices, they crept up by just 0.15 percent on month in July. That’s the smallest such increase since last December’s 0.17 percent increase. And they displayed little volatility, as the 15 percentage-point difference between June’s rise of 0.32 percent and July’s was exactly the same as that between the June advance and May’s of 0.47 percent.

The annual PPIs tell a similar story of energy price dominance.

Headline producer inflation was up 9.69 percent on a year-on-year basis in July – the lowest such increase since last October’s 8.90 percent. And percentage-point difference between the July annual decrease and June’s of 11.25 percent (1.56) was the biggest since producer prices strengthened by 0.36 percent on an annual basis in March, 2020, as the virus arrived in the United States in force, and then weakened by 1.44 percent in April (a 1.76 percentage point difference).

And once again, energy prices were the big driver.

In July, they jumped 27.59 percent year-on-year. But even that blazing pace was dwarfed by June’s 53.54 percent annual surge – the biggest on record (again, going back only to late 2009), and well ahead of the previous all-time high of 47.71 percent in April, 2021 (a figure strongly bolstered by the baseline effect, since in peak pandemic-y April, 2020, annual energy prices crashed by 30.20 percent.

The percentage-point gap between the June and July results were the widest ever, too – 25.95. The previous record was the 24.56 percentage point difference between that record 47.71 percent annual spurt increase in April, 2020 and the previous month’s rise of a relatively modest 23.15 percent. 

Since it doesn’t include energy prices, annual core PPI’s ups and downs – like those of monthly wholesale inflation – have been pretty tame in comparison.

The July increase of 5.75 percent was the best such performance since June, 2021’s 5.60 percent. And the annual rate of increase has now slowed for four straight months.

July’s annual core PPI rise was also an impressive 0.82 percentage points less than the June figure of 6.38 ercent. But that gap was only the biggest since May, 2020’s 0.62 percentage-point difference over the April results.

This relatively gradual drop in core PPI on a yearly basis (which RealityChek regulars know is a more reliable gauge of the trends in the monthly numbers because the longer timespan measured smooths out inevitably random short-term fluctuations) is the most compelling evidence that headline producer and consumer prices will remain worrisomely high for the foreseeable future.

This scenario isn’t inevitable. Maybe Americans can count on energy prices continuing to decline month-to-month long enough to bring annual inflation rates down in absolute terms. And maybe even they don’t, high energy prices won’t start boosting prices throughout the rest of the economy. But those developments can only be reasonably expected if consumer and business spending weakens enough to produce sluggish overall economic growth and even a recession.

Such a downturn is probably the price the nation has to pay to extinguish inflationary fires. The big problem is that, without a serious focus on reversing the long and possibly worsening U.S. slump in productivity growth, other than relief from the current cost of living crisis, the public – and especially the poorest Americans – probably won’t receive any major and solidly grounded living standards payoff from such a victory.

(What’s Left of) Our Economy: U.S. Inflation Just Got a Bit Better – But it’s Far From Good

Tags

consumer price index, core CPI, core inflation, CPI, energy prices, food prices, gasoline, inflation, PPI, Producer Price Index, recession, {What's Left of) Our Economy

Finally! Some good news about U.S. inflation! Not that it’s incredibly good news. But today’s July results for the Consumer Price Index (CPI) were sure better than June’s awful read.

The news was also somewhat surprising, at least to me, because the official June figures for wholesale inflation – the prices businesses charge each for the goods and services needed to turn out what they sell to consumers – had accelerated some since May. And that type of development in the Producer Price Index (PPI) is usually a sign that these businesses will pass these prices on commensurately to their final customers.

Still, there were two big flies in this mildly encouraging ointment.

First: Yes, overall, or “headline” CPI actually fell on a monthly basis and rose more slowly in July on an annual basis. And yes, “core” inflation (which strips out food and energy prices because supposedly they’re volatile for reasons have little to do with the economy’s fundamental inflation-proneness) rose less than half as fast month-to-month than in June. But on an annual basis the latter stayed at its alarming levels.

Second, the main reason that inflation generally speaking has been slower lately is because the economy is slowing – and may even be in recession. As I’ve explained several times (e.g., here and here), it’s anything but difficult for the Federal Reserve and the rest of the federal government to cool price increases by dampening the ability of consumers and businesses to buy goods and services. And just how loudly should we cheer the lower living standards resulting from those growth-slowing steps?

With these caveats in mind, today’s CPI report showed that headline inflation dipped sequentially in July by 0.02 percent. That’s the first monthly decrease in absolute terms since the 0.06 percent decline in May, 2020 – when the economy was just starting to recover from the first wave of the CCP Virus and the deep lockdowns-induced downturn it triggered. And the July figure was light years better than June’s 1.32 percent increase – the biggest monthly jump since July, 1980’s 1.33 percent.

This progress owes entirely (at least when we’re talking about the major categories of goods and services) to a 4.56 percent monthly drop in energy prices – the first such decline since April’s 2.70 percent and the biggest since the 10.31 percent plunge in April, 2020, while that virus-induced was still with us.

And energy prices weakened in turn largely because the recent sky-high prices for gasoline have led Americans to cut way back on their summertime driving – which has fallen below even pandemic-y 2020 levels, when so many CCP Virus-related travel restrictions remained in place. Indeed, gasoline prices on month sank by 7.71 percent – their biggest such tumble since the 20.80 percent crash dive also in pandemic-y April, 2020. (Don’t forget, though, that global energy prices are also off their recent peaks because growth in the rest of the world is down considerably, too.)

As for core inflation, progress was registered on a monthly basis, too, with these prices rising sequentially in July by just 0.31 percent – much lower than July’s 0.71 percent and the best such performance since last September’s 0.25 percent.

Yet on an annual basis, as indicated above, July core inflation stayed exactly where is was in June: 5.91 percent. And although this pace was the slowest since last December’s 5.48 percent, it also means that progress according to this measure has stopped for the time being.

Can falling energy prices continue, and keep dragging down the headline CPI? The U.S. Energy Department has just weighed in here:

“The August Short-Term Energy Outlook (STEO) is subject to heightened uncertainty resulting from Russia’s full-scale invasion of Ukraine, how sanctions affect Russia’s oil production, the production decisions of OPEC+, the rate at which U.S. oil and natural gas production rises, and other contributing factors. Less robust economic activity in our forecast could result in lower-than-forecast energy consumption.”

In brief, “Search us.”

Will big elements of core inflation, like housing and new vehicles and used vehicles and healthcare, keep stabilizing at current (still historically high) rates or even moderating some? And can this progress continue while a recession is avoided? Those are the questions that need to be answered to get some visibility on future inflation, and figure out how satisifed we’ll be with the results.

In the meantime, look out for the next official release on wholesale prices – which is released tomorrow! 

 

(What’s Left of) Our Economy: Slower Growth and More Hiring in U.S. Manufacturing, Too

Tags

aerospace, aircraft, aircraft engines, aircraft parts, CCP Virus, chemicals, coronavirus, COVID 19, electronics products, Employment, fabricated metal products, furniture, Jobs, machinery, manufacturing, medicines, miscellaneous durable goods, non-farm jobs, non-farm payrolls, paper, paper and paper products, pharmaceuticals, recession, semiconductors, surgical equipment, textiles, vaccines, {What's Left of) Our Economy

When it comes both to the U.S. economy in general and domestic manufacturing in particular, this morning’s official jobs report (for July) strongly supported a widely held supposition of economists – that employment is a lagging indicator of trouble.

That’s because laying off workers supposedly is seen as a last resort by businesses facing bad times, and the new results for non-farm payrolls (the U.S. government’s definition of the national jobs universe) seems to have validated this view in spades. Even though the economic growth has been slowing dramatically from last year’s rapid pace, employers boosted their headcounts by a stunning 528,000 last month (including 471,000 in the private sector). And even though inflation-adjusted American manufacturing production has fallen for the last two data months (May and June – the July results will come out August 16), U.S.-based industry added workers for the fifteenth straight month.

Indeed, July’s 30,000 increase in manufacturing jobs was the biggest monthly gain since April’s 61,000. And the numbers included the best hiring month of all time (or at least since that data series began in 1990) for the big pharmaceuticals and medicines industry. Moreover, revisions left the solid results of June and May virtually unchanged.

As a result, domestic manufacturing employment is 0.32 percent higher than its level in February, 2020 – just before the CCP Virus struck the U.S. economy in force and sent economic activity spiraling downward. Last month, when it finally regained its pre-pandemic jobs levels, the net gain was 0.09 percent.

Since July’s overall jobs improvement was so great, manufacturing is no longer the economy’s post-pandemic employment champion. That title has passed again to the total private sector, where payrolls are now 0.49 percent higher than in February, 2020. But manufacturing’s net job creation pace continues to exceed that of the non-farm economy (which includes the public sector). Its workforce is just 0.02 percent larger than just before the pandemic’s arrival.

The huge July surge in non-farm and private sector net hiring did depress manufacturing’s share of those workforces – from 9.86 percent of private sector jobs to 9.85 percent, and from 8.42 percent of non-farm jobs to 8.41 percent. But manufacturing employment is still up in relative terms since February, 2020 – climbing from 9.83 percent of private sector employment and 8.38 percent of non-farm employment.

Job-creation winners abounded throughout manufacturing’s major sectors in July, with the standouts being:

>fabricated metals products, where payrolls grew by 4,200. Revisions, however, continued to be weak, with June’s sequential loss remaining at 600; May’s originally reported 7,100 surge revised lower first to 6,900 and now to 6,600 (still the best since February’s 9,300 pop); and April’s results staying at a twice downgraded 1,400. Employment in this big sector is now 2.04 percent below its immediate pre-pandemic levels, versus the 2.31 percent shortfall calculable last month;

>miscellaneous durable goods (the major category containing many of the key medical devices used to combat the virus), which added 3,700 workers in its strongest monthly performance since last November’s 10,400. But revisions were on balance negative here, too, with June’s initially reported 2,400 job growth now judged to have been 1,700, May’s initially upgraded 1,300 advance downgraded to 1,000, and only April’s results breaking the pattern, with its upgraded 600 job loss staying unchanged.

Miscellaneous goods’ workforce is now 2.79 percent higher than in February, 2020, versus the 2.36 percent calculable last month;

>chemicals, which remained on a hot streak last month. Its companies added 3,700 employees on month in July, its June performance was revised way up from a 1,200 improvement to 4,500, its initially downgraded May rise upgraded to 5,100 (the greatest improvement since January’s 5,500), and April’s increase settling at 1,700 after being first reported as 1,000. As of July, 5.84 percent more workers were employed in the chemicals industry than in February, 2020, versus the 4.83 percent calculable last month; 

>machinery, which RealityChek regulars know is a bellwether for the rest of manufacturing and the whole economy because of how widely its products are used. Its employment increased by 3,400 on month in July; June’s initially reported 1,000 rise is now pegged as 1,600; May’s initially reported 3,200 job decrease has now ben revised all the way up to a jobs gain of 200; and April’s final total stayed at a twice downgraded 5,800. Consequently, machinery employment has rebounded to within 1.47 percent of its immediate pre-pandemic level, versus the 2.05 percent shortfall calculable last month; and 

>computer and electronics products, which contains shortage-plagued semiconductor sector, also boosted its employment by 3,400 sequentially in July. June’s initially reported 2,300 net new job creation is now judged to have been 2,000, but May’s totals were revised up a second time, to 5,300 (its best monthly performance since the 6,300 recorded in May, 2020, during the economy’s strong bounceback from the first CCP virus wave), and April’s thrice upgraded figure remained the same at 4,900. This progress pushed headcounts in this sector 0.41 percent above their February, 2020 levels, versus the 0.11 percent calculable last month.

The worst performers among July’s few maufacturing losers:

>paper and paper products, where employment fell month-to-month by 1,200. At the same time, June’s initially reported 1,200 job increase was upgraded to 1,500; May’s advance was revised down but still remained at an increase of 700; and April’s initially downwardly revised 1,300 employment rise stayed at an upwardly revised 2,100 increase. Nonetheless, there are now 0.86 percent fewer jobs in paper and paper products compared with February, 2020, versus the 0.22 percent dip calculable last month;

>textile mills, whose July employment was off by 600. Revisions were mixed, with June’s initially reported jobs bump of 700 now judged to have been 300, but May’s initially reported payroll decrease of 700 now upgraded to a loss of 400, and April’s upgraded 800-job increase remaining the same. Since just before the pandemic arrived,, however, textile mill jobs have shrunk by 6.18 percent, versus the 5.15 percent calculable last month; and

>furniture and related products, where headcounts sank by 600 on month. Worse, revisions on balance were decidedly negative. June’s initially reported employment improvement of 100 is now considered to be a drop of 1,100; May’s results, first reported as a 1,000 jump, were downgraded a second time to a mere 100 advance; and April’s initially reported 1,100 drop have been revised up only to 900 job loss. Whereas as of last month, the furniture complex’s workforce had risen to 0.60 higher than its February, 2020 level, it’s now sunk back to 0.03 percent lower.

As always, the most detailed employment data for pandemic-related industries are one month behind those in the broader categories, and most turned in performances even better than manufacturing as a whole.

The semiconductor industry is still struggling with the aforementioned shortages that are hampering so many other parts of the economy. But the 1,700 jobs it added on month in June were the most since the 1,800 in January, 2019, and revisions were positive. May’s initially reported 800 jobs gain is now pegged as having been 1,000 and April’s first reported 100 increase has been upgraded more than ten-fold – to 1,100.

The upshot seems to be that the recent high profile announcements of new domestic microchip fab construction are showing up in the employment data. As of last month, the sector’s payrolls were only 2.20 percent higher than just before the pandemic’s large-scale onset (though in fairness, semiconductor employment actually rose during the steep 2020 downturn). As of today, however, employment is up 3.22 percent during that period. (Note: The 1,400 semiconductor job growth I said last month took place in December, 2021 in fact came in the previous December. Apologies for the error.)

In surgical appliances and supplies (which includes so many of the personal protective equipment and other medical goods so widely used to fight the CCP Virus), June employment dropped by 800 – these companies’ worst monthly performance since last July’s 1,100 decline. At least revisions were positive. May’s initially reported gain of 400 is now estimated at 500, and April’s figure stayed at an upgraded loss of 100. The surgical appliances and supplies sector now employs 3.69 percent more workers than in February, 2020; last month, this increase had been 4.36 percent.

The pharmaceuticals and medicines industry, by contrast, generated record-smashing net job creation in June. The 4,300 rise was the biggest monthly total ever in a data series that goes back to 1990, and greatly eclipsed the old mark of 3,200 recorded in September, 2019. Revisions, moreover, were excellent, with May’s initially reported 100 payroll decline now raised all the way up to a 1,200 gain, and April’s increase remaining at an upgraded 1,500. Headcounts in these businesses are now 11.58 percent higher than just before the pandemic, versus the 10.10 percent calculable last month.

The much smaller medicines subsector containing vaccines performed well on the jobs front, too, hiring 1,100 net new workers in June. In addition, May’s initially reported 600 increase is now judged to have been 700, and April’s monthly improvement stayed at 1,100. This subsector’s workforce has now expanded by 26.29 percent since just before the pandemic arrived in force, as opposed to the 24.47 percent calculable last month.

An aerospace cluster hit especially hard by CCP Virus-related travel restrictions experienced another robust employment month in June.

Aircraft companies hired 1,500 net new workers on month, and revisions were excellent as well. May’s initially reported net new hires figure was upgraded from 1,300 to 1,600 – their best such performance since last June’s increase of 4,400 (mis-reported last month as a rise of 4,000). And April’s advance remained at an upgraded 500. As a result, the aircraft workforce is only 9.64 percent smaller than just before the pandemic arrived, versus the 10.30 percent calculable last month.

Aircraft engines and engine parts jobs were up by 800 sequentially in June, May’s initially reported increase of 700 was revised up to 900, but April’s results stayed at a downwardly revised 800. This improvement enabled employment at these firms to come within 9.81 percent of their February, 2020 levels, versus the 10.91 percent calculable last month.

These increases were mirrored in the non-engine aircraft parts and equipment industry, which added 600 workers on month. May’s initially reported 300 jobs increase remained unrevised as did April’s upgraded 400 increase. The non-engine aircraft parts and equipment sectors, as a result, crept to within 14.62 percent of their employment levels of February, 2020, versus the 15.14 percent calculable last month.

The big questions for American workers, and domestic industry as a whole including manufacturing, are whether economic growth will really continue to deteriorate further (here’s a recent forecast that it won’t, at least in the third quarter); and if it does, will businesses continue to “hoard” labor. Let me know if there’s anyone you trust to provide accurate answers.

(What’s Left of) Our Economy: An Encouraging June Swoon for the U.S. Trade Deficit

Tags

China, energy, exports, GDP, goods trade, gross domestic product, imports, Made in Washington trade deficit, manufacturing, non-oil goods deficit, recession, services trade, supply chain, Trade, trade deficit, Ukraine War, Zero Covid, {What's Left of) Our Economy

This morning’s official data (for June) show that U.S. trade was firing on practically all cylinders that month. In addition, the shrinkage in the combined goods and services deficit to the lowest level ($79.61 billion) since last December ($78.87 billion) was clearly attributable not only or even mainly to developments holding the nation’s imports down – ranging from a slowing in American economic growth (and therefore in most consumption) to the wounds China is inflicting on its export-heavy economy due to its insanely over-the-top Zero Covid policy to separate renewed backups at U.S. ports.

Instead, it’s also happening because many exports are up (to record levels), and that’s especally impressive because the dollar is so strong (which places U.S.-origin goods and services at price disadvantages all over the world, including in their home market) and because global growth is getting so weak (which tends to dampen demand for America’s offerings). And P.S. – these rising exports encompassed more than just the U.S. natural gas and other fossil fuels in such demand due to the Ukraine war and related sanctions on Russia.

The June figures reported one important exception, though: a monthly surge in the goods trade deficit with China to its highest level since November, 2018.

The June sequential drop in the overall trade deficit of 6.23 percent, from May’s $84.91 billion, was the third straight monthly decrease – a streak that hasn’t been seen since the second half of 2019, when the shortfall dropped sequentially six consecutive times – between June and November. Even better, the May total trade gap was revised down by a healthy 0.75 percent.

The deficit in goods trade – which dominates U.S. trade flows – tumbled 4.74 percent on month from $104.43 billion to $99.48 billion, its lowest level since last November. It, too, decreased sequentially for the third straight month, the first such stretch since December, 2019 through February, 2020 – just before the CCP Virus’ arrival in force began roiling and distorting the entire U.S. economy.

Meanwhile, the longstanding surplus in trade in services – which has been hit particularly hard by pandemic-related lockdowns and more cautious consumer behavior – advanced by 1.76 percent, from May’s upwardly revised (by 0.58 percent) $19.53 billion to $19.87 billion.

Combined goods and services exports hit their fifth straight monthly high in June, rising 1.67 percent from May’s upwardly revised $256.52 billion to $260.80 billion.

Energy goods exports were indeed way up – with natural gas overseas sales jumping by 26.51 percent, fuel oil exports increasing by 8.66 percent, and miscellaneous petroleum products climbing by 3.97 percent.

But they were far from the only significant export winners. For example, machinery and equipment exports soared by 13.78 percent on month in June; of foods, feeds, and beverages exports improved by 5.81 percent; and high tech goods’ foreign sales gained 4.51 percent.

In fact, goods exports overall also reached unprecedented heights for a fifth straight month in June, rising 1.97 percent sequentially from $179.51 billion to $183.04 billion.

As for services, their foreign sales hit their third straight all-time high, growing 0.97 percent on month, from $77.01 billion to $77.76 billion.

Overall imports, as mentioned, inched down sequentially – by 0.30 percent – in June, from $341.43 billion to $340.41 billion.

Another small monthly June decrease was registered by goods imports, which sagged by 0.50 percent, from $283.94 billion to $282.52 billion.

Only services imports broke this pattern: They set their own fifth consecutive record, increasing by 0.70 percent, from $57.49 billion to $57.89 billion.

The news in manufacturing trade was good, too – but only in comparison to industry’s recent alarming performance. The sector’s chronic, mammoth trade deficit was down 1.92 percent on month in June, from $132.60 billion to $130.05 billion. But this most recent total was still the third highest ever, after March’s $142.22 billion and the May figure.

Manufacturing joined the list of June export winners, as foreign sales increased sequentially from $112.15 billion to a new record $114.78 billion.

Manufactures imports inched up by mere 0.04 percent on month in June, from $244.75 billion to $244.83 billion. But this number was the second worst on record, after March’s $256.18 billion.

All told, at the statistical midway point of the year, the manufacturing trade deficit is running 22.13 percent ($756.53 billion vs $619.42 billion) ahead of last year’s record total. As a result, it’s all but certain that the United States in 2022 will rack up its fifth straight $1 trillion-plus manufacturing trade gap.

Year-to-date manufacturing exports are up 16.26 percent – from $548 billion to $637.12 billion. But the much greater amount of manufacturing imports has risen even faster – by 19.38 percent, from $1.16742 trillion to $1.39365 trillion.

Until very recently in the pandemic period (and its possible aftermath), as noted here, domestic manufacturing output and employment have held up remarkably well despite U.S.-based industry’s ballooning trade gap. The reason, as I pointed out here, is that Americans’ demand for manufactured goods has grown so strongly that domestic producers have been able to boost output even as imports flooded in much faster.

But with domestic manufacturing output decreasing in inflation-adjusted terms in both May and June, it looks like an economy-wide U.S. slowdown is weakening this demand, and that U.S.-based industry is finally paying a price for the share of its home market that it’s been losing.

The June China trade front news was even worse than that for manufacturing. The U.S. goods deficit with the People’s Republic soared by 17.13 percent sequentially, from $31.54 billion to $36.95 billion. That level is the highest since November, 2018’s $37.69 billion, and the increase the biggest since the 20.45 percent recorded in May, 2020 – when China and the United States were making recoveries from the first CCP Virus wave.

U.S. goods exports to China slumped by 5.22 percent, from $12.32 billion to $11.68 billion, while imports popped by 10.85 percent, from $43.86 billion to $48.63 billion – the highest total since last December’s $49.53 billion.

At least as important, this bilateral goods trade deficit is now up 27.51 percent on a year-to-date basis, as opposed to the 24.34 percent increase over the same period for its closest global proxy – the U.S. non-oil goods deficit.

For most of the time since the imposition of the first China tariffs imposed by former President Donald Trump in early 2018, this “Made in Washington” trade deficit (so named because by omitting services and oil trade, it tracks the U.S. trade flows most heavily influenced by U.S. trade policy) has been rising more slowly than the China goods deficit. Yet the gap, as noted in last month’s trade report, has been narrowing lately, and the June figures signal that it might be gone for the time being.

In general, though, the June trade report was a pleasant surprise given the currency and global growth headwinds mentioned above. Additional cause for some optimism:  The latest official release on the size of the U.S. economy in inflation-adjusted terms told much the same story of the trade gap narrowing for the “right reasons.”

But can the trade deficit keep falling due mainly to better exports, rather than following the typical slowdown and recession pattern of shrinking mainly due to the falling exports caused by weaker demand? In other words, can the falling deficit contribute to the quality of U.S. growth rather than simply reflect a feebler economy? Those are different questions altogether.

Following Up: Podcast Now On-Line of National Radio Interview on Pelosi Taiwan Visit and U.S. Stagflation Prospects

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Asia-Pacific, China, decoupling, Following Up, geopolitics, Indo-Pacific, inflation, manufacturing, Market Wrap with Moe Ansari, Nancy Pelosi, national security, Pelosi, recession, sanctions, semiconductors, stagflation, Taiwan, tech, Trade, trade deficit

I’m pleased to announce that the podcast is now on-line of my interview last night on the nationally syndicated “Market Wrap with Moe Ansari.” Click here for a timely conversation on two headline issues:  how U.S. House Speaker Nancy Pelosi’s controversial visit to Taiwan could hit U.S.-China economic relations and America’s access to Taiwan’s world-class semiconductor manufacturing prowess; and why what’s in store for the U.S. economy could be even worse than the recession that’s now widely forecast.

And keep on checking in with RealityChek for news of upcoming media appearances and other developments.

Making News: Back on National Radio Tonight on the Pelosi Taiwan Trip and the U.S. Economic Outlook

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China, Making News, manufacturing, Market Wrap with Moe Ansari, Pelosi, recession, Taiwan, Trade

I’m pleased to announce that I’m scheduled to return tonight on the nationally syndicated “Market Wrap with Moe Ansari.” Our subjects: the economic fallout from U.S. House Speaker Nancy Pelosi’s controversial visit to Taiwan, how recession-y America’s economic future looks, and the outlook for the U.S. manufacturing sector.

“Market Wrap” airs weeknights between 8 and 9 PM EST, these segments usually begin midway through the show, and you can listen live on-line here.

As usual, if you can’t tune in, I’ll post a link to the podcast of the inteview as soon as it’s available.

And keep on checking in with RealityChek for news of upcoming media appearances and other developments.