(What’s Left of) Our Economy: The Latest Upside Surprise for U.S. Manufacturing

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aircraft, aircraft parts, apparel, automotive, computer and electronics products, Federal Reserve, furniture, inflation, inflation-adjusted output, machinery, manufacturing, medical equipment, miscellaneous durable goods, pharmaceuticals, plastics and rubber products, primary metals, recession, {What's Left of) Our Economy

Sorry for the tardiness of this post on the latest official (April) figures for U.S. manufacturing output. Sometimes life gets in the way. But I hope you agree that they’re still worth reviewing because even without a stupendous performance by the automotive sector, they’d have still been solid.  And the more so with domestic-based industry and the entire economy either supposedly headed for recession or already in one.

These results don’t change the recent big-picture description of U.S.-based manufacturing production essentially flat-lining. But it hasn’t experienced a significant drop-off, either.

In fact, the April sequential growth of 1.02 percent in inflation-adjusted terms (what’s measured by these data tracked by the Federal Reserve and what will be used in this post unless otherwise specified) was the strongest since January’s 1.59 percent. And revisions were slightly positive.

And leaving aside the vehicle and parts sectors, April’s increase would have been a highly respectable 0.38 percent.

The April report shows that American manufacturers have now boosted their output by 1.20 percent since February, 2020, just before the state-side arrival in force of the CCP Virus pandemic As of last month, this figure was 0.93 percent.

The biggest April production winners among the broadest industry-specific manufacturing categories monitored by the Fed were:

>automotive, whose blazing 9.30 percent expansion not only was its best since October, 2021’s 10.44 percent but enabled the industry to achieve a new all-time production record. It topped December, 2018’s previous historic high by 1.89 percent.

Automotive output figures, though, can be volatile. Indeed, the strong April advance followed a downwardly revised March tumble of 1.93 percent that was the sector’s worst monthly performance since February, 2022’s 3.37 percent dive. So it’s still far from clear whether April represents a blip or the start of a lengthy upswing.

What is clear that, pending revisions, the April monthly jump pushed automotive production to 1.57 percent above its immediate pre-pandemic level, versus the 0.97 percent calculable last month;

>computer and electronics products, whose 2.15 percent April gain broke a weak spell of four months and stands as the sector’s best performance since its 2.62 percent advance in May, 2021. These industries have now grown by 1.57 percent since immediately pre-pandemic-y February, 2020, versus the 0.97 percent increase calculable last month. This rate seems modest, but computer and electronics products fell off only modestly during the deep CCP Virus-induced economy-wide downturn;

>plastics and rubber products, where production expanded by 1.16 percent in April for the sector’s second straight improvement after a long spell of weakness. In fact, the April results for plastics and rubber products makers was their strongest since February, 2022’s 2.67 percent. But due to some major downward revisions, these industries’ output sank from 0.37 percent below pre-pandemic levels to 2.01 percent below.;

>primary metals, which boosted production by 0.90 percent. But these industries have still shrunk by 2.71 percent during the pandemic era and it aftermath, versus the 2.90 percent calculable last month.

The biggest losers among these broad sectors were:

>miscellaneous durable goods, where output in April tumbled by 1.32 percent in the worst performance by this diverse group of industries since last December’s 1.79 decrease. Miscellaneous durable goods producers have still increased their production by 9.59 percent since February, 2020, but last month, growth during this period was 11.30 percent;

>apparel and leather goods, where production was cut by 0.80 percent, and post-February, 2020 growth was nearly halved – from the 9.12 percent calculable last month to 5.25 percent. Nonetheless, despite this progress, because of decades of penny-wage foreign competition, these sectors remained mere shadows of themselves:

>machinery, whose output decreased by 0.50 percent and extended a three-month losing streak. These results are discouraging because this diverse grouping is a bellwether for the rest of manufacturing and the economy overall, since its products are so widely used for expansion and modernization. Machinery’s poor recent performance has dragged its CCP Virus-era-and-beyond growth from the 5.85 percent calculable last month to 3.54 percent; and

>furniture and related products, whose -0.43 percent April output slip was its sixth retreat in the last seven months. These industries are now 12.43 percent smaller than in just before the CCP Virus’ arrival, versus the 11.49 percent calculable last month.

Manufacturing sectors of special importance since the pandemic began depressing and distorting the economy followed a solid March with a comparably good April.

The global semiconductor sector shortage that began during the virus period has now eased dramatically for most types of chips, and in that vein, it’s no surprise that U.S.-based producers increased output in April for the third straight month. The 2.08 percent improvement pushed the sector’s production 10.54 percent higher since February, 2020, versus the 8.05 percent calculable last month.

April production of pharmaceuticals and medicines – including vaccines – was strong, too, with the 1.06 percent rise representing the best performance since last December’s 1.08 percent. This sector is now 14.57 percent larger than in immediately pre-pandemic-y February, 2020, versus the 13.38 percent calculable last month.

Aircraft and aircraft parts companies boosted their production only fractionally in April, but this marginal gain broke a string of four straight decreases. Even so, a substantial downward March revision helped reduce these firms’ output growth since the pandemic’s arrival state side in force to 7.07 percent, versus the 7.87 percent calculable last month.

The only April loser among this group was the medical equipment and supplies industry. It’s 1.03 percent production drop was the worst since last December’s 1.57 percent, and dragged its virus-era-and-beyond growth from the 14.52 percent calculable last month to 13.02 percent.

With a U.S. recession still a prediction rather than a fact, the economy continuing to show at least decent momentum, and a growing likelihood that the Federal Reserve will pause its campaign of combating inflation with growth-slowing interest rate hikes, it’s difficult to be gloomy about domestic manufacturing’s near-term future. And if the nation’s politicians succumb to their usual election-year temptation to throw more money at businesses and consumers, then industry’s medium-term prospects look pretty good, too.

Of course, if that’s so, it means that inflation will stay high as well. And how long both developments will remain tolerable for businesses, consumers and all the consumers who vote, and the Fed with its inflation-fighting responsibilities, is anyone’s guess.

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(What’s Left of) Our Economy: U.S. Worker Pay (Momentarily?) Tops Inflation

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benefits, Biden administration, CCP Virus, Census Bureau, consumption, coronavirus, COVID 19, demand, ECI, Employment Cost Index, Immigration, labor force, labor market, labor shortage, Open Borders, Paul Krugman, production, productivity, recession, salaries, supply, Title 42, Trump administration, wages, workers, workforce, {What's Left of) Our Economy

American workers got some unambiguously good news this past week. Although it’s not all that high on the “good” scale. And it could well be short-lived.

Still, good is good, so it’s important to note that by one official measure, American workers’ earnings have at last caught up to the recent burst of inflation – and a little bit more. In the first quarter of this year, wages and salaries have risen by 0.1 percent over last year’s first quarter. (These are private sector wages and salaries, the ones economy watchers really care about. That’s because unlike public sector earnings, they’re driven predominantly by market forces, not politicians’ decisions.)

No, it’s not much, but it’s a better situation than prevailed as of the end of last year, when such compensation had fallen by 1.2 percent on year. In fact, these new results for the Employment Cost Index marked the first time since the first quarter of 2021 that, in real terms, wage and salary gains combined have moved back into the black.

This encouraging development, however, comes with two important caveats. First, when you add in the value of benefits and get numbers for total compensation for private sector workers, they’re still lagging inflation, and have since, again, the first quarter of 2021.

To be sure, by this gauge, workers are catching up. As of the first quarter of last year, total private sector compensation was down 3.5 percent on an annual basis, the worst such result in a data series going back to 2001. Now it’s trailing by just 0.2 percent. But it’s still trailing.

Second, although progress is being made on the earnings front, labor productivity growth remains weak. The best combination in terms of yielding sustainable prosperity is strong growth for both.

And like I hinted at the start, this progress may be just about over. Not only is the economy slowing – which will surely make employers more reluctant to hire than they have been, and thereby reduce the pressure they feel to keep and add workers by raising pay at whatever rate. A recession will of course leave workers with even less bargaining power.

But the supply of workers available to business, which had shriveled thanks largely to the effects of the CCP Virus, has rebounded past pre-pandemic levels. And much of this recovery stems from a strong rebound in net immigration inflows – which the U.S. Census Bureau believes have returned to pre-virus levels and to their levels before the advent of the Trump administration’s restrictive border policies.

Many immigration devotees, like Nobel Prize-winning economist and New York Times pundit Paul Krugman argue that the immigrant-driven loosening of the national labor market has kept employment up while preventing “runaway inflation” not by suppressing wages but by keeping production up – and thereby closing the CCP Virus-created gap between demand and supply.

But if you look at the economy’s growth over the year when immigration surged, that argument falls apart. It may become validated farther down the road, but in inflation-adjusted terms, but between the first quarter of 2022 and 2023, U.S. output rose a bare 1.56 percent Moreover, as I’ll be showing in a subsequent post, even this weak growth in the gross domestic product, along with the better performance of 2021-22, was led by unusually high levels of consumer spending, not by output.

As a result, the main effect to date of the immigration resurgence clearly has been undercutting wage pressures. And it’s certain to continue with the Open Borders-friendly Biden administration in office through the start of 2025 at least, with the pandemic-era Title 42 restriction program ending May 11, and the President so far deciding to respond with a plan featuring numerous provisions aimed at easing major current obstacles to legal immigration. 

So let’s all hope that American workers are enjoying this mini-near earnings recovery while they still can. For if they blink, they might miss it. 

(What’s Left of) Our Economy: U.S. Inflation Stays in a (High) Holding Pattern

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{What's Left of) Our Economy, inflation, recession, Federal Reserve, PCE, personal consumption expenditures index, baseline effect, core PCE

Today’s official U.S. inflation figures (for March) added up to another “more of the same” report. And since they’re the data taken most seriously by the Federal Reserve (the federal government’s main fighter against the multi-decade high prices and price increases the nation has experienced lately) that probably means that it will stay on what seems to be its current current inflation-fighting course. That is, expect it to keep credit much tighter than it had been in many years – at least until it becomes clear that this growth-slowing effort drags the economy into a recession.

The best news contained in this release on the Personal Consumption Expenditures Prices Indices (PCE – which are measures of consumer, not wholesale, inflation) was the monthly drop-off in the headline number. It fell from 0.3 percent in February to 0.1 percent, its weakest advance since last July.

The core PCE result (which strips out food and energy prices supposedly because they’re volatile for reasons largely unrelated to the economy’s fundamental vulnerability to inflation) wasn’t quite so encouraging. March’s 0.3 percent sequential increase matched the February rise, and was unexceptional by recent standards.

The annual results paint a similar picture – but also make possible the baseline analysis needed to make clear the essential context. And it continues to support inflation-success pessimism unless the economy really tanks. The New York Times just provided a good explanation of how such analysis illuminates why today’s superficially easing price increases are at least as troubling as earlier, stronger hikes.

In the first months of the current inflationary surge, the data “were being measured against pandemic-depressed numbers from the year before, which made the new figures look elevated. But by the end of summer 2021, it was clear that something more fundamental was happening with prices.”

That’s because the year-before comparison numbers (the baseline) had gotten considerably higher. And since inflation rates stayed lofty, the obvious conclusion has been that robust price increases were no longer something of a statistical illusion that would turn out to be “transitory” (as the Fed, among many, predicted) once the economy returned to a quasi-normal post-CCP Virus condition. Instead, other drivers of heated inflation had emerged, and unless they were addressed, prices would keep displaying dangerous momentum.

So we can still hold the applause upon learning, as we did in this morning’s PCE report, that yearly headline inflation had tumbled from 5.1 percent in February (revised up from five percent) to 4.2 percent.

Yes, that’s the best such figure since August, 2021’s matching figure. But that August, 2021 baseline figure was 1.4 percent between August, 2019 and August, 2020. This latest March baseline figure? A 6.6 inflation rate that’s more than four times higher. So obviously businesses believe they still have plenty of pricing power, and will continue to raise prices till they’re proven wrong.

The core annual PCE result was even more discouraging. Between February and March, it stayed at 4.6 percent. (To be sure, the February number has been revised down from a,n initially reported 4.7 percent.)

So although that’s still the slowest annual core PCE increase since October, 2021’s 4.2 percent, the baseline figure for the latter was just 1.4 percent, whereas for last month’s figure, it was 5.2 percent. Again, it looks like businesses have been confident that they can keep charging their customers much more.

Interestingly, the same government release containing the PCE inflation figures also indicated that consumers might finally be balking at high prices (supporting the adage that a sure cure for high prices is high prices). Their spending has slowed notably since January. But I’m still betting that a Fed reluctant to create a downturn and politicians determined to keep voters’ finances buoyant as another presidential election approaches will ride to their rescue, and keep inflation higher than virtually anyone wants.          

(What’s Left of) Our Economy: The Real Trade Deficit at a Crossroads

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

Today’s first official estimate of U.S. economic growth in the first quarter of this year was one of the most peculiar reports in this series I can remember.

On the one hand, this read (which will be revised twice in the next two months) showed a 1.06 percent improvement after inflation at annual rates in America’s gross domestic product (GDP – the standard measure of an economy’s size). That’s a marked slowdown from the fourth quarter’s 2.55 percent real annualized growth. So not great economic news.

On the other hand, price-adjusted GDP still grew, and the price-adjusted total trade deficit slipped. In fact, it shrank for the third straight time while the economy expanded. That kind of streak hasn’t been seen since the period between the first and fourth quarters of 2007 – just before the arrival of the Great Recession spurred by the Global Financial Crisis.

Despite that reference, that’s encouraging economic news, since it indicates that the growth, however measly per se, remained healthy quality-wise. In other words, it stemmed more from producing than from spending – the opposite result from the typical consumption-led growth pattern usually signaled by a widening rising trade gap.

Specifically, in the first quarter, the constant dollar goods and services trade deficit dipped by 0.23 percent, from the fourth quarter’s inflation-adjusted $1.2386 trillion to $1.2358 trillion. (After-inflation figures at annual rates will be the measure used in this post unless otherwise specified.) The drop was also the fourth straight sequential decrease of any kind – which hadn’t happened since the year between the second quarters of 2019 and 2020.  The end of that period, of course, is when the economy began suffering the effects of the CCP Virus. And the new level is the lowest since the $1.2309 trillion recorded in the second quarter of 2021.

The first quarter deficit represented 6.08 percent of the after-inflation GDP – down from the fourth quarter’s 6.14 percent and also the lowest such figure since the second quarter of 2021 (6.06 percent). All these numbers are way below the record of 7.47 percent in the first quarter of 2022.

Not surprisingly, though, the slight contraction in the overall trade deficit contributed little to first quarter growth either in absolute or relative terms – fueling just 0.11 percentage points of the 1.06 percent advance. In the fourth quarter, the reduction in the goods and services deficit accounted for 0.42 percentage points of the 2.55 percent growth.

The first quarter data left the total trade shortfall 48.39 percent greater than the amount in the fourth quarter of 2019 – the final full data quarter before the pandemic arrived stateside in force. As of the fourth quarter, it had been 48.73 percent higher.

Total exports climbed in the first quarter by 1.18 percent, from $2.5796 trillion to a new record $2.6101 trillion. The first quarter result topped the previous all-time high of $2.6041 trillion (in the third quarter of last year) by 0.23 percent. These overseas sales have now increased by 1.49 percent since that immediately pre-pandemic-y fourth quarter of 2019. As of last year’s fourth quarter, they were a bare 0.30 percent higher.

Total imports in the first quarter rose for the first time in three quarters – by 0.73 percent, from $3.2830 trillion to $3.8460 trillion. These purchases now top the fourth quarter, 2019 total by 12.96 percent. As of the fourth quarter of last year, they were up by 12.14 percent.

The trade shortfall in goods dipped by 1.09 percent sequentially, from $1.4182 trillion to $1.4028 trillion. This fourth straight decrease matched that of the span between the second quarters of 2019 and pandemic-ridden 2020, and the level was the lowest since the $1.3965 trillion from the second quarter of 2021. This deficit is now 31.52 percent greater than just before the CCP Virus began roiling the economy, versus 32.96 percent growth as of the fourth quarter of 2022.

Goods exports reached an all-time high as well, increasing from the fourth quarter’s $1.8468 trillion to $1.9098 trillion. The old record of $1.9010 trillion in the third quarter of 2022 was 0.46 percent lower. These exports have now risen by 6.90 percent since the last pre-pandemic fourth quarter of 2019, versus the 4.38 percent growth as of last year’s fourth quarter.

As with total imports, goods imports rose for the first time in three quarters, too. The advance was 0.73 percent, from $3.8182 trillion to $3.8460 trillion, and it brought the post-fourth quarter, 2019 increase to 12.96 percent. As of last year’s fourth quarter, the increase was 12.14 percent.

The surplus in services trade, a major CCP Virus-era victim, sank in the first quarter sequentially from $177.7 billion to $167.7 billion. The 5.63 percent pull-back was the biggest since the 20.94 percent nosedive in the second quarter of 2021. Yet it also followed big third and fourth quarter jumps of 9.44 percent and 8.69 percent, respectively.

Still, the services surplus is down 28.88 percent since the fourth quarter of 2019, versus the 24.64 percent fall-off as of fourth quarter, 2022.

Services exports fell 1.41 percent in the first quarter, from $731.4 billion to $721.1 billion. This decrease was the first since the second quarter of 2020 – the first quarter heavily affected by the virus. Consequently, these sales are off by 8.35 percent since the last pre-pandemic quarter, versus the 7.04 percent calculable as of last year’s fourth quarter.

Services imports contracted only from $553.7 billion to $553.4 billion, but the decrease was the third straight. These purchases have now risen by 0.44 percent since the arrival of the CCP Virus in force, versus the 0.49 percent calculable as of the previous quarter.

With the new feeble first quarter growth figure seeming to indicate surging odds of an imminent recession, the real trade gap presumably will keep narrowing, too. But the economy is still being distorted by the virus and Washington’s roller-coaster responses.

As I’ve written, the current slowdown – due to the Federal Reserve’s inflation-fighting efforts – could well stabilize and even reverse itself if the central bank pauses or ends its credit tightening for fear of bringing on a hard landing, and if politicians succumb to election-year temptations to keep voters happy with added government spending. In that case (the one I consider likeliest), the real trade deficit could well be headed higher once again, too.    

 

(What’s Left of) Our Economy: New Official Data Show U.S. Manufacturing Spinning its Wheels

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aerospace, aircraft, aircraft parts, apparel, appliances, automotive, CCP Virus, coronavirus, COVID 19, electrical components, electrical equipment, Federal Reserve, industrial production, inflation-adjusted output, machinery, manufacturing, medical devices, medicines, miscellaneous transportation equipment, non-metallic mineral products, paper, petroleum and coal products, pharmaceuticals, plastics and rubber products, real growth, recession, semiconductors, stimulus, wood products, {What's Left of) Our Economy

Including some long-term “benchmark” revisions issued late last month, today’s Federal Reserve figures show that U.S. manufacturing output after inflation fell sequentially in March for the first time in three months.

The drop followed upgraded results for January and February, but even with those latest longer term revisions, the more important takeaway is that as of March now, price-adjusted manufacturing production (the measure used by the Fed, and the one that will be used in this release unless specified otherwise) was virtually unchanged over the past year.

And since February, 2020, just before the state-side arrival in force of the CCP Virus pandemic, industry has now grown by just 0.93 percent. Last month’s pre-benchmark Fed report pegged this increase at 1.65 percent.

For some longer term perspective, the new Fed statistics tell us that since peaking way back in December, 2007, American manufacturing production is down 5.98 percent. As of the last pre-benchmark release, this shrinkage was 5.30 percent. So domestic industry’s decade-and-half-plus slump has been slightly worse than previously estimated.

Back to the most recent numbers, only eight of the twenty biggest individual industry sectors tracked by the Fed expanded production on month in March. The biggest winners were:

>the very small apparel and leather goods industries, where production jumped sequentially in March by 1.96 percent. Although hammered and greatly diminished by decades of penny-wage foreign competition, output by these companies is now up 9.12 percent since just before America’s pandemic era began, versus the 8.02 percent calculable last month;

>petroleum and coal products, whose output expanded in March for a fourth straight month, and whose by 1.29 percent advance was the strongest since the 2.34 percent surge last September. Petroleum and coal products production is now 3.88 percent off its immediate pre-pandemic level, versus being 1.41 percent higher as of last month’s Fed release;

>paper manufacturing, which grew by 0.78 percent in March for its best monthly gain since November’s 1.64 percent increase. Since February, 2020, this sector has contracted by 6.33 percent – a big decrease but much better than the 13.69 percent plunge calculable last month;

>aerospace and miscellaneous transportation, where the March increase of 0.73 percent was the fist gain since last August. Production is now 6.84 percent higher than immediately prior to the pandemic’s state-side arrival in force, much lower than the 23.06 percent gain calculable last month; and

>plastics and rubber products, where production also improved by 0.73 percent in the sector’s best advance since February, 2022’s 2.67 percent burst. These sectors’ output moved to within 0.37 percent of it immediate pre-pandemic level, much closer than the 5.62 percent shortfall calculable last month.

The biggest losers of these big sectors were:

>wood products, which saw output plunge by 2.90 percent in March. And that wasn’t even its worst recent setback – that dubious honor goes to December’s 3.18 percent drop. These dismal results dragge wood products production down to 5.46 percent below its February, 2020 level, versus the 2.49 percent calculable last month;

>non-metallic mineral product, where production decreased for the first time in four months. But the 2.56 percent sequential retreat was the sector’s worst since the 4.01 percent crater in winter-affected 2021. Thanks to the rest of the benchmark revision, though, output of non-metallic mineral products is now actually up by 6.95 percent post-CCP Virus, versus the 2.67 percent calculable last month;

>electrical equipment, appliance, and component, a 1.71 percent production loser in its weakest monthly performance since November’s 2.83 percent tumble. Output in this diverse sector slipped to being up just 0.56 percent since immediately pre-pandemic-y February, 2020 versus the 4.32 gain calculable last month; and

>automotive, whose fortunes have been central to those of domestic manufacturing overall during these last challenging years. Its 1.48 percent March production drop was the greatest since last November as well (2.09 percent). This setbacks plus other benchmark revisions have pushed output of vehicles and parts down to 5.14 percent below February, 2020 levels. As of last month’s Fed release, they were 0.12 higher.

Output drooped in another manufacturing sector of unusual importance – machinery. Its products are used widely throughout the rest of industry and the economy that its production performance suggests whether the American corporate sector overall has decided to expand and modernize or whether its views the future more pessimistically.

Machinery’s March output dip of 0.68 percent, therefore, could be a negative indicator. At the same time, the decline was the first in three months – so maybe it’s a hiccup. Machinery production has now grown by 5.85 percet since the CCP Virus’ arrival in force state-side, slightly better than the 5.54 percent calculable last month.

Although President Biden has just declared the pandemic to be officially over, manufacturing sectors of special importance during this period fared well in March.

The global semiconductor industry that was plagued by shortages for so long now seems to be in full glut mode – except for the auto sector, whose chip supply reportedly is still spotty. Domestic output climbed 0.55 percent in March for its second straight monthly improvement. Slated to receive tens of billions of dollars worth of production subsidies from Washington going forward, semiconductor manufacturers have now raised their virus-era production by 8.05 percent since February, 2020 – a startling turnabout from the 7.83 percent decrease calculable last month.

Despite the pandemic’s steady fade over the last year, companies in medical equipment and supplies kept increasing production, and March’s advance of 0.43 percent was the third straight month of increases. Since the start of the pandemic era, their output has risen by 14.59 percent, versus the 10.52 percent calculable last month.

Production in pharmaceuticals and medicines – including vaccines – gained another 0.38 percent in March. Nonetheless, due to those benchmark revisions, its output is now estimated to be 13.38 percent greater than just before the pandemic’s arrival, down considerably from the 20.42 percent increase calculable last month.

Aircraft and aircraft parts companies kept benefiting from the post-pandemic rebound in travel, and turned out 0.35 percent more products in March than in February. But again, revisions resulted in a startling downgrade in post-February output figures – from the 30.19 percent increase calculable last month to just 7.87 percent.

What to expect going forward for manufacturing output?  As discussed for the entire economy in my latest post on consumer inflation, gloomy for the short-term (as signs of an impending slowdown and even recession mount) but brighter longer term (mainly because politicians won’t be able to resist the temptation to keep voters happy by propping up their purchasing power – which should create more demand for manufactured goods, too).    

(What’s Left of) Our Economy: Why Even the New Great U.S. Wholesale Price Results Don’t Warrant Inflation Optimism

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

No doubt about it – the excellent official U.S. wholesale inflation numbers that came in this morning set up a fascinating and important test of what the main drivers of consumer price increases really are. This Producer Price Index (PPI) of course measures the rises and falls in how much businesses charge each other for the goods and services they pay to supply the demand of their final customers (be they other businesses or households and individuals).

If such encouraging numbers keep getting released, will they make clear that the costs companies pay for their inputs play the predominant role? Or will they demonstrate that the crown goes to levels of consumer demand itself? RealityChek regulars know that I’ve backed the second proposition, still do, and believe that inflation will revive even if major business costs keep falling. So I’ve got some reputational skin in this game, too.

If you doubt that today’s results (for March) were excellent, check them out. Headline PPI improved for the consecutive time month-to-month and decreased in absolute terms by 0.50 percent. That’s not disinflation (prices still rising, but more slowly). That’s deflation (prices actually falling). And this sequential drop was the biggest since April, 2020’s tumble of 1.19 percent.

Negative revisions were something of a fly in the ointment. But they weren’t big enough to change the bigger positive picture.

Headline PPI slowed on an annual basis in March, too, and for the ninth straight time. Further, the 2.79 percent yearly growth was the slowest since January, 2021’s 1.68 percent, and the difference with February’s downwardly revised 4.54 percent (1.75 percentage points) was the greatest of the current high inflation period. In fact, the only figure that comes close is the 1.49 percentage point drop between the January and February annual numbers. So that has to indicate powerful downward momentum for wholesale inflation.

So does baseline analysis. The new annual March headline PPI rate of 2.79 percent followed an increase between the previous Marchs of 11.59 percent. That means that between February and March this year, PPI fell considerably faster than the baseline figures for those results rose – which signals that businesses believe they have much less pricing power.

Moreover, the aforementioned 1.68 percent January, 2021 annual wholesale inflation rate followed PPI from January, 2019 to January, 2020 of 1.97 percent. So there was nothing unusual in baseline terms about the latter figure. Rather than indicate great momentum or a catch-up effect, it was a sign of wholesale inflation stability.

The core PPI results strip out prices in energy, food, and a category called transportation services – supposedly because they’re volatile for reasons having little or nothing to do with the economy’s fundamental vulnerability to major price increases (or decreases). And they were outstanding as well.

On a monthly basis, core PPI weakened in March for the second consecutive time, too, and the sequential increase of 0.07 percent was the best such result since these prices sank by 0.81 percent in April, 2020.

In annual terms, core wholesale inflation also cooled for the second straight month, and the March rise of 3.67 percent was the best such result since March, 2021’s 3.15 percent. Moreover, the 0.87 percentage point retreat between the February and March yearly results was also by far the most during the current high inflation period.

A glowing assessment of these annual core PPI figures also holds up well under the baseline analysis microscope. As with annual headline PPI, between February and March, this number’s 0.87 percentage point fall was considerably bigger than the worsening of their 2021-2022 baseline figures (0.31 percentage points, from 6.75 percent to 7.06 percent).

And as with annual headline PPI, in my view, this very rapid core PPI progress outweighs in importance the fact that the baseline figure for that March, 2021 3.15 percent wholesale inflation rate was a measly 0.10 percent. Why? Because by that baseline date of March, 2020, the economy was obviously being engulfed by the CCP Virus pandemic and lockdowns and voluntary behavioral curbs. So the year after, some catch-up was clealy taking place.

In other words, the situation was much different than that for the January, 2021 annual headline PPI result mentioned above – because that baseline figure was pre-pandemic.

Yet bringing the virus into these equations points to the big potential (and IMO, likely) downside of this PPI progress – and indeed of the less impressive consumer inflation data that came out yesterday. It also supports the case that overall levels of economic demand are the main determinants of inflation, and especially consumer inflation.

For it’s no coincidence that so many of the good PPI results spotlighted in this post date are the best since April, 2020. That month was the nadir of the deep (but thankfully brief) depression into which the pandemic threw the nation. Consumers dramatically reduced overall spending.  Therefore, companies’ orders for inputs needed to supply that consumption plummeted as well, all of which sharply reduced all business pricing power. 

Although no such scary downturn is on the horizon now, the signs keep multiplying that some kind of slump will begin before too long. (See, e.g., here.) And as long as this scenario unfolds, producer and consumer prices will surely keep easing – because of weakening demand. 

But here’s where the test I’m anticipating comes in. As explained most recently in yesterday’s consumer inflation update, I don’t expect prices to disinflating or even stabilizing for much longer because a presidential (and Congressional) election is approaching. Consequently, politicians seeking to keep voters happy will soon start working overtime to make sure that consumers will have a decent amount of money to spend – thereby propping demand back up again.

This buoyed demand is likely to restore whatever business pricing power confidence may have been ebbing recently.  Consequently, I predict that companies will start raising prices vigorously again even as their own cost pressures (especially on the labor and supply chain fronts) continue easing. Therefore, prices will gain new momentum simply because companies can increase them, not because of any changes in what they’re paying for goods and services.

Skeptics should think of it this way: If consumers keep on paying higher prices, why would businesses not keep charging them?   

As just indicated, this re-inflationary process will take some time to play out.  But I promise to vigilantly monitor how well my predictions hold up. And you should feel free to hold my feet to the fire, too.          

(What’s Left of) Our Economy: U.S. Manufacturing Starts a Jobs Losing Streak

Tags

aircraft, aircraft engines, aircraft parts, automotive, banking crisis, Boeing, CCP Virus, chemicals, coronavirus, COVID 19, credit, Employment, fabricated metal products, food manufacturing, Jobs, machinery, manufacturing, metals, non-farm jobs, non-metallic mineral products, pharmaceuticals, plastics and rubber products, private sector, recession, semiconductors, soft landing, stimulus, surgical equipment, transportation equipment, vaccines, {What's Left of) Our Economy

U.S. manufacturing employment achieved a bad type of milestone in March, according to the official jobs data released today: Reflecting weakness in domestic industry, for the first time since the peak pandemic period of early spring, 2020, job levels fell for the second straight month.

The sequential decline was small – just 1,000. And the February dip was actually revised up from one of 4,000 to one of 1,000. But back-to-back losses of any kind haven’t been recorded since the CCP Virus began decimating the U.S. economy in March and April of 2020. Moreover, January’s modest monthly gain was downgraded a second time – from 13,000 to 11,000.

Because of these losses, and continuing economy-wide jobs gains, the March results worsened manufacturing’s status as an employment laggard since the pandemic’s arrival in force. Its payrolls have now risen by just 1.55 percent since February, 2020 – the last data month before the virus’ full economic effects began to be felt. That’s the same as the growth calculable from the previous jobs report.

For non-farm jobs overall (the federal government’s definition of the U.S. jobs universe), employment now stands 2.10 percent higher than in February, 2020, versus the 1.96 percent calculable from last month’s jobs report. And private sector employment is now up 2.71 percent during this period, versus the 2.46 percent calculable last month.

From another perspective, manufacturing jobs have dropped to 8.35 percent of total non-farm jobs – below the 8.36 percent calculable from last month’s release and the 8.39 percent level just before the CCP Virus’ arrival state-side in force. And they now account for just 9.76 percent of all private sector jobs, versus the 9.77 percent calculable from last month’s release and the immediate pre-pandemic share of 9.87 percent.

March’s biggest jobs winners among the broadest manufacturing sub-sectors tracked by Washington were:

>transportation equipment, a big, diverse grouping that added 6,400 positions. Moreover, this advance followed an upwardly revised 2,500 increase for February. Transportation equipment payrolls are now up 3.33 percent since immediately pre-pandemic-y February, 2020, versus the 2.82 percent calculable from last month’s jobs report;

>machinery, another broad category whose 3,800 employment monthly growth was encouraging because its products are used to equip and modernize nearly all manufacturing and non-manufacturing sectors. So changes in its workforce can signal optimism or pessimism about their prospects. In addition, this headcount expansion was the tenth in a row,and the March advance was the biggest since November’s 5,800 .

February’s initially reported 400 employment bump was revised down to 200, but machinery’s workforce is now 1.55 percent larger than in February, 2020, versus the 1.13 percent calculable last month;.

>food manufacturing, another big industry that added 3,400 workers and saw its initially reported 1,100 February employment drop revised up to a 1,400 improvement. Food manufacturing’s payrolls are now 4.52 percent greater than just prior to the pandemic’s arrival, versus the 4.26 percent calculable last month; and

>primary metal, a smallish sector that boosted employment by 1,800 in its best performance since last July’s 1,900. Just as good: It’s initially reported jobs cuts of 400 in February are now estimated at an increase of 300.

March’s biggest losers among the broad industry categories were:

>fabricated metal products, a big sector whose 4,100 contraction represented its second straight month in the red after 23 months of expansion, and its worst such performance since the 18,400 nosedive of July, 2020 – when the economy was recovering from the devastating first wave of the CCP Virus. Worse, February’s initially reported jobs decline of 1,100 was downgraded to one of 1,200.

Due to these dreary results, fabricated metals jobs have now shrunk by 1.45 percent since just before the pandemic and consequent lockdowns and voluntary behavioral curbs began kneecapping the economy in Febuary, 2020. As of last month’s jobs report, this figure stood at 1.15 percent;

>chemicals, another sizable industry, where 4,000 workers lost jobs – the worst such performance since December’s 5,900 plunge. February’s initially reported 2,500 employment growth was revised up to 2,900, but since just before the pandemic’s arrival in the United States in force, chemicals makers’ payrolls are now 6.96 percent higher, versus the 7.40 percent calculable last month.

>non-metallic mineral products, which saw a fall-off of 2,200 positions in its worst employment month since last month, when it shed 5,000 jobs. In addition, February’s initially reported jobs increase of 1,500 has been revised way down to one of 200.

These setbacks have depressed this small sector’s post-February, 2020 job growth from the 3.74 percent calculable last month to 2.81 percent; and .

>plastics and rubber products, a medium-sized category where 2,200 workers were let go. February’s initially reported 4,700 employment tumble was revised down to one of 4,400. But head counts in thse sectors are now 2.66 percent greater than just before the CCP Virus’ arrival in force, versus the 2.99 percent calculable last month.

Aside from machinery, RealityChek has been tracking employment in automotive manufacturing because of its special importance to industry overall and the economy in general.

Vehicle- and parts-makers boosted employment in March by 3,700, and February’s initially reported increase of 200 was upgraded all the way up to one of 1,300. These advances pushed automotive’s post-February, 2020 payrolls improvement from the 5.91 percent calculable last month to 6.45 percent.

RealityChek has also been monitoring several narrower sectors that have attracted special attention during the CCP Virus era, but where the data are always a month behind those of the above broader sectors, Their employment performances were overall positive but with one exception modestly so.

Although global semiconductor supplies in general are no longer in shortage, supply problems continue dogging certain industries (see, e.g., here), and of course Washington has now approved major long-term funding to boost output in the United States.

So it’s more than a little interesting that employment in the “semiconductors and related devices” category slipped by 600 in February for its second straight monthly fall-off. Moreover, that January decrease of 200 was initially reported as an increase of 300.

Consequently, the workforce in this sector is now 10.20 percent bigger than in immediately pre-pandemic-y February, 2020, versus the 10.79 percent calculable last month.

In aircaft manufacturing, which was damaged by pandemic-era travel curbs and Boeing’s production woes, a strong employment comeback continued in February. Companies in this industry added 1,300 employees that month. With,January’s 400 increase staying unrevised, aircraft employment closed to within 2.92 percent of its February, 2020 level, versus the 3.45 percent gap calculable last month.

The head count in aircraft engines and engine parts-makers surged by 900 in February, in those companies’ best such performance since last July’s identical number. January’s initally reported increase of 100 jobs is now revised down to no change, but payrolls in this sector are now just 7.10 percent off their immediate pre-pandemic levels, versus the 7.97 percent calculable last month.

Non-engine aircraft parts jobs jumped by 1,300 – the best such performance since last January’s 1,400. This past January’s initially reported gain of 100 was unrevised, leaving employment in these businesses off by 15.44 percent since just before the pandemic’s February, 2020 arrival in force. As of last month’s jobs report, the shortfall was 16.44 percent.

Surgical appliances- and supplies-makers turn out many of the products used to fight the pandemic, and their workforce expanded by 200 in February – their best such performance since last August’s 800. January’s initially reported gain of 100 was unrevised, too, leaving employment levels a surprisingly low 1.23 percent above immediate pre-pandemic levels, versus the 1.14 calculable last month.

Pharmaceuticals and medicines companies shed 300 jobs in February, but that retreat followed January net hiring that was revised down only from 1,800 to 1,700. These changes pushed post-February, 2020 employment growth in these industries down from 14.54 percent to a still healthy 14.41 percent.

The pharmaceutical sub-sector that contains vaccines added 300 jobs in February, its best such performance since its gain of 600 last October. January’s initially reported 100 employment decline was revised down to decrease of 300, leaving its workforce twenty percent greater than in immediately pre-pandemic-y February, 2020, versus the 19.90 percent calculable last month.

At this point, I’d expect manufacturing’s current hiring woes to ease before too long, mainly because I continue doubting that American politicians or central bankers will permit the economy to fall into major recession (or even slow down much further) as a new presidential election approaches, and because a post-pandemic rebound in civilian aircraft demand is already hiking production at Boeing and its vast supply chain. Pressures to increase defense budgets further, and significant federal support for infrastructure building and repair, and semiconductor output will help, too. 

Headwinds aren’t completely gone – mainly the possibility that hopes for an economic soft-landing prove naive (perhaps because of a banking turmoil-spurred credit crunch), and ongoing weakness in the foreign markets to which U.S. industry exports.  But at the very least, so far they seem no match for the stimulative gusts we can expect from American politics.        

(What’s Left of) Our Economy: Why the New Figures Show That U.S. Inflation’s Still Strong

Tags

{What's Left of) Our Economy, inflation, recession, Federal Reserve, interest rates, monetary policy, PCE, personal consumption expenditures index, core inflation, cost of living, banking system

I know everyone is supposed to be pleased or at least relieved by today’s official report on the inflation gauge watched most closely by the Federal Reserve – the price index for personal consumption expenditures (PCE). Why am I not? It has to do with the baseline analysis that should by now be familiar to RealityChek regulars. This method, which is most useful for evaluating the annual inflation results, continues showing that American businesses generally believe they have plenty of pricing power – and are acting like it.

The optimism (e.g., here) generated by the new PCE data (for February) stems from the new monthly figures. According to today’s report, headline PCE slowed sequentially, from 0.6 percent in January (which was really bad) to 0.3 percent. Core PCE – which strips out energy and food prices supposedly because they’re volatile for reasons having little to do with the economy’s fundamental vulnerability to worrisome price hikes – decelerated from January’s downwardly revised 0.5 percent to 0.3 percent.

To me, neither result is anything special, because both February figures are in line with both measures’ recent average monthly inflation rates. But reasonable people can disagree over that proposition.

What’s less reasonable is drawing encouragement from the annual statistics.

The optimists have observed that for headline PCE, February’s yearly rise of five percent was the lowest since the 4.4 percent recorded in September, 2021, and that the core PCE increase of 4.6 percent was the best such read since October, 2021’s 4.2 percent.

But the headline strong PCE five percent advance between February 2022 and 2023 followed a counterpart rate for February 2021-22 of an even stronger 6.3 percent. September, 2021’s yearly headline PCE inflation of 4.4 percent followed a September 2019-20 increase of just 1.5 percent.

The baseline framework reveals that in September, 2021, business pricing practices on a year-to-year bass were catching up from their unusually weak pricing power during the previous year – which stemmed from the economy’s still-incomplete recovery from CCP Virus-induced lockdowns and voluntary behavior curbs.

That’s why during this period, I agreed with the Federal Reserve and the Biden administration that inflation was a temporary phenomenon, and would subside greatly as the economy returned to normal.

More recently, however – and including February, businesses believed that after charging customers 6.3 percent more for their goods and services between February, 2021 and 2022, price hikes nearly as big (five percent) were eminently feasible.

That’s largely why more recently I changed my mind, and became convinced that robust inflation would last a lot longer.

For core PCE, the story is almost identical. This February’s annual inflation rate of 4.6 percent came on the heels of price increases between the previous Februarys of 5.3 percent – making clear that pricing power confidence remained high. Back in October, 2021, however, the 4.2 percent yearly inflation rate followed price increases between the previous October of just 1.4 percent. So catch-up mode was apparent here, too.

As I wrote two weeks ago in examining the latest Consumer Price Index data, the recent outbreak of banking turmoil is likely to keep inflation worrisomely high by persuading the Federal Reserve at least to ease off the interest rate hikes meant to slow price increases by weakening economic activity. For staying determinedly on the tightening monetary policy path plus the lending pullback that banking system fixes will almost surely bring on would turn the economic “soft landing” that the central bank still hopes to engineer into significant downturn.

As I’ve also written, the approach of the next presidential election will increasingly tempt politicians to keep throwing government money at voters to prop up incomes and keep them happy. 

So maybe the new PCE inflation figures justify some relief after all – because they could well be among the best we’ll be getting for a long time.  

(What’s Left of) Our Economy: U.S. Manufacturing Output Surprises to the Upside Again

Tags

aerospace, aircraft, aircraft parts, automotive, banking crisis, CCP Virus, chemicals, computer and electronics products, coronavirus, COVID 19, Federal Reserve, inflation-adjusted output, interest rates, machinery, manufacturing, manufacturing production, medical equipment, miscellaneous non-durable goods, monetary policy, pharmaceuticals, plastics and rubber products, recession, semiconductors, textiles, wood products, {What's Left of) Our Economy

Remember one of the signature expressions of 1960s sitcom character Gomer Pyle – “Surprise, surprise, surprise!”? That was my reaction to this morning’s Federal Reserve release on U.S. manufacturing production for February, which reported a second straight increase.

The February improvement was pretty marginal to be sure – 0.12 percent in after-inflation terms (the kind of numbers that will be presented here unless otherwise specified). And since its production is down on net since last February, domestic industry is still in recession. But any official gain in the hard data is noteworthy, given the lousy February sentiment-based survey results put out by many of the Federal Reserve’s regional branches (e.g., here), which have continued into March (e.g., here), and by leading private sector groups (e.g., here).

Also unexpected: January’s increase was revised up from one of 0.94 percent to one of 1.35 percent. That’s the best such performance since October, 2021’s 1.70 percent. So maybe that January figure wasn’t a one-off, as I speculated last month?

That’s not clear yet. Both the January and February advances also might still stem from a baseline effect – specifically, catch-up from an absolutely terrible December. That month’s manufacturing output decline has now been revised down a second time. Its 2.06 percent sequential dropoff is the worst such result since the 3.64 percent nose-dive in weather-affected February, 2021. But as that journalistic cliché goes, “It’s too soon to tell.”

Here’s what we do know – so far (keeping in mind that revisions of all statistics going back to 2021 will be issued on March 28).

The February report means that U.S.-based manufacturing output is now up since since just before the CCP Virus pandemic arrived stateside in force in February, 2020 by 1.65 percent – the same figure calculable from last month’s Fed release.

Only seven of the 20 broadest manufacturing sub-sectors tracked by the Fed boosted their production in February. The biggest winners were:

>the very big chemicals industry, which expanded output by 1.24 percent. Better yet, this growth came after a January increase of 3.11 percent (the best such performance since April, 2021’s 3.97 percent). The January pop looks like catch-up from December’s 2.63 slump (the worst such performance since weather-affected February, 2021’s 6.69 percent cratering). But the February follow-on could be a sign of truly regained strength.

Since immediately pre-pandemic-y February, 2020, chemicals production is up 7.52 percent, versus the 6.11 percent calculable last month;

>computer and electronic products, where production advanced for the first time since last September – and by 1.22 percent. But now it’s contracted by 0.62 percent during the CCP Virus era, versus having grown by 2.95 percent as of last month’s release; and

>wood products, whose output rose for the second straight month after having slumped for most of the past year. Not so coincidentally, this losing streak paralleled the housing industry woes prompted by the Federal Reserve’s historically rapid interest rate hikes. The February 1.11 percent gain was the best since the 2.81 percent surge last February.

But the wood products industry is still 2.49 percent smaller than it was just before the pandemic’s arrival in force, versus the 2.56 percent calculable last month.

The biggest February maufacturing output losers were:

>textiles and products, which saw production sag by 2.11 percent, the biggest decrease since last June’s 3.44 percent. The fall-off depressed output in this small sector to 12.96 percent below its February, 2020 level, versus the 8.93 percent calculable last month;

>plastics and rubber products, whose production decrease of 1.82 percent was its seventh straight monthly loss, and dragged its output losses down to 5.62 percent below its immediate pre-pandemic levels versus the 4.33 percent calculable last month; and

>miscellaneous non-durable goods, where output slipped by 1.52 percent, and pushed production down to 14.95 below its pre-pandemic level versus the 13.76 percent calculable last month.

Output also drooped in two sectors of continuing special importance to all of industry and the entire economy.

The story of CCP Virus era U.S.-based manufacturing has been in many respects a story of the automotive sector, and in February, vehicle and parts production dipped by 0.28 percent. This advance helped it draw to within 0.12 percent of its size in February, 2020, from the 1.61 percent shortfall calculable last month.

The diverse machinery industry, meanwhile, is crucial both to the rest of manufacturing and to the entire economy because its products are used so widely for retooling and modernization. So its growth indicates general manufacturing and overall business optimism, and vice versa.

Ordinarily, therefore, a moderately 0.40 percent monthly decline in machinery output would be moderately bearish, but the sector has been too volatile lately to be certain. The February decline followed a 3.42 percent burst that was the strongest since 5.12 percent pop of January, 2021. That’s a sign of a catch-up effect.

But the January results followed a 2.59 percent tumble in December that was the worst since last May’s 3.34 percent. All told, however, machinery output is now 5.54 percent greater than just before the pandemic struck, versus the 4.77 percent calculable last month.

Manufacturing sectors of special importance since the pandemic struck also suffered generally lousy Februarys performances.

The semiconductor shortages that have caused so many headaches for U.S. and foreign manufacturers seem to be easing, but supplies remain inadequate for many customers. And the situation won’t be helped by the 1.65 percent real output decrease U.S.-based chip production suffered in February.

Worse, this decrease was the sector’s eighth in a row – and some of these estimates have been revised down substantially. Due to these poor and worsening results, whereas as of last month’s Fed release, U.S. semiconductor output was 4.47 percent above its immediate pre-CCPVirus levels; now it’s 7.83 percent below.

Medical equipment and supplies, which contains the healthcare products used so widely to combat the pandemic, suffered a 0.73 percent real output contraction – its fifth straight monthly decrease.

Medical equipment and supplies output in February dropped for the fifth time in the last six months. But even with this latest 0.51 percent retreat, production in this sector – which includes so many of the products used to fight the CCP Virus – is now 10.52 percent higher than jut before the pandemic hit, versus the 9.85 percent calculable last month.

Production in pharmaceuticals and medicines was off by 0.54 percent in February, but the decrease was the first since last July, and depressed this big sector’s growth since immediately prepandemic-y February, 2020 to 20.42 percent versus the 21.44 percent calculable last month.

The exceptions to this pattern were aircraft and aircraft parts-makers – possibly because industry giant Boeing’s fortunes seem to be looking up finally. Their output increased by 0.35 percent in February, and is now up 30.19 percent since the advent of a pandemic that long hammered travel of all kinds, versus the 35.81 percent calculable last month.

What lies ahead? The entrails remain difficult to read, especially since the new banking crisis is creating doubt as to whether the Federal Reserve will continue an inflation-fighting effort it’s been making vigorously but that still hasn’t produced the economy slowdown it’s seeking – but that may at some point because these monetary tightening moves typically don’t start working for many months. See what I mean? 

If the central bank remains on course, domestic manufacturing’s troubles seem certain to return. But as long as the economy keeps defiantly expanding, its power may bring U.S.-based industry securely back into growth mode.

(What’s Left of) Our Economy: New Figures Show that America is Still Pretty Unproductive

Tags

CCP Virus, coronavirus, COVID 19, inflation, labor productivity, manufacturing, non-farm business, productivity, recession, total factor productivity, Wuhan virus, {What's Left of) Our Economy

Let’s start off with the good news revealed by today’s final (for now) official U.S. report on labor productivity in the fourth quarter of 2022 and the entire year last year: The quarterly readings have now improved for the fourth consecutive time, and have even showed actual growth for the second straight quarter.

That’s sure better than America’s performance earlierin 2022 for this narrowest of the two productivity growth gauges tracked by the U.S. government. Last year’s first half featured the first quarter’s 6.1 percent drop at annual rates (tying the second quarter, 1960 for the worst such performance ever in a data series going back to 1947) and a second quarter 3.8 percent annualized decrease that created the worst back-to-back results ever.

And any positive productivity news is important any time because robust productivity gains are the country’s best bet for achieving sustainable prosperity rather than the bubble-ized veneer of economic success. Moreover, any positive productivity news these days is especially important, because enough improving efficiency on this score would cool off inflation. For all else (particularly demand levels) equal, it would enable businesses to absorb higher costs for labor and other inputs and still maintain their profits rather than being forced to preserve profitability by raising prices charged to consumers and other final customers.

But that’s it for this morning’s good productivity news.

Although the new fourth quarter rise of 1.7 percent annualized (for non-farm businesses – the government’s closest proxy for the entire private sector economy) was the best since the three percent improvement registered in the fourth quarter of 2021, it was 1.3 percentage points lower than the three percent reported in the advance release.

Further, the 1.7 percent yearly fall-off in labor productivity between 2021 and 2022 was the greatest such weakening since the same decrease in 1974.

Although there’s no legitimate doubt that recent productivity data are still reflecting CCP Virus-related distortions that presumably will fade significantly at some point, the latest number’s unfortunately provide no reasons to think that America’s long-time productivity growth slump will end any time soon. Here are the results, incorporating new “benchmark” revisions for the last few years, for all the expansions that the U.S. economy has enjoyed since the 1990s. (As known by RealityChek regulars, the most reliable economic comparisons are those among the same periods of business cycles.)

1990s expansion (2Q 1991-1Q 2001): +23.53 percent

bubble-decade expansion (4Q 2001-4Q 2007): +16.01 percent

pre-CCP Virus expansion: (2Q 2009-4Q 2019): 13.56 percent

post-CCP Virus expansion: (3Q 2020-4Q 2022): -1.32 percent

Again, maybe American business is still suffering from pandemic era doldrums. But obviously something awfully dramatic is going to have to change to reverse this discouraging trend.

Even worse, as I see it, have been the latest results in manufacturing labor productivity. The reason? As the table below shows, industry used to be far and away the nation’s productivity growth leader – at least until the pandemic struck.

1990s expansion (2Q 1991-1Q 2001): 44.70 percent

bubble-decade expansion (4Q 2001-4Q 2007): 31.05 percent

pre-CCP Virus expansion: (2Q 2009-4Q 2019): 2.11 percent

post-CCP Virus expansion: (3Q 2020-4Q 2022): -1.00 percent

Since the post-pandemic recovery, manufacturing’s labor productivity swoon has been marginally milder than that for non-farm business overall. But for the last two quarters of 2022, its perfomance has been worse, as its labor productivity has sunk by 3.9 percent and 2.7 percent at annual rates. And in fact, it’s fallen in absolute terms for five of the last six quarters.

But maybe the broader measure of productivity growth, total factor productivity (TFP) growth, yields better results? TFP measures how much expansion of output businesses are getting from the use of man different inputs – materials, energy, technology, capital spending, and the like, as well as labor. So it provides a more complete picture of business efficiency. But the TFP numbers only come out annually, and with more of a delay than the labor productivity results.

Yet even keeping in mind the inability to generate TFP growth statistics for the precise extent of expansions, and the delay factor, the results we do have so far don’t differ substantially from the labor numbers in terms of the long-term weakening – especially of manufacturing. Here are the results for non-farm businesses for the closest annual approximations of recent economic expansions:

1990s expansion: 1991-2000: 10.11 percent

bubble-decade expansion (2002-2007): 6.65 percent

pre-CCP Virus expansion: (2009-2019): 6.06 percent

post-CCP Virus expansion: (2020-2021): 4.13 percent

And here are the same results for manufacturing:

1990s expansion (1991-2000): 15.64 percent

bubble-decade expansion (2002-2007): 11.67 percent

pre-CCP Virus expansion: (2009-2019): 1.55 percent

post-CCP Virus expansion: (2020-2021): 3.26 percent

Since the deep pandemic-induced recession of 2020, TFP growth looks pretty impressive. But we only have a single year’s worth of data. And the 2022 numbers don’t come out till March 23. Most economists agree that productivity is the hardest of the economy’s standard performance indicators to measure, so even the upcoming TFP report may contain some big encouraging surprises. And even if it doesn’t, it’s conceivable that it’s missing much of the real productivity story.

Yet since both measures used by the government are in basic agreement, that last argument isn’t one I find persuasive. Worse, as long as American productivity growth remains crummy – and possibly non-existent – fostering a dramatic economic slowdown and quite possibly a recession will be the only ways to defeat today’s troubling inflation.