(What’s Left of) Our Economy: September Sees Bigger Hurricane Toll for U.S. Manufacturing but Fractional Overall Production Gain

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

The Federal Reserve’s new industrial production figures show greater hurricane-related damage to real U.S. manufacturing output in September than in August, with the losses in chemical industries using oil and gas feedstocks great enough to plunge all of domestic industry into a technical recession. Inflation-adjusted manufacturing production is now 0.14 percent lower than in February. Yet on month, overall after-inflation manufacturing output eked out a 0.10 percent gain.

Most seriously affected by the devastation of the energy-rich Texas and Louisiana Gulf coasts were organic chemicals (where monthly production plunged by 14.71 percent), and plastics materials and resins (down 8.16 percent) — both post-recession worsts. The volatile artificial and synthetic fibers and filaments sector, whose after-inflation sequential output was reported to have sunk by 11.25 percent on month in August saw that figure upgraded to an 8.44 percent decline and boosted its monthly real output in September by 5.83 percent – its best since last September (9.67 percent). Price-adjusted oil refinery production for August was slightly downgraded to a 2.52 percent fall-off (its biggest since January, 2010’s 2.75 percent), but September monthly production dipped only fractionally.

The non-durable goods supersector containing these chemical industries saw its constant dollar output slump by the greatest rate (0.89 percent) since January, 2015 (1.20 percent). Revisions for real manufacturing output as a whole were negative, with August’s reading slightly upgraded but July’s downgraded from a slight increase to a significant drop.

Good news came from the automotive sector, however, especially its first back-to-back monthly real production increases since the May-October period last year, and a strongly upgraded August gain (3.56 percent) that was the sector’s best since June, 2016 (3.89 percent). As of September, however, in inflation-adjusted terms, American manufacturing is 4.26 percent smaller than when the last recession began at the end of 2007 – more than nine years ago.

Here are the manufacturing highlights of the Federal Reserve’s new release on September industrial production:

>Although September’s manufacturing production figures showed hurricane-related damage to American industry to be considerably worse than in August, and indeed bad enough to plunge the entire sector into a technical recession, industry managed an overall 0.10 percent real monthly production increase during the months.

>Due to major constant dollar output drops in chemicals and especially sectors heavily reliant on oil and gas feedstocks from the storm-struck Texas and Louisiana Gulf coasts, domestic manufacturing output after inflation was 0.14 percent lower in September than in February – a seven-month stretch that conforms with the standard definition of a recession (two consecutive quarters of economic contraction).

>The worst September sequential real output losses were suffered by organic chemicals (14.71 percent), and plastics materials and resins (8.16 percent). These decreases were the biggest experienced by these industries since recessionary September, 2008 (24.92 percent), and December, 2008 (11.72 percent), respectively.

>Interestingly, an artificial and synthetic filaments and fibers sector whose (volatile) real production fell sequentially by an initially reported 9.10 percent saw that result now judged as an 8.44 percent drop (still its biggest since recessionary November, 2008’s 11.25 percent). Moreover, its September production is now pegged as rising by 5.83 percent – the best such on month increase since last September’s 9.67 percent.

>Similarly, although inflation-adjusted petroleum refinery output in September dropped sequentially by 2.52 percent (the biggest such fall-off since January, 2010’s 2.75 percent), the monthly August decrease was revised up from 1.93 percent to a minimal 0.06 percent.

>All the same, these results were enough to depress monthly constant dollar output in the enormous chemicals industry by a downwardly revised 2.31 percent in August and another 2.62 percent in September. The latter result was the sector’s worst such result since recessionary December, 2008’s 4.85 percent shrinkage.

>And in the larger non-durable goods supersector, although August’s monthly production was upgraded modestly to a 0.63 percent decline in real terms, real output decreased by another 0.89 percent – its worst such figure since winter-affected January, 2014’s 1.20 percent.

>Despite the fractional inflation-adjusted September production uptick in manufacturing overall, , and August’s upward revision from a 0.26 percent sequential decline to 0.20 percent, July’s results were changed from a 0.04 percent rise to a 0.35 percent drop – big enough to turn overall revisions negative.

>Nonetheless, the automotive sector produced some good news.

>It’s true that July real output for this industry, which has led manufacturing’s bounceback during most of the current economic recovery, was revised down from a 4.16 percent drop to 4.85 percent – its worst since winter-affected January, 2014’s 5.87 percent. But August’s month-on-month improvement – revised all the way up from 2.16 percent to 3.56 percent – was its best since June, 2016’s (3.89 percent).

>Moreover, although September’s sequential output rise was a mere 0.07 percent, it produced the first two-month stretch of automotive output improvements since the May-October stretch of 2016.

>As of September, however, domestic manufacturing still had not yet completed its recovery from the historic Great Recession. Real production was 4.26 percent lower than when that slump began, more than nine years ago, in December, 2007.

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(What’s Left of) Our Economy: The Wage Stagnation Mystery Deepens

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inflation-adjusted wages, Jobs, Labor Department, manufacturing, private sector, recovery, Trump, wages, {What's Left of) Our Economy

If, like most of the policy and business establishments, you’re mystified by the continuing failure of American wages to rise healthily despite labor markets that seem unusually tight, you’ve stayed mystified this morning. The Labor Department has just reported that inflation-adjusted pay in September in the private sector and in manufacturing both fell sequentially for the second straight month. Moreover, the new data reveal that real manufacturing wages worsened year-on-year for the first time in three years.

The figures are still preliminary, but according to the Labor Department, after-inflation wages for the private sector dipped on month in September by 0.09 percent. That’s better than the 0.19 percent drop in August (which is still preliminary, and stayed unrevised), but it means that, as of now, U.S. workers on the whole have failed to keep up with the cost of living for two consecutive months. (The federal government doesn’t track wages in the public sector, because they’re set mainly by politicians’ decisions, not economic fundamentals.)

The annual numbers are every bit as discouraging. Real private sector pay was only 0.65 percent higher this September than last. The results between the previous Septembers? A 1.23 percent real wages rise.

As for the longer-term, price-adjusted private sector wages are up 4.56 percent since the current economic recovery officially began in mid-2009.

But as bad as these private sector statistics are, they nearly glow compared with manufacturing pay’s performance. Industry’s real wages fell 0.09 percent on month in September, too – but that decline followed an unrevised 0.91 percent monthly plunge in August that was the worst since November, 2011’s 0.95 percent nosedive.

Even worse, after-inflation manufacturing wages are now down 0.18 percent year-on-year. That’s their first annual deterioration since September, 2014 (0.29 percent). Moreover, between September, 2015 and September, 2016, real manufacturing pay improved by 1.40 percent.

And since the recovery officially began, more than eight years ago, manufacturing pay has stayed ahead of living costs by a grand total of 1.03 percent. Consequently, over the last year, as poorly as real private sector wages have fared, they’ve widened the performance gap with manufacturing wages. As of last September, the former had increased during the recovery by 3.88 percent, compared with 1.21 percent for the latter – or 3.21 times faster. As of this September, overall private sector wages have advanced 4.43 times faster than manufacturing wages.

This manufacturing wage stagnation should be of special concern to President Trump. It’s true that his months in office so far have seen an employment pickup in industry. But if the supposed mystery of wage lag isn’t solved pretty soon, when the next mid-year elections arrive, those “Blue Wall” voters in manufacturing-heavy states that helped put him in the White House last year could still be feeling pretty blue.

(What’s Left of) Our Economy: Hurricanes Muddy September Manufacturing Jobs Results – & Obscure Huge Automotive Revisions

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Bureau of Labor Statistics, chemicals, hurricanes, inflation-adjusted wages, Jobs, manufacturing, non-farm payrolls, petroleum refining, private sector, recession, recovery, wages, {What's Left of) Our Economy

This year’s violent hurricane season contributed in September to American domestic manufacturing’s second sequential jobs in the last three months. Industries with extensive facilities on or near the Gulf coast and in the southeast took especially hard on-month hits, notably chemicals (-2,000), apparel (-1,900), and motor vehicles and parts (-3,200). Yet the heaviest single sector job decline came in printing and related activities (3,600).

September employment levels throughout manufacturing, however, also were greatly affected by enormous July automotive revisions, which prolonged a jobs recession in the sector that began in April, 2016. Initially credited with a 1,600 net job rise in July, automotive’s employment improvement was revised up to 5,300, and then dragged all the way down to a net job loss of 27,100. The overall July manufacturing job totals were downgraded from an initial 16,000 net increase to the 11,000 net loss revealed this morning.

Pre-inflation manufacturing wages in September matched the solid 0.45 percent sequential advance recorded for the private sector as a whole. But in manufacturing, this increase followed a 0.49 percent monthly wage drop in August – industry’s biggest since last November (which rounded down to 0.49 percent). Further, manufacturing’s annual current-dollar wage increase of 1.99 percent represents a striking slowdown from the previous year (2.95 percent). Manufacturing’s share of total nonfarm employment actually ticked up, though, in September and August – to just under 8.49 percent. In July, it matched its all-time low of 8.47 percent.

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

>U.S. domestic manufacturing lost jobs on net sequentially in September for the second time in three months, with much of the total 1,000 decline traceable to payroll drops in sectors with many facilities in or near the hurricane-affected Gulf coast and southeastern states.

>For example, significant monthly job hits were taken in the automotive sector (3,200), chemicals (2,000), and apparel (1,900).

>At the same time, the sector with the greatest on-month job losses in September was printing and related support activities (3,600). And the petroleum and coal products industry, another Gulf coast-heavy sector, only lost 100 net jobs from August to September.

>In addition, employment levels throughout manufacturing in September were strongly affected by immense revisions for monthly automotive job changes in July.

>The initial read on vehicle and parts payrolls that month reported a 1,600 monthly jobs gain. The next employment report revised this advance up to 5,300. But this morning, the Bureau of Labor Statistics data tables showed a 27,100 month-to-month net automotive job loss for July.

>As a result, overall monthly manufacturing payroll shifts for July changed dramatically, too – from an initially reported 16,000 improvement to a 26,000 surge to an 11,000 net decrease.

>In fact, these automotive revisions revealed the sector to be mired in a jobs recession that began in April, 2016. Since then, payrolls in the sector have fallen by a cumulative 4,300.

>Manufacturing wages rose a seemingly impressive 0.45 percent sequentially in September on a pre-inflation basis, matching the gain of the overall private sector.

>Yet in manufacturing, this progress was preceded by a 0.49 percent monthly current dollar manufacturing wage drop in August, the biggest such decline since a comparable figure in November. In the private sector, pre-inflation wages rose sequentially in August by 0.15 percent.

>Worse, the September plummet meant that pre-inflation manufacturing wages had risen only 1.99 percent year-on-year – one of the lowest figures of 2017. And this wage gain was much bigger than the 2.95 percent current dollar raise manufacturing workers received between the previous Septembers.

>Moreover, the recovery-era gap between pre-inflation wage increases in manufacturing and in the private sector overall has widened considerably over the last year. In September, 2016, private sector wages had risen 21.55 percent faster than manufacturing pay since the recovery began in June, 2009. This September, the difference was 25.28 percent.

>In absolute terms, during the recovery, current-dollar manufacturing wages are up 15.90 percent in toto and overall private sector wages are up 19.92 percent.

>The latest inflation-adjusted wage data for manufacturing and overall private sector wages go through August, and further darken the pay picture in industry.

>That month, real manufacturing wages plunged by 0.91 percent sequentially – their worst such performance since November, 2011 (0.95 percent). Inflation-adjusted hourly pay for the overall private sector worsened, too – but by just 0.19 percent.

>And since the recovery began more than eight years ago, whereas overall private sector wages have risen by 4.66 percent on a price-adjusted basis, pay has improved by a mere 1.12 percent for manufacturing workers.

>Employment figures tell a similar story. Since hitting its last low point, in February and March of 2010, manufacturing has regained 994,000 (43.35 percent) of the 2.293 million net jobs it had shed since the last recession officially began, in December, 2007.

>Manufacturing employment is still down since that recessionary onset nearly ten years ago, too – by 1.299 million, or 9.45 percent.

>Since its latest employment nadir, in February, 2010, the overall private sector has boosted employment by 17.065 million. That’s nearly twice as many jobs as it lost (8.780 million) during the recession.

>Since the recession began, overall private sector is up by 8.285 million – a 7.14 percent gain over those nearly ten years.

>Somewhat more encouragingly, manufacturing jobs as a share of total non-farm jobs (the Bureau of Labor Statistics’ American jobs universe), rose slightly in September and August (to just under 8.49 percent) from the record low it had matched in July (8.47 percent).

(What’s Left of) Our Economy: U.S. Trade Deficit Falls Slightly in August as Strong Exports Outweigh Record Manufacturing Shortfall

Tags

Canada, Census Bureau, China, European Union, exports, goods trade, imports, Japan, Made in Washington trade deficit, manufacturing, Mexico, non-oil goods trade deficit, oil, recovery, services, South Korea, Trade, trade deficit, Trump, {What's Left of) Our Economy

In August, the combined U.S. goods and services trade deficit declined by 2.67 percent sequentially to hit $42.40 billion – its lowest monthly level since September, 2016’s $38.47 billion. The improvement came even though several typical major engines of trade deficit growth worsened.

A new record was set for the chronic and huge manufacturing trade deficit, with its $82.15 billion August total topping the previous high (last November’s $80.75 billion) by 1.73 percent. The manufacturing-heavy China goods gap, meanwhile, grew to its highest monthly level ($34.89 billion) since September, 2015 ($36.29 billion). And the pre-inflation oil trade deficit, which has decreased dramatically in recent years, staged its strongest monthly rebound (jumping by 60.59 percent) since June, 2016 (60.84 percent). Pointing to a hurricane effect: the biggest monthly drop in current dollar oil exports (11.53 percent) since August, 2015 (12.62 percent).

Boosting the August trade performance was the new all-time high hit for services exports ($66.11 billion), the best overall monthly exports figure ($195.32 billion) since December, 2014 ($197.18 billion), and the best monthly goods exports reading ($129.21 billion) since April, 2015 ($129.72 billion). America’s goods trade deficits with Mexico and South Korea, both of which have been criticized by President Trump, increased sequentially in August (by 25.49 percent and 15.20 percent). And the longstanding Japan merchandise deficit grew by 13.49 percent on month.

But merchandise trade shortfall with Trump trade target Canada plummeted by 61.43 percent month-to-month, and the goods gap with the European Union fell by 7.92 percent. The latest figures on the growth-slowing impact of the Made in Washington trade deficit show that it’s weakened slightly (from slowing the U.S. economic recovery by 17.40 percent as of the first quarter of this year to cutting inflation-adjusted growth by 17.30 percent in the second quarter). The new August trade figures indicate that it might decline modestly again once third quarter GDP and September trade data are released.

Here are selected highlights of the latest monthly (August) trade balance figures released this morning by the Census Bureau:

>America’s combined goods and services trade deficit declined by 2.67 percent on month in August to its lowest level ($42.40 billion) since September, 2016 ($38.47 billion), as a new monthly record manufacturing trade shortfall and poor China and hurricane-related oil results were more than offset by strong export performances, including a new all-time high for services exports.

>The August manufacturing trade deficit of $82.15 billion was 1.73 percent greater than the previous record total of $80.75 billion, set last November.

>August manufacturing exports grew by a solid 6.82 percent on month, to $93.51 billion. But the far larger amount of imports rose by 5.07 percent, to $175.67 billion.

>Year-to-date, the manufacturing trade deficit is running 5.56 percent ahead of last year’s record pace. Manufacturing exports for the January-August period are up 4.04 percent, and imports have increased nearly as fast – 4.72 percent.

>Fueling these manufacturing trade results in August was a 3.99 percent month-to-month widening of America’s manufacturing-heavy trade deficit with China. The $34.89 billion total was the largest monthly figure since September, 2015’s $36.29 billion.

>U.S. goods exports to China improved sequentially in August by an impressive 8.75 percent, but merchandise imports, which are much greater, increased by 5.08 percent.

>Year-to-date, the merchandise deficit with China is 6.24 percent higher than last year’s total – which was the second largest annual figure ever.

>The pre-inflation U.S. oil trade deficit, which has nosedived in recent years thanks to the energy production revolution, rose in August from $3.02 billion to $4.85 billion. That 60.59 percent monthly increase was the biggest such rise since the 60.84 percent surge registered in June, 2016.

>Pointing to the effects of this year’s violent hurricane season, oil exports in August recorded their biggest monthly decrease (11.53 percent) since August, 2015 (12.62 percent).

>On a year-to-date basis, however despite the longer-term improvement, this oil shortfall is outpacing last year’s by a stunning 36.01 percent.

>The hurricane impact on oil was also suggested by the excellent export data produced by other major sectors of the economy.

>Services set a new overseas sales record in August, and reached their second all-time monthly high in the last three months. August’s $66.11 billion bested June’s $65.90 billion by 0.33 percent.

>Total U.S. exports improved by 0.42 percent, to $195.32 billion, and thereby hit their highest level since December, 2014’s $197.18 billion.

>Goods exports rose even faster sequentially in August, by 0.44 percent to $129.21 billion. The result was their strongest month since April, 2015 ($129.72 billion).

>Having set reform of the North American Free Trade Agreement (NAFTA) as a priority, President Trump no doubt noticed that the U.S. merchandise trade deficit with Mexico surged by 25.49 percent on month in August, to $6.18 billion. U.S. goods exports to Mexico were 5.73 percent higher in August than in July, but import growth was 9.68 percent.

>The year-to-date merchandise deficit with Mexico is so far 11.72 percent higher than in the first eight months of 2016.

>America’s merchandise trade deficit with South Korea, which has just this week agreed to substantive talks on modifying its bilateral trade deal with the United States, increased by 15.20 percent sequentially in August, to $2.22 billion.

>U.S. goods exports to South Korea actually sank by 8.21 percent on month – the biggest such decrease since January’s 21.51 percent. America’s merchandise imports from South Korea fell, too, and for the second straight month – but by only 0.70 percent.

>America’s merchandise trade deficit with South Korea is down so far this year by fully 28.07 percent on a year-to-date basis. But since the bilateral trade deal went into effect, in March, 2012, it’s nearly tripled.

>The U.S. merchandise trade deficit with Japan increased notably (13.49 percent) as well on month in August, to $6.55 billion.

>America’s goods exports to the world’s third biggest single national economy decreased by 5.52 percent month-to-month, while its goods imports rose by 4.02 percent.

>Year-to-date, this merchandise deficit with Japan is running 12.54 percent ahead of last year’s level.

>Better news came in merchandise trade with America’s other NAFTA partner, Canada. The U.S. deficit – which has been volatile recently – plummeted by 61.43 percent in August, to just $410 million.

>American goods exports to Canada improved by 12.50 percent. Imports climbed, too, but by only 9.06 percent.

>Year-to-date, though, the U.S. merchandise trade shortfall with Canada is running nearly three times ahead of last year’s rate.

>Improvement in August was also seen in American merchandise trade with the European Union (EU) – the world’s largest economic unit. On a monthly basis, the U.S. deficit narrowed in August by 7.92 percent, to $12.39 billion.

>U.S. goods exports to the EU advanced by 9.08 percent on month, while imports were up only 2.52 percent.

>Year-to-date, moreover, the American merchandise deficit with the EU is running 0.72 percent behind last year’s rate.

>The latest data for the growth drag on the still weak U.S. economic recovery of rising trade deficits are only from the second quarter. But by both major measures, they show that trade’s bite into the expansion is easing, but remains deep.

>Since the recovery began, in mid-2009, to the end of the second quarter of this year, the increase in the trade deficit has reduced cumulative after-inflation output during the expansion by 9.24 percent, or $247.30 billion. That’s down from the 10.04 percent, and $255.9 billion, as of the first quarter.

>The toll on the expansion attributable to U.S. trade policy is diminishing, too, but has been much higher. This Made in Washington deficit strips out of inflation-adjusted American trade flows energy and services – two sectors where trade policy and related decisions have had only marginal effects so far. The remainder of U.S. trade flows – of goods except oil – are heavily influenced by policy.

>Since the recovery’s onset, the rise of this Made in Washington deficit has cost the recovery $462.8 billion in lost growth in absolute terms – or 17.30 percent of the cumulative total. That’s down from a growth bite of 17.40 percent worth ($443.3 billion in absolute terms) for the first quarter.

(What’s Left of) Our Economy: U.S. Growth’s Quality is Better, but Remains Far from Good

Tags

business spending, Financial Crisis, GDP, gross domestic product, housing, inflation-adjusted growth, personal consumption, real GDP, recession, recovery, {What's Left of) Our Economy

As indicated in yesterday’s post, the final (for now) returns are in on America’s economic growth for the second quarter, and as RealityChek regulars know, it’s a new occasion to look at the crucial and sorely neglected subject of the quality of American growth. What the figures show is that, despite some tiny signs of progress, nearly a decade after a terrifying financial crisis caused by bloated spending on personal consumption and housing, the U.S. economy is still heavily dependent on growing via bloated spending on personal consumption and housing.

First, let’s review the situation on a stand-still basis. For the second quarter, the share of inflation-adjusted gross domestic product (GDP) comprised by personal consumption came in at 69.60 percent. This figure – for the first full quarter of the year during which Donald Trump has been president – was slightly above the 69.56 percent for January-March quarter, and an all-time record.

The second component of what I’ve called the “toxic combination” is housing spending, which stood at 3.49 percent of real GDP. That’s lower than the 3.58 percent share for the first quarter, and (thankfully) well below the record of 6.17 percent set at the height of the previous decade’s housing bubble, in the third quarter of 2005.

Nonetheless, because personal spending has become so strong, the total toxic combination in the second quarter came to 73.09 percent of after-inflation GDP. That’s a bit below the 73.14 percent share for the first quarter but, more important, it’s just slightly less than the record 73.29 percent of real GDP set by the toxic combination set in the second quarter of 2005. So it’s difficult to argue that one of the biggest lessons of the financial crisis and ensuing recession has been learned.

The picture looks somewhat better lately when the economy’s main growth engines are examined – that is, when we analyze the economy on a dynamic, not a stand-still basis. During the second quarter of 2017, the toxic combination of personal and housing spending generated 64.03 percent of after-inflation growth. That’s less than half their share during the first quarter (140.65 percent – these numbers can be more than 100 percent because of the GDP components that subtract from growth).

It’s also a considerably smaller growth role than such spending has generally played since very early in the economic recovery. In fact, here’s how much constant dollar growth the toxic combination spurred, by year, from 2011 (when the economy was returning to normal following a deep slump and strong but largely incomplete initial snapback) to 2016: 97.50 percent, 60.36 percent, 79.17 percent, 80.16 percent, 98.25 percent, and 138.26 percent.

Even better, the growth role played by business spending – which creates productive assets like factories and labs, and also includes spending on research and development – could be on the upswing. The figures for the first two quarters of this year have been volatile, and in the wrong direction: 69.62 percent and 27.06 percent respectively.

But these numbers together so far have reversed the trend from 2011 to 2016 – when the share of growth accounted for by business spending plummeted from 53.75 percent to turning into a small growth drag.

The stand-still numbers, however, show that the U.S. economy remains so heavily skewed toward personal and real estate spending that only a major – and doubtless unprecedented – surge of business spending can start turning matters around. And the economy will remain far too fragile and crisis-prone till it does.

(What’s Left of) Our Economy: Trade was a Marginal Growth Engine in the Second Quarter

Tags

Bureau of Economic Analysis, Commerce Department, exports, GDP, goods, gross domestic product, imports, inflation-adjusted growth, Made in Washington trade deficit, real GDP, real trade deficit, recovery, services, trade deficit, {What's Left of) Our Economy

The final (for now) solid 3.03 percent annualized real GDP growth figure for the second quarter benefited slightly on a sequential basis by a drop in the inflation-adjusted trade deficit to $613.6 billion – the lowest such level since the third quarter of 2016 ($557.3 billion). Trade’s role as a quarterly growth engine, however (adding 0.21 percentage points) decreased to its smallest on a relative basis since the third quarter of 2014 (when its fueled 0.28 percentage points of 5.11 percent annualized growth).

New quarterly constant-dollar records were all achieved for total exports and goods exports, and for all import categories. For total imports and goods imports, these records were their fifth straight. Real services exports increased sequentially at their fastest annualized rate (6.2 percent) since the first quarter of 2013 (7.1 percent). But services imports hit their eleventh straight quarterly record ($498.2 billion).

Trade’s subtraction from cumulative recovery-era real growth remained considerable in the second quarter, but shrank sequentially both in toto (from 10.04 percent in the first quarter to 9.24 percent) and in terms of the Made in Washington deficit that tracks trade flows heavily influenced by trade policy (from 17.40 percent to 17.30 percent).

Here are the trade highlights from Thursday morning’s GDP report from the Commerce Department’s Bureau of Economic Analysis:

>The final read on second quarter economic growth produced an unusual mix of results given all the attention focused on President Trump’s stated resolve to reform U.S. trade policy. On the one hand, a sequential drop in the inflation-adjusted trade deficit to $613.6 billion (its lowest level since the $557.3 billion in the third quarter of 2016) helped lift annualized quarterly growth to 3.03 percent – the best such result since the first quarter of 2015 (3.20 percent).

>On the other hand, trade’s positive contribution to growth was its smallest on a relative basis (adding 0.21 percentage points) since the third quarter of 2014 (0.28 percentage points out of 5.11 percent annualized real growth).

>On a stand-still basis, new quarterly records were set for nearly all after-inflation categories of trade flows, including across the board on imports.

>Real total exports increased by 3.48 percent sequentially at an annual rate, from $2.1623 trillion annualized to $2.1811 trillion – their second straight all-time high.

>Real goods exports also hit their second straight quarterly record, improving by 2.17 percent annualized, from $1.4923 trillion annualized in the first quarter to $1.5004 trillion.

>Real services exports rose quarter-to-quarter at their fastest annual rate (6.01 percent) since the first quarter of 2013 (6.86 percent). But their $682.3 billion total fell short of the record of $684.9 billion set in the second quarter of 2015.

>Real combined goods and services imports in the second quarter rose sequentially at their slowest annualized rate (1.48 percent) since the second quarter of 2016 (0.39 percent). But their $2.7948 trillion figure was still their fifth straight quarterly record.

>Real goods imports set their fifth straight quarterly record, too. They rose by just 1.33 percent on an annual basis (the slowest pace since the third quarter of 2016’s 1.23 percent) to hit $2.7948 trillion annualized.

>As for real services imports, they set their eleventh straight quarterly record ($498.2 billion) – even though they advanced by a mere 2.18 percent annualized (the slowest such pace since the 1.01 percent annual growth in the second quarter of 2016).

>The new GDP figures showed that trade kept subtracting from America’s cumulative growth during te current economic recovery, but that the growth drag lightened by both major measures.

>As of these final second quarter results, the increase in the inflation-adjusted trade deficit since the second quarter of 2009 (when the recovery officially began) has sliced $247.3 billion from the real gross domestic product’s improvement – a growth drag of 9.24 percent.

>As of the first quarter, this growth drag was 10.04 percent, or $255.9 billion.

>The bite into growth from the Made in Washington trade deficit’s increase was much greater, but diminished as well.

>The post-second quarter, 2009 widening in this trade deficit – which strips out trade in energy and services and focuses on import and export flows heavily influenced by trade policy – cost the economy $462.8 billion, resulting in a growth drag of 17.30 percent.

>The Made in Washington trade deficit’s growth drag in the first quarter was 17.40 percent, or $443.3 billion.

(What’s Left of) Our Economy: Cutting Manufacturing Trade Deficit Can Help Trump Meet Growth Target

Tags

Great Recession, manufacturing, recovery, Trade, Trade Deficits, Trump, {What's Left of) Our Economy

President Trump has long spoken of juicing still sluggish U.S. economic growth by raising tariffs on imports and thereby replacing the foreign products Americans buy with counterparts made at home. Hopefully, he’ll follow through one of these days, because some economic data I’ve just looked over shows that his instincts are spot on, especially concerning the domestic manufacturing sector. Specifically, the figures make clear that, throughout the current, inadequate recovery, immense and steadily rising trade deficits in industry have crippled its production rate.

According to official data, between 2009 (the year the recovery began) and 2016 (the last full year for which numbers are available), the manufacturing trade deficit soared from $457.21 billion to $868.48 billion (a new all-time high) in pre-inflation terms. That’s not far from a doubling. So cumulatively, it was up by $411.27 billion.

And what’s happened to manufacturing output during that period? In pre-inflation value-added terms (measure that aims to eliminate various forms of double-counting), it grew by $448.5 billion. As a result, all else equal, if the manufacturing trade shortfall in 2016 was simply where it was in 2009, industry’s growth would have nearly doubled.

Of course, all else is never equal, and it’s reasonable to argue that the manufacturing trade and output numbers were thrown off early in the recovery by the unusual, and unusually deep, nature of the recession that preceded it. For the Great Recession was not only devastating for a cyclical industry like manufacturing. It devastated trade flows, too, because so much of it affected global finance (because global finance’s weakness were so largely to blame for its outbreak).

But it’s possible to correct to some extent for this unusual distortion by looking at the statistics starting in 2011 – when some degree of economic normalization had returned. (And yes, I know that massive government stimulus was largely responsible.)

During those years, the manufacturing trade deficit rose by just under $196 billion. Manufacturing output in current dollar value-added terms was up by just under $268 billion. So the growth drag was still powerful.

It remains too early in the current year to come to any definitive conclusions about these relationships under Mr. Trump. But so far, the evidence isn’t very promising. On a year-to-date basis through July, the manufacturing trade deficit is running 7.04 percent above last year’s record level. And through July, inflation-adjusted manufacturing production was only 1.49 percent higher than its level the previous July. (August’s year-on-year figure was a slightly better but still meh 1.63 percent.)

It’s possible, of course, that if they pan out, the new U.S. investments promised under President Trump will boost manufacturing output without dramatic changes in trade policy. But it’s just as possible that many of these new factories and other facilities have been promised in order to escape the effects of the tariffs Mr. Trump has threatened. Indeed, that’s what the CEOs of several of the companies involved have said.

If so, the longer the President waits to Make Trade Policy Great Again, the less credible his pronouncements will seem. And an opportunity both to speed up growth and improve its quality (by obviating some of the need for either deficit-ballooning tax cuts or deficit-ballooning spending increases) will be squandered.

(What’s Left of) Our Economy: August US Manufacturing Output Joins List of Harvey’s Victims

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automotive, chemicals, durable goods, energy, Federal Reserve, Great Recession, Gulf coast, Hurricane Harvey, industrial production, inflation-adjusted output, Louisiana, manufacturing, natural gas, non-durable goods, oil, recovery, Texas, {What's Left of) Our Economy

Hurricane Harvey’s devastation of the energy-rich Texas and Louisiana Gulf coasts slammed into America’s after-inflation manufacturing output in August as well, as the Federal Reserve’s new industrial production figures showed real manufacturing output down 0.26 percent on month due mainly to fall-offs in chemical industries that use oil and gas as feedstocks. As a result, constant dollar non-durable goods output fell in August by its greatest monthly total (0.86 percent) since January, 2014 (1.20 percent), and overall chemicals production sank by its greatest sequential amount (2.15 percent) since recessionary December, 2008 (4.85 percent).

After-inflation production was off by the greatest monthly totals since that time in basic chemicals; organic chemicals; and especially in resins, synthetic rubber, and artificial and synthetic fibers and filaments. The most affected industry was fibers and filaments, where price-adjusted output plummeted by 9.10 percent – the worst such performance in this volatile sector since November, 2008 (11.25 percent).

Among the bright spots in the August manufacturing production figures: The automotive industry saw its first real output improvement in four months (2.16 percent), and revisions for manufacturing were positive. All the same, America’s real industrial production levels remain 4.03 percent lower than their pre-recession peak – more than nine years ago in December, 2007.

Here are the manufacturing highlights of the Federal Reserve’s new release on August industrial production:

>Hurricane Harvey’s devastation of the energy-rich Texas and Louisiana Gulf coasts devastated enough of the nation’s chemicals industry to create a 0.26 percent monthly sequential drop in real manufacturing output in August.

>The decline was heavily concentrated in chemicals, and especially in sectors highly dependent on Gulf oil and gas as feedstocks.

>The Harvey effects could first be seen in the non-durable goods sector in which chemicals industries are found. Its August inflation-adjusted production decreased by 0.86 percent – the worst sequential performance since January, 2014’s 1.20 percent fall-off.

>The enormous chemicals industry suffered as well, with price-adjusted production down 2.15 percent on month in August – its biggest such decline since December, 2008’s 4.85 percent, at the nadir of the Great Recession.

>Similar multi-year worsts were registered in basic chemicals, organic chemicals, and the resin, synthetic rubber, and artificial and synthetic fibers and filaments grouping. The latter two segments – which often displays volatile production patterns – saw real output dive in August on month by 9.10 percent, the greatest drop since November, 2008’s 11.25 percent.

>The hit to oil refineries so far has been more modest – their constant dollar output was off on month by just 1.93 percent. Nonetheless, this represented the biggest such decline since June, 2014’s 2.06 percent.

>Better news in August was generated by the U.S. automotive sector. Since leading domestic manufacturing out of its deep recessionary slump during most of the recovery, combined vehicle and parts production has tailed off recently – including a July sequential production plunge that has now been revised down (to 4.16 percent) to the worst such performance since June, 2015 (4.48 percent).

>In fact, combined vehicle and parts production had worsened sequentially for three straight months.

>But in August, after-inflation automotive output advanced by 2.16 percent sequentially, and helped the durable goods super-sector grow by 0.30 percent on month.

>In addition, the Fed’s real manufacturing output revisions were positive, including an upgrade for July from a 0.06 percent dip to a 0.04 percent rise.

>In fact, largely because real manufacturing output was so weak in 2016, August’s fair results were enough to push price-adjusted year-on-year output up to 1.63 percent from July’s 1.49 percent.

>Nonetheless, the August Fed figures make clear that U.S. domestic manufacturing has still not full recovered from the Great Recession. In terms of real output, it remains 4.03 percent smaller than its pre-recession high – reached more than nine years ago, in December, 2007.

(What’s Left of) Our Economy: Real Wages Take a Step Back in August

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

November is still the cruelest month – for real manufacturing wages. November, 2011, to be exact, when they plummeted sequentially by 0.95 percent. But this morning’s data from the government’s Bureau of Labor Statistics tells us that last month was no prize, either. Hourly price-adjusted pay for manufacturing workers fell on month by 0.91 percent – the worst such performance since that dreadful November nearly six years ago, and one that undercuts claims that the Trump administration has been delivering for America’s blue-collar workers.

Just as significant, August’s lousy performance (the figures might still be revised) mean that on a year-on-year basis, after-inflation pay in manufacturing is down. The decline is just 0.09 percent, but it’s the first annual decrease since September, 2014 (0.29 percent). Between the previous Augusts, inflation-adjusted manufacturing wages rose by 1.50 percent.

The manufacturing pay performance is especially puzzling since the sector’s hiring has been unusually strong lately, with the July and August monthly job gains the best back-to-back total (62,000) since December, 2011 and January, 2012 (68,000).

As a result, after-inflation manufacturing pay is just 1.03 percent higher than when the current U.S. economic recovery officially began in the middle of 2009 – more than eight years ago.

Real wage results for the private sector overall were better, but far from impressive. They fell, too, on month – but by only 0.28 percent. The drop was their biggest sequentially since June, 2015, when they sank by roughly the same percentage.

August’s year-on-year real wage increase of 0.56 percent was much smaller than the improvement between August, 2015 and August, 2016 (1.52 percent).

And these wages during the current recovery have advanced by 4.46 percent – meager by historical standards, but nearly four-and-a-half times faster than real manufacturing wages.

The only consolation American workers could possibly draw from these numbers is that the July improvement of 0.19 percent sequentially for inflation-adjusted private sector wages and the 0.37 percent monthly rise in real manufacturing wages were judged to be unchanged. But if the situation doesn’t change dramatically by the 2018 midyear elections, it’s hard to imagine them feeling especially grateful

(What’s Left of) Our Economy: Productivity Growth Improves – A Bit

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Labor Department, labor productivity, manufacturing, multifactor productivity, non-farm business, productivity, recovery, total factor productivity, {What's Left of) Our Economy

Some more hard U.S. economic data came in this morning, and it looked pretty good. Even better, the news concerned productivity growth, which is widely viewed as the key to ensuring that the nation’s living standards can rise acceptably on a sustainable – as opposed to a bubble-ized – basis.

According to the Labor Department, America’s labor productivity in the second quarter of this year rose somewhat faster than was initially reported. Unfortunately, though, the economy still has a long way to go before it returns to the productivity growth rates it’s generated historically.

As RealityChek regulars know, labor productivity is the narrowest of the two gauges used by the U.S. government to measure this key indicator; it tells us how much output each American worker generates per hour on the job. Multifactor productivity (also called total factor productivity) shows output as a product of many more inputs (such as capital and energy and materials), but these numbers are more difficult to calculate, and come out with a greater time lag.

And although most intellectually honest economists admit that measuring productivity is one of their most challenging tasks, even these statistics are probably more reliable than “soft data” – the various private sector surveys that purport to measure business and consumer sentiment.

Today’s report judges that labor productivity for the non-farm business sector (the Labor Department’s main proxy for the entire economy) grew sequentially in the second quarter at an annualized rate of 1.53 percent. That’s better than the 0.99 percent first estimated and the strongest result since the 2.46 percent achieved in the third quarter of last year.

Second quarter labor productivity growth for manufacturing was upgraded, too – from 2.44 percent annualized quarter-to-quarter to 2.82 percent. And those are the best quarterly manufacturing results since the 3.20 percent spurt in the first quarter of 2012.

The Labor Department left unrevised the first quarter’s miserable 0.13 percent annualized non-farm business sequential productivity growth, and slightly downgraded manufacturing’s comparably poor first quarter improvement to 0.19 percent annualized. But the second quarter numbers are genuinely encouraging.

Still, do they signal the strong productivity revival the U.S. economy urgently needs? My crystal ball is no clearer than anyone else’s. All I can do is point out what a heavy lift this would be. Here are the non-farm business productivity growth performances for the last three economic recoveries (including the current expansion). As always, the best apples-to-apples data comes from measuring economic performance during similar phases of the business and economic cycle:

2Q 1991 to 1Q 2001: +23.25 percent

4Q 2001 to 4Q 2007: +16.03 percent

2Q 2009 to present: +8.65 percent

And here are the same figures for manufacturing:

2Q 1991 to 1Q 2001: +46.81 percent

4Q 2001 to 4Q 2007: +41.23 percent

2Q 2009 to present: +22.33 percent

So even with the latest improvements, labor productivity is advancing during this recovery at only roughly half the rate of its most recent predecessors. And the current expansion has been considerably longer than the previous recovery, and nearly as long as the 1990s recovery.

I’m not saying that no one should be optimistic about the United States significantly closing this gap going forward. But it’s still big enough that, so far, this expectation does seem to be a leap of faith.