(What’s Left of) Our Economy: Automotive’s Still in the U.S. Manufacturing Growth Driver’s Seat

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aircraft, aluminum, appliances, automotive, CCP Virus, China, coal, coronavirus wuhan virus, COVID 19, Delta variant, electrical equipment, facemasks, Federal Reserve, industrial production, inflation-adjusted growth, inflation-adjusted output, infrastructure, lockdowns, machinery, manufacturing, masks, medical devices, metals, petroleum refining, pharmaceuticals, PPE, real growth, recovery, reopening, steel, stimulus, tariffs, Trump, vaccines, {What's Left of) Our Economy

Talk about annoying! There I was last Thursday morning, all set to dig into the new detailed Federal Reserve U.S. manufacturing production numbers (for June) in order to write up my usual same-day report, and guess what? None of the new tables was on-line! Fast forward to this morning: They’re finally up. (And here‘s the summary release.) So here we go with our deep dive into the results, which measure changes in inflation-adjusted manufacturing output.

The big takeaway is that, as with last month’s report for May, the semiconductor shortage-plagued automotive sector was the predominant influence. But there was a big difference. In May, domestic vehicles and parts makers managed to turn out enough product to boost the overall manufacturing production increase greatly. In June, a big automotive nosedive helped turn an increase for U.S.-based industry into a decrease.

The specifics: In May, the sequential automotive output burst (which has been revised up from 6.69 percent in real terms to 7.34 percent) helped push total manufacturing production for the month to 0.92 percent after inflation (a figure that’s also been upgraded – from last month’s initially reported already strong 0.89 percent). Without automotive, manufacturing’s constant dollar growth would have been just 0.47 percent.

In June, vehicle and parts production sank by an inflation-adjusted 6.62 percent , and dragged industry’s total performance into the negative (though by just 0.05 percent). Without the automotive crash, real manufacturing output would have risen by 0.40 percent.

Counting slightly negative revisions, through June, constant dollar U.S. manufacturing production in toto was 0.60 percent less than in February, 2020 – the economy’s last full pre-pandemic month.

Domestic industry’s big production winners in June were primary metals (a category that includes heavily tariffed steel and aluminum), which soared by 4.02 percent after inflation; the broad aerospace and miscellaneous transportation sector, which of course contains troubled Boeing aircraft, (more on which later), and which turned in 3.75 percent growth, its best such performance since January’s 5.62 percent pop; petroleum and coal products (up 1.36 percent); and miscellaneous durable goods, which includes but is far from limited to CCP Virus-related medical supplies (up 1.21 percent).

The biggest losers other than automotive? Inflation-adjusted production of electrical equipment, appliances, and components, which dropped sequentially by 1.73 percent in real terms; the tiny, remaining apparel and leather goods industry (1.44 percent); and the non-metallic minerals sector (1.07 percent).

Especially disappointing was the 0.55 percent monthly dip in machinery production, since this sector’s products are used so widely throughout the rest of manufacturing and in major parts of the economy outside manufacturing like construction and agriculture.

But in one of the biggest surprises of the June Fed data (though entirely consistent with the aforementioned broad aerospace sector), real output of aircraft and parts shot up by 5.24 percent – its best such performance since January’s 6.79 percent. It’s true that the May production decrease was revised from 1.47 percent to 2.61 percent. But with Boeing’s related and manufacturing and safety-related woes continuing to multiply, who would have expected that outcome?

And partly as a result of this two-month net gain, after-inflation aircraft and parts output as of June is 7.83 percent higher in real terms than in pre-pandemicky February, 2020 – a much faster growth rate than for manufacturing as a whole.

The big pharmaceuticals and medicines sector (which includes vaccines) registered a similar pattern of results, although with much smaller swings. May’s originally reported 0.22 percent constant dollar output improvement was revised down to 0.15 percent. But June saw a 0.89 percent rise, which brought price-adjusted production in this group of industries to 9.33 percent greater than just before the pandemic.

Some good news was also generated by the vital medical equipment and supplies sector – which includes virus-fighting items like face masks, face masks, protective gowns, and ventilators. Its monthly May growth was upgraded all the way up from the initially reported 0.19 percent to 1.18 percent. And that little spurt was followed by 0.99 percent growth in June.

Yet despite this acceleration, this sector is still a mere 2.27 percent bigger in real terms than in February, 2020, meaning that Americans had better hope that new pandemic isn’t right around the corner, that the Delta variant of the CCP Virus doesn’t result in a near-equivalent, or that foreign suppliers of such gear will be a lot more generous than in 2020.

As for manufacturing as a whole, the outlook seems as cloudy as ever to me. Vast amounts of stimulus are still being pumped into the U.S. economy, which continues to reopen and overwhelmingly stay open. That should translate into strong growth and robust demand for manufactured goods. The Trump tariffs are still pricing huge numbers of Chinese goods out of the U.S. market. And the shortage of automotive semiconductors may actually be easing.

But the spread of the Delta variant has spurred fears of a new wave of local and even wider American lockdowns. This CCP Virus mutation is already spurring sweeping economic curbs in many key U.S. export markets. Progress in Washington on an infrastructure bill seems stalled. And for what they’re worth (often hard to know), estimates of U.S. growth rates keep coming down, and were falling even before Delta emerged as a major potential problem. (See, e.g., here.)

I’m still most impressed, though, by the still lofty levels of optimism (see, e.g., here)  expressed by U.S. manufacturers themselves when they respond to surveys such as those sent out by the regional Federal Reserve banks (which give us the most recent looks). Since they’re playing with their own, rather than “other people’s money,” keep counting me as a domestic manufacturing bull.

(What’s Left of) Our Economy: It’s an Autos Story Again for U.S. Manufacturing Production

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aerospace, aircraft, aluminum, apparel, automotive, Boeing, CCP Virus, chemicals, China, computers, coronavirus, COVID 19, Donald Trump, electronics, facemasks, Federal Reserve, health security, inflation-adjusted output, machinery, manufacturing, medical supplies, paper, pharmaceuticals, PPE, printing, real growth, semiconductor shortage, semiconductors, shutdowns, steel, stimulus, tariffs, vaccines, Wuhan virus, {What's Left of) Our Economy

Earlier in the CCP Virus era, the U.S. manufacturing production story was largely an automotive production story – because the industry shut down so suddenly and completely during the pandemic’s first wave and the deep economic downturn it triggered, and then began reopening at a record pace. And today’s Federal Reserve figures show that domestic industry’s growth is being driven by dramatically fluctuating vehicles and parts output once again – but this time it seems due significantly to the global semiconductor shortage that’s deprived the sector of critical parts.

Also noteworthy about today’s Fed manufacturing release (which covers May): It incorporates the results of the benchmark revision of these data for the 2017-19 period. As explained in yesterday’s post on the subject, the new numbers create a new baseline for pre-pandemic manufacturing growth, and therefore a new picture of how big the virus-induced downturn was, and how strong the recovery has been – at least until the next benchmark revision. And of course, the new figures therefore supersede those in the April Fed release I reported on last month.

Automotive’s influence on the May numbers is clear from the following: Total inflation-adjusted sequential growth for U.S.-based manufacturing hit a strong 0.89 percent last month. Without automotive (whose 6.69 percent monthly output pop followed a 5.57 percent April drop), the increase would have been just over half that – a still solid 0.50 percent. Don’t be surprised if the microchip shortage keeps these results on a roller coaster.

Its May increase brought total real domestic manufacturing output back within 0.31 percent of its last pre-pandemic level, in February, 2020. In March and April, such production plummeted by 19.41 percent. Since then, it’s surged by 23.90 percent. For the record, as I wrote yesterday, the pandemic-spurred Spring, 2020 nosedive was slightly shallower (0.92 percent) than judged before the revisions (1.42 percent) but the comeback through this past April was a bit weaker (22.81 percent versus 23.27 percent).

Machinery making enjoyed a good month in May, and as known by RealityChek regulars, that’s good news for all domestic manufacturing and the rest of the economy, since its products are so widely used. Constant dollar output improved by 0.78 percent last month, and consequently, the sector is now 2.35 percent bigger in these terms than just before the virus started depressing the economy. One downside should be noted, though: The new revision indicates that the machinery recovery has actually be significantly slower than previously estimated.

Manufacturing’s list of other big inflation-adjusted production winners in May featured some real surprises. The apparel and leather goods industries remain shadows of their historic selves, but their real output last month jumped 2.59 percent – their best such result since January’s 2.06 percent. Moreover, this sector has grown in real terms by 6.74 percent since just before the pandemic – much faster than manufacturing as a whole.

After-inflation production in the small printing and related activities industry grew by 2.59 percent – also its best result since January (3.99 percent).

But some big sectors saw healthy gains in May, too – notably chemicals (whose products are also used throughout the economy) and computer and electrnics products. The former saw real production advance by 2.19 percent sequentially last month – its best such result since March’s weather-aided 4.08 percent. And the latter grew in May by 1.60 percent.

The biggest losers? Paper led this pack by far, with May constant dollar production sinking by 1.59 percent on month – its worst such showing since January’s 1.78 percent decrease.

Likely due to Boeing’s continuing production and safety problems (more on which later), the aerospace and miscellaneous transportation sector’s after inflation production sank by 0.95 percent sequentially in May – and that followed a 2.55 percent nosedive (no pun intended) in April. And wood products real output fell by 0.82 percent.

But the losers’ list contains a big surprise, too. Complaints keep coming that that the domestic steel and aluminum industries (and especially the steel-makers) have responded to tariffs simply by enjoying the higher resulting prices and sitting on these winnings. So it’s noteworthy that even after a 0.82 percent monthly real output decline in May, primary metals production after inflation is slightly (0.15 percent) higher than in immediate pre-pandemic-y February, 2020 – another such performance that’s bested that for all manufacturing.

The aforementioned problems suffered by Boeing keep coming through in the real output data for the aircraft and parts sub-sector of the aerospace and miscellaneous transportation industry. In May, inflation-adjusted output was down 1.47 percent on month – much bigger than the larger industry fall-off. And that came on the heels of April’s 2.21 percent decrease. Real aircraft and parts production is still 4.36 percent above its immediate pre-pandemic level, but given the ongoing post-CCP Virus worldwide rebound in air travel, these figures are definitely disappointing – and moving in the wrong direction.

By contrast, the big pharmaceuticals and medicines sector is still benefitting from reopening headwinds. May’s 0.22 percent monthly real output increase was admittedly modest, especially since this sector includes vaccine production. But it’s grown by 8.44 percent since the virus began spreading rapidly in the United States. on g – also delivered a disappointing performance in April, especially since it includes vaccines.

But both the May real production numbers and the benchmark revision left the vital medical equipment and supplies sector a conspicuous production laggard. This industry – which includes virus-fighting items like face masks, face masks, protective gowns, and ventilators – grew in real tems by just 0.19 percent sequentially in May, and April’s after inflation output was down 1.66 percent. As a result, this sector is turning out only 0.35 percent more product than just before the pandemic’s arrival – which doesn’t seem to augur well for national preparedness for the next pandemic.

If I was a betting person (I’m not), I’d still wager on better days ahead for U.S. domestic manufacturing – because so many powerful supportive trends and developments remain in place, ranging from massive government spending and other forms of stimulus to the virus’ continuing retreat to waning consumer caution to huge amounts of pandemic-era consumer savings to ongoing Trump tariffs that keep pricing huge numbers of Chinese goods out of the U.S. market.

But no one should forget about a list of threats to the pace of manufacturing growth, if not growth itself – like the prospect of higher taxes and more regulations, and the possibility that consumer demand will keep growing but switch away from goods to the hard-hit but quickly reopening service sectors (which of course do buy manufactures). Inflation isn’t good for strong (real) growth, either, though I’m an optimist on this front.

Ultimately, though, I’m most struck by evidence of domestic manufacturers’ continuing optimism about the prospects of their businesses. If they’re still confident about their futures, that remains good enough for me.

(What’s Left of) Our Economy: Biden’s Now a Full-Throated “Tariff Man” on Metals

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aluminum, Biden, China, dumping, EU, European Union, Katherine Tai, metals tariffs, overcapacity, steel, subsidies, tariffs, trade war, U.S. Trade Representative, World Steel Association, {What's Left of) Our Economy

There’s now a good case to be made that the trade curbs originally called the “Trump metals tariffs” should be called the “Trump-Biden metals tariffs” (and even vice versa). For on Monday, the Biden administration reached a “truce” in the trade dispute they touched off with the European Union (EU – whose member countries’ steel exports are among those hit with these levies). And this agreement kept the U.S. curbs – originally imposed by the former President in early 2018 – firmly in place.

Arguably even more important, U.S. Trade Representative Katherine Tai fully endorsed Trump’s rationale for the global scope of these tariffs (which eventually exempted some countries – including Canada and Mexico, which joined with Trump in signing a  revamp of the North American Free Trade Agreement). At a Senate hearing last week, she noted that they were needed “to address a global overcapacity problem driven largely but not solely by China.”

In other words, Tai – and her boss in the White House – were acknowledging that massive and government-subsidized excess global steel output in particular was being dumped into the U.S. market, often indirectly, by many countries other than China. They’d either been permitting Chinese product to come into their import doors and go out their export doors to America (after being re-labeled); compensating for their own steel industries’ losses at the hands of dumped Chinese steel by ramping up their own exports of subsidized metal to the United States; or engaging some combination of the two.

Although President Biden has also decided to retain Trump’s China tariffs, the metals position deserves special attention. After all, a broad consensus has developed in U.S. policy and (to a lesser extent) business circles on the need for responding strongly to China’s systemic trade predation. But the metals tariffs have consistently been widely condemned as needless Trump slaps at many staunch U.S. security allies (like many EU members that also belong to NATO – the North Atlantic Treaty Organization).

The Economic Policy Institute released a report in March documenting how well the tariffs have worked to help revitalize the U.S. steel industry, and how scant their damage has been to American steel-using industries. (My case for the latter proposition includes this post.)

But the American industry’s need for worldwide tariffs until the overcapacity problem is (somehow) solved also keeps emerging from the data on global steel markets that I first highlighted shortly after Trump’s announcement.

This post showed that before the tariffs were imposed, the American domestic steel industry was far and away the biggest global loser from the China steel glut – and that most other big steel-producing countries escaped anything close to comparable damage. Here’s how the percentages of global steel output of leading producers changed between 2010 and 2018.  (Note that some of the original 2018 numbers have been revised.)

US:                        -35.79

China:                   +20.44

EU 27:                   -23.73

Japan:                    -25.36

South Korea:           -2.67

India:                    +22.20

Turkey:                          0

Brazil:                   -17.24

Russia:                  -11.61

Logically, these figures can lead to only one of two conclusions: Either the U.S. steel industry had become the world’s least competitive by a mile (and very suddenly), or virtually the entire steel-producing world was exporting many of its own China steel problems to the United States.

And since U.S. productivity statistics reveal that the American primary metals sector (including steel and aluminum) had been a national productivity leader during that period, and was suffering major import-related production losses that were dwarfed by those of much less productive manufacturing industries, there can be no legitimate doubt that it faced a trade problem urgently needing fixing. (Here‘s the evidence.)

So what’s happened to the U.S. share of world steel production since the tariffs’ onset? The World Steel Association, source of the above figures, makes clear that the American relative performance has been much better. Here are the percentage changes in woldwide output between 2018, and the first quarter of this year:

US:                           -12.53

China:                       +8.44

EU 27:                     -16.45

Japan:                      -15.60

South Korea:           -12.47

India:                        +3.23

Turkey:                      -2.43

Brazil:                       -6.77

Russia:                      -2.02

These numbers show that China continues to increase its global production market share (to fully 55.66 percent as of this year’s first quarter) and that the United States has continued to lose share. But they also show that much of the rest of the steel-producing world is no longer able to gain so dramatically at America’s expense. Indeed, major producers like the European Union and Japan have fared worse than the United States, and the gap between American performance and that of the rest of these economies has closed substantially. And as the aforementioned Economic Policy Institute report has demonstrated, the U.S.-based steel sector’s fortunes in absolute terms have turned up as a result.

The lesson here is that the metals tariffs haven’t been a cure-all either to the U.S. steel industry’s troubles or even its trade-specific troubles. But they’ve undeniably helped – while leaving the rest of American manufacturing and the economy doing just fine. And because other global steel players are now taking it on the chin from China’s overcapacity, maybe the continued U.S. levies will finally help convince them to stop paying lip service to the goal of dealing with global – and especially Chinese – steel overcapacity, and join Washington in serious efforts to end it.

(What’s Left of) Our Economy: U.S. Manufacturers Seem to be (Trump-ily) Settling the Tariff Wars

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(What's Left of) Our Economy, Biden, CCP Virus, China, coronavirus, COVID 19, Donald Trump, manufacturers, manufacturing, metals, National Association of Manufacturers, recession, steel, tariffs, Trade, trade war, Wuhan virus

In recent months, I’ve written that there’s a strong case to be made for bullishness about U.S. domestic manufacturing (e.g., here and here), and added (pointedly) that this optimism is justified even though sweeping, steep Trump administration tariffs remain on hundreds of billions of dollars worth of imports from China, and from many steel-producing countries.

In fact, I’ve argued that these tariffs deserve much credit for domestic industry’s solid performance during the CCP Virus- and lockdowns-spurred downturn suffered by the U.S. economy over the last year – by preventing foreign-made goods from supplying much of the American demand for manufactures that had continued. I’ve also contended that as long as the tariffs remain in place, domestic manufacturers will keep enjoying a big edge over the foreign competition for satisfying the demand that will be restored as recovery proceeds.

Therefore, it’s great to report evidence that U.S.-based manufacturers appear to agree, at least implicitly, and it comes from the National Association of Manufacturers’ (NAM) latest survey of its members’ views on their future prospects. As the organization reports before presenting its new data:

“After plummeting sharply last year due to the COVID-19 pandemic and the global recession, manufacturing activity has rebounded sharply, with the sector being a bright spot in the economy in recent months. Manufacturing production is likely to exceed pre-pandemic levels in the next couple months, and employment in the sector has risen in all but one month since April 2020.”

That resilience, of course, was displayed with the trade curbs erected by the Trump administration fully in place. Strengthening the case that domestic manufacturers will keep performing strongly going forward are the NAM’s findings that the 450 respondent companies’ confidence about their outlooks were the brightest since December, 2019 – just before the virus and the lockdowns hit the American economy, and when the tariffs were of course also fully in place.

And when asked about their “primary current business challenge,” only 29.3 percent mentioned “trade uncertainties,” which included “actual or proposed tariffs” and “trade negotiation uncertainty.” By contrast, the respondents’ top worry by far was “increased raw material costs” (76.22 percent). Second was “attracting and retaining a quality workforce” (65.78 percent).

It’s true that some of the rising commodity prices mentioned by the companies are stemming from the Trump tariffs, especially on metals. But they’re also surely due to the surprising speed of the economy’s rebound, which itself inevitably has created numerous bottlenecks. (As RealityChek regulars know, metals are typically a small fraction of overall costs even in major metals-using industries like automotive.)

Further, the respondents were given these choices – so their answers weren’t exactly spontaneous. Indeed, NAM placed the “trade negotiation uncertainty” third in its list of twelve possible answers, and when pollsters ask such “closed-end questions” (as opposed to their “open-ended” counterparts,” where respondents aren’t prompted at all), placement can influence results – in this case, boosting the odds of being selected.

There’s little doubt that ideologues and economists of all stripes will keep fighting the trade and tariff wars – since the issue hasn’t remotely been settled in theory. But the new NAM survey and domestic manufacturing’s strong performance during one of the U.S. economy’s most challenging periods in decades encouragingly indicate that the matter is being settled where it counts – in fact, and in favor of the proposition that tariffs can be a boon for industry. So does President Biden’s decision that these levies aren’t going anywhere anytime soon.           

(What’s Left of) Our Economy: No Shortage of Steel Trade Fakeonomics

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Biden, Donald Trump, free markets, free trade, IHS Markit, National Bureau of Economic Research, productivity, Rajesh Kumar Singh, Reuters, steel, steel prices, steel tariffs, steel-using industries, subsidies, tariffs, Trade, {What's Left of) Our Economy

Here’s one likely byproduct of President Biden’s unexpected decision so far to maintain most of Donald Trump’s tariff-centric trade policies – including undermining the workings of the deeply anti-American World Trade Organization (WTO): shoddy or just plain incoherent attacks on these economic nationalist measures seem certain to be just as numerous as they were during the Trump years. Indeed, two have just been released.

In the shoddy category is a Reuters article from yesterday reporting that American manufacturers are suddenly very short of steel, that prices are therefore soaring to extortionate and profit-killng levels, and that the Trump steel tariffs – among the previous administration’s measure that Mr. Biden has so far decided to keep – are largely to blame. Even worse, the piece tells us (and entirely predictable according to standard economic theory), the protected U.S. steel industry is taking full advantage by keeping its own production low, and therefore maximizing upward pricing pressures and therefore its own profits.

Yet the statistical basis for these claims falls apart on close analysis. Author Rajesh Kumar Singh starts off by writing that

“Domestic steel mills that idled furnaces last year amid fears of a prolonged pandemic-induced economic downturn have been slow in ramping up production, despite a recovery in demand for cars and trucks, appliances, and other steel products. Capacity utilization rates at steel mills – a measure of how fully production capacity is being used – has moved up to 75% after falling to 56% in the second quarter of 2020 but is still way below 82% in last February.”

That’s not, however, what’s said by the Federal Reserve, the offical source of U.S. capacity utilization data. Its tables show that for iron and steel products, capacity utilization rates stood at 76.03 percent last February, and at 77.84 percent last month. Where I learned ‘rithmetic, that’s an increase. Moreover, since bottoming last May, just after the worst of the CCP Virus and shutdowns’ first wave, it’s up 56 percent.

Indeed, steel’s capacity utilization performance is especially impressive – and especially destructive to Singh’s article – given that from last February to this past January, capacity utilization in domestic manufacturing overall is down slightly (by 0.60 percent).

And what Singh somehow left out is that during that same period, different Fed tables show, while overall manufacturing production adjusted for inflation dipped by 0.75 percent, iron and steel products output was off by just 0.71 percent.

His reporting is no more responsible on U.S. steel prices. Yes, they’ve risen strongly lately. But that’s largely because they fell so steeply almost immediately after the tariffs went on, in February, 2018. As made clear by the (chartreuse?) line from the chart below, from the respected consulting firm IHS Markit, they’re still much lower than they were three years ago. Nor, contrary to another claim of his, do they look much different from Chinese and European prices.

In the incoherent category is a study released by the National Bureau of Economic Research (NBER), widely seen as one of the gold standard for American economics, whose main theme is that, contrary to the Trump administration’s claims, American consumers and businesses, not the Chinese or any other foreign countries, paid all the costs of the Trump tariffs.

I’ve repeatedly pointed out the lack of evidence for this contention. (See, e.g., here).  Today, however, I’m more interested in a finding made along the way by the three blue-chip economist authors: When it comes to steel, “The data show that U.S. tariffs have caused foreign exporters…to substantially lower their prices into the U.S. market.”

What they didn’t do is ask themselves why and, even more important, how this could be. That’s especially puzzling because the answer obviously is that foreign steel industries are subsidized by foreign governments. Consequently, they don’t face the same earnings pressures as their U.S.-owned counterparts, and can stay in business – and even ramp up production – despite major price cuts.

So the idea that there’s now or for decades has been free trade in steel has no basis in fact, and anyone who keeps ignoring this global landscape can’t possibly place any value on America retaining a steel industry worthy of the name – or on any definition of free trade that’s remotely reciprocal and therefore sustainable, not to mention one that serves U.S. economic interests realistically defined.

At least as important, as I’ve noted before, anyone blasé about huge quantities of artificially cheap foreign steel flooding into the United States can’t be serious about ensuring that the American economy is predominantly influenced by free market forces of any kind, or about understanding the central importance of productivity gains in spurring technological progress and even durable prosperity.

For the record shows that the recent wide availability of subsidized, cut-rate steel has provided the steel-using industries generally with a crutch that’s relieved them of the need to anchor satisfactory profits in ever-improving efficiency – and kneecapped their productivity performance. And since steel is hardly the only imported product subsidized by foreign governments, there’s no reason to believe that this kind of economic damage is limited to steel-users.

All the same, a continuing flood of trade and tariff fakeonomics may produce a silver lining.  As long as the Biden administration hews to the Trump line, at least the American people will still have an Executive Branch with an interest in pushing back strongly.     

(What’s Left of) Our Economy: Why Today’s Fed U.S. Manufacturing Report is So Bullish

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737 Max, aircraft, aluminum, automotive, Boeing, China, Federal Reserve, inflation-adjusted growth, Joe Biden, machinery, manufacturing, medical supplies, metals, pharmaceuticals, PPE, real output, steel, tariffs, Trade, vaccines, {What's Left of) Our Economy

Think for a moment about this morning’s very good manufacturing production figures from the Federal Reserve (for December) and a case for major optimism about U.S. industry’s foreseeable future is easy to make. Not only has the advent of highly effective vaccines greatly boosted hopes for a return to normality sooner rather than later. But much of the underlying data was collected before the vaccine production surge began.

Moreover, although Boeing aircraft is still dealing with manufacturing problems, its popular 737 Max model is being recertified or nearly recertified for flight by numerous countries (including the United States) and any continued significant rebound in air travel levels is sure to help the company’s order book for all of its jets.

And again, the data themselves were strong. According to this first Fed read for the month, American inflation-adjusted manufacturing output rose by 0.95 percent sequentially. Moreover, November’s initially reported 0.79 percent improvement was upgraded to 0.83 percent, and October’s results were revised upward for a second time – to 1.34 percent.

These noteworthy advances – which add up to eight straight months of increases – brought price-adjusted U.S. manufacturing production to 22.05 percent above the levels it hit during its CCP Virus-induced nadir in April, and to within 2.40 percent of its last monthly pre-pandemic numbers (for February).

Especially interesting, and another cause for optimism: The December manufacturing growth was so broad-based that it was achieved despite a 1.60 percent monthly drop in constant dollar automotive production. Combined vehicle and parts output has rebounded so vigorously since its near-evaporation last spring (by just under six-fold) that on a year-on-year basis, it’s actually grown by 3.64 percent. But today’s Fed report represents evidence that many other sectors are now catching up.

The crucial (because its products are used so widely throughout the entire economy) machinery sector enjoyed a good December, too, with after-inflation production increasing by 2.07 percent sequentially. That welcome news more than offset a downward revision in the November results, from a 0.51 percent to 0.99 percent shrinkage. Due to this growth, this real domestic machinery output is now just 1.53 percent off its pre-pandemic level.

As for the pharmaceutical industry, its price-adjusted output expanded by a solid 2.12 percent sequentially in December, but November’s disappointing initially reported 0.76 percent fall-off was downgraded to a 0.84 percent decrease, and October’s results stayed at minus 1.01 percent.

Moreover, year-on-year constant dollar pharmaceutical production is up only 0.18 percent – anything but what you’d expect for a country suffering through an historic pandemic.

But the first batch of Pfizer anti-CCP Virus vaccines didn’t leave the factory until December 13, and key data behind this first read on the month’s performance were gathered beforehand. So it’s likely that the huge ramp in vaccine out could start showing up in the revised December results in next month’s Fed manufacturing report (for January), which will reflect more relevant statistics.

Similar optimism seems warranted for the U.S. civilian aerospace industry and especially its beleaguered collosus, Boeing. Despite the safety woes of the popular 737 Max model and its consequent production suspension, the domestic aircraft and parts sectors have actually staged a powerful real output recovery since a 32.85 percent nosedive in February and March. Since then, inflation-adjusted production has boomed by 52.30 percent, fueled in part by December’s 2.78 percent sequential jump and November’s upwardly revised 2.39 percent growth.

In fact, constant dollar output in civilian aerospace is now actually 2.27 percent higher than its last pre-CCP Virus level. The 737 effect isn’t over yet, as made clear by the 11.49 percent real production decline since last December. But it seems evident that the industry is and will remain on the upswing barring any new seriously bad news.

Unfortunately, little such optimism appears justified in the case of medical equipment and supplies – including face masks, protective gowns, ventilators, and the like. Inflation-adjusted production in their larger subsector sank in December by 0.36 percent on month, and although the November increase has been revised up from 1.56 percent to 1.60 percent, October’s growth has been downgraded again – from an initially judged 3.54 percent all the way down to a decidedly non-pandemic-y 1.75 percent.

And since April, the after-inflation production recovery has been only 21.02 percent – still less than that for all of manufacturing. The year-on-year December result is no better, as it’s down 5.44 percent. And of course, those 2019 levels were revealed by the pandemic to have been dangerously inadequate.

But before ending, I couldn’t forgive myself if I didn’t say something about tariffs, and as with last month’s Fed manufacturing figures, the performance of the primary metals sectors for December is sending this loud and clear message to President-Elect Joe Biden: Keep them on.

For in constant dollar terms, these protected industries have recorded strong monthly growth since June, and November’s upwardly revised sequential 3.98 percent pop has now been followed by a 2.51 percent increase in December.

All told, since the April bottom, price-adjusted production has risen by 29.01 percent – expansion that looks inconceivable without the trade curbs preventing the U.S. market from being flooded with Chinese steel and aluminum along with product transshipped through the ports of those U.S. allies with whom Biden is so keen on repairing tattered Trump era ties, and greater metals shipments they often send America’s way to offset their own China-related losses.

(What’s Left of) Our Economy: New Evidence that Trump’s Tariffs Have Bolstered U.S. Manufacturers

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aluminum, CCP Virus, China, coronavirus, COVID 19, GDP, gross domestic product, inflation-adjusted growth, lockdowns, manufacturing, metals, metals tariffs, real GDP, real value-added, recession, steel, tariffs, Trade, trade war, Trump, value added, Wuhan virus, {What's Left of) Our Economy

As everyone knows, at least as of the final (for now) official third quarter growth figures just released, the entire U.S. economy remains in a severe recession thanks to the arrival of the CCP Virus and the subsequent tight curbs on business activity.

Less widely known:  A separate set of official figures released along with yesterday’s government release on third quarter gross domestic product (GDP) shows that, by the measures most closely watched (i.e, inflation-adjusted), domestic manufacturing never suffered a recession by one crucial definition – a cumulative downturn lasting at least two quarters. And can it be mere coincidence that the entire time, President Trump’s sweeping and steep tariffs on hundreds of billions of dollars worth of Chinese goods, and of steel and aluminum from most major foreign producers, have remained in place?

Below are the growth (and contraction) figures for the entire U.S. economy and for the manufacturing sector for the entire CCP Virus period so far – the first quarter through the third quarter of this year. They come from the Commerce Department’s data on four measures of output tracked by the folks who look at “GDP by Industry” and consist of gross output both pre-inflation and adjusted for price changes, and value-added (a gauge of production that tries to remove the double-counting that results from gross output’s inclusion of both inputs for products and services and the final products and services themselves) in pre-inflation and price-adjusted terms. All the non-percentage numbers are in trillions of dollars at annual rates.

                                                      1Q                2Q                3Q            1Q-3Q

v/a whole economy:                 21.5611        19.5201        21.1703    -1.81 percent

v/a manufacturing:                     2.3643          2.0537          2.3291    -1.49 percent

real v/a whole economy           19.0108        17.3025        18.5965    -2.18 percent

real v/a manufacturing:              2.1999          1.9629          2.2132   +0.60 percent

gross output whole econ          37.8268        34.2600         36.9425    -2.34 percent

gross output mfg                        6.1163          5.3334           6.0134    -1.68 percent

real g/o whole economy           34.2613        31.3989         33.4440    -2.39 percent

real g/o manufacturing               6.2038          5.6162           6.2089    +0.08 percent

Probably the most important of these results is real value-added, since its topline economy-wide numbers are identical to the inflation-adjusted GDP figures regarded as the most important measures of economic growth. And in real value-added terms, manufacturing output in the third quarter was actually slightly (0.60 percent) higher than in the first quarter. Manufacturing expansion has also taken place according to the real gross output figures, though it’s been marginal.

Also crucial to note although both pre-inflation measures show first-third quarter cumulative manufacturing downturns, they’ve been shallower in both cases than the economy-wide slumps.

It’s true that the virus and related shutdowns have more dramatically impacted the service sector when it comes to first-order effects – because so many service industries entail personal contact. But the case for the tariffs’ benefits for manufacturing looks compelling upon realizing that U.S. services companies are major customers of domestic manufacturers. So although the virus obviously crimped these markets, it seems that the tariffs preserved a good many of them by pricing out much Chinese and foreign metals competition.

One way to test this proposition, of course, would be for apparent President-elect Joe Biden to lift the levies while the pandemic keeps spreading. Unless powerful evidence comes in to the contrary, manufacturers, their employees, and indeed all Americans should be hoping this is a bet Biden won’t make.

(What’s Left of) Our Economy: A Fed Snapshot of U.S. Manufacturing at the CCP Virus Turning Point?

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737 Max, aircraft, aircraft parts, aluminum, Boeing, capital goods, CCP Virus, China, coronavirus, COVID 19, Federal Reserve, industrial production, Joe Biden, machinery, manufacturing, medical devices, metals, pharmaceuticals, PPE, safety, steel, tariffs, Trump, Wuhan virus, {What's Left of) Our Economy

If the Federal Reserve’s monthly industrial production report for February (released in March) was the last such data set assessing domestic U.S. manufacturing’s health before the full force of the CCP Virus pandemic struck the American economy, today’s release (covering November) might be viewed in retrospect as marking the close of the industry’s virus-induced slump – or at least the beginning of the end.

Clearly, the entire U.S. economy remains far from fully recovered from the pandemic and the shutdowns and lockdowns and behavioral changes it produced. Moreover, the virus’ second wave could well prompt renewed restrictions – though lockdown fatigue will probably keep them more limited than their springtime predecessors.

But shortly after the Fed compiled the figures for November came two developments capable of boosting domestic manufacturing output considerably – Washington’s certification clearing Boeing’s troubled 737 Max model jetliner for flight once again, and the announcements that large-scale final-phase clinical trials for two anti-CCP Virus vaccines revealed amazing efficacy rates and reassuring safety results.

At the same time, these last pre-737 and vaccine manufacturing production numbers showed once again how relatively well domestic industry has held up during the CCP Virus period so far, and how strong its post-April recovery has been. By the same token, the data once more make clear the benefits of the Trump administration’s sweeping tariffs on products from China and its levies on steel and aluminum imports – which sharply limited the extent to which U.S. demand for these goods could be met from abroad.

The 0.79 percent November monthly increase in after-inflation manufacturing output recorded by the Fed was weaker than the October figure. But that month’s increases was revised up from a strong 1.04 percent to an even better 1.19 percent. September’s previously reported fractional increase remained basically the same.

As of November, therefore, real manufacturing production has improved by 20.67 percent above its April pandemic-induced trough and, just as important, stands just 3.50 percent lower than its final pre-CCP Virus level in February.

The November numbers are also notable for the outsized role played once again by the automotive sector. Although its October sequential inflation-adjusted output performance has been revised from a virtual “no change” to a 1.14 percent drop, these first November results show a 5.32 percent surge. More important than this volatility, though, is that combined vehicle and parts output is now just 0.38 percent lower than its final pre-pandemic level in February.

One indication of at least short-term concern from the November results: Constant-dollar production in the big machinery sector slipped by 0.51 percent on month. This industry matters greatly because its products are used so widely throughout the economy (e.g., construction, agriculture), and because it contains the capital goods products on which manufacturers themselves rely so heavily to turn out their own goods.

Longer term, the machinery picture looks better, though, as in line with the generally strong capital investment data kept by Washington, its price-adjusted output is now off by just 3.52 percent since February.

As for the tariff angle mentioned above, its importance is evident not simply from the strong overall manufacturing recovery, but from the performance of the primary metals sector, whose performance since March, 2018 has been profoundly affected by levies on steel and aluminum from most major exporting countries.

Constant dollar output of primary metals plunged by 25.46 percent during the peak pandemic months of March and April – a rate faster than that of manufacturing’s total 20.03 percent. Since then, however, its grown in real terms by 25.63 percent (faster than manufacturing’s total 20.67 percent advance).

November, moreover, was no exception, as primary metals’ inflation-adjusted production rose by a robust 3.75 percent. These numbers might give apparent President-elect Joe Biden pause if he’s thinking of lifting the steel and aluminum levies as part of his announced goal of repairing U.S. alliance relations he believes have been gravely damaged by President Trump.

If the beginning of the end of pandemic really is at hand, the November Fed figures show that it can’t come soon enough for the nation’s beleaguered aircraft industry as well as for its pharmaceutical sector. The latter’s after-inflation output remained steady last month, but the levels themselves remained remarkably subdued. November’s 0.76 percent monthly constant dollar production decline followed a downwardly revised 1.01 percent October decrease, and year-on-year, inflation-adjusted output is off by 2.37 percent.

Despite Boeing- and travel-related woes, the aerospace industry has fared considerably better. After a real output nosedive of 32.85 percent in February and March, such production is up by a spectacular 47.75 percent since. And thanks partly to the 2.07 percent on-month improvement in November, real output is down just 3.77 percent since the last pre-pandemic figure in February.

Nonetheless, the 737 Max news and any sign a significant air travel comeback will be welcome for civilian aircraft and parts makers, as after-inflation production is still 15.40 percent less than it was last November.

But despite the number of inspiring anecdotal accounts of medical equipment and supplies manufacturers boosting production of face masks, protective gowns, ventilators, and the like in response to the medical emergency, overall real production of these vital products remained uninspiring in November. Real output rose on-month by 1.56 percent, but the October’s initially reported 3.54 percent after-inflation sequential production increase has now been downgraded to 2.04 percent.

Since April, moreover, the price-adjusted production rebound has been a mere 21.75 percent – not much stronger than that for the total manufacturing recovery. Perhaps most discouraging: Real output in this sector is actually down 5.60 percent – from levels revealed by major continuing reliance on imports to have been dangerously inadequate.

(What’s Left of) Our Economy: Confusing but Overall Downbeat News on U.S. Manufacturing Productivity

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aluminum, CCP Virus, China tariffs, coronavirus, COVID 19, durable goods, lavbor productivity, manufacturing, metals tariffs, metals-using industries, multifactor productivity, productivity, steel, tariffs, trade war, Wuhan virus, {What's Left of) Our Economy

I wish I could say that the detailed U.S.manufacturing labor productivity statistics for 2019 that came out late last week provided a clear, pre-CCP Virus picture of domestic industry’s health, and especially insights into how well manufacturing was holding up during the ongoing U.S.-China trade war. Unfortunately, the sector-by-sector data add up to a confusing mix of halfway decent and bad news.

First a reminder: Productivity is an important measure of efficiency, and labor productivity is the narrower of the two sets of productivity statistics tracked by the Labor Department. But although it only measures output per hour by individual workers (as opposed to examining the usage and output results for a wide-ranging combination of inputs), the labor productivity figures are released on a timelier basis than the more comprehensive multifactor productivity numbers.

Also important to remember: For all their importance, the productivity data represent the statistics in which economists have the least confidence, although the problem is much more difficult in services than in goods like manufactured products.

Nevertheless, most economists do agree that raising productivity levels is any economy’s best way to boost living standards on a sustainable basis, and so it’s discouraging to report that the overall context for manufacturing last year was pretty dreary. Another productivity series from the Labor Department judged that labor productivity in industry shrank by 0.56 percent. In 2018, it rose by 0.64 percent. Moreover, this general result certainly doesn’t indicate that American manufacturers made much progress compensating for higher costs created by metals and China tariffs by figuring out how to make their workers more efficient.

At the same time, last year, labor productivity fell in 54 of the 86 manufacturing sectors monitored by the Labor Department. As bad as that sounds, this result was actually better than that for 2018, when labor productivity decreased in 67 of those sectors.

Although the so-far-pervasive but widely varying use of Chinese materials, parts, and components makes identifying the China tariffs’ impact on labor productivity, figuring out the effects of the metals tariffs is much easier, and here the news is more encouraging still.

In durable goods – the super-sector that contains the major U.S. industries that use tariff-ed steel and aluminum – labor productivity fell in 31 of the 51 sectors examined. That’s a genuine improvement on 2018, when labor productivity decreased in 41 out of 51.

Even more revealing: Most of the big metals users themselves stepped up their productivity game somewhat in 2019, though in absolute terms (as shown in the table below), their yearly performances weren’t by any means impressive.

                                                                        2018                       2019

fabricated metals products:                    -1.4 percent             -0.1 percent

machinery:                                                  0 percent             -0.2 percent

household appliances:                           +1.6 percent            +2.0 percent

motor vehicles:                                       -7.6 percent            -2.1 percent

motor vehicle parts:                                -1.2 percent            -0.6 percent

aerospace products & parts:                   -8.1 percent            -2.2 percent

As long as the CCP Virus keeps affecting the American and global economies (an especially important point for manufacturing, since in 2019, its exports represented nearly 18 percent of its total gross output), it’ll be tough to get a handle on underlying trends in manufacturing labor productivity and other performance indicators. But on the labor productivity front, last week’s figures sadly make clear that a return to pre-virus levels won’t be terribly difficult to achieve.

(What’s Left of) Our Economy: Score Another Victory for Trump’s Tariffs – on Metals

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aluminum, Bob Tita, China, metals, overcapacity, steel, tariffs, The Wall Street Journal, Trump, World Steel Association, {What's Left of) Our Economy

Wall Street Journal manufacturing reporter Bob Tita, who knows his stuff, more than earned his paycheck with a new story on how all the coronavirus-related disruption to the global economy is worsening a chronic global glut of key metals – especially steel – that’s likely to keep ballooning thanks to continued over-production from glutter-in-chief China.

Especially alarming seems to be this Tita finding: As the PRC’s economy and manufacturing sector have slowed markedly due to the outbreak, and reduced demand for metals,

“many of the country’s steel mills and aluminum smelters have continued to operate because stopping and starting equipment handling molten metal is expensive and risky. Millions of tons of steel and aluminum produced during what is now the worst manufacturing slump on record in China have created a surplus of metal that will take months to shrink, even if the epidemic is contained and demand recovers later this year in China and beyond.

“As a result, the global stockpile of steel and aluminum threatens to push down prices and put new pressure on producers in the U.S., Western Europe and elsewhere. Many of those companies were already struggling to earn a profit on steel and aluminum because of lower prices and weakening demand from manufacturers.”

Indeed, he quotes a U.S. scrap steel broker as fearing that “We could see China swamp the entire world with steel.”

Yet Tita – and the broker – seem to be missing something crucial about the steel glut’s recent past, present, and likely future: The situation then, now, and going forward would’ve been much worse if not for the global nature of President Trump’s steel tariffs. And the latest global output data from the World Steel Association have just proven this point yet again.

When first imposed, in March, 2018, the levies were blasted as catastrophic mistakes by globalist and free trade conventional wisdom-mongers in politics, the Mainstream Media, big metals-using industries, and their hired guns in the think tank world. Yes, they acknowledged, China has been guilty of dumping its bloated steel (and aluminum) output overseas at artificially low prices, thereby exporting not only metals but a metals recession and unemployment around the world. But the United States was an exception, because of steel tariffs already imposed under the Obama administration.

The new U.S. duties were hitting America’s trade partners indiscriminately, including supposedly loyal allies in Europe and East Asia (along with Mexico and Canada). What could be dumber or more short-sighted – especially since these countries had joined with the United States to start putting multilateral pressure on China to cease and desist?

But as RealityChek regulars know, none of these complaints held even a drop of water. For the rest of the world was likely to continue responding to the metals flood from China the way it always had – by ramping up their own exports to the United States, and/or putting the Chinese metals inundating their own markets into new boxes with their own labels and sending them state-side – a practice known as transshipping (and involves committing customs fraud).

Moreover, after achieving exactly nothing since it was created in September, 2016, the multilateral steel talks seem doomed because China has decided it’s had it even with pretending to be interested in cutting its capacity meaningfully.

Yet thanks to the global scope of the Trump tariffs, the U.S. economy is no longer serving as the world’s steel buyer of last resort – and manufacturing punching bag. I first documented their effectiveness in this May, 2019 op-ed. And I’m pleased to report that as of January, 2020, the World Steel Association’s figures show that they’re still working exactly as intended.

The Association tracks output for 64 countries that comprise the vast bulk of global production. And its new figures show that on a January-January basis, China’s steel production rose in tonnage terms by 7.2 percent. That’s considerably faster than world production growth of 2.1 percent.

But the American industry expanded output by more than the global industry, too – by 2.5 percent. And much of this relative improvement stemmed from the poor production performances of other regions and countries that traditionally viewed the United States as the world’s big steel dumping ground. For example, during this year-long stretch, steel tonnage production in Japan rose by only 1.3 percent. For South Korea and Taiwan, it actually fell – by eight percent and 14.6 percent, respectively. And overall European Union production sank by twelve percent.

This success contrasts sharply with the pre-tariffs situation, when the United States was clearly the world’s biggest steel production loser as the result of gluts not only in China but created by many other economies.  

At the same time, the battle to safeguard American domestic metals producers hasn’t been won once and for all. As Tita notes, although “Tariffs have made many types of metal made in China uncompetitive in the U.S.,” China’s still “large steel-and-aluminum output drives up supply and weighs on prices around the world. Excess metal in China could create more competition for U.S. steel exports or enter the U.S. indirectly as imports from Canada and Mexico” – where the American levies have been lifted in connection with the signing of the new U.S.-Mexico-Canada trade agreement (USMCA), the follow-on to the North American Free Trade agreement (NAFTA).

But the new U.S. and global production numbers also show indisputably that Mr. Trump was right and his critics wrong about his sweeping approach to the metals tariffs. Just don’t expect any of the critics to admit it.