(What’s Left of) Our Economy: As Trump Tariffs Continue, U.S. Manufacturing Growth Steams Along

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aluminum, China, China tariffs, Federal Reserve, industrial production, inflation-adjusted growth, manufacturing, metals, metals tariffs, metals-using industries, steel, tariffs, Trade, trade war, {What's Left of) Our Economy

Claims keep getting made that President Trump’s tariffs-heavy trade policies have been hammering American manufacturing. (Here’s just one example from as recent as yesterday.) And government, economy-wide data keeps on coming out showing these claims to be complete bunkum.

Today it’s the Federal Reserve’s turn; its new industrial production report (covering December) make plain as day that metals-using manufacturing for the most part continues to out-perform the rest of manufacturing when it comes to inflation-adjusted output even though Trump metals are supposed to be crippling them with skyrocketing cost increases for key inputs. (As the latest producer price results made clear, almost none of that inflation per se can be detected, either.) And although the effects of the China tariffs are more difficult to unpack, what can be presented responsibly fails to reveal discernible damage since the first tranche was imposed.

Below are the numbers for manufacturing overall, and for industry’s main metals-using sectors. They show after-inflation output since April, since the steel and aluminum tariffs went into effect in late March. In addition to the April-through- December percentage changes, you can also see results through November as reported by the Fed last month, along with the revised through-November numbers, to provide a sense of the trends’ momentum. 

                                              old thru Nov       new thru Nov       thru Dec

overall manufacturing:        +0.80 percent       +0.94 percent  +2.02 percent

durables manufacturing:      +1.73 percent      +2.02 percent   +3.31 percent

fabricated metals products:  +1.61 percent      +1.94 percent   +2.05 percent

machinery:                           +5.11 percent      +5.55 percent    +4.93 percent

automotive:                          -1.46 percent       -1.32 percent    +3.36 percent

major appliances:                 -0.88 percent       -0.31 percent    +0.08 percent

aircraft and parts:                +3.27 percent      +5.29 percent     +6.80 percent

As you can see, the only category that’s experienced production growth problems has been the major appliance sector. February was the first full month during which these levies were in place, and since then, price-adjusted output has been off by 1.99 percent (versus a 3.93 percent improvement for manufacturing as a whole). But as the above table demonstrates, even they’ve been making a comeback lately. In cases like aerospace and automotive, the growth pace has quickened significantly, while in machinery, we see some growth fall-off.

Analyzing the impact of the China tariffs is tougher both because they started more recently (in early July), because they’ve been greatly expanded since then, and because Chinese inputs are used in and compete with such a huge number of domestically produced goods. Moreover, the government’s list of these levies uses a different industry classification system than the Fed uses for industrial production, and exact match-ups don’t abound.

So the below table, showing real output changes for some products tariff-ed since July, is a best guess, with the exception of farm machinery and equipment, and ball bearings. But more power to you if you see China tariff-related damage here.

overall manufacturing:                            +1.72 percent

aircraft engines and engine parts:           +5.42 percent

industrial heating equipment:                 +0.14 percent

oil and gas drilling platform parts:         +2.21 percent

farm machinery and equipment:             +3.29 percent

ball bearings:                                           -0.17 percent

“Tomorrow, tomorrow, I love ya, tomorrow. You’re always a day away!” is a well-known Broadway lyric. As the new Fed industrial production figures demonstrate, “tomorrow” is also the best hope for the tariff alarmists to show that the trade curbs are in anyway undermining the American economy on net.

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(What’s Left of) Our Economy: Can We (Finally) Start Deflating the Tariffs-Led Inflation Claims?

Tags

aluminum, China, China tariffs, inflation, metals, metals tariffs, metals-using industries, steel, tariffs, Trade, Trump, {What's Left of) Our Economy

Good luck to you if you’re looking for signs of tariffs-led inflation in yesterday’s U.S consumer price data from the Labor Department.

It’s not that goods that used tariff-ed products (either steel and aluminum, or inputs from China) or that are tariff-ed themselves (final products from China) haven’t become more expensive since the relevant levies were imposed. It’s that the prices of many goods completely unaffected by the tariffs have gone up as well – and in many cases, faster than those that have been affected by the trade curbs. So there’s no evidence that the tariffs themselves have had any notable impact.

In fact, these latest figures (bringing the story up through December) underscore how many forces and developments influence price changes.

A great example is provided by canned fruits and vegetables – presented below in the table showing price changes over various key periods of time (including for the post-March tariff period) for metals-using products. Their costs of course include the cost of either the aluminum or the type of steel used in their cans. When you look at the numbers for most of these time frames, it’s clear that the prices of these foods have risen faster than the overall rate of what’s called “core inflation” – the inflation rate minus the costs of food and energy, which are considered too volatile price-wise to yield an accurate understanding of what economists regard as the nation’s underlying, most fundamental, inflationary performance.

Interestingly, the prices for canned fruits and vegetables have increased much faster during these periods than the prices of food overall. So what’s driving the big price increases in these canned foods must be the cans, right – and presumably what they’re made of? Not if you look closely.

For the real problem is clearly vegetables. Both month-to-month and clearly for the entire year, fresh vegetable prices have soared. Largely as a result, the prices of canned vegetables have jumped unusually strongly, and significantly boosted the numbers for the overall canned fruits and vegetables category.  

The special role being played by vegetable prices is also clear from looking at the trends in food prices – which aren’t included in the core inflation number. Except for December, these prices have risen considerably more slowly than those prices in the core grouping, or in the economy as a whole. 

If you’re still skeptical, look at the price trends for several other food products that often come in cans – like beverages of all kinds, and soup. There’s simply no consistent pattern of their increasing faster than core inflation over any time period. 

Similarly, although the prices of metals-using auto parts have risen more robustly than core inflation, the prices of metals-using vehicles have risen much more weakly. In fact, from December, 2017 to December, 2018, they’ve fallen in absolute terms. So something, or somethings, other than metals prices and tariffs count for much more in the total prices of these goods.

                                     Nov.-Dec.       Since April        y/y April           y/y Dec.

core inflation:            0.21 percent   +1.39 percent   +2.12 percent   +2.22 percent

overall inflation:       -0.06 percent  +1.09 percent   +2.43 percent   +1.95 percent

food:                         +0.37 percent  +0.98 percent  +1.39 percent    +1.58 percent

fresh fruits & vegs:  +1.94 percent  +1.82 percent   -0.45 percent    +1.75 percent

fresh fruits:              +1.33 percent    -1.73 percent  +1.35 percent     -0.73 percent

fresh vegetables:      +2.63 percent   +6.05 percent   -2.53 percent    +4.63 percent

processed fruits        +0.67 percent    -0.64 percent   -0.59 percent    +0.87 percent

& vegs:

canned fruits            +1.48 percent    +0.99 percent   -0.07 percent    +3.12 percent

& vegs

canned fruits:           +1.44 percent    +1.39 percent   -1.50 percent    +2.29 percent

canned vegs:            +1.30 percent    +1.12 percent   +1.04 percent   +4.18 percent

soups:                      +2.49 percent    +2.28 percent     -0.54 percent   -1.43 percent

malt beverages         -0.04 percent    +1.82 percent    +0.84 percent   +1.87 percent

consumed at home

alcoholic bevs          -0.04 percent     +1.34 percent    +2.17 percent   +2.25 percent

consumed away

juices & non-         + 0.13 percent     +1.77 percent     -0.25 percent  +2.51 percent

alcoholic drinks

carbonated drinks:  +0.41 percent     +3.01 percent     +0.03 percent  +4.07 percent

non-frozen, non-     +0.18 percent    +1.37 percent       -0.53 percent  +1.46 percent

carbonated non-

alcoholic drinks

new cars & trucks:        0 percent     +0.78 percent      -1.62 percent    -0.24 percent

auto parts:              +0.42 percent     +1.58 percent      -0.74 percent   +2.20 percent

Tariffs on goods from China have been in effect for fewer months than the metals tariffs. And since July, they’ve been imposed in phases, which were followed by a decision by President Trump to delay increases in a big tranche as part of the latest cease-fire in the trade conflict with China. So the data is less definitive. But thus far, at least, the prices of the goods below – which represent some of the main imports from China subjected to tariffs by the first rounds of these levies, which were imposed in July – have mainly rising more slowly than the rest of core inflation sectors. (The sportswear numbers are dicey, since such apparel is not broken out from the rest of the category as such. So the figures below represent results from a women’s apparel category that includes sportswear.)

                             Nov.-Dec.          Since Aug.        Aug. y/y           Dec. y/y

core inflation:   +0.21 percent   +0.73 percent    +2.19 percent   +2.22 percent

furniture:          +0.55 percent   +0.90 percent     -0.66 percent   +1.68 percent

auto parts:        +0.42 percent   +0.82 percent    +0.39 percent    +2.20 percent

tires:                 +0.98 percent  +1.50 percent      -1.64 percent    +1.29 percent

appliances:       -0.33 percent   +1.25 percent     +2.31 percent    +4.74 percent

sportswear:       -0.89 percent   -2.14 percent       -0.86 percent    -1.33 percent

As for appliances, their out-performance is due largely to a separate set of tariffs imposed on large household laundry equipment starting in February. As shown below, however, even in this case, price increases are starting to moderate. That’s clear from the decline in the year-on-year figure between February and December, and from very slow price increase recorded between November and December.

                                 Nov.-Dec.        Since Feb.          Feb. y/y           Dec. y/y

core inflation:       +0.21 percent   +1.67 percent   +1.86 percent   +2.22 percent

appliances:            -0.33 percent   +3.41 percent   +0.25 percent   +4.74 percent

major appliances: +0.19 percent  +11.59 percent   -4.22 percent   +9.02 percent

I know that I may be starting to sound like a broken record on the (negligible) impact of tariffs on the American economy so far. But until globalization cheerleaders in politics and business, and their mouthpieces in the Mainstream Media, start telling the story accurately, I’ll keep correcting the record.

(What’s Left of) Our Economy: New U.S. Manufacturing Production Data (Again) Mock Tariff Fear-Mongering

Tags

aluminum, China, durable goods, Federal Reserve, industrial production, inflation-adjusted output, manufacturing, metals, metals tariffs, metals-using industries, non-durable goods, steel, tariffs, Trade, {What's Left of) Our Economy

If you’re among the legions of tariff alarmists in America’s intertwined political, business, and media establishments, this morning’s industrial production report (for November) from the Federal Reserve turned out to be an especially cruel hoax. It’s overall results seem to reveal that President Trump’s levies on imports of steel, aluminum, and on products from China are (finally!) producing major economic data showing damage to domestic manufacturing in the form of inflation-adjusted output. But the critical details (once again) show absolutely noting of the kind.

Let’s start with the metals tariffs – which started to be imposed in late March – and the performance of industries that make heavy use of them. If the Trump tariffs are indeed going to bite, then you’d think that some evidence would be visible eight months later. But the new Fed data make clear that this evidence still hasn’t appeared. As with last month’s post on the industrial production statistics, I’m including small household appliances. I’m still increasingly convinced that they’re now so small and consequently use little in the way of steel and aluminum, they do incorporate lots of electronics – so in principle they reveal something about the China tariffs’ impact.

The data start with April (the first full month in which the metals tariffs were in place) and go through November. I’m presenting the previously reported and revised October results in order to provide a sense of the trends’ momentum. I’m also adding aircraft and parts, which I carelessly left out last month; therefore, the original October results aren’t available.

                                                    old thru Oct      new thru Oct         thru Nov

overall manufacturing:              +1.30 percent    +0.78 percent     +0.80 percent

durables manufacturing:           +1.93 percent    +1.55 percent     +1.73 percent

fabricated metals products:      +2.06 percent     +1.67 percent     +1.61 percent

machinery:                               +5.09 percent      +4.54 percent    +5.11 percent

automotive:                               -2.42 percent      -1.74 percent     -1.46 percent

small appliances:                      -6.62 percent       -8.10 percent   -10.86 percent

major appliances:                     -3.32 percent       -3.24 percent     -0.88 percent

aircraft & parts:                        not available       +3.54 percent    +3.27 percent

The good news for tariff alarmists is the overall real manufacturing growth slowdown apparent from this table, led by a significant downward revision for October. But look more closely and there’s no reason to blame the metals tariffs at all.

For if they were the main culprit, why would the slowdown be so much more modest in the durable goods sector – where so many of the biggest metals-using industries are found? Why would heavy metals-using machinery still be outperforming big-time? Why would another metals-reliant giant, automotive, be demonstrating such impressive catch-up? And how could the major appliances sector – which has also been hit with a product-specific tariff on large home laundry machines – be making up even more ground?

The details will also prove disappointing to China tariff alarmists. Starting in July, levies on $250 billion worth of imports from the People’s Republic. And so many U.S. domestically manufactured products contain parts and components and other inputs from China that it’s been easy to sell the contention that the higher prices for American industry resulting from the tariffs will backfire on the entire manufacturing sector.

Yet once more, the Fed industrial production data reveal these claims to be “truthy” (i.e, something that pushers want to believe is the case) rather than “true.” As noted last month, Chinese inputs are so widely used that I can’t perform a deep statistical dive for now. But the main manufacturing aggregates don’t bear out the “tariff-mageddon” story for the China levies, either.

As the numbers in the first table for smaller appliances indicate, there’s a case that they’ve been damaged by the China tariffs, since they surely use lots of Made in China electronic components. But the industrial production data writ large show nothing of the kind. The figures below show the changes in real output for manufacturing generally, and for its two main super-sectors, for the five months since the first China tariffs were imposed (during the first week of July) and for the five months to and including July.

                                                      March-July                       July-Nov

overall manufacturing:               +0.87 percent                 +0.52 percent

durable goods:                            +0.13 percent                 +2.01 percent

non-durable goods:                     +1.65 percent                  -0.99 percent

The obvious conclusion: Unless Chinese inputs are highly concentrated in the non-durable goods sector (and there’s no justification for this assumption), there’s a problem in non-durable goods stemming from something (or things) other than the China tariffs.  ‘

Luckily for the tariff alarmists, however, there’s no sign that they’ll be held accountable by the institution that’s supposed to be democracy’s watchdog:  the Mainstream Media.  So for the foreseeable future, in terms of what the public will be reading and hearing on trade policy, expect gloom to keep springing eternal. 

(What’s Left of) Our Economy: Still Desperately Seeking Tariff-Induced Inflation

Tags

aluminum, China, consumer prices, inflation, metals tariffs, producer prices, steel, tariffs, Trump, washing machines, {What's Left of) Our Economy

There’s especially bad news for trade war alarmists contained in this morning’s government report on producer prices. Not only does it contain yet more evidence that any inflation from President Trump’s metals tariffs keeps fading, but it’s now possible to show that his China tariffs aren’t fueling price hikes that are noteworthy, either – let alone increases likely to last.

Regarding the levies on steel and aluminum, which began to be imposed in late March, the weakest pricing trends have been apparent in aluminum. In April, its year-on-year price increases at the wholesale level stood at 11.9 percent, peaked at twenty percent in June, and as of November (the latest data reported this morning), the rate was down to 5.9 percent. That’s largely because wholesale aluminum prices have dropped on a monthly basis for five straight months, including by 1.5 percent from October to November.

More pricing power has been demonstrated in steel. Year-on-year wholesale prices for this metal advanced by 7.4 percent in April and have continued upward since, though at a much slower pace since August’s 18.6 percent. In November, the annual increase was 19.8 percent.

On a monthly basis since August, steel prices have dipped on net, even though between October and November, they increased by 0.5 percent.

Importantly, these higher metals prices don’t seem to be transferring uniformly into higher prices for metals-heavy products, including parts and components. For example, some mounting price pressure is apparent in pumps, compressors, and equipment; and mining machinery and equipment. But these sectors were greatly outnumbered by those in which price momentum seemed weak at best and going nowhere – such as construction machinery; machine tools; oil field and gas field machinery; aircraft; and motor vehicles and parts.

And if the price increases aren’t at least roughly comparable, then it’s hard to justify singling out tariffs as a major problem to this point.

The Trump China tariffs began in early July, but evidence that they’re igniting much inflation is even more elusive. On the one hand, it’s true that China’s currency is down versus the U.S. dollar since July – by a little over four percent – which all else equal will depress the prices of Chinese-made goods and services versus their American competitors all over the world. On the other, that’s a sign that, when it comes to China, many special variables influence prices (like a wide range of subsidies), along with the usual supply and demand forces.

Most important, here are the wholesale price changes for some leading products on the Trump administration’s list of the first 818 imports from China slapped with tariffs on July 6. So they represent the changes from July through November.

aircraft engines and engine parts:                                  0.35 percent

industrial heating equipment:                                       0.89 percent

oil and gas drilling platform parts:                               0.46 percent

farm machinery and equipment:                                   2.08 percent

paper-making machinery:                                            0.54 percent

ball bearings:                                                                1.12 percent

electric generators:                                                      1.71 percent

electricity transformers:                                              0.35 percent

medical equipment incl X-rays, pacemakers:                  0 percent

Three arguably major price spikes are apparent, but the big question remains whether these increases will stick. We’ll be watching.

Finally, there are the washing machine tariffs. As previously noted, at the retail level, prices of these appliances shot up shortly after they were first imposed in late January – to the unmistakable glee of supporters of the pre-Trump trade policy status quo. But at the wholesale level, home appliance prices (washing machines aren’t broken out from this category) have climbed only 0.76 percent from February through November. And during the last two months, they’ve fallen by 0.7 percent and 0.6 percent sequentially. So good luck with claiming that levies at the border deserve blame for whatever higher prices were paid by American consumers who had the misfortune to buy washing machines earlier this year.

As for the November consumer price data (measuring changes at the retail level), the data don’t come out until tomorrow. But on a monthly basis, they fell by 0.2 percent from July to August and by 3.8 percent between August and September before recovering by 0.2 percent between September and October.

In other words, there’s been deflation in washing machine prices lately. As these and the wholesale price figures make clear, that continues to be a fate richly deserved to date by tariff-led inflation claims.

(What’s Left of) Our Economy: Today’s Jobs Data Once More Refutes Tariff Alarmism

Tags

aluminum, China, Jobs, manufacturing, metals tariffs, metals-using industries, private sector, steel, tariffs, Trade, Trump, {What's Left of) Our Economy

As usual with these releases lately, the newest U.S. monthly jobs report (for November) contains lots of valuable information about the impact of President Trump’s tariff-centric policy on the domestic economy. And as usual, this morning’s findings provide ample evidence that manufacturing sectors widely reported to be either currently hurting or likely to be damaged by levies either on imports of steel and aluminum, or products from China, are actually outperforming the rest of industry and even the rest of the entire economy.

Let’s begin with manufacturing industries that make heavy use of metals as inputs, and that have often been portrayed as major victims of the Trump metals tariffs. Here are the changes in their payrolls since April – i.e., the months since those tariffs began to be imposed in late March. For comparison’s sake, the table also includes the employment results for the entire private sector, and for manufacturing as a whole.

                                              thru September     thru October       thru November

entire private sector:             +0.77 percent      +1.11 percent       +1.10 percent

overall manufacturing:        + 0.76 percent      +0.96 percent       +1.18 percent

durable goods:                      +1.01 percent      +1.21 percent       +1.40 percent

fabricated metals products:  +1.16 percent      +1.12 percent       +1.01 percent

non-electrical machinery:    +1.39 percent      +1.68 percent       +1.85 percent

automotive vehicles & parts: +0.08 percent    +0.73 percent       +0.64 percent

household appliances:            -0.31 percent     -1.10 percent         not available

aerospace products & parts: +3.75 percent      +4.43 percent        not available

Once again, the heavy metals-users generally have been performing well. Household appliances and the automotive sector seem to be the noteworthy laggards. But the former have also been hit by a separate set of tariffs on large household laundry machines as well as a slump in the nation’s housing sector. And most analysts believe that U.S. auto sales have recently peaked because of that market’s individual dynamics and cycles.

Supporting this analysis: The strong performance of other big metals-using industries, like aerospace and non-electrical machinery – which underscores what should be the obvious reality that numerous developments and forces influence employment trends in any given part of the economy.

The only possible area of concern is fabricated metals products, where jobs are still increasing, but where the pace of employment creation has slowed to some degree.

It’s tougher to judge definitively the impact of President Trump’s tariffs on imports from China both because they haven’t been in place for as long as the metals duties, and because they entail such a large number of goods. But given those caveats, it’s still tough to see anywhere in the jobs data support for the conviction that these tariffs either are backfiring badly on American industry or will do so because U.S. domestic manufacturers rely so extensively on so many Chinese-made parts, components, and materials.

If you’re skeptical, take a look at the job-creation records of key American industries with extensive global supply chains – including many Chinese links. This table starts in July, because the initial tranche of China tariffs was imposed during the first week of that month. And again, for comparison’s sake, it includes the economy’s entire private sector:

July through November

entire private sector:                        +0.63 percent

overall manufacturing                     +0.65 percent

chemicals:                                       +1.62 percent

non-electrical machinery:               +0.61 percent

computer & electronics products:   +0.47 percent

automotive vehicles & parts:          +0.96 percent

non-electrical machinery:               +0.61 percent

Judging the China’s tariffs’ real impact will of course become even tougher for the time being, given the 90-day trade truce just agreed to by Washington and Beijing, which may reduce domestic companies’ uncertainty as to the wisdom of continuing business-as-usual with China – or may not. So far, however, claims of widespread or even likely economic harm stemming from this bilateral trade war look as deserving of urban legend status as this year’s metals tariffs alarmism.

(What’s Left of) Our Economy: Productivity-Challenged U.S. Manufacturers Want Their Cheap Foreign Metals Crutch Back

Tags

aluminum, Canada, China, consumer prices, inflation, manufacturing, metals tariffs, Mexico, overcapacity, producer prices, productivity, quotas, steel, tariffs, total factor productivity, Trade, Trump, {What's Left of) Our Economy

Anyone genuinely concerned with the long-term health of the American economy and its manufacturing sector in particular should be thankful for the letter sent Monday to the Trump administration by 33 business organizations asking for removal of the tariffs imposed earlier this year on steel and aluminum imports from Mexico and Canada.

For the letter – signed by groups from many sectors of the economy but principally by manufacturing organizations – unwittingly reveals the extent to which American industry has become addicted to supplies of metals whose prices have been artificially cheapened mainly by a global glut still primarily fed by subsidized over-supply from China. As a result, the letter also suggests a reason why American manufacturing productivity growth has been so lousy lately – in the process undermining the economy’s ability to generate lasting, as opposed to bubbly, prosperity.

To begin with, however, the signers’ leading claim is demonstrably, and whoppingly, false. They contend that the metals tariffs have caused significant harm to American manufacturers, consumers and workers. They have raised costs significantly for a wide array of industries….” Yet as I have repeatedly shown, (most recently here) since the levies began to be imposed, at the end of March, nothing in the official data on domestic manufacturing’s performance points to any harm whatever. In fact, in most respects, recent months have actually seen out-performance by metals-using industries – which logically should be where the greatest problems stemming from metals tariffs are concentrated.

Especially false is the insistence that because “Many manufacturing industries rely on imported inputs to produce goods competitively in the United States,” the tariffs “raise the costs of manufacturing in the U.S. and place our manufacturers at a competitive disadvantage with respect to finished products which are made outside of the U.S. and imported without being affected by the tariffs.  Further, consumers are starting to feel the pinch of higher prices across the board, as evidenced by recent increases in the CPI [Consumer Price Index].”

Indeed, this contention has been borne out neither by the consumer price numbers nor the producer price statistics.

But an examination of steel import figures and productivity performance suggests the real motive of the manufacturing signers in particular: They hope to resume relying on cheap foreign government-subsidized foreign metals for their growth and profits, rather than the kinds of productivity improvements that will do the most to strengthen both their bottom lines and the entire economy’s foundations over any significant time span.

The evidence comes from comparing total U.S. steel imports on the one hand, and total factor productivity (the broadest of the two main measures of efficiency tracked by the Labor Department) for the main metals-using industries on the other, during the previous and current American economic recoveries (the best way to generate apples-to-apples results).

That previous recovery officially lasted from late 2001 to late 2007, and through 2006, measured by quantity, steel imports increased by nearly 28 percent – largely fueled by a purchases from China that jumped more than 260 percent. (As the impact of the housing bubble’s bursting spread throughout the economy, steel imports from China and the rest of the world fell sharply before the recession’s official onset in the fourth quarter of 2007.)

And here are the total factor productivity increases for that 2001-2006 period for the American private sector for a whole, manufacturing overall, the metals industries themselves, and the key metals-using sectors:

private sector:                                      +9.19 percent

manufacturing:                                  +13.55 percent

durable goods manufacturing:          +19.44 percent

primary metals:                                   +5.72 percent

fabricated metals products:                 +6.35 percent

non-electrical machinery:                  +11.01 percent

transportation equipment:                 +13.38 percent

The figures for the current recovery look markedly different. Let’s examine the results from its 2009 start through 2016 (the year for the latest available detailed total factor productivity statistics). During that period, total national steel imports soared by just under 104 percent by quantity. Purchases from China sank like a stone (by more than 63 percent) between 2015 and 2016, because of China-specific anti-dumping tariffs. But clearly many other countries and their subsidized steel sectors picked up the slack, because total U.S. imports dropped off by only 17.31 percent. And continuing Chinese over-production kept exerting downward pressures on prices worldwide.

And how did total factor productivity fare during that big steel import run-up?

private sector:                                      +5.93 percent

manufacturing:                                     -4.48 percent

durable goods manufacturing:            +1.24 percent

primary metals:                                   +5.76 percent

fabricated metals products:                  -7.68 percent

non-electrical machinery:                     -7.08 percent

transportation equipment:                    +9.67 percent

That is, as artificially cheap foreign steel poured into the U.S economy, total factor productivity growth in most of the chief metals-using sectors shifted into reverse – and by startling extents. The only exceptions were transport equipment and durable goods as a whole, with the former clearly holding up the latter. And even in both these cases, total factor productivity growth slowed dramatically.

True, the letter’s signatories claim that they support continued tariffs on steel and aluminum imports from China – the main overcapacity and over-production culprit. They also say they back “negotiation of global arrangements to deal with overcapacity.”

But this position looks phony given their opposition to import quotas for steel from countries where tariffs have been lifted (South Korea, Brazil, and Argentina) because these measures allegedly have “placed severe supply constraints on U.S. manufacturers and created even more business uncertainly than tariffs regarding exports from these countries.” In other words, the signatories are opposed to the very policies that have helped ensure that all other metals-producing countries don’t simply keep transshipping China’s over-production into the U.S. market, or respond to China’s glutting their steel market by ramping up their own exports to the United States.

So the real message being sent by the manufacturers’ metals tariffs letter couldn’t be clearer: “We want to regain access to that artificially cheap foreign steel, regardless of its impact on the entire economy’s future.” Arguably, that’s an appropriate, or at least understandable, priority for companies viewing their prime obligation as maximizing shareholder value at any given moment. But just as understandably, it’s the type of priority that America’s political leaders should emphatically reject.

(What’s Left of) Our Economy: New Fed Manufacturing Figures Mock Tariff-Mageddon Claims

Tags

aluminum, aluminum tariffs, appliances, automotive, China, China tariffs, durable goods, Federal Reserve, manufacturing, manufacturing production, metals, metals-using industries, non-durable goods, steel, steel tariffs, tariffs, Trade, Trump, {What's Left of) Our Economy

With this morning’s release of the Federal Reserve’s new real manufacturing output figures, we just got more data indicating both the impact of President Trump’s metals tariffs and his China levies. And, as with other manufacturing numbers, like employment statistics, the Fed output release mocks widespread claims that both kinds of trade curbs are already undermining U.S. domestic industry.

Here are the results for major metals-using sectors – with one caveat. Because it includes many goods so diminutive and stuffed with electronics that they’re clearly no longer using much steel or aluminum (unlike the large appliances), placing the small household appliances category on this list seems to have been mistaken all along. But I’m leaving them on so you can make up your own mind. The data start with April (because the first metals tariffs were imposed in late March) and go through October (the latest month covered by this Fed series). And I’m presenting the previously reported and revised September results in order to provide a sense of the trends’ momentum.

                                              old through Sept   new through Sept   through Oct

overall manufacturing:           +0.76 percent        +0.98 percent     +1.30 percent

durables manufacturing:        +1.41 percent       +1.46 percent      +1.93 percent

fabricated metals products:    +1.28 percent       +1.83 percent      +2.06 percent

machinery:                             +2.84 percent       +3.80 percent      +5.09 percent

automotive:                            +1.39 percent       +0.35 percent       -2.42 percent

small appliances:                    -1.23 percent        -3.67 percent        -6.62 percent

major appliances                    -0.87 percent        -0.99 percent        -3.32 percent

Superficially, the picture is somewhat mixed. But as I just said, in my view, the small appliances category should be ignored. Accelerating deterioration clearly characterizes the major appliances sector, but do tariffs (which include not only the metals levies but separate tariffs on household laundry machines that result from a trade law case initiated during the Obama years) deserve most of the blame? Maybe not, considering that the domestic housing sector – a big generator of major appliance sales – is in the middle of a noteworthy slowdown.

Momentum is clearly weakening in the automotive sector as well (where even the seasonally adjusted monthly Fed production numbers are notoriously volatile and subject to significant revisions). But it’s likely that sagging output is reflecting sales that are sagging overwhelmingly because of the industry’s own cyclical dynamics.

Indeed, these industry-specific developments look all the stronger considering that two other major metals-using sectors – fabricated metals products and non-electrical machinery – are gaining production momentum. So something other than the price of metals must be kneecapping the laggard sectors.

The new Fed data also shed noteworthy light on the impact of the President’s China tariffs. Levies on a total of $50 billion worth of goods began in July, and tariffs on $200 billion more worth of merchandise imports were imposed in September. So many products have been tariff-ed, and the lists contain so many producer as well as consumer goods, that even a genuinely deep dive into the data might not yield firm conclusions.

But here’s what we know from the 30,000-foot level about after-inflation domestic manufacturing output during the three months preceding the first China tariffs, and the three months following them:

                                             April-July                            July-Oct

overall manufacturing:     +0.29 percent                     +1.02 percent

durable goodsL                 -0.28 percent                      +2.22 percent

non-durable goods:          +0.87 percent                      -0.21 percent

Good luck finding much China damage on net from these numbers.

Back in the 18^th century, Jonathan Swift lamented that “Falsehood flies, and the truth comes limping after it.” Will Mainstream Media coverage of the industrial production figures and Trump tariffs prove him right once again?

(What’s Left of) Our Economy: Tariff-Led U.S. Inflation Remains Mythical

Tags

aluminum, appliances, beer, cans, Emily Rauhala, inflation, Labor Department, laundry equipment, metals, metals-using industries, Producer Price Index, steel, tariffs, Trade, Trump, Washington Post, wholesale prices, {What's Left of) Our Economy

Talk about bad timing! Yesterday, the Washington Post ran a piece by Emily Rauhala, who covers Canada and other foreign news for the paper, on how soaring tariff-juiced aluminum prices are already “bruising” the American beer industry. According to her report, “In a vivid example of how Trump’s trade tactics abroad can hurt business at home, the U.S. beer industry, which needs aluminum to make cans, is seeing costs rise.”

But this morning, the U.S. Labor Department came out with data showing that, although prices for aluminum (along with steel, another tariff-ed metal) have jumped from last October to this past October, they’re now actually starting to fall. And special bonus! The same trend seems to be holding for household laundry equipment.  Product-specific tariffs boosted prices for a time, and generated big headlines, but now the price are falling back to earth.

The new Producer Price Index (which measures price changes at the wholesale level) reports that “aluminum mill shapes” last month cost buyers 8.2 percent more than they did in October, 2017. But since July, they’ve dropped on a monthly basis by 2.1 percent, 0.3 percent, and 0.4 percent.

Further, it’s important to remember that, as with steel and the laundry machines, last year’s prices were artificially depressed by foreign dumping. In other words, these prices were set by foreign governments determined to grab market share for their producers at the expense of their American-based rivals. They had nothing whatever to do with market forces.

The statistics for “steel mill products”? Between October, 2017 and October, 2018, prices did indeed surge by 18.2 percent. But the monthly numbers since July reveal price changes of +2.6 percent, zero percent, and -0.8 percent.

Also significant: In lots of metals-using industries, there are no major year-on-year price increases at all. These include hardware, plumbing fixtures, turned products (like bolts and nuts and screws), metal valves, ball bearings, auto parts, aircraft parts, and aircraft engines and parts (which are tracked separately).

The price data for household appliances are found in a another of today’s Labor Department tables, and don’t separate out laundry equipment from other appliances where no special tariffs were applied. But they strongly indicate that any producers thinking they’d gain major pricing power from these levies were utterly delusional.

From October, 2017 through last month, prices in this category were up only 3.3 percent. And the last three months’ worth of sequential changes? Down 0.1 percent, up 1.3 percent, and down 0.7 percent. Think we’ll see this development  generate any headlines?

As with investing, past performance doesn’t always predict future results. But it’s not bupkis, either. At some point, President Trump’s tariffs may indeed supercharge U.S. inflation. To date, however, trade-related inflation reports at best deserve the warning, “Let the buyer beware.”

(What’s Left of) Our Economy: More Terrible Data for…the Metals Tariffs Alarmists

Tags

aluminum, durable goods, Jobs, manufacturing, metals tariffs, metals-using industries, Peanuts, Samuel Beckett, steel, tariffs, Trade, Trump, Waiting for Godot, {What's Left of) Our Economy

Remember Waiting for Godot? For those who haven’t read it, in a (very superficial) nutshell, Samuel Beckett’s 1953 existentialist masterpiece tells the story of two men who keep waiting for someone who never comes despite promises of his arrival that keep getting proved wrong. Think of the play as a world-class literary and philosophical version of the running Peanuts gag involving Lucy holding the football for a Charlie Brown place-kick.

Both Godot and Peanuts came to mind instantly this morning once I digested the new U.S. manufacturing jobs figures (for October). For as has been the case since late March, when President Trump began in imposing tariffs on metals imports, the job-creation performance of American metals-using industries once again defied the doomsayers by generally outperforming job-creation in the rest of domestic manufacturing, and in the U.S. private sector as a whole.

Here are the detailed numbers for October and September (which are still preliminary) and for August (which are now final – until the next major revision):

                                        through August     through September     through October

entire private sector:        +0.68 percent          +0.77 percent           +0.97 percent

overall manufacturing:     +0.61 percent          +0.75 percent           +0.82 percent

durable goods:                  +0.82 percent         +1.00 percent            +1.27 percent

fabricated metals products: +1.09 percent      +1.16 percent             +1.16 percent

non-electrical machinery:   +1.23 percent       +1.37 percent            +1.80 percent

automotive vehicles & parts: -0.03 percent     +0.07 percent            +0.78 percent

household appliances:          -0.31 percent        -0.31 percent             not available

aerospace products & parts:  +3.12 percent    +3.71 percent              not available

Consistent with data for the preceding months, the results are somewhat uneven. The automotive and appliances sectors have been under-performing considerably. (The latter, of course, was hit with household laundry machine tariffs a little before the metals tariffs began.) And momentum is slowing in fabricated metals products. But the rate of payroll increases everywhere else keep exceeding those for manufacturing overall, and even the durable goods super-sector – where the metals use in manufacturing is heavily concentrated. In addition, the momentum for motor vehicles and parts is strengthening.

Nothing in economics lasts forever. But the Cassandras who have been claiming both that the metals tariffs will surely decimate American metals-using industries, and that the damage is already visible, clearly need to rethink their narratives. Because with each passing month, they look just as clueless as Vladimir, Estragon…and good old Charlie Brown.

(What’s Left of) Our Economy: More Evidence that Trump’s Metals Tariffs are Winning

Tags

aluminum, Federal Reserve, industrial production, inflation-adjusted output, manufacturing, steel, tariffs, Trump, {What's Left of) Our Economy

One big and neglected result from the Trump administration’s metals tariffs comes ssthrough loud and clear from going deep into the weeds of yesterday’s report on September industrial production from the Federal Reserve: American steel production is growing robustly – refuting charges (see., e.g., here and here) that the steel makers would simply sit on their hands and enjoy bigger profits – as is the output of primary aluminum.

Here are the numbers for inflation-adjusted production of steel – including its major sub-sectors – starting in April (because the tariffs began to be imposed in late March) through September, and year-on-year for September:

                                                         April thru Sept            Sept year-on-year

overall iron & steel mill products:   +3.84 percent               +7.54 percent

raw steel:                                          +1.60 percent               +8.30 percent

construction steel:                           +10.73 percent             +14.50 percent

consumer durable steel:                     -3.59 percent                -6.44 percent

can and closure steel:                      +42.48 percent             +15.86 percent

equipment steel:                              +16.87 percent              +14.44 percent

miscellaneous steel:                           -1.47 percent                +5.44 percent

The results are particularly impressive when compared with inflation-adjusted production in the rest of manufacturing during this period:

                                                         April thru Sept             Sept year-on-year

overall manufacturing:                     +0.77 percent                +3.85 percent

The aluminum industry results are decidedly more mixed, because of domestic aluminum companies’ significant reliance on imported primary aluminum and alumina both for their smelting and for other further processing operations. But the primary production jump is impressive. And on a year-on-year basis, the rest of the industry is still performing respectably.

                                                         April thru Sept            Sept year-on-year

overall aluminum:                            +1.86 percent                  +4.89 percent

primary aluminum production:      +13.84 percent                 +47.92 percent

secondary smelting & alloying:      -0.34 percent                     +2.75 percent

misc aluminum materials:               -2.31 percent                     +0.52 percent

aluminum extruded product:           -2.01 percent                      +4.03 percent

Combine these statistics with the strong output recorded for metals-using industries – which are widely reported to be hammered by higher input prices – and a clear picture emerges of a metals tariff policy definitely deserving the description of “winning.” Maybe one day their news media will let Americans in on the story.