(What’s Left of) Our Economy: U.S. Manufacturing Hiring’s Sloughing Off Delta – For Now

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aerospace, aircraft, aircraft engines, aircraft parts, appliances, automotive, Boeing, CCP Virus, China, coronavirus, COVID 19, Delta variant, electrical equipment, Employment, fabricated metal products, food products, healthcare goods, Jobs, logistics, machinery, manufacturing, medical equipment, metals, non-farm payrolls, pharmaceuticals, plastics and rubber products, PPE, private sector, semiconductor shortage, supply chains, tariffs, transportation, vaccines, {What's Left of) Our Economy

This morning’s official monthly U.S. jobs report (for August) brought a notable departure from recent trends. Athough the overall results were lousy (as total employment rose by just 235,000 during the month), manufacturing hiring soared by 37,000.

It’s true that nearly two-thirds of these gains (24,100) came from the automotive sector, which has been roiled recently by a shortage of semiconductors that’s wreaked havoc on the output of today’s increasingly electronics-stuffed vehicles. It’s also true that this progress might be snuffed out soon by the still widening spread of the CCP Virus’ highly infectious Delta variant and whatever new curbs on economic activity and consumer behavior it might keep prompting.

But it’s also true that domestic industry’s strong hiring in August came during a month when Delta had already become front-page news – which surely expains much of the much-weaker-than expected rise last month in overall non-farm payrolls (NFP – the U.S. jobs universe of the Labor Department that produces the employment data).

And it’s true as well that the major upward revision revealed to the July manufacturing jobs increase (all the way from 27,000 to 52,000 – the best such performance since last August’s 55,000) entailed much more than the vehicles and parts sectors (where the hiring advance was judged to be 10,500 instead of merely 800).

For example, July’s machinery jobs gains were upgraded from 6,800 to 9,100 (its strongest monthly result since last September’s 12,200); those for electrical equipment and appliances was estimated at 1,500 instead of 200; and employment in the plastics and rubber sectors was pegged at 2,300, not 300.

Despite its last excellent two months, U.S.-based manufacturing remained a job-creation laggard during the pandemic period as of August. But it became less of a laggard. Since the deep CCP Virus- and lockdowns-induced downturn of March and April, 2020, when manufacturers shed 1.385 million jobs, these companies have boosted employment by 1.007 million – erasing 72.71 percent of those losses. That share of regained jobs is up from the 68.74 percent level it reached in July.

That’s faster improvement than registered by the private sector, whose regained job percentage rose from 76.96 to 78.72, and by the total non-farm economy, where the advance rose from 74.50 percent to 76.60 percent.

Moreover, it’s important to remember that during the economy’s spring, 2020 woes, manufacturing employment suffered less than payrolls in the rest of the economy. Its job levels fell by 10.82 percent, compared with 16.46 percent for the private sector and 14.66 for the entire non-farm economy.

As with the July revisions, the list of significant manufacturing employment winners in August was hardly confined to the automotive industry. Among the major industry categories used by the U.S. government, fabricated metal products payrolls increased by 6,600 on month (the highest sequential boost since March’s 10,100); plastics and rubber products by 3,100 (its best such performance since February’s 4,500); and food manufacturing (1.600).

The biggest July jobs losers were electrical equipment and appliances (down 3,100, for its worst hiring month since January, when its payrolls fell by 3,400) and miscellaneous durable goods (a category containing personal protective equipment – PPE – and other medical supplies crucial for fighting the CCP Virus), whose 1,800 jobs lost were the worst such total since the entire economy’s spring, 2020 meltdown.

Also somewhat discouraging – job creation in the machinery sector, whose products are used elsewhere in manufacturing and throughout the rest of the economy, flatlined in August following its big 9,100 July spike.

The most detailed employment data for pandemic-related industries is one month behind those in the broader categories, but their July job-creation performance was decidedly mixed. In surgical appliances and supplies (the sector containing PPE and similar goods), May’s previously reported payroll decline of 900 is now judged to be a drop of 1,900, but June’s 500 jobs increase remained intact and was followed by an identical improvement in July. As a result, employment in this crucial national health security sector is now 9.22 percent above immediate pre-pandemic levels.

The overall pharmaceuticals and medicines industry saw hiring slow down notably in July – from a downwardly revised 2,300 in June to 400. May’s downwardly revised loss of 300 jobs stayed intact. These changes left payrolls in the sector 4.72 percent above February, 2020’s immediate pre-pandemic levels.

The story was little better in the pharmaceuticals subsector containing.vaccines. Its May and June employment gains are still judged to be 1,000 each, and no jobs at all were added in July. But its workforce is still 10.21 percent higher than just before the pandemic.

The July results showed that aircraft industry employment is still on a roller coaster, since Boeing is still struggling to overcome the manufacturing and safety issues it’s faced in recent years, along with the CCP Virus-related slump in business and leisure travel. May’s 5,500 monthly plunge in employment was unrevised in this morning’s figures, June’s 4,500 increase was upgraded to 4,700, but payrolls retreated again in July – by 1,500. Due to all these fluctuations, aircraft employment fell to 8.08 percent below its levels just before the pandemic arrived in force in the United States.

The aircraft engines and parts industries added 200 employees on month in July, but June’s previously reported increase of 500 was downgraded to 400. As a result, payrolls are down fully 14.80 percent since immediate pre-pandemic February, 2020.

It’s still possible that the Delta, or some other, CCP Virus variant will lower the boom on domestic manufacturing employment going forward – both because economic activity and therefore demand for manufactured goods will stagnate or drop not only in the United States, but in industry’s important foreign markets. Supply chain snags are no sure bet to clear up any time soon, either.

Nonetheless, U.S.-based manufacturing is still clearly benefiting from the Trump tariffs continued by President Biden that are pricing huge amounts of metals and Chinese-made goods out of the domestic market. Vast amounts of economic stimulus are still pouring into the American and foreign economies. And there remains tremendous pent-up demand among U.S. consumers and businesses alike, due to the lofty heights that household savings have reached and to clogged logistics systems. (A “hard” infrastructure bill will help U.S.-based manufacturers, too. But despite efforts to speed up the permitting process, regulations that can long delay the launch of new projects still may mean that the much of the new work will take months and even years before they’re “shovel ready.”)

And as I keep pointing out, those with the most skin in this game – domestic manufacturers themselves – keep professing optimism. (See, e.g., here and here.) That last consideration still tilts the balance toward manufacturing bullishness for me.

Making News: Podcast of National Radio Interview on China’s Economy Now On-Line

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CCP Virus, China, coronavirus, COVID 19, Delta variant, Donald Trump, exports, globalization, Gordon G. Chang, logistics, Making News, supply chains, tariffs, The John Batchelor Show, Trade, trade war, transportation, Wuhan virus

I’m pleased to announce that the podcast is now on-line of my latest interview on John Batchelor’s nationally syndicated radio show. The segment, which aired last night, can be found here, and focused on China’s economic performance lately – which John, co-host Gordon G. Chang, and I all agreed is showing definite signs of struggling.

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

Making News: Back on National Radio Tonight Analyzing China’s Economy

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CCP Virus, China, coronavirus, COVID 19, debt, Delta variant, exports, Gordon G. Chang, Making News, supply chains, tariffs, The John Batchelor Show, Trade, trade war, Wuhan virus

I’m pleased to report that I’m slated to return tonight to John Batchelor’s nationally syndicated radio show. Our subject:  how well or poorly China’s economy is handling a CCP Virus surge among its own population and in many countries that are major markets for its exports.

I’m not sure exactly when the segment is scheduled for tonight’s program, but John’s show is on the air week nights from 9 PM to 1 AM EST, and it’s always provocative and informative. You can listen live to our China conversation – including co-host Gordon G. Chang – at this link. And for those of you who can’t tune in, I’ll post a link to the podcast as soon as one’s available.

Also – keep checking in with RealityChek for news of upcoming media appearances and other developments

Making News: Back on National Radio Talking China Trade

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Biden, China, Donald Trump, inflation, Making News, offshoring lobby, tariffs, The John Batchelor Show, Trade, trade war

I’m pleased to report that the podcast is now on-line of my return last night to John Batchelor’s nationally syndicated radio show. The main subjects: (1) China trade’s real impact on the U.S. economy; (2) the increasingly bold campaign by the American Offshoring Lobby to push President Biden to cut way back unilaterally on the Trump tariffs; and (3) the completely fact-free arguments being used to justify this kind of trade cave-in.

Click here to listen to the segment, which also features co-host Gordon G. Chang.

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

Making News: Back on National Radio on Headline Economic Issues

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infrastructure, Jobs, Making News, manufacturing, Market Wrap with Moe Ansari, productivity, tariffs, Trade

Sorry this is a little late, but I’m pleased to announce that I appeared on Tuesday, August 3, on Moe Ansari’s nationally syndicated “Market Wrap” radio program.

Click here and scroll down till you see my name for the podcast of the segment –  which dealt with leading economic issues ranging from the latest developments in U.S. trade policy to the health of our domestic manufacturing base to the prospects for major new federal infrastructure spending and what kind of boost it may give to the nation’s growth rate, its job creation, and its productivity.

The interview begins at about the 21:40 mark of the August 3 program.

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

(What’s Left of) Our Economy: The Revisions Outshone the New U.S. Manufacturing Jobs Gains

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aircraft, aircraft engines, aircraft parts, appliances, automotive, Boeing, CCP Virus, China, coronavirus, COVID 19, Delta variant, electrical equipment, Employment, fabricated metals products, Jobs, Labor Department, machinery, manufacturing, medicines, metals, miscellaneous durable goods, NFP, non-farm payrolls, personal protective equipment, pharmaceuticals, PPE, recovery, tariffs, Trade, vaccines, Wuhan virus, {What's Left of) Our Economy

Although U.S. manufacturers grew their payrolls by a solid net 27,000 in July, according to the Labor Department’s new jobs report for the month, the big story for industry lies in the June revisions. As often the case during the CCP Virus era, moreover, these were dominated by the automotive sector.

Specifically, June’s initially reported monthly 15,000 manufacturing jobs increase was boosted all the way up to 39,000. And the automotive numbers for June executed a stunning turnabout – from an estimated loss of 12,300 to a gain of 2,700. By contrast, net hiring in the vehicles and parts sectors for July was a quiet 800.

The May manufacturing employment revisions were less dramatic – from an increase 39,000 to one of 36,000. But that month had already witnessed its own huge revision – from an initially reported 23,000 to that 39,000.

Outside automotive, the June revisions were widespread through manufacturing, led by electrical equipment and appliances, whose employment increase that month was upgraded from 1,700 to 3,600. (Its July net job creation was a mere 200.)

Even with the strong revisions, though, manufacturing’s recent status as a U.S. recovery employment laggard continued. As of July, domestic industry had regained 952,000 (68.74 percent) of the 1.385 million net jobs lost in March and April of 2020. The numbers for the private sector overall are 76.96 percent of the 21.353 million lost jobs that have been recovered, and for the total non-farm economy (the definition of the American employment universe used by the U.S. government, which includes government jobs) 74.50 percent of the 22.362 million jobs lost.

One reason, of course, is that manufacturing employment suffered less than payrolls in the rest of the economy in the early spring of 2020. Its job levels fell by 10.82 percent, compared with 16.46 percent for the private sector and 14.66 for the entire non-farm economy.

At the same time, U.S.-based industry is still benefiting from stiff tariffs on metals and goods from China, and like the entire economy, is being supported by massive government stimulus along with skyrocketing vaccine production. This puzzle may be explained by the bottlenecks and resulting shortages plaguing all industries, and by the introduction of labor-saving equipment and other restructuring to substitute for the workers so many manufacturers claim are so hard to find. But as I wrote in last month’s examination of the June jobs report, I’m not completely convinced yet by either explanation.

The biggest July manufacturing employment winners by far of the major industry categories used by the U.S. government were machinery (6,800), miscellaneous durable goods (5,500), and fabricated metals products (4,500).

The performance of the first two is especially encouraging, since machinery’s products are used so widely throughout the entire economy (and since robust hiring therefore signals widespread overall strength and healthy capital spending); and since miscellaneous durable goods includes the personal protective equipment (PPE) and other medical supplies whose importance has been underscored by the pandemic.

Indeed, as a result of their July jobs gains, machinery employment has risen to within 3.30 percent of its immediate pre-pandemic level (in February, 2020), and the comparable figure for miscellaneous durable goods is 1.09 percent higher. (More on the performance of its PPE-including category will be presented below.) Both figures are better than that for manufacturing overall, whose payrolls are still 3.38 percent lower than just before the CCP Virus began significantly affecting the economy.

The only July manufacturing jobs losers suffered overwhelmingly fractional sequential setbacks, led by transportation equipment overall (the category containing automotive, where employment sank by 1,500) and semiconductors and electronic components, where global shortages undoubtedly had much to do with its job loss of 800.

Returning to the pandemic-related industries, where the data are one month behind, the picture in surgical appliances and supplies (the sector containing PPE) is dominated by a big downgrade in the May numbers – from a gain of 1,700 to a loss of 900. And in June, 500 more positions were shed. As a result, employment in this crucial national health security sector has fallen to 7.60 percent above immediate pre-pandemic levels.

In the overall pharmaceuticals and medicines industry, a slightly upgrade of May’s originally reported 400 job loss (to a drop of 300) was followed by a June rise of 2,700 – the biggest monthly advance since September, 2019’s 3,500 (well before the CCP Virus arrived). Its employment levels have consequently climbed to 4.72 percent above their February, 2020 figure.

The pharmaceuticals subsector containing vaccines showed continued good job growth, with May’s unrevised 1,000 improvement followed by an identical June increase. This industry now employs 10.20 percent more workers than just before the pandemic.

Aircraft employment levels have fluctuated wildly recently, due surely to the constant barrage of news both good and bad about Boeing. May’s 5,500 job plunge – the worst such performance since June, 2020’s 5,800 shrinkage – was followed by a June gain of 4,500. That’s its best hiring month since the same number of workers was added in July, 2012. But aircraft employment is still 7.55 percent less than in February, 2020, when the pandemic’s spread globally decimated air travel worldwide. On a more positive note, however, Boeing seems to believe the worst is over.

Aircraft engines and parts employment has been much more stable than aircraft’s, and these industries added 500 workers in total in June. But their payrolls are 14.91 percent smaller than in February, 2020 – nearly twice as big a proportional drop as in aircraft.

What’s next for domestic manufacturing employment? Last month I saw plenty of sources of uncertainty, ranging from bottlenecks to the infrastructure legislation to China tariff policy. Now there’s the virus’ hyper-contagious (but so far less harmful) Delta variant to contend with, and all the resumed lockdowns and other economic activity restrictions it could portend – along with the related likelihood of continued strong and even greater vaccine demand (though the sector isn’t big enough to move the national manufacturing jobs needle much).

I’m still most impressed by how all the national and regional surveys keep showing that manufacturers themselves see a still-brightening future ahead. (See, e.g., here and here.) After all, they’re the ones with skin in the game. Let’s hope they’re right. 

(What’s Left of) Our Economy: More of the (Wrong Kind of) Records in the New U.S. Trade Figures

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Canada, CCP Virus, China, coronavirus, COVID 19, Delta variant, Donald Trump, Europe, exports, goods trade, imports, Made in Washington trade deficit, manufacturing, non-oil goods trade deficit, services trade, Taiwan, tariffs, Trade, trade deficit, trade policy, trade war, Wuhan virus, {What's Left of) Our Economy

About a week ago, I wrote here that the new (second quarter) figures on U.S. economic growth displayed some tentative signs of pre-pandemic normality returning to the nation’s CCP Virus-disrupted trade flows. This morning’s release of the detailed official U.S. trade figures for June reveals that those signs (which came from the inflation-adjusted numbers) were awfully tentative, and that pandemic distortions remain the order of the day.

Indeed, the June trade data brought to an end for the time being the pattern this calendar year of the total U.S. deficit and goods shortfall statistics stabilizing on a monthly basis, along with the crucial non-oil goods gap data. As known by RealityChek regulars, those trade flows can be called the “Made in Washington” portion of U.S. trade, since they make up the category of imports and exports whose levels and changes are most influenced by U.S. trade policy. In that way, they differ from oil trade (which is almost never the subject of trade negotiations and other policy decisions) and services trade (where liberalization efforts worldwide have made only modest progress). Moreover, manufacturing trade in June exhibited the same discouraging characteristics. 

There is one important exception to June’s trend break: The China goods deficit and goods import numbers changed only slightly (for the worse). In fact, they’ve stayed in the same neighborhoods since China’s export-heavy economy rebounded from its own virus-induced shutdown in early 2020. These results look like strong indicators that the Trump tariffs have played major roles in reducing the harm done to the U.S. economy by Beijing’s predatory trade practices. So does the resilience throughout the pandemic shown by U.S. domestic manufacturing – since industry dominates Sino-American trade flows.

But the trade records set in June remain noteworthy. After staying right around $70 billion on average since January (with the exception of a brief March move to just over $75 billion), the combined goods and services shortfall rose 6.70 percent,from $70.99 billion in May to $75.75 billion in June – an all-time high that broke the record set in March.

Since goods make up the great majority of U.S. trade flows, it wasn’t surprising that their deficit pattern was identical. They remained consistently in the high $80 billions since January (also with the exception of March) and then grew in June by 4.53 percent, from $70.99 billion to $75.75 billion. And this total also replaced March’s total as the new record.

The pattern was the same for Made in Washington trade. Its monthly deficit totals, except for March, remained in the high $80 billion range since January, too, then broke out in June from $86.73 billion to $92.42 billion – a rise of 6.56 percent to another all-time high that surpassed a previous March record.

Services trade set no records in June, but its $17.43 billion surplus was the smallest since August, 2012’s $17.08 billion. Because the CCP Virus’ Delta variant hadn’t raised the prospect of more economic curbs back in June, this figure will be worth following closely, since services are so vulnerable to virus-prompted restrictions.

Combined U.S. goods and services exports did bump up by 0.58 percent on month in June, from May’s $206.47 billion to $207.67 billion. In addition, that represented the biggest monthly total since the $209.88 billion recorded in December, 2019 – just before the pandemic is thought to have arrived in the United States. But the much greater amount of total imports climbed by 2.15 percent, from $277.46 billion to a new record of $283.42 billion.

At $145.91 billion, goods exports set their fourth straight monthly record in June. But they continued to improve slowly – by just 0.19 percent over the May total. In fact, since March, they’ve only advanced by 1.57 percent in all on a monthly basis, no doubt in part to relatively sluggish growth in most of the world outside the United States.

The much larger amount of goods imports climbed much faster in June – by 1.84 percent on month, to reach their second straight all-time high of $239.09 billion.

As for services, exports in June advanced by a respectable 1.53 percent, to $61.76 billion. The monthly improvement was the fourth straight, and their best performance since February, 2020’s $69.12 billion. But clearly these levels remain depressed.

Services imports in June also set a post-February, 2020 high ($44.35 billion versus $47.06 billion) and increased for the fifth straight month. But they rose more than twice as fast (3.84 percent) as services exports, and their levels are also well below pre-CCP Virus levels.

America’s non-oil goods exports actually fell sequentially on month in June – by 1.62 percent, from a record $129.66 billion in May to $127.56 billion. The much greater amount of imports, however, grew by 1.66 percent, to $219.98 billion, a level that slightly topped the previous all-time high of $219.68 billion set in March.

The U.S. goods trade deficit with China did worsen in June – from May’s $26.32 billion to $27.84 billion. But the 5.79 percent increase trailed that of the non-oil goods gap, the closest global proxy (6.56 percent). The year-to-date totals tell the same story: The China goods shortfall is up more slowly ( 20.81 percent) than the global Made in Washington deficit (24.59 percent).

Back to the monthly figures, U.S. goods exports to China fell by 2.49 percent between May and June – from $12.41 billion to $12.10 billion. Imports, however, were 3.13 percent higher ($38.73 billion to $39.95 billion).

Especially interesting: On a monthly basis, U.S. goods imports from China have inched up only from $39.11 billion to $39.95 billion. For all non-oil goods by this measure, U.S. imports have risen much faster – from $205.08 billion to $219.98 billion. So it seems clear that the Trump tariffs keep pricing many Chinese goods out of the U.S. market.

But although America’s China and non-oil goods trade shortfalls have stayed fairly stable on a monthly basis since January, its manufacturing trade gap has widened substantially. Already lofty enough during the first month of the year at $99.79 billion, it stood 4.87 percent higher in June – $114.06 billion.

Further, this total broke the previous record of $110.20 billion, set last October.

Domestic manufacturing exports improved by 1.81 percent on month, from $95.33 billion to $97.06 billion. But the much greater amount of imports jumped by 4.49 percent, from $202.04 billion to $211.11 billion.

On a year-to-date basis, moreover, the manufacturing deficit has surged by just under 30 percent. At $622.12 billion as of June, it’s headed toward an all-time annual record.

Other manufacturing records or multi-year highs revealed by the June data included a record monthly deficit of $28.14 billion goods deficit with Europe (including its eastern and western regions, as well as Russia); the third consecutive record monthly goods deficit with new world semiconductor manufacturing technology leader Taiwan ($3.49 billion); and the highest goods deficit with Canada ($5.46 billion) since October, 2008 ($5.65 billion).

A single month’s worth of data doesn’t prove anything, so truly credible judgments about the possible return to pre-pandemic U.S. trade normality still can’t be made based on the data. Also crucial is examining trade figures and their changes against the backdrop of the entire economy’s size and its changes, in order to provide crucial context. When looking at growth and contraction rates in particular the challenge is difficult because trade flow changes only affect the rest of the economy after the passage of some time. 

And of course, if the virus’ Delta variant prompts major, nation-wide U.S. economic restrictions and behavior changes, all trade – and broader economic – forecasting bets are off for the time being.        

(What’s Left of) Our Economy: Glimmers of Trade Normality’s Return?

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CCP Virus, China, coronavirus, COVID 19, Donald Trump, exports, GDP, goods trade, gross domestic product, imports, inflation-adjusted growth, real GDP, real trade deficit, recovery, services trade, tariffs, trade deficit, Wuhan virus, {What's Left of) Our Economy

Has the new post-CCP Virus trade normal finally started coming into view for the United States? One important reason for believing so came in today’s Commerce Department report on economic growth in the second quarter, and the main evidence can be summed up in these numbers: 31.81, 10.92, 8.24, and 2.69.

They represent the sequential rates of increase in the overall inflation-adjusted trade deficit starting with the third quarter of last year and ending with this year’s second quarter. And they show that even though real economic growth remained strong (albeit well below expectations) in the second quarter, the after-inflation trade gap’s size is stabilizing.

There’s no doubt that bottlenecks clogging transport systems all over the world due to the rapid recovery from CCP Virus-induced recessions deserve much of the credit. But given domestic manufacturing’s continued healthy growth despite the aforementioned supply chain and shortage issues, it’s hard to imagine that the Trump tariffs – especially on hundreds of billions of dollars worth of goods from China – haven’t played a big role, too.

But before diving into the gross domestic product (GDP) report’s trade highlights, it’s important to note that they reveal that the economy’s size in price-adjusted terms in the second quarter finally exceeded the scale reached in the fourth quarter of 2019 – the last fully pandemic-effect-free quarter. The nation’s total output of goods and services is only 0.81 percent greater, but it’s a start.

Also worth observing right away – the combined goods and services trade deficit of $1.2590 trillion at an annual rate was the fourth straight all-time record. That’s nearly 50 percent (48.54 percent, to be precise) higher than the fourth quarter, 2019 level of $847.6 billion, so obviously there’s a long way to go to pre-virus days by that standard. According to the more useful measure of the trade deficit’s size as a share of the GDP, the story’s only a little better. At the end of 2019, it stood at 4.41 percent, and in the second quarter of this year, it stood at 6.50 percent. So it’s up by 47.39 percent since the pandemic began significantly affecting the economy.

More progress toward normalization shows up in in the data on the impact of changes in the after-inflation trade shortfall on quarterly growth. For the second quarter of this year, the sequential growth in the real constant dollar trade deficit subtracted 0.44 percentage points from the 6.35 percent annualized expansion of the economy. In other words, had the real trade deficit not increased at all, real growth would have been 6.79 percent at annual rates, or 6.93 percent higher.

In the first quarter, the after-inflation trade deficit’s increase subtracted 1.56 percentage points from 6.14 percent real annualized growth. So that quarter’s after-inflation price-adjusted GDP rise would have been 7.70 percent at annual rates, or 25.41 percent greater. The final pre-pandemic numbers showed that a fourth quarter, 2019 inflation-adjusted trade deficit sequential decrease added 1.43 percentage points to 1.86 percent annualized growth.

Therefore, much ground needs to be made up here, too. At the same time, this particular set of data has been bouncing around a lot since former President Trump began his “trade wars” (in 2018), which led companies throughout the nation and world to adjust their production and especially import patterns dramatically in reactio not only to actual tariffs but to anticipated levies.

The new GDP release estimated that total after-inflation U.S. exports climbed by 1.47 percent sequentially during the second quarter – a reversal of the 0.73 percent quarterly decline during the previous three-month stretch. But at $2.2956 trillion annualized, they’re still 10.09 percent less than the fourth quarter, 2019 result.

Combined inflation-adjusted goods and services imports increased at a slower rate during the second quarter – 1.90 percent sequentially, versus 2.25 percent during the first quarter. But these U.S. purchases from abroad are 4.52 percent higher than just before the pandemic’s arrival. And the immediate pre-pandemic level had already been hit in the fourth quarter of last year.

Moreover, at $3.5547 trillion annualized, total real imports reached their second straight all-time quarterly high.

The constant dollar goods trade deficit level hit a new quarterly record, too – $1.4610 trillion at annual rates. Further, the all-time high was the fourth straight, and this trade gap is now 36.36 percent above the fourth quarter, 2019 pre-pandemic level.

At least this trade shortfall’s sequential growth rate has also been plummeting – from 20.40 percent in last year’s third quarter, when the economy was bursting out of the deep but short virus-and lockdown-induced recession, to 4.66 percent between the first and second quarters of this year.

The service sector continues to be a source of discouraging trade news according to the new GDP read. Its long-time after-inflation real surplus shrank by 6.20 percent between the first and second quarters, and in fact has fallen every quarter snce the second quarter of 2020. As a result, it’s currently 30.55 percent lower than it was in that final pre-CCP Virus fourth quarter of 2019.

Of course, as with the economy and life in general, U.S. trade’s return to normality still depends heavily on huge wildcards like the future of the CCP Virus Delta variant, and whether it will keep spreading fast and long enough to lead governments to reimpose shutdowns and lockdowns.  But the largely pre-Delta GDP numbers released today suggest that if this mutation stays under control, and nothing worse appears, America’s trade performance will keep approaching its pre-virus state.      

(What’s Left of) Our Economy: Why That China Competitiveness Bill Urgently Needs Trade Fixes

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China, competitiveness, consumers, health security, inflation, Robert E. Lighthizer, Section 301, Senate, supply chains, tariffs, technology, Trade, Trade Act of 1974, U.S. Innovation and Competition Act, World Trade Organization, WTO, {What's Left of) Our Economy

Nearly two months ago, I complained here on RealityChek that Congress was working way too slowly on legislation aimed at helping restore the U.S. competitiveness needed to reopen a wide lead over China in the dust in the race for future global technological competitiveness. Now I see that more time to pass the bill is needed after all – because the version approved by the Senate June 8 contains some fatal trade policy flaws that urgently need fixing.

Trade policy, as I’ve explained previously is a vital dimension of beating back the China challenge. But as reported yesterday in a New York Times article by former Trump chief trade official Robert E. Lighthizer, key amendments to the U.S. Innovation and Competition Act

“would harm U.S. interests in three important ways: It would cut tariffs on medical supplies needed in a pandemic; reauthorize the so-called Miscellaneous Tariff Bill to cut tariffs on Chinese and other imports; and amend our enforcement laws in a way that will make it more difficult to battle predatory trade practices by our foreign competitors.”

And if you read the (2,300-page) bill, you see that he’s right. For example, a section titled “Facilitating Trade in Essential Supplies” (beginning on p. 1588) refers to America’s need “to maintain readiness and to surge production of essential supplies in response to an emergency” in national security and public health and safety, or in the security and functioning of “critical infrastructure.”

But consistent with an approach taken to this challenge by President Biden, the act makes clear that achieving these goals includes developing “a whole-of-government strategy to ensure that the United States has reliable access to essential supplies from its trading partners….” In other words, it will be equally fine if the nation remains dependent on imports of such goods. These two objectives clash with each other directly and violently.

If Washington could count on lots of reliable trade partners out there to step in in a pinch and fill supply gaps, this strategy of defining “Made in America” as “Made Overseas, Too” would be defensible (if not, in my view, optimal). But although the legislation directs federal officials to “identify unreliable trading partners,” its authors seem oblivious to just how many foreign governments qualified for this label with their bans and other curbs on vital medical goods during the height of the pandemic. It was 80 according to no less than the World Trade Organization (WTO).

According to Lighthizer, the bill would also undercut American industry’s broader ability to compete with China by renewing a Miscellaneous Tariff Bill that would reduce duties on more than 900 goods produced and exported by the People’s Republic. The list – which also includes hundreds of other goods, begins on p. 1526 and goes on (in tiny type) for thirty pages.

And the text also supports Lighthizer’s claims that the bill would “gut a provision that President Trump used to impose tariffs on Chinese goods in 2018,” and “also effectively surrender sovereignty over our own trade policy to the World Trade Organization by permanently weakening Section 301 unless the United States first wins a multiyear litigation before that body.”

Possibly, the most disturbing feature of the bill’s treatment of these so-called “301 tariffs” (named after the section of the 1974 Trade Act that initially authorized suc measures is the measure that bars the imposition of these duties without an analysis of their impact “on United States entities, particularly small entities, and consumers in the United States” (p. 1607), and additionally of whether they would “unreasonably increase consumer prices for day-to-day items consumed by low- or middle-income families in the United States” (p. 1609).

Although numerous RealityChek posts have documented (see, e.g., here) that none of the 301 tariffs had lasting effects on U.S. retail or wholesale price levels (largely because importers absorbed the higher costs), there’s no guarantee that significant time frames would be examined. In addition, there’s never any shortage of businesses or business organizations in particular ready to predict disastrous price hikes from any tariff increases regardless of the historical record. So the most powerful tool possessed by Washington to enforce trade agreements and combat foreign protectionism could well be neutered unless changes are made.

Finally, Lighthizer’s contention about permanently weakening America’s Section 301 authority appears borne out by pp. 1610-1611, which states that the process for excluding certain goods from that measure’s tariffs “shall not apply” in cases under consideration by the “dispute resolution process under the World Trade Organization [WTO].” In other words, if such U.S. tariffs are challenged at the WTO, they can’t legally be imposed until the WTO decides they’re kosher.

There shouldn’t be any doubt in anyone’s mind that time is not on America’s side as it tries to raise its competitiveness game, both against the Chinese and in general. But it’s also true that haste makes waste — and even worse. And these trade policy flaws in this China competitiveness bill aren’t eliminated, Americans will see a crucial economic and national security opportunity squandered.     

(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.