(What’s Left of) Our Economy: Politico’s Failed Takedown of Trump’s Auto Jobs Policies

Tags

automotive, Bureau of Labor Statistics, Department of Transportation, domestic content, General Motors, GM, Jobs, Lordstown, manufacturing, Ohio, tariffs, Trade, Trump, Youngstown, {What's Left of) Our Economy

Let’s all hope that Politico doesn’t start a new publication called “Economico.” Because its latest venture into economic policy reporting – yesterday’s examination of President Trump’s trade-centric approach to strengthening America’s automotive industry – had about as much in common with sound economic analysis as Beto O’Rourke’s current talking points have with the Gettysburg Address.

The headline nicely sums up the piece’s theme: “Trump facing failing strategy on auto jobs as he heads to Ohio.” And the news hook is the President’s trip today to Ohio, where the announced closure of a long-time General Motors factory in the northeastern town of Lordstown has understandably attracted national attention given Mr. Trump’s 2016 campaign promise to ensure its survival, and given the importance of Lordstown-type manufacturing workers to his political success.

But the article’s treatment of the Lordstown decision and the broader Trump auto industry record is based almost entirely on cherry-picked facts presented in such stark isolation as to produce a thoroughly misleading picture to readers.

First, the piece doesn’t say that, for all the disrupted lives already caused and sure to continue due to GM’s Lordstown decision, Reuters reported the day before that

“GM Chief Executive Officer Mary Barra has said the automaker expects to have 2,700 job openings by early 2020 at other thriving plants, enough to absorb nearly all of those displaced in plants in Maryland, Ohio and Michigan willing or able to uproot for work hundreds of miles away. GM said another 1,200 affected hourly workers are eligible for early retirement.

“Based on a plant-by-plant count provided by GM, if every worker displaced or soon to be displaced volunteers for or accepts a new job – and those eligible to retire do so – that would potentially leave up to 500 GM workers jobless, far fewer than the thousands decried by the UAW [United Auto Workers union] and Trump.”

No one should underestimate the economic and other difficulties of relocation – especially from an economically struggling area like northeastern Ohio, where homes on the market don’t exactly command primo relative prices. And GM’s claims should be closely monitored going forward. But the Politico article, and all the coverage of Lordstown, should have mentioned that, based on what’s been promised, most of the released employees won’t be left on the streets (figuratively speaking).

By contrast, the Politico reporters unquestionably swallowed the claims by GM as well as Ford about the Trump administration’s metals tariffs crippling the auto companies’ prospects. Had they asked the obvious question about how the higher metals prices compared with the auto-makers’ overall costs, they’d have discovered that the tariffs barely moved the needle on overall figures – and that the companies’ could easily have found (and still can find) other economizing options to offset them.

Nor did the authors ask the equally obvious questions about overall trends in Lordstown-area and Ohio automotive and manufacturing employment. A five-minute dive into Bureau of Labor Statistics (BLS) data would have found that, during President Trump’s first 23 data months in office, the state’s manufacturers have added more jobs (20,400) than during the final three years (36 months) of former President Obama’s administration (19,700). The Trump-era gains are especially impressive since they’ve come later in the business cycle, when expansions typically lose momentum. (These time periods are chosen since they’re the stretches of each administration closest to each other during the same business cycle.)

In addition, although the latest figures only go up to September, 2018, the two Ohio counties in which Lordstown and nearby Youngstown (another victim of the GM decision) – Trumbull and Mahoning, respectively), have fared relatively well during the Trump years as well.

Specifically, during the first 19 data months under Trump, Trumbull County lost 569 manufacturing jobs. (BLS doesn’t track automotive employment at the county level.) During the final 19 months of the Obama administration, manufacturing payrolls fell by 1,150. For Mahoning, the comparable numbers are: Trump, up 294, Obama, down 468. Those are hardly gangbuster results during the Trump years. But failure?

In automotive specifically, from the state-level perspective. President Trump’s impact looks more mixed – but hardly failed, either. During his first 23 data months in office, Ohio vehicle makers added only 800 jobs. But during Mr. Obama’s final 23 months in office, they shed 1,300. In parts, the “Obama effect” looks better – Ohio-based facilities increased their payrolls by 3,600 during his last 23 months, whereas they boosted employment by only 800 under the Trump administration so far.

Interesting, a similar mixed picture emerges on a nation-wide basis. During Mr. Obama’s last 23 data months in office, U.S. auto and light truck producers increased employment by 21,400, versus a 23,400 improvement during the first 23 Trump months. But the Obama numbers for auto parts are much better – a gain of 34,900 during his last 23 months versus an 11,900 rise for the first 23 Trump months.

At the same time, are the lagging overall Trump national numbers due entirely or even mainly to his allegedly failed trade policies? Or to the topping out of American light vehicle sales that began in the fall of 2015? The Politico authors never give readers a chance to decide.

In fact, the changing automotive cycle surely accounts for much and maybe all of the declining rate of auto industry investment during the Trump years so far, especially compared with the big numbers racked up during the Obama years. Most of that spending of course came much earlier in the auto and broader economic cycle, when the sector and the rest of the nation were rebounding (with decisive federal aid) from a near-death economic experience.

The Politico article also repeats the canard that “International trade makes it difficult to distinguish between what’s truly American and what’s truly foreign.” Actually, it’s not difficult at all. U.S. Transportation Department data annually presents the U.S./Canadian and foreign content figures for every auto and light truck model sold in America. As reported by a recent analysis of the figures:

“Detroit has the bulk of cars with high domestic content. GM, Ford and Fiat Chrysler Automobiles build 37 of the 57 U.S.-assembled cars with 60 percent or higher domestic content. Foreign-based automakers are responsible for dozens of imported cars with zero percent domestic content, according to the National Highway Traffic Safety Administration [NHTSA]. Detroit automakers have just two cars below 5 percent….”

Finally, the authors express puzzlement that despite “the threat of auto tariffs….the foreign automakers who would be targeted by the tariffs are bolstering bolstering manufacturing in the U.S. with investments in auto plants across the Midwest and South.” To which anyone not infected with Trump Derangement Syndrome would respond, “Exactly.”

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(What’s Left of) Our Economy: The Fed Just Showed that Tariff Alarmism Needs to Wait (At Least) Another Month

Tags

aluminum, China, inflation-adjusted output, manufacturing, metals, metals-using industries, real growth, steel, tariffs, Trade, trade war, Trump, {What's Left of) Our Economy

The Federal Reserve’s new industrial production figures (for February) follow a pattern that’s begun to emerge lately. They provide evidence that the domestic U.S. manufacturing sector is shifting into a slower gear. But they offer scarcely any reason to believe that President Trump’s tariff-centric trade policies are behind this possible soft patch.

As usual, let’s start with the data pertaining to the President’s levies on aluminum and steel. These tariffs have been widely reported to have gut punched American industry – allegedly proving that Mr. Trump’s approach to trade has been totally counterproductive. Yet just as usual, the performance of the nation’s main steel-using industries – supposedly the main victim of the tariffs, since the trade curbs saddled them with extra costs for major inputs they use – utterly demolishes such claims.

The table below shows the inflation-adjusted output changes for U.S. manufacturing as a whole and for the leading metals-using sectors. And the time periods of the columns represent the gains or losses reported last month between April (the first full month the metals tariffs were in place) and January; the revised April-January figures released this morning, and the preliminary April-February statistics also put out today.

The message they send couldn’t be clearer. The overall manufacturing slowdown comes through from the deterioration that took place between the April-January and April-February results. In fact, on a monthly basis, real manufacturing output declined by 0.40 percent in February – a weakening that followed a 0.49 percent drop in January.

The metals-using industries (including the durable manufacturing super-category in which they’re all found) all exhibited weaker sequential performance between January and February, too (except for aircraft and parts). But with the exception of autos and parts, and major appliances (which are also laboring under the burden of a separate tariff on large household laundry machines imposed in late January, 2018), since the onset of the metals tariffs, they’ve all grown faster than manufacturing as a whole (which is included as a control group since it contains many sectors that don’t use especially large amounts of metals).

Even more revealing are the differences between the old and new January figures. In every case – including for the laggards – they’ve been revised considerably higher. So their underlying strength still looks impressive, which would make no sense whatever if they were really suffering terribly from the metals tariffs.

                                                   old thru Jan.      new thru Jan.         thru Feb.

overall manufacturing:            +1.20 percent      +1.15 percent    +0.75 percent

durables manufacturing:          +1.65 percent     +1.88 percent    +1.78 percent

fabricated metals products:      +3.19 percent     +3.35 percent    +3.30 percent

machinery:                               +3.87 percent     +4.63 percent    +2.67 percent

automotive:                               -5.18 percent     -3.78 percent     -3.87 percent

major appliances:                      -2.87 percent     -1.42 percent     -1.79 percent

aircraft and parts:                     +6.35 percent    +7.22 percent    +7.98 percent

Because the Trump China tariffs didn’t begin until August, their impact on domestic American industry is much less clear. In addition, the list of goods on which levies were imposed doesn’t compare well with the industrial production figures because they use different systems for classifying manufacturing sectors. Finally, the number of Chinese import categories tariff-ed in starting in August was relatively small – only $50 billion worth.

The table below presents results from industries where the matchups look solid. This time, I’ve added a column that permits comparing the old and new data for the previous month. And as you can see, the numbers are all over the place. The February figures look especially ugly. But in two cases, the January output results have turned out to be stronger than previously reported (especially in industrial heating equipment).

                                                      old Aug.-Jan.      new Aug.-Jan.      Aug.-Feb.

overall manufacturing:                +0.36 percent      +0.31 percent     -0.09 percent

ball bearings:                                -0.09 percent      +0.05 percent     -0.10 percent

industrial heating equipment:       -3.86 percent      -0.40 percent     -4.17 percent

farm machinery and equipment:  +9.12 percent     +9.12 percent   -12.70 percent

Even here, however, so much volatility is evident that withholding judgment is the best approach for now. For example, the February monthly decrease in after-inflation farm machinery output (twenty percent even) was that sector’s worst such performance since January of 2007 (20.54 percent). That’s a more than twelve-year low. Yet the (unrevised) 6.47 percent monthly production improvement in January was the best since last April’s 13.69 percent. Similar volatility can be seen in industrial heating equipment.

So the trade alarmists will have to wait at least another month at least for convincing evidence that the Trump tariffs have backfired big-time against domestic industry. Not that’s stopped them from spreading this wholly false narrative till now.

(What’s Left of) Our Economy: A Deep Dive Doesn’t Find Any Tariff-Led Consumer Inflation, Either

Tags

aluminum, China, consumer prices, inflation, Labor Department, metals, tariffs, Trade, {What's Left of) Our Economy

I decided to do something special for my regular analysis of the new U.S. consumer inflation figures (for February) and what they say about President Trump’s tariff-centric trade policies. Mainly because we now have four months worth of data on the prices of goods sectors where imports from China are common, it’s become possible to take the best stab yet determining whether the Trump levies are hammering American households by making these products much more expensive.

The verdict? Some tariffs-led inflation here can be detected, but the statistics are still too imperfect, and the time-frame examined still too short to justify any firm conclusions.

At the same time, it remains clear that Mr. Trump’s metals tariffs, which have now been in place for eleven data months, have had little if any impact per se on consumer buying power.

Let’s examine the steel- and aluminum-related figures first, since there are many fewer products involved. Here are the data for the January-February period, and for April to the present (the stretch during which the metals tariffs have been in place), as well as the year-on-year numbers for April and February (which provide some indication of trends over time). As usual, the results for tariffs-affected products (e.g., canned foods) are presented along with those of control goods (e.g., non-canned foods) to glean further insights into the tariffs’ effects.

But here’s another new wrinkle: Rather than use the most popular “core inflation” measure for the biggest control group, I’m going to use a different measure: all items minus energy. The reason? The standard core inflation gauge strips out food and energy, because price changes in those categories are so volatile that they’re thought to distort the picture of fundamental inflationary or deflationary forces influencing the economy.

Yet many metals tariffs-affected products are food products. So for our purposes, the core group needs to be more narrowly drawn – and in this case, is comprised of all items minus only energy.

                                       Jan.-Feb.        Since April       April y/y          Feb. y/y

core CPI:                   +0.15 percent   +1.76 percent  +2.01 percent   +2.07 percent

fresh fruits                 +0.72 percent   +1.95 percent   -0.43 percent   +2.34 percent

  & vegs:  

fresh fruits:                 -0.27 percent    -0.55 percent  +1.38 percent   -0.53 percent

fresh vegs:                 +1.86 percent   +4.92 percent   -2.50 percent  +5.76.percent

processed fruits         +1.42 percent   +0.11 percent   -1.29 percent  +0.88 percent

  & vegs:

canned fruits              +2.12 percent  +3.07 percent   -0.14 percent  +3.99 percent

  & vegs:

canned fruits:             +2.48 percent   +1.91 percent    -1.60 percent  +3.09 percent

canned vegs:              +2.23 percent   +3.70 percent   +1.00 percent  +4.66 percent

soups:                         +0.39 percent  +1.19 percent     -0.38 percent   -0.57 percent

malt beverages           +0.73 percent  +2.41 percent    +0.84 percent  +2.64 percent

  consumed at home:

alcoholic                     -0.26 percent   +1.14 percent   +2.17 percent   +1.36 percent

   beverages consumed away:

non-frozen, non-        +0.98 percent   +3.46 percent   -0.52 percent   +3.52 percent

  -carbonated non-

  alcoholic rinks:

carbonated drinks:      -0.19 percent   +4.72 percent   +0.04 percent   +5.04 percent

juices & non-             +0.98 percent   +3.46 percent    -0.26 percent   +3.52 percent

  alcoholic drinks:

new cars & trucks:     -0.24 percent    +0.66 percent   -1.61 percent   +0.29 percent

motor vehicle             -0.09 percent    +1.83 percent   -0.74 percent   +2.12 percent

  parts:

appliances:                 -0.94 percent   +3.44 percent  +0.27 percent    +6.80 percent

major appliances:       -0.56 percent   +6.86 percent  +1.55 percent  +11.08 percent

non-electric               +0.25 percent    -0.59 percent   -1.57 percent    +1.69 percent

  cookware & tableware:

tools, hardware,         +0.72 percent  +1.49 percent   +0.19 percent   +1.98 percent

outdoor equipment:

Something that becomes clear right away – the food price changes shown here demonstrate that they really are volatile. For example, from January to February, fresh fruits and vegetables prices together rose by 0.72 percent. The previous month, they fell 0.19 percent. Fresh vegetables prices have been on an even wilder roller-coaster – up 1.86 percent on month in February, down 1.66 percent on month in January. And unfortunately, this volatility can reduce the value of the year-on-year results.

The canned foods price volatility is impressive, too. Between January and February, the prices in the canned fruits, canned vegetables, and canned produce overall categories all rose more than two percent. But between December and January, the price of the first of these fell by 1.59 percent, the price of the second rose by just 0.45 percent, and the price of the third dipped by 0.05 percent.

And these products are where the strongest signs of metal tariffs-led consumer price inflation are found. So take the price acceleration revealed by the year-on-year data with a grain of salt. (No pun intended.). Also revealing: When you look at the cumulative price changes since the first metals tariffs were imposed (the post-April figures), some of these canned food categories exhibit stronger-than-core inflationary trends (the canned produce groupings and the drinks categories – which unfortunately also include many products packaged in glass and plastic bottles and cardboard containers) but some exhibit weaker pricing (like soups and alcoholic beverages consumed away from home – which also include many non-canned products). So there’s also abundant evidence that prices are mainly driven by something other than the metals in cans.

As for other products that use steel and aluminum, appliance prices keep increasing ever faster – but of course inflation in those categories has also been influenced by a separate set of tariffs imposed a year ago on large household laundry machines. The pricing trends for motor vehicles, automotive parts, non-electric cookware and tableware, and the tools and hardware categories, are decidedly mixed – which again undercuts tariff-centric interpretations of their inflation rates.

And now for the China tariffs’ effects. In part this post has been delayed because I actually went through the list of tariff-ed consumer (and other) goods published by the U.S. Trade Representative’s office in mid-September. The groupings of these products still often match up poorly with the groupings used by the Labor Department to track consumer pricing trends. Moreover, in many of these cases (especially the food products), imports from China are pretty modest. But the groupings aren’t entirely off, so I concluded these numbers are worth presenting.

What you see are the data for the latest month (February), for the post-September period (since October was the first full month these levies were in effect), and for October and February on a year-on-year basis. And as with the metals tariffs figures, the main control groups (like items minus energy) are presented as well.

                                     Jan.-Feb.          Since Oct.         Oct. y/y           Feb. y/y

core CPIU:              +0.15 percent   +1.76 percent   +2.01 percent   +2.07 percent

food:                        +0.40 percent   +1.17 percent   +1.21 percent   +1.96 percent

frozen/freeze-          +1.56 percent   +0.47 percent    -0.46 percent   +0.95 percent

  dried/prepared

  foods

fish/seafood:            +0.79 percent   +1.85 percent   +2.82 percent   +4.44 percent

processed fish/         +0.41 percent   +0.92 percent   +1.46 percent   +5.21 percent

  seafood

frozen fish/              +0.78 percent   +1.24 percent    -0.15 percent    +3.67 percent

  seafood

fruits/vegs:               +0.86 percent   +1.83 percent    -0.32 percent   +2.03 percent

fresh fruits/               +0.72 percent   +2.11 percent   -0.38 percent    +2.34 percent

  vegetables

fresh fruits:                -0.27 percent   +1.29 percent   -1.40 percent    -0.53 percent

fresh vegs:                +1.86 percent   +3.05 percent   +0.81 percent   +5.76 percent

processed                  +1.42 percent   +0.79 percent   -0.06 percent   +0.88 percent

  fruits/vegs:

frozen fruits/             +0.81 percent   -0.51 percent    -2.72 percent    -2.41 percent

  vegetables

non-carb,                  +0.98 percent   +2.06 percent   +1.23 percent   +3.52 percent

  non-frozen juices/drinks:

personal care            +0.55 percent   +0.91 percent    +1.52 percent   +1.87 percent

  products:

household                +0.31 percent    +0.78 percent    +0.69 percent   +1.49 percent

  furnishings:

recreation                 -0.86 percent    +0.53 percent     -3.51 percent    -1.38 percent

  goods:

men’s                       +3.27 percent     -1.52 percent    +1.47 percent   +4.10 percent

  sportswear:

women’s                   -2.51 percent     -2.47 percent     -5.08 percent   -5.91 percent

  sportswear:

computers,                -0.94 percent    -1.70 percent     -4.09 percent    -3.95 percent

  peripherals, etc.:

window/floor            -1.97 percent    -2.39 percent    +0.74 percent    -3.53 percent

  coverings:

furniture &               +1.20 percent   +1.22 percent    +1.26 percent   +2.36 percent

  bedding:

appliances:                -0.94 percent    +0.17 percent   +4.82 percent    +6.36 percent

major                         -0.56 percent    +1.83 percent  +8.08 percent  +11.03 percent

  appliances:

misc appls:                -0.85 percent     -1.04 percent  +3.25 percent    +4.38 percent

non-electric              +0.25 percent    +0.27 percent   -0.51 percent    +1.69 percent

  cookware/tableware:

tools/                        +0.72 percent     +1.91 percent  +0.39 percent    +1.98 percent

  hardware &

  outdoor equip:

household                 +0.13 percent    +0.41 percent  +1.79 percent    +2.94 percent

  cleaning products:

televisions:                 -3.23 percent   -7.01 percent  -17.95 percent   -20.18 percent

misc video                 +0.71 percent  +4.45 percent    -3.87 percent    +1.53 percent

  equipment

pets &                       +0.55 percent   +1.50 percent   +0.91 percent   +2.84 percent

  pet products

sporting                     -1.90 percent    +2.02 percent   +1.71 percent   +0.30 percent

  goods

photo equip               -2.26 percent     -1.24 percent    -4.94 percent    -4.12 percent

  & supplies

sewing                      +1.82 percent    +9.76 percent    -2.08 percent   +6.10 percent

  machines/

  fabrics

motor vehicle            -0.09 percent    +1.03 percent   +1.25 percent   +1.86 percent

  parts:

tires:                         +0.25 percent     +1.66 percent   +0.03 percent   +0.91 percent

stationery/                +1.60 percent     +4.24 percent    -6.48 percent    -0.22 percent

  gift wrap

Again, the short duration of these tariffs means that even the post-October and year-on-year results should be treated with major caution. And the prevalence of faster-rising food prices is clear from the table as well (although the modest level of tariff-ed imports from China further undermines the claim that trade deserves significant blame). Another complication that explains many of the diverging metals-related results, too: Different products operate in very different markets with highly distinctive features – including demand. Just look at the sportswear categories – where by most measures, pricing for men’s products is moving in exactly the opposite direction as pricing for women’s products.

The bottom line seems to be that, for price changes starting in October, only five of these 23 categories show increases above the core inflation rate, while 18 show below it. And one of those high inflation products was the major appliance category that’s also been affected by the washing machine tariffs.

Yet for year-on-year inflation rates, between October and February, the story looks very different. Price rises sped up (or price drops slowed down) in 18 of the categories, with greater price weakening characterizing the other five.

That’s why I believe that it’s still most responsible to adopt a wait-and-see approach to evaluating the China tariffs – along with the short time frame involved and the uncertainties over categorization. For the impact of the longer-lasting metals tariffs, however, claims of trade war-wreaked devastation just look even more and more far-fetched with each passing month.

Making News: New Op-Ed on Why Trump is Still Winning on Trade

Tags

aluminum, China, Making News, manufacturing, metals, steel, tariffs, The Washington Times, Trade, Trade Deficits, trade wars, Trump

I’m pleased to announce the publication of a new freelance article of mine.  This morning, The Washington Times posted my op-ed explaining why the huge increase in the monthly and annual U.S. trade deficits reported on Wednesday masked some surprising trends.  Specifically, the data made clear that President Trump’s trade policies continue progressing toward their two of their biggest goals.  Click here to read.

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

(What’s Left of) Our Economy: Why the Lousy February Jobs Numbers Don’t Vindicate Tariff Alarmism

Tags

aluminum, China, Jobs, Labor Department, manufacturing, metals, metals-using industries, steel, tariffs, Trade, trade war, Trump, {What's Left of) Our Economy

The stunningly poor February overall and manufacturing jobs figures released by the Labor Department today surely caused rejoicing in the ranks of America’s trade alarmists. Here, finally, was evidence that President Trump’s tariff-centric policies are backfiring on the U.S. economy and especially its manufacturing sector.

Actually, however, the new employment data show that the alarmists will need to wait at least another month for the statistics even remotely to justify their claims and warnings. For however disappointing the 20,000 net monthly increase in total American job creation and the 4,000 improvement in manufacturing payrolls, the internals provide no reason to assign significant – or any – blame to trade.

The first clue of course was the steep sequential drop in non-farm employment (the Labor Department’s U.S. jobs universe) generally speaking recorded in this first survey of February trends. After all, if the trade wars were mainly behind February’s results, why was the monthly drop-off in job creation nearly three times steeper in the overall economy (most of which has little global trade exposure) than in manufacturing (which has lots of it)?

At least as important, although the President began imposing tariffs on imports of steel and aluminum eleven months ago, manufacturing sectors heavily reliant on these metals keep outperforming the rest of manufacturing in employment terms. And similar trends are becoming apparent for the enormous number of industries that use various inputs from China that have been tariff-ed starting in July.

Below are the net hiring increases since April (the first full month of the new metals trade regime) for the American private sector as a whole, for all of manufacturing, and for the main heavy metal-using industries.

                                                   Old thru Jan.         New thru Jan.         Thru Feb.

entire private sector:                +1.36 percent         +1.62 percent      +1.64 percent

overall manufacturing:            +1.39 percent         +1.55 percent      +1.58 percent

durable goods:                         +1.72 percent         +1.97 percent      +2.04 percent

fabricated metals products:     +1.57 percent         +1.80 percent      +1.60 percent

non-electrical machinery:       +2.57 percent         +2.54 percent      +2.82 percent

automotive vehicles & parts:  +1.15 percent         +0.97 percent      +1.11 percent

household appliances:             not available           -2.52 percent        not available

aerospace products & parts:    not available          +5.93 percent        not available

The only metals-using sector that seems to have encountered employment trouble in February was the fabricated metals industry. And even in this segment of manufacturing, hiring since April has been slightly stronger than in manufacturing overall.

Automotive job creation has been weak as well, but actually enjoyed a relatively good February, relatively speaking. And although the appliance employment picture remains very weak, it needs to be remembered that it’s been laboring under an additional set of product-specific tariffs since late January.

Yet the entire durable goods sector continued to punch above its job creation weight in February, including the crucial machinery and (at least through January), aerospace industries. Why haven’t higher metals prices darkened their employment picture.

As for the impact of the China tariffs, that’s harder to judge for four reasons. First, an enormous number of manufacturing industries use Chinese inputs – and to greatly varying extents. Second, these levies only began in July, and then on a relatively small scale. Third, the list of products tariff-ed beginning in July matches up imperfectly at best with the sectoral classification scheme used by the Labor Department to track manufacturing employment. And fourth, most of the affected products are found in relatively narrow categories of manufactures, where the jobs data is one month behind.

So the following table shows the post-July employment performance of some major manufacturing sectors that use the Chinese parts, components, and materials tariff-ed that month. But it should be viewed with caution. Nonetheless, they show a heavy burden of proof on the tariff alarmists to identify any damage resulting from the China levies – especially since most of the July-January gains have been so strong.

                                                Old July-Jan.       New July-Jan.          July-Feb.

overall manufacturing           +0.91 percent      +0.98 percent        +1.00 percent

aircraft engines/engine parts: not available       +0.70 percent         not available

industrial heating equipment: not available      +3.02 percent         not available

oil/gas drilling parts:              not available      +3.93 percent         not available

farm machinery/equipment:   not available     +2.67 percent         not available

ball bearings:                         not available     +2.32 percent          not available

“Even a stopped clock is right twice a day” is a popular expression explaining why individual accurate statements or correct predictions shouldn’t automatically signal an information source’s broader credibility. The February jobs figures indicate once again that the trade alarmists haven’t even met this rock-bottom bar.

Making News: Video of Today’s CNBC Segment on Today’s U.S. Trade Figures Now On-Line!

Tags

American Enterprise Institute, CNBC, James Pethokoukis, Making News, tariffs, Trade, Trade Deficits, Trump

This morning I got a short notice invitation to appear on CNBC to dissect the new U.S. trade figures and explain the message they’re sending us about President Trump’s tariff-heavy trade policies.  There were so many numbers to crunch beforehand that I didn’t have a chance to send out a heads-up.  But since the network does a great job of archiving segments (and making them available for free), you can see the conversation (also featuring James Pethokoukis of the American Enterprise Institute) at this link.

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

(What’s Left of) Our Economy: Evidence that Tariffs Front-Running has Stalled Trump Trade Progress

Tags

aluminum, China, Commerce Department, imports, manufacturing, manufacturing output, manufacturing trade deficit, steel, tariffs, Trade, trade war, Trump, value added, {What's Left of) Our Economy

Yesterday’s post on the morning’s slew of manufacturing data released by the federal government could have included one more report: the Commerce Department’s latest sounding on gross domestic product by industry. And although this read on how different major sectors of the economy have been growing (or not) isn’t a market mover, it’s useful for analyzing the trade policy debate – for it enables calculations on how changes in the U.S. manufacturing trade deficit (a major concern of President Trump’s) compare with changes in manufacturing output.

Because this perspective provides the kind of context lacking when trade deficit increases or decreases are examined in isolation, it represents a much better way to judge whether the president’s trade policies are succeeding or failing according to one of his own main yardsticks.

And the verdict stemming from this new Commerce report? Progress that had been taking place during Mr. Trump’s tenure in boosting domestic manufacturers’ trade-related fortunes has come to a halt – probably because of what’s been called tariff front-running. That is, the President’s actual trade curbs and, doubtless much more important, his threats of additional curbs, have led overseas producers and their U.S. customers to boost greatly shipments to the American market in order to avoid paying as many of the levies as possible.

Consequently, as of the third quarter of last year (the latest data made available by Commerce), the U.S. manufacturing trade deficit resumed its long-term pattern of growing faster than domestic manufacturing production.

Specifically, between the third quarter of 2017 and the third quarter of 2018, U.S.-based industry increased its output by 7.23 percent according to a measure of growth called value-added (before inflation). During the same period, however, the manufacturing trade deficit jumped by 12.45 percent.

As made clear by my previous post on the subject, these results both contrast with the second quarter findings – when manufacturing production grew by 8.02 percent while the trade deficit widened by just 7.23 percent – and reversed a trend that began pretty much when the Trump administration did.

Just as clear – the first major Trump tariffs (on steel and aluminum imports) were slapped on in late March. So their arrival, along with China levies that began in early July and the much more sweeping duties imposed in late September and strongly hinted at in June, surely super-charged America’s import system.

Even with this step backward, it’s still evident that, so far during the the Trump years, domestic manufacturing is much less dependent on imports than before.  During the last year of former President Obama’s administration, for example, American manufacturing imports rose by 7.31 percent, while output expanded by only 4.53 percent – a pattern in place for most of the last twenty years.

But the real test of the Trump tariffs – at least concerning the manufacturing trade deficit – will come if and when U.S. trade flows settle into a new, post-tariff, normal, or one that follows the conclusion of the new, improved trade deals the President has promised. In that vein, the next chance to check these data will be April 19, when Commerce is scheduled to publish its fourth quarter and full-year, 2018 figures. Stay tuned!

(What’s Left of) Our Economy: So Much Manufacturing Data…So Few Trade War Answers

Tags

Census Bureau, core capex, Federal Reserve, Jerome Powell, manufacturing, Markit.com, Philadelphia Fed, tariffs, Trade, trade war, Trump, {What's Left of) Our Economy

What a day for U.S. manufacturing data! It no doubt raises major questions over whether President Trump’s tariff-centric trade policies are finally showing signs of damaging American domestic manufacturing (as has been widely claimed for months, despite an almost total lack of statistical evidence). Unfortunately, it’s a mixed and pretty muddy verdict that’s delivered by the separate reports from the Census Bureau (on national spending on the kinds of “core” capital goods made by U.S. manufacturers), the Philadelphia Federal Reserve Bank (on manufacturing in the mid-Atlantic states), and private sector consultancy Markit.com (on the overall state of domestic industry).

To be sure, the headline figures collectively were worrisome. The Census reading was both worse than expected, and strengthens the case that there’s been a softening on business expenditures on machinery and equipment not meant to build defense-related products (which, after all, reflect government decisions, not economic fundamentals) or aircraft (where demand is thought to be unusually volatile, and therefore likely to produce results that distort the figures for industries as a whole).

The Philadelphia Fed reading was the first such monthly reading since May, 2016 showing regional industry to be contracting rather than expanding. And the Markit report – something of a national version of the Philadelphia survey – signaled “the slowest improvement in business conditions since September, 2017.”

But the obstacles to drawing any broad conclusions, much less trade- and tariff-related conclusions – are formidable to say the least.

In the first place, it’s always dangerous to place major emphasis on a single month’s worth of results. In addition, the three surveys cover different time periods. The Philly Fed and Markit results purport to show conditions for February. The Census capital spending release only brings the story up to December. Not to mention that it came 35 days late due to the partial federal government shutdown.

Moreover, the Markit and Census results are preliminary. Revisions are rarely game-changers, but can sometimes turn contractionary readings expansionary – and vice versa.

It’s also crucial to distinguish between absolute drops in activity and relative drops. The Philly Fed report – which provides the most recent data – and the Census results describe absolute contractions in their indicators. But the Markit headline figure remains in expansion territory – it’s just not quite so expansionary.

As RealityChek regulars are used to reading, “Don’t ignore the internals.” And all three releases were filled with intriguing details. On the positive side, for example, the February Philly Fed report found that hiring by regional manufacturers not only kept increasing – it increased at a faster pace. That’s unusual for a manufacturing sector that’s supposedly contracting. And in fact, respondents professed to be slightly more optimistic about their future prospects in February than they were in January. Markit also reported strong February manufacturing employment along with other signs that “manufacturers remain firmly in expansion mode.” 

On the negative side, the Philly Fed reported big drops (both into absolute contraction) in both new orders and shipments. The former in particular seems like bad news for future business. And the Census capital spending results also are viewed as a forward-looking indicator – although they’re two months old.

Most challenging of all is figuring out what role the Trump tariffs have been playing, since they’re hardly the only development influencing manufacturing’s health. The economist who writes the Markit reports sums up the situation aptly, in my opinion:

“Businesses that experienced a soft patch for production cited a range of factors holding back growth, including adverse weather, worries about the global economic outlook and ongoing international supply chain uncertainty.” That last phrase refers to trade conflicts and their possible impacts. But of course, even assuming that such uncertainty was indeed a major cause of the soft patch, let’s not forget that soft patches often firm up quickly.

And don’t forget the Federal Reserve! Last October, Chairman Jerome Powell spooked investors by suggesting that the central bank would keep raising interest rates well into this year. Such “tightening” usually slows down growth by increasing the cost of borrowing for consumers and businesses. But in mid-November, Powell indicated he was having second thoughts and, after financial markets suffered through a terrible December, in early January convinced investors that he was serious about continuing easy money with an early January statement.

So as I see it, there’s still no significant evidence that the Trump tariffs themselves have already been hurting American manufacturing, and no compelling evidence yet that they will. But since no one has a whizbang crystal ball, and the stakes are so big, the intellectually honest course to take is to keep monitoring the data and report on them as accurately and as dispassionately as possible.

(What’s Left of) Our Economy: A Valentine’s Day Bust for Tariff Alarmists

Tags

aluminum, inflation, Labor Department, manufacturing, metals, metals-using industries, PPI, Producer Price Index, producer prices, steel, tariffs, Trade, wholesale prices, {What's Left of) Our Economy

If trade alarmists and tariff fear-mongers were hoping for a Valentine’s Day gift from Thursday’s producer price inflation report, they’re now nursing broken hearts. For the new numbers from the Labor Department continue the string of official data releases showing that President Trump’s trade curbs on imports of metals and various goods from China have generated no significant inflationary pressure in the economy overall. Indeed, there’s only the scantest evidence that they’ve created upward price pressure even in the products most directly affected.

As has been the case for months for this Producer Price Index (PPI) data – along with the statistics on consumer prices – the most reliable figures are the Trump tariffs on steel and aluminum imports, because they’ve been in place since March. But when it comes to the producer price results – which look at the economy from the wholesale sector’s standpoint – it’s worth examining the China-related data as well, since the first tariffs on producer goods from China were imposed in July. (P.S.: Keep in mind that the new statistics, which bring the story up to January, incorporate an annual set of revisions that in this case impact the seasonally adjusted numbers going back to 2014).

Prices for steel remain elevated through, January, but increases have lost noteworthy momentum. True, they rose sequentially in January by 0.50 percent and their initially reported monthly decline of 0.63 percent in December was revised to a 0.18 percent dip. Moreover, steel prices have risen by 11.02 percent since April – the first full month they were in effect. By contrast, the super-category in the PPI report in which they’re placed – processed goods minus foods and feeds – saw its prices decline by 0.55 percent during that period.

But most of the steel price increases took place over the summer. Since September, they’re down 1.20 percent. That’s not nearly as big a fall-off as for their super-category overall (where prices were off by 3.83 percent during this period). But it’s a decrease nonetheless.

Upon moving to aluminum prices, however, the notion that tariffs have been mainly behind these high and still rising prices breaks down completely – because aluminum pricing trends have been so completely different.

Whereas wholesale steel prices increased on-month in December, wholesale aluminum prices fell – by an unrevised 0.40 percent. Both metals registered a 0.50 percent sequential price rise in January.

But aluminum’s period of strong pricing power was considerably shorter than steel’s, and ended in June. And since that month, they’re down by 6.40 percent. That’s almost double the price slump experienced by its core processed goods super-category (the same as steel’s) – 3.37 percent. So something other than tariffs clearly has been driving the price movements of these metals on the wholesale level.

Important divergences also appear in the data for metals-using industries. Last month, for example, we found that prices for sectors like pumps, compressors, and related equipment; mining machinery and equipment; construction machinery and equipment; and metal-forming machine tools, rose faster on month than prices in their super-category – final demand goods minus food and energy.

In January, these trends continued for construction machinery and that machine tools sector. But the new monthly increases for other metals-using sectors, like agricultural machinery and equipment (0.21 percent), metal-cutting machine tools 0.30 percent), industrial materials handling equipment (0.17 percent), and machine tool parts and mold-making equipment (flat), were considerably weaker, and completely in line or softer than the latest monthly price increase for the core final demand goods category (0.26 percent). That’s significant given recent solid output growth for the entire manufacturing sector, and especially the durable goods industries that rely heavily on metals as inputs.

Nonetheless, increases pushed through earlier in the year helped most metals-using sectors produce price hikes on a January-to-January basis considerably stronger than that for the core final demand goods super-category (2.40 percent).

Switch over to “intermediate demand” goods and you find mixed results, too. Big annual price hikes have been seen in sectors like metal containers, fabricated wire products, and certain kinds of valves (for January, 5.58 percent, 15.56 percent, and 5.77 percent, respectively). These increases all exceeded that for their core intermediate demand super-category (0.97 percent). Yet they were all lower than the December figures (6.46 percent, 16.42 percent, and 6.03 percent). (The intermediates super-category figure was 3.29 percent for that month.) So some inflation momentum has been lost.

Since the metals tariffs were imposed, prices of metal containers have risen 2.01 percent, prices of fabricated wire products have risen 10.16 percent, and prices of those valves are 2.82 percent higher. All these inflation rates are much faster than that of the intermediate demand super-category (where prices overall fell 0.55 percent during that period). But as with the annual figures, they vary considerably, with the wire products sticking out like an especially sore thumb.

The first Trump China tariffs weren’t imposed until early July, so the sample size is smaller. But the case for tariff-led wholesale inflation on this front is just as weak as in the metals-related sectors.

The evidence for tariffs-led producer price inflation is much weaker for goods imported from China – perhaps because the levies haven’t been in place for nearly as long as the metals tariffs. The table below shows the PPI changes for some of the leading products found on the Trump administration’s initial China tariff list. They were imposed on July 6, so the numbers show the cumulative price changes since August. (Note: Because the administration’s Trump announcement used a different classification system than that used in the PPI reports, the below data don’t match up exactly with that tariff list. But the following goods are all at the least main parts of the items on the Trump list, or vice versa. The same holds for the super-category figures used, as with metals tariff-related products, for comparison’s sake.)

                                                                                  Aug.-Dec.            Aug.-Jan.

core processed goods for intermediate demand:   -0.88 percent       -2.50 percent

aircraft engines and engine parts:                         +0.04 percent      +0.44 percent

ball bearings:                                                         +1.01 percent     +1.24 percent

electric generators:                                                +1.61 percent     +1.66 percent

medical, surgical & personal aid devices:            +0.34 percent      +0.93 percent

core commodity final demand                              +0.64 percent      +1.13 percent

industrial heating equipment:                               +1.79 percent      +2.41 percent

oil and gas drilling platform parts:                              0 percent              0 percent

farm machinery and equipment:                           +2.26 percent      +2.55 percent

paper-making machinery:                                     +0.31 percent      +0.52 percent

electricity transformers:                                        +0.12 percent      +0.68 percent

medical, surgical, and personal aid devices:         +0.33 percent      +0.93 percent

X-ray and electro-medical equipment:                  +0.12 percent     +0.37 percent

In a phrase, these results are all over the place – strongly indicating that the tariffs have not been the leading cause of their price changes. The only consistent pattern suggesting a notable tariff effect emerges after comparing the August-December and August-January results. In the core intermediate demand grouping, prices dropped at a faster pace between the two periods. But for the China-related goods, they rose, albeit at different rates.

In the core final demand grouping, prices rose at a faster pace for the super-category, and for all the specific goods within it except for oil and gas drilling platform parts. Interestingly, though, the acceleration for two other sectors – farm machinery and equipment and paper-making machinery – was slower than for the super-category as a whole. In addition, during the latest, August-to-January, period, prices for no less than five of the seven sectors rose more slowly than for the super-category for a whole – again signaling the strong influence of non-tariff factors.

America’s globalist elites haven’t lost credibility solely or even mainly because of trade policy. But that’s surely been part of the mix. And if they want to start regaining some, they might think about admitting that facts really do matter, and that scarcely any of them support their tariff fear-mongering.

(What’s Left of) Our Economy: The New Manufacturing Output Data Belie Tariff Fear-Mongering Yet Again

Tags

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

Tariff fear-mongers must have felt a shiver of excitement when today’s new industrial production report came out from the Federal Reserve. For the results showed the inflation-adjusted manufacturing output shrank in January by 0.90 percent – the third sequential decline since the first Trump administration metals tariffs went into effect, and the second since the first round of its China tariffs went into effect. Surely these figures made clear that their claims of the levies hurting American manufacturing were finally coming true! Even better, from their standpoint, revisions were slightly negative.

What a shame to report then that an examination of those always crucial internals demonstrates beyond a reasonable doubt that the trade curbs have had nothing to do with any trouble industry may (or may not) be running into. The evidence? The continuing excellent results registered by metals-using industries, and mixed figures for the much smaller number of sectors where the impact of the first China tariffs (whose first full month was only last August) can reliably be measured.

Here are the changes in real production for the major metals-using industries starting with April – the first full month during which these sectors had to deal with the levies. The table shows the previously reported data for December, the new December data, and the January figures. (All these statistics, it should be noted, are still preliminary.) And they would challenge even the cleverest D.C.-based spin-meister to construct a narrative supporting the popular Twitter hashtag #TariffsHurt:

                                                         old thru Dec.      new thru Dec.       thru Jan.

overall manufacturing:                   +2.02 percent      +2.11 percent   +1.20 percent

durables manufacturing:                +3.31 percent      +3.45 percent   +1.65 percent

fabricated metals products:            +2.05 percent      +2.82 percent   +3.19 percent

machinery:                                     +4.93 percent      +4.38 percent   +3.87 percent

automotive:                                    +3.36 percent      +3.93 percent    -5.18 percent

major appliances:                           +0.08 percent      +3.13 percent    -2.87 percent

aircraft and parts:                           +6.80 percent      +6.14 percent   +6.35 percent

As has been the case almost consistently since the trade curbs on steel and aluminum went into effect, most of the industries relying especially heavily on these metals have actually out-performed the rest of manufacturing. And the struggles indicated here of sectors like automotive and major appliances sure spring from developments distinctive to those sectors – in automotive, major recent volatility (which has also led to major recent revisions) and in appliances, a separate set of levies on large household laundry machines that went into effect in February. The above figures, moreover, even point to volatility in appliance production.

It’s more difficult to gauge the impact of the China tariffs because the first (relatively minor) tranche has been in effect for a much shorter period, and because the levies were based on a system for classifying manufacturing that’s different from the system used in the Fed’s industrial production reports (as well as most major federal government data). So matching up industries is a daunting task, and the more I think about it, the more I’m convinced that even the short list of sectors I presented last month for the December industrial production report contained too many industries where the match-up simply wasn’t close enough to be useful.

Below, therefore, are the only the sectors for which I think it’s possible to draw any firm conclusions, along with the total manufacturing results as a control figure. This highly limited sample shows the latest after-inflation growth rates from August (again, the first full months the first China tariffs were in effect) through December, and through January. And the only consistent trend visible here is volatility.

                                                                       Aug.-Dec.                    Aug.-Jan.

overall manufacturing:                              +1.26 percent              +0.36 percent

ball bearings:                                             +0.02 percent               -0.09 percent

industrial heating equipment:                    +5.19 percent              -3.86 percent

farm machinery and equipment:                +2.50 percent              +9.12 percent

As the next few months pass, it will be possible to examine usefully the China tariffs’ impact on more and more manufacturing sectors. To date, however, the grade is “incomplete” (at best). As for the effects of the steel tariffs, though, isn’t it time to consider putting that #TariffsHurt hashtag way out to pasture?