This morning brought another poor result for U.S. domestic manufacturing – specifically, a 0.52 percent decrease in inflation-adjusted output that was its worst such performance since January’s 0.66 percent sequential decline. As a result, the temptation is to blame the Trump tariffs that have so dominated economic and business news headlines, but as usual, the data simply don’t support this claim.
Unquestionably, these new figures from the Federal Reserve point to a problem with American industry. Tariffs, however, look beside the point. Instead, the numbers reveal what looks like an April problem and an automotive problem, and especially where tariffs on metals are concerned – the major Trump-era levies that have been longest lasting, and where the affected manufacturing sectors are easiest to identify.
Here are the numbers for the economy’s chief metals-using industries. They start in April, 2018 (the first full months when the steel and aluminum levies went into effect). They show the growth rates between then and the last three data months. They include the statistics for overall manufacturing as a control group. And I’ve added two new pieces of information: the year-on-year real production changes for these sectors, and the data for durable goods manufacturing stripped of the automotive industry’s performance.
Apr thru Feb Apr thru March Apr y/y prev Apr y/y
overall manufacturing: +0.48% +0.52% 0.00% +2.33%
durables manufacturing: +1.31% +1.35% +0.40% +2.49%
fabricated metals prods: +2.87% +2.72% +2.14% +4.44%
machinery: +1.49% +1.92% -0.69% +4.05%
automotive: -1.71% -1.93% -4.43% +3.07%
major appliances: -1.43% -6.77% -10.44% +0.03%
aircraft & parts: +4.89% +6.08% +4.82% -1.30%
durable mfg ex-automotive: +1.82% +1.91% +1.21% +2.41%
Comparing the automotive and the durables ex-automotive lines clearly shows both the automotive and April effects – with the latter suggesting the possibility of a production hiccup. Strengthening that interpretation: except for the major appliance category, nearly all the April, 2018-March, 2019 growth rates exceeded the April, 2018-February, 2019 growth rates. Moreover, the April automotive nosedive (which has taken place both on a month-on-month and year-on-year basis), is especially important because vehicle and parts production use so much in the way of machinery and fabricated metals products.
In addition, the safety issues encountered by Boeing may be responsible for the April aviation growth slowdown that may also have contributed to manufacturing’s broader woes that month.
The major appliances figures above continue to stick out like a sore thumb. But of course, this sector has faced not only metals tariffs, but separate product-specific levies that went into effect in February, 2018. In addition, America’s slumping housing sector has surely depressed sales and therefore production for reasons having nothing to do with tariffs.
As known by RealityChek regulars, gauging the impact of the tariffs on products from China is much more difficult for numerous reasons. Their role as inputs for manufacturing industries varies. The manufacturing classification system used by Washington for designating the tariff-ed products differs from that used for the Fed production statistics. The levies have been in place for a shorter period of time. And their scope has changed since the first batch went into effect in August.
Further, let’s not forget that the China tariff regime is due for some big changes starting in June, when President Trump has just decided that levies will rise on $200 billion worth of products from the People’s Republic. So the data below may tell us little about what to expect going forward. Here they are nevertheless for the handful of industries for which I’m sure the numbers create a reasonably accurate picture.
Aug thru Feb Aug thu March Aug thru April
overall manufacturing: -0.33% -0.38% -0.90%
ball bearings: +0.32% +0.25% +0.14%
industrial heating equip: -2.60% -1.85% -5.69%
farm machinery & equip: -16.86% -11.65% -10.40%
oil/gas drilling platform pts: +4.59% +4.35% +2.68%
Something of an April slump can be seen here, too (which in theory is hard to connect to the China tariffs), except for the farm machinery sector.
The classic Wall Street sales pitch warns (eventually) that “Past performance is no guarantee of future results.” So especially considering the higher China tariffs on the way in two weeks, and the possibility that all goods imports from China will be hit by levies at some future date, predicting manufacturing’s growth performance for the rest of this year seems unusually chancy.
Yet the April figures unmistakably show (yet again) that domestic U.S. manufacturing continues to withstand the metals tariffs with ease.
