(What’s Left of) Our Economy: A New U.S. Manufacturing Growth Report That’s the Good Kind of Boring

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aerospace, aircraft, aircraft parts, automotive, Boeing, Build Back Better, CCP Virus, China, coronavirus, COVID 19, Federal Reserve, inflation-adjusted output, infrastructure, interest rates, Iran, Iran deal, Israel, Joe Manchin, machinery, manufacturing, medical devices, nuclear deal, Omicron variant, personal protective equipment, pharmaceuticals, plastics and rubber products, PPE, quantitative easing, Russia, semiconductors, stimulus, supply chains, Taiwan, tariffs, therapeutics, Trade, Ukraine, vaccines, Wuhan virus, {What's Left of) Our Economy

Today’s Federal Reserve after-inflation U.S. manufacturing data (for November) were refreshingly (though encouragingly) boring, with one exception – some genuinely eye-popping revisions in specific, high-profile industries.

Overall real manufacturing output improved on month by 0.68 percent, adding to the evidence that domestic industry has bounced back from summer and early fall doldrums caused partly by damage from Hurricane Ida and partly by a global semiconductor shortage that depressed automotive production.

And in this vein, the November results weren’t dramatically impacted by the vehicle and parts sector, whose inflation-adjusted production rose by a 2.22 percent figure that’s clearly strong but decidedly un-dramatic compared with the roller-coaster it’s been on for most of the year.

In addition, revisions for manufacturing as a whole were modest and mixed.

The list of November’s biggest monthly manufacturing growth winners indicates how broad-based industry’s sequential constant dollar output gains were in November. No fewer than six of the major manufacturing subsectors tracked by the Fed enjoyed price-adjusted production advances of more than one percent. Aside from automotive, they were aerospace and miscellaneous transportation (whose 1.64 percent increase included another strong rise in aircraft, as will be detailed below); paper (up 1.63 percent); plastics and rubber products (1.45 percent); non-metallic mineral goods (1.25 percent); and textiles (1.21 percent).

The biggest losers were petroleum and coal products (down 1.24 percent on month); machinery (off by 0.66 percent); apparel and leather goods (0.53 percent); and printing and related support activities (0.50 percent).

But even in this group, hopeful signs can be found. As RealityChek regulars know, drps in machinery production are worrisome because its products are used so widel in the rest of manufacturing and in big non-manufacturing sectors like construction and agriculture.

But the November decline followed one of those eye-popping revisions. October’s originally reported 1.27 percent sequential decrease is now judged to be a 0.59 percent increase.

Moreover, the printing and petroleum and coal products fall-offs were both preceded by October real production advances that have been downwardly revised (from 4.97 percent to 3.79 percent for the former, and from 1.41 percent to 1.18 percent for the latter) but were still impressive.

Manufacturing industries that have been prominent in the news during the pandemic generally performed worse in November, save for aircraft and parts – whose performance was spurred by news from industry giant Boeing that continues to be pretty good. (See, e.g., here and here.) After-inflation production climbed by 1.90 percent month-to-month in November, and October’s 1.43 percent increase was revised up to 1.54 percent.

Even with a second downward revision to September’s inflation-adjusted output (from 0.45 percent all the way down to a negligible 0.09 percent), constant dollar output in aircraft and parts is now 15.86 percent higher than in February, 2020 – the last full data month before the CCP Virus began seriously distorting the U.S. economy.

Pharmaceuticals and medicines, however, lost even more growth momentum. Despite major demand for and use of vaccines, their price-adjusted output dipped by 0.15 percent sequentially in November, and October’s decrease was revised from 0.51 percent to 0.76 percent. But September saw another one of these enormous revisions – from a downgraded 1.04 percent production fall to a 0.76 percent gain. All told, these industries are now 13.54 percent bigger in constant dollar terms as of November than in February, 2020.

The news was worse in the crucial medical equipment and supplies sector – which includes virus-fighting items like face masks, protective gowns, and ventilators. Real production in November was off by 0.61 percent month-to-month in November, and October’s previously reported 1.08 percent decrease is now estimated at a greater 1.91 percent. Moreover, September’s results saw their second big downgrade – first from an initially reported 1.53 percent growth to a 0.73 percent gain, and this morning to one of just 0.16 percent. So since February, 2020, after-inflation production in this sector is up a mere 0.65 percent.

As with the entire economy, the manufacturing sector is being pushed and pulled by what seems to be an unprecedented number and type of forces and government decisions. On balance, though, unless the Omicron variant of the CCP Virus prompts much more voluntary or officially mandated disruption at home or abroad than seems likeliest now, further manufacturing growth still looks like the best bet for the foreseeable future.

Although prospects for stimulus from President Biden’s Build Back Better bill seem barely on life support due to West Virginia Democratic Senator Joe Manchin’s continuing objections, and the Federal Reserve yesterday announced further reductions in its stimulative bond-buying (AKA quantitaive easing), infrastucture bill money should soon begin flowing.  Further, the central bank still made clear that heavy levels of quantitative easing will continue for months more, and is in no rush to start raising interest rates.

Most consumers still have plenty of money to spend, even though further inflation could weaken their appetites. U.S. employment levels keep rebounding strongly by most measures. Supply chain knots continue untangling, albeit not always quickly. Mr. Biden is keeping nearly all of his predecessor’s China tariffs in place, which is preventing predatory Chinese competition from taking customers from domestic manufacturers. The brightening Boeing picture will help its entire vast U.S.-based supply chain. And American and overseas demand for both CCP Virus vaccines and now therapeutics will surely keep growing whatever the rest of the domestic or global economies do.

One set of gathering clouds shouldn’t be neglected, however. I don’t mean to sound alarmist, and don’t believe conflicts are imminent, but what the investment community calls “geopolitical risk” is troublingly on the rise in Asia (due to mounting Chinese pressures on Taiwan) and Europe (due to Russia’s military buildup on the Ukraine border). Moreover, although negotiations to slow Iran’s progress toward nuclear weapons capability have resumed, this has been ongoing and nearing critical threshholds. And it’s far from clear how well a nuclear Iran would go down with Israel – just as it’s far from clear how well domestic manufacturing and the rest of the economy could withstand a second major non-economic disruption in a very few years.

Im-Politic: Is the U.S. Really a CCP Virus Outlier?

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CCP Virus, coronavirus, COVID 19, lockdowns, shutdowns, therapeutics, Trump, vaccines, Worldometers.info, Wuhan virus

It seems pretty clear that President Trump is in serious danger of losing Election 2020 in part because of his handling of the CCP Virus. Much less clear, especially as a second virus wave washes over not only the United States much of the rest of the world, is whether, as frequently charged , Mr. Trump’s record has been such an outlier. And if this allegation is still clear to you, consider the following data showing the rising numbers of infections in the world’s major high-income economies.

The period covered is, with the exception of France, October 2 (around the time when increases began significantly increasing) to yesterday (November 9). The numbers come from the well regarded Worldometers.info website:

United States: 140.20 percent

France: (Oct. 3): 18.75 percent

Spain: 74.62 percent

United Kingdom: 81.64 percent

Italy: 911.33 percent

Germany: 481.19 percent

Netherlands: 22.35 percent

Canada: 117.61 percent

Sweden: 380.20 percent

Japan: 53.07 percent

It’s important to note that these percentages could well change dramatically on very short notice – because some have already changed dramatically in the last few days. For example, through November 7, France’s increase was 411.74 percent. Through October 30, the Netherlands’ was 190.69 percent.

But it’s even more important to note that, especially taking these recent and potential fluctuations into account, America’s results are in the middle of the pack – and even closer to the lower end.

Although any evaluation of these statistics also needs to recognize that major, virus-relevant differences separate these countries (e.g., population density, climate, various demographics), they’re also separated, as widely noted, by substantially different approaches to CCP Virus mitigation. (Regarding population density in particular, that’s why I’m not mentioning very small, crowded European countries like Belgium and Switzerland and Luxembourg. In fact, I almost left out the Netherlands for this very reason.)

And in this vein, it’s more than a little interesting with worst recent records than the United States are Germany and Italy – where lockdowns of their economies and societies have been much more prompt and complete than in the United States.

This leaves the continuing major knock on the Trump record the exceptionally big absolute numbers of virus infections in the United States (including on a per capita basis) compared with those of peer economies and societies. It’s a big knock. But unless you think that large countries can or should be shut down until whatever public health goal their governments happen to set at a given time (bending the curve? slowing the spread? “crushing the virus”?), it shouldn’t be difficult to recognize that the appearance of a second wave immediately following the first reopenings in heavily locked down countries shows that putting the clamps on at best kept the virus temporarily dormant.

One possible conclusion to which these common problems being faced by such a diverse group of countries is one that the American character seems especially resistant to — that not all problems are readily solvable, or solvable at all, or even easily mitigated (at least until science figures out how to produce safe and effective vaccines and cures much faster). And if many of President Trump’s critics can be faulted for such assumption, he’s guilty of similar pollyannism due to his numerous claims that the virus is “under control” – even though nothing about its spread through Europe, in any case, indicated that enduring progress like this was possible at these stages.

That’s not to say that Americans shouldn’t prize their can-do spirit, or that governments are helpless in the face of such disasters – especially since, as far as is known, this disaster wasn’t government- or man-made. And it certainly doesn’t mean that better performance (in addition to better messaging) shouldn’t be expected and demanded. But it does point to the need to scale back expectations and demands, specifically to the realm of the doable, of tradeoffs and genuinely tragic choices, and of the priority-setting that naturally follows.

There’s no guarantee that national leaders will be rewarded for this kind of sober realism. But if this latest U.S. presidential election is any indication, there’s no guarantee that peddling overly rosy scenarios pays off with voters, either.