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

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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.

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Making News: Podcast On-Line of Last Night’s National Radio Trade War Interview

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China, Gordon G. Chang, Making News, The John Batchelor Show, Trade, trade war, Trump

I’m pleased to announce that the podcast is now on-line of my interview last night on John Batchelor’s nationally syndicated radio show on the U.S.-China trade conflict.  Click here for a great 5-way discussion (!) involving John, co-host Gordon G. Chang, me, plus some surprise participants!

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

 

Following Up: Back Indeed on National Radio Tonight Talking China!

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China, Following Up, Gordon G. Chang, The John Batchelor Show, Trade, trade war, Trump

I just got the word that I will indeed be appearing tonight on John Batchelor’s nationally syndicated radio show to update the U.S.-China trade war story with John and co-host Gordon G. Chang.  And the segment will focus in particular on my new piece for The National Interest on President Trump’s unmistakable but ragged progress toward the essential goal of disengaging the United States from China economically.

The interview is slated to begin at 10:15 PM EST, and you can listen live on-line at this link.  As usual, if you’re not able to tune in, I’ll be posting a link to the podcast as soon as one’s available.

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

 

Making News: A New Op-Ed on Trump China Policy…& Back on National Radio Tonight?

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China, Making News, The John Batchelor Show, The National Interest, Trade, trade war, Trump

I haven’t been posting as much lately as usual, in part because I’ve had to fulfill some outside writing commitments.  So I’m especially pleased to report that one of these assignments was just posted by The National Interest.  The article explains why, despite his chaotic approach, President Trump remains likely to win the trade conflict with China, and can be read at this link.

In addition, it’s possible that I’ll be returning tonight to John Batchelor’s nationally syndicated radio show tonight to help provide an up-to-the-minute update on the u.S.-China trade talks.  John’s travel schedule is apparently creating some uncertainty for his producers, and I’ll let you know as soon as I can if I’ve gotten the green light.  And if my notice is too short, I’ll of course post a link to the podcast forthwith.

Right now, I’m heading back to a deep dive I’m doing on the impact of the President’s China tariffs on imports of goods from China.  I hope I’ll be able to wrap it up in time to post tomorrow.  For the time being, though, 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

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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.

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

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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.

Making News: Back on National Radio to Update the U.S.-China Trade War…& More!

Tags

China, Gordon G. Chang, Making News, manufacturing, Thaddeus McCotter, The John Batchelor Show, Trade, trade war, Trump

I’m pleased to announce that I’m scheduled to return to John Batchelor’s nationally syndicated radio show tonight to provide an update on the latest twists and turns in the U.S.-China trade conflict.  Click here to listen on-line to what’s sure to be a timely discussion among John, co-host Gordon G. Chang, former Michigan Republican Congressman Thaddeus McCotter, and me.  The segment is slated to start at 10:15 PM EST.

In addition, the podcast is now on-line of my Monday night interview on the Batchelor Show.  Our main subject?  Can the U.S. divorce itself economically, and if so, how thoroughly and how fast?  Here’s the link.

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

Making News: Two National Radio China Trade Podcasts — & More!

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Breitbart News Tonight, China, Gordon G. Chang, i24News, Making News, manufacturing, offshoring, The John Batchelor Show, Trade, trade war

I’m pleased to announce some new broadcast appearances.

Last night, I returned to John Batchelor’s nationally syndicated radio show to provide an update on the U.S.-China trade talks that are taking place in Washington, D.C. right now.  Click here for a timely discussion involving John, me, and co-host Gordon G. Chang.

Incidentally, you might notice that John was not sounding like his usual chipper self.  He’s in the middle of some radiation treatment, and although he’s obviously a strong believer that “the show must go on,” he’ll be taking a break for several weeks to complete the regimen.  He says his prognosis is bright, but I’m sure you’ll all join me in wishing him a speedy and complete recovery.

Also, on Monday, I got a last-minute invitation to appear on Breitbart News Tonight to discuss the China trade talks as well as a bizarre New York Times article pretending to explain why more manufacturing can’t be returned from China to the United States.  Here’s the link to this radio interview.

Finally, tonight I’m scheduled to appear on Israel’s i24News tonight to analyze the China talks.  This television network offers only paid content on-line – including streaming videos of previous segments. But if you’re a subscriber, I hope you’ll be able to tune in live at 7:30 PM EST.

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

 

Making News: Today’s CNBC China Trade War Interview Now On-Line

Tags

China. trade, CNBC, Making News, Power Lunch, tech, trade war, Trump

I’m pleased to announce that the video of my interview on CNBC’s “Power Lunch” show this afternoon is now on-line.  Click here to see a timely discussion about what President Trump has done well – and badly – in the trade and tech conflict with China.

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