Our So-Called Foreign Policy: Could the West Blink First on the Anti-Russia Sanctions?

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energy, fossil fuels, G7 Summit, Group of 7, inflation, NATO, North Atlantic treaty Organization, Our So-Called Foreign Policy, Russia, sanctions, Ukraine, Ukraine-Russia war, Vladimir Putin

Quite a few years ago, I fretted here that one big obstacle could appear before too long to any U.S. government ambitions to squelch cyber attacks from rogue states with cyber retaliation of its own: Some of the main rogue states (like Iran and North Korea) and larger aggressors (like Russia and China) were likely to have a higher pain threshhold than America’s because they were so much poorer and their populations so much more used to hardship. So in any prolonged cyber duel, Washington could well be forced to cry “Uncle” before its adversaries.

Fast forward to today, and this very problem seems to be plaguing the U.S. and  overall free world/western policy of punishing Russia for its invasion of Ukraine with various kinds of economic sanctions.

It’s not that Russia’s economy hasn’t suffered from these measures. But headlines and news developments like this have become awfully common in recent weeks:

>”U.S.-Led Alliance Faces Frustration, and Pain of its Own, Over Russia Sanctions”;

>”Pressed by domestic economic challenges and a desire to see European nations contribute more to Ukraine’s defense, U.S. lawmakers appear more wary of committing further military aid for Ukraine or slapping new sanctions on Russia”;

>”French energy giants tell households to ration supplies ahead of looming winter shortage”; and

>”Japan tells business and public to save power to avert Tokyo blackout”

And accompanying these reports have been news items and findings like:

>”Russia’s economy is weathering sanctions, but tough times are ahead”;

>“Why Russia’s Economy Is Holding On”;

>”Russia’s ruble hit its strongest level in 7 years despite massive sanctions”; and

>Revenue from Russia’s fossil fuel exports “exceeded the cost of the Ukraine war during the first 100 days….”

As indicated, Russian stoicism isn’t all that’s at work. The country’s immense fossil fuel deposits, the world economy’s continued crying need for them (preventing the sanctions from being global in scope), and the high prices oil in particular has been fetching ironically because sanctions have crimped overall global supply, have enabled Moscow to keep its economy a going concern. Russian dictator Vladimir Putin, clearly certain that he’d antagonize many foreign powers with his expansionism plans, has also been working for years to insulate his country from just these punitive measures. (See, e.g., here.)

But by the same token, for many years, Putin’s imperial ambitions, the massive amounts of resources they’ve commanded, the curbs on personal spending required to build a fortress economy, and the pervasive corruption he’s needed to tolerate (and even encourage) to keep potential rivals placated (and of course feather his own nest) have produced a dismal failure of an economy by virtually every important non-security-related measure. (See here and here for two especially insightful analyses.) And yet there’s absolutely no sign that conditions that western populations would find completely unacceptable have remotely immiserated the Russian people enough to spark any kind of revolt.

Moreover, considering this situation in light of the recent statement by Jens Stoltenberg, head of the North Atlantic Treaty Organization (NATO) that the Ukraine conflict could last for “years,” it’s easy to see why the mounting energy shortages and historic inflation they’ve helped feed could tip the odds surrounding the current economic conflict of wills in Moscow’s favor.

And it’s no discredit to the American character to venture that U.S. resolve seems particularly vulnerable precisely because economic sacrifices continue to be demanded on behalf of a country whose fate has never been and is not now a vital security or economic interest.

To me, there’s an obvious message being sent by these trends and circumstances – along with the steady transformation of Eastern Europe into a genuine powderkeg that could all too easily explode into a nuclear World War Three: It’s becoming more important than ever to end this conflict and its clearly unforeseen, tremendous collateral damage ASAP, even if the outcome isn’t ideal from Ukraine’s standpoint.

But that’s not what the heads of government of the Group of Seven (G7) major industrial powers think.  They’ve just declared at their current summit in Germany, “We will continue to provide financial, humanitarian, military and diplomatic support and stand with Ukraine for as long as it takes” – even though before too long these leaders may start running out of followers.   

Our So-Called Foreign Policy: The Ukraine War Has Entered a New Phase. Will U.S. Policy?

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Antony J. Blinken, Biden, diplomacy, Lloyd Austin, Our So-Called Foreign Policy, Russia, Ukraine, Ukraine-Russia war, Volodymyr Zelenskyy

Remember the wonderful opening lines of the first installment of Peter Jackson’s masterful film adaptation of The Lord of the Rings trilogy? In case you’re not a fan of J.R.R. Tolkein’s Middle Earth writings, they went like this: “The world is changed:  I feel it in the water, I feel it in the earth, I smell it in the air.”

They came to mind to me today upon reading some of the big national media headlines on the course of the Ukaine war.

Like this from The New York Times: “As Russia Forges Ahead, Europe Recaluclates.”

And this from The Wall Street Journal: “Ukraine Fears Defeat in East Without Surge in Military Aid.”

And this plea from a Washington Post opinion column: “We can’t let Ukraine lose. It needs a lot more aid, starting with artillery.”

In fact, this theme began appearing even before this morning.

Like the Los Angeles Times’ claim that “Momentum shifts in Ukraine war as Russia advances in the Donbas.”

And then there’s the news that’s been dribbling out from Kyiv on Ukrainian casualties – numbers that had been very closely held. But on May 31, President Volodymyr Zelenskyy stated that his country’s military was losing up to 100 killed and 5oo wounded each day. Just over a week later, Zelenskyy aide Mykhalo Podolyak pegged the daily battlefield deaths at between 100 and 200 – which presumably means a higher wounded count, too.

Don’t get me wrong: None of this means that Ukraine is doomed to defeat at the Russian invaders’ hands. But it sure looks like we’re a long way away from the heady days of just one and two months ago, when

>U.S. Defense Secretary Lloyd Austin was declaring that the Biden administration and most of the rest of the world believed that Ukraine “can win” the struggle;

>when Secretary of State Antony J. Blinken endorsed the goal of ensuring that the Ukraine invasion turned into a “strategic defeat” for Russia; and

>when Defense Department spokesman John Kirby stated that “We want Ukraine to win this fight [with Russia] and we are doing everything we can here, at the Department of Defense, to make sure they have the capabilities to do that.”

And the apparent shift in the war’s momentum, especially in Ukraine’s east, adds urgency to questions that understandably receded in importance when a victory by Kyiv seemed much more plausible.

Principally, President Biden recently stated that his goal was moving “to send Ukraine a significant amount of weaponry and ammunition so it can fight on the battlefield and be in the strongest possible position at the negotiating table.” Yet how will he reconcile the likelihood that the continued heavy combat bound to result from these efforts on the one hand, with the determination he expressed on the other hand — in the same article — to keep the war within Ukraine’s borders and thereby avoid a direct U.S.-Russia military confrontation that could all too easily escalate to the nuclear level?

How will he decide when Ukraine is armed well enough to negotiate successfully? And how does the President’s reference to arming Ukraine to maximize its chances in peace talks dovetail with his position that his “principle throughout this crisis has been ‘Nothing about Ukraine without Ukraine.’ I will not pressure the Ukrainian government — in private or public — to make any territorial concessions. It would be wrong and contrary to well-settled principles to do so”?

From a purely tactical standpoint, if Ukraine continues refusing even to consider compromises on territory or on sovereignty, (which could include the issues of membership in the North Atlantic Treaty Organization or the European Union) then how important — let alone successful — could any negotiations be?

From a broader standpoint, does Mr. Biden really believe that Ukraine should call all the shots related to this crisis once the conflict enters the diplomatic phase? And why would he keep deferring to Ukraine even though he’s implicitly acknowledged that the United States has its own crucial interests – chiefly avoiding a wider war and direct superpower conflict – that aren’t necessarily identical with Ukraine’s goals? 

At the same time, it’s possible that the President doesn’t believe that the war is in a new phase at all.  And he may be right. If that’s the case, though, he’d be well advised to level with the American public, because the kind of lengthy stalemate and lack of an exit strategy this conclusion implies means that there’s no exit strategy for the surging oil and gasoline prices, consequently worsening overall inflation, and higher federal spending brought on by the conflict, either.      

(What’s Left of) Our Economy: America’s Now Definitely Inflation-Nation

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baseline effect, Biden administration, consumer price index, core inflation, CPI, energy, Federal Reserve, food, inflation, prices, recession, stimulus, Ukraine, Ukraine-Russia war, {What's Left of) Our Economy

Today’s official U.S. report on consumer inflation was so bad that even what ‘s being pitched (for example, to a limited extent by President Biden) as kind of goods news isn’t anything close. As has so often been the case in the last year, one big key is looking at the so-called baseline effect. But the new (May) results for the Consumer Price Index (CPI) also highlight a reality that I and many others have been noting – the less-than-meets-the-eye difference between the headline and “core” CPI numbers.

The bad news about inflation is clear enough from the rise in the headline number – which tracks price increases throughout the entire economy. The 0.97 percent monthly increase wasn’t as scary as the 1.24 percent jump between February and March t(he highest since July, 1980’s 1.33 percent), but it was still the biggest since June, 1982’s 1.15 percent price surge.

Similarly, on an annual basis, May’s 8.52 percent overall CPI increase was lower than March’s 8.56 percent. But for all intents and purposes, both months’ results were the worst since December, 1981’s 8.91 percent disaster.

The (modest) ray of light that supposedly shone from the new inflation report came in the core figure – which strips out food and energy prices because they’re supposedly volatile for reasons having nothing to do with the economy’s alleged fundamental vulnerability to inflation.

To be sure, the monthly numbers shouldn’t have been the source of any encouragement. The May 0.63 percent sequential increase in core inflation was the hottest number since last June’s 0.80 percent, and represented the third straight month of acceleration.

Instead, glass-half-full types were pointing to the latest annual core increase. At 6.01 percent, May’s was the lowest since December’s 5.48 percent, and represented the third straight month of deceleration.

But here’s where the glass-half-empty types gain the upper hand. First, as I and – again – many others have observed, although food and energy prices do often move (down as well as up) for reasons largely unrelated to how overheated or not the economy may be. But energy prices in particular profoundly affect the cost of everything Americans make, sell, and buy that needs to be transported. And that means pretty much everything, including services, which typically rely on goods to get to customers. So there’s often an incontrovertible link between headline and core inflation.

Second, both energy and food prices are also often closely related to the economy’s overall levels of demand. And nowadays, they’re bound to keep rising as long as producers can pass them on to their customers. This in turn is the case because the latter can afford to pay more thanks to the unprecedented stimulus funds they received even after the economy was recovering strongly from the 2020 CCP Virus-induced crash,.

Third, there’s that baseline effect. Especially if its monthly rate is slowing, annual core inflation in the six percent neighborhood could be reasonably applauded if the previous year’s rate (the baseline) had been unusually low, or even negative (as it was for most of 2020). But the baseline figure for the latest May annual core inflation rate was May, 2021’s 3.81 percent (according to the latest government figures). That’s nearly twice the rate considered desirable by the nation’s chief official designated inflation-fighter, the Federal Reserve.

None of the ways to reduce this inflation rate way down reasonably quickly is a mystery to anyone influencing U.S. economic policies. Raising interest rates can get rid of a lot of the bloated consumer demand that’s contributed so much to recent price rises. For those emphasizing the Ukraine war’s major role in boosting food and energy prices, there’s the option of pressing for an end to the war sooner rather than later – even if it produces a morally ugly compromise.

But dramatically reducing consumer and business spending power enough to matter inflation-wise could bring on a recession – which the Federal Reserve still apparently believes can be avoided, at least judging from the modest monetary tightening it’s approved so far. And the Biden administration seems wed to letting the shots on ending the conflict to be called by Ukraine — which is so far rejecting the idea of making territorial or any other kinds of significant concessions.

So unless these situations change, the most reasonable conclusion is that inflation will keep raging until soaring prices finally tap consumers out by themselves. As an old adage goes, the likeliest cure for high prices may simply be high prices.

(What’s Left of) Our Economy: U.S. Manufacturing’s Hiring Takes a (Slight) Breather

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aerospace, aircraft, aircraft engines, aircraft parts, automotive, CCP Virus, chemicals, computer and electronics products, coronavirus, COVID 19, fabricated metals products, Federal Reserve, fiscal policy, food products, inflation, Jobs, Labor Department, machinery, manufacturing, medical devices, medicines, monetary policy, non-farm jobs, non-farm payrolls, personal protective equipment, pharmaceuticals, PPE, semiconductor shortages, semiconductors, stimulus, transportation equipment, Ukraine, Ukraine-Russia war, vaccines, wood products, {What's Left of) Our Economy

U.S.-based manufacturing’s employment performance has been so strong lately that the 18,000 net gain for May reported in today’s official U.S. jobs report was the worst such performance in more than a year – specifically, since April, 2021’s 28,000 employment loss. And even that dismal result stemmed mainly from automotive factories that were shut down due to semiconductor shortages – not from any underlying weakness in domestic industry.

Moreover, revisions of the last several months’ of sizable hiring increases were revised higher. April’s initially reported 55,000 increase is now pegged at 61,000, and March’s headcount boost was upgraded again, this time all the way from 43,000 to 58,000.

Indeed, taken together, this payroll surge has enabled U.S.-based manufacturing to increase its share of American jobs again. As of May, industry’s employment as a share of the U.S. total (called “non-farm payrolls” by the Labor Department that releases the data) rose sequentially from the 8.41 percent calculable last month to 8.42 percent. And the manufacturing share of total private sector jobs climbed from the 9.86 percent calculable last month to 9.87 percent..

The improvement since February, 2020 – the last full data month before the CCP Virus’ arrival began roiling and distorting the entire U.S. economy – has been even greater. Then, manufacturing jobs represented just 8.38 percent of all non-farm jobs and 9.83 percent of all private sector employment.

Domestic industry still slightly lags the private sector in terms of regaining jobs lost during the worst of the pandemic-induced recession of March and April, 2020. The latter has recovered 99.01 percent of the 21.016 million jobs it shed, compared with manufacturing’s 98.75 percent of its 1.345 million lost jobs.

But the main reason is that industry’s jobs losses during those months were smaller proportionately than those of the private sector overall.

Viewed from another vantage point, the May figures mean that manufacturing employment is just 0.13 percent smaller than just before the pandemic struck.

May’s biggest manufacturing jobs winners among the broadest individual industry categories tracked by the Labor Department were:

>fabricated metals products, which boosted employment on month by 7,100 – the sector’s biggest rise since since February’s 9,300. Its recent hiring spree has brought fabricated metals products makers’ payrolls to within 2.24 percent of their immediate pre-CCP Virus (February, 2020) levels;

>food products,where payrolls grew by 6,100 sequentially in May. Employment in this enormous sector is now 2.53 percent higher than in February, 2020;

>the huge computer and electronics products sector, whose headcount improved by 4,400 over April’s levels. As a result, its workforce is now just 0.19 percent smaller than in immediate pre-pandemic-y February, 2020;

>wood products, which added 3,800 employees in May over its April levels. Along with April’s identical gain, these results were these businesses’ best since May, 2020’s 13,800 jump, during the strong initial recovery from the virus-induced downturn. Wood products now employs 6.85 percent more workers than in February, 2020; and

>chemicals, a very big industry whose workforce was up in May by 3,700 over the April total. The result was the best since January’s 5,500 sequential jobs growth, and pushed employment in this industry 4.76 percent higher than in February. 2020.

The biggest May job losers among those broad manufacturing groupings were:

>transportation equipment, another enormous category where employment fell by 7,900 month-to-month in May. That drop was the biggest since February’s 19,900 nosedive. But it followed an April monthly increase that was revised up from 13,700 to 19.500. All this volatility – heavily influenced by the aforementioned semiconductor shortage that has plagued the automotive industry – has left transportation equipment payrolls 2.57 percent smaller than just before the pandemic’s arrival in February, 2020;

>machinery, whose 7,900 sequential job decline in May was its worst such result and first monthly decrease since November’s 7,000. Moreover, April’s initially reported 7,400 payroll increase in machinery is now judged to be only 5,900. These developments are discouraging because machinery’s products are used so widely throughout the entire economy, and prolonged hiring doldrums could reflect a slowdown in demand that could presage weakness in other sectors. Machinery payrolls are now down 2.12 percent since February, 2020; andent since February 2020; and

>miscellaneous nondurable goods, where employment shrank in May by 2,900 on month. But here again, a very good April increase first reported at 3,300 is now judged to have been 4,400, and thanks to recent robust hiring in this catch-all category, too, its employment levels are 8.12 percent higher than in February. 2020.

As always, the most detailed employment data for pandemic-related industries are one month behind those in the broader categories, and their April job creation overall looked somewhat better than that for domestic manufacturing as a whole.

Semiconductors are still too scarce nationally and globally, but the semiconductor and related devices sector grew employment by 900 on month in April – its biggest addition since last October’s 1,000. March’s initially reported 700 jobs gain was revised down to 400, and February’s upgraded hiring increase of 100 stayed unrevised. Consequently, payrolls in this industry are up 1.66 percent since just before the pandemic arrived in full force, and it must be kept in mind that even during the deep spring, 2020 economy-wide downturn, it actually boosted employment.

The news was worse in surgical appliances and supplies – a category containing personal protective equipment (think “facemasks”) and similar medical goods. April’s sequential jobs dip of 200 was the worst such performance since October’s 300 fall-off, but at least March’s initially reported 1,100 increase remained intact (as did February’s downwardly revised – frm 800 – “no change.” Employment in surgical appliances and supplies, however, is still 3.88 percent greater than in immediate pre-pandemic-y February, 2020.

In the very big pharmaceuticals and medicines industry, this year’s recent strong hiring continued in April, as the sector added 1,400 new workers sequentially – its biggest gains since last June’s 2,600. In addition, March’s initially reported increase of 900 was revised up to 1,200, and February’s slightly downgraded 1,000 rise remained unchanged. Not surprisingly, therefore, this sector’s workforce is up by 9.78 percent during the CCP Virus era.

Job creation was excellent as well in the medicines subsector containing vaccines. April’s 1,100 monthly headcount growth was the greatest since last December’s 2,000. March’s initially reported payroll rise of 400 was upgraded to 600, and February’s results stayed at a slightly downgraded 500. In all, vaccine manufacturing-related jobs has now increased by fully 24.47 percent since February, 2020.

Aircraft manufacturers added just only 200 employees on month in April, but March’s jobs gain was revised up from 1,100 to 1,200 (the best such result since last June’s 4,000), and February’s upwardly revised 600 advance remained unchanged. Aircraft employment is still off by 10.96 percent since the pandemic’s arrival in force.

Aircraft engines and engine parts makers were in a hiring mood in April, too. Their employment grew by 900 sequentially, March’s 500 increase was revised up to 600, and February’s unrevised monthly increase of 900 stayed unrevised. Payrolls in this sector have now climbed to within 11.56 percent of their level just before the CCP Virus hit.

As for the non-engine aircraft parts and equipment sector, it made continued modest employment progress in April, with the monthly headcount addition of 300 following unrevised gains of 700 in March and 200 in February. But these companies’ workforces are still 15.48 percent smaller than their immediate pre-pandemic totals.

The U.S. economy is clearly in a period of growth much slower than last year’s, and since there’s no shortage of actual and potential headwinds (e.g., the course of the Ukraine War, the Fed’s monetary tightening campaign, persistent lofty inflation, the likely absence of further fiscal stimulus), no one can reasonably rule out a recession that drags down manufacturing’s hiring with it. But until domestic industry’s job creation and production growth starts deteriorating dramatically and remains weak, today’s so-so employment figures look like a breather at worst – and not much of one at that.

(What’s Left of) Our Economy: U.S. Manufacturing Job Creation Gains More Momentum

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aircraft, aircraft engines, aircraft parts, automotive, CCP Virus, coronavirus, COVID 19, Employment, Federal Reserve, furniture, inflation, Jobs, machinery, manufacturing, miscellaneous durable goods, non-farm payrolls, personal protective equipment, pharmaceuticals, plastics and rubber products, PPE, recession, semiconductor shortage, semiconductors, supply chains, transportation equipment, Ukraine-Russia war, vaccines, {What's Left of) Our Economy

Today’s official April U.S. jobs report featured such a strong showing by U.S.-based manufacturers that, by one measure, they reclaimed title of America’s best job-creating sector during the CCP Virus era (and its aftermath?).

Domestic industry boosted its payrolls sequentially last month by 55,000 workers, its best such performance since July’s 62,000 gain. In addition, revisions were excellent. March’s initially reported 38,000 increase is now pegged at 43,000, and February’s upgraded 38,000 rise is now judged to have been 50,000.

As a result, manufacturing’s share of U.S. non-farm employment (the federal government’s definition of the American jobs universe), has improved from 8.38 percent in February, 2020 – the last full data month before the virus began roiling the national economy – to 8.41 percent as of last month.

And during this period, manufacturing’s share of America’s private sector jobs is up from 9.83 percent to 9.86 percent.

Domestic industry has recovered a slightly smaller share of the jobs it lost during the sharp pandemic-induced downturn of spring, 2020 (95.89 percent) than the private sector (97.62 percent). But it also shed fewer jobs proportionately than the rest of the private sector during that terrible March and April. (For the record, because of a drag created by public sector hiring, the share of all non-farm jobs regaine d now stands at 94.59 percent.

In all, U.S.-based manufacturing employment is now down a mere 0.44 percent from immediate pre-pandemic-y February, 2020.

April’s manufacturing jobs winners were broad-based, but the biggest among the major sectors tracked by the Labor Department were:

>transportation equipment, whose 13,700 employment improvement was its best such performance since last October’s 28,200. (Last month I erroneously reported that the sector’s best recent monthly performance was last August’s 19,000.) Unfortunately, March’s initially reported employment advance of 10,800 was revised down to 8,800, and February’s previously estimated 19,800 jobs plunge (the worst monthly performance since April, 2021’s automotive shutdown-produced nosedive of 48,100) is now judged to be 19,900. Bottom line: This sector’s employment levels are still 3.38 percent below those of that last full pre-pandemic data month of February, 2020;

>machinery, where 7,400 jobs were added on month – an especially encouraging result since its products are so widely used throughout the rest of manufacturing and the entire economy. Even better, March’s initially reported 1,700 employment increase was revised all the way up to 6,700, and February’s perfomance – which had been revised down from an 8,300 rise to one of 6,600, recovered a bit to 6,700. As a result, machinery employment is off just 1.55 percent from its February, 2020 levels;

>automotive, which boosted headcounts by 6,400 – its best monthly gain since last October’s 34,200 plant reopening-driven burst. But March’s initially reported 6,400 jobs rise was downgraded to 3,600, and even though February’s major job losses were revised for the better again, they’re still pegged at 14,000 – the worst since the 49,100 employees shed during the shutdowns last April. These gyrations have left the combined vehicles and parts workforce 0.78 pecent smaller than in February, 2020;

>plastics and rubber products, which upped employmment by 5,700 sequentially in April, the best such performance since last August’s 7,800. Job-wise, these sectors are now 3.38 percent larger than in February, 2020.

The only significant jobs losers in April were furniture and related products and miscellaneous durable goods. The former lost 1,100 positions in April, but employment has still inched up by 0.57 percent since pre-pandemic-y February, 2020. The latter – which includes much of the protective gear needed to fight and contain the CCP Virus – reduced employment by 1,400 sequentially last month. But this decrease was the first since last August’s 600 loss, and followed a strong 3,100 jobs gain in March. This catch-all category’s employment is now 1.54 percent higher than in February, 2020.

As always, the most detailed employment data for pandemic-related industries are one month behind those in the broader categories, and as with the rest of domestic industry for March, their employment picture showed improvement overall.

The semiconductor and related devices sector is still struggling to meet demand, but hiring continued its slow-but-steady pandemic-era increase in March with job gains of 700. February’s initially reported 100 employment loss now stands at a 100 employment gain, and January’s numbers stayed at plus-300 – the best monthly performance since last October’s 1,000. This sector now employs 1.34 percent more workers than in February, 2020 – impressive since during the sharp spring, 2020 economic downturn, it kept adding jobs.

The latest employment results were mixed for surgical appliances and supplies makers – a category within the aforementioned miscellaneous durable goods sector, and one in which personal protective equipment and similar medical goods abound. In March, the industry added 1,100 workers, but revisions completely wiped out February’s initially reported 800 jobs gain. The January hiring increase stayed at a downwardly revised 1,300. Even so, since just beforet the pandemic’s arrival in force in the United States, these companies have increased payrolls by 4.07 percent.

The very big pharmaceuticals and medicines industry continued to be a moderate employment winner in March. It hired an additional 900 workers on month, and though its February improvement was downgraded (from 1,300 to 1,000), the number was solid. Moreover, January’s hugely upgraded 1,100 employment rise stayed intact. Since February, 2020, this sector’s headcount is up fully 9.23 percent.

March jobs gains were more subdued in the medicines subsector containing vaccines, but they still totaled 400. February’s initially reported employment increase of 800 is estimated at just 500 now, and January’s identical increase stayed the same. But over time, this industry’s jobs growth has been impressive – 23.15 percent since the last pre-pandemic data month of February, 2020.

Good job gains continued in March in the aviation cluster as well. Aircraft manufacturers (including still-troubled industry giant Boeing) rose by 1,100 sequentially – the best monthly gain since last June’s 4,400. February’s increase was upgraded from 500 to 600, but January’s sequential job loss stayed unrevised at 800. This net increase brought aircraft employment to within 11.08 percent of its February, 2020 level.

The aircraft engines and engine parts industry followed February’s unrevised 900 hiring increase by adding 500 more workers in March. January’s results, however, stayed at a slightly downgraded 900 loss. And these companies’ still employ 12.65 percent fewer workers than in February, 2020.

The deep jobs depression in the non-engine aircraft parts and equipment sector remained deep in March, but a little less so. Jobs gains for the month totaled 700, February’s initially reported 200 increase was unrevised, and January’s way upwardly revised job rise was downgraded only from 1,500 to 1,400. But since just before the pandemic, the non-engine aircraft parts and equipment sector has still shrunk by 15.74 percent.

Having recently navigated its way skillfully through a once-in-a-century pandemic, a virtual shutdown of the entire U.S. economy, continuing supply chain disruption, multi-decade high inflation, a major war in Europe (so far), former export champ Boeing’s woes, and sluggish-at-best growth in much of the foreign markets it relies on heavily, it’s tempting to say that U.S-based manufacturing will have finally met its match if the Federal Reserve’s inflation-fighting campaign dramatically slows growth domestically — or worse.  But since the pandemic began, the next time the manufacturing pessimists are right will be the first.       

 

(What’s Left of) Our Economy: New Signs that High U.S. Inflation is Here to Stay

Tags

baseline effect, core PCE, cost of living, energy, Federal Reserve, food, inflation, PCE, personal consumption expenditures index, prices, Ukraine, Ukraine-Russia war, {What's Left of) Our Economy

The new official figures on the Federal Reserve’s preferred gauge of consumer inflation are a good news/bad news story only if you follow the economy closely.

They amounted to good news for that group because they’ve made the inflation picture clearer than it’s been since the economy began recovering from the deep spring, 2020 downturn generated by the arrival in force of the CCP Virus and all the mandated and voluntary curbs on individual and business behavior it produced. And it’s noteworthy that the group includes the Fed, which bears the federal government’s prime responsibility for keeping inflation under control.

Specifically, today’s data represent annual inflation figures (the ones that attract the most attention because they measure price changes over a reasonable period of time) that finally aren’t being substantially distorted by baseline effects. That is, the multi-decade highs they’ve hit no longer stem significantly from the fact that the previous pandemic-y year’s inflation levels were so abnormally low.

But the new results for the price indexes for personal consumption expenditures (PCE) were bad news for everyone else. For they still did show near-multi-decade highs, and the baseline boost has now been in essence replaced by an energy price boost largely created by Ukraine war-related disruptions that aren’t likely to end any time soon.

It’s true that the U.S. government and most students of the economy distinguish between the inflation rates with and without energy prices, since the latter, along with food prices, are seen as prone to shocks that have nothing to do with the economy’s fundamental vulnerability to inflation. But it’s also true that this distinction can get awfully artificial awfully quickly because energy is used so prominently to turn out practically every good and service that Americans buy. So if energy prices remain strongly on the rise, prices everywhere else are bound to feel the effects. Or at least they’re bound to feel the effects until and unless businesses figure out how to offset their higher energy costs with greater efficiencies.

The first clues that energy prices are now unquestionably major inflation drivers comes from the month-to-month figures for overall PCE percentage change – which do include food and energy prices – starting with January, 2021.

Jan.             0.3

Feb.            0.3

March         0.6

April           0.6

May            0.5

June            0.5

July            0.4

Aug.           0.4

Sept.           0.3

Oct.            0.6 

Nov.           0.6

Dec.           0.5

Jan.            0.5

Feb.           0.6 revised to 0.5

March       0.9

As is clear, overall monthly PCE really took off in March – reaching its highest level during this period after several months of virtually identical monthly increases (which themselves jumped to a new level starting in October).

Keep in mind that these numbers don’t show that prices stopped rising during that period. What they show is that they weren’t rising at ever faster rates, which matters because one of the biggest fears harbored about inflation concerns its tendency to feed on itself and spiral out of control.

When food and energy prices are stripped out, and so-called core inflation can be seen, the monthly trend since January, 2021, is significantly different. Since last October, weakening momentum (though not actually falling prices) is the story here. And the sequential percentage increases in absolute terms have been lower recently. That’s why it’s ever more obvious that recent inflation is due mainly to those two supposedly volatile food and energy sectors. Here are these core PCE rises:

Jan.             0.2

Feb.            0.1

March        0.4

April          0.6

May           0.6

June           0.5

July            0.3

Aug.           0.3

Sept.           0.2

Oct.            0.5

Nov.           0.5

Dec.           0.5

Jan.            0.5

Feb.           0.4 revised to 0.3

March        0.3

As always, the baseline effect emerges upon examining the annual rates of change in inflation. Here they are for overall inflation since January, 2021:

Jan.            1.4

Feb.           1.6

March        2.5

April          3.6

May           4.0

June           4.0

July            4.1

Aug.           4.2

Sept.           4.4

Oct.            5.1

Nov.           5.6

Dec.           5.8

Jan.  21-22           6..0

Feb. 21-22           6.4 revised to 6.3

March 21-22        6.6

Again, the latest March figure is the highest in the series, and again, the pace quickened dramatically starting last October.

The annual inflation rates for the previous year, though, demonstrate a big fade in the baseline effect starting in March. Here they are in percentage terms.  

Jan.             1.8

Feb.            1.8

March        1.3

April          0.6

May          0.5

June          0.9

July          1.0

Aug.         1.2

Sept.         1.4

Oct.          1.2

Nov.         1.2

Dec.         1.3

Jan. 20-21           1.4

Feb. 20-21          1.6

March 20-21       2.5

Think of it this way: For many years before the CCP Virus began distorting the economy the Federal Reserve struggled to push yearly inflation up to two percent and keep it there for decent intervals. The central bank reasoned (correctly, IMO), that when prices rise too slowly, that can threaten deflation – a period prices that are falling in absolute terms. And when that happens, consumers in particular keep putting off purchases in hopes of finding better bargains in the future, demand for goods and services keeps dropping, production eventually follows suit, and a recession can ensue that’s not only deep but very difficult to escape as the new sets of expectations create their own downward spiral.

But as shown above, for all of (pandemic-y) 2020, annual inflation rates were well below two percent, and they stayed there till March, 2021. So the latest annual overall PCE figure of 6.9 percent (for this March) is coming off an overall PCE figure for last March that was already pretty strong. And the upcoming number for April, 2022 will represent the change from an April, 2021 figure that was much stronger – 3.6 percent. Unless that next annual overall inflation rate comes down considerably, the case that overall price increases have entered a new, more worrisome phase, will look awfully convincing.

The baseline fade is less pronounced so far for core PCE. Here are the annual percentage change figures starting again with January, 2021:

Jan.            1.5

Feb.           1.5

March        2.0

April          3.1

May           3.5

June           3.5

July            3.6

Aug.          3.6

Sept.          3.7

Oct.           4.2

Nov.          4.7

Dec.          4.9

Jan. 21-22             5.2

Feb. 21-22            5.4 revised to 5.3

March 21-22        5.2

Where the month-to-month figures showed weakened recent momentum as well as lower prices, these show stalled recent momentum – which isn’t greatly different given inflation’s above-noted tendency to keep speeding up.

And here are the annual core figures for the preceding year

Jan.             1.7

Feb.            1.9

March        1.7

April          0.9

May           1.0

June           1.1

July           1.3

Aug.          1.4

Sept.          1.5

Oct.           1.4

Nov.          1.3

Dec.          1.4

Jan. 20-21             1.4

Feb. 20-21            1.5

March 20-21         2.0

Judging by that two percent Fed target, these 2020 and early 2021 annual core inflation rates were decidedly feeble, and only hit two percent in March, 2021. So a baseline effect arguably remains in place here, and as I wrote previously, and probably won’t end until next month – because the April, 2021 annual core inflation rate breached the Fed target (and then some), rising all the way to 3.1 percent.

And as with overall PCE inflation, if that next core result (for April) doesn’t fall significantly, this type of price increase will start looking troublingly elevated for reasons related to current, not past, economic trends and developments. Further, even though the absolute core PCE rate is, as noted, lower than the over PCE rate, it’s still near multi-decade highs and, again, it’s sure to be increasingly affected by lofty energy prices for the foreseeable future.

Wall Street Journal columnist Greg Ip wrote Wednesday that the Ukraine war and its fallout could be “a prelude to an era in which geopolitical tensions, protectionist policies and natural disasters repeatedly stress the world’s supply networks. Central banks, which spent the last decade fighting off deflationary headwinds, might spend the next battling inflationary headwinds.”

Today’s PCE data look like they support that call to me. 

Following Up: Podcasts of National and New York City Radio Interviews Now On-Line

Tags

American politics, Bernie Sanders, Biden, Biden administration, China, decoupling, Democrats, Donald Trump, election 2022, election 2024, Following Up, Frank Morano, inflation, Market Wrap with Moe Ansari, midterms 2022, Moe Ansari, prices, recession, Republicans, Ron DeSantis, tariffs, The Other Side of Midnight, trade policy, trade war, Ukraine, Ukraine-Russia war

I’m pleased to announce that the podcasts are now on-line of my two radio interviews yesterday (and one technically this morning) on a wide range of foreign policy, economic, and U.S. political topics.

Click here to listen to my appearance on Moe Ansari’s nationally syndicated “Market Wrap” show, where we did a deep dive into the questions of whether or not President Biden’s thinking seriously of cutting some of the Trump tariffs on imports from China, and the likelihood and wisdom of America pulling off any kind of significant divorce from the Chinese economy. The segment starts at about the 21:40 mark.

At this link, you can access my conversation with host Frank Morano on his late-night WABC-AM (New York City) show “The Other Side of Midnight.” It covered the impact of tariffs on consumer prices, the outlook for America’s inflation-ridden economy, the chances that the Ukraine war goes nuclear, and the odds of (figurative) earthquakes down the road for American presidential politics – for starters!

In addition, click here for the second half of my interview on the U.S. government-run Voice of America – which zeroes in on Ukraine war-related global economic disruptions. (Yes, the segment was pre-my latest haircut!)

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

Our So-Called Foreign Policy: Glimmers of Hope on Ukraine?

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Biden, Blob, chemical weapons, cyber-war, David Ignatius, Donbas, EU, European Union, NATO, North Atlantic treaty Organization, nuclear war, Our So-Called Foreign Policy, Russia, Ukraine, Ukraine-Russia war, Vladimir Putin, Volodymyr Zelensky

As known by long-time readers of RealityChek (see, e.g., here and here), I’m no fan of David Ignatius. Literally for decades, the Washington Post pundit has veritably personified the Blob – that mainly New York City- and really mainly Washington, D.C.-based mutually reenforcing network of current political leaders and senior bureaucrats, Congressional staff, former officials, other hangers-on of various kinds, consultants, think tankers, academics, and journalists who have long championed globalist U.S. foreign policies despite the needless national security and economic damage they’ve caused.

Not so incidentally, they keep moving in an out of public service so continuously that they’ve not only blurred the crucial lines between these spheres, but they’ve more than earned the term “permanent (and of course unelected) government.”

So imagine my surprise when I opened my Washington Post Thursday morning and discovered that Ignatius had written what may be the most important American commentary yet on the Ukraine War. His main argument is that President Biden and Russian dictator Vladimir Putin have each decided on a set of goals that could reduce the chances of the conflict spilling across Ukraine’s borders, and especially into the territory of neighbors that enjoy a strong U.S. defense guarantee. This chain of events could all-too-easily lead to direct U.S.-Russia military conflict that could just as easily escalate to the all-out nuclear war level.

But the goals identified by Ignatius are encouraging because they indicate that both Mr. Biden and Putin have retreated from dangerously ambitious objectives they’ve referred to throughout the war and its prelude. For the U.S. President, this means a climb-down from his administation’s declarations that Russia can’t be allowed to establish anything close to a sphere of influence that includes Ukraine, and that would prevent it and potentially any country in Eastern Europe from setting its own defense and foreign economic policies.

For Putin, this means confining his aims to controlling the eastern Ukraine provinces with large Russian-speaking populations, not the entire country

Ignatius’ most convincing evidence regarding the American position is Mr. Biden’s statement on Thursday that with its growing military support for Ukraine, the entire western alliance was  “sending an unmistakable message to Putin: He will never succeed in dominating and occupying all of Ukraine. He will not — that will not happen.” As Ignatius pointed out, this statement, “though resolute in tone, left open the possibility that Putin might occupy some of Ukraine, in the southeastern region where Russian attacks are now concentrated.”

Moreover, this Ignatius observation matters considerably in large measure precisely because the author is so well plugged in to the staunchly globalist Biden administration. If he’s putting points like this in print, the odds are good that it’s because he’s heard them from genuinely reliable sources, and even because those sources are using him as a vehicle for trial balloon floating.

Ignatius’ most convincing evidence regarding the Kremlin’s position is Putin’s statement the same day that the Russian forces that have virtually destroyed the southern Ukrainian city of Mariupol have “sacrificed their lives so that our people in Donbas [the aforementioned eastern Ukraine region] live in peace and to enable Russia, our country, to live in peace.”

Those last words in particular suggest that Putin now believes a Russia-dominated Donbas can serve as an acceptable buffer between Russian territory and the North Atlantic Treaty Organization (NATO) that expanded its membership in the 1990s and early 2000s to countries directly bordering Russia.

On this issue, though, big questions remain: Would Putin permit what’s left of Ukraine join NATO (in which President Volodymyr Zelensky has said he no longer interested) or the European Union (which Ukraine still wants)? Or would Moscow let a rump Ukraine do what it wished on these defense and economic fronts? At the same time, the very uncertainty created by these Russian and Ukrainian (and now U.S.) statements makes clear there’s a deal that can be struck before Ukraine experiences much more suffering.

But as Ignatius himself notes, this week’s Biden and Putin positions are anything but guarantees against disastrous escalation. The reason? As I’ve written, the longer the fighting lasts and especially the more intense it becomes, the likelier spillover gets – whether from air raids to artillery strikes to the spread of toxic clouds from exploded chemical or even nuclear weapons, to cyber attacks (e.g., by Russia against U.S. or other western computer systems intended to interfere with the Ukraine weapons supply effort or with the West’s intelligence sharing with Kyiv).

So the Biden and Putin statements may be necessary developments for securing a non-disastrous end to the Ukraine war, but they’re hardly sufficient. Some serious form of outside pressure looks to be essential — either President Biden on Zelensky, or (seemingly less likely) China on Putin. Without it, Americans — and Ukrainians — arguably are left with hoping for the best, a strategy with an historically unimpressive record of success.        

Our So-Called Foreign Policy: U.S. Allies are Standing (A Tiny Bit) with Ukraine

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alliances, allies, burden sharing, EU, Europe, European Union, free-riding, Kiel Institute for the World Economy, North Atlantic treaty Organization, Our So-Called Foreign Policy, Russia, Ukraine, Ukraine-Russia war

Even a long-standing critic like me of the record of U.S. allies in Europe in sharing the burden of their own defense found the graphic below to be quite the stunner. It makes clear that, so far, countries that for decades have been deadbeats and free-riders when it comes to fielding armed forces capable of defeating first Soviet and then post-Soviet Russian aggression, are behaving just as selfishly and miserly in supporting Ukraine’s resistance to the Kremlin’s invasion – and presumably keeping themselves safe from attack or bullying by Moscow.

The graphic comes from a leading German think tank – the Kiel Institute for the World Economy – and it shows that between the February 24 start of the invasion of Ukaine through March 27, the United States, in the words of the Institute’s research director, “is giving significantly more than the entire [European Union], in whose immediate neighborhood the war is raging.”

The specific amounts of combined financial, humanitarian, and military assistance (in euros) , according to Kiel: the United States, 7.6 billion; all European Union countries combined, 2.9 billion; EU institutions (like the European Investment Bank, 3.4 billion. Adding the United Kingdom (not an EU member) increases the European total by $712 million euros – and would still leave this figure below that of U.S. aid in all forms.

True to RealityChek‘s long-time insistence that data be presented in context, the Europeans come off somewhat better when these aid figures are presented as percentages of total economic output. After all, it’s completely unrealistic to expect even the most vigilant very small economy to donate as much in absolute terms as a much larger economy, all else equal.

But as the Kiel graph beow shows, most of the Europeans don’t come off that much better.

In fact, except for Estonia, Poland, Lithuania, Slovakia, and Sweden, the United States holds the lead according to this measure, too. And remember: Poland and Slovakia are right next door to Ukraine, Estonia and Lithuania border Russia, and Sweden is located just across the Baltic Sea to them. As for the rest of Europe, I’ll just circle back to the point made by the Kiel Institute research director: It’s their “immediate neighborhood”! So their relative efforts should be exponentially greater than America’s, as should those of the countries even closer to the fighting.

Moreover, it’s easy to understand why European military aid has been so modest. These countries have been skimping on their militaries for decades. But as a result, they should be compensating by providing much greater amounts of economic and humanitarian assistance.

These figures are damning enough as examples of continued European fecklessness. But they’re even more important because the continent’s free-riding means that for the foreseeable future, American military forces will keep playing a predominant role in any response to the Ukraine invasion. And even if President Biden sticks with his pledge to keep U.S. troops out of the fighting in Ukraine, their very presence in the vicinity of a conflict could expose the U.S. homeland literally to mortal danger. 

For as I’ve noted, if the war spills over borders into the countries where the American units are based, and that enjoy a legally ironclad promise of protection by the United States and the rest of the North Atlantic Treaty Organization (NATO), U.S. and Russian forces will almost surely wind up shooting at each other, and the prospect of escalation to the all-out nuclear war level becomes terrifyingly real. 

A Europe willing and therefore at some point able to defend itself would reduce this danger to acceptable levels. But as the Kiel data show, because the Europeans remain protectorates much more than genuine allies, this point looks as far off in the future as ever.                     

 

 

Following Up: Podcast Now On-Line of NYC Radio Interview on Ukraine & Inflation…& More!

Tags

Biden administration, Buck Showalter, China, decoupling, Donald Trump, Following Up, Frank Morano, globalization, inflation, Major League Baseball, New York Mets, tariffs, The Other Side of Midnight, Trade, trade war, Ukraine, Ukraine-Russia war, VOA, Voice of America, WABC AM

I’m pleased to announce that the podcast is now on-line of my interview late last night on Frank Morano’s “The Other Side of Night” radio show on New York City’s WABC-AM. Click here for a lively conversation on the Ukraine war, inflation, global economic decoupling, tariffs…and Buck Showalter???

In addition, a video is finally available of a Voice of America (VOA) interview I did last Monday, April 11, on the state of U.S.-China economic relations. Happily, the Chinese language service of this U.S. government foreign broadcasting agency is now offering telecasts that feature the English-language audio of non-Chinese speakers (like me) with the Chinese content in subtitles. So it’s much easier for non-Chinese speakers to understand that non-Chinese content than under the previous system, which featured simultaneous Chinese translation over the interviewees’ barely audible voice.        

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