(What’s Left of) Our Economy: Inside April’s U.S. Manufacturing Crash I

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aircraft, auto parts, automotive, Boeing, CCP Virus, coronavirus, COVID 19, durable goods, Federal Reserve, inflation-adjusted output, manufacturing, manufacturing output, manufacturing production, non-durable goods, real growth, vehicles, Wuhan virus, {What's Left of) Our Economy

There was never any point in expecting today’s Federal Reserve manufacturing production figures (for April) to change significantly what’s known about the CCP Virus’ body blow to the American economy overall, and to industry in particular. As with the case last month, however, the details reveal a great deal about how the pandemic is changing patterns of U.S. factory output – which in turn to some extent reflect changing patterns of the spending (by both consumers and businesses) that remains the main driver of the nation’s growth (or, nowadays, contraction).

The big takeaways are that:

>The March revisions show that the virus damage to manufacturing that month was a good deal less (with inflation-adjusted output falling by 5.53 percent on month) than the 6.27 percent drop initially reported.

>The April 13.78 percent month-to-month real production was by far the biggest such decrease on record (going back to 1972) – surpassing March’s previous record.

>As with March, the steepest fall-offs in price-adjusted output came in the durable goods sector – which consists of items whose active use or shelf life is expected to be three years or greater. In March, the sequential production decrease was revised from 9.14 percent to 8.23 percent. But in April, the plunge was more than twice as great: 19.27 percent.

>The March monthly shrinkage of non-durable goods production is also now judged to be smaller than first reported – 2.64 percent rather than 3.21 percent. But in April, the rate of sequential deterioration was even faster than for durable goods, speeding up to 8.23 percent.

>Within durable goods (e.g., steel, autos, computers, industrial machinery, furniture, appliances, aircraft), the automotive sector remained by far the weakest industry. It was bad enough that March’s horrific on-month after-inflation output crash dive was thought to be even greater than first estimated (29.96 percent rather than 28.04 percent). But in April, inflation-adjusted output was down by another 71.69 percent.

>And within the automotive sector, the big story was vehicles, not parts. The former’s constant dollar March production is now judged to have been 37.77 percent, not the originally reported 34.76 percent. But then in April, it careened down by 93.60 percent. That is, it nearly stopped.

>For an idea of how profoundly automotive’s tailspin has affected manufacturing’s performance, if it’s removed from the total, factory output’s April monthly contraction would have been 10.29 percent in real terms, not 13.78 percent. That is, still a terrible (and record) performance, but not quite so terrible.

>As for durable goods, its April sequential production drop would have been 12.65 percent in real terms, not 19.27 percent. Again, an awful performance, but much better than the numbers with automotive.

>Speaking of tailspins, Boeing’s troubles have continued to mount because the virus crisis has decimated U.S. travel and transportation, and they showed up in abundance in the April Fed manufacturing report. March’s monthly after-inflation output decrease for aircraft and parts was revised from 10.36 percent to 12.09 percent. And that rate more than doubled in April, hitting 28.88 percent.

I’ll be following up with more detailed April production data later this afternoon!

(What’s Left of) Our Economy: Worsening Automotive Recession Drives Down Manufacturing Output

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aluminum, automotive, Federal Reserve, industrial production, inflation-adjusted output, manufacturing, manufacturing production, recession, steel, tariffs, Trade, Trump, vehicles, {What's Left of) Our Economy

According to the Federal Reserve’s new industrial production figures, a sharp automotive drop-off in July helped pull real U.S. domestic manufacturing output down on month (by 0.06 percent) for the third time this year. Since May, 2015, sector’s inflation-adjusted production is down 2.33 percent – a period much longer than the two-consecutive-quarter definition of recession. July’s annual automotive real output decrease (4.98 percent) was the biggest since September, 2009’s 7.21 percent. And the sector’s 3.64 percent sequential output fall was its biggest since August, 2015’s 3.82 percent.

The vehicle sector performed even worse. Its year-on-year July constant dollar production plunge (9.20 percent) was its greatest since August, 2009 (12.54 percent). And vehicles’ July monthly after-inflation production slide (5.92 percent) was the steepest since August, 2015’s 6.31 percent. Largely as a result, July’s real vehicles production was the lowest monthly total since October, 2014.

With President Trump postponing his decision on tariffs for the import-battered steel and aluminum sectors, their price-adjusted production remained weak in July. The former’s sequential real production slumped by 1.50 percent, and although the annual figure rose by a strong 5.50 percent, the sector is still nearly 20 percent smaller in real terms than at the last recession’s onset. The latter’s July monthly real output inched down while growing slightly on a year-on-year basis, but this industry remains less than half its size when the recession struck. Indeed, for the entire manufacturing sector, after-inflation production in July was down four percent from the level hit as the recession broke out – back at the end of 2007.

Here are the manufacturing highlights of the Federal Reserve’s new release on July industrial production:

>The worst U.S. real automotive production performance in many years – especially in vehicles – helped pull the nation’s after-inflation manufacturing output down 0.06 percent on month in July. Although small, the sequential decline was the third so far this year.

>Leading the way was an automotive sector that had led manufacturing’s strong rebound from a deep recessionary dive.

>Combined vehicles and parts output sank by 3.64 percent on month in July, its biggest such downturn since August, 2015’s 3.82 percent.

>Year-on-year, constant dollar total automotive output was down in July by 4.98 percent – the worst such deterioration since September, 2009’s 7.21 percent.

>Largely as a result, real automotive production in July hit its lowest level since June, 2015.

>The automotive output drop in turn was led by vehicles. Final price-adjusted production in this sector plunged by 5.92 percent sequentially in July – its worst output month since August, 2015 (6.31 percent).

>The year-on-year figures for vehicles were much worse. Compared with the previous July, they plummeted by 9.20 percent – the biggest such decline since August, 2009 (12.54 percent).

>Largely as a result, as of July, real vehicle output stood at its lowest level since October, 2014.

>The new Fed figures also show that the American steel and aluminum industries continue to pay a price for floods of imports widely thought to benefit from government subsidies – and from the Trump administration’s hesitation to impose tariffs.

>July iron and steel production decreased on month by 1.50 percent in real terms. The 5.50 percent year-on-year result was much better, but was helped by favorable comps.

>Moreover, the steel sector’s real output is still 19.70 percent smaller than at the last recession’s onset – more than eight years ago.

>July primary aluminum production declined on month by 1.02 percent, but advanced by 2.90 percent on year.

>Yet primary aluminum production is down 53.49 percent since the last recession began.

>In fact, since that December, 2007 watershed, U.S. manufacturing’s output is down by four percent – meaning that it still hasn’t recovered from the recession.

(What’s Left of) Our Economy: Automotive Plunge into Technical Recession Drags Down March US Manufacturing Output

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automotive, durable goods, Federal Reserve, industrial production, inflation-adjusted output, manufacturing, non-durable goods, recession, recovery, vehicles, {What's Left of) Our Economy

The Federal Reserve’s new industrial production report today showed that U.S. domestic manufacturing in March took its first monthly tumble (0.38 percent) since August and its biggest since winter-affected February, 2015 (0.49 percent). Revisions (which incorporate the latest annual revision results released last month) were negative, and undercut the strong preliminary readings reported for January and February.

March’s manufacturing output fall-off was led by the biggest sequential plunge in constant dollar automotive output (2.96 percent) since May’s 3.19 percent decrease. As a result, the combined vehicles and parts industry, which has led U.S. manufacturing’s comeback during most of the current recovery, fell into a technical recession. It’s real production is now down by 0.38 percent since last February. Vehicle output was especially weak in March, plummeting by 4.77 percent for its worst month since last May’s 4.94 percent shrinkage in real terms.

March’s poor numbers mean that real U.S. domestic manufacturing output is now down on net since January, 2006 (by 0.38 percent), and is 4.43 percent below its all-time high, hit in December, 2007. The weak March automotive numbers helped drive monthly durable goods output down by its greatest percentage (0.83 percent) since January, 2014’s winter-affected 0.99 percent sequential contraction.

Here are the manufacturing highlights of the Federal Reserve’s new release on March industrial production:

>U.S. real manufacturing output dropped in March on month for the first time since last August, and the 0.38 sequential fall-off of 0.38 percent was industry’s biggest since February, 2015’s 0.49 percent – which was affected by unusually cold weather.

>Just as discouraging, the revisions (which incorporated the latest annual industrial production revision released by the Fed in late March) weakened initially reported combined January and February growth estimates that were industry’s best two-month stretch since February and March, 2014.

>January’s 0.54 percent monthly gain – which was upgraded in last month’s industrial production report – was revised down to 0.39 percent. February’s initially reported 0.51 percent sequential growth was downgraded to 0.35 percent growth.

>The overall March manufacturing monthly production fall-off was led by the worst figures for the automotive sector since last May.

>Real output in vehicles and parts combined – which has led manufacturing’s comeback since the current economic recovery began in mid-2009 – sank by 2.96 percent on month in March, the biggest such drop since last May’s 3.19 percent.

>The results were bad enough to plunge the sector into a technical recession. After-inflation automotive output is off by 0.38 percent since February, 2016.

>Automotive’s poor March owed mainly to a huge 4.77 percent decrease in inflation-adjusted vehicles production – the worst such figure since last May’s 4.94 percent.

>Another consequence of the overall real manufacturing production decline in March – industry’s constant-dollar output is now down on net (by 0.38 percent) since January, 2006.

>And since its pre-recession (all-time) peak, reached in December, 2007, price-adjusted domestic manufacturing output has now fallen by 4.43 percent.

>Overall real U.S. manufacturing output was up 0.98 percent on year in March – faster than its 0.12 percent inflation-adjusted output increase between the previous Marches.

>Automotive’s poor March performance helped lead to an after-inflation 0.83 percent monthly drop in manufacturing’s durable goods super-sector. That decrease was its first since August, and its biggest such shrinkage since winter-affected January, 2014 (0.99 percent).

>Year-on-year, inflation-adjusted durable goods output was up 1.45 percent. Between March, 2015 and March, 2016, if fell by 0.98 percent.

>Since its pre-recession peak, hit in December, 2007, durable goods production after inflation is down by 0.25 percent.

>Real production in the non-durable goods super-sector edged up by 0.13 percent on month in March – its third straight sequential increase.

>Year-on-year, non-durables’ price-adjusted production inched up by only 0.45 percent in March – much slower than its 1.37 percent advance between the previous Marches.

>Since its pre-recession peak – in July, 2007 – output in the non-durables super-sector has shrunk by 9.59 percent.

(What’s Left of) Our Economy: Can U.S. Manufacturing’s Rebound Continue Without Automotive?

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automotive, industrial production, manufacturing, manufacturing renaissance, parts, recovery, vehicles, {What's Left of) Our Economy

If you harbor any doubt that the automotive sector has been driving domestic U.S. manufacturing’s fortunes since the Great Recession began, and into the current historically weak recovery, throw them overboard.

I’ve just finished giving my blazing new laptop a workout by doing a deep dive into yesterday’s industrial production report from the Federal Reserve. The new figures make absolutely clear that, so far, as goes automotive, so goes manufacturing – and whatever valid hopes for a renaissance are still justified. Moreover, they indicate that the next few months may go far toward determining whether manufacturing’s rebound from an horrific recessionary downturn can continue much longer.

Certainly this pattern has held since the U.S. economy’s most recent woes began in earnest. From the recession’s December, 2007 onset through its official end in June, 2009, overall manufacturing production fell by 20.48 percent in inflation-adjusted terms. But strip out autos and parts, and the downturn was somewhat less dramatic – 18.14 percent.

You can follow along here by clicking on the seasonally adjusted January 1986 to present link here at the homepage of the Fed’s interactive production databases.  Warning!  Major eye strain could result! 🙂

Since the recovery began, overall manufacturing has grown by 27.41 percent after inflation. But without vehicles and parts, this real growth sinks to 20.42 percent. Put differently, manufacturing production is now up by 1.31 percent in real terms over the nearly seven years since the recession began. But without the booming auto sector, it’s actually down by 1.42 percent.

The trend shows some signs of slowing – but only some. For example, look at the numbers this year since March (to avoid the distortions caused by the severe winter). From March through September, overall manufacturing production has grown by 1.86 percent post inflation. Without automotive, the real growth rate has been only 1.61 percent. That’s a 13.50 percent difference.

During the recovery, the growth gap was nearly twice as big – 25.50 percent. But from March, 2013 through September, 2013, the gap was smaller – 10.11 percent.

One big consequence of automotive’s lead role in the last few months is that its volatility has helped produce big swings in real manufacturing output. During July, a monster 9.39 monthly jump in real automotive output helped boost overall monthly manufacturing production up 0.82 percent – its best performance since the final stages of the recovery from winter in March. Without that increase – the biggest in percentage terms since September, 2009, when production was in its early post-recession bounce – manufacturing grew by only a negligible 0.13 percent.

The automotive sector took a breather in August, as real output sank by 6.98 percent – the worst monthly performance since April, 2011. The rest of American industry eaked out a 0.01 percent inflation-adjusted output gain. But the automotive falloff pushed overall production down by 0.46 percent – its worst since the winter-aided 1.03 percent plunge in January.

The automotive slump continued in September, as production after inflation decreased another 1.40 percent. The rest of manufacturing managed to expand by a solid 0.58 percent. But autos and parts dragged overall real production down to 0.47 percent.

The last two months’ worth of data of course indicate that after leading the manufacturing rebound, auto and parts production is now holding it back. Whether the rest of U.S. industry can keep growing satisfactorily without robust auto output, or whether recent automotive struggles will extend to the rest of manufacturing, will shape not only domestic industry’s future, but the entire economy’s.