(What’s Left of) Our Economy: An Omicron Bump in the US Manufacturing Recovery

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aircraft, aircraft parts, automotive, CCP Virus, chemicals, coronavirus, COVID 19, facemasks, Federal Reserve, machinery, manufacturing, masks, medical devices, miscellaneous durable goods, monetary policy, non-metallic mineral products, Omicron variant, personal protective equipment, petroleum and coal products, pharmaceuticals, plastics and rubber products, PPE, printing, semiconductor shortage, semiconductors, stimulus, ventilators, wood products, Wuhan virus, {What's Left of) Our Economy

The big takeaway from today’s Federal Reserve after-inflation U.S. manufacturing data (for December) is that it may show domestic starting to suffer from the arrival into America of the super-infectious Omicron strain of the CCP Virus and the renewed economic curbs and behavioral changes it’s spurring, along with the spread of vaccine mandates in the ranks of U.S. businesses (of course, before yesterday’s Supreme Court decision striking down such policies for the private sector).

And especially discouraging: Just as Omicron began taking off, inflation-adjusted domestic output of medical equipment and supplies – including all the protective gear and treatment devices needed to fight the virus – fell sequentially at its fastest rate since the worst of the spring, 2020 pandemic-induced depression. Indeed, monthly real production in this category is now lower than in February, 2020 – the last full data month before the virus’ first variant began distorting the U.S. economy.

December’s 0.28 percent monthly decline in price-adjusted American manufacturing output represented industry’s first sequential retreat since September’s (hurricanes-affected) 0.52 percent drop. But the solid growth of recent months stayed largely unrevised.

The December results (which will remain preliminary for several more months) brought 2021’s yearly improvement in inflation-adjusted manufacturing output to 3.71 percent. That’s the best growth since 2011’s 6.48 percent, but as known by RealityChek regulars, it’s important to look at possible baseline effects nowadays. And this strong performance in part reflected the virus-fostered 1.94 percent fall-off in such growth in 2020.

The December downturn stemmed in part from problems (like the global semiconductor shortage) in the automotive sector, which shrank on month by 1.29 percent – following sequential expansion in November of a downwardly revised 1.69 percent. But even without the drag from vehicles and parts, domestic industry’s constant dollar production would still have been off by 0.22 percent.

Aside from automotive, the most important December real manufacturing growth loser by far was miscellaneous durable goods – a category that includes those pandemic-fighting essential medical devices and equipment industries. Its price-adjusted output slumped by 2.68 percent – the biggest downturn since April, 2020’s18.43 percent, during the worst of the CCP Virus’ first wave. Even so, measured by real production, the sector is 2.49 percent larger than in February, 2020, right before the pandemic’s initial major economic impact.

Other big December losers included:

>printing and related support activities, whose 1.82 percent slide was also the worst since April, 2020 (23.94 percent), and whose real output is now down by 5.14 percent since February, 2020;

>plastics and rubber products, whose 1.78 percent decrease was the worst since April, 2020 as well (19.12 percent), but that also followed seven months of strong gains. As a result, its real production is off just 1.08 percent since February, 2020; and

>petroleum and coal products, whose 1.58 percent fall-off was its worst since February’s seven percent, and whose after-inflation production is 4.49 percent lower than in February, 2020.

The biggest December winners were:

>non-metallic mineral products, which not only generated a 1.49 percent increase, but whose November inflation-adjusted output advance was revised all the way up from 1.25 percent to 3.03 percent. All the same, this sector’s constant-dollar production is still 1.32 percent lower than in February, 2020;

>wood products, whose 1.18 percent real increase in production was its best since March’s 4.05 percent, and which is now 3.03 percent bigger by this measure since February, 2020;

>the big chemicals sector, where real growth hit 0.69 percent following an upwardly revised 0.65 percent in November (from 0.50 percent), and which has grown by 7.93 percent in real terms since just before the pandemic; and – most encouragingly –

>machinery, a manufacturing bellwether because its products are so widely used throughout both industry and big non-manufacturing sectors like construction and agriculture – not to mention many services sectors. Its price-adjusted output increased by 0.68 percent sequentially in December – its best such result since July’s 2.85 percent, and revisions were unchanged on balance. Machinery production is now 5.20 percent higher than in February, 2020.

As for manufacturing industries that have been prominent in the news during the pandemic, they had a lousy December generally.

Aircraft and parts saw its monthly output down by 0.38 percent, and in stunning news, November’s initially reported 1.90 percent increase is now judged to be a 1.04 percent decrease. With October’s after-inflation production rise downgraded, too, aircraft and parts output is now just 10.71 percent higher than in February, 2020. As of last month’s Fed manufacturing data, this figure was a much higher 15.86 percent.

In pharmaceuticals and medicines, December’s 0.13 percent real output dip was the third straight monthly decline, and November and October revisions were fractionally negative on balance. Consequently, in price-adjusted production terms, these sectors were 13.42 percent larger than in February, 2020 – as opposd to the 13.54 percent calculable from last month’s industrial production report.

And as mentioned at the outset, the December results for medical equipment and supplies sector were awful – especially considering that for the next few months at least, Omicron’s metastasis will greatly increase demand for face masks, protective gowns, ventilators, and the like.

Real production of these products tumbled seqentially by 2.75 percent – the worst such performance since April, 2020’s 15.97 percent, during that first CCP Virus wave. Revisions for November and October were mildly positive, but whereas last month’s report revealed that inflation-adjusted production in these sectors was up since just before the first wave struck in force (though by a bare 0.65 percent), it’s now down by 1.50 percent. 

And let’s add another sector to the pandemic industries list – semiconductors and related devices. As implied by the category name, the numbers include more than the microchips that have been in such global short supply in recent months – and whose U.S. production revival has been such a high stated Washington, D.C. policy priority.

Still, it’s noteworthy that constant dollar output in this grouping rose a mere 0.12 percent on month in December, But it is up 16.86 percent since the pre-pandemicky February, 2020.

So far, betting against domestic manufacturing during the virus era has been a losing bet, But the headwinds for the near future at least look especially strong, topped of course by the spread of Omicron not only in the United States but in all the countries to which its manufacturers sell exports. Add to the list the apparent death of President Biden’s Build Back Better bill – which whatever its long-term economic wisdom and other effects, will certainly reduce government support for domestic economic activity – what seems like greater odds of more monetary policy tightening by the Federal Reserve sooner rather than later; and inflation that might be getting high enough to dampen U.S. consumer outlays.  

Tailwinds are by no means absent – like the beginning of spending made possible by the infrastructure bill, the still considerable amount of stimulus being provided by the Fed, and the easing of global supply chain knots. But even this last depends heavily on the medical, regulatory, and behavioral effects of Omicron in the United States and, perhaps even more important, in China, where the regime’s Zero Covid policy looks like a formula for ever broader lockdowns that will paralyze its ports and other infrastructure systems. 

Domestic manufacturers keep telling major surveys that they remain optimistic about the future.  (See here and here for the latest soundings.)  If anything’s certain about the circumstances they’re heading into, it’s that they’ll need every bit of this optimism to keep succeeding. 

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(What’s Left of) Our Economy: U.S. Manufacturing’s Now Defying Hurricanes and Delta

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aircraft, aircraft parts, appliances, Boeing, CCP Virus, chemicals, computer and electronics products, coronavirus, COVID 19, Delta variant, electrical equipment, fabricated metal products, facemasks, Federal Reserve, furniture, Hurricane Ida, inflation-adjusted growth, machinery, manufacturing, masks, medical devices, medicines, oil refining, paper, personal protective equipment, petrochemicals, pharmaceuticals, plastics, PPE, real output, semiconductor shortage, supply chain, travel, ventilators, Wuhan virus, {What's Left of) Our Economy

Domestic manufacturing’s done it again. Just as with the Labor Department’s August jobs report, the Federal Reserve’s new release on manufacturing output for the month shows that industry kept dodging whatever potholes the CCP Virus and its highly infectious Delta variant keep digging for the rest of the U.S. economy.

America-based manufacturers’ inflation-adjusted production grew by a meager 0.11 percent sequentially in August. But output was held down by facility closures forced by Hurricane Ida in the petrochemicals, plastics resins, and petroleum refining sectors. Overall revisions were mixed, but some upgrades and downgrades in individual major industries were pretty remarkable, as will be seen below.

The biggest winners in the new price-adjusted manufacturing production report were the small, catch-all “other manufacturing” category (2.42 percent); furniture and related products (up 2.07 percent); computer and electronics products (whose 1.21 percent output rise may have been a response to the worldwide shortage of semiconductors); paper (up 1.07 percent); and fabricated metal products (up 0.74 percent).

The biggest losers were electrical equipment, appliances, and components (down 1.16 percent); textiles products (down 0.81 percent on month); machinery (down 0.80 percent); and the big chemicals sector (down 0.49 percent).

Normally, the machinery results would be discouraging, since its products are used so widely both in the rest of manufacturing and also in big non-manufacturing industries like agriculture and construction. But its August dip followed a July jump of 3.31 percent – its best production improvement since January’s 4.63 percent – which was dramatically upgraded from the previously reported 1.91 percent.

The electrical equipment category followed a similar pattern. Its July real production results were revised all the way up from 2.31 percent to 3.95 percent – its best such performance since January, 2010, when the economy was still in its early bounce-back from the Great Recession that followed the global financial crisis.

Also enjoying a solid August were two narrower manufacturing categories that remain in the news due to the ongoing effects of the CCP Virus. Air travel has of course suffered throughout the pandemic-era, and aerospace manufacturing giant Boeing has been hit with numerous related manufacturing and safety problems (including some pre-dating the pandemic, like the grounding of the popular 737 Max jetliner).

Yet aircraft and parts production in constant dollars advanced by 0.34 percent in August, and in another major revision, July’s previously reported 2.78 percent increase is now pegged at 4.10 percent – its best such result since January’s 6.79 percent burst. And June’s downgraded 3.57 percent rise was bumped back up to 3.84 percent. As a result, aircraft and parts production is now 12.63 percent higher in after-inflation terms than in February, 2020 – the last full data month before the virus began significantly affecting the U.S. economy.

The pharmaceuticals and medicines sector (which includes vaccines) saw a real month-to-month production increase of 0.89 percent in August, and revisions were modest and mixed. These results left inflation-adjusted output 12.33 percent higher than its immediate pre-pandemic levels.

But August real production sank sequentially by 1.73 percent in the vital medical equipment and supplies sector – which includes virus-fighting items like face masks, protective gowns, and ventilators.

On the brighter side, July’s initially reported 1.71 percent constant dollar production rise was revised up to 2.42 percent. June’s dramatically downgraded 1.54 percent decrease was upgraded to a 0.13 percent drop, and May’s upwardly revised 1.86 percent real growth was downgraded only slightly – to 1.78 percent. Even so, on a price-adjusted basis, this crucial industry is just 2.66 percent larger than before the CCP Virus arrived in force.

Domestic industry still faces important headwinds of course – and not just from the possibility that Delta keeps worsening America’s public health and economy, and that approaching winter weather triggers a new wave of infections, hospitalizations, deaths, and restrictions. Those global supply chain snags are still with us, too.

But throughout the pandemic era, U.S.-based manufacturers have overcome obstacles just like this, and their consistent vigor indicates that it’s the pessimists about their future prospectswho now face the biggest burden of proof.

(What’s Left of) Our Economy: A Spring-y New U.S. Manufacturing Production Report

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aerospace, automotive, Biden, Boeing, CCP Virus, coronavirus, COVID 19, Donald Trump, Federal Reserve, health security, imports, industrial production, inflation-adjusted output, infrastructure, machinery, manufacturing, pharmaceuticals, PPE, real growth, semiconductor shortage, stimulus, supply chain, tariffs, Trade, trade war, vaccines, ventilators, West Coast ports, Wuhan virus, {What's Left of) Our Economy

You might call today’s March U.S. manufacturing production figures from the Federal Reserve a good news/bad news/good news story. Moreover, the new data on inflation-adjusted factory output contained a surprise worth noting.

First the good news/bad news/good news. The Fed report showed that real domestic manufacturing output rose by 2.79 percent on month in March. That was the best such result since July’s 4.25 percent – much earlier during the recovery from the deep CCP Virus- and lockdowns-induced recession. Rebounds from major downturns tend to be strongest earliest, especially for highly cyclical sectors of the economy like manufacturing, and that surely went double for a slump largely caused by an outside shock like a pandemic and dramatic government responses, rather than one caused by a market-based economy’s ordinary fluctuations.

The bad news was that this robust growth followed a February sequential drop of 3.72 percent that was the worst monthly performance since pandemicky April’s 15.83 percent plunge. Moreover, this revised February figure was a significant downgrade from the initially reported 3.12 percent decline. The other revisions, going back to October, were too small to affect the picture over the last few months.

But then there’s that second piece of good news: As the Fed’s release explained this morning, the lousy February numbers “largely resulted from widespread outages related to severe winter weather in the south central region of the country.” So they stemmed from a (temporary) outside shock, too.

The surprise? Although the U.S. automotive industry continues reducing production due to a global shortage of semiconductors, output in price-adjusted terms grew by 2.79 percent sequentially in March. At the same time, the February fall-off was revised down from 8.26 percent to ten percent even. And the shortage is expected to undercut vehicle production until the fall, so that’s a drag likely to weigh on the overall manufacturing figures for months.

The total March manufacturing figure means that domestic industry’s after-inflation production has grown by 22.88 percent since its recent low-point last April, and has climbed back to within 1.73 percent of its last pre-pandemic reading in February, 2020.

Manufacturing’s monthly current dollar output gains were broadbased in March, including in the crucial machinery sector. In this industry, whose products are widely used not only throughout manufacturing, but in many other important segments of the economy like construction and agriculture, price-adjusted production improved by 2.87 percent. And now it actually stands 2.16 percent higher than during that last pre-CCP Virus month of February, 2020.

Although the semiconductor shortage is bound to crimp production in many industries on top of automotive, domestic manufacturing still seems to be benefiting from two headwinds other than the economy’s generally improving strength that seem to have some staying power, too. The first is aerospace giant Boeing’s continuing, but sometimes uneven, progress exiting its protracted recent safety and manufacturing problems. The pandemic’s blow to air travel worldwide clearly didn’t help, either.

But in March, real output in aircraft and parts jumped by 4.09 percent sequentially, and is now fully 5.07 percent above its February, 2020 pre-CCP Virus level.

The picture was more mixed in the pharmaceutical and medicines category – which includes vaccines. Inflation-adjusted output advanced by 2.90 percent on month in March, but the previously reported January and February numbers were both downgraded dramatically – from an upwardly revised 2.57 percent to 0.85 percent, and from a 1.29 percent rise to a 0.05 percent dip. These moves left the sector’s output 5.83 percent higher than in pre-pandemic February, 2020 with the prospect of more impovement to come as vaccine production continues to boom.

Growth is still lagging, however, in the vital medical equipment and supplies sector – which includes virus-fighting items like face masks, face masks, protective gowns, and ventilators. February’s constant-dollar production was revised up from a 0.56 percent monthly decline to a 0.44 percent drop – but it was still a drop. Growth returned in March – but only by 0.61 percent in real terms. So price-adjusted output in this category – which includes many other products – is still slightly (0.39 percent) below pre-pandemic February, 2020’s levels, despite all the national talk of the need to improve America’s health security.

I’m still bullish on manufacturing’s outlook, though. No one should forget headwinds facing industry aside from the semiconductor shortage – chiefly, the fading of vaccine production at some point, the distinct possibility of many more regulations and higher taxes from a Democratic-conrolled federal government, and the supply chain disruptions resulting largely from clogged West Coast ports (which on top of the Trump tariffs are slowing the import of many foreign inputs still needed by Made in the USA companies).

But arguably more than offsetting these dangers is the so far better-than-expected resumption of total U.S. growth, the virtual certainty of even yet another gigantic dose of stimulus an infrastructure spending, along with President Biden’s decision to retain every dollar’s worth of those sweeping, often towering Trump trade curbs.

Yet much more important than my views is the continuing optimism registered by domestic manufacturers in all of the soft data surveys that come out each month from the private sector and from various branches of the Federal Reserve system. If they’re full of confidence, who am I to rain on their parade?

(What’s Left of) Our Economy: New Fed Manufacturing Figures Show No Burst So Far in Anti-CCP Virus Goods Output

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(What' Left of) Our Economy, CCP Virus, coronavirus, COVID 19, facemasks, Fed, Federal Reserve, healthcare goods, industrial production, inflation-adjusted growth, manufacturing, manufacturing output, medical devices, medical equipment, PPE, protective gear, ventilators, Wuhan virus

No one should have been surprised by this morning’s manufacturing output report from the Federal Reserve, which judged that industry’s inflation-adjusted production tumbled by 6.27 percent in March from February’s levels – which was revised downward slightly from a 0.12 percent gain from a 0.02 percent dip. In other words, “Thanks, China!” for the CCP Virus that’s caused an unprecedented shutdown of huge sections of the U.S. economy.

Lately, however, some manufacturing sectors of special concern have emerged – the healthcare goods sectors. And the results are below.

Unfortunately, the statistics in the relevant sectors aren’t very granular. In particular, they don’t enable us to distinguish between, say, masks and ventilators, or between final pharmaceutical products and vaccines, or between CAT-scan and MRI machines and non-medical high tech instruments. Still, the following sequential results must have some significance, given the overall skid in after-inflation manufacturing production. And for February-March, they are:

soaps, cleaning compound, & toilet preparation:      +1.85 percent

pharmaceuticals & medicines:                                  +0.50 percent

  (includes vaccines)

medical equipment & supplies:                                 -1.55 percent

  (includes everything from ventilators to facemasks)

Less helpful is learning that constant dollar output in a category called “navigational, measuring, electromedical and control instruments” decreased by 2.39 percent on month.

Keep in mind that since these data were compiled, all manner of manufacturing companies have volunteered, or been officially pressured, either to ramp up their existing healthcare goods production greatly, or to enter the field. So next month’s Fed industrial production report – for April – should be more revealing. For now, however, the March numbers don’t show much in the way of surge production.

Nor should anyone expect the Fed’s figures on manufacturing capacity and capacity utilization to shed much light on healthcare-related surge performance and surge capacity. The categories simply aren’t this detailed.

Maybe one of the CCP Virus-induced changes in government will be involve tracking healthcare-related manufacturing data in more detailed? Stay tuned. And send all such suggestions to

Jerome Powell, Chair, Board of Governors of the Federal Reserve System, 20th St. and Constitution Ave. NW, Washington, D.C.  20551

 

Im-Politic: Selective CCP Virus Finger-Pointing

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Barack Obama, CCP Virus, coronavirus, COVID 19, Dan Diamond, Daniel Lippman, Defense Production Act, DPA, George W. Bush, health security, healthcare goods, Im-Politic, Jessica Silverman-Greenberg, Mainstream Media, MSM, Nahal Toosi, National Security Council, Nicholas Kulish, pandemic, regulations, Sarah Kliff, The New York Times, Trump, ventilators, Wuhan virus

Mainstream Media accounts of the Trump administration’s CCP Virus response keep appearing emphasizing how lousy and lackadaisical it’s been compared with the federal response to potentially dangerous disease outbreaks during the Obama years – and especially given supposedly prescient pandemic warnings that the Obama-nauts sounded to their successors that allegedly were ignored.

So RealityChek is going to have to keep pointing out major flaws in these accounts that both reporters and their editors should have noted, and questions they should have asked.

Keep in mind, moreover, that today’s pushback comes on top of (1) this blog’s description of a 2011 Commerce Department report on America’s increasingly dangerous vulnerability to foreign cutoffs of vital healthcare goods that was completely ignored; and (2) a similar presentation of federal economic data making clear the nation’s healthcare security – another way to think of this vulnerability – has been weakening for at least two decades.

Let’s start with the article in today’s New York Times detailing how a George W. Bush administration plan continued under Barack Obama failed to plug what its public health officials viewed as “one of the medical system’s crucial vulnerabilities: a shortage of ventilators.” The effort entailed finding businesses willing to try to build ventilators that were cheaper, more portable, and easier to use than were then available, and then awarding the contract to the best proposal.

According to Times reporters Nicholas Kulish, Sarah Kliff, and Jessica Silver-Greenberg (and presumably their editors), the eventual failure mainly highlighted “the perils of outsourcing projects with critical public-health implications to private companies; their focus on maximizing profits is not always consistent with the government’s goal of preparing for a future crisis.”

And although this point wasn’t made, the obvious message that the piece meant to send readers is that the President continues making a big mistake by not unleashing the full power of the Defense Production Act (DPA)– which creates vast government power to order whatever companies it wishes to make whatever products it considers necessary as quickly as possible, and to prioritize sales to Washington, not other customers. Underlying this position, of course, is the (completely ignorant) belief that this 1950 law (amended several times since) enables a Chief Executive to snap his fingers and instantly start assembly lines churning out ventilators and face masks and pharmaceuticals, etc.

But let’s leave aside this DPA fetishism. As I tweeted, the following sentence in the piece isn’t completely uninteresting given the unmistakable importance of quick results: After an initial failure (that shouldn’t be pinned on either of those two administrations), “The federal government started over with another company in 2014, whose ventilator was approved only last year and whose products have not yet been delivered.”

That doesn’t sound like the regulatory process reflected particular urgency – and clearly the problem extended into the Trump administration. But this business-as-usual attitude reigned even though, as the article noted, the ventilator project “came in the wake of a parade of near-miss pandemics: SARS, MERS, bird flu and swine flu.” In other words, evidence abounded that pandemics weren’t a rarity. Recently, they were becoming frequent. And still apparently no thought was given to any regulatory fast-tracking.

Finally in connection with this episode. It’s commendable that these pre-Trump public health officials tried to do something new. Less commendable, and less understandable, is why none of them recognized the foreign vulnerability problem and the offshoring-happy trade policies that fostered them.

Two other recent articles seeking to pin the blame for U.S. CCP Virus unpreparedness on Mr. Trump came out March 16 and March 25 in Politico. The first documented that on January 13, 2017 – seven days before the Trump inauguration – a team of outgoing Obama administration officials held a briefing for a team of incoming Trump-ers “intended to hammer home a new, terrifying reality facing the Trump administration, and the incoming president’s responsibility to protect Americans amid a crisis” – the distinct possibility that a major, deadly pandemic would sweep over the United States from abroad.

Further, the briefers specified that the new administration “could face specific challenges, such as shortages of ventilators, anti-viral drugs and other medical essentials, and that having a coordinated, unified national response was ‘paramount’….” Unfortunately, continued the article by Nahal Toosi, Daniel Lippman, and Dan Diamond, the Trumpers seemed pretty apathetic. And that’s pretty damning, right?

In principle, yes. But why did the Politico staff bury this observation: “None of the sources argued that one meeting three years ago could have dramatically altered events today”? Because it would take much of the punch out of this supposed bombshell?

Also buried: An observation in the apparently actual briefing document that, when in terms of “U.S. hospital preparedness and response,” “State and local governments lead public health response.” That’s an important piece of the current American response – even though it’s been relentlessly portrayed in the press another example of the administration’s failure. And P.S. – this document said nothing about ensuring adequate national screening capability.

Politico wasn’t finished, however. Nine days later, it ran another piece – by two of the same reporters – charging that the Trump administration’s CCP Virus policies have “failed to follow” a detailed pandemic playbook prepared by the Obama National Security Council that, it seems, would have prevented much of the virus damage inflicted on the nation.

Again, it’s a plausible claim – although, like the first Politico piece, this article left out the development of the Trump administration’s own pandemic strategy by the fall of 2018 (which means that work on it throughout the federal government began months before).

Also, like the first article, it failed to pose these crucial questions: If the Obama pandemic specialists were so utterly convinced that a pandemic would strike sooner rather than later, and that Team Trump was falling down on the preparation job, why didn’t they alert Democrats in Congress, or Never Trumper Republicans? Certainly there’s been no shortage of lawmakers (especially Democrats) looking for any opportunity to slam the administration (especially if this activity could do some good).

Additionally, if these pandemic warriors did send their message to these lawmakers, why did the public hear so little about it?

My hunch: For three years, the Never Trumpers of both parties had much higher priorities. Think “Russia” and “impeachment.”