(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: Which Sectors are America’s Biggest Trade Winners and Losers?

Tags

commmodities, exports, imports, manufactures, Trade, trade balances, Trade Deficits, trade surpluses, {What's Left of) Our Economy

Welcome to installment two of RealityChek‘s deep dive into new U.S. data that enable us to compare the economy’s merchandise trade performance during the first half of this year with that of the first half of last year. Yesterday, we reviewed America’s biggest goods exporters and importers, and trade deficit and trade surplus sectors – all on a stand-still basis. Today, we’ll look at the fastest and slowest merchandise export and import growers over the last year, and the sectors whose trade balances have improved or worsened to the greatest extents.

Because the subject today is rates of change, and in order to avoid results distorted by unusually small numbers (e.g., the ease with which big percentage changes in a given indicator are resulting from the use of unusually modest base figures), the following lists are drawn from larger lists of the top 50 goods industries in these performance categories. And fortunately, because U.S. imports and exports are relatively highly concentrated, drawing the line at the top 50 costs almost nothing in terms of creating a very representative sample.

Also, as was the case yesterday, these industry categories examined here are those drawn from the six-digit level of the North American Industry Classification System (NAICS), the federal government’s main system for slicing and dicing the economy. The one exception: aerospace. Because of data limitations in that sector, the five-digit data, which combine final products and their parts and components, are presented.

Let’s start with the ten goods industries whose exports, measured in value terms, grew fastest between the first half of last year and the first half of this year, along with the growth rates:

1. Non-anthracite coal & petroleum gases: +180.9 percent

2. Crude oil & natural gas: +109.0 percent

3. Cotton: +89.9 percent

4. LNG: +62.4 percent

5. Semiconductor manufacturing equipment: +58.2 percent

6. Primary smelted non-ferrous metals: +54.0 percent

7. Soybeans: +27.6 percent

8. Petroleum refinery products: +26.1 percent

9. Motor vehicle engines & engine parts: +19.2 percent

10. Corn: +18.7 percent

As is clear, five of these ten sectors are commodity sectors, which add relatively little value to the economy. Two more are industries where relatively little processing, and thus value-adding, takes place (liquid natural gas and the smelted metals). Only three could be considered high value manufactures – the types of industries that historically have made outsized contributions in terms of productivity growth and innovation, and that tend to pay high wages.

Here are the ten industries with the worst export performances on a year-to-date basis:

1. Medicinal & botanical drugs & vitamins: -25.4 percent

2. Turbines & turbine generator sets: -15.1 percent

3. Computer parts: -9.4 percent

4. Autos and light trucks: -8.3 percent

5. Telecomms equipment: -6.6 percent

6. Electricity measuring & test instruments: -5.9 percent

7. Aerospace: -4.0 percent (5-digit, due to reporting limits)

7. Surgical and medical instruments: -1.1 percent

8. Electro-medical apparatus: -0.9 percent

9. Industrial valves: -0.1 percent

9. Computers: -0.1 percent

10. Surgical appliances & supplies: +0.2 percent

10. Analytical laboratory instruments: +0.2 percent

As should be obvious, every single sector here belongs in the high-value manufactures category.

Now for the industries that saw the fastest import growth between the first six months of 2016 and the first six months of this year:

1. Switchgear and switchboard apparatus: +174.3 percent

2. Crude oil and natural gas: +53.7 percent

3. Printed circuit assemblies: +44.2 percent

4. Iron and steel: +41.3 percent

5. Primary aluminum: +38.6 percent

6. Non-diagnostic biological products: +29.4 percent

7. Petroleum refinery products: +22.2 percent

8. Miscellaneous non-citrus fruits: +20.8 percent

9. Motors and generators: +13.7 percent

10. Lighting equipment: +12.7 percent

10. Surgical appliances and supplies: +12.7 percent

This group, too is dominated by high-value industries. And look at those numbers for steel and aluminum, two sectors where the Trump administration has been talking about imposing national security related tariffs

The list of sectors with the worst import growth – indeed, where imports have declined the most – is much more of a mixed bag:

1. Medicinal and botanical drugs and vitamins: -39.4 percent

2. Computer parts: -12.3 percent

3. Women’s and girl’s blouses/shirts: -12.1 percent

4. Primary smelted non-ferrous metals: -8.8 percent

5. Men’s and boys non-work shirt shirts: -8.3 percent

6. Non-costume jewelry: -6.7 percent

7. Semiconductors and related devices: -6.4 percent

8. Audio and video equipment: -5.3 percent

9. Jewelers materials/lapidary work: -4.1 percent

10. Aerospace products: -3.4 percent

Now for the trade balance figures. Remember, they’re especially important because economic theory tells us they’re strong indicators of which industries the United States trades most successfully – and therefore which industries have the brightest futures.

Here are the ten sectors where the trade balance has shown the greatest improvement from the first half of 2016 to the first half of 2017. They’re presented in percentage terms except where deficits have turned into surpluses :

1. Primary smelted non-ferrous metals: $5.00 billion deficit to $0.76 billion surplus

2. Relays and industrial controls: $1.27 billion deficit to $2.26 billion surplus

3. Semiconductors: $1.48 billion deficit to $1.01 billion surplus

4. Non-costume jewelry: +574.44 percent

5. Drawn/rolled/extruded miscellaneous non-ferrous metals: +305.69 percent

6. Miscellaneous basic inorganic chemicals: +300.00 percent

7. Non-anthracite coal and petroleum gases: +224.29 percent

8. Medicinal and botanical drugs and vitamins: +104.35 percent

9. Cotton: +91.09 percent

10. Semiconductor manufacturing equipment: +64.82 percent

Encouragingly, high value manufacturing is pretty well represented here.

And now for those sectors that experienced the worst deterioration in their trade balances.

1. Non-diagnostic biological products: +856.00 percent.

2. Switchboard and switchgear apparatus: +437.35 percent

3. Oil and gas field machinery and equipment: +130.00 percent

4. Iron and steel: +76.25 percent

5. Surgical appliances and supplies: +71.55 percent

6. Printed circuit assemblies: +47.08 percent

7. Crude oil and natural gas: +45.30 percent

8. Primary aluminum: +42.73 percent

9. Turbines and turbine generator sets: +39.46 percent

10. Copper and nickel ores: +35.96 percent

High-value manufactures are well represented here, too – and this list, too, includes steel and aluminum. At the same time, these rates of deterioration are generally smaller than the rates of improvement in the sectors where trade balances changed for the better. So that’s an encouraging development as well.

Of course, whenever “trade” comes up, the word “China” usually isn’t far behind, especially since the Trump administration just announced it was beginning a process that could lead to tariffs on Chinese goods in response to Beijing’s practice of forcing companies to hand over at least some of their best technology in exchange for the privilege of doing business in the vast Chinese market, and to the more conventional intellectual property theft that’s still SOP in the PRC. So tomorrow, RealityChek takes a deep dive into U.S.-China goods trade.

(What’s Left of) Our Economy: Into the (Crucial!) Weeds on America’s Trade Performance

Tags

comparative advantage, exports, imports, manufacturing, Trade, trade balances, Trade Deficits, trade surpluses, {What's Left of) Our Economy

The U.S. International Trade Commission has finally added the June American trade statistics to its wonderful Trade Dataweb, an invaluable database and search engine. So now it’s possible to view in needed detail the nation’s trade performance for the first half of 2017, and the first groups of these figures is presented below.

Just so you’ll know exactly what you’re seeing, these are results according to the most granular level of the North American Industry Classification System (NAICS), the federal government’s main system for slicing and dicing industry-specific economic data. I like this six-digit level because it draws the greatest number of distinctions between final manufactured products and the parts and components of these products. This distinction is critical because the rapid growth in recent decades of global supply chains (i.e., the rapid growth of American production offshoring) means that a large percentage of U.S. and global trade consists of trade in these manufacturing inputs.

Another technical note: Because trade data for major aerospace products aren’t made public in order to protect corporate information considered proprietary, the six-digit NAICS results in this sector are unreliable, and the five-digit level data are being used.

So here are the nation’s top ten goods exports for the first half of this year, and how their performance has changed in dollar terms since the first half of 2016:

1. Aerospace: -4.0 percent

2. Petroleum refinery products: +26.1 percent

3. Autos & light trucks: -8.5 percent

4. Special classification provisions: +9.7 percent

5. Semiconductors & related devices: +4.7 percent

6. Miscellaneous auto parts: +1.4 percent

7. Miscellaneous basic organic chemicals: +3.7 percent

8. Pharmaceuticals: +3.9 percent

9. Plastics materials & resins: +6.3 percent

10. Primary smelted non-ferrous metals: +54.0 percent

It’s an encouraging list because most of these products are high-value manufactures, which historically have been very productive, still create lots of high-wage jobs, and incorporate lots of innovation. At the same time, these export growth rates seem pretty meh.

Here is a similar list of the top ten goods import categories and how their levels have changed on a year-to-date basis:

1. Autos & light trucks: +4.5 percent

2. Crude oil & natural gas: +53.7 percent

3. Pharmaceuticals: +2.3 percent

4. Goods returned from Canada: +4.3 percent

5. Broadcast & wireless communications equipment: +10.3 percent

6. Computers: +6.2 percent

7. Telecomms equip: +8.2 percent

8. Aerospace products: -3.4 percent

9. Petroleum refinery products: +22.2 percent

10. Semiconductors & related devices: -6.4 percent

This looks like a higher value list, and the growth rates seem somewhat higher. So that appears less bullish.

The real test of trade performance, though, has to do with trade balances. For the theory of comparative advantage that’s at the heart of modern thinking and policy in the trade field tells us that economies that trade goods and services most successfully (as indicated by surpluses) will wind up as the most successful producers of those goods. Conversely, economies that trade goods and services least successfully will wind up as the least successful producers of those goods. How else could unfettered trade flows create an optimal global division of labor – which is supposed to be their prime economic virtue according to mainstream economics?

So here are the ten goods sectors that wracked up the biggest trade surpluses in the first half of this year, and how those balances compare with the first-half 2016 figures:

1. Aerospace products: -2.03 percent

2. Petroleum refinery products: +33.11 percent

3. Plastics materials & resins: +4.73 percent

4. Soybeans: +28.21 percent

5. Other special classification provns: +7.13 percent

6. Corn: +20.26 percent

7. Waste & scrap: -7.82 percent

8. LNG: +56.54 percent

9. Semiconductor machinery: +64.73 percent

10. Non-anthracite coal & natural gases: +223.22 percent

If you recognize the outsize economic value of manufacturing, this is a less encouraging list, since fully half the products are commodities. Nor is the growth rate of the surpluses in these manufacturing sectors impressive except for semiconductor production equipment and petroleum refinery products.

And here’s the trade balance flip side: the sectors with the top ten U.S. goods trade deficits and their rates of change:

1. Autos & light trucks: +10.64 percent

2. Crude oil & nat gas: +45.31 percent

3. Goods returned from Canada: +4.25 percent

4. Computers: +1.16 percent

5. Broadcast & wireless communications equip.: +11.06 percent

6. Telecomms equipment: +19.10 percent

7. Printed circuit assemblies: +47.12 percent

8. Audio & video equipment: -11.50 percent

9. Institutional furniture: +8.56 percent

10. Iron & steel: +76.28 percent

This list is full of high-value manufactures – so that should be a concern. Ditto for the growth rates, which are mainly well into the double-digits. And check out the number for steel — a sector that’s been making headlines because of the Trump administration’s consideration of national security-related tariffs.  

Coming up tomorrow: the best and worst export and import growers, and the sectors with the most rapidly improving and the most rapidly worsening trade balances.

(What’s Left of) Our Economy: Smile When You Say “Wage Inflation”

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inflation-adjusted wages, manufacturing, private sector, wages, {What's Left of) Our Economy

If you’re really determined to make the case that wage inflation is (finally) taking hold in the U.S. economy, you can find some supporting evidence in the government’s new report on the subject. But you need to look awfully hard, and you also have to ignore other data suggesting that this proposition is still pretty far-fetched.

First the new (July) numbers. (They’re still preliminary, like the June results, which are unchanged.)

For the private sector overall, real wages rose by 0.19 percent month-to-month – lower than June’s 0.28 percent increase. Year-on-year, real wage improvements decelerated, too – from 0.94 percent in June to 0.75 percent in July.

Manufacturing’s results were more robust, with inflation-adjusted wages advancing faster on month in July (0.46 percent) than in June (0.18 percent). Acceleration was evidence on an annual basis, too, with the July year-on-year growth of 0.83 percent besting June’s 0.55 percent. In fact, the July annual increase was the greatest since December (1.03 percent).

The annual constant-dollar statistics contain the strongest signs of vibrant life on the wages front. In particular, year-on-year increases this year have strengthened from 0.09 percent in January to 0.75 percent in July, and in manufacturing from 0.28 percent to 0.83 percent during this period. And that manufacturing figure was the year’s best. As reported above, however, the best annual private sector real wage growth of this year came in June.

In addition, if you more than a year back, you can see that annual real wage growth has slowed considerably after a notable speed-up earlier in the current economic recovery.

For example, for the private sector, after improving by 0.59 percent total between July, 2011 and July, 2014, real wages jumped 2.04 percent between 2014 and 2015, and by 1.90 percent between 2015 and 2016, before the latest, much slower, 0.75 percent rise.

In manufacturing, between July, 2011 and July, 2014, real wages actually dropped by 0.66 percent. The following Julys saw a 1.34 percent increase that nearly doubled to 2.26 percent over the next year before settling back to 0.83 percent during the latest July-July period.

But for me, the most revealing real wage numbers are those measuring its change throughout the current economic recovery. Since it began, in mid-2009, after-inflation private sector wages have risen only by 4.75 percent, and real manufacturing wages are up a mere 2.05 percent. Until those increases get much bigger, warnings of wage inflation understandably will be seen as sick jokes by most American workers.

(What’s Left of) Our Economy: Still Desperately Seeking Decent Productivity Growth

Tags

Labor Department, labor productivity, manufacturing, multi-factor productivity, non-farm business, productivity, recovery, {What's Left of) Our Economy

The good news about America’s productivity growth that came out this morning is that new Labor Department figures showed it’s gotten a little bit better lately. The bad news is that it needs to get a lot better if the nation is going to achieve the economic goals everyone says they want: economic growth that’s healthy, and wages rising satisfactorily.

Today’s data, which report the results on a relatively narrow but timely measure of productivity growth, also furnish a handy opportunity to review recently released productivity measures that are broader but not quite so up to date.

According to the Labor Department’s preliminary read, U.S. labor productivity for non-farm businesses (the standard definition of the American economic universe) rose in the second quarter of this year at a 0.99 percent annual rate. The first quarter’s advance (feel free to make the “air quotes” gesture) was revised up from literally nothing to next-to-nothing. As RealityChek regulars know, labor productivity measures how much output is generated by each hour worked by each worker.

And that’s where the good news stops. The new Labor Department release also revised these labor productivity figures going back to 2014. These updates left the dismal recent productivity picture little changed, with one noteworthy exception: On an annual basis, labor productivity last year is now judged to have fallen (by 0.1 percent) for the first time since 1982.

Just how gloomy the labor productivity picture has gotten becomes clear when comparing its performance during the last few U.S. economic expansions (a methodology that gives us the best apples-to-apples growth). Note: Because of the new revisions, these figures supersede those contained in RealityChek’s past posts on labor productivity.

2Q 1991 to 1Q 2001: +23.25 percent

4Q 2001 to 4Q 2007: +16.03 percent

2Q 2009 to present: +8.49 percent

Manufacturing’s labor productivity performance shows this kind of deterioration, too. It’s second quarter rise was judged preliminarily to have been 2.44 percent annualized – much better (as has usually been the case) than the increase for the rest of the economy. But the first quarter figure was revised down to 0.29 percent.

And here are the figures for the current economic recovery and its two predecessors:

2Q 1991 to 1Q 2001: +46.81 percent

4Q 2001 to 4Q 2007: +41.23 percent

2Q 2009 to present: +22.25 percent

So manufacturing has seen a big labor productivity slowdown during this expansion, but it’s still leading the economy in this form of productivity growth by far.

But there’s one fly in the ointment here. As previously reported, the way the Labor Department measures labor productivity throughout the economy results in the offshoring of work generating better productivity. And of course nothing’s been offshored in recent decades like manufacturing work. Since offshoring-produced productivity gains aren’t the kind any thinking person would want, this means that the improvements seen in industry lately aren’t quite so impressive as they look. In fact, according to the Department between 1997 and 2006, offshoring accounted for 23 percent of the sector’s labor productivity gains.

At the same time, labor productivity isn’t the only kind of productivity. Multi-factor productivity is a broader, and more reliable measure; it tells us how much output is generated from the use of a wide variety of inputs, like technology, materials, capital, and energy as well as labor. The problem is that the multi-factor productivity data don’t come out nearly as often, and the latest take us only through 2015.

Still, that’s what we have, and what’s striking is that they reveal that, at least for “now,” manufacturing has lost its productivity growth lead. Here are the annual changes reported by the Labor Department for manufacturing in a July 12 release, combined with the latest such figures for the non-farm business sector as a whole:

non-farm business +0.61 percent

manufacturing -2.80 percent

Nor are the longer-term results any better for industry during the last three expansions:

                                        1991-2001          2001-2007           2009-2015

non-farm business       +11.51 percent     +9.91 percent      +5.52 percent

manufacturing             +13.98 percent   +14.66 percent       -2.17 percent

Although honest economists will admit that productivity is one of the most mysterious subjects they study, they’ll also insist that the official statistics provide a reasonably accurate picture about how the nation is using this crucial “secret sauce” for sustainable prosperity. These new Labor Department reports once again remind that the U.S. economy urgently needs to get its productivity culinary skills back up to snuff.

(What’s Left of) Our Economy: A Decent Month & a Long Way to Go for US Trade

Tags

Canada, Census Bureau, China, exports, Germany, imports, Made in Washington trade deficit, Mexico, NAFTA, North American Free Trade Agreement, recovery, South Korea, Trade, trade deficit, Trump, {What's Left of) Our Economy

America’s goods and services trade deficit decreased by 5.93 percent in June – a second straight sequential decline that resulted in its lowest level ($43.64 billion) since last October. Highlighting the month’s results was an all-time high services exports figure ($65.37 billion). In addition, total exports hit their highest level ($194.37 billion) since the end of 2014, and June goods exports to Mexico ($21.35 billion) were the second greatest total on record, and the merchandise deficit fell on month at its fastest pace (18.28 percent) since July, 2015.

Yet despite these milestones, the total trade deficit for the first half of the year ($276.60 billion) was the highest six-month total since the first six months of 2012. Further, goods exports to China – which accounts for roughly half of the total American merchandise trade deficit – fell in June at their fastest rate (4.74 percent) since January, 2016 (18.41 percent). And although the China-heavy manufacturing and high tech trade deficits fell on month, they are running ahead of last year’s totals as well. Indeed, the latter’s six-month total ($43.40 billion) represents an all-time high. Year-to-date merchandise shortfalls have risen – including a quadrupling of the Canada shortfall – with many of the foreign economies whose trade policies have been criticized by President Trump. (Germany and South Korea were important exceptions).

The June figures also showed a quarterly uptick in the drag on the current recovery of the Made in Washington portion of the U.S. trade deficit from an already lofty level – cutting 17.47 percent from cumulative growth since the expansion began in mid-2009, or just under $464 billion.

Here are selected highlights of the latest monthly (June) trade balance figures released yesterday morning by the Census Bureau:

>In June, the combined U.S. goods and services trade deficit dropped for its second straight month, from a downwardly revised $46.39 billion to $43.64 billion. The new total brought the shortfall to its lowest level since last October ($43.07 billion).

>Leading this progress were U.S. services exports, which rose on month by 0.94 percent to a a second straight new all-time high: $65.37 billion.

>Total exports hit something of a milestone, too, increasing by 1.23 percent sequentially to their highest level ($194.37 billion) since December, 2014 ($197.18 billion).

>Moreover, on the eve of the renegotiation of the North American Free Trade Agreement, the June data show that U.S. goods exports to NAFTA partner Mexico improved by 7.42 percent over May’s figure, to hit their second highest total ($21.35 billion) on record. (The all-time high of $22.35 billion was set in August, 2014).

>Yet in contrast to this good news, the combined American trade deficit for the first six months of the year ($276.60 billion) was the worst January-June total since 2012’s $281.46 billion – when economic growth was somewhat faster.

>Another June low-light: China, which may face punitive unilateral U.S. tariffs, bought 4.74 percent few goods from the United State than in May – the steepest such drop since January, 2016’s 18.41 percent.

>U.S. merchandise imports from China, however, rose by 1.17 percent, to $42.29 billion, and helped push the June American deficit up 3.08 percent, to $32.58 billion – the highest since last August’s $33.86 billion.

>Year-to-date, the U.S. goods deficit with China is running 6.08 percent ahead of last year’s pace, even though exports have risen nearly twice as fast (up 15.63 percent) than imports (8.39 percent).

>Although it fell on month in June (by 6.83 percent, to $8.82 billion), on a year-to-date basis, the trade deficit for high tech goods for the first half of this year set its own new record for the January-June period – $43.40 billion.

>In fact, this shortfall is up 33.37 percent from the previous January-June period.

>Between the first half of last year and the first half of this year, U.S. High tech exports inched up by only 0.36 percent, but imports have climbed 5.66 percent.

>A similar story unfolded in manufacturing. The trade gap fell 4.93 percent on a monthly basis, from $80.10 billion in May (the second highest total ever) to $76.13 billion.

>Manufacturing exports rose 2.98 percent on month, while imports dipped by 0.70 percent.

>Year-to-date, however, the manufacturing trade deficit is running 6.19 percent ahead of last year’s record pace, which resulted in an $853.07 billion 12-month total.

>Manufacturing exports are up 3.86 percent for the January-June period, but imports have grown by 4.98 percent.

>Mexico represents another example of a country criticized by President Trump whose merchandise trade surplus with the United States shrunk sequentially but has risen on a year-to-date basis.

>Thanks largely to those robust American goods export figures, the U.S. goods deficit with Mexico sank by fully 18.28 percent month-to-month – the fastest rate since July, 2015 (43.12 percent). American goods purchases from Mexico rose by only 0.52 percent over June’s levels.

>Year-to-date, however, the U.S. merchandise shortfall with Mexico is up by 13.26 percent, as goods exports have risen by 5.04 percent, but imports have grown by a faster 6.86 percent.

>An even more extreme example is provided by Canada, with which U.S. goods trade flows have been exceptionally volatile, albeit in the context of a balance that has become notably modest.

>In June, the American merchandise deficit with Canada nosedived by 54.42 percent. The decrease was only from $1.37 billion to $624 million in absolute terms, but that’s still the lowest Canadian goods surplus since June, 2016.

>On a monthly basis, U.S. goods exports to Canada improved by 1.11 percent, and imports fell by 1.77 percent.

>Between the first six months of this last year and this year, however, the U.S. goods deficit with Canada has more than quadrupled, from $2.20 billion to $10.51 billion. American merchandise exports have advanced by 3.94 percent, but imports rose by nearly twice as fast – 9.95 percent.

>Indeed, the American goods shortfall with its partners in NAFTA (the North American Free Trade Agreement), which will soon be renegotiated by the three signatories, dropped by 24 percent month-to-month in June, from $8.66 billion to $6.58 billion, on an export increase of 3.91 percent and an import dip of 0.61 percent.

>Year-to-date, however, this deficit has surged by 36.68 percent, from $34.24 billion to $46.79 billion, as U.S. goods sales to Mexico and Canada combined have improved by 4.44 percent, but purchases from the two grew by 8.36 percent.

>Yet U.S. goods trade with Germany has shown a reversal of this pattern. In June, the American merchandise deficit rose by 10.03 percent, from $4.99 billion to $5.49 billion. U.S. exports increased by a mere 0.18 percent, while imports were up by 5.36 percent.

>The American goods deficit with Germany on a year-to-date basis, however, has decreased by 5.48 percent, as U.S. merchandise sales to Germany have advanced by 7.04 percent, while purchases from Germany have slipped by 0.1 percent.

>U.S. goods trade with South Korea followed this pattern, but with bigger disparities between the on-month and on-year data. Sequentially in June, the American merchandise deficit jumped by 26.23 percent, from $1.46 billion to $1.85 billion. U.S. merchandise sales to South Korea were off 5.96 percent, but American goods imports increased by 1.95 percent.

>Yet between January-June, 2016 and January-June, 2017, this American merchandise deficit cratered by 31.91 percent, from $16.46 billion to $11.20 billion. U.S. goods exports to South Korea surged by 21.82 percent during this period, while imports slid by 2.38 percent.

>At the same time, on a monthly basis, the American merchandise trade deficit with South Korea has more than tripled (from $561.4 billion) since the bilateral trade agreement went into effect in March, 2012.

>The June trade figures make clear that the drag on American growth exerted by the Made in Washington portion of the U.S. trade deficit grew slightly between the first and second quarters of this year – from an already considerable level.

>This deficit consists of U.S. trade flows heavily influenced by trade agreements and other trade policy decisions – thus omitting services and oil trade – that are then adjusted for inflation.

>Between the second quarter of 2009 – when the current recovery officially began – and the first quarter of 2017, the increase in this Made in Washington deficit has cut cumulative U.S. growth by 17.40 percent, or $443.24 billion out of $2.5476 billion in real GDP expansion.

>As of the second quarter of 2017, this drag effect increased to 17.47 percent, or $463.97 billion out of $2.6551 billion in real GDP expansion.

(What’s Left of) Our Economy: Manufacturing’s Out of its (Short Term) Jobs and Wages Doldrums

Tags

Bureau of Labor Statistics, Employment, inflation adjusted wages, Jobs, manufacturing, non-farm payrolls, recession, recovery, wages, {What's Left of) Our Economy

American domestic manufacturing created 16,000 net new jobs in July on month, its best such performance since February’s 22,000. Coupled with a major (11,000) upward revision for June, the figures demonstrated that U.S. industry has for now emerged from a springtime slump. On an annual basis, manufacturing’s July 66,000 employment improvement was its strongest since February, 2016’s 69,000.

But since the current recovery began, private net job creation has topped manufacturing’s by a factor of nearly 2.5. The same story characterized pre-inflation manufacturing wages. In July, they improved sequentially faster than the private sector’s (0.53 percent to 0.34 percent) but lagged year-on-year (2.42 percent to 2.53 percent) and trailed the previous Julys’ 3.13 percent. And during the current recovery, the private sector’s current dollar wages have increased nearly 20 percent faster than manufacturing’s, although the gap has narrowed year-on-year. But despite its good last two months, manufacturing’s share of total nonfarm employment remained at a record low of 8.47 percent.

Here’s my analysis of the latest monthly (July) manufacturing figures contained in this morning’s employment report from the Bureau of Labor Statistics:

>U.S. domestic manufacturing net new job creation and wage gains both accelerated sequentially in July, pulling the sector out of a sluggish spring on both fronts.

>Industry’s monthly July jobs gain of 16,000 was its best such performance by far since the 22,000 payrolls improvement in February. Moreover, June’s initially reported 1,000 employment increase is is now judged to have been more than ten times greater (12,000).

>Fiurther, the July figures showed that manufacturing payrolls swelled by 66,000 year-on-year in July – the best annual gains since February, 2016’s 69,000.

>Monthly pre-inflation manufacturing wages growth picked up notably as well in July, from an upwardly revised 0.19 percent in June to 0.53 percent. In May, manufacturing paychecks actually fell on a current dollar basis – by an upwardly revised 0.26 percent.

>Manufacturing’s June sequential pre-inflation wage gains equaled those of the overall private sector, and beat the private sector’s 0.34 percent performance in July.

>Over the longer term, however, manufacturing lagged the overall private sector in both respects, although the paycheck gap has been narrowing slightly recently.

>During the current economic recovery, which began in mid-2009, manufacturing employment is now up by 5.96 percent. Private sector jobs as a whole are up by 14.58 percent during this period.

>Since the late-2007 onset of the last recession, manufacturing’s performance is equally poor. From that time to the early 2010 troughs, manufacturing lost 2.293 million jobs and private sector payrolls shrank by 8.801 million.

>Since then, manufacturing has regained just 42.39 percent of those lost jobs (a total of 972,000). The private sector as a whole has boosted employment by 17 million.

>As a result, total private sector employment is now 7.08 percent higher than at the recession’s late-2007 onset, but manufacturing employment is still 9.61 percent lower.

>Therefore, it’s no surprise that manufacturing’s share of total nonfarm employment in July stayed stuck at its all-time low level of 8.47 percent.

>Wage trends reveal the same manufacturing relative weakness. Industry’s July annual current dollar wage gains of 2.42 percent were lower than the overall private sector’s 2.53 percent. They were also much lower than the 3.13 percent increase recorded for manufacturing during the previous Julys.

>Manufacturing wages before inflation have fared little better during the recovery. As of July, they were up by 15.99 percent since the economy resumed expanding in mid-2009. But overall private sector wage increased by 19.06 percent – 19.20 percent faster.

>Last July, though, the gap was bigger – 23.24 percent.

>Manufacturing generally performs even worse on an inflation-adjusted basis. The latest figures are for June, and show a sequential manufacturing gain of 0.18 percent versus a 0.28 percent read for the private sector overall.

>Year-on-year, real manufacturing wages have risen by only 0.55 percent. That’s both slower than the private sector’s 0.94 percent and manufacturing’s own 2.46 percent constant dollar rise between July, 2015 and July, 2016.

>During the entire recovery, overall private sector real wages are up 4.56 percent as of June – 2.87 times faster than the manufacturing real wage improvement (1.59 percent).

>As bad as that comparison looks, it’s actually narrower than the gap last year – when overall private sector wages had increased 3.48 times faster after inflation than manufacturing wages.

(What’s Left of) Our Economy: The World Trade Organization Unmasked

Tags

Chad Bown, China, Foreign Affairs, Keith Bradsher, multinational companies, Peterson Institute for International Economics, Ronald Reagan, Section 301, The New York Times, Trade, trade law, Trump, World Trade Organization, WTO, {What's Left of) Our Economy

It isn’t every day that Washington’s offshoring-happy economic policy establishment reveals one of its dirtiest secrets in public (unwittingly, of course!). So anyone – and especially U.S. political leaders – with any interest at all in trade, globalization, manufacturing, employment, and related issues (e.g., the economy, getting re-elected) urgently needs to read the final paragraphs of Tuesday’s New York Times article reporting that President Trump will soon greatly ramp up trade pressure on China.

But it’s vital to read the passage intelligently, because the point is made in in the kind of Washington-speak intended to conceal its real meaning.

As Times reporter Keith Bradsher wrote, a key feature of Mr. Trump’s alleged new China strategy will be the use of a provision of America’s national trade law system called “Section 301.” It’s a provision that grants a president broad authority to respond with punitive tariffs to foreign trade practices considered to be damaging the U.S. economy in “unfair” ways, and to respond pretty quickly. (It’s still not nearly quick enough for me, but that’s a separate issue.) And as he made clear, it’s a trade law provision with a noteworthy history. In Bradsher’s words:

“The United States used Section 301 energetically against other countries during the Reagan administration and the administration of President George Bush. Mr. Lighthizer [the current chief U.S. Trade negotiator] was a deputy United States trade representative in the Reagan administration and has been an advocate of shielding the American industrial base from government-assisted foreign competitors.

“But the cases then thoroughly antagonized America’s trading partners.

“‘It was really the aggressive uses of this in the late 1980s and early 1990s that prompted the rest of the world to set up the dispute resolution system’ of the World Trade Organization [WTO], said Chad P. Bown, a senior fellow at the Peterson Institute for International Economics here.”

Bown – whose Peterson Institute home is heavily funded by the offshoring lobby – no doubt meant his statement to reinforce the standard establishment description of and rationale for the WTO-centered world trade system that’s been in existence for the last quarter century. That is, the international economy had too long operated on a law of the jungle basis that bred continual and dangerous conflict, and that in an act of enlightened self-interest, the world’s economies recognized these perils and created a global trade court that would mete out justice according to objective legal standards and thereby serve every countries’ long-term interests.

In fact, Bown wound up confirming a very different description of the WTO and the motives behind its creation that I have advanced since it was first proposed: It’s an arrangement supported by America’s trade partners in order to prevent the United States from using its matchless market power to promote and defend its legitimate international economic interests. P.S. – because U.S.-based multinational companies supply the American market from so many overseas factories, undercutting Washington’s unilateral power to restrict imports mattered crucially to them, too.

For the Reagan-era uses of Section 301 cases that Bown (and Bradsher) mention were noteworthy not mainly because they were “energetic” or “aggressive”. (Unless you view most of America’s trade partners as snowflakes or strong champions of the rule of law.) These 301 uses were noteworthy because they worked. All the evidence is contained in this article I published in Foreign Affairs in 1994. And as Bown made clear, this success was completely unacceptable to “the rest of the world” – most of which, like China, relies heavily on selling to America in order to grow and develop satisfactorily. As a result, these economies, along with the multinationals, became convinced that handcuffing the United States was essential. And official Washington dutifully went along.

Although Section 301 is still on the books, it’s been U.S. policy under Democratic and Republican presidents alike to avoid it in favor of WTO procedures (just as most foreign governments, including allies, and the multinational companies want). And legally speaking (a term I use advisedly when it comes to the WTO and international law generally), that approach seems to dovetail with WTO rules.

But the Trump administration appears to be considering the contention that the United States retains the unfettered authority to use 301 at least in certain instances. The administration further seems confident that, whether it’s right or wrong on the law, the WTO membership collectively will shrink from a frontal challenge for fear of completely destroying a dispute-resolution system that still might serve its interests well going forward – at least much of the time. 

Nevertheless, the reports of a Trump course change on China trade – which could eventually be broadened – are still just reports. All that’s certain now is that, if they’re accurate, the president will wind up showing the his own compatriots and the rest of the world what a real America-First trade policy would look like.

 

(What’s Left of) Our Economy: America’s Now Struggling to Sustain Even Unhealthy Growth

Tags

consumption, economic growth, Financial Crisis, personal savings, recession, recovery, savings rate, {What's Left of) Our Economy

Don’t blink! As revealed by government data released yesterday, the U.S. personal savings rate has been vanishing so quickly lately that, before too long, you might miss it entirely. And here’s the kicker to this latest evidence: Although, as I reported on Monday, the American economy is just about as consumption-heavy as during the run-up to the financial crisis, all the resulting spending is now generating growth that’s not only subpar by historical standards, but shockingly weak.

According to the Commerce Department, the savings rate for the last three quarters of national economic activity (through the second quarter of this year) has sunk below four percent of disposable personal income for the first time since the first quarter of 2008. The latest nadir of 3.6 percent was hit in the fourth quarter of last year, and represents the lowest such level since the fourth quarter of 2007 (2.8 percent). If those dates sound familiar, they should. That’s when the last recession officially broke out. As of the second quarter of this year, the rate bounced back a bit to 3.8 percent.

These are a pretty far cry from the worst savings rates in U.S. history. During the previous (bubble) decade, this figure bottomed out at 2.2 percent (in the third quarter of 2005). But the latest numbers are a much further cry from the double-digit levels that were common from the early 1950s through the early 1980s.

After the last recession began, there was some evidence that Americans were learning the lessons of over-spending and socking away more of their incomes. By the second quarter of 2008, the savings rate jumped from 3.7 percent in the first quarter of that year to 5.7 percent. It rose steadily even after the recovery began in the middle of 2009, and actually hit 9.2 percent in the fourth quarter of 2012. Savings didn’t stay nearly that high, but still generally remained well above five percent through the early part of last year. Since then, however, they’ve slid pretty rapidly downhill.

Throughout the recovery, shortsighted economists and other observers actually have bemoaned these signs of consumer caution as unnecessary restraints on economic growth that were preventing the expansion from achieving a satisfactory pace. I disagree, because as I wrote on Monday, the nation needs a sustainable basis for growth, to improve its long-term economic health, even more urgently than it needs faster growth. But what’s especially troubling about the recent drop in the savings rate is that it’s shown no ability to generate what’s seen as respectable growth at all.

In fact, over these last three quarters of weak personal savings rates, the economy grew in real terms by just 1.8 percent, 1.2 percent, and 2.6 percent (the preliminary figure for the second quarter of this year). Those results aren’t even impressive by the low bar set by the current expansion. And they’re positively abysmal when compared with the performance registered between the early 1950s and 1980s, when double-digit savings rates were no obstacle at all to real growth rates of between five and ten percent!

Of course, America’s growth rises and falls for many reasons part from savings and consumption rates. Moreover, the economy of that 1950s-1980s period was very different structurally from today. One example: Military spending played a much bigger economic role during those Cold War decades, and generated abundant production, as well as employment. At the same time, for most of that era, women had not entered the labor market in great numbers, meaning that households generally speaking were living off a single paycheck and benefits package. And still both growth and family incomes were by and large stellar.

The current situation, though, is unmistakably sobering. In recent decades, America has substituted borrowing and spending for saving and producing as its main engines of growth. Now even the unhealthy growth recipe has not only helped trigger a terrifying financial crisis and deep recession. But seven or eight year after those crises were overcome, the spendthrift approach seems close to exhaustion. In sports, those playing a losing game are usually encouraged to change it. How much longer before Americans and their leaders take the hint?

(What’s Left of) Our Economy: America is Still Missing the GDP Goal that Counts

Tags

Barack Obama, economic growth, GDP, Great Recession, housing, personal consumption, recovery, Trump, {What's Left of) Our Economy

Although the economics world has been consumed lately with debating whether President Trump can really boost America’s economic growth rate to three percent (for what it’s worth, the consensus seems to be that he can’t), RealityChek regulars know that this question is beside the point – at best. For as the nation should have learned, considerably faster growth is all too easy to generate. All Washington needs to do is flood the system with cheap credit and thereby inflate spending bubbles.

What really counts is the quality of growth, and by that standard, even the news reported Friday that the inflation-adjusted gross domestic product (GDP) expanded by a seemingly impressive annual rate of 2.54 percent is seriously wanting. For the internals of the GDP release (which included revisions going back to 2014) containing the first estimate of second quarter growth show that this improved performance (final, for now, first quarter growth was only 1.23 percent) depended too heavily on personal consumption – one of the “toxic combination” of GDP components (along with housing) whose outsized surge during the previous decade set the stage for the financial crisis and ensuing Great Recession.

In fact, the second quarter figures showed that, on a standstill basis, the economy has become nearly as consumption- and housing-heavy as during its pre-crisis peak, and that its consumption share has hit a new all-time high. These data also show that the economy is even more distorted in this manner than at the outset of the recession, by which time the housing collapse was in full swing.

That record personal consumption share of real GDP for the second quarter came to 69.60 percent – just slightly higher than the revised first quarter level. By comparison, consumption’s peak pre-crisis share of the economy was only 63.27 percent – in the first quarter of 2007. Three quarters later, as the recession officially began, it had risen to 67.25 percent, again, largely because housing was imploding (and had sunk to 3.91 percent of the after-inflation economy from 4.83 percent in the first quarter).

As for the toxic combination’s share of real GDP, it climbed to 73.10 percent in the second quarter of this year. That’s still short of the record 73.27 percent, from the second quarter of 2005. But it’s not far off. Further, the second quarter figure is a good deal higher than it stood when the last recession started at the end of 2007 (71.16 percent).

As I keep reminding readers, former President Obama stated that the real lesson of the financial crisis and recession was that America needed to create “an economy that’s built to last” – one much less reliant for growth on borrowing and spending, and more reliant on earning and producing. He was right. And the new GDP figures reveal that, some ten years after a generational slump began, macroeconomic progress toward preventing a repeat has been reduced to practically nothing.