(What’s Left of) Our Economy: Automotive Output Keeps Driving Virus-Era U.S. Manufacturing Production

Tags

automotive, CCP Virus, coronavirus, COVID 19, Federal Reserve, inflation-adjusted output, manufacturing, manufacturing production, Wuhan virus, {What's Left of) Our Economy

As with the last few Federal Reserve reports on U.S. manufacturing production, today’s release (covering June) is mainly a combined CCP Virus/automotive story. And intriguingly, if worker pressures to re-close at least some of the nation’s vehicle and parts factories succeeds due to the surge seen in virus cases in recent weeks, this pattern could well continue.

The overall results – which measure domestic manufacturing output in inflation-adjusted terms – were decidedly encouraging. Last month, this real production sequentially jumped by 9.06 percent – the biggest such increase on record, and smashing the old mark of 7.03 percent recorded in August, 1997. (File this date  away for future reference.)

Of course, this constant dollar output improvement, along with May’s upwardly revised 5.06 percent advance, have followed historic after-inflation monthly production nosedives. And these revisions have only been slightly mixed (April’s drop is now judged to be 16.94 percent, not the previously reported 15.66 percent, while the March decrease was shaved from 5.27 percent to 4.09 percent.) So the hole out of which U.S. based industry must dig itself out was just about as deep as originally estimated. (Of course, all these figures, along with those for the previous several years, will be further revised by the Fed sometime later this year, so don’t view them as being set in stone.)

But the automotive results keep driving (pun intended?) the overall manufacturing growth figures. In June, combined real output of vehicles and parts soared by 115.02 percent. In other words, it more than doubled in a month. And that surge followed a monthly automotive comeback in after-inflation terms of 117.12 percent – another more-than-doubling. Moreover, this figure has revised down only from a previously reported 120.83 percent .

As with manufacturing in general, though, these remarkable increases have followed deep decreases in April and March (now judged to have been 77.81 percent and 28.05 percent, respectively, with revisions minimal) due to a CCP Virus-led decision by the automakers to suspend most of their operations . Indeed, as of June, constant dollar automotive production is still 25.47 percent below February’s pre-pandemic level.

History, moreover, makes clear that outsized automotive influence on the total manufacturing production numbers is a well-established pattern. For example, the previous record increase for after-inflation monthly overall U.S. manufacturing production (that 7.03 percent rise in August, 1997) stemmed largely from a 49.17 percent increase in real automotive output – which in turn resulted from the end of a strike at General Motors.

And strikes aside, production in the sector fluctuates tremendously during the summer because that’s when factories have often been shut down to get their acts together for the upcoming model year. Don’t expect this kind of boost this year, though, as a number of automakers have decided to skip these annual retooling and maintenance pauses since their virus-related factory closings have already hit them hard enough.

One more sign of how profoundly the auto figures have distorted manufacturing’s overall recent production performance – stripping out this sector, real manufacturing output would have risen on mont in June not by 9.06 percent, but by 5.45 percent. That’s still a great performance, though – in fact, it’s the best since the 6.32 percent improvement in August, 1967.

Indeed, without the automotive sector, U.S. price-adjusted manufacturing output is down only 7.13 percent from its last pre-pandemic reading in February. Add in automotive, and this figure becomes 8.82 percent.  But due the CCP virus, lockdown and reopening decisions, and restiveness in some of the nation’s automotive workforce, the road ahead for domestic manufacturing is anything but clear.    

(What’s Left of) Our Economy: The Woke Street Journal (on Trade)?

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America First, free markets, free trade, Gerard Baker, globalization, Mainstream Media, The Wall Street Journal, Trade, {What's Left of) Our Economy

Since it’s already 11 AM as I begin writing, and the Biden presidential campaign still hasn’t released the full version of a broad manufacturing and economy blueprint scheduled to be issued today (as opposed to this summary), and since it’s still not clear when the document will appear, I’ll focus for now on a development that’s surely more startling, and possibly more important in the long run.

It’s a recent Wall Street Journal column and its viewpoint on trade policy, and it was so mind-blowing that my first reaction was that the author must be dropping acid.

More specifically, the piece was by Gerard Baker, who served as the Journal‘s Editor-in-Chief from 2013 to 2018, and is now an editor at large. That was clearly a demotion, but there’s no indication that the move stemmed from any unhappiness about Baker’s overall policy views. (He was thought by some to be soft on President Trump, but Trump trade policies were never brought up.) 

Yet on Monday, a publication whose editorial positions have from its beginnings practically been defined by all-but-uncritical worship of free markets and their international counterpart, free trade, ran a Baker piece making the following points:

> “The modern woke corporation publicly disdains and derides the values on which the nation—and its profits—were built, even as it pursues global opportunities at the expense of American communities”; and

> Cleaning out the “rot in American capitalism” must include “ensuring that corporations prioritize Americans over their globalist, progressive agendas.”

I know that I recently reported a big Journal position switch – opposing decades of pre-Trump policies that sought to tie America’s economy more closely to China’s. But much of the case made by the editorial board was grounded in national security – which is entirely understandable, but narrower than what Baker seems to be calling for.

After all, his new views didn’t mention national security at all. They were a full-throated demand that Washington’s international economic policies prioritize America First.

Baker isn’t the full editorial board. But neither is his column an example of the kind of tokenism that’s typically shaped Mainstream Media editorial departments’ (including the Journal’s) treatment of trade and related economic policy issues – interrupt a continuing flow of articles singing the praises of conventional trade and globalization policies with the occasional contrarian piece by a fringe figure (like left-wing consumer advocate Ralph Nader or far-right conservative Pat Buchanan), or every once in a while by a leading Democratic party trade critic like Ohio Senator Sherrod Brown.

The effect of these practices clearly was to foster the impression that for the most part only genuine oddballs could question the pro-free trade consensus. But even though Baker left his former position under something of a cloud, he’s not a professional gadfly. He’s a lifelong member of The Club. Just look at these credentials: the Bank of England, Lloyd’s, The Times of London, the Financial Times, the BBC. Even Oxford! So it’s tough to see his latest as anything but another significant (and welcome) straw in the wind.

In fact, it raises a fascinating question: Which part of the Journal will repudiate free trade idolatry fastest and most completely? Its highly and openly (and legitimately) opinionated editorial page? Or its straight news department, which like its counterparts elsewhere in the Mainstream Media, often act just as opinionated – but more subtly so?

(What’s Left of) Our Economy: U.S. Manufacturing Keeps Gaining Independence

Tags

Commerce Department, decoupling, GDP-by-industry, health security, healthcare goods, manufacturing, manufacturing production, manufacturing trade deficit, Obama, tariffs, Trade, trade war, Trump, {What's Left of) Our Economy

Like a strike-shortened sports season’s champion, the conclusion in today’s RealityChek post needs an asterisk. The conclusion stems from this morning’s Gross Domestic Product (GDP) by Industry report from the Commerce Department, which shows that U.S. domestic manufacturing continues to become ever more self-reliant. In other words, it’s reducing its dependence for growth on foreign-made industrial goods of all kinds generally speaking.

The asterisk is needed because the new data covers the first quarter of this year, and therefore it includes March – when much of the U.S economy was shut down by government order or recommendation due to the CCP Virus. As a result, a chunk of the results say nothing about how manufacturing or the rest of economy would have performed in normal times.

Still, this morning’s evidence that U.S.-based industry is becoming more autonomous comes from several different findings calculable from the GDP by Industry’s raw data.

For example, again, due partly to the shutdowns’ effects, the report shows that according to a widely followed measure called value-added, domestic manufacturing’s output dipped by 0.99 percent between the first quarter of 2019 and the first quarter of this year. At the same time, the manufacturing trade deficit during this period shrank by 7.31 percent – more than 13 times faster. During the last comparable period (fourth quarter, 2018 to fourth quarter, 2019), manufacturing production grew by 0.70 percent, and its trade gap narrowed by 7.59 percent – a somewhat better performance on both scores.

At this point it’s vital to note that these growth rates are by no means good. In fact, they’re the worst by far since the final year of the Obama administration – when on a calendar year basis, domestic industry shrank by 1.19 percent. Yet during that same year 2016, despite this contraction, the manufacturing trade shortfall expanded by 4.66 percent. So if you value self-sufficiency (as you should in a world in which the United States has found itself painfully short of many healthcare-related goods, and in which dozens of its trade partners were hoarding their own supplies), it’s clear that during 2016, the nation was getting the worst of all possible manufacturing worlds.

Also important: there’s no doubt that the same Trump administration tariffs and trade wars with which domestic manufacturing has been dealing over the past two years have slowed its growth. In other words, industry has been adjusting to policy-created pressures to adjust its global, and in particular China-centric, supply chains. That’s bound to create inefficiencies.

If you don’t care about significant American economic reliance on an increasingly hostile dictatorship, you’ll carp about paying any efficiency price for this decoupling from China (and other unreliable countries). If you do care, you’ll recognize the slower growth as an adjustment cost needed to correct the disastrous choice made by pre-Trump Presidents to undercut America’s economic independence severely.

Moreover, during the last year, domestic manufacturing output was held back by two developments that had nothing to do with President Trump’s trade policy: the strike at General Motors in the fall of 2019, which slashed U.S. production both of vehicles and parts, and of all the components and materials that comprise dedicated auto parts; and the safety problems at Boeing, which resulted in the grounding of its popular 737 Max model worldwide starting in March, 2019, and in a suspension of all that aircraft’s production this past January.

Also encouraging from a self-reliance standpoint. During the first quarter of 2019, the manufacturing trade deficit as a percentage of domestic manufacturing output sank from just under 43 percent in the fourth quarter of 2019 (and 43.36 percent for the entirety of last year) to 37.27 percent. That’s the lowest level since full-year 2013’s 35.82 percent.

These figures should make clear that the manufacturing trade deficit’s share of manufacturing output kept growing during the final Obama years and into the Trump years. Indeed, on an annual basis, this number peaked at 47.01 percent in the third quarter of 2019. To some extent, blame what I’ve previously identified as tariff front-running (the rush by importers throughout the trade war to bring product into the United States before threatened tariffs were actually imposed) along with those supply chain-related adjustment costs.

To complicate matters further, as suggested above, that very low first quarter result stemmed partly from the nosedive taken by manufacturing and other U.S. economic activity in March. Since that level is clearly artificially low, it’s probably going to bob up eventually – but hopefully not recover fully.

In all, though, the first quarter GDP by Industry report points to a future of more secure supplies of manufactured goods for Americans. And unless you believe that domestic manufacturers have completely lost their ability to adjust successfully to a (needed) New Normal in U.S. trade policy, the release points to a return of solid manufacturing output growth rates as well.

(What’s Left of) Our Economy: A Big China Mystery Inside the Latest U.S. Trade Figures

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China, exports, goods trade, imports, merchandise trade, non-oil goods trade deficit, Trade, trade deficit, U.S. International Trade Commission, {What's Left of) Our Economy

The big mystery about yesterday’s monthly U.S. trade report (for May) concerns China. Specifically, why are imports from the People’s Republic streaming into the American economy again, considering the stiff, sweeping tariffs on hundreds of billions of dollars worth of Chinese-made goods destined for U.S. markets, and of course the continuing troubles faced by the U.S. economy from the CCP Virus?

I won’t be able to provide a detailed answer till sometime next week – when I expect the U.S. International Trade Commission to post the data on its website. But I can say right now that these imports were great enough account for more than all of the blame for $4.85 billion (9.74 percent) sequential widening of the overall U.S. trade gap in May.

That combined goods and services trade shortfall hit $54.60 billion – its highest level since October, 2008’s $60.88 billion. And back then, more than half that overall trade deficit was oil. In May, the United States ran an oil trade surplus – as it’s done since last fall.

Moreover, the overall May U.S. goods trade deficit (also known as the merchandise deficit) of $76.06 billion was the biggest such total since December, 2018’s $80.21 billion –and represented a $4.24 billion (5.90 percent) increase from April’s levels.

The specific China goods numbers? The bilateral trade gap widened by $4.49 billion (19.99 percent) sequentially in May – a figure 92.58 percent as big as the entire monthly U.S. trade deficit increase and, as mentioned above, greater than the monthly increase in the merchandise shortfall. In other words, as the goods trade deficit from everywhere else in toto fell during May, it rose from China. (Of course, because the U.S. trades with so many different countries, this doesn’t mean that goods trade shortfalls fell with every one of them other than China. But overall, the non-China goods trade gap narrowed.)

And the role of merchandise imports was as crucial as it is puzzling. U.S. goods imports from China rose on month in May by $5.53 billion (or 17.79 percent). So they alone exceeded the $4.85 billion sequential increase in the overall trade deficit and the $4.24 billion rise in the goods deficit.

Even weirder – goods imports from China were up in May while overall imports and global goods imports were down (by 0.88 percent and by 0.76 percent, respectively).

Despite the widening of the merchandise trade gap with China, U.S. goods exports to the People’s Republic improved on month in May – by $1.04 billion, to $9.64 billion. That’s not terribly surprising, since all indications are that China’s economy began recovering sooner than America’s from its own CCP Virus-induced shutdown. In fact, that monthly merchandise export total is the highest since last November’s $10.10 billion – meaning that those U.S. sales are back in their range for the whole of last year, before the virus broke out in China.

But was the U.S. economy rebounding strongly enough in May to explain easily a resumption of buying from China that also brought goods imports back to their highest level since November, and well inside their range, too, for all of last year? That’s hard to accept, if only because overall U.S. goods imports remain significantly depressed from last year’s levels, and because of those Trump tariffs. Such bewilderment seems justified even given that in recent years, May has been a month during which merchandise imports from China have risen strongly. After all, this wasn’t a normal May.

It’s true that on a year-to-date basis through May, U.S. goods imports from China in 2020 are down 15.90 percent – more than the 12.60 percent drop for goods imports total (but not that much more). The difference is somewhat greater with the 10.35 percent decrease in January-May total U.S. non-oil goods imports – which are a better global comparison with China goods imports, since China doesn’t sell oil to the United States.

It’s also true that the United States’ merchandise deficit with China through May of this year has shrunk much faster (24.58 percent) than its overall global goods deficit (7.78 percent) and much, much faster than its global non-oil goods deficit (2.34 percent). But it’s true as well that a non-trivial amount of this progress has reversed itself this month (as well as in April).

And that’s why I’ll get you the detailed answer to the “what are these China imports” question ASAP.

(What’s Left of) Our Economy: U.S. Manufacturing’s Jobs Recovery Continues Strongly

Tags

automotive, CCP Virus, coronavirus, COVID 19, exports, Jobs, manufacturing, NFP, non-farm jobs, non-farm payrolls, private sector, services, Trade, Wuhan virus, {What's Left of) Our Economy

The big question raised by today’s second straight expectations-clobbering official monthly U.S. jobs report (for June) is whether the surge in recovered employment can withstand whatever second CCP Virus wave of infections, or resurgence of the first wave, numerous states have been seeing lately.

I can’t answer that knowledgeably – and I suspect few others can, either. What I can do is note that the June numbers roughly repeat or confirm some of the patterns visible for May. Mainly, manufacturing held up better than the rest of the American jobs market, and within manufacturing, the swings have been dominated by the automotive sector.

Domestic industry added a net 356,000 workers to its payrolls in June, and revisions for the last two months – as with non-farm jobs as a whole (the U.S. government’s jobs universe) – were slightly positive (virtually unchanged at a 1.32 million net loss for April, upgraded from a 225,000 to a 250,000 net gain in May).

Fully 55 percent (195,800) of those 356,000 new June manufacturing jobs came in the automotive sector – a rubber band-like comeback surely reflecting the outsized hit this industry has taken since the CCP Virus threw the entire economy into a deep downturn. Even with this improvement, since February, combined vehicle and parts employment is down more than twice as much relatively speaking (12.11 percent) as overall manufacturing employment (5.89 percent).

Further, overall manufacturing’s record of pandemic-era resilience continued in June. Its monthly jobs growth was only 3.03 percent – slower than the rate for the total non-farm sector (3.61 percent) and the private sector (4.27 percent).

But a main reason is that manufacturing has taken a much smaller CCP Virus hit than the rest of the economy. That 5.89 percent employment loss since February has been considerably less than that of the non-farm sector (9.62 percent) or the private sector (10.17 percent).

Manufacturing employment could face some intriguing crosswinds in the months ahead. A second virus wave or a re-strengthening first wave may well slow its jobs rebound going forward, since U.S.-based industry sells so much to those domestic service industries that have borne the brunt of the pandemic-created economic damage. At the same time, domestic manufacturers were selling just under 18 percent of their gross output overseas as of the end of last year, so if recoveries quicken overseas, U.S.-based manufacturers and their workers could benefit significantly.

In this vein, one possibly hopeful sign is that as of May, according to this morning’s monthly U.S. trade report from the Census Bureau, manufacturing exports are down a whopping 15.74 percent year-to-date. And they fell 5.28 percent in May alone. Therefore, precisely because the “comps” have been so lousy, domestic manufacturers could experience something of a rubber-band-like bounceback of their own – at least in the near-term future.

(What’s Left of) Our Economy: Confusing but Overall Downbeat News on U.S. Manufacturing Productivity

Tags

aluminum, CCP Virus, China tariffs, coronavirus, COVID 19, durable goods, lavbor productivity, manufacturing, metals tariffs, metals-using industries, multifactor productivity, productivity, steel, tariffs, trade war, Wuhan virus, {What's Left of) Our Economy

I wish I could say that the detailed U.S.manufacturing labor productivity statistics for 2019 that came out late last week provided a clear, pre-CCP Virus picture of domestic industry’s health, and especially insights into how well manufacturing was holding up during the ongoing U.S.-China trade war. Unfortunately, the sector-by-sector data add up to a confusing mix of halfway decent and bad news.

First a reminder: Productivity is an important measure of efficiency, and labor productivity is the narrower of the two sets of productivity statistics tracked by the Labor Department. But although it only measures output per hour by individual workers (as opposed to examining the usage and output results for a wide-ranging combination of inputs), the labor productivity figures are released on a timelier basis than the more comprehensive multifactor productivity numbers.

Also important to remember: For all their importance, the productivity data represent the statistics in which economists have the least confidence, although the problem is much more difficult in services than in goods like manufactured products.

Nevertheless, most economists do agree that raising productivity levels is any economy’s best way to boost living standards on a sustainable basis, and so it’s discouraging to report that the overall context for manufacturing last year was pretty dreary. Another productivity series from the Labor Department judged that labor productivity in industry shrank by 0.56 percent. In 2018, it rose by 0.64 percent. Moreover, this general result certainly doesn’t indicate that American manufacturers made much progress compensating for higher costs created by metals and China tariffs by figuring out how to make their workers more efficient.

At the same time, last year, labor productivity fell in 54 of the 86 manufacturing sectors monitored by the Labor Department. As bad as that sounds, this result was actually better than that for 2018, when labor productivity decreased in 67 of those sectors.

Although the so-far-pervasive but widely varying use of Chinese materials, parts, and components makes identifying the China tariffs’ impact on labor productivity, figuring out the effects of the metals tariffs is much easier, and here the news is more encouraging still.

In durable goods – the super-sector that contains the major U.S. industries that use tariff-ed steel and aluminum – labor productivity fell in 31 of the 51 sectors examined. That’s a genuine improvement on 2018, when labor productivity decreased in 41 out of 51.

Even more revealing: Most of the big metals users themselves stepped up their productivity game somewhat in 2019, though in absolute terms (as shown in the table below), their yearly performances weren’t by any means impressive.

                                                                        2018                       2019

fabricated metals products:                    -1.4 percent             -0.1 percent

machinery:                                                  0 percent             -0.2 percent

household appliances:                           +1.6 percent            +2.0 percent

motor vehicles:                                       -7.6 percent            -2.1 percent

motor vehicle parts:                                -1.2 percent            -0.6 percent

aerospace products & parts:                   -8.1 percent            -2.2 percent

As long as the CCP Virus keeps affecting the American and global economies (an especially important point for manufacturing, since in 2019, its exports represented nearly 18 percent of its total gross output), it’ll be tough to get a handle on underlying trends in manufacturing labor productivity and other performance indicators. But on the labor productivity front, last week’s figures sadly make clear that a return to pre-virus levels won’t be terribly difficult to achieve.

(What’s Left of) Our Economy: A Major Virus-Related U.S. Economy Hit Confirmed – With Much Worse Numbers Sure to Come

Tags

CCP Virus, coronavirus, COVID 19, exports, GDP, goods, Great Recession, gross domestic product, imports, inflation-adjusted output, lockdown, real exports, real GDP, real imports, recession, services, shutdown, Wuhan virus, {What's Left of) Our Economy

This is a catch-up post on the CCP Virus-induced contraction of the U.S. economy growth, as well as a report on today’s latest update from the Commerce Department. The big news this morning: During the first quarter of this year, the economy’s sequential shrinkage for the first quarter of this year was pegged in this morning’s third, and final (for now) estimate at 5.09 percent at an annual rate in inflation-adjusted terms. That compares with the 4.87 percent drop in real output recorded in the first estimate, and a 5.15 percent decline estimated in the second estimate, which yours truly missed when it came out last month.

So things economic are looking slightly less terrible than previously thought – but still pretty terrible. In fact, this first quarter economic downturn was America’s most severe since the fourth quarter of 2008’s 8.66 percent – when the Great Recession spurred by the financial crisis was at its low point.

And there’s no doubt much worse to come in the second quarter figures, whose initial release will be a month from now (along with a regularly scheduled revision of all the data on the gross domestic product [GDP] and its changes going back to 2015). After all, the first quarter numbers only include the first month (March) during which the CCP Virus and its growth-killing effects began to be fully suffered.

Before delving into the trade-related details, a cautionary/explanatory note should be repeated: The phrases “at an annual rate” and “annualized” mean that an economic contraction of this historic scale didn’t take place al at once. Instead, they mean that in the economy contracted at a rate that would add up to the current 5.09 percent if the shrinkage continued at this pace for an entire year. This qualification is especially important because of the tremendous expected worsening of the slump in the second quarter.

Today’s GDP report revealed that the after-nflation annualized combined goods and services trade deficit during the first quarter was $815.5 billion. That’s a bit worse than the $816.0 billion figure reported last month but a bit better than the $817.4 billion calculated in the first estimate. And this so-far-final number represents a 9.34 percent decline from the $900.7 billion level reported for the fourth quarter of last year.

These results leave the drop-off the steepest since the 18.13 percent quarter-to-quarter nosedive during the second quarter of Great Recession-y 2009. And because the gap between these two results remains so big, it will be fascinating to see the numbers for the second quarter, when impact of mandated shutdown of much of the economy will first become apparent.

The quarterly decrease in total real exports for the first quarter is now judged to be 2.33 percent (non-annualized – as are the following numbers). This decline is worse than that estimated in the two previous first quarter GDP reports (2.24 percent and 2.25 percent, respectively). But as with the trade deficit figures, this slump pales with that suffered the last time constant dollar goods and services exports dropped significantly – the 8.08 percent crash dive during the first quarter of 2009, during the depths of that Great Recession.

On the import side, the 4.17 percent sequential price-adjusted fall-off reported this morning was bigger than either the 4.12 percent decrease previously judged and the 4.08 percent initially estimated. Again, however, that was the biggest such decline since a Great Recession result that was much greater – the 9.88 percent recorded in the first quarter of 2009.

The “final” first quarter figure for the inflation-adjusted goods deficit ($996.8 billion annualized) was 7.64 percent lower than the fourth quarter figure. But in services, the real surplus widened by 1.22 percent – even though the super-sector’s exports plummeted by nine percent. The first quarter annualized total of $714.9 billion annualized was the meagerest since the $706.2 billion level for the fourth quarter of 2013, and the rate of decline (much greater than the 0.49 percent in goods exports) was the fastest ever in a data series going back to 2002. In fact, the previous record was only 2.95 percent (during the Great Recession-y first quarter of 2009) – as with the export figures underscoring the outsized impact of the CCP virus’ impact on the travel industry.

Similar trends can be seen in after-inflation services imports. which sank by a record 8.06 percent in the quarter – much faster than the 3.19 percent fall in goods imports.

(What’s Left of) Our Economy: The Start of a V-Shaped Recovery So Far for Manufacturing Production, Too?

Tags

aircraft, automotive, autos, Boeing, CCP Virus, durable goods, Federa Reserve, inflation-adjusted output, manufacturing, motor vehicles, non-durable goods, real output, recession, recovery, {What's Left of) Our Economy

The May Federal Reserve figures on inflation-adjusted U.S. manufacturing production were released this morning, and what stood out to me right away was how closely the main results resembled those of the remarkable May jobs report from the Labor Department. Not that the surprise factor for manufacturing output was anywhere near that for the jobs report. And of course factories don’t reopen or ramp up production in lockstep with gains in employment (which speak volumes about the economic fortunes of many of their customers). But consider the following figures and what they could be signaling about the pace of recovery:

On a monthly basis, as the CCP Virus pandemic’s effects peaked for the time being, the private sector shed 15.37 percent of its jobs in April, and for manufacturing, the figure was 10.34 percent. That month, real manufacturing output plunged sequentially by 15.66 percent.

In May, as the economy’s reopening sped up, private sector payrolls expanded by 2.86 percent, manufacturing saw a 1.96 percent net jobs gain, and manufacturing production rose by 3.83 percent. It looks an awful lot like an economy that’s bouncing back pretty quickly so far from the worst of the virus-induced shutdowns, but that still has far to go before returning to normal. Call it the possible start of a “V.”

Something else that comes through loud and clear about the latest Fed manufacturing reports – including today’s: They’re being remarkably driven by the stunning gyrations of the automotive sector, and especially price-adjusted vehicles output levels. In fact, in April, production of autos and light trucks – which literally had collapsed according to last month’s preliminary figures – have been revised down to as close to zero as you can get.

But before detailing those results, let’s return to 30,000 feet. That May monthly after-inflation manufacturing output increase was the biggest on record – and by a long shot. But April’s sequential nosedive was revised from 13.28 percent – and therefore is even more of a record-breaker than previously thought. And it’s only slight consolation that the March drop was reduced to 5.27 percent from 5.53 percent. (It was originally reported as 6.27 percent.) At least as bad, as of May, American factories’ monthly output in real terms was their lowest since Great Recession-y July, 2009.

Most of the action continues to be concentrated in the durable goods super-sector, which led manufacturing down in March and especially April, and led it up in May.

As with industry as a whole, the new monthly durable goods production drop for March was smaller than previously estimated (7.73 percent rather than 8.23 percent) and the April disaster was bigger than first judged (with constant dollar output down 21.64 percent rather than 19.27 percent).

Real output in the supersector increased by 5.83 percent sequentially in May – but that record monthly rise still left absolute production levels at their lowest since November, 2009, another Great Recession month.

And the automotive sector continues leading the fluctuations in durable goods production. The revisions for vehicles and parts combined for March and April were both slightly worse than previously judged (30.03 percent vs 29.96 percent for the former, and 76.47 percent versus 71.69 percent for the latter).

The May results (for now preliminary, as are all the May numbers – with April’s set for one more revision next month)? After-inflation output surged by 120.83 percent. That’s not a typo. For comparison’s sake, this latest jump smashed the old monthly record (29.95 percent, in July, 2009) by a factor of four. Even so, inflation-adjusted vehicle and parts output hasn’t been this low since July, 1983 – 33 years ago

As for the numbers for vehicles alone, they’ve been positively fantasmagorical. Cutting to the chase, “nosedived” and “careening” don’t begin to describe the April results. That month, auto and light truck output after inflation practically disappeared – standing 98.87 percent lower than in March and slightly worse than initially reported). Similarly, May’s improvement was less a rebound or even a rocket ride than a restart. What else can you reasonably call a 3,187.39 percent increase? And still, in absolute terms, that only brought output back to its worst level since February, 1982.

This astounding automotive performance, moreover, has clearly moved the needle for manufacturing as a whole. Without the April automotive tailspin, price-adjusted manufacturing production was off by 11.94 percent, not 15.66 percent. In May, without the recovery of the sector, U.S. constant dollar manufacturing production advanced by 1.96 percent – just about half the rate of the 3.83 percent increase recorded with automotive.

The May Fed manufacturing report left the relatively mild March output downturn in the non-durable goods super-sector unrevised at 2.64 percent. But the April decrease was estimates to be worse:  9.59 percent rather than 8.23 percent.

Non-durable factory production rose by 2.07 percent sequentially in May, but interestingly, that advance was only the biggest since October, 2017 2.28 percent – when lots of oil refineries and petrochemicals-using industries came back on line after that autumn’s hurricanes in the Gulf of Mexico.

Finally, some genuinely puzzling results seem to be recorded for the aircraft and aircraft parts sectors, which were troubled for months before the CCP Virus struck by Boeing’s safety woes . Whereas in last month’s Fed manufacturing report, the March monthly inflation-adjusted drop in these industries was reported at 12.09 percent, this morning it was reported to be just 5.38 percent.

More reasonably, the April sequential decline was judged to be slightly smaller – 28.31 percent rather than 28.88 percent. And May’s on-month recovery is estimated to be a robust 9.43 percent.

Since this spring’s manufacturing slump and rebound so closely resembles that of the jobs market, it’s fitting that the same questions hover over it. Will the comeback last, or are we seeing the real economy version of a stock market dead cat bounce? Like the Fed itself, RealityChek‘s judgments will be data-dependent.

(What’s Left of) Our Economy: Is The Wall Street Journal Now Getting Woke on China Trade?

Tags

allies, China, decoupling, dual-use technologies, health security, high tech goods, Huawei, investment, manufacturing, national security, technology, The Wall Street Journal, Trade, {What's Left of) Our Economy

Hell has frozen over! Death and taxes are no longer certain! Water is flowing uphill!

Those are just some of my calmer reactions upon learning that The Wall Street Journal editorial board has just endorsed the idea of a “partial decoupling” of America’s economy from China‘s.

Given today’s national mood, and the marked turn it’s taken against various domestic and international outrages committed by China, this may not sound surprising – especially if you (unlike me) haven’t immersed yourself in the trade policy wars Americans have waged against each in recent decades. But in a Mainstream Media long world filled with staunch supporters of the kinds of approaches to foreign trade and international commerce generally pursued by pre-Trump U.S. Presidents, the Journal‘s editorial writers have been far and away the staunchest. Indeed, their arguments usually read like they’ve been taken straight out of standard economic textbooks, without even paying lip service to real world complications.

Not that the Journal ever championed unfettered trade and commerce in war-time. (This exception was formally identified by the so-called Father of Capitalism, Adam Smith .) And not that it ever supported selling, say, weapons to the Soviet Union during the Cold War, or encouraging investment in North Vietnam during the 1960s and early 1970s.

But the editorial doesn’t describe today’s world in those terms. Instead, it notes that  “partial decoupling may be necessary to prevent China from accumulating more leverage to bully the free world.” and that “U.S. and allied dependence on Chinese technology in a crisis….could allow the Chinese Communist Party to disrupt or shut down parts of foreign economies—or use the threat as political leverage.”

And the Journal‘s editorial board is right. Those threats are more than serious enough to justify departures from conventional free trade and broader global economic policies – which understandably prize economic efficiency and low prices and individual economic freedoms during peacetime, but which have struggled to deal with those all too commonplace gray periods between tranquility and all-out conflict.

Yet however satisfying this apparent U-turn will be to the Journal‘s longtime trade antagonists (and take it from me – it’s really satisfying), for the sake of intellectual honesty, and of U.S. national interests, its editorial board will need to go much further. And so will other influential voices who are acting newly woke about the China threat, but who may mainly be looking for safe harbors during what they hope is merely a passing storm. Several reasons stand out, and all stem from the critical reality that no industry exists in isolation from other areas of the domestic economy – let alone other industries.

So to all the ostensible pragmatists who, for example have recognized – at least rhetorically – that national security needs to come before free trade and commerce, it’s high time to recognize the implications of a development you’ve long claimed to understand: that many products crucial for national defense also have major and even predominantly civilian functions, and that for such such dual-use goods and technologies (and not only semiconductors, but high-value manufactures of all kinds) strong domestic manufacturing bases are essential.

Moreover, maintaining strong domestic manufacturing bases requires maintaining robust production complexes for all the key parts and components of the final products.

These imperatives also apply to critical healthcare goods. For example, it doesn’t do much good to set as a goal making massive numbers of the most effective facemasks in America without also ensuring adequate domestic supplies of the raw materials and the machinery needed to make them. And currently, the global production centers are in China. Similarly, what’s the point of resolving to restore national self-sufficiency in ventilators when the nation remains woefully short of the circuit boards, sensors, computer chips, tubes, and numerous other parts they’re made of?

In addition, as pointed out repeatedly on RealityChek, the secure supply problem goes way beyond China. During the CCP Virus period, literally dozens of countries, including long-term treaty allies, have embargoed or curbed exports of healthcare equipment of all types. That is, as with war, there are few free traders during a pandemic.

The lessons of dealing with both China and the CCP Virus should be screamingly obvious: In their own ways, they both represent systemic problems, and therefore require systemic, not entity-by-entity or country-by-country, responses. Acknowledging these lessons will be the test of whether the Journal‘s editorial writers and others of their ilk actually are ready to play useful roles in developing realistic U.S. trade policies, or whether they’re simply posturing.

(What’s Left of) Our Economy: The Most Troubling Racial Economic Gap?

Tags

African Americans, Federal Reserve, George Floyd, inequality, personal finance, race relations, Survey of Consumer Finances, wealth, {What's Left of) Our Economy

As so widely and correctly reported in the wake of unarmed African American detainee George Floyd’s killing in Minneapolis last month by a white police officer, the economic gap between black and white Americans remains way too wide despite the progress made in recent decades. In addition, research consistently shows that this inequality can be found in every indicator you can think of. (Two recent summaries can be found here and here.) 

Some recent digging, however, has convinced me that nowhere is the problem bigger or more serious than in wealth – that is, what people earn (from wages, salaries, rents, or what have you) along with what they own (homes, autos, stocks, etc.) The above-linked Washington Post article makes clear why wealth matters so much, especially over time:

“More wealth makes for more a comfortable, safer living. And, more importantly, it is passed on to the next generation. Their parents’ wealth gives many white children a boost at birth, an advantage many of their black peers lack.”

But the closer you look at the wealth figures, the more surprising they are. For although the black-white gap has consistently remained formidable in absolute term going back to at least 1989, it has witnessed some fluctuations that haven’t been trivial, and that over time at least point in the right direction.

Here’s a table containing the black-white breakdown in wealth over recent decades. The source is a study released every three years by the Federal Reserve that’s called the Survey of Consumer Finances. Unfortunately, the latest edition only takes the story through 2016. (If schedules for the previous studies hold, the next release won’t come out until the early fall.) The numbers in the left-hand and center column represent the actual dollar wealth amounts, adjusted for inflation, of the typical white and black households. In other words, it shows us the median – the figure for households exactly at the midpoint of results for all households. The right-hand column shows that ratio between these levels. The source is this collection of charts that accompanied the latest release: 

                     non-hispanic white      non-hispanic black     ratio white:black

1989:                   132.7                                7.4                           17.93:1

1992:                   116.9                              16.9                             6.92:1

1995                    120.0                              17.1                             7.02:1

1998                    141.4                              22.9                             6.17:1

2001:                   166.3                              26.3                             6.32:1

2004:                   179.3                              26.0                             6.90:1

2007:                   198.3                              24.4                             8.13:1

2010:                   144.3                              17.6                             8.20:1

2013:                   146.4                              13.6                           10.76:1

2016:                   171.0                              17.1                           10.00:1

Over the longest term, it’s clear that the racial wealth gap has narrowed significantly. Indeed, from 1989 to 2016, it shrank by a little over 44 percent. Much more discouraging – the lion’ share of this progress took place during the three years between 1989 and 1992.  Since then, it’s widened by 44.50 percent.

The relationship between this wealth gap and the economy’s ups and downs are noteworthy, too. During the 1990s economic expansion (which took place essentially between the 1992 and 2001 figures), the gap narrowed modestly – from 6.92:1 to 6.32:1. But during the so-called bubble expansion of the first decade of this century (from 2001 through 2007), it widened significantly. And it widened further during the first six years of the last, pre-CCP Virus recovery – by nearly 22 percent.

At the same time, as that expansion took hold, the 2012-2016 results show that some narrowing resumed.

Also, odd –during the Great Recession, which lasted from the end of 2007 till the middle of 2009, the racial wealth gap barely widened at all.

Finally, though, according to a chart that ran in the above-linked Washington Post piece (and that I wasn’t able to reproduce), there’s data going back to the 1950s. I haven’t looked at the figures first hand, but if the graphic is accurate, the wealth gap narrowed dramatically through the late 1970s, (though the black household wealth levels start at a shockingly low level), suffered a terrible 1980s (even though the economy overall grew nicely during the decade), recovered sharply during the 1990s (an even stronger, longer expansion), and has regressed steadily this entire century (through 2016).  Worst of all, though, the caption’s message:  virtually no progress since the late 1960s – another time of racial and other national tumoil. 

Unfortunately, the next set of Fed figures won’t shed any light on the virus’ impact on this key measure of black economic performance and progress. But Americans may learn whether the country had finally started getting back on the right track.