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Industrial Production: The Latest Economic Hype
Thursday, August 16, 2012
An unmistakable grasping-at-straws quality has pervaded most economic commentary in the United States since the recovery supposedly began three years ago. Reactions to yesterday morning’s industrial production figures were no exception.
After declining twice on a monthly basis from February through May, real manufacturing output rose in July for the second month in a row – and by the same roughly 0.5 percent as in June. At the very least, concluded the punditocracy, odds of a new recession had plunged further. At the most, the numbers supposedly once more underscored the economy’s sheer resilience and downright pluckiness. Indeed, the only perceived downside concerned the possibility that data would further convince the Federal Reserve to hold off on yet another round of stimulus further.
The unprecedented flood of cheap money from Washington that’s already been keeping the economy afloat for years should be enough to limit any enthusiasm for any positive indicators. But even taken on their own, the new manufacturing data underwhelmed.
Yes, the July figures showed that inflation-adjusted manufacturing production is rising at a 5.18 percent annual rate – slightly slower than the 5.55 percent June-June figure, but considerably faster than the 3.76 percent increase from July, 2010 to July, 2011.
But surely part of this improvement reflected the easy 2011 “comps” that American industry had to beat. For a year ago, production was still hamstrung by the Japanese earthquake, tsunami, and nuclear disasters, which crimped and often cut off supplies of key components for a wide range of manufacturing sectors.
The Japan factor can be eliminated by examining output on a calendar year basis, and those numbers demonstrate that manufacturing remains stuck in a pronounced slowdown. Specifically, from January through December, 2010, real manufacturing output rose by 6.40 percent. In 2011 – reflecting Japan supply problems – manufacturing grew by 4.29 percent after inflation. This year, the Japan supply problems are gone, yet through July, industry is expanding at a mere 2.26 percent annualized clip.
The sunniest realistic conclusion justified by this trend? At least U.S. manufacturing is expanding faster than the overall economy. At the same time, the domestic manufacturing sector still remains 4.7 percent smaller than at its pre-recession peak – in December, 2007.
The new industrial production figures also showed that the divergence between durable goods and non-durable goods manufacturing keeps widening. Durables production was up 0.85 percent from June to July, and 9.47 percent over last July’s level. These sectors combined have now recovered all but 0.97 percent of the inflation-adjusted production they lost during the recession.
Yet nondurables production inched up by a negligible 0.04 percent in July, and has risen by just 0.52 percent over the last year – well off even the meager 1.14 percent May to May and 1.28 percent June to June performances. And on a calendar year basis, the nondurables figures show an actual drop of 1.34 percent at an annualized rate so far in 2012. As a result, production of nondurable goods remains fully 9.66 percent below its recessionary peak – and more room to the downside is definitely visible.
The Manufacturing Slowdown Continues
Friday, June 15, 2012
This morning’s industrial production figures from the Federal Reserve presented a moderately mixed picture for the state of domestic manufacturing. But the idea that this crucial sector’s snapback from deep recessionary lows is losing steam remains intact.
On a monthly basis, the index reported an output drop of 0.4 percent in inflation adjusted terms for U.S. industry – the second falloff in the last three months. Figures for the outlier, April, were revised from a gain of 0.6 percent to one of 0.7 percent.
On a year-on-year basis, conventionally measured, manufacturing’s momentum actually picked up. Between May, 2009 and May, 2010, its real output grew by 8.93 percent. Expansion slowed markedly during the May, 2010 to May, 2011 period, to 5.36 percent. Yet the latest May-to-May data shows a 5.86 percent rise.
Measured less conventionally, but no less legitimately, the slowdown is worsening. From January to December, 2010, real manufacturing output increased by 6.40 percent. The following calendar year, this figure sank to 4.29 percent. From January through May this year, manufacturing production is up a mere 0.62 percent – which translates into an equally meager 1.49 percent expansion over twelve months.
Historic perspective is always helpful. Inflation-adjusted manufacturing output has risen by 19.34 percent since its recent trough in June, 2009 – the month the current recovery officially began. But domestic manufacturing is still 5.48 percent smaller than its peak level, which came when the last recession officially began, in December, 2007.
As a result, American manufacturing today is back only to output levels first hit in November, 2005. Interestingly, the manufacturing trade deficit that month was $54.68 billion – only 1.81 percent higher than the latest monthly (April) figure of $53.69 billion. These are pre-inflation-dollar figures, but has anyone seen any inflation in manufacturing lately? All of which means that the manufacturing trade deficit since that November, 2005 peak has shrunk only about one-third as fast as domestic production since then.
Imagine how much more output and how many more American jobs would exist today if the trade gap had diminished only as much as production – let alone the gains plausible had the manufacturing trade deficit been eliminated. Only when President Obama takes on that challenge in a realistic way will we know that he’s become serious about strengthening American manufacturing.
A Fair Trade Fairytale Full of Holes
Thursday, April 05, 2012
Maybe it was an April Fool’s joke?
Last Sunday, April 1, the Washington Post Outlook section ran an article by journalist Rachel Louise Snyder describing a promising, pragmatic program for insuring that Apple and other outsourcing multinational companies provide decent wages and safe working conditions for their employees in very low income countries.
According to Snyder, the Better Factories Cambodia program, dreamed up by the Clinton administration, has significantly improved the pay and benefits in the country’s export-oriented garment factories by offering the industry greater access to the U.S. market. Even better, the program “has become a model for many other countries” and with the help of the International Labor Organization, World Bank, and business and government partners has spread to Haiti, Lesotho, Jordan, Nicaragua, Indonesia, and Vietnam.”
If true, this would be great news for anyone hoping that global trade can become a force for raising third world living standards, and that the consequently increased consuming (and thus importing) power of developing countries might put such international commerce on a sustainable footing.
But just two months before the article’s publication, here’s what the garment industry website fibre2fashion.com reported about the Cambodian labor scene: “Garment workers unions and human rights groups will hold a People’s Tribunal to investigate the state of poverty pay in the Cambodian garment industry.” The hearings follow “recent mass faintings induced by malnutrition, and strikes pulling more than 200,000 workers to the streets to protest poor conditions and inadequate pay….”
Even more ironic, the head of the Cambodian Labour Federation said that Better Factories Cambodia itself attributed the fainting directly to "inadequate salaries, and the effect these have had on workers’ nutrition and their ability to rest.”
Just a smidgeon of research makes clear why Cambodian labor conditions remain so miserable despite more than a decade of the Better Factories program (now called Better Work): Although Cambodian apparel exports to the United States have indeed surged since the late-1990s (by more than 2,500 percent, to just under $2.6 billion in 2011), so have U.S. garment imports from much bigger producers where no intellectually honest observer would claim wages and working conditions are acceptable.
For example, imports from Vietnam are up literally ten times faster over the same period, are 2.5 times greater, and rose slightly faster last year. Imports from Bangladesh rose a not-too-shabby 250 percent during this period from a much higher base.
And then there’s China. Its apparel exports to the United States have increased by 345 percent since the late-1990s, and were nearly 13 times greater than Cambodia's last year.
In other words, as long as the U.S. market remains indiscriminately open to all comers – as it obviously has since the Clinton era – small countries like Cambodia will face tremendous wage and working-condition pressure from the giants no matter what modest special deals are cut for them. Worse for the Cambodias of the world, recent human rights reforms make likely the entry of even poorer, lower-wage Myanmar into the garment trade picture.
And the analytical coup de grace of course is the iron reality that unless Washington’s outsourcing-focused trade policies aren’t changed soon, America’s rapidly rebounding trade deficits will plunge the entire world into a possibly worse rerun of the last economic and financial crisis. The poorest countries will surely fare the worst.
If activists like Snyder genuinely want to help developing country workers, they’ll focus on completely reversing the outsourcing-centered trade policy blunders that began in the 1990s – which would better enable Washington to extend limited but therefore realistic and effective development-oriented preferences – rather than pretending that feel-good and inevitably threadbare band-aids can make a difference. Otherwise, the saddest joke will be on countries like Cambodia.
A Bubbly October Jobs Report -- In the Worst Sense of The Word
Sunday, November 06, 2011
For anyone with almost no expectations that Americans can ever rebuild a high-employment economy, Friday morning’s Labor Department jobs report must have looked pretty good. The creation of eighty thousand payroll jobs in October was announced and, even better, preliminary figures for August and September were revised upward by 102,000. (All statistics presented here are seasonally adjusted.) For anyone who sets even a modestly higher bar, the October numbers made clear that a deep national jobs recession keeps dragging on.
Worse, the report continues the Labor Department’s longstanding practice of over-counting private sector job creation by lumping into that category too many jobs in sectors of the economy heavily dependent on government largesse.
The October report pegs private sector job for that month at 104,000 – which seems about the level needed to avoid full-fledged panics in Washington and on Wall St. Yet as usual, this total includes numerous (in this case, 28,000) hirings in the subsidized health care services, social services, and nominally private higher education services industries. Subtract them, and employment gains in what I call the “real” private sector totaled only 76,000 that month – which would make the above panic buttons look a lot more tempting.
In other words, nearly 37 percent of all supposedly private sector October job creation owed largely to government spending that props up demand for these services and therefore employment in these sectors. That’s more than the 30.37 percent of the 191,000 supposed private sector jobs created in September stemming from government subsidies.
Largely because payrolls in government proper keep shrinking, real private sector jobs as a share of total nonfarm employment (the Labor Department’s U.S. jobs universe) rose between September to October from 67.97 percent to 67.99 percent. But subsidized private jobs as a share of conventionally defined private sector jobs edged up, too – from 18.36 percent to 18.37 percent.
Taking a longer view reveals just how steadily the subsidized private sector’s role in the economy has expanded and how equally steadily the real private sector’s role has shriveled.
Just ten years ago (during the recession year 2001), the real private sector accounted for 71.72 percent of all nonfarm employment – versus last month’s 67.99 percent. By the latest recession’s outset, in December, 2007, the real private sector share had shrunk to 70.34 percent, and by its official end, in June, 2009, this figure was down to 68.02 percent – still slightly higher than today’s level.
In contrast, the subsidized private sector share of total employment increased from 12.06 percent in 2001 to 13.45 percent at the recession’s outset to 14.69 percent at its end – lower than today’s 15.30 percent levels. And where today they make up 18.37 percent of conventionally defined private sector jobs today, subsidized private sector jobs were only 14.39 percent of that total in October, 2011, 16.05 percent when the recession began, and 17.76 percent when it officially ended.
Put differently, 7.67 million private sector jobs conventionally defined were lost during the latest recession. Since it ended, 1.60 million – or nearly 21 percent – have been restored. But more than 59 percent of these jobs (948,000) have come in the subsidized private sector, versus 41 percent (or 653,000) in the real private sector. But the number of real private sector jobs lost during the recession was substantially greater – 8.40 million. The gains in this category since the downturn ended represent only 7.77 percent of these losses.
Manufacturing employment inched up by 5,000 in October, and on a month-to-month basis, industry’s share of total nonfarm employment held at 8.94 percent. But at the end of the last recession, this figure stood at 8.99 percent. Even less impressive, that slump slashed manufacturing employment by 2.01 million. Only 31,000 of those jobs (1.47 percent) have reappeared so far.
So the October jobs report shows that employment in the economy’s most productive sector remains deeply depressed. (Or is the better adverb “recessed”?) And a large, steadily growing share of the private sector’s job creation has become dependent on the expenditure of borrowed public sector dollars. Those who insist on grasping at straws will conclude that a recovery is continuing – however phlegmatic. More realistic observers will recognize that the Obama Bubble keeps inflating.
An Economy and Recovery Strategy Both Dead in the Water
Friday, September 02, 2011
Another monthly jobs report from the government this morning, and another over-count of private sector job creation due to a serious mistake in the Labor Department’s methodology. As I have written repeatedly, the Department’s definition of “private sector” includes way too many industries heavily reliant on government subsidies to prop up demand – and therefore employment. The most easily tracked of these sectors – but far from the only ones – are health care services, social services, and nominally private higher education.
As a result, anyone frustrated or infuriated by the anemic 17,000 private sector job-creation figure for August presented by the government this morning should be apoplectic about the real situation. Taking away the reported 34,000 jobs created in August by these heavily subsidized sectors reveals that the real private sector actually lost 17,000 jobs for the month. Over the weekend, I’ll be checking to see how long it’s been since real private sector employment last contracted.
Add this miserable job performance to the one percent annualized economic growth reported by the government last Friday, and it should be obvious even to President Obama and Fed Chairman Bernanke that their combined recovery strategy has failed miserably. Despite trillions of dollars worth of stimulus injected into the economy by the Executive Branch and the Fed over the last four years, the economy is both literally dead in the water, and more dangerously indebted than ever.
Unfortunately, nothing coming from the Republican side of the aisle or the campaign trail indicates that a power shift in Washington next year will achieve much more. GOP and conservative policies in taxation and regulation in particular prevailed for most of the last decade, and the result was the weakest U.S. recovery till today’s – along with massive debt creation.
As the U.S. Business and Industry Council has pointed out since the economic crisis began, the nation’s only realistic hope for jump-starting strong debt-free growth and job creation is a serious drive to reduce America’s massive, rebounding trade deficits. Only by substituting domestically produced goods for imports can output and employment be generated without juicing domestic demand with even more debt – whether created by more government deficit spending or deeper tax cuts. And given the huge excess of imports over exports, curbing imports will need to dominate trade deficit-reduction efforts.
At this rate, however, it looks like President Obama won’t be acknowledging this till he’s a private citizen on the lecture circuit.
The importance of more realistically defining the private sector becomes especially clear upon examining job creation since the recession’s technical end in June, 2009.
During that period, total nonfarm job creation has risen by 639,000, or 0.49 percent.
Job creation in the conventionally defined private sector is up 1.23 million, or 1.14 percent.
Job creation in the subsidized private sector – health care services, social services, and nominally private higher education since recession’s end – is higher by 850,000, or 4.43 percent.
And that has left job creation in the real private sector gaining by only 384,000, or 0.43 percent.
As a result, this real private sector’s share of total nonfarm employment has declined from 70.34 percent when the recession began in December, 2007, to 68.02 percent when the recession officially ended to 67.98 percent today.
What about manufacturing? Following the 3,000 dip in industrial payrolls in August, manufacturing employment stood at 11.76 million – just 8.97 percent of total nonfarm employment. At the start of the recession, those figures were 13.74 million and 9.96 percent. Put differently, from the downturn’s onset until its technical end, the industrial sector lost 2.01 million jobs. During the present recovery, it’s gained back 29,000, or 1.44 percent.
Maybe the President will get up to speed on job creation by next Thursday, when he addresses a joint session of Congress on the subject. Maybe, in particular, he’ll drop the drivel about the three Bush-era trade deals as keys to recovery, and display some awareness of the trade deficit’s vital importance. Those results, unfortunately, will require history’s steepest learning curve.
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