Thursday, August 15, 2019

Manufacturing keeps falling away in 2019

We already had seen evidence that the country’s factories aren’t adding to the economy at anywhere close to the strong levels we saw in 2017 and 2018. And now it seems to be one of the economy’s leading headwinds in 2019.

One example of this was in the productivity report released today by the Bureau of Labor Statistics. It showed that manufacturing to be slowing down in the 2nd Quarter of 2019 for output and employment.
Manufacturing sector labor productivity decreased 1.6 percent in the second quarter of 2019, as output decreased 2.1 percent and hours worked declined 0.5 percent. Productivity declined 0.9 percent in the durable manufacturing sector, reflecting a 1.8-percent decrease in output and a 0.9-percent decrease in hours worked. Productivity decreased 2.6 percent in the nondurable manufacturing sector as output fell 2.4 percent and hours worked rose 0.3 percent. Over the last four quarters, total manufacturing sector productivity increased 0.2 percent, as output increased 0.4 percent and hours worked increased 0.2 percent. Unit labor costs in the manufacturing sector increased 5.8 percent in the second quarter of 2019, and increased 4.3 percent from the same quarter a year ago.
The unit labor costs are a good thing for workers, reflecting hourly compensation increases of 4.1% (annual rate). It's also odd to see, as the last jobs report said manufacturing has only been seeing average weekly wage increases of less than 1% a year (as I noted here), which lags almost all other sectors.

And given that producer prices continue to stagnate in light of trade wars and other overproduction, you can't think businesses will stand to see those high unit costs increases for much longer. This is especially true because revised numbers from the 1st Quarter show worker compensation growing by an even faster rate in manufacturing, and hours worked declining even more than Q2.

That's quite a change. The previous few years of stats were also revised, and they showed things jumped quite a bit in 2017, and still increased in 2018. It also has 2016 stats that look a whole lot like 2019's (with less compensation).

So to review, doldrums in 2016, great growth in 2017, decent growth in 2018, and signs of decline for 2019 so far.

Another report from Thursday, also had disappointing news that indicates the industrial side of the economy may already be in recession.
Industrial production fell 0.2% in July, the second drop in the past four months, the Federal Reserve reported Thursday.

The decline in July was unexpected as Wall Street economists had forecast a 0.2% gain, according to a MarketWatch survey.

June output was revised to a 0.2% gain from the initial reading of flat activity, but output in April and May was revised down slightly.
The Federal Reserve report says that even the slight gains in May and June weren’t as big as the drop in April, or the drops in January and February. This means industrial production was down 1.3% through July 2019, which was before all the gyrations in the economy over the last 2 weeks.

Manufacturing is falling even faster this year, with its index down 1.6% for the first 7 months of the year, and July added to the decline.
Manufacturing fell 0.4% in July, with broad based declines across durable and non-durable good sectors. The only sizable gains were in aerospace and miscellaneous transportation equipment. Auto production slipped 0.2% after a 2.5% gain in June.
That auto production stat isn’t good, as auto sales was one of the few bad numbers in this week’s retail sales report, declining by 0.7% in July. And auto inventories had already grown by nearly 7% as of June. Uh oh…

Another note from that inventories report is that it also lists sales by merchant wholesalers, and total sales in that area had declined in both May and June, and was down 0.2% over the last year measured. Meanwhile, those wholesalers’ inventories are up by 7.6%, so those “middle-work” jobs seem to be really in danger, since they can’t get the product they have out the door.

Wisconsin wasn’t spared from damage of the bad July in manufacturing, as the state lost 2,800 jobs in that sector, and had only gained 100 in the 11 months before that. Not really the news Donald Trump wants to hear as some Wisconsin blue-collars took a chance on Trump, figuring he would lead to more jobs and pay. It's sure not working out that way these days.

(Wait, I thought that once Republicans kept the M&A tax cut to manufacturers on the books, that Wisconsin factories would hire like crazy after the budget was signed! Are you telling me those tax cuts do NOTHING for job growth? Yeah, pretty much)

So as Summer 2019 winds down, it's becoming obvious that whatever "manufacturing renaissance" might have existed in the first two years of Donald Trump's tenure in office is ending in 2019. The question is whether the jobs and pay that may have been gained in those 2 years will still be around a year from now, which means we've still treaded water in manufacturing. Given recent data, I'd bet we'll have gone under by that point.

No comments:

Post a Comment