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Media Ignores Trump Economic Success

One of the most important news items, the virtual rebirth of the American economy under the Trump Administration, is also one of the most under-reported.

The reasons for that are political.  Obviously, it is a success for a White House that most of the media almost desperately attempted to prevent getting elected, and, once that effort failed, did everything possible to cripple. The magnitude of the Trump economic revival could be sufficient to get the President re-elected, an outcome that media seeks to prevent at all costs.

There is also an embarrassment factor, as key left-wing writers and politicians claimed Trump’s policies were incompetent or worse.  Just two examples: The New York Times’ Paul Krugman predicted that Trump’s policies would lead to a “Global recession, with no end in sight.”  Obama himself mocked Trump’s promise to revive manufacturing employment, stating that “those jobs aren’t coming back.”

Obama’s approach of extensive regulation at home and timidity in confronting China abroad provided poor results for American industry and related employment, continuing a downward spiral that could be traced back to the Clinton Administration. During the 2016 presidential campaign, Slate’s Jordan Weissman,  noted:  “Things have not worked out quite as the 42nd president hoped. Normalizing trade with China set our rival on a path to becoming the industrial powerhouse the world knows today, decimating American factory towns in the process and upending old assumptions about how trade effects the economy. Thanks to a growing body of academic research, we’re only just now beginning to understand the extent of the economic fallout…”

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In October, Forbes noted that “Comparing the last 21 months of the Obama administration with the first 21 months of Trump’s, shows that under Trump’s watch, more than 10 times the number of manufacturing jobs were added.”

The extraordinary rise of the U.S. economy is continuing. The U.S. Bureau of Economic Analysis reports that Real gross domestic product (GDP) increased at an annual rate of 3.2 percent in the first quarter of 2019. Current-dollar personal income increased $147.2 billion in the first quarter. Disposable personal income increased $116.0 billion, or 3.0 percent, in the first quarter. Personal saving was $1.11 trillion in the first quarter, compared with $1.07 trillion in the fourth quarter.”

According to the Bureau of Labor Statistics Total nonfarm payroll employment in March rose by 196,000 jobs (see figure), beating market expectations (175,000). The month of March continued the longest streak of growth on record (102 months). Job gains in February were revised up by 13,000, and January jobs were revised up by 1,000 for a cumulative increase of 14,000 jobs.

The White House notes that  “In total, the economy has added over 5.5 million jobs since President Donald J. Trump was elected. The March jobs report reflects a sharp rebound in job growth… Since the President was elected, job gains have surpassed 100,000 jobs in 26 of the 28 months. The average jobs growth in the past 12 months is a robust 211,000 jobs and jobs growth in the past 6 months has averaged 207,000 jobs. Both the 12-month and 6-month averages remain above the 2017 average of 179,000 jobs gained per month…Since the President’s election, the manufacturing industry has added 480,000 jobs and 209,000 jobs in the past 12 months. The report indicates that strong jobs growth is being coupled with wage growth. Nominal average hourly earnings rose by 3.2 percent over the past 12 months, marking the 8th straight month that that year-over-year wage gains were at or above 3 percent. Prior to 2018, nominal average hourly wage gains had not reached 3 percent since April 2009. Taking inflation into account, there is evidence that real wages are also growing. Based on the most recent Personal Consumption Expenditures (PCE) price index data from January, inflation in the past year was 1.4 percent, and based on the most recent Consumer Price Index (CPI-U) price data from February, the inflation in the past year was 1.5 percent.”

A particularly unique accomplishment: black and Latino unemployment is at an historic, all-time low.

Great news, all around. Just don’t expect to read much about it in the media.

Chart: White House graphic

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Attacking Red Tape

The U.S. Department of Commerce  is moving to undue the extraordinary burden placed on the American economy during President Obama’s tenure.

The prior Administration introduced record-breaking over-regulation, as noted in numerous studies, most notably that performed by the Competitive Enterprise Institute (CEI). That addiction to regulation was more than just a nuisance. The CATO institute asserts that “It is widely recognized that excessive regulation is unnecessarily killing jobs.”

The Daily Signal found that “job-creating entrepreneurs in the United States have been dispirited by the scope and cost of escalating red tape…Since 2009, the expansion of Uncle Sam’s regulatory control has been one of the prime culprits in America’s startling decline in economic freedom and overall competitiveness. Each new edict has meant a new government bureaucracy that entrepreneurs and producers must navigate. Worse, the trend of overregulating our economy has also bred cronyism and tarnished our free-market system. As reported in the 2015 Index of Economic Freedom, an annual study that benchmarks the quality and attractiveness of the entrepreneurial framework across countries, the United States remains stuck in the second tier economic freedom rank of the “mostly free,” with its business freedom score plunging to the lowest level since 2006. This increased regulatory burden, aggravated by favoritism toward entrenched interests, has notably undercut America’s historically dynamic entrepreneurial growth. A 2014 Brookings Institution analysis shows that with business exits now exceeding new business formations, entrepreneurial dynamism in the United States has been steadily dwindling. In light of the excessive and costly regulatory environment, it is not surprising that America’s ongoing economic recovery has been far from dynamic. Fewer Americans can prosper in this overregulated economy.”

The cost of compliance with the tidal wave of regulatory mandates was overwhelming. CEI estimated that in 2015, regulatory-related expenses were approximately $1.88 trillion, 10% of the entire American GDP and over 5 times the cost of federal corporate income taxes that year.

It’s not only private sector projects that are daunted by over-regulation.  Improtant infrastructure projects suffer greatly, as well.

According to the Department of Commerce, “the cost of permitting delays can more than double direct project construction costs when all delay factors are considered….the types of costs associated with delays are subtle and insidious – and we too often accept them as  status quo without realizing the massive drag they have created on our economy. For example, many proposed new projects offer environmental benefits compared to the status quo, so by delaying the new ‘greener’ solution, we may often prolong higher emissions and congestion associated with the status quo. Furthermore, delays may mask a greater threat – important infrastructure projects may not even be considered or initiated because of investment uncertainty and risk created by permitting delays. The risk of delay and associated lower returns can be a powerful disincentive for any private capital participation.”

In response, the Commerce Department issued, earlier this year, a Request for Information (RFI) on how to cut the burden, particularly for the hard-hit manufacturing sector, and has now published a study based on the results in a report entitled “Streamlining Permitting, and Reducing Regulatory Bburdens for Domestic Manufacturing.”   

The Report notes that:

“Federal regulations impose enormous costs on America’s businesses and working families. These costs burden virtually every sector of our economy, although the manufacturing sector is disproportionately hard hit. The direct costs on manufacturing companies were estimated by the National Association of Manufacturers (NAM) to be $138.6 billion as of 2014,1 though this estimate does not include indirect negative effects on the U.S. economy such as reduced innovation and global competitiveness, lost investment, and significant job losses.  Small businesses are also disproportionately burdened by excessive federal regulation.

“on January 24, 2017, President Trump signed a Presidential Memorandum on Streamlining Permitting and Reducing Regulatory Burdens for Domestic Manufacturing. The Memorandum, which is one part of an Administration-wide regulatory reform agenda, required the Secretary of Commerce, in coordination with other executive departments and agencies, to conduct outreach to stakeholders on the impact of federal regulations and permitting requirements on domestic manufacturing and to submit a report to the President setting forth a plan to streamline federal permitting processes and to reduce the regulatory burdens affecting domestic manufacturing industry expressed clear support for the need to protect the environment, human health, and worker safety, but shared concrete, detailed concerns about how the federal government tries to achieve those objectives. Respondents identified numerous regulatory and permitting problems, including:

  • onerous and lengthy permitting processes that increase cost, add uncertainty, and inhibit investment in new and existing manufacturing facilities;
  • inadequately designed rules that are impractical, unrealistic, inflexible, ambiguous, or that show a lack of understanding of how industry operates;
  • unnecessary aspects of rules, or unnecessary stringency, that are not required to achieve environmental or other regulatory objectives;
  • overlap and duplication between permitting processes and agencies; and
  • overly strict or punitive interpretations of guidance, policies or regulations that are often counter to a pro-growth interpretation.

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“Despite numerous regulatory reform initiatives over the years, businesses continue to express concerns about increasing regulatory burdens. The fact that manufacturers continue to raise the same concerns, even after decades of regulatory reform efforts by the federal government, indicates a failure on the federal government’s part to fully engage with regulated industries and fully understand the real-world impact of its regulations. There is a vital need for better dialogue and understanding between regulators and industry. In the meantime, the urgency for reform continues to grow. A 2017 NAM study states that most manufacturers perceive their regulatory burden to have increased significantly, such that reducing their current burden is at least as important as reducing the cost of new regulations.

SUMMARY OF RECOMMENDATIONS

“The Department makes three major recommendations.

  • Each agency’s Regulatory Reform Taskforce (RRTF) should deliver to the President an ‘Action Plan’ in response to all permitting and regulatory issues highlighted by industry.
  • Annual Regulatory Reduction Forum. There is no regular process for consultations with industry to identify specific actions the federal government can take to eliminate unduly burdensome regulations and accelerate permitting decisions. Thus, the Department recommends creating an annual, open forum for regulators and industry stakeholders to evaluate progress in reducing regulatory burdens.
  • Expanding the Model Process in FAST-41. [Title 41 of the FAST Act (FAST-41) (42 U.S.C. § 4370m) was designed to improve the timeliness, predictability, and transparency of the Federal environmental review and authorization process for covered infrastructure projects.] The FAST Act  contains various provisions aimed at streamlining the environmental review process, with improved agency coordination through the creation of a Coordinated Project Plan and a Permitting Dashboard. Covered projects will typically enjoy better coordination, transparency of approvals, and expedited permitting. The Department recommends that the Administration use existing authority to extend the use of streamlined permitting procedures in the FAST Act to any project that will result in a significant, immediate economic benefit to the United States. For example, consideration could be extended to funded, qualifying projects in a new “economically significant” category. Consideration should be extended to complex, funded manufacturing projects that are in late stages of development and that can demonstrate significant net direct and indirect benefits to the domestic economy. To be eligible for the current streamlining process, projects in this sector or category would still need to meet the definition of a “covered project” under FAST-41. FAST-41 provides a model process that could be incorporated into other Federal legislation that governs Federal programs and requirements that apply to manufacturing facilities. To expand further the universe of manufacturing projects that benefit from streamlined regulatory approval processes, the Administration could work with members of Congress to both expand the definition of “covered project” under FAST-41 and to incorporate procedures similar to those found in FAST-41 in other legislation applicable to manufacturing projects. The Department believes that these three recommendations, if executed promptly and with constant, aggressive leadership, will yield significant results. Set forth below is (i) a summary of issues raised in response to the RFI; (ii) an analysis relating to potential reforms; and (iii) specific recommendations and priority areas for reform.”

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Manufacturing Employment is Vital to U.S. Economy

All the plans and proposals, whether from Democrats, Republicans, liberals or conservatives will do little to restore growth to the American economy unless they provide middle income employment.  To a significant extent, that means restoring the manufacturing sector to a semblance of strength. The “Little Blue Collar Fact Book”  notes that “the U.S. manufacturing sector…accounts for two-thirds of our country’s private-sector research and development;…accounts for more than 12 percent of U.S. GDP; and … employs about 12 million … Americans in good-paying jobs. A typical manufacturing job supports four or five jobs elsewhere in the economy. And manufacturing jobs pay better, especially for workers who may not possess a four-year college degree… Manufacturing in America means jobs, industrial innovation, and economic growth.”

Since President Clinton gave China unchecked access to trade with the U.S., 5.1 million jobs and 65,000 manufacturing plants have been lost. According to the Alliance for American Manufacturing, “a flood of cheap, heavily subsidized imports from China have put the American steel industry in jeopardy. China’s economy is slowing, but its government-funded industry isn’t slowing down. China has to do something with all that steel it doesn’t need, so it’s shipping it to the United States with a rock-bottom price tag. It’s not just steel. Industries like aluminum are facing the same problem…[The trade deficit with China amounted] a $365 billion…The U.S. trade relationship with China is one-sided. America’s growing trade deficits with countries around the world, not just in China, have had serious consequences for our manufacturing base and the jobs it supports…It’s not just jobs, mind you. There’s a lot of manufacturing innovation and know-how taking place overseas, making it less likely that the future’s big-ticket products and gizmos will be invented and made in America…

“Whenever lawmakers consider legislation that will either promote U.S. manufacturing or put rules in place to go after trade cheats, the naysayers come out of the woodwork. And ‘we’re going to touch off a retaliatory trade war’ is one of their most common criticisms. They’re calling smoke when there’s no fire. Critics said a trade war was coming when Maryland passed a Buy America bill in 2013. They said one was coming when West Virginia considered a similar one in 2014. And they say the same thing whenever Washington, D.C. thinks about legislation to curb currency manipulation…But just look at our deficits and lost manufacturing jobs. We’re in a trade war right now, and we’re losing it. By offshoring a chunk of our manufacturing sector, we might have got a tiny markdown on the price tags at big box stores. But our trading partners – and especially China – need America’s big market to make their own economy work.”

The impact of the manufacturing sector is dramatic. The National Association of Manufacturers outlines its role in the overall economy:

  • In the most recent data, manufacturers contributed $2.17 trillion to the U.S. economy in 2015.
  • For every $1.00 spent in manufacturing, another $1.81 is added to the economy.
  • The vast majority of manufacturing firms in the United States are quite small; Almost two-thirds of manufacturers are organized as pass-through entities.
  • There are 12.3 million manufacturing workers in the United States, accounting for 9 percent of the workforce.
  • In 2015, the average manufacturing worker in the United States earned $81,289 annually, including pay and benefits.
  • Manufacturers have one of the highest percentages of workers who are eligible for health benefits provided by their employer.
  • Output per hour for all workers in the manufacturing sector has increased by more than 2.5 times since 1987. In contrast, productivity is roughly 1.7 times greater for all nonfarm businesses. Note that durable goods manufacturers have seen even greater growth, almost tripling its labor productivity over that time frame.
  • Exports support higher-paying jobs for an increasingly educated and diverse workforce.
  • Manufacturers in the United States perform more than three-quarters of all private-sector research and development (R&D) in the nation, driving more innovation than any other sector.
  • The cost of federal regulations fall disproportionately on manufacturers, particularly those that are smaller.

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Critics of attempts to promote domestic American manufacturing have said that cheaper overseas wages, and the overall impact of automation, will prevent any renaissance in the manufacturing job sector.  The facts, however, indicate otherwise. A Forbes study by Thomas Roemer notes: “It used to be cheaper to manufacture outside the U.S.; now the costs are now converging. In the manufacturing sector, the U.S. is still among the most productive economies in the world in terms of dollar output per worker. To be more specific, a worker in the U.S. is associated with 10 to 12 times the output of a Chinese worker. That’s not a statement about intrinsic abilities; it merely reflects the superior infrastructure of the United States, with its higher investments in automation, information technology, transportation networks, education, and so on. And even though this relative advantage is slowly shrinking thanks to Chinese investment in such infrastructure, the wage gap between Chinese and U.S. workers is shrinking at a much faster rate. The net effect is that overall manufacturing in the U.S. is becoming more attractive again, leading to domestic growth and reshoring.

“As productivity rises and automation increasingly replaces manual labor, the returning manufacturing jobs will require a higher degree of technological sophistication from the workforce, and this unfortunately may leave behind those who are unable to adapt…The second reason to manufacture in America involves lead times. Customers have come to expect short delivery windows. With services like Amazon Prime, consumers are accustomed to delivery within one or two days, if not the same day. Offshore manufacturers need to store disproportionally large amounts of inventory to accommodate these expectations. But keeping inventory is costly—it requires space, energy, and labor; it gets lost, stolen, spoiled, and damaged; and, in the case of technology or fashion, it may become obsolete within weeks. Right now, the U.S. stores about $1.7 trillion in inventory, which means annual inventory carrying costs of between $300 billion and $500 billion—roughly the gross domestic products of Denmark and Norway, respectively. Manufacturers with onshore facilities can cut those costs dramatically. However, these indirect costs of offshoring are much harder to quantify than direct manufacturing costs, and they were frequently ignored in the initial rush to offshore.”

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U.S. Economy, Employment in Crisis

Despite desperate efforts to portray the economy as stable, the latest economic reports and statistics outline an ongoing crisis.

The recent indicators from the Bureau of Labor Statistics reveal that from January 2013 through December 2015, there were 3.2 million workers displaced from jobs they had held for at least 3 years. This follows the 4.3 million workers for the prior survey period covering January 2011 to December 2013. In January 2016, only 66 percent of workers displaced from 2013 to 2015 were reemployed, and only 61 percent were found to be reemployed in the prior survey in January 2014.

Thirty-seven percent of long-tenured displaced workers from the 2013-15 period cited that they lost their job because their plant or company closed down or moved; an additional 37 percent said that their position or shift was abolished and 26 percent cited insufficient work. Seventeen percent of long-tenured displaced workers lost a job in manufacturing. Among long-tenured workers who were displaced from full-time wage and salary jobs and were reemployed in such jobs in January 2016, only 53 percent had earnings that were as much or greater than those of their lost job, similar to the prior.

94,391,000 Americans are not in the labor force, as the labor participation rate is at a distressingly low 62.8%, the lowest figure since 1977. CNS notes that “The best the Labor Participation rate been since Barack Obama took office is 65.8 percent in February 2009, the month after he was sworn in.” CNS also found that government employees in the United States outnumber manufacturing employees by 9,932,000. Federal, state and local government employed 22,213,000 people in August, while the manufacturing sector employed 12,281,000.

The Bureau of Labor Statistics  also found that Nonfarm business sector labor productivity decreased at a 0.6-percent annual rate during the second quarter of 2016. From the second quarter of 2015 to the second quarter of 2016, productivity decreased 0.4 percent, the first four-quarter decline in the series since a 0.6-percent decline in the second quarter of 2013.

The Institute for Supply Management  reports that: “Manufacturing contracted in August as the PMI registered 49.4 percent, a decrease of 3.2 percentage points from the July reading of 52.6 percent, indicating contraction in manufacturing…”
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Bloomberg notes that “The August [employment] figure is consistent with a simmering-down of payrolls growth so far this year…The average work week for all workers decreased by 6 minutes to 34.3 hours in July, the lowest since 2014 and the first drop in six months.”

A CNBC review notes that the average work week declined 0.1 percent to 34.3 hours. That was largely because the biggest jobs gains came in bars and restaurants, which added 34,000 positions. Social assistance grew by 22,000, professional and business services added 22,000, and Wall Street-related positions grew by 15,000. Health care also contributed 14,000.

The Wall Street Journal reports that “America is now home to a vast army of jobless men who are no longer even looking for work—roughly seven million of them age 25 to 54, the traditional prime of working life.

This is arguably a crisis, but it is hardly ever discussed in the public square…In 2015 the work rate (the ratio of employment to population) for American males age 25 to 54 was 84.4%. That’s slightly lower than it had been in 1940, 86.4%, at the tail end of the Great Depression. Benchmarked against 1965, when American men were at genuine full employment, the “male jobs deficit” in 2015 would be nearly 10 million, even after taking into account an older population and more adults in college…look at the fraction of American men age 20 and older without paid work…Clearly big changes in the U.S. economy, including the decline of manufacturing and the Big Slowdown since the start of the century, have played a role. But something else is at work, too: the male flight from work has been practically linear over the past two generations, irrespective of economic conditions or recessions.  What we might call “sociological” factors are evident, not least the tremendous rise in unworking men who draw from government disability and means-tested benefit programs.

According to the Bureau of Economic Analysis, real gross domestic product increased at an annual rate of 1.1 percent in the second quarter of 2016, a near-recessionary figure.

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Middle Class Jobs Continue to Lag

Nonfarm payroll employment gains were 160,000 in April according to the Bureau of Labor Statistics, a drop of 40,000 from the prior three month average. Job gains occurred in professional and business services, health care, and financial activities, while mining employment continued to decline.

The reason for the decline in the U.S. economy and the continuing problem in the American balance of trade can be gleaned from delving into the areas that continue to be the weakest. Manufacturing employment changed little in April (+4,000), after losing 45,000 jobs over the prior 2 months. Mining employment continued to decline in April (-7,000). The industry has lost 191,000 jobs since a recent peak in September 2014. More than three-fourths of the job losses over this period have been in support activities for mining.

Middle income jobs are suffering. A jobs market that is based on health care, retail, and consulting services produces little that can be exported.

While the White House continues to tout an unemployment rate of 5%, the reality is far different.  The number is made artificially low by the declining number of Americans in the workforce (a four decade low) and it fails to reflect that a substantial number of jobs created are low-paying or part time positions that replace full time, lost middle income jobs. Additionally, a worrisome large number of the unemployed, 25.7%, have been unemployed for a prolonged period.

Among the employed, the number working part time for economic reasons, also referred to as involuntary part-time workers, was 6.0 million in April. This measure has shown little movement since November. (Involuntary part-time workers are those who would have preferred full-time employment but were working part time because their hours had been cut back or because they were unable to find full-time work.)

Reuters reports that “Manufacturing’s job problem undercuts hopeful forecasts that U.S. companies would bring significant numbers of jobs back from overseas. That’s simply not happening to a degree sufficient to offset the continuing exodus of work and suggest deeper problems roiling factory floors…The slowdown in oil and gas has radiated deep into the economy and huge cuts by heavy equipment and farm machinery manufacturers are battering thousands of smaller suppliers across the industrial belt….the downturn has spread gloom across the U.S. industrial heartland…many Midwest manufacturers say they are as disillusioned with Washington’s view of the economy as their hourly workers.”
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While manufacturing jobs had been declining for several decades, the dramatic downward slide can be traced to President Clinton’s allowing China off the hook from yearly reviews of its policies.

It is deeply frustrating that the current employment crisis in middle income jobs is not just  the temporary result of a cyclical downturn.  It is the direct result of the White House’s tax and environmental policies. Taxes for U.S. corporations are the highest in the developed world, which encourages companies to move their jobs overseas. The Obama Administration’s regulatory tidal wave, especially those designed to destroy the coal industry, have targeted not only a large number of jobs, but also some of the best paying middle income jobs in the economy.

CNS  notes that “Over the course of the 86 full months that President Barack Obama has completed serving in the White House—from February 2009 through March 2016–the U.S. Treasury has collected approximately $18,764,164,000,000 in tax revenues (in non-inflation-adjusted dollars), according to the Monthly Treasury Statements issued during that period…That equals approximately $124,003 for each of the 151,320,000 persons who, according to the Bureau of Labor Statistics, had either a full- or part-time job during March 2016. During the same 86-month stretch of the Obama presidency, the total debt of the federal government increased from $10,632,005,246,736.97 to $19,264,938,619,643.07, according to the Treasury. That is an increase in the debt of $8,632,933,372,906.10—or approximately $57,051 for each of the 151,320,000 people with jobs as of March.

HotAir reports that there is “visceral disgust” for Obama’s environmental policies in the Appalachian counties… West Virginia…energy costs are expected to go up 40 percent under Obama’s Clean Power Plan (CPP), which sets to cut greenhouse gas emissions by 32 percent by 2030 from 2005 levels. It’s a regulatory nightmare, a job killer, and a policy that Hillary Clinton plans to continue if she’s elected.”

Investors.com believes that Obama’s “policies have made it harder than ever for manufacturers to hire…New Environmental Protection Agency regulations to slash carbon emissions 30% by 2030 will have a devastating effect on factory jobs. A study by the Heritage Foundation found that this regulation by itself would cost each American $7,000 in income while killing 500,000 factory jobs and 45% of all coal-industry jobs. Then there’s the just-released ozone standards, also from the EPA’s job-killing policy shop. A study by NERA Economic Consulting for the National Association of Manufacturers (NAM) estimated a $140 billion hit to GDP and as many as 1.4 million jobs lost each year. Since Obama took office, thousands of new regulations have gone into effect. In 2012, regulation cost the U.S. economy about $2 trillion, or 12% of GDP. And manufacturers have been hit hardest. The average factory today spends $19,564 per worker to comply with regulations. For small manufacturers, it’s bigger: $34,671 per worker.”

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U.S. Economy Ends 2015 in Slump

The Institute for Supply Management (ISM) reports that economic activity in the manufacturing sector contracted in December for the second consecutive month. The Wall Street Journal notes that “U.S. factories are in their worst slump since 2009.” Manufacturing accounts for about 12% of the U.S. economy, but its impact on middle-class employment and the U.S. balance of trade is even greater.

While U.S. manufacturing had declined before 2000, the precipitous drop, and its dire impact on the U.S. balance of trade and middle-class employment, had its origins in President Clinton’s allowing China to enter the World Trade Organization (WTO).

The Manufacturing News notes that “Since 2000, the trade deficit with China has surged by 173 percent, from $83 billion in 2000 to $227 billion in 2009. The United States has lost more than one-third of all its manufacturing jobs — 5.6 million; U.S. wages have declined; the country has suffered a financial meltdown; it has spent $14 trillion on economic stimulus, only to experience the highest unemployment rates in generations and annual federal budget deficits of more than $1 trillion.”

Speaking about the manufacturing sector, ISM’s chair Bradley J. Holcomb reported that “The December PMI® registered 48.2 percent, a decrease of 0.4 percentage point from the November reading of 48.6 percent. …The Employment Index registered 48.1 percent, 3.2 percentage points below the November reading of 51.3 percent. The Prices Index registered 33.5 percent, a decrease of 2 percentage points from the November reading of 35.5 percent, indicating lower raw materials prices for the 14th consecutive month. The New Export Orders Index registered 51 percent, up 3.5 percentage points from the November reading of 47.5 percent and the Imports Index registered 45.5 percent, down 3.5 percentage points from the November reading of 49 percent. As was the case in November, 10 out of 18 manufacturing industries reported contraction in December. Contraction in new orders, production, employment and raw materials inventories accounted for the overall softness in December.”

ISM reports that of the 18 manufacturing industries, six are reporting growth in December in the following order: Printing & Related Support Activities; Textile Mills; Paper Products; Miscellaneous Manufacturing; Chemical Products; and Food, Beverage & Tobacco Products. The 10 industries reporting contraction in December — listed in order — are: Apparel, Leather & Allied Products; Plastics & Rubber Products; Machinery; Primary Metals; Fabricated Metal Products; Transportation Equipment; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Wood Products; and Nonmetallic Mineral Products.

 

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“But there is another big factor that is not often mentioned and has a huge effect on both the manufacturing sector and jobs. That factor is the growing trade deficit which is really the ultimate determinant of job creation in the U.S.

“Dan Dimicco, chairman emeritus of Nucor Corporation…says in 2013, net trade subtracted about 3% from our economy (because imports exceeded exports). This shrinkage is cumulative, compounding year after year.” In the case of America we have had trade deficits for 39 years and it is now more than an $8 trillion debt. But why isn’t the government, Wall Street, multinational corporations, and many pundits and bloggers worried about the growing trade deficit? Why is the trade deficit largely ignored while everyone is more concerned about the federal deficit? Wall Street, the Multi-national corporations and the Obama Administration have adopted a policy of appeasement where foreign mercantilism seems to be irrelevant and attempts at balancing trade are ignored. It is as if the trade deficit is an open ended charge account that is simply an accounting summary that will never have to be paid back. All of our trading partners (competitors) understand trade deficits and they do something about them.”

The Federal Reserve Bank of Atlanta  also issued disappointing news, noting that “The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2015 is 0.7 percent on January 4, down from 1.3 percent on December 23. The forecast for the contribution of net exports to fourth-quarter real GDP growth fell 0.1 percentage points to -0.4 percentage points on December 29 after the U.S. Census Bureau’s advance report on international trade in goods. “

Overall, according to the December report from the U.S. Census Bureau and the U.S. Bureau of Economic Analysis :

“The goods and services deficit for the whole U.S. economy was $43.9 billion in October, up $1.4 billion from $42.5 billion in September, revised. October exports were $184.1 billion, $2.7 billion less than September exports. October imports were $228.0 billion, $1.3 billion less than September imports. The October increase in the goods and services deficit reflected an increase in the goods deficit of $2.1 billion to $63.1 billion and an increase in the services surplus of $0.6 billion to $19.2 billion. Year-to-date, the goods and services deficit increased $22.2 billion, or 5.3 percent, from the same period in 2014. Exports decreased $84.7 billion or 4.3 percent. Imports decreased $62.5 billion or 2.6 percent.”

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Quick Analysis

Why American manufacturing has declined

The most vital sector of the U.S. economy continues to exhibit worrisome indicators.

Manufacturing is a vital source of employment, and a key component of America’s balance of trade. In August, according to the Institute for Supply Management it registered a “PMI” of  51.1 percent, a decrease of 1.6 percentage points from the July reading of 52.7 percent. (The  Project Management Institute figure is widely used as an indicator of economic trends, and as a short-term forecaster of several important lagging output variables.) The New Orders Index registered 51.7 percent, a decrease of 4.8 percentage points from the reading of 56.5 percent in July. The Production Index registered 53.6 percent, 2.4 percentage points below the July reading of 56 percent. The Employment Index registered 51.2 percent, 1.5 percentage points below the July reading of 52.7 percent. Inventories of raw materials registered 48.5 percent, a decrease of 1 percentage point from the July reading of 49.5 percent. The Prices Index registered 39 percent, down 5 percentage points from the July reading of 44 percent, indicating lower raw materials prices for the 10th consecutive month. The New Export Orders Index registered 46.5 percent, down 1.5 percentage points from the July reading of 48 percent.

According to the Economic Policy Instiute “The United States lost 5 million manufacturing jobs between January 2000 and December 2014… job losses can be traced to growing trade deficits in manufacturing products prior to the Great Recession and then the massive output collapse during the Great Recession…Between 1970 and 2000, manufacturing employment was relatively stable, ranging from 16.8 to 19.6 million, and generally remaining between 17 and 18 million…However, this relationship broke down in the early 2000s, a period of rapidly growing trade deficits.”

What happened? According to the Daily Caller, “Bill Clinton.  It was his efforts at the end of his second administration that opened U.S. markets for Chinese imports.   Under a prior system of rules that apply to communist countries, if the United States had found China to be exporting goods in an unfair manner (e.g., special export subsidies to artificially lower prices), we could respond unilaterally by raising import taxes (tariffs) on Chinese products. This was a relatively simple system of retaliation largely because it was unilateral. Enter Bill Clinton…he pushed to have China become a member of the U.N.’s World Trade Organization (WTO), and to have U.S. trade disputes with China arbitrated by this multilateral organization. Consequently, China was no longer subject to U.S. unilateral action under our trade rules…What about U.S. exports to China? According to the U.S. Census Bureau, in 2013 our trade deficit with China hit a record high at $318.4 billion…”

According to Eamonn Fingleton, writing in Forbes “Some of us have long argued that the United States has been committing economic suicide by letting its once-peerless manufacturing base fade away. To those who have investigated the facts, the case has, for decades, seemed unchallengeable…”

Richard McCormack, reporting in the Alliance for American Manufacturing blog, states that many of America’s problems can be traced to the decline in manufacturing. In the aftermath of the Baltimore riots, he notes, “For generations, tens of thousands of Baltimore workers living in the iconic row-houses of densely populated neighborhoods went to work in nearby factories…Now, for the first time in 300 years, Baltimore’s population makes nothing, save for processed sugar at the 93-year-old Domino Sugar factory, the last large manufacturing plant remaining in the city…As the factories left, the economy collapsed.”

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“Massachusetts is awarding a contract to build rail cars to CNR Changchun Railway Vehicles, a Chinese state-owned company, a subordinate of China CNR Corporation Ltd… The company was able to bid low enough to get this contract because of Chinese government subsidies such as grants, tax breaks, loans, and debt forgiveness.

“This deal is a problem for two reasons. First, US companies cannot compete on a level playing field against companies that are subsidized by governments. China has a national focus on gaining key, strategic industries, and applies national resources as necessary to accomplish this. They understand the long-term value of being able to make a living as a country. Unfortunately they have been overdoing it, and running a very large trade surplus, which sets the rest of the world’s economy out of balance.

“Second, this deal uses taxpayer dollars to undercut the long-term competitiveness of American companies that do the same work. They don’t get this contract, and the Chinese company gains a foothold in the US — with a factory and supply chain and in-country expertise — and as is able to compete for even more future business as a result. Again, this all done with US and Massachusetts taxpayer dollars. The solution is not to ban non-US companies from bidding on such contracts. The solution is to be smart, and strategic and recognize that other countries have national plans to develop their own industries for their own national interests and we should as well.”

The Information technology & Innovation Foundation  calls for action:

“Over the last 15 years the U.S. manufacturing sector has declined significantly compared to those of competitor nations. In the face of this decline, congressional action is needed more than ever to reduce the effective corporate tax rate; to boost investment incentives, including for R&D; to better enforce trade rules globally; and to support manufacturing innovation and workforce development.”