The Rot Down Below Does Not MAGA Make

The last thing you can say about America’s alleged Best Economy Ever is that manufacturing is baaack!

Not at all. It is cycling like it always does in step with the ebb and flow of global credit impulses and trade cycles and short-run policy disturbances like the tax-cut induced sugar high during 2018.

There is no better barometer of that than the BLS’ index of aggregate labor hours. That’s because the latter captures changes in overtime and scheduled hours, which, in turn, track the path of actual output far more closely than the standard one-size-fits-all NFP job count.

Ironically, the upward bulge in manufacturing labor hours during late 2017 and 2018 reflected the fact the Mr. Xi had cranked-up the credit machine in China to nearly warp speed in order celebrate his coronation as Emperor for Life at the 19th Party Congress in October 2017; and then a few months later in Washington the GOP enacted a $1.8 trillion draw on Uncle  Sam’s credit card to reward the K-street business lobbies that have so faithfully filled its campaign coffers.

Needless to say, these policy-induced surges have now vanished completely—underscored by the fact that manufacturing labor hours in September were actually lower than one year ago.

So, if you want to talk about how the Donald’s policies have brought the manufacturing sector roaring back, you can’t.

Self-evidently, they haven’t.

In fact, without the aid of a magnifying glass, you really can’t tell when Barry left and the Donald arrived in the Oval Office in the chart below. That’s because the arm-waving and jaw-flapping—even tweeting—of US presidents has virtually no impact on the medium-term ebb and flow of factory output in the context of the completely integrated global supply chains that criss-cross the planet’s $85 trillion economy.

As it happened, the annual rate of manufacturing labor hour growth during Obama’s last six years (after the recovery stabilized in June  2010) was 1.31% per annum. During the Donald ‘s first 32 months it has been 1.15%.

So there has been no manufacturing acceleration at all—just a steady advancement into cyclical old age.

The GOP talking point purveyors and Fox News bobbleheads, of course, don’t know from the business cycle. They erroneously assume that any good number that can be cherry-picked from last month’s or last quarter’s incoming data is the very work of the Trumpian magic.

But that doesn’t change the reality. The Donald inherited the longest, weakest, oldest business cycle of any modern president and has implemented no policies at all that can sustainably purge and correct the rot (debt, speculation and malinvestment) down below.

So with each passing month we creep closer to the recessionary roll-over date and at month #124 of the post-crisis expansion we are already deep into borrowed time.

For instance, there are few better metrics on the core pacing elements of the nation’s $21 trillion GDP than the industrial production index. So with this week’s report on September’s -0.14% Y/Y print, it is now clear that the rollover has already begun to happen, and the sugar high of last year is long gone.

In fact, the rate of change has come full circle and is now essentially on the flat-line—-the very place it stood when the Donald took the oath.

Moreover, business cycles do not mimic the Ohio State marching band. That is to say, GDP does not stride forward in a perfectly straight rows, but ebbs and flows irregularly—with the so-called cyclicals calling the tune.

At the present time, oil and gas drilling in the shale patch is especially cyclical, tracking the ups and downs of prices in the 100 million barrel per day world oil market. With respect to the blue line below (WTI oil price), even the Donald has never claimed to command it.



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