Beat the Press is Dean Baker's commentary on economic reporting. He is a Senior Economist at the Center for Economic and Policy Research (CEPR). To never miss a post, subscribe to a weekly email roundup of Beat the Press.

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For folks who can remember all the way back to last fall, the promise was that a huge boom in investment would lead to more rapid productivity growth. Higher productivity would mean pay would be close to 10 percent higher than in the baseline scenario after a decade.

Well, the data disagree. We got new data on capital goods orders yesterday. Here's the picture.

cap goods

If you see a boom here since the tax cut, you may want to get the prescription on your glasses checked. It's not a terrible story, but we're still below the pre-recession peaks and even the levels reached during the horrible Obama years. Oh well, at least rich people got lots of money out of the deal.

By the way, the drop in capital goods orders in 2015 and 2016 was due to the plunge in world oil prices from $100 a barrel to $40 a barrel. Much of the increase in the last year and a half has been attributable to the partial recovery to $70 a barrel. I am not inclined to give the Trump administration the blame for higher gas prices, but I suppose if they insist, we can yell at them over $3 per gallon gas.

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No one expects great insights from people who write columns for the Washington Post but Dana Milbank hit a serious low today when he referred to the fact that Representative Joseph Crowley took large amounts of money from the financial industry and other special interests as "largely non-ideological." Those of us who don't write columns for the Washington Post realize that campaign contributors are not in the charity business. They expect and generally get something in exchange for their money.

At the very least, they do not give money to people who they expect to push efforts to seriously harm their profits (which Dodd-Frank did not do) or to have them jailed when they break the law. They apparently felt confident that Crowley could be relied upon in these areas. 

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The NYT had an article featuring employers complaining that they couldn't get low-cost immigrant labor. The piece focuses on the H-2B visa program which allows a limited number of foreign workers to come into the United States temporarily to work at low paying jobs such as restaurant work and housekeeping.

In particular, the article highlights the concerns of the two owners of landscaping businesses in the Denver area, Rhonda Fox, who owns a family business and Phil Steinhauer, who owns a larger business. Both complain that the limited number of foreign workers available under the visa program is hurting their business. They complain that, because of Denver's low unemployment rate and highly educated workforce, they are unable to get workers at the $15 an hour pay rate they offer.

The piece explains:

"Landscape work is harsh. Digging in the dirt and heaving equipment in blistering heat produces aching backs and raw hands. Low-skilled workers can earn a similar wage making a sandwich or working in an air-conditioned warehouse.

"'We put a $5,000 ad in The Denver Post, and we didn’t have one applicant,' Ms. Fox said. Paying a wage high enough to attract local workers would put her out of business, she said, because her customers would balk at the resulting price increases.

"Like Ms. Fox and other landscapers, Mr. Steinhauer signed planting contracts with customers last year based on the assumption that his crews would earn roughly $15 an hour. 'These are unskilled positions,' he said. 'Would you pay $50 to plant a bush in your garden?'"

Actually, some people would pay $50 to plant a bush in their garden, just as some people pay for chauffeurs, cooks, and nannies. The number of people who would hire such personal servants would obviously be much greater if we created a large supply of cheap foreign labor, but that would mean that the workers who currently hold these positions would earn much less money.

The NYT is apparently much more sympathetic to the relatively affluent employers who depend on cheap labor than the workers who would get less pay as a result of the competition. Unfortunately, its concern does not extend to those of us who have to go to doctors and dentists who must pay much higher prices for their services, because the government rigidly restricts the competition for these very highly paid workers.

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Okay, that is sarcastic. Of course the Washington Post wants to talk about the federal debt, but only part of the debt. It continually highlights debts and deficits. But borrowing to finance spending is only one way the government makes future commitments for taxpayers.

The government also obligates taxpayers by issuing patent and copyright monopolies. These monopolies, which allow companies to charge prices that can be ten or even a hundred times the free market price, are effectively privately collected taxes. The government grants these monopolies as an alternative to direct spending.

For example, the government could replace the roughly $70 billion a year that U.S. pharmaceutical companies spend on patent research with direct spending. The Washington Post would, of course, be very upset about the $70 billion increase in the budget deficit ($700 billion over the 10-year budget horizon).

However, this could save us around $380 billion a year in spending on prescription drugs, as prices fell to their free market level. Since the Post never mentions the obligations the government creates for taxpayers by granting patent and copyright monopolies, the savings from this sort of switch would never enter the equation in the Post's budget pontification, only the costs.

It's not very honest reporting, but hey, it's the Washington Post. (And yes, this is all talked about in Rigged.)

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In a period of record low productivity growth Thomas Friedman tells us the robots are taking all the jobs. Hey, no one ever said you had to have a clue to write for the New York Times. Here's the punch line:

"From 1960 to 2000, Quartz reported, U.S. manufacturing employment stayed roughly steady at around 17.5 million jobs. But between 2000 and 2010, thanks largely to digitization and automation, 'manufacturing employment plummeted by more than a third,' which was 'worse than any decade in U.S. manufacturing history.'"

The little secret that Friedman apparently has not heard about is the explosion of the trade deficit, which peaked at almost 6 percent of GDP ($1.2 trillion in today's economy) in 2005 and 2006. This matters, because the reason millions of manufacturing workers lost their jobs in this period was decisions on trade policy by leaders of both political parties, not anything the robots did. That changes the story of the collapse of political parties (the theme of Friedman's piece) a bit.

Friedman's confusion continues in the next paragraph:

"These climate changes are reshaping the ecosystem of work — wiping out huge numbers of middle-skilled jobs — and this is reshaping the ecosystem of learning, making lifelong learning the new baseline for advancement.

"These three climate changes are also reshaping geopolitics. They are like a hurricane that is blowing apart weak nations that were O.K. in the Cold War — when superpowers would shower them with foreign aid and arms, when China could not compete with them for low-skilled work and when climate change, deforestation and population explosions had not wiped out vast amounts of their small-scale agriculture."

The reason that highly skilled workers are benefiting at the expense of less-educated workers is because we have made patent and copyright protection longer and stronger. It is more than a little bizarre that ostensibly educated people have such a hard time understanding this.

We have these protections to provide incentives for people to innovate and do creative work. That is explicit policy. Then we are worried that people who innovate and do creative work are getting too much money at the expense of everyone else. Hmmm, any ideas here?

Remember, without patents and copyrights, Bill Gates would still be working for a living.

One more item, China competes with "low-skilled" work in the United States and not with doctors and dentists because our laws block the latter form of competition. There was nothing natural about this one either. Yes, this is all in my [free] book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer.

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It is absolutely bizarre that reporters so often feel the need to tell us what really "concerns" politicians, or what they "believe," or in other ways make assertions about their innermost thoughts. The reality is that these reporters almost certainly do not know the person's innermost thoughts, and in the unlikely event they do, they are probably too close to that person to be reporting on them.

While exercises in mind reading are especially inappropriate with regards to politicians, since their job pretty much demands that they claim positions that they do not hold, they also amount to bad reporting in other contexts. A couple of days ago the NYT ran a piece pointing out the seeming discrepancy between the celebration of the family in public statements while at the same time having the most family unfriendly policies of any rich country.

At one point the piece told readers:

"To the right, it seems government too often burdens families, who need lower taxes and less regulation."

We know people on the right often say this, but is it really the case that it seems to these people that their taxes are too high and they face too much regulation. Imagine a male worker in a non-union auto factory earning $20 an hour. Suppose this person is married to someone working part-time in a retail store. We'll give them an income near the median at $52,000 a year.

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NPR's Morning Edition had a segment interviewing economics reporter Jim Zarroli on Harley Davidson's announcement that it would shift some production to Europe to get around tariffs imposed by the European Union in response to Trump's tariffs. At one point, Zarroli comments that Trump imposed the tariffs in response to what he "sees" as unfair trade practices.

Actually, no one has any idea what Trump "sees," meaning what he actually thinks. We do know what he says. It's best to just report what Trump or other political figures say or do and not make assertions about their actual motives.

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The Washington Post repeated a standard theme in reporting on Trump's trade war with China, that our main concern is not the trade deficit but rather China's alleged theft of our intellectual property. I have written about this issue before, but there is an important aspect that seems to have gone largely unmentioned, China is likely to have more at risk in this story than the United States.

Using the purchasing power parity measure (clearly the appropriate one for this issue), China's economy is already 20 percent larger than the US economy. In a decade, it will be twice the size of the US economy. Given these facts, it is almost certain that China will be spending far more on research and creative work than the United States. This means that it will have far more to lose than the United States if there is no internationally agreed upon mechanism for sharing the cost.

This doesn't mean stronger and longer copyright protection as our policymakers would insist. That is a great way to redistribute income upward, which has been a major goal of economic policy over the last four decades, but not a very efficient way to support innovation and creative work in the 21st century.

We can and should be looking to more modern mechanisms than these relics from the feudal guild system. (I have some ideas in chapter 5 of my [free] book Rigged.)  However, the point is that China actually has more interest in a workable mechanism for sharing costs than the United States does. Anyone looking to benefit the US economy as a whole would be noting this point and the enormous leverage it gives us. On the other hand, if the goal is simpler to make Microsoft, Pfizer, and Disney richer, and then wring our hands over inequality, the current focus of policy makes sense.

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We know that the folks who run major corporations are not terribly competent, but are they really less able to defend their companies' interest in signing contracts than an ordinary worker who may not even have a high school degree? That apparently is the view of our elites as indicated by this Washington Post article.

The piece tells us that the Trump administration is demanding an end to Chinese "policies that force foreign companies to surrender trade secrets in return for access to the Chinese market."

The Post apparently couldn't find anyone who would point out that this push by the Trump administration is rather pathetic. No one forces US corporations to do business in China. If they share technology as a condition of doing business, it is apparently because they consider the arrangement to be in their interest. There is no obvious reason why the US government should hold their hands and tell them not to sign deals they consider profitable.

By contrast, the Supreme Court ruled that such hand-holding was not necessary for workers under current law. It said nothing prevents workers from signing away their right to class-action lawsuits as part of an employment contract. So the accepted wisdom among our elites is that our largest corporations need a type of protection that ordinary workers do not get.

And we really have to wonder why we see so much income inequality?

 

Note: This corrects an earlier version that mischaracterized the Supreme Court ruling. Thanks to Robert Salzberg for bringing this to my attention.

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Donald Trump may not be very good at running the government for the benefit of the people who live in the country (or the world), but he sure knows how to use it to enrich himself and his friends. The NYT apparently forgot to mention this fact in a piece on companies applying for exemptions to tariffs.

When countries impose tariffs or other import restrictions they usually allow for some exemptions in special cases. One of the reasons that economists generally are opposed to tariffs is that these exemptions create enormous opportunities for corruption.

Imagine that someone importing $50 million in steel faced a 25 percent tariff. She would save $12.5 million if she could get an exemption. Many businesspeople would be happy to share a portion, perhaps a very substantial proportion, of this $12.5 million in savings with the politician(s) who made it possible. This could mean campaign contributions, sweetheart contracts with their businesses, or even outright cash payments. 

It is very plausible that the Trump family and/or others in his administration, who have shown an open contempt for ethics norms, plan to profit personally from granting these tariff exemptions. It would have been worth mentioning this possibility in this piece.

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While the NYT insists that its policy is to not read people's minds and attribute motives (therefore it will never say Donald Trump "lied"), for some reason it keep reading minds and attributing motives. A piece in today's paper on Trump's plan to reorganize the government told readers:

"The core of Mr. Trump’s safety net policy is an expansion of work requirements to foster self-sufficiency among recipients of food assistance, Medicaid and housing subsidies to reduce dependence on the government."

The next paragraph told readers that,

"Its real purpose, advocates for poor people claim, is to kick hundreds of thousands of the needy off the federal rolls, to cut taxes for the rich."

It's good that the paper gave the view of advocates for the poor, but it had just asserted that the policy is "to foster self-sufficiency among recipients of food assistance." In fact, research shows that work requirements do not increase self-sufficiency among the poor. Since the Trump administration is pursuing a policy that research indicates will not actually lead to greater self-sufficiency, it is reasonable to conclude that this is not actually the goal of the policy.

But again, there is no need for the paper to attribute motives. It should just tell readers that the Trump administration claims its goal is to increase self-sufficiency, but the evidence is that the policy will most likely have the opposite effect.

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That was the claim in the headline of a New York Times editorial. It is clearly wrong for the simple reason that we are not currently giving hungry kids anywhere near enough money to pay for the tax cuts.

The budget for food stamps, the program being targeted for cuts, is $73 billion a year or 1.7 percent of total spending. The tax cuts are projected to cost roughly $150 billion a year, an amount equal to 3.4 percent of current spending. Even if we cut the food stamp budget by a quarter, it would cover less than 15 percent of the cost of the tax cut.

The reality is that the amount of money at stake in the food stamp debate is relatively small in terms of the federal budget. The Republicans like to beat up on the program for political purposes. They want people to believe that all of their tax dollars are going to pay for food stamps, with the idea that the people who receive these benefits are all African American, Hispanics, or immigrants from various "shithole countries."

The New York Times is helping the Republicans in this effort by implying that real money for the federal government is at stake. While these benefits may make a huge difference in the well-being of tens of millions of low- and moderate-income people, they make very little difference in the federal budget. It is unfortunate that the NYT is so intent on obscuring this simple fact.

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This is an important point left out of the Washington Post's piece on the Supreme Court decision allowing states to require Internet sellers to collect sales taxes.The piece told readers that Amazon already collects state sales taxes. While this is true on its direct sales, it does not require its affiliates to collect sales taxes. Affiliates account for 30 to 40 percent of Amazon's sales.

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Well, the Journal did run a piece decrying generational inequality, but naturally, it went the other way. The issue is the projected rise in the cost of Social Security and retiree pensions, due to the aging of the population. Our population has always been aging due to tragic fact that better living standards and improved health care coverage allow people to live longer lives.

The Journal attempted to hide this simple fact from its readers by beginning its chart of old age dependency ratios in 1980 when all the baby boomers were in the workforce. If it had begun the chart in 1950, it would have shown a sharp rise in the old-age dependency ratio between 1950 and 1980 from 0.138 to 0.196. This was associated with (horrors) large increases in Social Security taxes over this period. These tax increases did not prevent workers in this period from seeing rapid gains in living standards because the benefits of growth were widely shared.

Real wages are projected to continue to rise in the decades ahead. Average wages are projected to be more than 35 percent higher in twenty years than they are today. The WSJ apparently did not have room to mention this fact in its piece on generational inequality.

It is true that most workers have not been sharing in wage gains in recent decades. This is due to the fact they have been concentrated at the top, with folks like corporate CEOs, Wall Street types, and doctors getting a disproportionate share of growth. This is a huge problem for today's young, but it is a story of intra-generational inequality, not inter-generational inequality.

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An NYT article that touted the strength of the US economy as a defense against the negative effects of a trade war included an assertion from Spencer Dale, the chief economist at BP, that "trade wars won’t sharply curtail economic activity, unless they cause businesses to lose confidence." Actually, the most immediate effect of the tariffs being touted by Donald Trump is to raise taxes, which would reduce consumption, other things equal.

For example, if Trump imposes a 20 percent tariff on $500 billion of imports from China, this would be a $100 billion annual tax increase (roughly $1 trillion over a 10-year budget horizon or 0.5 percent of GDP). This would be pulling a substantial amount of money out of consumers' pockets. The lost demand would be offset insofar as it leads to a reduction in the trade deficit, however, there would be little gain if the result were to replace imports from China with imports from Vietnam or other countries. While the prospect of a trade war could have a dampening impact on investment in the longer term, the most immediate impact is likely on consumption.

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No, they would never attribute such motives to political actors, but for some reason, the paper feels it can tell us that they want to separate the food stamp program from agricultural appropriations "in hopes of cutting costs." While it is certainly possible that the motives of the Koch-related entities referred to in this piece is really to save the government money, there are reasons for questioning this view.

The government is projected to spend $73 billion on the food stamp program this year, or 1.7 percent of total spending. Even large cuts to this program would have only limited effects on the federal budget. These Koch-related entities have mostly been little troubled by the $716 billion that the federal government will spend on the military this year. They also seem little troubled by privatizing public services like prisons, or student loan debt collection, which both have been shown to raise costs.

On the other hand, we know that many people get enraged over spending on programs like food stamps, with the idea that the beneficiaries are all African American and Hispanic, and that a large portion of there tax bill is going to them. Many Republican politicians have sought to highlight spending on such programs in election campaigns, so it is certainly plausible that the Koch-related entities want to make this process easier for their political allies.

The best solution here is to not ascribe motives, which the NYT reporters do not know. This is supposed to be the policy of the paper (it will not say that Donald Trump "lied," but for some reason, it seems unable to practice it consistently).

The piece also refers to the "$3 billion Community Development Block Grant Program." For those not very familiar with the federal budget (i.e. 99.9 percent of NYT readers) this program costs us a bit less than 0.07 percent of the federal budget.

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In an interview with NPR reporter John Ydstie discussing President Trump's latest round of tariffs on China, host Rachel Martin noted the decline in stock markets worldwide in response to tariffs and asserted that when the markets are down, everyone loses. This is not true.

If the market is down because participants accurately recognize there will be less economic growth, which also means less profits, then it is reasonable to assume that most people will lose. However, this is only one reason for the market to decline.

The market could fall because investors are less optimistic for no real reason. In that case, people like Bill Gates and Elon Musk have less money, but the bulk of the population who own little or no stock are not directly affected. If wealthy stockholders spend less money in response to their loss of stock wealth, then there is less demand in the economy.

If the Fed is concerned about excess demand, this reduction in demand will allow for it to put off interest rate hikes it might otherwise have made. That would mean people would be able to pay lower interest rates on mortgages and other loans. In effect, the lower stock prices are allowing more consumption for the bulk of the population by reducing the consumption or luxury spending (Elon Musk's or Jeff Bezos' space dreams) of the wealthy. Most people would not consider themselves hurt in this scenario. 

Of course, the stock market may drop because income is shifting from profits to wages or from profit to taxes, both cases in which most people would fairly directly benefit. In the first case, they would get higher pay, in the second there would be more revenue for the government to spend on public goods.

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Since Donald Trump has apparently discovered that the US imports more than it exports from China, we can put tariffs on more goods than China can. This means that China has to look to other measures to counter Trump's trade war. Most coverage of this issue has neglected to mention China's strongest alternative measure.

The nuclear option, in this case, would be to stop honoring US patents and copyrights. This would be hugely costly to US corporations, especially if they began to export items, like prescription drugs, to the rest of the world. This would likely violate WTO rules, but I suspect China will care about violating WTO rules as much as Trump does.

Anyhow, given this can mean massive savings on drugs and other items for billions of people and a big hit to shareholders in Apple, Pfizer, Microsoft and other high-flying companies, it would go far towards reversing the upward redistribution of income. Like Trump said, it's easy to win a trade war.

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That’s what New York Times readers were wondering when they saw Harvard Economics Professor Greg Mankiw’s column, “Why Aren’t Men Working?” The piece notes the falloff in labor force participation among prime-age men (ages 25 to 54) for the last 70 years and throws out a few possible explanations.

We’ll get to the explanations in a moment, but the biggest problem with explaining the drop in labor force participation among men as a problem with men is that since 2000, there has been a drop in labor force participation among prime-age women also.

In we take the May data, the employment to population ratio (EPOP) for prime-age women stood at 72.4 percent.[1] That is down modestly from a pre-recession peak of 72.8 percent, but the drop against the 2000 peak of 74.5 percent is more than two full percentage points. That is less of a fall than the drop in EPOPs among prime men since 2000 of 3.2 percentage points, but it is a large enough decline that it deserves some explanation. In fact, the drop looks even worse when we look by education and in more narrow age categories.   

In a paper last year that compared EPOPs in the first seven months of 2017 with 2000, Brian Dew found there were considerable sharper declines for less-educated women in the age groups from 35 to 44 and 45 to 54, than for men with the same levels of education. The EPOP for women between the ages of 35 and 44 with a high school degree or less fell by 9.7 percentage points. The corresponding drop for men in this age group was just 3.4 percentage points.

The EPOP for women with a high school degree or less between the ages of 45 and 54 fell by 6.7 percentage points. For men, the drop was 3.3 percentage points. Only with the youngest prime-age bracket, ages 25 to 34, did less educated men see a larger falloff in EPOPs than women, 8.2 percentage points for men compared to 6.9 percentage points for women.

Looking at these data, it is a bit hard to understand economists’ obsession with explaining the drop in EPOPs for men. It is also worth noting that there are also drops in EPOPs for many groupings of more educated workers.

For example, there was a drop of 0.9 percentage points in the EPOP for women between the ages of 35 and 44 with college degrees.  The drop in EPOPs among women with college degrees between the ages of 45 to 54 was 1.6 percentage points.

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A couple of weeks ago, I joked that it seemed as though Washington Post reporters are not allowed to mention the importance of the value of the dollar in trade. This was after reading a lengthy article on how low farm prices are hurting farmers which never once mentioned the rise in the value of the dollar over the last four years.

The basic story is that, other things equal, the higher the value of the dollar against the euro, yen, and other major currencies, the lower the dollar price of wheat, corn, and other farm commodities. The relatively high dollar has been an important factor depressing prices received by US farmers in recent years, but for some reason, the Post never mentioned this fact.

Steven Mufson gives perhaps an even more egregious example of not talking about currency in his discussion of US trade relations with China over the last three decades. Incredibly, the piece never once mentions the explicit decision by China to keep down the value of its currency against the dollar in order to maintain and expand its trade surplus. This practice, sometimes called "currency manipulation" led China to run a trade surplus that peaked at just under 10 percent of GDP in 2007. This is especially striking since economists would ordinarily expect a rapidly growing developing country like China to be running a large trade deficit, since it would be an importer of capital.

While China's currency is probably less under-valued today than a decade ago (which explains the large decline in its trade surplus), it is still deliberately held down by the government which is holding more than $4 trillion either as direct central bank reserves or in its sovereign wealth fund. As the CIA World Factbook notes:

"note: because China's exchange rate is determined by fiat rather than by market forces, the official exchange rate measure of GDP is not an accurate measure of China's output; GDP at the official exchange rate substantially understates the actual level of China's output vis-a-vis the rest of the world; in China's situation, GDP at purchasing power parity provides the best measure for comparing output across countries."

The continued under-valuation of China's currency is a major factor in the US trade deficit. A president who was committed to more balanced trade would have currency values at the top of their agenda.

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The Federal Reserve Board's monthly reports on industrial production used to get a fair bit of attention in the business press, but May's 0.7 percent decline in manufacturing activity seems to have passed largely unnoticed. These data are erratic and subject to large revisions, so this is hardly an end of the world kind of number, but it certainly is not a figure consistent with the investment boom promised by proponents of the tax cut.

It is also consistent with the reported fall in the length of the average workweek in manufacturing reported in the May employment report from the Bureau of Labor Statistics. This decline in hours led to a 0.3 percent decline in the index of aggregate hours for the month.

These are the sort of drops that are expected when there is an unusual weather event like a big snowstorm or a hurricane hitting a major population center. However, there were no obvious events in this category in May, which does raise the possibility that we may be seeing a turning point in manufacturing with the brief upturn over the last couple of years petering out.

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