Tags
exports, GDP, Great Recession, gross domestic product, imports, inflation-adjusted growth, Made in Washington trade deficit, real exports, real imports, real trade deficit, recovery, tariffs, Trade, Trade Deficits, Trump, {What's Left of) Our Economy
Friday’s government report on U.S. economic growth in the second quarter of this year was a treasure trove of newsworthy information. It not only provided the first peak at how President Trump’s imposed and threatened tariffs have affected the nation’s economic performance. It also incorporated literally decades’ worth of revisions that contained some important surprises about the economy’s strengths and weaknesses – in particular over the last five years. These new findings entail considerably more than trade, but let’s focus on that subject for today, since it’s been making so many headlines.
As widely expected, these new figures on the gross domestic product (GDP) and how it changed in inflation-adjusted terms showed that the threatened tariffs and retaliatory levies boosted American exports significantly. The reason? Many foreign customers for U.S. goods decided to “front-load” their purchases to avoid the paying the new charges for as long as possible.
On a sequential basis, this first of this year’s three estimates for the second quarter judged that U.S. merchandise exports jumped by 8.96 percent on an annualized basis. That’s the biggest such increase since the 11.72 percent surge in the fourth quarter of 2013. At the same time, the contribution to total quarterly growth made by goods exports was nothing special. In fact, at 1.12 percentage points out of the quarter’s 4.10 percent annualized rate of inflation-adjusted expansion, they fueled less real growth relatively speaking than they did in the fourth quarter of last year, when they were responsible for 0.79 percentage points of that period’s 2.30 percent annualized constant dollar growth.
Interestingly, the tariffs didn’t result in U.S. customers of overseas producers displaying the same interest in maximizing their imports to the greatest possible extent. Indeed, these purchases inched up sequentially by only 0.12 percent at an annual rate after inflation. Yet at $3.4241 trillion after inflation and annualized, they set a new record, nosing out the previous quarter’s $3.4201 trillion.
Thanks to exports’ performance, which brought their quarterly total to a new record ($2.5742 trillion annualized in real terms) as well, the inflation-adjusted trade deficit plummeted by 23.27 percent annualized to $849.9 billion. (The absolute numbers are different from those reported in previous RealityChek posts because the new GDP report is presenting the inflation-adjusted figures using 2012 dollars, not 2009 dollars.) That quarterly trade shortfall was the nation’s smallest since the $845.9 billion annualized recorded in the third quarter of last year. And the sequential decrease was the biggest since the 36.96 percent nosedive in the fourth quarter of 2013.
In addition, according to the revisions, America’s trade performance between the fourth quarter of 2012 and the second quarter of this year was considerably worse than previously estimated. Combined goods and services exports rose a bit faster (at a 2.6 percent rather than a 2.5 percent average annual pace in real terms). But total import growth was much stronger during this period – a 4.2 percent average annual increase in constant dollars rather than 3.7 percent growth.
Trade deficits have therefore been higher than previously judged. Again, the changeover from reporting the figures in 2009 dollars to using 2012 dollars makes comparing the old and new levels pointless. But the difference can become clear by examining these deficits as a share of the total economy. Here are the previously reported percentages:
2013: 2.59 percent
2014: 2.67 percent
2015: 3.31 percent
2016: 3.51 percent
2017: 3.64 percent
And here are the revised data:
2013: 3.23 percent
2014: 3.42 percent
2015: 4.17 percent
2016: 4.45 percent
2017: 4.76 percent
Last year’s level was the highest for any year since 2007’s 5.27 percent – just before the Great Recession struck. It’s still a far cry from the historic quarterly high of 6.10 percent, set in the fourth quarter of 2005. But the trend shows that the real trade deficit has been climbing steadily toward these heights.
In fact, during the first quarter of this year, the overall real trade deficit hit 4.92 percent of GDP, before falling back to 4.59 percent in the second.
The revised GDP figures also shed new light on trade’s drag on economic growth during this sluggish recovery. Before this revision, the increase in the constant dollar trade deficit since the expansion began, in the middle of 2009, had sliced $302.1 billion off of the economy’s cumulative inflation-adjusted growth through the second read on first quarter GDP. That amounted to a trade drag of 9.99 percent.
With the revision in place, the trade drag as of the first quarter’s final read was $457.2 billion – or 14.33 percent. The decline in the price-adjusted trade gap as of Friday’s first read on second quarter GDP pushed the drag down to twelve percent. But that figure still represented $404.7 billion in lost real growth.
The growth drag created by the increase in the Made in Washington trade deficit has been much bigger. Before the new GDP revision, the growth of this trade shortfall (which is comprised of constant-dollar trade flows heavily affected by trade policy and trade agreement, and therefore leaves out trade in oil and services) had cut cumulative recovery era growth by 17.37 percent in real terms, or $523.88 billion, as of the final first quarter figures.
It won’t be possible to calculate revised figures for the first quarter and new figures for the second quarter until this Friday, when we’ll get the next monthly trade report (for June).
Is Alan OK? More positive news released:
1. TheLastRefuge@TheLastRefuge2
🤔”The change in total nonfarm payroll employment for May was revised up to +268,000, and the change for June was revised up to +248,000. With these revisions, employment gains in May and June combined were 59,000 more than previously reported.” (link: https://www.bls.gov/news.release/empsit.nr0.htm) bls.gov/news.release/e…
2. Atlanta Fed tracking number for Q3 GDP revised upwards to 5%!
Thought of the day:
Have multi-nationals become the best mouthpieces money can buy…for the Chinese Communist Party?
More fantastic news from ADP / Moody’s, via The Conservative Treehouse:
“For July 2018, ADP has calculated payroll increases of 219,000 new jobs including 23,000 more manufacturing jobs created as an outcome of a resurgence in manufacturing and goods-producing industries. In the last 19 months, the U.S. has added 836,000 manufacturing jobs. [For contrast: in the 19 month period preceding President Trump’s MAGA-Magic-manufacturing growth, only 26,000 manufacturing jobs were created.]”
836,000 new Manufacturing jobs?!
Wow! The great news keeps rolling in, wages way up! From The Conservative Treehouse:
“Overall wage rate growth in Q2 now at 2.8% year-over-year. That is great news. However, the better news is the red emphasis, White and Blue Collar middle-class wage rate growth is well over 3%. The wage growth is broad-based amid almost all sectors. [Trucking and transportation at 3.4% (Table 8)]”
More fantastic news coming?
Baba97@Baba9773
“The Atlanta Fed Reserve’s initial forecast for the 3rd Quarter: 4.7% — July 31, 2018
“The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the 3rd Quarter of 2018 is 4.7% on July 31st.
“The next update will be on August 1st.https://www.frbatlanta.org/cqer/research/gdpnow.aspx …”
12:24 PM – Jul 31, 2018
Where is naysayer Jonah Goldberg?
Okay I penned this rant.
The whole concept of “free trade” is a hollow as the Hindenberg zeppelin, and just as gassy.
In Far East nations, such as communist China and statist Singapore, there is free land and free capital for exporting industries.
That is often the default Fast East definition of “free trade.”
Germany?
No VAT taxes on goods and services exported to the US. Ergo, export industries have all the benefits of government—infrastructure, fire and police, national security, public health, civil courts—but piggyback for free.
That is the Teutonic concept of “free trade”
The upshot: Dudes, there is no such thing as “free,” “fair” or “foul” global trade.
There is only trade as manipulated by government and multi-nationals.
In this context, free trade theory is a useful as a colander in a sinking life raft.
For the WTO to officiate global trade by peering at tariffs is like refereeing the World Cup from the top row seats in the stadium—in a very thick fog.
In terms of global “free” trade, how do answer this question: Who is the best quarterback in the Major League Baseball?
To seriously discuss global “free” trade, first send in the clowns.
Add on: Global trade is manipulated by governments to benefit home populations, and by multi-nationals (properly feckless except for fiduciary obligations) to benefit shareholders. The exception is the US, where foreign, military and trade policy is also manipulated by multi-nationals.
A friend who worked in the Middle East in construction said, “Only in America is a deal, a deal.” He then went on to explain how his company paid for a certain grade of concrete, only to receive lower grade concrete. So next time he went to the cement factory, smoked a blunt with the manager, and instructed his crew to take the higher quality concrete.
His Middle Eastern contact said, “I see you have become Middle Eastern.”
My former Chinese president likely stole software code. Very common in China.
I believe most Americans are simply hoping for better trade. And less of Biden’s children, McConnells family, and the Clinton family making millions in the back door.
Another meeting in Washington DC this Thursday with Mexico. Things seem to be moving very fast.
Canada in stall mode, and they’ll soon have new punitive carbon taxes. Ouch.
The LA Times said 3% growth was impossible in 2017, and Paul Krugman, wrong frequently, predicted a recession after the 2016 election. A few points.
1. Capital outlays now will be producing more goods in 3, 6, 9 months.
2. Inventories shrank, reducing the GDP number about 1%.
3. A little fun. Blogger Sundance at The Conservative Treehouse has a considerable following, including some well-known media types like Lou Dobbs. Sundance is claiming the current GDP number may be sandbagged … i.e., there could be a big correction upward at the end of this month to Q2 GDP.