(What’s Left of) Our Economy: When Trade Reporters Can’t (Or Won’t?) Read Their Own Chart


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I was going to focus this morning on the new U.S. official productivity data but then came across a chart about U.S.-China trade flows that was so ditzy that the data it portrayed completely belied a crucial part of the headline. So the productivity analysis will have to wait a bit. 

Here’s the chart, including the subtitle,”Despite heated rhetoric, trade with China shows no signs of slowing down,” which appeared in this version of a new Bloomberg report:

US-China Trade on Track to Break Records | Despite heated rhetoric, trade with China shows no signs of slowing down

But unless I’ve suddenly developed real vision problems, it’s clear that that’s exactly what the chart shows since 2014 as compared to the years before. Here’s the actual data on annual changes in the value of bilateral goods exports and imports courtesy of the same U.S. Census Bureau figures on which the Bloomberg reporters in question based their conclusion:

Between 2014 and 2021, two-way Sino-American goods trade added up to $656.38 billion. Since 2014, it rose by 10.85 percent.

Between 2007 and 2014, this total rose by 77.08 percent. That’s not a slowdown – and a big one?

Yes, the Bloomberg chart only goes through November, 2022 (the latest data available). But two-way U.S.-China trade advanced by just 7.75 percent between the first eleven months of 2021 and the first eleven months of last year, so December’s results won’t make much of a difference.

Has the CCP Virus distorted the picture? Of course it’s affected the trade flows by significantly slowing the economies of both countries. But the 2007-2008 global financial crisis and ensuing Great Recession made a big difference, too. And although its impact on China’s economy didn’t remotely match the impact on America, the U.S. economy’s long recovery from that major slump was the weakest from a recession on record. And still bilateral goods trade (especially goods imports from China) surged.

Would counting services trade make a difference? No. Comparing changes in these sectors with those in goods sectors is complicated by the lag with which such exports and imports are reported officially. In fact, the latest numbers I could find go only through 2021. But as made clear by those 2021 figures supplied by the Congressional Research Service ($61.0 billion), and numbers from the U.S. Trade Representative’s office for the final pre-pandemic year 2019 ($76.7 billion), they’re far too small to change the trends notably.

It’s also crucial to observe that the headline claim about U.S.-China trade breaking records is fatally flawed, too. For it omits vital context.  Sure, in absolute terms, this commerce is at an all-time high. But much more important, as a share of the U.S. economy?  Not even close. In 2021, combined Sino-American goods imports and exports came to 2.82 percent of total U.S. output.  In 2014, just to use one comparison, this number was 3.37 percent.   

The big question raised by these discrepancies between the Bloomberg reporters’ claims and the facts is “Why were they ignored?” I’m not a mind-reader, but here’s my hunch: They stemmed from a desire – maybe witting, maybe not – to reinforce the economics and trade establishment tropes that (a) international trade is driven overwhelmingly by market forces; (b) that there’s nothing constructive or even significant governments can do (e.g., impose tariffs or tech controls) to intervene over any meaningful length of time; and (c) that because China’s become such an economic juggernaut (even with its current struggles) bilateral trade is nothing less than a force of nature that’s simply unstoppable in the larger scheme of things.

None of these contentions is crazy on its face. For example, as the pandemic has ironically demonstrated, literal forces of nature can play a huge role in impacting trade flows and their interpretation. (Unless the CCP Virus was produced by gain-of-function research?) So can non-policy-related influences like the Laws of Small and Large numbers, which tell us that big percentage changes are easier to generate from modest starting points than from less modest starting points.

But as of now, by the main measures, a major slowdown in U.S.-China trade unquestionably has taken place, and the possible policy implications shouldn’t be overlooked:  Since the erroneous conventional wisdom strongly supported the hands-off approach taken by pre-Trump administrations, this loss of momentum looks very much like an endorsement of the hands-on strategy pursued since. 



Our So-Called Foreign Policy: A Welcome Biden Breakthrough on China Tech Policy Coming?


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A key Republican in Congress recently said that the Biden administration is seriously considering a major and long overdue escalation of its efforts to hamstring a Chinese drive to achieve global technology dominance that gravely threatens U.S. national security. And a recent Wall Street Journal investigation has shown exactly why it’s so overdue.

Last week, Michael McCaul, Chair of the House Foreign Affairs Committee, told Politico that (in reporter Gavin Bade’s words) “The White House is considering new action to block U.S. business with entire swaths of the Chinese tech economy — an investment blockade stricter than previously reported.

As McCaul himself put it, based on conversations he says he’s had with U.S. officials, the administration “is talking about a theory where they would stop capital flows into sectors of the economy like AI [artificial intelligence], quantum, cyber, 5G, and, of course, advanced semiconductors — all those things….They actually want to say, right, you can’t invest in any [Chinese] company that does AI. You can’t invest in any company does cyber” or other similar sectors.”

As I’ve repeatedly suggested, such broad brush measures are vital for two main and closely related reasons. First, there are no Chinese entities (even those laughably classified as “private sector”) in any industry, including tech, that aren’t ultimately under the control of the Chinese government.

So it’s been utterly and dangerously foolhardy to believe – as U.S. administrations long have – that not just capital but knowhow and high tech products that Washington permits to be sent to specific Chinese entities aren’t likely to be made available to or used to benefit any other organization in China. And that includes the government and of course the military.

It’s true that Washington’s national security export control system isn’t totally unaware that such leakage may occur. Therefore, for instance, tech and product transfer requests with clear national security implications are typically approved only for customers that supposedly can be trusted to comply. Efforts to verify their trustworthiness are made as well.

But here we come to the second main reason that much more sweeping bans on doing tech business with China are needed: enforcement is excrutiatingly difficult at best. After all, the Chinese tech sector is enormous, which means that the financial and human resources needed for adequate monitoring would be equally enormous. Even worse, the highly secretive Chinese system boasts an impressive arsenal of tactics aimed evading the controls, and the aforementioned Wall Street Journal article indicates how spectacularly they can succeed.

A Journal investigation has found that “China’s top nuclear-weapons research institute has bought sophisticated U.S. computer chips at least a dozen times in the past two and a half years, circumventing decades-old American export restrictions meant to curb such sales.”

Indeed, because of its nuclear weapons-related work, this institute was one of the first such organizations put on U.S. export control blacklists – and that was back in 1997. So it’s clearly long been the subject of great ostensible American concern. Moreover, in 2020, in order to shrink the opportunities for cheating by the lab, the Trump administration  added “10 entities owned or operated by the academy as well as 17 aliases it uses to the entity list for procuring U.S.-origin items in support of Chinese nuclear-weapon activities.”

How, then, did it manage to obtain these semiconductors? Because in a system like China’s, which is not only highly secretive but totally lacking in independent regulatory systems and even apolitical rule of law, nothing is easier than concocting endless numbers of “aliases” and shell companies and fake arrangements of all kinds. Good luck to any American inspectors trying to keep up. Which is why total U.S. bans on investing in entire Chinese tech sectors would be so welcome.

At the same time, why stop at investment? Similar bans on broad classes of products and tech licensing deals are essential, too – and for exactly the same reasons. China operates nothing less than a vast, government wide mechanism for obtaining advanced tech capabilities from abroad by hook or by crook. Concentrating U.S. countermeasures on specific institutes or entities that can quickly change their identities is simply a fool’s quest. With the widest possible bans, Washington could reap the gains of an approach that’s the secret of success in much of life both inside and outside policymaking: keeping it simple.

(What’s Left of) Our Economy: Worker Pay Keeps Lagging, Not Leading, U.S. Inflation


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The Federal Reserve, the agency with the U.S. government’s main inflation-fighting responsibilities, has made clear that it’s paying special attention to worker pay to figure out whether it’s getting living costs under control or not, and that its favored measure of pay is the Labor Department’s Employment Cost Index (ECI).

Therefore, it’s genuinely important that the new ECI (for the fourth quarter of last year) came out this morning. Even more important, the results undercut the widespread beliefs (especially by Fed leaders) both that worker compensation has been a driving force behind the inflation America has experienced so far, and/or has great potential to keep it raging.

Consequently, the new numbers seem likely to influence greatly the big choice before the Fed. Will it keep trying to raise the cost of borrowing for consumers and businesses alike in the hope of slowing spending enough to cool inflation even at the risk of producing a recession? Or will it decide that it’s made enough inflation progress already, and can tolerate current levels of economic growth – which the latest data tell us are pretty good) rather than stepping on the brakes harder.

The central bank likes the ECI better than the hourly and weekly also put out by Labor for two main reasons. First, it measures salaries and non-cash benefits, too. And second, it takes into account what economists call compositional effects.

That is, the standard wage figures report hourly and weekly pay for specific sectors of the economy, but they don’t say anything about labor costs for businesses for the same jobs over time. The ECI tries to achieve this aim by stripping out the way that the makeup of employment between industries can change, and the way that the makeup of jobs within industries can change (e.g., from a majority of lower wage occupations to one of higher wage occupations).

According to the new ECI report, when you adjust for the cost of living, “private wages and salaries declined 1.2 percent for the 12 months ending December 2022” and “ Inflation-adjusted benefit costs in the private sector declined 1.5 percent over that same period.”

So for the last year, total compensation has risen more slowly, rather than faster, than inflation, That’s not the kind of fuel I’d want in my vehicle or home. (As known by RealityChek regulars, private sector trends are the ones that count because compensation levels there are set largely by market forces, rather than mainly by politicians’ decisions, as is the case for public sector workers.)

Blame-the-workers (or their bosses) types can argue that since late 2021, compensation has caught up some with inflation rates. Specifically, from December, 2020 through December, 2021, it had fallen in after-inflation terms by 2.5 percent. Between the next two Decembers, it had dropped by less than half that rate – 1.2 percent.

But it was still down – and this during a period when private business claimed it was frantic trying to fill unprecedented numbers of job openings in absolute terms.

Moreover, the new ECI release contained signs that even this modest compensation catch up could soon reverse itself. Between the first quarter of last year and the fourth, in pre-inflation terms, the total compensation increase weakened from 1.4 percent to one percent even. And for what it’s worth, both economists and CEOs still judge that the odds of a recession this year are well over 50 percent.

Fed Chair Jerome Powell has also expressed concerns about wage trends in what he calls the core service sector, because, as he put it at the end of last November:

This is the largest of our three categories, constituting more than half of the core PCE index.[the Fed’s preferred gauge of prices]. Thus, this may be the most important category for understanding the future evolution of core inflation. Because wages make up the largest cost in delivering these services, the labor market holds the key to understanding inflation in this category.”

The ECI releases don’t contain figures for this group, but if you look at total compensation for private service sector workers, it’s tough to see how they’ve been en fuego lately, either. Between the first and fourth quarter of last year, their rate of increase dropped by the exact same rate as that for the private sector overall. And although most economic growth forecasts lately have been far too pessimistic, almost no one seems to expect the current expansion to strengthen.

And if workers haven’t been able to reap a major inflation-adjusted compensation bonanza in the conditions that have prevailed for the last few months, or during earlier strong growth bursts since the CCP Virus struck the United States in force, when will they?

I remain concerned that living costs could remain worrisomely high – though not that they’ll rocket up again – because consumers still have lots of spending power, which will keep giving businesses lots of pricing power. But that’s not because Americans’ pay has exploded. It’s because government stimulus has been so mammoth in recent years, and could well stay unnaturally high.

Further, since such government spending is politically popular – and will remain more tempting for politicians to approve as the next election cycle approaches – my foreseeable-future forecast for the U.S. economy remains stagflation.  In other words, growth will be rather stagnant, and inflation will stay way too high.  And as the new ECI release suggests, workers could be left further behind the living cost eight ball than ever.       

Im-Politic: Chat GPT’s No Threat to My Job. Yet


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Credit for the idea behind this post goes to my good friend Leon Hadar, a foreign policy analyst always worth reading. He recently decided that he’d heard so much about Chat GPT – the new artificial intelligence software that enables users to produce everything from research papers to works of art and music simply by making a request with some key search terms – that he decided to try it for himself.  (To date, it’s free.)

For reasons that should be obvious, this program has educators and anyone who earns income from creating content scared witless. Even someone like me, who writes as a hobby, has reasons for concern. After all, if actual and potential readers can access the information and analysis I try to provide without visiting RealityChek, then who needs RealityChek?

So Leon recently asked Chatp GPT to write a column in the style of Leon Hadar.” He found the results, which came in seconds “unbelievable” (evidently in a good way).

Leon’s experiment inspired me to try one of my own, but I was not so blown away by the results, or even close. In fact, I was surprised at how many major mistakes the program made.

Here’s the response I got (in seconds) to my request to “Write an essay in the style of Alan Tonelson”:

“It is time for America to wake up and realize the threat that China poses not only to our economy, but to our very way of life. For too long, we have allowed China to take advantage of our open markets and weak trade policies, resulting in the loss of millions of American jobs and the erosion of our manufacturing base.

China’s rise as a global economic power has been nothing short of spectacular. In just a few decades, it has transformed itself from a poor, agrarian society into the world’s second largest economy. But this rapid growth has come at a steep price for the United States and other nations.

China’s economic success has been built on a foundation of unfair trade practices, currency manipulation, and a blatant disregard for intellectual property rights. The Chinese government has used state-owned enterprises and subsidies to dominate key industries, such as steel and solar panels, and has used its control of its domestic market to shut out foreign competitors.

The result has been a massive trade deficit with China, which has cost the United States millions of jobs in manufacturing and other industries. In addition, China’s disregard for intellectual property rights has allowed it to steal American technology and know-how, giving it an unfair advantage in the global marketplace.

But the threat from China is not just economic. It is also strategic and military. China is rapidly building up its military capabilities, particularly in the areas of naval and air power, in order to challenge American dominance in the Asia-Pacific region. It is also using its economic leverage to gain influence and control over other nations, particularly in the developing world.

The United States must take strong and decisive action to counter the threat from China. We must use all available tools, including trade tariffs and other penalties, to level the playing field and protect American workers and businesses. We must also work with our allies and partners to counter China’s strategic and military ambitions.

But most importantly, we must invest in our own economy and our own people. We must invest in education, infrastructure, and research and development in order to ensure that we remain competitive in the global economy. We must also reform our immigration policies to attract and retain the best and brightest talent from around the world.

In short, we must be willing to take bold action to defend our economic and strategic interests and to ensure that America remains the leader of the free world. We cannot afford to continue to ignore the threat from China and the consequences will be dire for our nation.”

Certainly, the software captured my major overall worries about China’s rise (though in very generalized form), and the urgency with which I view the threats it poses.

But as RealityChek regulars know, I don’t view “investing in our own economy etc” as being more important for countering China than using tariffs. As I see it, both domestic and international responses are essential. Moreover, I’m completely unconcerned with “leveling the playing field” as opposed to doing whatever is needed to restore cutting edge U.S. industrial and technological competitiveness – whether this approach conforms to some abstract notion of fairness or not.

I’m fine with tweaking U.S. immigation policies to attract more of the world’s genuine geniuses, but believe that the real key to winning the so-called global talent war is developing the almost criminally neglected potential talent available right here at home among our 330 million people.

Regarding China’s use of “its economic leverage to gain influence and control.over other nations, particularly in the developing world,” my views are much more nuanced. If Beijing could call major shots by big developed economies in Western Europe and East Asia, that would clearly undermine American security and prosperity. Remaining kingpin of the Western Hemisphere is essential, too, for Monroe Doctrine-type reasons. And some third world countries are sources of key minerals.

But lots of developing countries in particular are little more than failed states to varying degrees, Therefore, they’re simply not worth trying to control. Much more important, even when it comes to competing with China for influence in places where it does currently count, I’d put much more emphasis than at present on America trying to maximize its own already considerable economic and strategic independence than on trying to win popularity contests around the world.

Similarly, I see no intrinsic value in the United States ensuring that it “remains the leader of the free world.” I simply want it to retain the power and wealth to promote and defend whatever international interests that it deems vital, and that can’t be secured with the kinds of domestic measures over which it will always have more control.

Finally, although I asked Chat GPT to write an essay in my “style,” I don’t see any resemblance here to my own particular voice. The prose is competent at best – nothing more.

At the same time, it is competent – demonstrating an ability that’s beyond that of most humans I’ve encountered. And it got lots right.

As a result, I can easily imagine a day in which Chat GPT or another piece of artificial intelligence software will be able to generate a piece of writing indistinguishable from the Real McCoy. I can even foresee it producing posts and articles on subjects with which I haven’t dealt, in the process using exactly the kind of reasoning and evidence I’d use.

Judging from what I just got from Chat GPT, that day is still a ways off. Still, I can’t help but wonder how far.

Im-Politic: Straight Talk on Police Racism and Violence Urgently Needed


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OK, now I’m really confused. The widespread claims that American policing and law enforcement itself are systemically racist have been muddied enough by perhaps the most startling fact about the five Memphis, Tennessee police officers who bodycam and CCTV footage from January 7 show beating an unarmed African-American so brutally that he eventually died: These cops are all African American.

Then yesterday, I read a Friday post from Politico with the eye-catching headline: “Diversity alone won’t change policing’”. Moreover, this claim wasn’t simply the view of one of the racial justice advocates quoted. Author Brakkton Booker stated categorically that “What is becoming evident is that diversifying a police force does not guarantee different outcomes when Black Americans come into contact with police.”

If true, of course, that completely eviscerates the allegations of systemic racism plaguing both policing and law enforcement. For if both white and black police are regularly mistreating African Americans they encounter, then something else must be going on.

Yet the piece got even stranger when it quoted Memphis’ (African American) Police Chief Cerelyn Davis as first agreeing with the above conclusion. The death of Tyre Nichols, she said, “takes off the table that issues and problems in law enforcement is about race, and it is not.”  But then she added, “It does indicate to me that bias might be a factor also.”

What kind of bias, however? Against people like Tyre Nichols? An African American? But that would be by definition racist. Or against African American men? Sounds pretty racist to me, too. Or against young African American men? Again, kinda racist. And why would African American men like the five accused Memphis officers adopt these attitudes?

Unless this is a problem peculiar to Memphis? Or Baltimore (where three of the five policemen implicated but eventually cleared in the 2015 death of another young African American man in their custody were black)?  Yet this development would be pretty strange, too, given, for example, that not only is Memphis’ police chief black, but so is 58 percent of the entire force.   

In fact, how common or rare are unjustified black police killings of other blacks? Does anyone know? Has anyone bothered to look? Not that I can determine.

The racial justice advocate mentioned above, Rashad Robinson, who heads a group called Color of Change, did provide one potentially useful insight when he told Booker “Policing will not get better without diversity, but diversity alone will not change policing. Something like this doesn’t exist without a culture that allows, rewards it, protects it.”

But just as Memphis Chief Davis needs to explain exactly what kind of non-racial “bias” may be at work here, Robinson needs to elaborate on the “culture” he finds so problematic. Is it one that fosters needless violence against suspects no matter  their identity? Yet if so, how come even this apparently happens so seldom?

Specifically, as of 2019, about ten million Americans were being arrested annually. According to an organization called Mapping Police Violence, however, the number of Americans killed by police last year was 1,186. And as best as I could tell, only 219 of all backgrounds were unarmed. (The interactive search engine isn’t easy to work). It’s terrible that anyone who’s unarmed is killed by police, but a number this absolutely and relatively infinitesimal (and don’t forget – people encountered by police can resist violently even when they’re not armed) shouldn’t scream “nation-wide culture of violence” to anyone.

All of which makes me wonder: Is America experiencing a crisis of policing? Or one of talking about policing sensibly?

Our So-Called Foreign Policy: Totally Unhinged Establishment Thinking on Taiwan


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Because semiconductors are already central to America’s security and prosperity and will only become more important with each passing day, wouldn’t it be great if the United States wasn’t so dependent on Taiwan for supplies – especially of cutting-edge chips – given that the island is located just 100 miles from China?

According to Seth Cropsey, one of America’s most respected military experts and a former national security official, the answer is “No” – because if the United States became much more self-sufficient in semiconductor manufacturing, it wouldn’t have to care so much about…Taiwan.

His January 26 Wall Street Journal article is a wonderful example of a syndrome I’ve long written about (most recently here in the Taiwan context) – the tendency of the U.S. foreign policy establishment, and too many U.S. leaders who have listened to its members’ advice, to use foreign policy measures to solve problems much better dealt with through domestic policy moves whenever possible.

The advantages of using domestic policy should be screamingly obvious. As I’ve also previously pointed out (most recently at length here), American policymakers will almost always have much more control over developments within our borders than without. And when it comes to Taiwan-like situations, rebuilding the nation’s capacity to manufacture semiconductors per se carries absolutely no risk of war with a nuclear-armed China.

What’s particularly bizarre about this Cropsey op-ed is that he completely overlooks two eminently reasonable arguments for concentrating tightly on Taiwan’s security, at least for the time being. The first is one I strongly agree with – regaining the semiconductor prowess the United States needs will take many years. So until then, it’s imperative – and in fact in my opinion vital – that America take whatever steps are needed to prevent China from taking over Taiwan, which it regards as a renegade province that it’s vowed to reabsorb by force if necessary. After all, it should be easy to see how Beijing either could win access to Taiwan’s crucial, world-leading production technology, or deny the United States (and the rest of the world) access to the huge volumes of chips that Taiwan’s factories turn out.

The second argument absent from his column – and which I don’t agree with – is that irrespective of the semiconductors, if China gained control over Taiwan, it would take a huge step toward becoming the kingpin of East Asia, perhaps the world’s most economically dynamic regions, and limit or cut off U.S. access to crucial markets and sea lanes.

I disagree for two reasons. First, leaving the semiconductors out of the picture, the chronic and huge trade deficits run up by the United States with the region show that doing business with East Asia has been a longtime major net loser for America’s domestic economy. Second, and also putting semiconductors aside, East Asia has relied for so long on amassing trade surpluses, especially with the United States, to achieve adequate growth that its countries (including China) simply can’t afford such decoupling.

As I just made clear, opponents of my position can cite valid concerns. But Cropsey never mentions them. Instead, he’s simply worried that the Biden administration’s focus on rebuilding America’s own semiconductor manufacturing mean that Washington “looks to be playing for time—not time to rearm and prepare for a fight, but to reduce Taiwan’s importance to the U.S.” and that this would harm U.S. interests because “An America that no longer needs Taiwanese semiconductors [would be able to]abandon its old friend.”

I admire Taiwan’s economic, technological, and political achievements as much as anyone. But even overlooking the enormous extent to which Taiwan’s massive investments in China’s technology industries (just like America’s) have shortsightedly helped create and magnify the very threat the island faces, the idea that honoring a friendship only for its own sake is remotely as important as minimizing the odds of a nuclear war is just loony. And nothing exempifies the nature of too much American foreign policy discussion for decades as well as a major newspaper’s belief that such arguments deserve to be taken seriously.

(What’s Left of) Our Economy: The U.S. Inflation Outlook Keeps Getting Curious-er and Curious-er


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Today’s official report on the measure for U.S. consumer inflation preferred by the Federal Reserve (covering December) looks awfully similar to the higher profile Consumer Price Index (CPI) figures released about two weeks ago. Both create portraits of price increases that keep clouding the inflation outlook.

These new results for the price index for Personal Consumption Expenditures (PCE) warrant great attention because the Fed is the government agency with the prime responsibility for controlling living costs. And of course, if the nation’s central bankers believe that prices are rising too fast, they’ll keep acting to slow economic growth to reduce the rate – and could even generate a recession if need be in their eyes.

The problem for them –and the rest of us: Although the figures revealing the most about what economists consider the economy’s underlying inflation rate are down on a year-on-year basis, they’re up on a monthly basis.

Such “core inflation” numbers strip out the prices of food and energy, because they’re supposedly volatile for reasons unrelated to the economy’s fundamental vulnerability to inflation.

The good news is that their increase between December, 2021 and December, 2022 (4.4 percent) was weaker than that between November, 2021 and November, 2022 (4.7 percent).

The bad news is that their monthly increase in December (0.3 percent) was faster than that in November (0.2 percent). So although annual core prices have been steadily and significantly decelerating (from a peak of 5.3 percent last February), their monthly counterparts may be picking up steam – although they’re still just half the rate they were worsening at their peak (0.6 percent) in June and August.

Compounding the bad news: The baseline effect for core annual PCE is still pretty strong. That is, its yearly increases are no longer reflecting much of a catch-up effect following a period when inflation was unusually weak. Instead, they’re coming on top of inflation for the previous year that was unusually strong.

Specifically, that 4.7 percent annual core PCE inflation rate in November was coming off an identical result between the previous Novembers that was that year’s hottest to that point. But December’s 4.4 percent annual core PCE increase followed a rise for the previous Decembers that was even worse – 4.9 percent.

Monthly December headline PCE inflation (which includes the food and energy prices) stayed at the same 0.1 percent pace as in November. Since they’re among the lower numbers for the year, they do signal that price increases are cooling. In fact, if this trend continues, or if monthly 0.1 percent headline PCE inflation continues, the annual rate would become 1.2 percent – well below the Fed’s two percent target. Therefore, if the central bank focuses here, it could well soon conclude that its economy-slowing moves so far are working, and that more won’t be needed.

The headline annual PCE story isn’t quite so encouraging, but does add modestly to evidence of waning inflation. The five percent yearly increase is significantly lower than the peak of seven percent hit in June. But the June baseline rate was only four percent. December’s was 5.8 percent.

Better news comes from the comparison between November and December. Between those two months this year, annual headline PCE inflation fell from 5.5 percent to five percent. The baseline figure rose – but not by as much (just 5.6 percent to 5.8 percent).

Because for the trends, anyway, these PCE inflation figures so closely resemble their CPI counterparts, my outlook for future price increases has remained the same as when I posted most recently on the latter:  a shallow recession followed by a (possibly long) period of 1970s-style stagflation (with twenty-first century characteristics, as the Chinese might say, to be sure).     

(What’s Left of) Our Economy: A Glass Half Empty or Full Story for the Inflation-Adjusted Trade Deficit?


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The trade highlights of yesterday’s first official estimate of U.S. economic growth in the fourth quarter of last year and full-year 2022 provide a great lesson on how the pictures drawn by data can vary greatly depending on which time frame you’re looking at – even within the span of a single year.

The quarter-to-quarter numbers look rather good – in terms of deficit reduction – but the annual numbers are pretty discouraging.

We’ll start with those quarterly data, which show that the inflation-adjusted trade deficit shrank for the third consecutive time in the fourth quarter – by 2.87 percent, from $1.2688 trillion at annual rates to $1.2324 trillion. This first such stretch since the year between the second quarter of 2019 through the second quarter of 2020, brought the quarterly shortfall down to its lowest level since the second quarter of 2021 ($1.2039 trillion annualized).

These results also confirmed that the fourth quarter was the second straight to see the economy expand as the deficit contracted. This marked the first time that’s been the case since the period between the second and fourth quarters of 2019, and signals that the economy has been growing healthily, relying more on investment and production than on borrowing and spending.

One sign of regression along these lines: The trade deficit declined in the previous two quarters because exports rose and imports dropped. In the fourth quarter, however, both decreased.

Moreover, the after inflation combined goods and services trade deficit is still 47.98 percent above its level in the fourth quarter of 2019 – just before the United States and its economy began suffering the full effects of the CCP Virus. As of the third quarter, this increase was 52.35 percent.

But overall, the new quarterly statistics still warrant a so-far-so-good interpretation.

Trade’s contribution to the fourth quarter’s growth was much smaller than in the third quarter. Then, it fueled 2.86 percentage points of the 3.20 percent real annual advance – the biggest absolute total in 42 years (but far from a long-term high in relative terms). Without that trade ooost, all else equal, the economy would have grown by a measly 0.34 percent after inflation at annual rates – just a little over a tenth as fast.

In the fourth quarter, trade’s growth contribution was just 0.56 percentage points of 2.86 percent real annualized growth. That’s still positive, though. And if not for this narrowing of the gap, constant dollar GDP would have still expanded, but just by a so-so 2.30 percent.

Drilling down, the new GDP report pegs fourth quarter sequential total exports at $2.5955 trillion in constant dollars at annual rates. This drop was the first since the first quarter of last year, but the slip was just 0.33 percent from the third quarter’s record $2.6041 trillion and the second best total ever.. At the same time, real exports are still only 0.92 percent higher than in the last pre-pandemic quarter. As of 3Q, these sales were 1.26 percent higher.

Total price-adjusted imports retreated, too – and as indicated above for the second consecutive quarter. That’s the longest such streak since the year between the second quarter of 2019 and the peak pandemic-y second quarter of 2020. The actual decrease was steeper than that of exports – 1.16 percent, to $3.8729 trillion at annual rates. Yet these purchases are fully 13.75 percent higher than just before the CCP Virus’ arrival stateside in full force. – roughly where they stood as of te third quarter.

The real deficit in goods sank by 2.84 percent on quarter, from $1.4324 trillion at annual rates to $1.3916 trillion. This sequential decrease was the third straight (the first such span since the peak CCP Virus-dominated period between the fourth quarter of 2019 and the second quarter of 2020). And it pushed this trade gap down to its lowest total since the first quarter of 2021’s $1.3809 trillion. Since just before the pandemic’s fourth quarter 2019 arrival stateside in force, the goods trade deficit is up by 27.54 percent. As of the third quarter, this increase was 34.20 percent.

The longstanding surplus in services jumped by 12.78 percent sequentially, from a price adjusted $163.5 billion annualized to $184.4 billion –the highest such level since the $187.50 billion of the fourth quarter of 2020. Yet reflecting the outsized hit taken by services industries since the virus struck the nation, this surplus is still 21.80 percent lower than in that immediately pre-Covid fourth quarter of 2019. As of this year’s third quarter, that decrease was 30.66 percent.

After-inflation goods exports dipped by 1.77 percent in the fourth quarter, from the $1.9101 trillion annualized total in the third quarter (marking the third straight quarterly record) to $1.8673 trillion. Real goods exports are now 4.51 percent greater than in the fourth quarter of 2019, versus the 6.41percent calculable as of the third quarter.

Constant dollar goods imports in the fourth quarter fell for te third consecutive time, too – a firs stnce the fourth quarter, 2019 through second quarter, 2020 period. The decrease of 1.43 percent, from $3.3334 trillion at annual rates to $3.2856 trillion, produced the lowest such goods import figure since the $3.2582 in the fourth quarter of 2021. In inflation-adjusted terms, goods imports are now 14.21 percent higher than in the immediate pre-pandemic-y fourth quarter of 2019, versus their 16.83 percent increase as of the third quarter.

Services exports in the fourth quarter expanded from $722.5 billion after inflation at annual rates to $740 billion, a 2.42 percent improvement that represented the tenth straight sequential increase in thse sales. But real services exports are still down by 5.44 percent since the fourth quarter of 2019, versus 8.17 percent off as of the third quarter.

Inflation-adjusted services imports were up for a tenth straight quarter, too, in the fourth quarter, but inched up just 0.11 percent, from an annualized $559 billion to $559.6 billion. As a result, their now 15.61 percent larger than just before the pandemic’s arrival in force, versus 14.52 percent as of the third quarter.

Many of the annual figures, however, showed deterioration. Between 2021 and 2022, the combined goods and services trade gap hit its ninth straight yearly record in real terms, as the gap widened by 9.87 percent, from $1.2334 trillion annualized to $1.3551 trillion.

In addition, as a share of real gross domestic product (GDP – the standard measure of the economy’s size), the trade gap set its third straight all-time high, worsening from 6.29 percent to 6.77 percent.

The trade shortfall’s yearly rise subtracted 0.40 percentage points from 2022’s 2.08 percent price -adjusted inflation adjusted growth – a share smaller in both absolute and relative terms than in 2021, when the larger trade deficit sliced 1.25 percentage points from 5.95 percent growth. Both figures are far from records.

Total real exports climbed for the second straight year in 2022, from $2.3668 trillion to 2.5384 trillion, with the 7.25 percent growth rate the strongest since 2010’s 12.88 percent in 2010 – when the economy was recovering from the Great Recession that followed the Global Financial Crisis.

Total real imports posted their second consecutive gain, too, as well as their second straight record. The 8.15 percent increase brought the total to $3.8935 trillion.

Another new all-time annual high in 2022 was set by the constant dollar goods trade deficit, and the record in this case was the fourth in a row. By widening by 11.50 percent, the gap hit $1.5220 trillion.

And continuing the bad news, the real services trade surplus slumped by 5.23 percent in 2022. Moreover, the $162.8 billion figure was the lowest since 2010’s $158.6 billion.

On the export front, constant dollar overeas sales of goods grew by 6.33 percent, from $1.7289 trillion to $1.8383`trillion. The increase was the second straight and the total a new record – topping 2019’s $1.7915 trillion by 2.61 percent.

Yet real goods imports rose even faster. The 6.91 percent advance brought them from $3.1430 trillion to $3.3603 trillion – a second consecutive all-time high.

After-inflation services exports jumped by 9.90 percent from 2021-2022, the biggest such increasesince 2007’s 13.08 percent. And the totals expanded from $656.9 billion to $717.3 billion..

As for price-adjusted services imports, their annual surge of 14.52 percent – from $484.2 billion to $554.0 billion was the fastest ever, surpassing even last year’s robust 12.27 percent.

As always with pandemict or post-pandemic (take your pick) U.S. economic data, the outlook for real trade flows is murky, and dependent on many big unknowables – mainly how much faster and higher the Federal Reserve will hike interest rates in order to fight inflation by slowing the economy, whether it will succeed, how long its inflation-fighting moves will take to impact economic growth and consumer spending fully, how China’s reopening after months of a lockdown-heavy Zero Covid policy will proceed, and whether growth in the rest of the world will perk up or slacken.

My hunch, for the short-term anyway, is that worse inflation-adjusted trade results may keep coming. For example, the quarterly real trade deficit decrease was the smallest of that current three-quarter string. Indeed, it was much smaller than the 11.30 percent plunge between the second and third quarters – which was the greatest since the 17.95 percent nosedive between the first and second quarters of 2009, when the economy was still mired in the Great Recession that followed the Global Financial Crisis.of 2007-08.

In addition, the latest government report projection for the monthly trade deficit (measured in pre-inflation dollars) shows a significant increase in the goods gap, which makes up the lion’s share of both total U.S. trade flows and the deficit. And even if the price-adjusted trade gap continues to fall, such results will be all the less impressive against the backdrop of the economic slowdown and even contraction that’s still being widely predicted.

More specifically, I suspect that American economic growth will either at least weaken as the trade deficit moves up, or that GDP will keep plowing ahead because personal consumption remains resilient, which will keep the trade shortfall on a rebounding course.  

Making News: National Radio Podcast Now On-Line on Fingering the World’s Real Protectionists…& More!


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I’m pleased to announce that the podcast of my interview last night on John Batchelor’s nationally syndicated radio show is now on-line.

Click here for a timely discussion – with co-host Gordon G. Chang – on the crucial issue of whether recent U.S. moves bythe Trump and Biden administrations represent a worrisome new lurch toward destructive trade protectionism, or efforts to defend and promote legitimate American – and sometimes global – interests.

In addition, on January 10, in his blog for the immigration realist organization NumbersUSA, Jeremy Beck quoted from my December 29 post debunking the numerous recent claims blaming the labor shortages that have popped up in many U.S. industries on policies that have enabled too few foreigners to join the American labor force. 

And keep checking in with RealityChek for news of upcoming media appearances and other developments.

Making News: Back on National Radio Tonight on Defending the U.S. Against Protectionism Charges


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I’m pleased to announce that I’m scheduled to be back tonight on the nationally syndicated “CBS Eye on the World with John Batchelor.” Our subject – the crucial question of whether recent U.S. moves bythe Trump and Biden administrations represent a worrisome new lurch toward destructive trade protectionism, or efforts to defend and promote legitimate American – and sometimes global – interests.

No specific air time had been set when the segment was recorded this morning, but the show – also featuring co-host Gordon G. Chang – is broadcast beginning at 10 PM EST, the entire program is always compelling, and you can listen live at links like this. As always, moreover, I’ll post a link to the podcast as soon as one’s available.

And keep on checking in with RealityChek for news of upcoming media appearances and other developments.