(What’s Left of) Our Economy: A (Bad Kind of) Bubbly U.S. Trade Report?


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Wednesday’s latest official report on monthly U.S. trade (for April) showed that the country’s huge and chronic trade deficit soared by a humongous 23.04 percent sequentially – from March’s $60.59 billion to $74.55 billion.

But did that really happen?

I ask because of the unusually big revisions made to the March deficit total: It was downgraded by a stunning (at least for trade data geeks) 5.66 percent, from $64.23 billion to $60.59 billion. That’s the lowest total since the $58.18 billion recorded in September, 2020, when the economy was still shaking off the depressing disruptive effects of the first CCP Virus wave.

It’s not that I doubt that the deficit rose. It’s just that the magnitude counts for a great deal. So it’s OK to be impressed that this reported April level is the highest since last October’s $78.33 billion, and that the increase is the fastest since the weather-affected results of March, 2015 (45.74 percent). But keep in mind throughout this post that this and numerous other large March revisions greatly affect the sequential baseline for judging the April increases and decreases. Therefore they inevitably create doubts about their true extent. And don’t forget that the April data could undergo major revisions, too.

With those caveats in mind, let’s proceed to observe that if the general April trends hold, the new data show that the deficit worsened for the worst possible combination of reasons – exports fell and imports climbed. That discouraging pattern hasn’t appeared since last December, and if it continues, could mean that the economy is transitioning from a period of relatively healthy, sustainable growth that’s led saving and producing to one of worrisome bubble-ized growth, led by borrowing and spending.

In this vein, the goods deficit in April surged from $81.58 billion to $96.11 billion. The level was the highest since last October’s $98.21 billion, and the 17.81 percent pace was the hottest since weather-affected March, 2015’s 25.18 percent. Don’t forget, however – the March goods deficit was downgraded by a whopping 5.79 percent, from $86.59 billion to $81.58 billion. That’s also the lowest total since September, 2020 ($79.25 billion).

Monster revisions also affected the April service trade surplus figure. It represented a 2.73 percent improvement, from $20.99 billion to $21.56 billion. That number is the best since March, 2021’s $21.94 billion and the biggest jump since last October’s 5.90 percent. But the March result was revised down by even more than the total trade deficit or goods deficit results – 6.15 percent (from $22.37 billion).

Combined goods and services exports slid from $258.19 billion to $249.02 billion, a 3.55 percent retreat that took them to the lowest level since March, 2022 ($245.68 billion). And the drop was greatest since peak pandemic-y March, 2020’s 9.48 percent. Revisions to total exports for March weren’t negligible either – 0.80 percent up.

Overall imports in April, however, were up for the first time since September, growing by 1.50 percent, from $318.78 billion to $323.57 billion. That March figure is a 0.50 percent downward revision.

Similar to overall exports, U.S. sales abroad of goods tumbled from $176.46 billion to $167.10 billion. This 5.30 percent contraction pushed goods exports down to their lowest level since February, 2022’s $161.45 billion and the decline was the steepest since peak pandemic-y April, 2020’s 25.52 percent. The March revisions? A 1.23 percent upgrade.

By contrast, services exports edged up in April by 0.22 percent (from $81.73 billion to $81.91 billion) – and set their fifteenth straight record in the process.

The April goods imports increase was the first since December, and at $262.22 billion came in at 2.01 percent higher than the March figure of $258.04 billion. But that number was downwardly revised by a considerable 1.10 percent.

In April, services imports decreased for the first time since last October, dipping by 0.64 percent. The drop was the biggest since January, 2022’s 1.72 percent, but as with most of these other trade figures, was surely affected by the major 2.13 percent revision (in this case, upward) of the March results.

Whereas the March trade figures were dominated by a more than ten-fold monthly jump in the surplus in petroleum products (by $6.40 billion), the results in this category played a less prominent role in the April data – with the surplus shrinking by 3.74 billion.

The April rebound in the combined goods and services trade deficit was led by a 12.19 percent widening of the non-oil goods deficit (which RealityChek regulars know can be called the Made in Washington trade deficit, because it consists of those trade flows most heavily influenced by U.S. trade deals and other policy decisions).

This surge in the Made in Washington deficit amounted to $10.89 billion, the new shortfall of $100.29 billion was the greatest since May, 2022’s $103.30 billion, and the increase was the biggest since the 20.74 percent burst in March, 2022.

These non-oil goods exports slipped from $146.58 billion to $141.73 billion (3.31 percent) and this third straight fall-off pushed the total down to its lowest level since March, 2022 ($142.09 billion).

Non-oil goods imports rose for the first time since December, and by 2.56 percent, from $235.97 billion to $242.01 billion.

RealityChek regulars also know that the Made in Washington trade data are useful because they’re a close proxy for China trade data. Therefore, they can shed light on the effectivensss of the high, sweeping tariffs imposed on imports from China by former President Donald Trump and overwhelmingly continued by President Biden.

The China goods deficit swelled by 22.12 percent in April – about twice as much as the non-oil goods deficit. And the increase from $16.61 billion to $20.28 billion was the biggest in percentage terms since it skyrocketed by 88.77 percent in April, 2020, as China’s economy continued its recovery from the first wave of the CCP Virus.

At the same time, this China goods gap was the second narrowest (after March’s $16.61 billion) since the $11.71 billion of March, 2020 – earlier in the recovery in the People’s Republic.

Goods exports to China drooped by 9.78 percent in April, from $14.18 billion to $12.79 billion. And goods imports advanced by 7.43 percent, from $30.79 billion to $33.08 billion. That total was the highest since January’s $38.25 billion and the biggest increase since the 8.18 percent recorded last August.

Over a longer (and therefore more informative) period, however, the effectiveness of the tariffs can’t be legitimately doubted. Chiefly, on a January through April (year-to-date, or YTD) basis, the U.S. goods trade deficit with China has plummeted by 38.17 percent. The global non-oil goods deficit is off by less than half that – 15.13 percent.

The chronic and immense manufacturing deficit worsened in April, but only modestly – by 3.48 percent, from $109.64 billion to $113.45 billion. The level was the highest since January’s $116.83 billion but well below the record (March, 2022’s $242.22 billion).

April manufacturing exports declined by fully 10.72 percent, from $116.60 billion to $104.100 billion.

That retreat – the biggest by far since pandemic-ridden April, 2020’s 30.15 percent nosedive – prevented the 3.84 percent decrease in manufacturing imports (from $226.24 billion to $217.55 billion) from narrowing the gap or even stabilizing it.

At the same time, the manufacturing deficit just may be turning a corner. On a YTD basis, this shortfall is running 10.92 percent behind last year’s ($439.97 billion versus $493.88 billion. If this trend continues, the yearly manufacturing deficit would decline for the first time since the semi-recessionary year 2009.

Also widening month-to-month in April was the trade gap in advanced technology products (ATP). The increase was 4.53 percent, from $14.31 billion to $14.96 billion.

ATP exports slumped by 12.43 percent, from a record $38.33 billion to $33.57 billion – the biggest decline since January, 2022’s 12.92 percent.

The larger amount of ATP imports drooped, too, with the 7.82 percent decrease (from $52.65 billion to $48.53 billion) representing the biggest monthly decrease also since January, 2022 (12.92 percent).

Geographically, other than with the China flows, the goods trade balance changes with the world’s biggest economies were pretty widely spread out.

The trade shortfall with the U.S.’ fellow signatories of the U.S.-Mexico-Canada Agreement (USMCA) shrank by 1.42 percent.

The goods deficit with the euro area grew by 4.59 percent.

And that with Japan was up by11.81 percent.

And as often the case, all these shifts were dwarfed by a huge (76.35 percent) surge in the often wildly volatile goods trade deficit with Switzerland.

Despite the aforementioned revisions-based uncertainties, however, this April U.S. trade report looks like the latest sign that after an encouraging period of economic growth accompanied by trade deficit shrinkage, the nation is reverting to its decades-long pre-CCP Virus pattern of growth spurring deficit expansion. And as suggested above, if the trend continues, it could usher in yet another stretch of dangerous bubble-ization.


Our So-Called Foreign Policy: My Ukraine Peace Plan


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As I’ve repeatedly argued, every day the Ukraine war lasts, the United States runs an ever greater risk of the conflict going nuclear and the American homeland coming under attack. And as I’ve also argued, the creation of any such nuclear risk is completely unacceptable because despite all the military aid provided by Washington, the U.S government still hasn’t backed admitting Ukraine to the North Atlantic Treaty Organization (NATO). That alliance of course is made up of countries whose security the United States has officially designated as vital, and thus by definition worth incurring such risks.

So in order to ensure that U.S. leaders don’t continue exposing the American population to a catastrophe that would make the September 11 attacks look like a mosquito bite on behalf of a country Washington still doesn’t regard as worth that candle, the war needs to end ASAP. And here’s a plan (or as they like to say in the political and policy worlds, a “framework”) that might do the trick.

First, an immediate ceasefire is declared, and then enforced by troops from some of the large developing countries that have voted to condemn the Russian invasion but failed so far to provide Ukraine with any support (like India or Indonesia or Brazil).

Second, (and the sequencing of the following steps can take any number of forms), NATO announces that it will never admit Ukraine as a member, But  NATO and other countries reserve the right to provide Kyiv with as much in the way of conventional armaments (including systems considered as “offensive”) as they wish.

Third (Version A), Russia gets to keep the Crimea but agrees that the the two eastern Ukrainian provinces with the big ethnic Russian populations will decide their own fates in internationally supervised referenda. In addition, any inhabitants of all three regions who wish to leave either before or after such votes get relocation assistance (preferably to Ukraine, but other European countries should feel free to take them in, too). The funding would come partly from the West (mainly by the European members of NATO), and partly from a percentage of revenues earned by Russia from the dropping of sanctions on Russian energy exports.

Third (Version B), same as above but Russia simply gets to keep the two eastern provinces and Crimea outright. Again, however, emigration by any of their inhabitants is funded by the West and by those Russian energy revenues. For the record, I like version A best.

Fourth, Russia drops its objections to Ukraine joining the European Union (EU).

Fifth, in order to enable Ukraine to maximize the economic benefits of EU membership, the West (again, mainly the European members of NATO) commits to large economic aid and reconstruction packages dependent largely on Kyiv’s progress in rooting out corruption. I’d also be in favor of empowering the donors to bypass the Ukrainian government in financing worthy recipients directly, to ensure that Ukrainian officials don’t steal most of the assistance.

Sixth, non-energy sanctions on doing any kind of business with Russia are phased out contingent on the absence of Russian aggressive actions against Ukraine (including efforts by Russian-funded paramilitary groups to destabilize Ukrainian territory). That is, the longer Moscow behaves well toward Ukraine, the more sanctions get dropped.

Seventh, the West agrees not to prosecute any Russian officials (including military officers) for war crimes.

Eighth and last, Russia and NATO begin negotiations to explore ideas for new arrangements that longer term could further enhance the security both of Russia and its European neighbors, including the Balkans and Moldova. These initiatives should be led by the Europeans.

Because the above proposals are just a framework, and neither set in stone nor presented in any great degree of detail, I’m absolutely open to suggestion regarding modifications, refinements, and additions. But for anyone wishing to pony up their ideas, I hope they consider first and foremost the needs to (a) defuse an exceedingly dangerous current situation with frightening potential to damage the American homeland gravely; (b) give both Russia and Ukraine significant reasons to claim at least partial victories; and (c) realize how easy it is to make the perfect the enemy of the good.

And on that last point, I hope that Ukraine war hawks and others who stress the imperatives of punishing any and all aggressions, and/or forcing the Russians to pay serious penalties for their invasion, and ensuring that Russia in the future becomes to weak to endanger Ukraine or any other country ever again, would keep the following in mind: The current regime in Moscow is so mismanaging the country and wasting its considerable resources (especially human), that it’s doing a great job of diminishing its power and potential all by itself.

(What’s Left of) Our Economy: U.S. Manufacturing Employment Hits a Downdraft


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The manufacturing jobs results contained in last Friday’s official monthly U.S. employment report were downbeat both because 2,000 positions were shed between April and May, and because that makes two months of losses out of the last three. Domestic industry hasn’t experienced a stretch that bad since the period from late 2019 through the depth of the devastating but brief CCP Virus-induced economy-wide nosedive.

And to add insult to injury, revisions were negative. April’s initially reported gain of 11,000 was downgraded to one of 10,000, and March’s losses were revised down a second time – from 8,000 to 12,00 – the worst monthly read since the 42,000 collapse of April, 2021.

In fact, these collective setbacks pushed manufacturing still deeper into post-pandemic employment laggard status. Since February, 2020 – the last full data month before the CCP Virus pandemic began hammering and distorting the entire economy – manufacturing headcounts have risen by 1.56 percent – less than the 1.61 percent calculable from last month’s release.

During the same period, non-farm payrolls (NFP – the U.S. government’s definition of the national jobs universe) have risen by 2.45 percent – an improvement over the 2.10 percent calculable last month. And private sector headcounts are up by 3.04 percent – an improvement over the 2.78 percent calculable last month.

It’s no surprise then that manufacturing’s share of American employment keeps shrinking. As of the new jobs report, it stood at 8.32 percent of NFP – lower than the 8.35 percent calculable last month and 8.39 percent just before the CCP Virus arrived state-side in force. And it represented 9.73 percent of private sector employment – lower than the 9.76 percent calculable last month and the 9.87 percent calculable in February, 2020.

May’s biggest jobs winners among the broadest manufacturing sub-sectors tracked by Washington were highly concentrated in a handful of industries:

>in the big, diverse transportation equipment sector, 10,500 positions were added sequentially, and April’s initially reported 6,700 advance was upgraded to one of 10,600. In all, transportation equipment companies have now registered four straight months of strong job creation, and their employment levels are now 4.78 percent greater than in immediately pre-pandemic-y February, 2020 versus the 3.81 percent calculable last month;

>electrical equipment, appliance and components, where a sequential jobs boost of 2,100 snapped a two-month losing streak and represented these companies’ best such performance since March, 2022’s increase of 3,000. Consequently, job levels in this sector have now advanced by 2.04 percent during the CCP Virus era and its aftermath, versus the 0.98 percent improvement calculable last month.

>primary metal manufacturing, whose 2,000 employment increase marked a fourth straight month of gains. The monthly rise was also the biggest for these companies since they hired 1,200 net new workers last October. Primary metal manufacturers’ payrolls have now moved to within 2.50 percent of their February, 2020 level, versus the 2.98 shortfall calculable last month; and

>the large chemicals industry, which improved employment by 1,700, and pushed its pandemic-era-plus headcount growth to 7.52 percent, versus the 7.49 percent calculable last month.

May’s losers among these broad were broad-based, with the biggest being:

>furniture and related products, where a jobs retreat of 4,000 was its worst such performance since last November’s 4,200 reduction. Because of this drop, the sector’s workforce is now 5.29 percent smaller than in immediately pre-pandemic-y February, 2020, versus the 3.70 percent calculable last month;

>machinery, whose 2,400 jobs fall-off was its worst such performance since the 6,500 cratering in November, 2021. This decrease, plus some negative revisions,  depressed this diverse sector’s headcount down to 0.95 percent above its February, 2020 level, versus the 1.24 percent increase calculable last month.

This poor machinery performance matters because the widespread use of its products for expansion and modernization make it an important barometer of the health both of the rest of industry and of the entire economy; and

>fabricated metal product manufacturing, another large sector which cut 2,300 positions. Whereas these companies’ headcounts had pulled to within 0.94 percent of their level just before the CCP Virus’ arrival, they’re now back to 1.21 percent below.

In addition to machinery, RealityChek has tracked another industry consistently since the virus began destabilizing the U.S. economy: automotive, whose its fortunes have so often and so heavily influenced determined those of manufacturing as a whole during the pandemic period.

As suggested by the robust hiring performance of the transportation equipment sector, April was a return to this pattern, with vehicle and parts makers bolstering payrolls by 6,800. In addition, April’s initially reported hiring increase of 5,800 was revised all the way up to 9,000 – the best such performance since last December’s 9,500 burst.

This recent surge has pushed automotive employment 8.42 percent higher than in February, 2020, versus the 7.18 percent calculable last month.

RealityChek has also been monitoring several narrower sectors that have attracted special attention during the CCP Virus era, but where the data are always a month behind those of the above broader sectors, Their April employment performances were generally mixed.

Despite the U.S. government’s decision to provide major subsidies to foster more semiconductor manufacturing in America, the sector’s employment record in April continued a weak spell that began back in January. The April loss of 800 jobs in the semiconductors and related devices category represented the sector’s fourth straight monthly decline, and March’s initially reported 300 increase is now judged to have been a steep drop of 1,700.

These dismal results – no doubt due at least partly to the return of glut conditions in many types of microchips – dragged down these companies’ employment gains to 8.86 percent above immediate pre-pandemic levels, versus the 9.20 percent improvement calculable last month.

Aircraft manufacturers shed jobs for the second straight month in April, with the 1,300 fall the worst monthly performance since May, 2021’s slide of 4,100. Along with mixed revisions, the April tumble meant that the aircraft workforce is now 3.62 percent smaller than just before the CCP Virus’ arrival in force versus the 3.29 percent calculable last month.

Hiring by aircraft engines and engine parts-makers in April dipped for the first time in three months, as these industries cut headcount by 300. The decline however, was only the first since July, 2021 and it followed a March jump of 1,000 that stayed unrevised. So employment by these companies slipped further below its February, 2020 levels, but just to 6.66 percent versus the 6.33 percent calculable last month.

By contrast, in non-engine aircraft parts, the workforce expanded for the fifth straight month – the longest period of growth since the months between January and June, 2019. The gain of 400 was also noteworthy because it followed a March increase that was upgraded from 600 to one of 800. Jobs in non-engine aircraft parts maker climbed to within 14.10 percent of their immediate pre-pandemic total, versus the 14.62 percent shortfall calculable last month.

But jobs totals for surgical appliances- and supplies-makers dipped by 500 in April. And the initially reported March flatline result for companies that turned out many of the products used to fight the virus is now judged to have been a shrinkage of 200. So where as of last month, these workforces were pegged at 1.23 percent larger than their February, 2020 levels, this growth has now been pared back to 0.57 percent.

The pharmaceuticals and medicines sector fared much better hiring-wise, with its 1,500 net new jobs its best such performance since January’s 1,700. This improvement, plus positive revisions, brought employment in this sector 15.09 percent higher during the CCP Virus era and its continuing aftermath versus the 14.54 percent increase calculable last month.

And the pharmaceutical sub-sector that contains vaccines added 800 jobs for its best employment month since last June and its increase of 900. The workforce for these vital health security companies is now 20.61 percent larger than in February, 2020, just before the CCP Virus’ arrival in force, versus the 19.80 percent calculable last month.

To be sure, domestic manufacturing data has a habit of producing pleasant surprises. (See, e.g., the latest production figures.) But with the overall economy continuing to lose momentum, and the foreign markets that normally buy so many domestically manufactured products performing no better, any near-term improvement in U.S. manufacturing employment will be just that – a pleasant surprise.    

(What’s Left of) Our Economy: The U.S. Trade Deficit Remains at a Crossroads


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The encouraging streaks weren’t broken by much, but they were broken. That’s the main takeaway from the trade figures contained in last week’s official report on U.S. economic growth – the second look at the results for the first quarter of this year.

The first had consisted of three straight quarters of growth in inflation-adjusted terms (the most closely followed figures and those that will be used in this post unless specified otherwise) while the price-adjusted trade deficit shrank.

This streak was encouraging because it signaled that the economy was expanding mainly via saving and producing rather than by borrowing and spending. In other words, growth was high quality and sustainable, rather than bubbly and bound to end badly if it lasted too long.

Further, this version of the streak was the longest since the period between the first and fourth quarters of 2007 – just before the arrival of the Great Recession spurred by the Global Financial Crisis. I know – that timing doesn’t sound great. But that streak and that crisis were preceded by a long period of rapidly ballooning trade shortfalls.

The second winning streak consisted of four straight quarters of declining trade deficits irrespective of economic growth.

According to the latest read on the first quarter’s improvement in the gross domestic product (or GDP – the standard measure of the economy’s size and how it grows or shrinks), growth actually sped up some over the results of the first read (1.27 percent in annualized terms versus 1.06 percent). So that was good. But rather than dipping by 0.23 percent, from the fourth quarter’s $1.2386 trillion at annual rates to $1.2358 trillion, the combined goods and services trade gap widened sequentially by 0.40 percent, to $1.2435 trillion.

Optimists can argue that this overall deficit number remains the lowest since the $1.2309 trillion recorded in the second quarter of 2021. But pessimists could respond that it didn’t take much extra growth to put the deficit on a rising path once again, and that as a result, any acceleration of growth from the first quarter’s sluggish pace could push U.S. trade accounts deeper into the red – resuming the dominant pattern of recent decades that strapped the nation with gigantic deficits to begin with. For the record, I’m leaning (but not by much) toward that pessimistic take, even though a single quarter’s results are anything but definitive.

Because it was bigger than initially reported, the first quarter deficit now stands at 6.14 percent of real GDP – up from the 6.08 percent calculable from that initial release (which had been the lowest such figure since the 6.06 percent from the second quarter of 2021), and interestingly, right back to its fourth quarter level. But this number is still way better than the record 7.47 percent in the first quarter of 2022.

With the first quarter trade gap now worsening slightly from the first GDP read, just as growth has risen slightly faster, its role in fueling that first quarter growth dwindled to literally nothing. The initial first quarter release reported that the sequential decrease in the trade deficit had contributed 0.11 percentage points to 1.06 percent annualized growth. But now, the modest sequential increase in the trade shortfall is reported to have had no effect on the new 1.27 percent annualized growth figure.

Both results, though, were way down from those of the fourth quarter, when a much bigger sequential trade deficit fall-off accounted for 0.42 percentage points of its 2.55 percent annualized growth.

The larger first quarter trade deficit means that it’s now 49.32 percent higher than in the fourth quarter of 2019 – the last full-data quarter before the pandemic arrived stateside in force to roil the economy. The initial first quarter read pegged this increase at 48.39 percent, and as of the fourth quarter, it was 48.73 percent.

Total exports climbed in the first quarter by 1.18 percent in the first quarter, from $2.5796 trillion to a new record $2.6101 trillion. The first quarter result topped the previous all-time high of $2.6041 trillion in the third quarter of last year by 0.23 percent. These overseas sales have now increased by 1.49 percent since that immediately pre-pandemic-y fourth quarter of 2019. As of last year’s fourth quarter, they were a bare 0.30 percent higher.

At least total exports in the first quarter rose even faster (by 1.26 percnt sequentially) than originally estimated (1.18 percent). The new total of $2.6122 trillion annualized was still a new record, nosing out the previous first quarter total of $2.6101 trillion by 0.08 percent. And it beat the previous quarterly all-time high of $2.6041 trillion in last year’s third quarter by 0.31 percent.

As a result, combined goods and services exports are 1.57 percent greater of the immediate pre-pandemic level versus the 1.49 percent calculable from the initial first quarter read and the measly 0.30 percent improvement over the fourth quarter total.

Total imports in the first quarter rose faster than originally reported, too. In that first read, they increased sequentially by 0.73 percent, from $3.8182 trillion at annual rates to $3.8460 trillion. Last week, this sequential gain was revised up to 0.98 percent, for a total of $3.8556 trillion – 0.25 percent higher than that estimated last month.

As a result, combined goods and services imports have now grown by 13.24 percent since that last pre-pandemic full-data quarter total in the fourth quarter of 2019 – higher than the 12.96 percent calculable last month and the 12.14 percent as of the fourth quarter of last year.

The trade shortfall in goods encouragingly kept on decreasing for the fourth straight quarter as of the new first quarter read – a span last matched between the second quarters of 2019 and pandemic-ridden 2020. It also remained the lowest number since the $1.3965 trillion at annual rates of the second quarter of 2021. But the decrease is now judged to be 0.52 percent less than initially judged, with the new number standing at $1.4101 trillion versus $1.4028 trillion. And it’s now up 0.57 percent since the fourth quarter rather than the 1.09 percent calculable previously.

Moreover, these results pushed the goods deficit’s rise since the pandemic began roiling the U.S. economy from 32.21 percent versus the 31.52 percent calculable last month. As of the fourth quarter, this increase was 32.96 percent.

Goods exports came in even better than previously reported. In the first release for the first quarter, they rose sequentially by 3.41 percent, from the fourth quarter’s annualized $1.8468 trillion to a new record $1.9098 trillion. That total surpassed the old record of $1.9010 trillion in the third quarter of 2022 by 0.47 percent.

But the second release boosted that quarterly rise by 0.08 percent. The record total therefore climbed to $1.9113 trillion, and the improvement over the fourth quarter to 3.49 percent. In addition, goods exports are now up by 6.99 percent since the immediately pre-pandemic-y fourth quarter of 2019, versus the 6.90 percent calculable last month.

Goods imports expanded more in the second first quarter GDP read than in the initial, but the rate was much lower than that for goods exports. As opposed to the 0.90 percent sequential increase recorded last month (from $3.2830 trillion annualized in the fourth quarter to $3.3126 trillion), the new mark is now judged to be $3.3214 trillion – 0.27 percent greater than the initial read, and 1.17 percent higher than the fourth quarter total.

These results still represent the first increase in goods imports in three quarters, and have brought the gain since the fourth quarter of 2019 to 16.41 percent versus the 16.11 percent calculable last month.

At the same time, the longstanding surplus in services trade shrank sequentially more in the first quarter than initially reported. As of last month’s release, it had declined by 5.63 percent from the fourth quarter – from $177.7 billion to $167.7 billion. And this drop was the biggest since the 20.94 percent in the second quarter of 2021.

But in the new release, the sequential decrease came in at 5.91 percent (still the biggest pullback since the second quarter of 2021), and the new total was an annualized $167.2 billion – a dip of 0.30 percent from the previously reported first quarter total. So rather than having shriveled by 28.08 percent since the just before the pandemic’s arrival in force in the fourth quarter of 2019, the surplus in this sector – which was hit so hard by CCP Virus and its fallout – is now 29.09 smaller.

The sequential slippage in services exports is now seen as not having been quite so steep as reported in the previous first quarter GDP release. Then, at $721.1 billion at annual rates, it was 1.41 percent below the fourth quarter total of $731.4 billion. Now, the first quarter total is estimated at $721.6 billion – 0.07 percent better than that initial first quarter figure and down 1.36 percent from the fourth quarter level.

Consequently, services exports have drawn to within 8.29 percent of their immediate pre-pandemic total, versus the 8.35 percent shortfall calculable last month.

But rather than having tumbled a bit sequentially in the first quarter, as reported in last month’s release, services imports are now judged to have risen slightly. Last month, these purchases were reported to have been $553.4 billion at annual rates – 0.05 percent below the fourth quarter’s $553.7 billion. Now they’re pegged at $554.4 billion – 0.18 percent above the previous first quarter read and 0.13 percent above that fourth quarter total.

Services imports now have reportedly grown by 0.62 percent since that last full-data pre-pandemic fourth quarter of 2019, versus the 0.44 percent gain recorded last month. As of the fourth quarter of last year, this increase stood at 0.49 percent.

As mentioned at the start, these new trade and GDP results could mean that any speed up in U.S. economic growth could bring about renewed growth of the trade deficit – confirming the end of a streak of continued growth and falling deficits. But with the experts seemingly divided in their second quarter growth forecasts (see, e.g., here) the safest observation for now seems to be that the deficit’s course remains at much the same crossroads as described in my previous trade and GDP post.

(What’s Left of) Our Economy: A Doubly Bad New U.S. Inflation Report


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Today’s third official report on U.S. inflation in April (contained in this release) was bad in no fewer than two ways. First, it confirmed the results of its two predecessors, which showed that price increases in America have begun to speed up again after months of some evidence (never terribly convincing IMO) of slowing. Second, the numbers presented in this morning’s release were those for the price index for personal consumption expenditures (PCE) – the preferred gauge of the Federal Reserve, which is Washington’s prime inflation-fighting agency.

So these discouraging statistics seem most likely to convince the Fed to continue its policy of raising interest rates high enough to weaken inflation by weakening U.S. economic growth – which risks creating a recession. Previously, the central bank was strongly hinting that it might pause in the hope that it’s already slowed economic activity enough to tame prices without producing an actual economy-wide slump (that is, engineering a “soft landing”).

Now, justifying a pause has become especially difficult because each of the four inflation measures presented in the PCE report got worse.

Headline month-to-month PCE jumped from an unrevised 0.1 percent in March to 0.4 percent and snapped a two-month string of declining sequental increases. Moreover, that April rise was the biggest since January’s 0.6 percent.

The annual headline PCE figures displayed the same trend but revealed additional bad news as well. April’s 4.4 percent result also snapped a two-month easing streak, and was the hottest annual PCE read since January’s 5.4 percent. The extra bad news? Revisions to these numbers have been slightly negative – meaning in this case that for January and February, annual headline PCE is judged to have been a bit worse than originally reported.

April also saw the end of a two-month stretch of improvement for core PCE, which strips out the results for food and energy costs because they’re volatile for reasons having little or nothing to do with the economy’s fundamental vulnerability to inflation.

The April rate of 0.4 percent was also the highest since January’s (0.6 percent), and revisions have been negative, too.

As for annual core PCE, April’s 4.7 percent pace represented an uptick from March’s 4.6 percent. But contrary to the fluctuations in the other PCE measures, annual core PCE has been stuck in the 4.6 percent-4.7 percent range for every month since last November.

By now, the main reason for all this inflation stickiness should be no mystery at all: Consumers keep spending robustly. Indeed, as always the case, today’s PCE results came along with data on personal consumption. And even when price increases are taken into account, it rebounded in April from a 0.2 percent dip in February and a flatline in March to a 0.5 percent advance.

As a result, since businesses aren’t charities, they’ll keep raising prices as long as their customers make clear their willingness to pay.

No one can doubt that the economy and therefore consumers face some important headwinds. The full effects of the Fed’s economy-slowing steps – which include both interest rate hikes and cuts in the money supply – usually take many months to appear. By all indications, the banking system weaknesses first revealed by the collapses of California-based Silicon Valley Bank and New York City’s Signature Bank are beginning to tighten the credit spigots on consumers and businesses alike. And all that money pumped into consumers’ pockets by the various government stimulus measures passed since the CCP Virus struck the nation in force are running out.

But these funds remain considerable by any realistic standard. Employment levels keep rising past their pre-pandemic peaks, so wages and salaries keep providing households with new cash flow. And even if President Biden accepts every single one of the House Republicans’ budget proposals in the current debt ceiling negotiations, federal discretionary spending (let alone outlays for entitlements like Social Security and Medicare) would continue increasing for most of the 10-year period that will be covered by a final deal. With inflation tailwinds like these blowing, too (supplemented by approaching election year pressures to keep consumers – and therefore voters – happy), I still can’t see how worrisomely high prices and price increases don’t start becoming U.S. economic features, not bugs,

(What’s Left of) Our Economy: The Latest Upside Surprise for U.S. Manufacturing


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Sorry for the tardiness of this post on the latest official (April) figures for U.S. manufacturing output. Sometimes life gets in the way. But I hope you agree that they’re still worth reviewing because even without a stupendous performance by the automotive sector, they’d have still been solid.  And the more so with domestic-based industry and the entire economy either supposedly headed for recession or already in one.

These results don’t change the recent big-picture description of U.S.-based manufacturing production essentially flat-lining. But it hasn’t experienced a significant drop-off, either.

In fact, the April sequential growth of 1.02 percent in inflation-adjusted terms (what’s measured by these data tracked by the Federal Reserve and what will be used in this post unless otherwise specified) was the strongest since January’s 1.59 percent. And revisions were slightly positive.

And leaving aside the vehicle and parts sectors, April’s increase would have been a highly respectable 0.38 percent.

The April report shows that American manufacturers have now boosted their output by 1.20 percent since February, 2020, just before the state-side arrival in force of the CCP Virus pandemic As of last month, this figure was 0.93 percent.

The biggest April production winners among the broadest industry-specific manufacturing categories monitored by the Fed were:

>automotive, whose blazing 9.30 percent expansion not only was its best since October, 2021’s 10.44 percent but enabled the industry to achieve a new all-time production record. It topped December, 2018’s previous historic high by 1.89 percent.

Automotive output figures, though, can be volatile. Indeed, the strong April advance followed a downwardly revised March tumble of 1.93 percent that was the sector’s worst monthly performance since February, 2022’s 3.37 percent dive. So it’s still far from clear whether April represents a blip or the start of a lengthy upswing.

What is clear that, pending revisions, the April monthly jump pushed automotive production to 1.57 percent above its immediate pre-pandemic level, versus the 0.97 percent calculable last month;

>computer and electronics products, whose 2.15 percent April gain broke a weak spell of four months and stands as the sector’s best performance since its 2.62 percent advance in May, 2021. These industries have now grown by 1.57 percent since immediately pre-pandemic-y February, 2020, versus the 0.97 percent increase calculable last month. This rate seems modest, but computer and electronics products fell off only modestly during the deep CCP Virus-induced economy-wide downturn;

>plastics and rubber products, where production expanded by 1.16 percent in April for the sector’s second straight improvement after a long spell of weakness. In fact, the April results for plastics and rubber products makers was their strongest since February, 2022’s 2.67 percent. But due to some major downward revisions, these industries’ output sank from 0.37 percent below pre-pandemic levels to 2.01 percent below.;

>primary metals, which boosted production by 0.90 percent. But these industries have still shrunk by 2.71 percent during the pandemic era and it aftermath, versus the 2.90 percent calculable last month.

The biggest losers among these broad sectors were:

>miscellaneous durable goods, where output in April tumbled by 1.32 percent in the worst performance by this diverse group of industries since last December’s 1.79 decrease. Miscellaneous durable goods producers have still increased their production by 9.59 percent since February, 2020, but last month, growth during this period was 11.30 percent;

>apparel and leather goods, where production was cut by 0.80 percent, and post-February, 2020 growth was nearly halved – from the 9.12 percent calculable last month to 5.25 percent. Nonetheless, despite this progress, because of decades of penny-wage foreign competition, these sectors remained mere shadows of themselves:

>machinery, whose output decreased by 0.50 percent and extended a three-month losing streak. These results are discouraging because this diverse grouping is a bellwether for the rest of manufacturing and the economy overall, since its products are so widely used for expansion and modernization. Machinery’s poor recent performance has dragged its CCP Virus-era-and-beyond growth from the 5.85 percent calculable last month to 3.54 percent; and

>furniture and related products, whose -0.43 percent April output slip was its sixth retreat in the last seven months. These industries are now 12.43 percent smaller than in just before the CCP Virus’ arrival, versus the 11.49 percent calculable last month.

Manufacturing sectors of special importance since the pandemic began depressing and distorting the economy followed a solid March with a comparably good April.

The global semiconductor sector shortage that began during the virus period has now eased dramatically for most types of chips, and in that vein, it’s no surprise that U.S.-based producers increased output in April for the third straight month. The 2.08 percent improvement pushed the sector’s production 10.54 percent higher since February, 2020, versus the 8.05 percent calculable last month.

April production of pharmaceuticals and medicines – including vaccines – was strong, too, with the 1.06 percent rise representing the best performance since last December’s 1.08 percent. This sector is now 14.57 percent larger than in immediately pre-pandemic-y February, 2020, versus the 13.38 percent calculable last month.

Aircraft and aircraft parts companies boosted their production only fractionally in April, but this marginal gain broke a string of four straight decreases. Even so, a substantial downward March revision helped reduce these firms’ output growth since the pandemic’s arrival state side in force to 7.07 percent, versus the 7.87 percent calculable last month.

The only April loser among this group was the medical equipment and supplies industry. It’s 1.03 percent production drop was the worst since last December’s 1.57 percent, and dragged its virus-era-and-beyond growth from the 14.52 percent calculable last month to 13.02 percent.

With a U.S. recession still a prediction rather than a fact, the economy continuing to show at least decent momentum, and a growing likelihood that the Federal Reserve will pause its campaign of combating inflation with growth-slowing interest rate hikes, it’s difficult to be gloomy about domestic manufacturing’s near-term future. And if the nation’s politicians succumb to their usual election-year temptation to throw more money at businesses and consumers, then industry’s medium-term prospects look pretty good, too.

Of course, if that’s so, it means that inflation will stay high as well. And how long both developments will remain tolerable for businesses, consumers and all the consumers who vote, and the Fed with its inflation-fighting responsibilities, is anyone’s guess.

Making News: A Special Edition


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I’m pleased to announce one item of special interest that appeared last week: The New York Times obituary for Ronald Steel – which contains a quote from a book of his I reviewed for The Times.

But I feel the need to provide some background here. Ron is probably best known for his literally magisterial 1980 biography of the influential twentieth century American philosopher and journalist Walter Lippmann.

As noted in the review, however, for decades he was also a leading and indeed pioneering analyst of American foreign policy. More specifically, he was one of a handful of critics who departed from the globalist national leadership consensus that developed on Pearl Harbor Day, and that hardened into a rigid dogma soon afterwards. As such, he was a major influence on my own thinking and writing.

In that vein, I feel privileged that he also became a very supportive friend and mentor. So at least much as the nation will miss his insights (especially these days!), I will miss his never-ending kindness, generosity, and encouragement. And I know that anyone reading this post would profit from delving into his writings.

One correction: The Times obit said that when I wrote the review (the whole of which is linked,and that I sure enjoyed reading after many years), I worked with the Washington, D.C.-based Economic Policy Institute. Well, that’s close. I’ve long respected that organization’s work, but I was then on the staff of the (also D.C.-based) Economic Strategy Institute.

In addition, it was great to be quoted on the confusing state of the American economy in Frank Esposito’s May 5 post here in the respected industry publication Plastics News.

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

(What’s Left of) Our Economy: U.S. Wholesale Inflation May Be Rebounding, Too


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It’s not as if yesterday’s official report on U.S. wholesale inflation for April was as troubling as the consumer price figures released the day before. It’s just that it was a marked contrast to the very good previous set of wholesale price figures (the Producer Price Index, or PPI) that came in for March.

At the same time, I keep growing convinced that the PPI results are only secondary for puzzling out the U.S. inflation picture and forecast. Sure, if businesses have to pay higher prices for the goods and services they purchase in order to turn out goods and services for their final customers, they’ll face greater pressures to raise consumer prices.

But as I’ve explained, the extent to which businesses can pass those costs on depends on the spending power of their customers. The fact that inflation at the retail level remains so stubbornly high reveals that they can continue hiking prices for consumers whether their own costs are mounting or not.

As with the latest data on consumer inflation (the Consumer Price Index, or CPI), the worst aspect of the new PPI report has to do with the monthly heat-up of wholesale prices it shows.

Headline wholesale inflation rose sequentially by 0.23 percent in April – the highest monthly increase since January, and the biggest monthly acceleration (0.60 percentage points over March’s worse-than-originally-reported 0.37 percent drop) since January’s 0.72 percentage point change. It’s of some comfort that the revisions for the previous three months were slightly positive.

Core PPI strips out food and energy prices (because they’re volatile for reasons supposedly having little to do with the economy’s vulnerability to inflation) along with a logistics category called “trade services.” And it too quickened sequentially in April, from March’s marginal 0.07 percent increase to one of 0.18 percent.

This result snapped a two-month period of cooling, and revisions were moderately negative.

Meanwhile, baseline analysis makes clear that annual PPI results that look good on the surface still point to significant business confidence that customers retain plenty of purchasing power left, and that therefore they have plenty of pricing power left.

Headline PPI in April rose 2.38 percent on an annual basis – both the weakest rate since the 1.68 percent of January, 2021, and a big decline from March’s 2.75 percent increase (which was revised down from 2.79 percent). Even better, this yearly slowdown was the tenth in a row.

But that January, 2021 annual increase was coming off a PPI rise between January, 2019 and January, 2020 of just 1.97 percent. So during that latter year (ending just before the CCP Virus arrived stateside in force and began distorting the economy), wholesale inflation was increasing at a sluggish and steady pace. In other words, business’ views of its pricing power weren’t changing much, and indeed, that had been the case for decades before this current bout of inflation.

The baseline figure for the new April results, however, was 11.08 percent. The clear implication: After jacking up prices spectacularly between April, 2021 and April, 2022, businesses felt free over the following year to hike them at a rate that had slowed, but was still abnormally fast by pre-pandemic standards.

Ditto on nearly every count for core PPI. This measure of wholesale inflation was up annually in April by 3.37 percent – the best result since the 3.15 percent of March, 2021. The deceleration from March’s 3.70 percent (revised just a bit upward from the initially reported 3.67 percent) was encouraging, too – even though the “win streak” only dates from February.

Again, however, the March, 2021 baseline figure was just one percent – because wholesale prices began falling in absolute terms in March, 2020 – as the pandemic began hammering economic activity and thus the demand for goods and services. In early 2021, therefore, businesses were displaying some renewed optimism in their wholesale pricing power for core goods and services, but their enthusiasm was decidedly curbed.

The new April baseline? A robust 6.74 percent. To be sure, that’s a sizable improvement over the March, 2023 results – when the baseline for the 3.70 percent yearly worsening of the PPI followed a previous year’s jump of an even higher 7.06 percent. But I’m still more impressed by how strong business pricing power confidence remains.

As usual, one month’s worth of data does not a trend make – whether we’re talking monthly or annual changes. But over the last year, we’ve seen a stretch of historically steep Federal Reserve rate hikes and a roughly simultaneous reversal of the Fed’s stimulative bond-buying program (in which the unprecedented “quantitative easing,” or QE, pursued since Global Financial Crisis days has turned into “quantitative tightening,” or QT).

If both wholesale and consumer inflation still remain as stubborn as they have, those are signs that they’ll persist until the economy slows dramatically going forward, and even until these central bank policies actually do manage to trigger a recession.

(What’s Left of) Our Economy: Signs That Inflation Might Have Stopped Cooling


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This morning the Labor Department reported U.S. consumer inflation figures that investors, after an initial burst of enthusiasm, now (as of mid-day trading) seem to recognize as pretty disappointing.

For when it comes to the new April results for the Consumer Price Index (CPI), there isn’t even any need to use baseline analysis – which adds crucial context to the annual numbers – to identify significant reasons for pessimism. That’s because both measures showed monthly acceleration.

Headline CPI rose in April sequentially by 0.37 percent. The rate of increase quickened for the first time in three months, and the difference between it as March’s 0.05 percent (the best such figure since last July’s 0.03 percent dip) was the greatest in absolTute terms since the 0.52 percentage point jump between last April and May.

Core CPI strips out food and energy prices because they’re volatile supposedly for reasons having little to do with the economy’s overall prone-ness to inflation. In April, it didn’t speed up over March’s pace as much as headline inflation, but it still resumed climbing faster after slowing down for the first time in four months. Plus, the 0.41 percent sequential rise was one of the higher rates lately.

The story for April’s annual CPI increases was better, but just marginally so. And using baseline analysis (which entails comparing back-to-back annual increases in order to determine whether inflation is genuinely gaining or losing momentum over these longer periods) barely brightens the picture.

April’s slowing annual headline CPI was the tenth straight, and brought the rate to 4.96 percent – it’s lowest since May, 2021’s 4.92 percent. The sequential improvement over March’s 4.99 percent annual increase was pretty skimpy, though.

And now for the baseline analyis. Both the March and April, 2021-22 annual CPI increases were well north of a torrid eight percent. So businesses feeling free to raise prices another nearly five percent on top of that indicates continued real confidence in their pricing power.

That’s especially apparent upon realizing that the baseline figure for May, 2021’s 4.92 percent annual inflation was just 0.23 percent – because it stemmed from early in during the devastating first wave of the CCP Virus pandemic, when the economy was still such deep trouble and consumer demand so weak that businesses on average had almost no pricing power.

It’s also discouraging that between this March and April, annual CPI fell less (0.03 percentage points) than it fell between last March and April (0.28 percentage points). If businesses were losing significant pricing power between last spring and this spring, we’d have been the opposite results.

No baseline analysis is needed to show how unexciting the new annual core inflation figure is. At 5.60 percent in April, it was (a bit) lower than March’s 5.60 percent. But with January and February having come in at 5.55 percent and 5.53 percent, it’s plainly stayed in the same neighborhood so far all of 2023.

As has been the case in recent months, the future of U.S. consumer inflation is still going to be determined by a free-for-all among:

>the Federal Reserve’s determination to force inflation down further, and even risk of recession, by growth-slowing monetary policy moves;

>the ongoing growth impact of Fed measures already taken;

>the countervailing effect of more cautious bank lending resulting from the turmoil in the ranks of small and mid-sized institutions;  

>the economic strength that can be expected from the amount of fuel available for consumer spending (despite higher borrowing costs) that’s coming from very high employment levels, and from remaining CCP Virus stimulus funds in households’ bank accounts; 

>major, stimulative government spending that’s starting to flow in to the economy from the impressive legislative victories won by President Biden on infrastructure, green manufacturing, and semiconductors; and

>the powerful temptation politicians facing reelection tend to feel to keep voters happy with yet more spending, or tax cuts, or some combination of both.

I’m still betting that the inflation-boosting forces win out, and that we’ll get some more evidence tomorrow when the Labor Department releases data on the prices businesses charge each other to supply their customers (the Producer Price Index or PPI). And that’s even though those monthly numbers are telling us that consumer inflation may not even be cooling anymore.   

(What’s Left of) Our Economy: A Longstanding U.S. Job Quality Problem is Returning


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For all the buzz about continuingly strong U.S. job creation despite what seems to be an intensifying slowdown in economic growth, one troublesome trend has staged a comeback – involving the surging share of new jobs typically described as private sector that are nothing of the kind. Instead, as known by RealityChek regulars, they represent a separate grouping that I’ve called the “subsidized private sector” (SPS).

That is, they’re jobs in industries like healthcare services whose vibrancy – and therefore employment levels – are heavily dependent on government spending. That’s not to say that they’re less important to society or the economy than “Real Private Sector” (RPS) jobs. But they’re definitely different. And since nearly everyone would agree that the real private sector is the economy’s main source of innovation and productivity, it can’t be good news that so far in 2023, SPS jobs have recovered to their highest shares of recovery-era RPS job creation since the bubble decade expansion of 2001-2007.

Let’s begin our examination of the last few economic expansions (our focus, since figures from comparable periods of an economic cycle yield the most informative results) with that bubble decade recovery. During those half dozen years – which ended in the Global Financial Crisis and an economic downturn that at that point was America’s deepest since the Great Depression of the 1930s – SPS jobs accounted for nearly half of all private sector jobs created, and for slightly more than those (that is, more than 100 percent) added in the remaining RPS. No wonder growth then was so unhealthy.

The rebound following the Great Recession was the longest on record but historically weak growth-wise. During that July, 2009-February, 2020 span, the SPS represented just 23 percent of all new private sector (less than half the share of the bubble expansion) and 29.87 percent of the RPS jobs created (just a third of the bubble expansion share).

The current economic recovery began in June, 2020, and overall it’s been much less reliant on the SPS. From that point, till the latest (and still preliminary) April, 2023 official jobs report, SPS jobs amounted to only 14.39 percent of all PS jobs created, and 16.81 percent of RPS jobs.

But what a change has taken place this year! SPS jobs have bounced back up to 28.21 percent of all PS jobs, and 39.29 percent of all RPS jobs.

And although it’s never wise to make too much of one month’s worth of data (especially when it’s still preliminary), the numbers for last month show a major acceleration even from these levels. Just over one-third of all private sector hiring in April took place in the SPS, and that subsidized private sector employment increase stood at just over half of the RPS advance.

At the beginning of this year, the Biden administration insisted that its economic policies had given the nation “the two strongest years of job growth in history.” The renewed prominence of the subsidized private sector suggests that, going forward, he should start asking himself just where all those jobs are coming from.