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

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baseline effect, core PCE, cost of living, energy prices, Federal Reserve, food prices, inflation, PCE, {What's Left of) Our Economy

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).     

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

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exports, GDP, goods trade, gross domestic product, imports, real GDP, real trade deficit, services trade, Trade, trade deficit, {What's Left of) Our Economy

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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CBS Eye on the World with John Batchelor, China, economics, Following Up, global economy, Global Imbalances, globalization, Gordon G. Chang, Immigration, Jeremy Beck, labor shortages, NumbersUSA, protectionism, Trade

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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Biden, CBS Eye on the World with John Batchelor, Donald Trump, global economy, Global Imbalances, globalization, Gordon G. Chang, Inflation Reduction Act, Making News, protectionism, Trade

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.

Our So-Called Foreign Policy: Two German Tank Decision Mysteries

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Germany, Iron Cross, Leopard, Nazi Germany, Our So-Called Foreign Policy, Panzer, Prussia, tanks, Ukraine, Ukraine War, World War II

Germany has finally decided to send advanced battle tanks to Ukraine (and to allow other countries whose militaries use the weapon to do te same). So ends a period of reluctance that was widely (and in my view, correctly) attributed in large measure to Berlin’s reluctance to suggest that historic German hyper-militarism is on the way back. Even so, I find two related aspects of Germany’s decision puzzling, to say the least.

At the outset, though, let me be perfectly clear: I’ve long advocated major German (and, for that matter) Japanese rearmanent. Believe me, I understand why the Germans (and Japanese) have long resisted such measures, and why Washington has tacitly supported the resulting defense free-riding.

After all, even nearly eight decades after these countries ignited World War II and committed such unspeakable atrocities before and during the conflict, who would support risking a repeat lightly? (At the same time, permitting Germany and Japan to remain military pygmies meant that American leaders would remain the national security and geopolitical kingpins of Western Europe and East Asia long after both countries had regained the economic power that ordinarily would have led to much more influence along these lines and likely greater diplomatic independence from Washington. Why? Because…well…countries with dramatically different historical experiences and geographic locations naturally often view the world differently.)

But because economic strength inevitably produces the ability and therefore the will to assert uniquely national interests, I always believed that this U.S. approach was simply delaying not only the inevitable, but the kind of orderly transition to the point at which these countries (in tandem with their neighbors, in the case of Germany but not so much Japan) would handle their own defense – and greatly reduce the nuclear war risk America was running because of its deterrence and coupling strategy.

And in a purely military sense, I always worried about the prospect of the United States plunging into a major war in Europe or Asia without allies it could count on one hundred percent – either because they stayed so weak or because they didn’t endorse American policy fully.  

Nor did I ever see any significant evidence that America’s determination to conduct these countries’ national securiy strategies for them (which I called “smothering”) generated any benefits for the U.S. economy. If anything, prioritizing alliance relationships typically convinced Washington to allow such allies to continue the protectionist policies that harmed domestic U.S. industry and its workers. (See this 1991 article for a wide-ranging discussion of both alliance-related security and economic issues.)

So again, I strongly support both the German, Japanese, and other allies’ stated intentions to get serious about their own security. But I have two related questions about Germany.

First, if Germany is so worried about even perception that it’s reverting back to its terrible old ways, why since the end of has it chosen the Iron Cross as the symbol of its military? Granted, it’s not the same Iron Cross the Nazis used. But it’s really close. Moreover, this version was used by the 19^th century Prussians, who were pioneers in developing modern militaries and whose leaders in those days had no compunctions about throwing its weight around first to unify Germany and then ensure that it could rival and even surpass the rest of Europe in terms of continental and global clout. (Not that these neighbors were angels themselves.)

And yet, in 1956, when the German army was reconstituted, West Germany’s president designated as its official emblem. Like no other choices were available then, or have been since? (For a brief history of Iron Cross, see here.) 

Second, why would a long-neutered Germany call any of its tanks a “Leopard”? How could such nomenclature fail to evoke the Nazi era in particular? After all, Hitler’s most famous tanks were the Panther (Panzer) and a late variation (the Tiger). Of course, weapons names should convey might and ferocity. But the world isn’t exactly shrt of other animal predators. And animal predator names aren’t the only words that can do the job.

Obviously, I’m not expecting any revival of worrisome German revanchism. But I still view these two military branding decisions as head-scratchers, and because even the weirdest choices rarely come completely out of the blue, I’ll continue to find them mystifying until I see a sensible explanation.    

(What’s Left of) Our Economy: U.S. Manufacturing Remains Stuck in Pandemic Aftermath Mode

Tags

CCP Virus, coronavirus, COVID 19, durable goods, global financial crisis, Great Recession, manufacturing, nondurable goods, recession, {What's Left of) Our Economy

‘Tis still the season – and it will continue for a while to be the season – for year-end 2022 economic data, and today we’ll examine the list of the production growth winners and losers in domestic manufacturing. The big takeaway is that U.S.-based industry’s output patterns are still being shaped by the fading but ongoing aftermath of the CCP Virus pandemic. The main evidence? The unusual  fluctuations in manufacturing ouput.

But before getting to the results from the twenty widest manufacturing categories tracked by the Federal Reserve, let’s review the even bigger picture results, which provide an indication of the dramatic ups and downs experienced recently by industry.

Manufacturing’s overall production last year dipped by 0.41 percent after adjusting for inflation (the measure most closely followed by students of the economy). So by the standard definitions (two straight quarters of contraction) the sector is in recession. Moreover, excepting the peak pandemic year of 2019-20, this latest annual output showing was U.S.-based manufacturers’ weakest since the 2.43 percent yearly drop in 2019.

At the same time, this decrease followed 2021’s 4.19 percent gain in constant dollar manufacturing production – the best such showing since the 6.48 percent registered in 2010, early during the recovery from the Great Recession triggered by the Global Financial Crisis of 2007-08.

Narrowing the focus slightly, production in the durable goods super-category climbed between 2021 and 2022 by 0.85 percent. But that relatively feeble expansion came right after the 4.79 percent price-adjusted growth the previous year – its best such performance since 2011’s 5.96 percent.

In nondurable goods,after-inflation production sank last year by 1.72 percent. But the previous year’s 3.58 percent expansion was the strongest since the 3.89 percent way back in 2004.

Big fluctuations can be seen in the statistics for the aforementioned “Big 20.” In the left-hand column below is how their constant dollar output grew or shrank last year in percentage terms, listed from best to worst. In the right-hand column are the counterpart numbers for 2021, in the same order.

1. aerospace & misc, transportation:  10.87    petroleum and coal products:   13.99

2. apparel and leather goods:              10.11   machinery:                                 11.98

3. nonmetallic mineral product:            5.69  computer & electronic product:  9.20 

4. automotive:                                       5.05 miscellaneous durable goods:      6.38

5. fabricated metal product:                  1.75  chemicals:                                   6.37

6. miscellaneous durable goods:           1.60  primary metals:                          5.87  

7. food, beverage and tobaco:                0.11  fabricated metal product:          5.84 

8. elec equip, appliances:                      -0.44 aerospace,misc transportation:  5.39

9. plastic and rubber products              -1.07 elec equip., appliances:              5.35

10.printing                                            -1.19 textiles & products:                   4.56

11. chemicals:                                       -2.01 furniture:                                   4.11

12. petroleum & coal products:            -2.33 apparel & leather goods:           4.11

13. primary metals:                               -2.83 printing:                                    3.26

14. machinery:                                      -2.89 plastics & rubber products:      1.99

15. computer & electronic product:      -2.91 paper:                                       0.90 

16. misc.nondurable goods:                 -3.56 wood product:                           0.13

17. furniture:                                        -5.19 nonmetallic mineral product:   -0.17  

18. wood product:                                -6.14 food, beverage & tobacco:       -0.35 

19. paper:                                             -8.23 automotive:                              -4.29    

20. textiles & products:                     -11.98 misc nondurable goods            -6.00

The weakness of 2022 comes through from noting that of these twenty industries, inflation-adjusted production fell in fully 13.  In 2021, such losers nubeed only five.

As for the fluctuations, in 2022, the after-inflation growth for five of the twenty were the worst since the Great Recession years of 2008 and 2009:  wood product, computer and electronic product, furniture, textiles and products, and paper. And for the latter two, that “worst since the Great Recession” description includes their results for the terrible peak pandemic year 2020. In 2021, no sectors achieved that dubious distinction.     

But in 2021, five sectors recorded their best annual price-adjusted production increases since 2010 – the first full year of recovery after the Great Recession:  primary metal, fabricated metal product, machinery, computer and electronic product, and electrical equipment and appliances.   

From the perspective of today, domestic manufacturing looks like it’s been on a roller-coaster, with 2021 being a sizable leg up followed by a small leg down last year. The big question facing U.S.-based manufacturing (assuming no more pandemics or new conflicts breaking out in Europe or Asia or or other black swan events) is how deep a dive that leg down will become if the broader economy slows meaningfully or falls into a new recession – as domestic industry already has.     

                                                       

Glad I Didn’t Say That! Democrats Play the Race Card in the Monterey Park Shooting — Of Course

Tags

Adam Schiff, Asian-Americans, bigotry, Chuck Schumer, Democrats, Glad I Didn't Say That!, identity politics, Monterey Park shooting, prejudice

“I’m praying for the victims [of the January 21 shootings in largely Asian-American Monterey Park, California], their families, the 1st responders We must stand up to bigotry and hate wherever they rear their ugly heads, and we must keep working to stop gun violence.”

–Senate Majority Leader Chuck Schumer (D-NY), January 22, 2023

 

The Monterey Park shooting was  “A horrific example of needless gun violence. With bigotry toward AAPI (Asian American Pacific Islander) individuals as a possible motive.” 

– Rep. Adam Schiff (D-Cal), January 22, 2023

 

Identity of the only suspect in the Monterey Park shooting: Chinese-American

 

(Sources: @SenSchumer, Twitter.com, January 21, 2023, (1) Chuck Schumer on Twitter: “I’m heartbroken by the news of the shooting in Monterey Park amid Lunar New Year celebrations I’m praying for the victims, their families, the 1st responders We must stand up to bigotry and hate wherever they rear their ugly heads, and we must keep working to stop gun violence” / Twitter; @RepAdamSchiff, Twitter.com, January 22, 2023, (1) Adam Schiff on Twitter: “Ten dead in Monterey Park. I am sickened. A horrific example of needless gun violence. With bigotry toward AAPI individuals as a possible motive. The families are in my prayers as we seek information by law enforcement. We’ll never quit demanding real action on gun safety.” / Twitter; and “What we know about the suspect in the Monterey Park massacre,” by Nouran Salahieh, Jeffrey Winter, Casey Tolan, and Scott Glover, CNN.com, January 23, 2023, Huu Can Tran: What we know about the suspect in the Monterey Park massacre | CNN . H/T to “Schumer, Schiff, other liberals blame Monterey Park shooting on ‘bigotry’ before facts come out,” by Bradford Betz, FoxNews.com, January 22, 2023, Schumer, Schiff, other liberals blame Monterey Park shooting on ‘bigotry’ before facts come out | Fox News)

Im-Politic: Where Republicans Should Definitely Listen to Trump

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abortion, conservatives, Donald Trump, election 2024, entitlements, establishment Republicans, GOP, Im-Politic, Medicare, Populism, Republicans, Social Security

And now for a sentence I’m stunned to be writing (but maybe shouldn’t be stunned to be writing): Donald Trump has once again shown that he’s one of the most interesting politicians in America – and in a good way.

The reason: In just the last few weeks, the former President has just staked out moderate and commonsensical positions on two critical issues that are frontally challenging a hardening, politically foolish and substantively counterproductive Republican/conservative consensus.

I’m stunned to see this because last month, I wrote that his continuing, off-putting – and, I emphasized, apparently irremediable – personal behavior and poor judgment  meant that he no longer deserved even to lead the conservative populist movement, much less win the Republican 2024 presidential nomination.

But I shouldn’t be so stunned because Trump has been opposing decades of Republican and conservative dogma since he first threw his hat in the ring in 2015. Trade and immigration policies are the obvious examples – and due to his efforts, the GOP is no longer the mouthpiece of the Open Borders-friendly corporate cheap labor lobby and of the China-coddling corporate offshoring lobby.

At the same time, Trump’s achievement in this respect has been even broader. As I’ve written, the unusual combinations of policies he supported contained the promise of not only redefining American conservatism (by uniting its traditional focus on allegedly excessive taxation and regulation with those aforementioned populist approaches to trade and immigration) but of bringing some long Democratic-voting constituencies into a new national political coalition broad enough to govern effectively. These include both households with members of industrial unions and working class minorities.

So it’s been all the more dispiriting that, in particular, the former President hasn’t been able to overcome his tendency to embrace even the most odious or simply dodgy figures as long as they profess admiration for him, and to blurt out the first often ill-considered opinions that pop into his head.

Nonetheless, there was Trump the day after New Year’s, writing on his own social media platform that “It wasn’t my fault that the Republicans didn’t live up to expectations [in the last midterm elections]….It was the ‘abortion issue,’ poorly handled by many Republicans, especially those that firmly insisted on No Exceptions, even in the case of Rape, Incest, or Life of the Mother, that lost large numbers of Voters.”

And as known by RealityChek regulars, evidence indeed abounds that contributing mightily to the Democrats’ better-than-expected November showing was a sharp, widespread reaction against (a) the sweeping Supreme Court ruling striking down the previously cited Constitutional right to privacy that legalized abortion nationally in most cases (approved to be sure by several Trump-appointed Justices); and (b) to the consequent stated determination of many Republican abortion foes to lengthen the list of draconian state bans.

Then, last Friday, Trump warned in a video message, “Under no circumstances should Republicans vote to cut a single penny from Medicare or Social Security.” He added, “Cut waste, fraud and abuse everywhere that we can find it and there is plenty there’s plenty of it,” Trump says. “But do not cut the benefits our seniors worked for and paid for their entire lives. Save Social Security, don’t destroy it.”

The former President was referring both to statements by Republican members of Congress supporting the idea of winning changes in eligibility for these hugely expensive but politically popular entitlement programs before agreeing to lift the federal debt ceiling, and to similar criticisms of entitlement spending expressed during the last campaign.

And as noted in the above-linked Politico article, support for Social Security and Medicare versus establishment Republican calls for significant change has been a long-standing Trump position.

Once again, I don’t believe that Trump has the personal discipline to stay on these most recent constructive messages and to avoid committing damaging own-goals. But these new statements add another big question about the future of Republicanism and conservatism:  How genuinely Trump will leaders who have shown signs of championing “Trump-ism without Trump” actually be?       

(What’s Left of) Our Economy: Still More Evidence of Weakening U.S. Manufacturing

Tags

capacity utilization, durable goods, manufacturing, nondurable goods, {What's Left of) Our Economy

On top of lousy new job and output results, we can now make it a discouraging trifecta for U.S. domestic manufacturing: The new output figures released by the Federal Reserve Wednesday also show that capacity utilization keeps falling, too.

This is a statistic I haven’t followed for a while, but many students of the economy see capacity utilzation as a key barometer of industry’s health, and when you consider the definition, it’s easy to see why. Capacity utilization measures the share of the nation’s factory equipment that’s actually in use, and not sitting idle. So it says lots about what kind of demand manufacturers are seeing for their goods.

Therefore, it can’t possibly be good news that for manufacturing overall, capacity utilization fell to 77.53 percent – the lowest such figure since September, 2021’s 77.14 percent.

Moreover, capacity utilization is down from its post-pandemic peak of 80.10 percent last April. And it’s back below its historic average between 1972 and 2021 of 78.20 percent. Moreover, the monthly sequential drop of 1.39 percent was one of several recent manufacturing results that have hit their worst since the peak of the CCP Virus’ devastating first wave, in April, 2020. In that case, capacity utilization cratered by 15.31 percent sequentially.

As far as the super categories are concerned, utilization in durable goods was down monthly in December by 1.21percent to 76.10 percent – also the lowest figure since September, 2021 (which was 74.84 percent). In addition, this gauge of durable goods activity has dropped by 3.32 percent since last peaking (also in April) at 78.72 percent

Non-durable goods’ capacity utilization rate in December rate was higher in absolute terms (79.20 percent) than that for either manufacturing generally or durable goods. But it tumbled from November’s read by a steeper 1.58 percent. Since its peak last March, it’s decreased by 3.27 percent.

These December results are still preliminary. And optimists can note that capacity utilization in all three categories is still slightly higher than in February, 2020, the last full data month before the pandemic’s arrival in the United States in force.

But the recent trend is unmistakably gloomy, and entirely consistent with the likelihood that, like the entire economy, domestic manufacturing is in for some tough sledding over the next few months.

(What’s Left of) Our Economy: Signs of the Wrong Kind of Inflation Progress

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baseline effect, Biden administration, core PPI, cost of living, energy prices, Federal Reserve, food prices, inflation, PPI, Producer Price Index, producer prices, recession, SPR, stimulus, Strategic Petroleum Reserve, wholesale inflation, {What's Left of) Our Economy

Yesterday’s official U.S. report on wholesale price inflation (for December) finally contained some modest signs of genuine cooling, but that’s not necessarily good news. The biggest reason seems to be a significant slowing in the nation’s economic growth and further confirmation that America remains far from creating a truly healthy economy – one that can expand adequately without either racking up towering debts or, more recently, igniting decades-high price increases.

As I’ve written previously, changes in this Producer Price Index (PPI) influence changes in consumer prices, but the relationship is more complex than often thought. Because wholesale prices represent costs for producing the goods and services that businesses sell to each other and to consumers, companies understandably try to pass increases on to their final customers – but can’t always do so.

That’s because the final result depends on these customers’ buying power. If they’ve got lots of it, chances are they’ll pay up, enabling businesses to preserve and even boost profits. If they don’t, they won’t, and margins will suffer with one big caveat – the ability of the sellers to become more efficient, and generate cost-savings elsewhere.

At the same time, if final customers feel flush with cash and/or credit, the businesses that supply them won’t necessarily, or even often, cut their selling prices if their costs decrease or stabilize. Why should they? With certain exceptions (like a prioritizing gaining market share), they’ll naturally charge whatever their customers seem willing to pay. 

And because some major signs of mounting economy-wide weakness have appeared recently (especially falling consumer spending), that new evidence of softer wholesale prices seems to add to the evidence that a recession of some kind is looming.

The best wholesale inflation news came in the new monthly numbers. The headline figure actually fell by 0.50 percent between November and December. That’s the most encouraging such result since this PPI dropped 1.29 percent sequentially in April, 2020 – when the CCP Virus’ first wave plunged the economy into a short but steep slump.

The core figure (which strips out food, energy, and a category called trade services, supposedly because they’re volatile for reasons largely unrelated to the economy’s fundamental vulnerability to inflation), did rise month-to-month, but only by a tiny 0.09 percent. That was the best such result since a fractionally lower figure in November, 2020.

Almost as good, the revisions for both for recent months didn’t meaningfully change this picture – though they do remind that PPI data can change non-trivially during the several months when they’re still considered preliminary.

The annual headline and core PPI figures did exhibit something of the baseline effect that always should be kept in mind when evaluating economic trends. That is, it’s essential to know whether improvements of worsening of data merely represent returns to a longer-term norm after stretches of abnomality. In the case of post-CCP Virus inflation readings, the big spike in price increases that began in early 2021 largely reflected a (ragged) normalization of economic activity and business pricing power that followed many months in 2020 when both were unusually subdued.

But for both measures of wholesale prices, the baseline effect appeared to be fading. For headline PPI, the December annual increase was 6.22 percent – the best such result since March, 2021’s 4.06 percent, and a big decline from November’s downwardly revised 7.34 percent. The baseline figure (headline annual PPI from December, 2020 through December, 2021) was a terrible 10.18 percent. But it was only slightly higher than its November counterpart of 9.94 percent.

Since the scariest aspect of inflation is its tendency to feed on itself, and keep spiraling higher, that feeble increase in the baseline figure over the last two months could well signal a loss of momentum. 

The annual core PPI statistics tell an almost identical story. The latest annual December increase of 4.58 percent was considerably lower than November’s upwardly revised 4.91 percent, and the best such result since May, 2021’s 5.25 percent. But the December baseline increase of 7.09 percent was barely faster than November’s 7.03 percent.

At the same time, the same kinds of big questions that hang over the consumer inflation figure hang over the wholesale inflation figure. For example, the annual increase in wholesale energy prices nosedived last year from 57.05 percent in June to just 8.58 percent in December. On a monthly basis, they’ve plummeted in absolute terms since June by 21.18 percent.

But these impressive results stemmed mainly from historically large releases of oil from the nation’s Strategic Petroleum Reserve (which of course expanded supply) and the Chinese economic growth that was severely depressed by dictator Xi Jinping’s wildly over-the-top Zero Covid policy. and therefore dampened global oil demand enough to affect prices in the United States.

The petroleum reserve, however, is now down to its lowest level in 39 years, which explains why far from contemplating further sales, the Biden administration is now slowly starting to refill it. Morever, China has now decided (for now) to reopen its economy, which will again put upward pressure on energy prices.

In addition, one lesson that Americans should have learned from this latest spell of inflationis that wages and other forms of income (including investment income) are hardly the only sources of consumer buying power. The government can supply oceans of it, too, and as I wrote yesterday, it’s entirely possible that U.S. politicians and Federal Reserve officials become recession-phobic that they decide to subsidize Americans’ buying power again. Hence my medium-term forecast of stagflation – a stretch of uncomfortably low growth and stubbornly high prices. 

That’s certainly better than a future of continually rising inflation. But anyone describing the current and likely economic situation facing Americans as “good” is using a depressingly low bar.