(What’s Left of) Our Economy: U.S. Manufacturing’s Now Defying Hurricanes and Delta

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aircraft, aircraft parts, appliances, Boeing, CCP Virus, chemicals, computer and electronics products, coronavirus, COVID 19, Delta variant, electrical equipment, fabricated metal products, facemasks, Federal Reserve, furniture, Hurricane Ida, inflation-adjusted growth, machinery, manufacturing, masks, medical devices, medicines, oil refining, paper, personal protective equipment, petrochemicals, pharmaceuticals, plastics, PPE, real output, semiconductor shortage, supply chain, travel, ventilators, Wuhan virus, {What's Left of) Our Economy

Domestic manufacturing’s done it again. Just as with the Labor Department’s August jobs report, the Federal Reserve’s new release on manufacturing output for the month shows that industry kept dodging whatever potholes the CCP Virus and its highly infectious Delta variant keep digging for the rest of the U.S. economy.

America-based manufacturers’ inflation-adjusted production grew by a meager 0.11 percent sequentially in August. But output was held down by facility closures forced by Hurricane Ida in the petrochemicals, plastics resins, and petroleum refining sectors. Overall revisions were mixed, but some upgrades and downgrades in individual major industries were pretty remarkable, as will be seen below.

The biggest winners in the new price-adjusted manufacturing production report were the small, catch-all “other manufacturing” category (2.42 percent); furniture and related products (up 2.07 percent); computer and electronics products (whose 1.21 percent output rise may have been a response to the worldwide shortage of semiconductors); paper (up 1.07 percent); and fabricated metal products (up 0.74 percent).

The biggest losers were electrical equipment, appliances, and components (down 1.16 percent); textiles products (down 0.81 percent on month); machinery (down 0.80 percent); and the big chemicals sector (down 0.49 percent).

Normally, the machinery results would be discouraging, since its products are used so widely both in the rest of manufacturing and also in big non-manufacturing industries like agriculture and construction. But its August dip followed a July jump of 3.31 percent – its best production improvement since January’s 4.63 percent – which was dramatically upgraded from the previously reported 1.91 percent.

The electrical equipment category followed a similar pattern. Its July real production results were revised all the way up from 2.31 percent to 3.95 percent – its best such performance since January, 2010, when the economy was still in its early bounce-back from the Great Recession that followed the global financial crisis.

Also enjoying a solid August were two narrower manufacturing categories that remain in the news due to the ongoing effects of the CCP Virus. Air travel has of course suffered throughout the pandemic-era, and aerospace manufacturing giant Boeing has been hit with numerous related manufacturing and safety problems (including some pre-dating the pandemic, like the grounding of the popular 737 Max jetliner).

Yet aircraft and parts production in constant dollars advanced by 0.34 percent in August, and in another major revision, July’s previously reported 2.78 percent increase is now pegged at 4.10 percent – its best such result since January’s 6.79 percent burst. And June’s downgraded 3.57 percent rise was bumped back up to 3.84 percent. As a result, aircraft and parts production is now 12.63 percent higher in after-inflation terms than in February, 2020 – the last full data month before the virus began significantly affecting the U.S. economy.

The pharmaceuticals and medicines sector (which includes vaccines) saw a real month-to-month production increase of 0.89 percent in August, and revisions were modest and mixed. These results left inflation-adjusted output 12.33 percent higher than its immediate pre-pandemic levels.

But August real production sank sequentially by 1.73 percent in the vital medical equipment and supplies sector – which includes virus-fighting items like face masks, protective gowns, and ventilators.

On the brighter side, July’s initially reported 1.71 percent constant dollar production rise was revised up to 2.42 percent. June’s dramatically downgraded 1.54 percent decrease was upgraded to a 0.13 percent drop, and May’s upwardly revised 1.86 percent real growth was downgraded only slightly – to 1.78 percent. Even so, on a price-adjusted basis, this crucial industry is just 2.66 percent larger than before the CCP Virus arrived in force.

Domestic industry still faces important headwinds of course – and not just from the possibility that Delta keeps worsening America’s public health and economy, and that approaching winter weather triggers a new wave of infections, hospitalizations, deaths, and restrictions. Those global supply chain snags are still with us, too.

But throughout the pandemic era, U.S.-based manufacturers have overcome obstacles just like this, and their consistent vigor indicates that it’s the pessimists about their future prospectswho now face the biggest burden of proof.

(What’s Left of) Our Economy: The New U.S. Inflation Slowdown Still Leaves Lots of Questions

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CCP Virus, core inflation, coronavirus, COVID 19, Immigration, inflation, inflation-adjusted wages, jobs report, Labor Department, New York Fed, productivity, real wages, transitory, wages, Wuhan virus, {What's Left of) Our Economy

Given how the U.S. economy could still face some major ups and downs in the next few months, largely because no one really knows what will happen with the CCP Virus and the responses from government, business, and consumers, only an idiot would confidently declare that this morning’s official report shows that the recent inflation burst is over. 

So even though I’ve been in that inflation-is-transitory camp – and therefore, that price trends haven’t yet provided the government to use its taxing, spending, and monetary policy tools to slow the economy’s expansion – I’ll just note how the inflation situation has changed in recent months.

What matters most is that the monthly inflation rate has come way down since June. During the first half of this year, the sequential pace of all price increases sped up from 0.3 percen to 0.9 percent. July’s result was down to 0.5 percent and the August figure just released by the Labor Department was just 0.3 percent – right back where it was in January, when the virus’ last powerful winter wave was cresting.

Also important: The so-called core inflation rate (this measure strips out food and energy prices, supposedly because they can be volatile for reasons having nothing to do with the level of overall national economic activity, and how fundamentally inflation-prone it is) has lost major momentum, too. Between January and June the monthly rise in prices increased from 0.1 percent to 0.9 percent . Since then, it fell to 0.3 percent in July and back to 0.1 percent last month.

Inflation pessimists can still point to year-on-year inflation rates that remain elevated by historic standards (5.3 percent for the total measure and four percent for the core). But the statistical curve is bending in the right direction on these two counts also, and as I’ve written previously, the annual numbers are still distorted – and therefore rendered useless – by the unusually weak inflation reads generated by last year’s short but steep virus-induced recession.

Further, that slowing monthly momentum counts for a lot because the biggest fear surrounding inflation is that it could feed on itself and spiral out of control, as higher and higher prices convince all sorts of customers for goods and services that prices will only keep increasing. As a result, they can fuel further inflation by stepping up purchases and pushing prices still higher (because greater demand for anything, all else equal, will enable producers and providers to charge more). Weaker monthly inflation figures indicate that these pressures have been easing lately.

Focusing singlemindedly on the core carries risks, though. Principally, food and energy prices may well belong in their own analytical category when it comes to measuring inflation. But when it comes to living life day-to-day, it’s another story altogether – since it’s hard to imagine living without them. So price trends could still be hammering consumers and businesses, and in turn the broader economy, even though the core inflation rate is signaling that all’s well.

Just as important, food and energy costs are so important that, if they last long enough, they could feed persistent inflationary fires throughout that broader economy.   

Another potential reason to check inflation optimism: The Labor Department also reported today that price-adjusted hourly wages climbed month-to-month by 0.4 percent. That’s the first positive monthly number since December’s 0.8 percent. A single data point proves little, especially in the pandemic era, but if wages begin advancing faster than overall price increases, many businesses will try to respond to these higher costs by hiking their prices – potentially adding new momentum to inflation.

The consistent drop in inflation-adjusted wages, however, between January and July shows that nothing of the kind had been happening, even though most businesses seem to keep complaining about labor shortages (which should be forcing wages – the price workers can command for their services – up strongly).

Moreover, as I’ve repeatedly pointed out, historically, American employers overall have responded to perceived or actual labor shortages by boosting their productivity – that is, using new technologies (like labor-saving equipment or software) or better management, or both, to improve efficiency and better enable themselves to absorb higher prices rather than pass them on to customers.

This scenario may sound bad for workers, and for some over various periods of time it will be. But to me, anyway, the clear lesson of history is that higher productivity does indeed, as the economic conventional wisdom holds, raise living standards (including wages) in general over time by (a) fostering the emergence of wholly new industries (which invariably need new workers); and (b) boosting existing industries’ ability to turn out more goods and services (which invariably creates the need for new workers, too).

At the same time, clearly not all businesses will take this tack. In fact, many are trying to keep wages low for many employees by agitating for more mass immigration. So far, this lobbying hasn’t succeeded, but it’s still way too early to say that workers have now regained enough bargaining leverage to ensure that their after-inflation pay continues rising robustly.

Wage increases (which I believe are long overdue) may also come to an end, or slow significantly, if weaker recent inflation stems from weaker economic growth – which would be bad for just about everyone. Unfortunately, the last monthly jobs report (also for August) and two important growth forecast series indicate that that’s precisely the case. (See here and here.)

But let’s close on a highly revealing note: One of the sources of these forecasts, the Federal Reserve Bank of New York, has just decided to suspend releasing these projections until it can figure out how to adequately take into account “The uncertainty around the pandemic and the consequent volatility in the data….” If this august institution, with its legions of Ph.D. economists, is telling us that assessing the economy’s direction and fundamental health is currently a mug’s game, that seems like a pretty good reason for caution in interpreting the new inflation report, too.

(What’s Left of) Our Economy: Will Government Keep (Indirectly) Driving U.S. Job Creation?

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Employment, healthcare, Jobs, Labor Department, Occupational Outlook Handbook, private sector, social assistance, subsidized private sector, {What's Left of) Our Economy

Predicting almost anything about the economy ten years or so out is a pretty risky business – which is why I rarely make such forecasts and don’t obsessively follow those made by others. But for many years, I’ve been tracking the growth of what I call the subsidized private sector in the U.S. employment picture. And the U.S. government just came out with a study taking the story out to 2030. So my curiosity was piqued, and because the ever greater importance of such employment speaks volumes about the strengths and weaknesses of the American economy, its workers, and their prospects, I hope yours will be, too.

The big takeaway? According to the U.S. Labor Department’s new Occupational Outlook Handbook, jobs in the healthcare and social assistance sectors will keep rising through the end of the decade as a share of all U.S. jobs – and this shouldn’t be seen as good news.

As I’ve pointed out repeatedly (e.g., here), this isn’t to say that healthcare or social assistance aren’t important for any number of reasons that should be obvious. Economically speaking, however, they’re problematic for two related reasons. First, although they’re technically classified as private sector jobs, their employment levels are largely determined by decisions made by politicians to provide funding, not market forces.

And that funding – or subsidization – is massive. A think tank called the Tax Policy Center pegged federal spending on healthcare alone (by far the biggest industry in the subsidized private sector) at $1.2 trillion in fiscal year 2019. A related research organization, the Urban Institute, reported that state and local governments poured $301 billion into health and hospitals during the previous fiscal year. (That’s the latest such data I could find.) If the state and local figure stayed the same in 2019, this public spending would have added up to just over seven percent of the entire U.S. economy and more than 40 percent of all government outlays that year.

The second reason to be concerned about outsized job growth in this subsidized private sector is that typically, the real private sector is the economy’s main source of innovation and productivity growth, which in turn area major foundations of sustainable prosperity – and therefore of the ability to pay for government in a financially responsible way, as opposed to more and more borrowing. A subsidized private sector punching above its job-creation weight is a sign that the real private sector’s economic role is shrinking in relative terms.

And the Occupational Outlook Handbook says that these trends will continue through 2030. Specifically, whereas other Labor Department data show that subsidized private sector jobs accounted for 16.11 percent of all U.S. non-farm jobs (the Labor Department’s definition of the American employment universe, which includes government jobs at all levels as such) in February, 2020 (just before the CCP Virus pandemic arrived in force), the Handbook‘s figures indicate that this figure will rise to 16.86 percent by the end of the decade.

In addition, subsidized private sector jobs will have climbed from 18.94 percent of all real private sector jobs in February, 2020 to 19.80 percent in 2030.

For some perspective, in June, 2009 (the end of the Great Recession that followed the global financial crisis), the subsidized private sector represented only 14.97 percent of jobs in the non-farm sector and 18.09 percent of those in the real private sector.

Conseqently, it should be no surprise that the Handbook‘s projections indicate that real private sector jobs will have fallen from 68.92 percent of all non-farm jobs in February, 2020 to 68.29 percent.

These shifts may look like small beans. But economies and workforces as massive as America’s don’t change much overnight (unless they’re hit by an outside shock like the pandemic). Also, the Labor Department could be wrong, even if the next few years are relatively tranquil. Yet its predictions track well with recent (pre-CCP Virus) trends.

So even though I haven’t been monitoring subsidized private employment developments during the virus period (because like pretty much all other economic statistics, they’ve been so distorted), I’ll resume checking them periodically again and hoping the trend lines start moving in different directions.

(What’s Left of) Our Economy: U.S. Manufacturing Hiring’s Sloughing Off Delta – For Now

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aerospace, aircraft, aircraft engines, aircraft parts, appliances, automotive, Boeing, CCP Virus, China, coronavirus, COVID 19, Delta variant, electrical equipment, Employment, fabricated metal products, food products, healthcare goods, Jobs, logistics, machinery, manufacturing, medical equipment, metals, non-farm payrolls, pharmaceuticals, plastics and rubber products, PPE, private sector, semiconductor shortage, supply chains, tariffs, transportation, vaccines, {What's Left of) Our Economy

This morning’s official monthly U.S. jobs report (for August) brought a notable departure from recent trends. Athough the overall results were lousy (as total employment rose by just 235,000 during the month), manufacturing hiring soared by 37,000.

It’s true that nearly two-thirds of these gains (24,100) came from the automotive sector, which has been roiled recently by a shortage of semiconductors that’s wreaked havoc on the output of today’s increasingly electronics-stuffed vehicles. It’s also true that this progress might be snuffed out soon by the still widening spread of the CCP Virus’ highly infectious Delta variant and whatever new curbs on economic activity and consumer behavior it might keep prompting.

But it’s also true that domestic industry’s strong hiring in August came during a month when Delta had already become front-page news – which surely expains much of the much-weaker-than expected rise last month in overall non-farm payrolls (NFP – the U.S. jobs universe of the Labor Department that produces the employment data).

And it’s true as well that the major upward revision revealed to the July manufacturing jobs increase (all the way from 27,000 to 52,000 – the best such performance since last August’s 55,000) entailed much more than the vehicles and parts sectors (where the hiring advance was judged to be 10,500 instead of merely 800).

For example, July’s machinery jobs gains were upgraded from 6,800 to 9,100 (its strongest monthly result since last September’s 12,200); those for electrical equipment and appliances was estimated at 1,500 instead of 200; and employment in the plastics and rubber sectors was pegged at 2,300, not 300.

Despite its last excellent two months, U.S.-based manufacturing remained a job-creation laggard during the pandemic period as of August. But it became less of a laggard. Since the deep CCP Virus- and lockdowns-induced downturn of March and April, 2020, when manufacturers shed 1.385 million jobs, these companies have boosted employment by 1.007 million – erasing 72.71 percent of those losses. That share of regained jobs is up from the 68.74 percent level it reached in July.

That’s faster improvement than registered by the private sector, whose regained job percentage rose from 76.96 to 78.72, and by the total non-farm economy, where the advance rose from 74.50 percent to 76.60 percent.

Moreover, it’s important to remember that during the economy’s spring, 2020 woes, manufacturing employment suffered less than payrolls in the rest of the economy. Its job levels fell by 10.82 percent, compared with 16.46 percent for the private sector and 14.66 for the entire non-farm economy.

As with the July revisions, the list of significant manufacturing employment winners in August was hardly confined to the automotive industry. Among the major industry categories used by the U.S. government, fabricated metal products payrolls increased by 6,600 on month (the highest sequential boost since March’s 10,100); plastics and rubber products by 3,100 (its best such performance since February’s 4,500); and food manufacturing (1.600).

The biggest July jobs losers were electrical equipment and appliances (down 3,100, for its worst hiring month since January, when its payrolls fell by 3,400) and miscellaneous durable goods (a category containing personal protective equipment – PPE – and other medical supplies crucial for fighting the CCP Virus), whose 1,800 jobs lost were the worst such total since the entire economy’s spring, 2020 meltdown.

Also somewhat discouraging – job creation in the machinery sector, whose products are used elsewhere in manufacturing and throughout the rest of the economy, flatlined in August following its big 9,100 July spike.

The most detailed employment data for pandemic-related industries is one month behind those in the broader categories, but their July job-creation performance was decidedly mixed. In surgical appliances and supplies (the sector containing PPE and similar goods), May’s previously reported payroll decline of 900 is now judged to be a drop of 1,900, but June’s 500 jobs increase remained intact and was followed by an identical improvement in July. As a result, employment in this crucial national health security sector is now 9.22 percent above immediate pre-pandemic levels.

The overall pharmaceuticals and medicines industry saw hiring slow down notably in July – from a downwardly revised 2,300 in June to 400. May’s downwardly revised loss of 300 jobs stayed intact. These changes left payrolls in the sector 4.72 percent above February, 2020’s immediate pre-pandemic levels.

The story was little better in the pharmaceuticals subsector containing.vaccines. Its May and June employment gains are still judged to be 1,000 each, and no jobs at all were added in July. But its workforce is still 10.21 percent higher than just before the pandemic.

The July results showed that aircraft industry employment is still on a roller coaster, since Boeing is still struggling to overcome the manufacturing and safety issues it’s faced in recent years, along with the CCP Virus-related slump in business and leisure travel. May’s 5,500 monthly plunge in employment was unrevised in this morning’s figures, June’s 4,500 increase was upgraded to 4,700, but payrolls retreated again in July – by 1,500. Due to all these fluctuations, aircraft employment fell to 8.08 percent below its levels just before the pandemic arrived in force in the United States.

The aircraft engines and parts industries added 200 employees on month in July, but June’s previously reported increase of 500 was downgraded to 400. As a result, payrolls are down fully 14.80 percent since immediate pre-pandemic February, 2020.

It’s still possible that the Delta, or some other, CCP Virus variant will lower the boom on domestic manufacturing employment going forward – both because economic activity and therefore demand for manufactured goods will stagnate or drop not only in the United States, but in industry’s important foreign markets. Supply chain snags are no sure bet to clear up any time soon, either.

Nonetheless, U.S.-based manufacturing is still clearly benefiting from the Trump tariffs continued by President Biden that are pricing huge amounts of metals and Chinese-made goods out of the domestic market. Vast amounts of economic stimulus are still pouring into the American and foreign economies. And there remains tremendous pent-up demand among U.S. consumers and businesses alike, due to the lofty heights that household savings have reached and to clogged logistics systems. (A “hard” infrastructure bill will help U.S.-based manufacturers, too. But despite efforts to speed up the permitting process, regulations that can long delay the launch of new projects still may mean that the much of the new work will take months and even years before they’re “shovel ready.”)

And as I keep pointing out, those with the most skin in this game – domestic manufacturers themselves – keep professing optimism. (See, e.g., here and here.) That last consideration still tilts the balance toward manufacturing bullishness for me.

(What’s Left of) Our Economy: Even Pre-Delta, the CCP Virus Kept Roiling U.S. Trade Flows

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CCP Virus, China, coronavirus, COVID 19, Delta variant, exports, goods trade, imports, Made in Washington trade flows, manufacturing, non-oil goods trade deficit, services trade, supply chains, Taiwan, Trade, trade deficit, Wuhan virus, {What's Left of) Our Economy

Today’s official monthly U.S. trade figures (for July) revealed once again how the tumultuous stop-start nature of the nation’s CCP Virus-era economy keep greatly complicating figuring out its real health and whether it’s improving. That goes double for assessing whether the economy is returning to pre-virus normality.

As you may remember, last month I wrote that the June data “brought to an end for the time being the pattern this calendar year of the total U.S. deficit and goods shortfall statistics stabilizing on a monthly basis, along with the crucial non-oil goods gap data.” (The non-oil goods numbers represent that portion of U.S. trade flows most heaviy influenced by trade policy decisions – which is why I’ve dubbed this category “Made in Washington” trade.)

The reason: The U.S. Census Bureau, which tracks the trade flows, reported that the combined goods and services trade gap widened by 6.70 percent, to $75.75 billion in June – an all-time high that broke the $72.72 billion record set in March.

Today, however, the June total trade shortfall was revised down to $73.23 billion – a record till this morning, but 3.33 percent lower (a downgrade that’s really big by Census Bureau standards). Moreover, the July overall trade deficit came in at just $70.05 billion, which is right in line with the January-May average that so encouraged me last month.   

These fluctuations came mainly before the virus’ Delta variant struck the United States with full force, so such progress could vanish by next month. All the same, it’s reasonable to observe that the combined deficit shrunk for the best combination of reasons from a U.S. standpoint. Total goods and services exports climbed by 1.31 percent to $212.83 billion, the highest such level since May, 2019’s $213.97 billion. And overall imports dipped by 0.15 percent, from June’s slightly downwardly revised $283.31 billion to $282.88 billion – a total that’s still the second highest ever.

Even better, this deficit’s 4.34 percent sequential decline was achieved even though the long-time U.S. services trade surplus plunged by 11.77 percent on month. Of course, services have been the segment of the American and global economies that have been hit hardest by CCP Virus-related disruptions (think, especially, travel and transportation in general). But it’s still noteworthy that this July level was the lowest since September, 2012 (way before the pandemic), and the monthly decrease was the biggest since August, 2008’s 14.03 percent plummet, in the midst of the Great Recession that followed the global financial crisis.

At the same time, the services trade surplus number reported today for June ($20.03 billion) was revised up a mind-boggling 14.94 percent from the previously judged level of $17.43 billion. So that’s another reason to suspend judgment on any of these most recent virus-era economic data.

Keeping this (big) caveat in mind, the goods trade numbers released today were definitely good news. The chronic deficit in this portion of America’s trade flows (by far the biggest) sank sequentially by a healthy 5.93 percent, to $87.72 billion. That’s the lowest such total since April’s $87.09 billion, and the new June figure was revised only slightly higher, so this decline looks genuine so far.

In addition, goods exports in July, which increased by 1.83 percent on month, to $148.59 billion, set their fourth straight monthly record. July goods imports were off 1.20 perent sequentially from June’s all-time monthly high of $239.18 billion. But the $236.31 billion total was still the third highest ever.

The deficit reduction in that non-oil goods trade category was encouraging as well. At 6.91 percent, it was bigger than that for goods overall, and the greatest monthly fall-off since February, 2020’s 7.91 percent – when the original outbreak of the CCP Virus was still keeping much of China’s export-heavy economy at a standstill.

Of course, continuing snags in global supply chains are doubtless holding down U.S. exports, imports, and deficits, so they add up to another virus-related reason for caution in interpreting any single month’s trade data. But these disruptions have marked the entire CCP Virus period, so the July improvements can’t be written off entirely.

That goes for China-related trade flows as well. Especially important is that the July bilateral goods deficit of $28.65 billion was just 2.89 percent larger than June’s $27.84 billion, and represents the eight straight month when these results have stayed in the same neighborhood. That development sure looks like a sign that the Trump administration tariffs that President Biden has continued are still impeding China’s access to the U.S. market. So does the fact that, on year, the China goods trade shortfall has risen much more slowly (14.98 percent) than the total U.S. non-oil goods shortfall that’s its closest global proxy (21.39 percent).

The news on the U.S. trade manufacturing front was good, too – but only in relative terms. Despite the 3.12 percent monthly decrease in domestic industry’s huge, chronic trade deficit from last month’s record $114.06 billion total, the July figure of $110.50 billion was still the second biggest on record.

On month, manufacturing exports dipped by 1.90 percent, from $97.06 billion to $95.22 billion. But the much greater amount of imports was down 2.56 percent, from $211.11 billion to $205.72 billion.

Year-to-date, the manufacturing deficit is up fully 25.42 percent this year, to $732.62 billion, and is on track to shatter the annual record of $1.11277 trillion set just last year.

From January-to-July, 2020 to the same seven-month stretch this year, manufacturing exports have jumpe by 18.80 percent, to $642.16 billion. But the much greater amount of manufacturing imports has surged by 22.24 percent, to $1.37477 trillion.

In other notable July trade developments, the U.S. goods deficit with Taiwan, now the world’s leader in semiconductor manufacturing technology, hit its fourth straight monthly record ($3.62 billion), and the goods gap with Japan, another tech and manufacturing powerhouse, rocketed up month-to-month by 27.43 percent, to $6.29 billion. This total was the highest since last November’s $6.78 billion. And the Canada goods deficit retreated by 22.05 percent from as June total of $5.46 billion that was its highest since October, 2008.

(What’s Left of) Our Economy: New U.S. Figures Show Inflation is Looking More Transitory

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CCP Virus, coronavirus, COVID 19, deflation, Delta variant, Federal Reserve, inflation, interest rates, lockdowns, monetary policy, QE, quantitative easing, recession, recovery, reopening, Wuhan virus, {What's Left of) Our Economy

Normally, a 5.28 percent annual U.S. inflation rate for July reported today by the Labor Department wouldn’t be seen as good news. Ditto a comparable 4.24 increase in prices excluding food and energy (the so-called core rate, which strips out these categories supposedly because they’re so unusually volatile and don’t necessarily reflect the forces influencing prices overall).

Since these times aren’t normal, due to the CCP Virus pandemic, and since they may well not return to normal for quite a while, due to alarm over the latest, highly infectious Delta strain, times may not become normal any time soon, “We’ll take it for now” strikes me as the only reasonable reaction.

In terms of how U.S. leaders, including the Federal Reserve, should react, tentativeness is justified, too. But the new figures add to the evidence that the recent surge in U.S. inflation is likely to be a “transitory” phenomenon (as Fed-speak calls it) that doesn’t warrant any significant monetary policy moves to cool off the economy (like raising interest rates or moderating or reducing the central banks’ monthly bond purchases – the so-calle Quantitative Easing, or QE, program).

As I’ve argued previously (see, e.g. here), the year-on-year numbers actually prove little – because the virus and the recession and curbs on economic activity it prompted weakened prices to such a remarkable degree, and because the relatively quick reopening starting in late spring, 2020, and the historically explosive growth it ignited, generated such strong catch up. Think of a coiled spring getting released.

Skeptical? From February through July, 2020, overall prices in America dropped on net, and such deflation marked core prices from February through June.

That’s why I look instead at the month-to-month price increases this year. And they definitely point to a significant recent slowing inflation by both measures. Here are the sequential numbers for the overall rate reported today (known as the “Consumer Price Index for All Urban Consumers,” or CPI-U for short);

December-January: 0.26 percent

January-February:   0.35 percent

February-March:     0.62 percent

March-April:           0.77 percent

April-May:              0.64 percent

May-June:               0.90 percent

June-July:                0.47 percent

What’s at least as important as recent signs of inflation slowing is the absence of signs of inflation taking off. They matter because expectations of inflation themselves can become major inflation fuel by causing businesses to boost purchases of inputs above normal rates to avoid greater expenses down the road. The resulting spiral effect can be difficult to halt without the Fed literally slamming the brakes on the entire economy and even producing a recession.

Now here are the monthly increases for core inflation:

December-January: 0.03 percent

January-February:   0.10 percent

February-March:     0.34 percent

March-April:           0.92 percent

April-May:              0.74 percent

May-June:               0.88 percent

June-July:               0.33 percent

The pattern isn’t identical to that for overall inflation, but it’s pretty similar.

The other main body of evidence arguing for abnormally high inflation turning out to be temporary has to do with some of the main engines of the recent price increases. As noted in last month’s post, the surge-y June inflation figures were led by products and services like used cars and trucks (up 10.5 percent month-to-month), vehicle rentals (up 5.2 percent), and hotel and motel rates (up 7.9 percent). These results could be traced either to the stop-start nature of the economy during the pandemic period and consequent bottlenecks and shortages, or to the arrival of the vacation season to a nation long afflicted with cabin fever and hoping that the virus was being beaten.

The July monthly price changes for these items? Used vehicle prices inched up a bare 0.2 percent, vehicle rental prices actually sank by 4.6 percent, and hotel and motel room prices cooled to 6.8 percent. Clearly the latter remain high. But airline fares, whose monthly price increases had already fallen from 10.2 percent in April to seven percent in May to 2.7 percent in June became 0.1 percent cheaper in July.

There’s no guarantee of course that the July numbers will continue the inflation-slowdown trend. But the bad news is that the main reason is anything but good. It has to do with the distinct possibility that the rapid Delta-induced increase in CCP Virus cases will keep prompting a return to business restrictions and behavior curbs that will undermine economic growth. In turn, that would greatly complicate business’ efforts to pass on whatever cost increases they’re dealing with.

If this pattern takes hold, the rising price spiral dynamic could shift into reverse, bringing the economy back to the deflationary days of 2020. And even worse – this kind of spiral can be harder to break than inflationary spirals. For in these circumstances, consumers and businesses hold off on many purchases because they believe prices will drop even further – and production and hiring therefore fall off, too.

In addition, if robust growth continues, along with inflation it views as unacceptably high, the Fed could seek to stabilize prices by slamming on those economic brakes.   

For now, though, the July inflation numbers should be seen as encouraging.  They may amount to favors that are small (and transitory themselves), but they’re still worth being grateful for. 

(What’s Left of) Our Economy: The Revisions Outshone the New U.S. Manufacturing Jobs Gains

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aircraft, aircraft engines, aircraft parts, appliances, automotive, Boeing, CCP Virus, China, coronavirus, COVID 19, Delta variant, electrical equipment, Employment, fabricated metals products, Jobs, Labor Department, machinery, manufacturing, medicines, metals, miscellaneous durable goods, NFP, non-farm payrolls, personal protective equipment, pharmaceuticals, PPE, recovery, tariffs, Trade, vaccines, Wuhan virus, {What's Left of) Our Economy

Although U.S. manufacturers grew their payrolls by a solid net 27,000 in July, according to the Labor Department’s new jobs report for the month, the big story for industry lies in the June revisions. As often the case during the CCP Virus era, moreover, these were dominated by the automotive sector.

Specifically, June’s initially reported monthly 15,000 manufacturing jobs increase was boosted all the way up to 39,000. And the automotive numbers for June executed a stunning turnabout – from an estimated loss of 12,300 to a gain of 2,700. By contrast, net hiring in the vehicles and parts sectors for July was a quiet 800.

The May manufacturing employment revisions were less dramatic – from an increase 39,000 to one of 36,000. But that month had already witnessed its own huge revision – from an initially reported 23,000 to that 39,000.

Outside automotive, the June revisions were widespread through manufacturing, led by electrical equipment and appliances, whose employment increase that month was upgraded from 1,700 to 3,600. (Its July net job creation was a mere 200.)

Even with the strong revisions, though, manufacturing’s recent status as a U.S. recovery employment laggard continued. As of July, domestic industry had regained 952,000 (68.74 percent) of the 1.385 million net jobs lost in March and April of 2020. The numbers for the private sector overall are 76.96 percent of the 21.353 million lost jobs that have been recovered, and for the total non-farm economy (the definition of the American employment universe used by the U.S. government, which includes government jobs) 74.50 percent of the 22.362 million jobs lost.

One reason, of course, is that manufacturing employment suffered less than payrolls in the rest of the economy in the early spring of 2020. Its job levels fell by 10.82 percent, compared with 16.46 percent for the private sector and 14.66 for the entire non-farm economy.

At the same time, U.S.-based industry is still benefiting from stiff tariffs on metals and goods from China, and like the entire economy, is being supported by massive government stimulus along with skyrocketing vaccine production. This puzzle may be explained by the bottlenecks and resulting shortages plaguing all industries, and by the introduction of labor-saving equipment and other restructuring to substitute for the workers so many manufacturers claim are so hard to find. But as I wrote in last month’s examination of the June jobs report, I’m not completely convinced yet by either explanation.

The biggest July manufacturing employment winners by far of the major industry categories used by the U.S. government were machinery (6,800), miscellaneous durable goods (5,500), and fabricated metals products (4,500).

The performance of the first two is especially encouraging, since machinery’s products are used so widely throughout the entire economy (and since robust hiring therefore signals widespread overall strength and healthy capital spending); and since miscellaneous durable goods includes the personal protective equipment (PPE) and other medical supplies whose importance has been underscored by the pandemic.

Indeed, as a result of their July jobs gains, machinery employment has risen to within 3.30 percent of its immediate pre-pandemic level (in February, 2020), and the comparable figure for miscellaneous durable goods is 1.09 percent higher. (More on the performance of its PPE-including category will be presented below.) Both figures are better than that for manufacturing overall, whose payrolls are still 3.38 percent lower than just before the CCP Virus began significantly affecting the economy.

The only July manufacturing jobs losers suffered overwhelmingly fractional sequential setbacks, led by transportation equipment overall (the category containing automotive, where employment sank by 1,500) and semiconductors and electronic components, where global shortages undoubtedly had much to do with its job loss of 800.

Returning to the pandemic-related industries, where the data are one month behind, the picture in surgical appliances and supplies (the sector containing PPE) is dominated by a big downgrade in the May numbers – from a gain of 1,700 to a loss of 900. And in June, 500 more positions were shed. As a result, employment in this crucial national health security sector has fallen to 7.60 percent above immediate pre-pandemic levels.

In the overall pharmaceuticals and medicines industry, a slightly upgrade of May’s originally reported 400 job loss (to a drop of 300) was followed by a June rise of 2,700 – the biggest monthly advance since September, 2019’s 3,500 (well before the CCP Virus arrived). Its employment levels have consequently climbed to 4.72 percent above their February, 2020 figure.

The pharmaceuticals subsector containing vaccines showed continued good job growth, with May’s unrevised 1,000 improvement followed by an identical June increase. This industry now employs 10.20 percent more workers than just before the pandemic.

Aircraft employment levels have fluctuated wildly recently, due surely to the constant barrage of news both good and bad about Boeing. May’s 5,500 job plunge – the worst such performance since June, 2020’s 5,800 shrinkage – was followed by a June gain of 4,500. That’s its best hiring month since the same number of workers was added in July, 2012. But aircraft employment is still 7.55 percent less than in February, 2020, when the pandemic’s spread globally decimated air travel worldwide. On a more positive note, however, Boeing seems to believe the worst is over.

Aircraft engines and parts employment has been much more stable than aircraft’s, and these industries added 500 workers in total in June. But their payrolls are 14.91 percent smaller than in February, 2020 – nearly twice as big a proportional drop as in aircraft.

What’s next for domestic manufacturing employment? Last month I saw plenty of sources of uncertainty, ranging from bottlenecks to the infrastructure legislation to China tariff policy. Now there’s the virus’ hyper-contagious (but so far less harmful) Delta variant to contend with, and all the resumed lockdowns and other economic activity restrictions it could portend – along with the related likelihood of continued strong and even greater vaccine demand (though the sector isn’t big enough to move the national manufacturing jobs needle much).

I’m still most impressed by how all the national and regional surveys keep showing that manufacturers themselves see a still-brightening future ahead. (See, e.g., here and here.) After all, they’re the ones with skin in the game. Let’s hope they’re right. 

(What’s Left of) Our Economy: More of the (Wrong Kind of) Records in the New U.S. Trade Figures

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Canada, CCP Virus, China, coronavirus, COVID 19, Delta variant, Donald Trump, Europe, exports, goods trade, imports, Made in Washington trade deficit, manufacturing, non-oil goods trade deficit, services trade, Taiwan, tariffs, Trade, trade deficit, trade policy, trade war, Wuhan virus, {What's Left of) Our Economy

About a week ago, I wrote here that the new (second quarter) figures on U.S. economic growth displayed some tentative signs of pre-pandemic normality returning to the nation’s CCP Virus-disrupted trade flows. This morning’s release of the detailed official U.S. trade figures for June reveals that those signs (which came from the inflation-adjusted numbers) were awfully tentative, and that pandemic distortions remain the order of the day.

Indeed, the June trade data brought to an end for the time being the pattern this calendar year of the total U.S. deficit and goods shortfall statistics stabilizing on a monthly basis, along with the crucial non-oil goods gap data. As known by RealityChek regulars, those trade flows can be called the “Made in Washington” portion of U.S. trade, since they make up the category of imports and exports whose levels and changes are most influenced by U.S. trade policy. In that way, they differ from oil trade (which is almost never the subject of trade negotiations and other policy decisions) and services trade (where liberalization efforts worldwide have made only modest progress). Moreover, manufacturing trade in June exhibited the same discouraging characteristics. 

There is one important exception to June’s trend break: The China goods deficit and goods import numbers changed only slightly (for the worse). In fact, they’ve stayed in the same neighborhoods since China’s export-heavy economy rebounded from its own virus-induced shutdown in early 2020. These results look like strong indicators that the Trump tariffs have played major roles in reducing the harm done to the U.S. economy by Beijing’s predatory trade practices. So does the resilience throughout the pandemic shown by U.S. domestic manufacturing – since industry dominates Sino-American trade flows.

But the trade records set in June remain noteworthy. After staying right around $70 billion on average since January (with the exception of a brief March move to just over $75 billion), the combined goods and services shortfall rose 6.70 percent,from $70.99 billion in May to $75.75 billion in June – an all-time high that broke the record set in March.

Since goods make up the great majority of U.S. trade flows, it wasn’t surprising that their deficit pattern was identical. They remained consistently in the high $80 billions since January (also with the exception of March) and then grew in June by 4.53 percent, from $70.99 billion to $75.75 billion. And this total also replaced March’s total as the new record.

The pattern was the same for Made in Washington trade. Its monthly deficit totals, except for March, remained in the high $80 billion range since January, too, then broke out in June from $86.73 billion to $92.42 billion – a rise of 6.56 percent to another all-time high that surpassed a previous March record.

Services trade set no records in June, but its $17.43 billion surplus was the smallest since August, 2012’s $17.08 billion. Because the CCP Virus’ Delta variant hadn’t raised the prospect of more economic curbs back in June, this figure will be worth following closely, since services are so vulnerable to virus-prompted restrictions.

Combined U.S. goods and services exports did bump up by 0.58 percent on month in June, from May’s $206.47 billion to $207.67 billion. In addition, that represented the biggest monthly total since the $209.88 billion recorded in December, 2019 – just before the pandemic is thought to have arrived in the United States. But the much greater amount of total imports climbed by 2.15 percent, from $277.46 billion to a new record of $283.42 billion.

At $145.91 billion, goods exports set their fourth straight monthly record in June. But they continued to improve slowly – by just 0.19 percent over the May total. In fact, since March, they’ve only advanced by 1.57 percent in all on a monthly basis, no doubt in part to relatively sluggish growth in most of the world outside the United States.

The much larger amount of goods imports climbed much faster in June – by 1.84 percent on month, to reach their second straight all-time high of $239.09 billion.

As for services, exports in June advanced by a respectable 1.53 percent, to $61.76 billion. The monthly improvement was the fourth straight, and their best performance since February, 2020’s $69.12 billion. But clearly these levels remain depressed.

Services imports in June also set a post-February, 2020 high ($44.35 billion versus $47.06 billion) and increased for the fifth straight month. But they rose more than twice as fast (3.84 percent) as services exports, and their levels are also well below pre-CCP Virus levels.

America’s non-oil goods exports actually fell sequentially on month in June – by 1.62 percent, from a record $129.66 billion in May to $127.56 billion. The much greater amount of imports, however, grew by 1.66 percent, to $219.98 billion, a level that slightly topped the previous all-time high of $219.68 billion set in March.

The U.S. goods trade deficit with China did worsen in June – from May’s $26.32 billion to $27.84 billion. But the 5.79 percent increase trailed that of the non-oil goods gap, the closest global proxy (6.56 percent). The year-to-date totals tell the same story: The China goods shortfall is up more slowly ( 20.81 percent) than the global Made in Washington deficit (24.59 percent).

Back to the monthly figures, U.S. goods exports to China fell by 2.49 percent between May and June – from $12.41 billion to $12.10 billion. Imports, however, were 3.13 percent higher ($38.73 billion to $39.95 billion).

Especially interesting: On a monthly basis, U.S. goods imports from China have inched up only from $39.11 billion to $39.95 billion. For all non-oil goods by this measure, U.S. imports have risen much faster – from $205.08 billion to $219.98 billion. So it seems clear that the Trump tariffs keep pricing many Chinese goods out of the U.S. market.

But although America’s China and non-oil goods trade shortfalls have stayed fairly stable on a monthly basis since January, its manufacturing trade gap has widened substantially. Already lofty enough during the first month of the year at $99.79 billion, it stood 4.87 percent higher in June – $114.06 billion.

Further, this total broke the previous record of $110.20 billion, set last October.

Domestic manufacturing exports improved by 1.81 percent on month, from $95.33 billion to $97.06 billion. But the much greater amount of imports jumped by 4.49 percent, from $202.04 billion to $211.11 billion.

On a year-to-date basis, moreover, the manufacturing deficit has surged by just under 30 percent. At $622.12 billion as of June, it’s headed toward an all-time annual record.

Other manufacturing records or multi-year highs revealed by the June data included a record monthly deficit of $28.14 billion goods deficit with Europe (including its eastern and western regions, as well as Russia); the third consecutive record monthly goods deficit with new world semiconductor manufacturing technology leader Taiwan ($3.49 billion); and the highest goods deficit with Canada ($5.46 billion) since October, 2008 ($5.65 billion).

A single month’s worth of data doesn’t prove anything, so truly credible judgments about the possible return to pre-pandemic U.S. trade normality still can’t be made based on the data. Also crucial is examining trade figures and their changes against the backdrop of the entire economy’s size and its changes, in order to provide crucial context. When looking at growth and contraction rates in particular the challenge is difficult because trade flow changes only affect the rest of the economy after the passage of some time. 

And of course, if the virus’ Delta variant prompts major, nation-wide U.S. economic restrictions and behavior changes, all trade – and broader economic – forecasting bets are off for the time being.        

(What’s Left of) Our Economy: Dangerous New Bubbles or a Virus Mirage?

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bubbles, business investment, CCP Virus, consumer spending, coronavirus, COVID 19, Financial Crisis, GDP, Great Recession, gross domestic product, housing, lockdowns, logistics, nonresidential fixed investment, real GDP, recession, recovery, reopening, Richard F. Moody, semiconductor shortage, toxic combination, transportation, West Coast ports, {What's Left of) Our Economy

Here’s a great example of how badly the U.S. economy might be getting distorted by last year’s steep, sharp, largely government-mandated recession, and by the V-shaped recovery experienced since then.as CCPVirus-related restrictions have been lifted. Therefore, it’s also a great example of how the many of the resulting statistics may still be of limited usefulness at best in figuring out the economy’s underlying health.

The possible example?  New official figures showing that, as of the second quarter of this year, the U.S. economy is even more dangerously bubble-ized than it was just before the financial crisis of 2007-08.

As RealityChek regulars might recall, for several years I wrote regularly on what I called the quality of America’s growth. (Here‘s my most recent post.) I viewed the subject as important because there’s broad agreement that a big reason the financial crisis erupted was the over-reliance earlier in that decade n the wrong kind of growth. Specifically, personal spending and housing had become predominant engines of expansion – and therefore prosperity. Their bloated roles inflated intertwined bubbles whose bursting nearly collapsed the U.S. and entire global economies, and produced the worst American economic downturn since the Great Depression of the 1930s.

As a result, there was equally broad agreement that the nation needed to transform what you might call its business model from one depending largely on borrowing, spending, and paying for them by counting on home prices to rise forever, to one based on saving, investing, and producing. As former President Obama cogently put it, America needed “an economy built to last.”

Therefore, I decided to track how well the nation was succeeding at this version of “build back better” by monitoring the official quarterly reports on economic growth to examine the importance of housing and consumption (which I called the “toxic combination”) in the nation’s economic profile and whether and how they were changing.

For some perspective, in the third quarter of 2005, as the spending and housing bubbles were at their worst, these two segments of the economy accounted for 73.90 percent of the gross domestic product (GDP – the standard measure of the economy’s size) adjusted for inflation (the most widely followed of the GDP data. By the end of the Great Recession caused by the bursting of these bubbles, in the second quarter of 2009, this figure was down to 71.55 percent – mainly because housing had crashed.

At the end of the Obama administration (the fourth quarter of 2016), the toxic combination has rebounded to represent 72.31 percent of after-inflation GDP. So in quality-of-growth terms, the economy was heading in the wrong direction. And under President Trump, this discouraging trend continued. As of the fourth quarter of 2019 (the last quarter before the pandemic began significantly affecting the economy), this figure rose further, to 73.19 percent.

Yesterday, the government reported on GDP for the second quarter of this year, and it revealed that the toxic combination share of the economy in constant dollar terms to 74.24 percent. In other words, the toxic combination had become a bigger part of the economy than during the most heated housing and spending bubble days.

But does that mean that the economy really is even more, and more worrisomely lopsided than it was back then? That’s far from clear. Pessimists could argue that recent growth has relied heavily on the unprecedented fiscal and monetary stimulus provided by Washington since spring, 2020. Optimists could point out that far from overspending, consumers have been saving massively. Something else of note: Business investment’s share of real GDP in the second quarter of this year came to 14.80 percent – awfully lofty by recent standards.  During the 2005 peak of the last bubble, that spending (officially called “nonresidential fixed investment”) was 11.62 percent. 

My own take is that this situation mainly reflects the unexpected strength of the reopening-driven recovery and the transportation and logistics bottlenecks it’s created. An succinct summary of the situation was provided by Richard F. Moody, chief economist of Regions Bank. He wrote yesterday that the new GDP data “embody the predicament facing the U.S. economy, which is that the supply side of the economy has simply been unable to keep pace with demand.” The result is not only the strong recent inflation figures, but a ballooning of personal spending’s share of the economy.

Moody expects that both problems will end “later rather than sooner,” and for all I know, he (and other inflation pessimists) are right. But unless you believe that West Coast ports will remain clogged forever, that semiconductors will remain in short supply forever, that truck drivers will remain scarce forever, that businesses will never adjust adequately to any of this, and/or that new CCP Virus variants will keep the whole economy on lockdown-related pins and needles forever, the important point is that these problems will end. Once they do, or when the end is in sight, we’ll be able to figure out just how bubbly the economy has or hasn’t grown – but not, I’m afraid, one moment sooner.

(What’s Left of) Our Economy: Glimmers of Trade Normality’s Return?

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CCP Virus, China, coronavirus, COVID 19, Donald Trump, exports, GDP, goods trade, gross domestic product, imports, inflation-adjusted growth, real GDP, real trade deficit, recovery, services trade, tariffs, trade deficit, Wuhan virus, {What's Left of) Our Economy

Has the new post-CCP Virus trade normal finally started coming into view for the United States? One important reason for believing so came in today’s Commerce Department report on economic growth in the second quarter, and the main evidence can be summed up in these numbers: 31.81, 10.92, 8.24, and 2.69.

They represent the sequential rates of increase in the overall inflation-adjusted trade deficit starting with the third quarter of last year and ending with this year’s second quarter. And they show that even though real economic growth remained strong (albeit well below expectations) in the second quarter, the after-inflation trade gap’s size is stabilizing.

There’s no doubt that bottlenecks clogging transport systems all over the world due to the rapid recovery from CCP Virus-induced recessions deserve much of the credit. But given domestic manufacturing’s continued healthy growth despite the aforementioned supply chain and shortage issues, it’s hard to imagine that the Trump tariffs – especially on hundreds of billions of dollars worth of goods from China – haven’t played a big role, too.

But before diving into the gross domestic product (GDP) report’s trade highlights, it’s important to note that they reveal that the economy’s size in price-adjusted terms in the second quarter finally exceeded the scale reached in the fourth quarter of 2019 – the last fully pandemic-effect-free quarter. The nation’s total output of goods and services is only 0.81 percent greater, but it’s a start.

Also worth observing right away – the combined goods and services trade deficit of $1.2590 trillion at an annual rate was the fourth straight all-time record. That’s nearly 50 percent (48.54 percent, to be precise) higher than the fourth quarter, 2019 level of $847.6 billion, so obviously there’s a long way to go to pre-virus days by that standard. According to the more useful measure of the trade deficit’s size as a share of the GDP, the story’s only a little better. At the end of 2019, it stood at 4.41 percent, and in the second quarter of this year, it stood at 6.50 percent. So it’s up by 47.39 percent since the pandemic began significantly affecting the economy.

More progress toward normalization shows up in in the data on the impact of changes in the after-inflation trade shortfall on quarterly growth. For the second quarter of this year, the sequential growth in the real constant dollar trade deficit subtracted 0.44 percentage points from the 6.35 percent annualized expansion of the economy. In other words, had the real trade deficit not increased at all, real growth would have been 6.79 percent at annual rates, or 6.93 percent higher.

In the first quarter, the after-inflation trade deficit’s increase subtracted 1.56 percentage points from 6.14 percent real annualized growth. So that quarter’s after-inflation price-adjusted GDP rise would have been 7.70 percent at annual rates, or 25.41 percent greater. The final pre-pandemic numbers showed that a fourth quarter, 2019 inflation-adjusted trade deficit sequential decrease added 1.43 percentage points to 1.86 percent annualized growth.

Therefore, much ground needs to be made up here, too. At the same time, this particular set of data has been bouncing around a lot since former President Trump began his “trade wars” (in 2018), which led companies throughout the nation and world to adjust their production and especially import patterns dramatically in reactio not only to actual tariffs but to anticipated levies.

The new GDP release estimated that total after-inflation U.S. exports climbed by 1.47 percent sequentially during the second quarter – a reversal of the 0.73 percent quarterly decline during the previous three-month stretch. But at $2.2956 trillion annualized, they’re still 10.09 percent less than the fourth quarter, 2019 result.

Combined inflation-adjusted goods and services imports increased at a slower rate during the second quarter – 1.90 percent sequentially, versus 2.25 percent during the first quarter. But these U.S. purchases from abroad are 4.52 percent higher than just before the pandemic’s arrival. And the immediate pre-pandemic level had already been hit in the fourth quarter of last year.

Moreover, at $3.5547 trillion annualized, total real imports reached their second straight all-time quarterly high.

The constant dollar goods trade deficit level hit a new quarterly record, too – $1.4610 trillion at annual rates. Further, the all-time high was the fourth straight, and this trade gap is now 36.36 percent above the fourth quarter, 2019 pre-pandemic level.

At least this trade shortfall’s sequential growth rate has also been plummeting – from 20.40 percent in last year’s third quarter, when the economy was bursting out of the deep but short virus-and lockdown-induced recession, to 4.66 percent between the first and second quarters of this year.

The service sector continues to be a source of discouraging trade news according to the new GDP read. Its long-time after-inflation real surplus shrank by 6.20 percent between the first and second quarters, and in fact has fallen every quarter snce the second quarter of 2020. As a result, it’s currently 30.55 percent lower than it was in that final pre-CCP Virus fourth quarter of 2019.

Of course, as with the economy and life in general, U.S. trade’s return to normality still depends heavily on huge wildcards like the future of the CCP Virus Delta variant, and whether it will keep spreading fast and long enough to lead governments to reimpose shutdowns and lockdowns.  But the largely pre-Delta GDP numbers released today suggest that if this mutation stays under control, and nothing worse appears, America’s trade performance will keep approaching its pre-virus state.