(What’s Left of) Our Economy: Why This Trade War Hasn’t Been “Easy to Win”

Tags

China, Hong Kong, Huawei, One Belt One Road, Taiwan, tariffs, Trade, trade war, Trump, Xi JInPing, {What's Left of) Our Economy

Friday’s U.S.-China trade war escalation leaves little doubt that I was wrong about the conflict in one major respect. So was President Trump.

Just as Mr. Trump was first unilaterally tariff-ing Chinese products in response to Beijing’s wide-ranging economic predation (which of course extended far beyond trade flows into intertwined investment and technology issues), I confidently stated that Beijing wasn’t about to risk antagonizing its most important market by far with any retaliatory moves. Indeed, although I didn’t agree with his near-blanket statement that “trade wars are good,” I was fully on board with his claim that they’re “easy to win” – or at least reasonably so.

China’s announcement yesterday of new tariffs on $75 billion worth of American goods in response to the most recent round of Trump trade levies was just the latest evidence that Chinese leader Xi Jinping in fact has little compunction about risking American official ire and even believes he might prevail.

Even so, the President and I have an excuse. Our mistake wasn’t maintaining that the bilateral economic balance of power didn’t overwhelmingly favor the United States. Just check out the new claim by the founder of Huawei that U.S. national security sanctions – which could cut the Chinese tech giant off from access to the  U.S.-brand semiconductors central to its products operations – has confronted this entity with a “life and death” crisis. Moreover, trade flows remain as grotesquely lopsided as ever, meaning that the export-heavy Chinese economy still remains much more dependent for adequate growth on selling to the United States than vice versa.

Instead, our mistake has been underestimating just what a delusional bonehead Xi is, and how he can’t seem to resist the temptation to overestimate China’s power and prospects. He’s clearly overreaching in his treatment of Hong Kong, in the process courting a global public opinion backlash that’s likely to dwarf that following the Tiananmen Square massacre of 1989 – and turn him into a rival and even replacement for President Trump himself as a worldwide punching bag. He’s clearly overreaching regarding Taiwan, even given Beijing’s longstanding view of the island as a renegade province and equally longstanding practice of threatening it militarily. As a result, the United States will be selling the Taiwanese armed forces $8 billion worth of advanced fighter jets. He’s also clearly overreaching in connection with his ballyhooed One Belt One Road global infrastructure project – which is increasingly being recognized as at best the biggest potential white elephant in world history and at worst an equally gargantuan engine of pollution and corruption.  (See, e.g., this post for a typically negative review.)

Even more noteworthy are the signs that Xi’s trade war overreaching is seriously damaging China’s own economy. Just a few of the recent signs: the lowest overall economic growth rate in 27 years; the worst industrial production growth (which includes mining and utilities as well as manufacturing) in 17 years; and all-time record official unemployment in China’s cities.

That last milestone is especially important, since keeping people at work is the top economic priority for China’s leaders. The reason: jobless Chinese workers could turn into politically restive Chinese workers, and pose big dangers to the employment status of Xi and the rest of the ruling Central Committee.

And surely more worrisome for Xi: He must know better than most that China’s official economic data strongly tend to overstate China’s economic performance. In other words, the domestic economic picture is likely even worse than Beijing is letting on.

Why then does Xi keep standing on his high horse? Of course, I have zero inside info. But the only answer that makes sense to me is that he and his colleagues have decided that if they can prick enough American economic fingers (whether among consumers or farmers or investors), the resulting complaints will be amplified through a deafening chorus of gloom-mongering from the staunchly anti-Trump Mainstream Media. Eventually, Americans could talk themselves into a recession that would ensure the election in 2020 of a much more pliable Democrat – chiefly, former Obama Vice President Joe Biden.

That’s not a crazy plan by any means, especially since the President is no slam dunk to win reelection. At the same time, it’s far from clear that Xi or whoever’s advising him on American politics are such whizzes on the subject. If they were, would China under his rule have acted belligerently enough on trade, national security, and human rights to have helped elect Mr. Trump in the first place?

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(What’s Left of) Our Economy: The Trump Effect on U.S. Manufacturing Workers

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blue-collar workers, election 2020, inflation-adjusted wages, Jobs, manufacturing, Obama, real wages, Trump, wages, {What's Left of) Our Economy

There’s no question that President Trump has compiled a solid record when it comes to boosting American manufacturing employment, and the numbers look especially good compared with that of his predecessor, Barack Obama.

Wages, though? They remain another story entirely, and keep raising the question of how convincingly during his reelection campaign the President will be able to portray himself as a godsend to U.S. industry’s workers.

According to the most valid comparison that can be made to date, during the 29 months since Mr. Trump settled into the Oval Office (February, 2017), overall manufacturing employment and blue-collar manufacturing employment are both up considerably faster than during the last 29 months of the Obama administration. Here are the specific percentage gains for the manufacturing sector overall, and for industry’s non-supervisory and production workers – often informally dubbed “blue-collar workers”:

                                                Last 29 Obama months        First 29 Trump months

Manufacturing:                            +1.31 percent                        +3.86 percent

Blue-collar manufacturing:         +0.92 percent                         +3.40 percent

But the average hourly wage figures adjusted for inflation actually flip these results on their head:

                                              Last 29 Obama months          First 29 Trump months

Manufacturing:                           +3.05 percent                           -0.09 percent

Blue-collar manufacturing:         +3.22 percent                          +2.31 percent

It’s true that manufacturing’s blue-collar workers during the Trump era so far have been faring far better than their supervisors (who remain better paid in absolute terms). But the price-adjusted paychecks are growing significantly more slowly than they were during the final Obama years.

Of course, this politics-centric post on manufacturing wouldn’t be complete without discussing how President Trump’s tariffs have affected the picture. And here the script is arguably flipped once again to some extent, at least during the Trump years alone. The table below shows the average monthly jobs gains recorded for manufacturing and blue-collar manufacturing before the first metals tariffs were imposed (March, 2018) and after. Since the time frames differ somewhat, I thought the monthly averages would illustrate the trends more clearly.

                                                   Pre-tariffs                                  Post-tariffs

Manufacturing:                            17.38K                                       15.07K

Blue-collar manufacturing:         11.54K                                           8.6K

After the tariffs, the pace of manufacturing employment increases slowed somewhat, but it slowed much faster for blue-collar manufacturing workers.

Now for the wages results, presented as the average monthly changes in absolute (dollars and cents) terms:

                                               Pre-tariffs                                     Post-tariffs

Manufacturing                        -3 cents                                         +2 cents

Blue-collar manufacturing    +8 cents                                          +5 cents

In sum, after-inflation hourly pay rose slightly after the trade curbs came on after having fallen beforehand. Real wages for blue-collar manufacturing workers rose during both periods, but more slowly after the tariffs.

These results indicate that the President can make a decent case that his administration, and even his tariffs, have helped manufacturing workers on balance. But on the pay front in particular, the story gets complicated – and the kind of rhetorical precision Mr. Trump will need to display to date in order to tout these achievements credibly doesn’t seem to be one of his strong suits.

(What’s Left of) Our Economy: U.S. Manufacturing’s Productivity Lag Just Got Even Worse

Tags

BLS, Bureau of Labor Statistics, labor productivity, manufacturing, multi-factor productivity, non-farm business, productivity, total factor productivity, {What's Left of) Our Economy

If there were two of me, I could have reported yesterday on both the new industrial production figures from the Federal Reserve and the new labor productivity data from the Bureau of Labor Statistics (BLS) that came out. Because progress in cloning tech has been incredibly disappointing, and since Washington keeps often pairing such releases, I had to choose one (the former). But the latter’s importance should never be forgotten, especially since it shows manufacturing’s performance on this crucial front has actually deteriorated, at least in a relative sense. This development, in turn, has big implications for President Trump’s tariff-heavy trade policies.

After all, these Trump levies, whether on metals or on products from China, increase cost pressures at various stages of individual companies’ production process or at various stages of industry supply chains when (as they often do) they cross national borders.

As a result, the companies involved can respond with various combinations of the following measures: They can increase the prices they charge to their customers (whether they’re other businesses, in the case of inputs used in producing goods and services, or consumers, in the case of the kinds of products sold by retailers). They can find alternative sources of supply (which rarely happens right away). They can eat the higher costs, and accept lower profits, in hopes of preserving market share. Or they can improve their productivity, and therefore offset the impact of higher costs through improved efficiency.

That last option is (which involves more than simple cost-cutting) is the best for the economy, including for workers, in the long run, since it’s a time-tested formula for boosting growth and living standards on a sustainable basis. But manufacturing’s deteriorating record in this regard indicates that American industry overall is failing this test.

To remind, labor productivity is the narrower of the two such measures of efficiency tracked by the BLS. It simply reveals how much of a particular good or service can be produced by the relevant workforce (adjusted for inflation) per each hour on the job. As the name implies, the broader measure, multi-factor productivity (also called total factor productivity) measures output per worker hour as a function of the use of many different inputs – e.g., capital and energy, as well as labor.

The manufacturing labor productivity lag becomes clear upon examining the latest results. It’s true that the sector’s first quarter sequential growth (at an annual rate) was revised up from 0.4 percent to 1.1 percent. But the comparable figure for non-farm businesses (BLS’ definition of the American economic universe for productivity measurement purposes) was much better – a 3.4 percent annualized gain revised up to 3.5 percent.

The gap widened further in the second quarter, at least according to yesterday’s preliminary results. Non-farm business labor productivity rose again, albeit at a slower 2.3 percent annual rate. But in manufacturing, labor productivity actually fell in absolute terms – by 1.6 percent at an annual rate.

Even more alarming are the longer-term trends, which are especially visible thanks to the labor productivity revisions going back to 2014 released by the Labor Department along with the preliminary second quarter results. Here are the pre-revision results for the last three economic expansions, including the one still ongoing, through the first quarter of this year. (RealityChek regulars know that the most useful economic analyses compare results during similar stages of the business/economic cycle.)

                                                                           Non-farm business   Manufacturing

1990s expansion (2Q 1991-1Q 2001):                 +23.74 percent      +45.86 percent

bubble expansion (4Q 2001-4Q 2007):                +16.59 percent     +30.23 percent

current expansion: (2Q 2009 thru prev 1Q19):    +12.18 percent        +9.59 percent

These numbers demonstrate how the growth rate of labor productivity in manufacturing has slowed much more dramatically than that of the overall non-farm business sector.

Here are the results for the current expansion incorporating the revised first quarter figures:

                                                                          Non-farm business    Manufacturing

1990s expansion (2Q 1991-1Q 2001):               +23.74 percent        +45.86 percent

bubble expansion (4Q 2001-4Q 2007):              +16.59 percent        +30.23 percent

current expansion: (2Q 09 thru revd 1Q19):      +12.16 percent          +9.64 percent

Manufacturing’s performance ticked up and the non-farm business sector’s performance ticked down, but the big picture didn’t change much. And now for the results incorporating the preliminary second quarter results:

                                                                        Non-farm business   Manufacturing

1990s expansion (2Q 1991-1Q 2001):              +23.74 percent       +45.86 percent

bubble expansion (4Q 2001-4Q 2007):             +16.59 percent       +30.23 percent

current expansion: (2Q 09 thru prelim 2Q19):  +12.80 percent         +9.19 percent

Because of the second quarter’s non-farm business growth and manufacturing’s decline, the gap between the two became even bigger – and manufacturing’s longer-term slowdown became even more dramatic. 

And as if this big picture wasn’t bad enough, let’s not forget that much of manufacturing’s recent recorded labor productivity gains have come from a methodological oddity that results in the offshoring of production strengthening the labor productivity results.  That’s the kind of productivity improvement that the domestic economy clearly doesn’t need.  And revealingly, for all the claims over the years that offshoring is a plus for that domestic economy, including for its workers, the evidence sure isn’t showing up in the manufacturing labor productivity data.   

An optimist could note that these preliminary second quarter results represented manufacturing’s worst readings since the first quarter of 2018, and that the second quarter results can still be revised upward. A pessimist could reply, especially regarding the latter, “They’d better be.”

(What’s Left of) Our Economy: Manufacturing’s Recession Lengthens but Tariffs’ Role Stays Fuzzy

Tags

aluminum, China, Fed, Federal Reserve, industrial production, manufacturing, metals, metals tariffs, metals-using industries, real output, steel, tariffs, Trade, Trump, {What's Left of) Our Economy

The modest momentum showed by domestic manufacturing in the previous two Federal Reserve industrial production reports disappeared in this morning’s edition of the monthly survey, as overall real manufacturing output in July fell month-to-month (by 0.36 percent) for the first time since April. Worse, the new data lengthened domestic industry’s recession, with inflation-adjusted production now off by a hair (0.004 percent) since April, 2018 – a stretch much longer than the two straight quarters of cumulative decline that qualify as a downturn for most economists.

This morning’s Fed numbers also provide some additional evidence that President Trump’s tariff-centric trade policies have begun to erode manufacturing’s performance. But only some. Specifically, whereas in the first months following the imposition of metals tariffs in particular, metals-using sectors were handily beating the rest of manufacturing by every major metric, July’s industrial production numbers showed that their more recent relative performance continues to have been much more mixed.

As usual, nearly all of the best evidence concerns the impact of the tariffs on steel and aluminum, for reasons including their relatively long duration (April, 2018 was the first full month they were in place), and the ease with which metals-using sectors can be identified. And as usual, the table below presents the output data for these sectors since April, 2018, with the data for manufacturing overall used as a control group.

                                              April thru May      April thru June       April thru July

overall manufacturing:          -0.20 percent        +0.36 percent             0 percent

durables manufacturing:       +0.96 percent        +1.47 percent        +1.23 percent

fabricated metals products:  +1.34 percent         +1.89 percent        +0.95 percent

machinery:                            +0.86 percent        +0.57 percent         -0.57 percent

automotive:                           -1.88 percent         +0.60 percent        +0.43 percent

major appliances:                  -2.00 percent          -4.47 percent        -5.99 percent

aircraft and parts:                 +0.73 percent         +2.46 percent        +4.23 percent

These figures show that for three of the five major metals-using sectors tracked (fabricated metals products, machinery, and major appliances), constant dollar output has worsened compared with such production in manufacturing as a whole. Relative performance for automotive and aircraft and parts, however, has improved – as it has for the durable goods super-sector in which the metals users are located.

Keep in mind also that results for the major appliance sector also remain affected by a separate set of product-specific levies on large household laundry equipment that began in February, 2018.

In contrast with the metals tariffs, the first full month for China tariffs of any kind was August, 2018, and the set of goods involved was relatively small. Complicating matters further is the U.S. Trade Representative’s office’s practice of listing the dutied products according to a classification scheme that differs significantly from that used by the rest of the U.S. government to monitor most major indicators of economic performance – including industrial production.

And as previously noted, most of the Made in China products tariff-ed so far have been intermediate goods (parts, components, materials, etc.) whose use by American manufacturers varies widely. Therefore, the impact of tariffs on these products undoubtedly varies widely, too. Moreover, the number of Chinese goods facing tariffs has increased dramatically since last August. Not only were the levies extended to an additional $200 billion worth of such imports from China in late September, 2018, but these duties were raised from ten percent to 25 percent in May, 2019. (See this time-line for the specifics.)

All the same, here are results for a handful of sectors reasonably certain to have faced tariff pressure since last August. Each column measuring real output changes since last August.

                                         August thru May     August thru June     August thru July

overall manufacturing:     -1.09 percent            -0.55 percent           -0.90 percent

ball bearings:                    -2.20 percent            -2.46 percent           -2.27 percent

industrial heating equip:   -4.11 percent            -5.16 percent           -5.21 percent

farm machinery & equip: -7.51 percent            -6.53 percent           -6.91 percent

oil/gas drilling platform: +4.03 percent            +2.22 percent           -0.17 percent      parts

A greater percentage of these sectors (three of four) generated worse performance versus manufacturing overall than was the case for the metals-using sectors. But the sample size is so small, and the the uncertainties so considerable, that these more downbeat results should still be viewed with the utmost caution. Ditto for claims that the Trump tariffs are killing U.S. manufacturing.

(What’s Left of) Our Economy: Trump’s Latest China Tariff Moves – & Why They’re Mistaken

Tags

China, consumer goods, consumers, Hong Kong, inflation, producer goods, tariffs, Trade, trade war, Trump, Xi JInPing, {What's Left of) Our Economy

If you’re confused by President Trump’s latest China tariffs moves, don’t feel bad. They’re really confusing!

Much clearer is their main implication: Once more, the President has needlessly let China off the trade war hook – and significantly reduced the odds of U.S. success no matter how it’s defined.

To summarize the chain of announcements and decisions that have produced the present situation: As of August 1, in various stages, the United States had imposed 25 percent tariffs on $250 billion worth of goods imports from China based on the latest data. And on May 5, Mr. Trump threatened to place tariffs of 25 percent on the rest of China’s merchandise shipments to the United States (about $300 billion worth).

That announcement was seen as especially significant because the previous tariffs mainly hit what businesses and economist call “producer goods” or “intermediate goods.” They’re the parts, components, and materials that companies use to produce final products, including consumer products. As a result, even when they do lead to higher consumer prices, the role played by these duties is difficult for consumers (i.e., voters) to identify, much less complain about to the politicians responsible.

In addition, as I’ve frequently noted (e.g., here), tariffs on these producer goods often don’t lead to any inflation, or much inflation, at all, for a variety of reasons and combinations of reasons. In many instances, retailers and other businesses simply lack the needed pricing power. As a result, they often seek to persuade their entire supply chain to preserve market share by eating some or all of the higher prices and accepting lower profits. Alternatively, various parts of the supply chain – including the final customer – can try to offset tariff-induced price increases by boosting productivity. That’s actually good for the economy in the long run, as improved efficiency not only enables companies to absorb cost increases while maintaining and even increasing margins. Such better productivity tends to spur the development of new efficiency-enhancing products, services, and technologies – a great way to boost living standards in a healthy, sustainable way.

Yet the May Trump $300 billion threat – which stemmed from the President’s unhappiness with the lack of progress in the trade talks with China – would have finally hit most consumer goods imports. Therefore, it would have created the risk that shoppers would blame the President for any price increases they did encounter. Even worse, the timing of the threat practically ensured that these higher prices would start appearing just as holiday shopping heated up – or typically heats up.

In late June, however, after meeting with Chinese leader Xi Jinping at a global summit in Japan, Mr. Trump agreed to a trade truce and to hold off on the $300 billion threat. Two weeks later, though the threat was back on the table, according to a Trump tweet.

On August 1, following a new round of apparently unsuccessful trade negotiations and the President’s belief that China had broken a promise connect with the late June trade truce to buy more American farm products, Mr. Trump specified that ten percent tariffs on the $300 billion worth of consumer goods-dominated imports from China would begin on September 1. Just four days later, his administration announced another “hawkish” trade war decision – officially designating China as a country that manipulated its currency to gain trade advantages (by keeping its products artificially cheap and therefore making goods and services from trade competitors artificially expensive in comparison). At the same time, the currency decision by law doesn’t automatically result in new tariffs, although it could eventually bring about some other penalties.

And yesterday came the latest turnaround: Mr. Trump decided to postpone tariffs on an estimated $160 billion of the $300 billion from September 1 to December 15. Not coincidentally, as his remarks on benefiting holiday shoppers made clear, many of the items on the postponement list included particularly popular gift items like toys and smartphones.

In addition, tariffs on some $30 billion worth of imports from China would be lifted permanently (at least for now!). But new duties on some $110 billion worth of imports from China are at this point slated to go into effect at the beginning of next month, and this group, too, is dominated by consumer goods.

Commentators focusing on the postponed goods called the latest Trump move a cave to China spurred by the President’s fears of a falling stock market, weakening U.S. economy, and angry consumers. Others, pointing to the products that will be slapped with new levies, and to the continuation of previously announced tariffs, insisted that Mr. Trump was keeping considerable pressure on the Chinese.

I lean toward the former interpretation, for these reasons. First, there’s no sign that the President’s forbearance has won any concessions from China. Second, the tight Trump focus on appeasing holiday shoppers can only signal weakness to Beijing, and feed its hopes that it can prevail in the trade and broader economic conflict by waiting for the President to be replaced by a more conventional, more pliable chief executive in 2020. Third, the delay announcement came just before a batch of absolutely terrible economic data was released by China. And given Beijing’s history of publishing overly bullish figures, it’s a safe bet that its economy is even weaker than most recently indicated. Fourth, Xi Jinping is under pressure not only economically, but politically, due to the rising unrest in Hong Kong.

Fifth, it’s true that from the standpoint of China’s longer-term prospects, maintaining the tariffs on its producer goods matters crucially. For this category includes most of the high tech and other advanced manufactures that represent any economy’s hope for continued technological progress, and therefore faster, healthier growth and a stronger military. But the consumer goods matter politically – because since they’re largely labor-intensive in nature, they’re mass employers. And China’s dictators view high unemployment as a mortal danger to their rule.

Sixth, although it’s clear that U.S. investors hate the trade war, the President needs to remember that, however much he likes to tout the stock market as a barometer of his economic performance, these markets and the real economy are by no means identical. We’ll be getting some key economic data tomorrow, when the Federal Reserve releases its new report on industrial (including manufacturing) production. But so far, the manufacturing numbers have shown that, after a soft patch in the winter, both inflation-adjusted output and capital spending are trending upward again. So unless these and other upcoming data break notably from their most recent patterns, recession – and even further slowdown – predictions will keep looking far-fetched.

Importantly, none of the above analysis means that I’ve changed my view that no China trade deal acceptable for U.S. interests is possible because of insurmountable verification obstacles. Instead, America’s only realistic option is to keep disengaging economically from China – both to reduce U.S. economic reliance on an increasingly hostile power, and to weaken further the only country capable of posing noteworthy national security threats. As a result, however, Washington should pass up no opportunity to inflict pain on China’s economy. And although no one would be shocked if he reversed course yet again before too long, that’s exactly the mistake that President Trump just made with his latest China tariffs delay.

(What’s Left of) Our Economy: A Big Fade for Tariffs-Led Consumer Inflation

Tags

aluminum, China, inflation, Labor Department, metals tariffs, metals-using industries, steel, tariffs, Trade, Trump, {What's Left of) Our Economy

Well, that was fast. Last month, when the Labor Department’s consumer price data came out (for June), I observed that they revealed some tariff-led inflation – especially in goods categories that by all rights should be affected by the duties on steel and aluminum that President Trump imposed in March, 2018.

(More such evidence appeared in categories in which tariffs have been placed on Chinese imports. But as continually noted, because of several complications – e.g., shorter duration, great variations in metals-intensity, data classification issues – these results should be considered much less reliable than the metals tariffs statistics.)

Yet this morning’s new consumer price data, for July, shows a significant fade in tariff pricing pressures for the metals users. Part of the reason no doubt is the lifting of the metals tariffs on imports from Mexico and Canada. But they were removed only in late May, so it’s difficult to believe that this decision deserves most of the credit.

Here are the price increases for metals-using industries between June and July, since April, 2018 (the first full month in which the duties were in place), and the year-on-year figures for this June and July. Also included, as always, are statistics for various control groups of goods, including so-called “core inflation” (which strips out volatile food and energy prices), and for the foods and beverages that are sold in metal cans outside of these containers:

                                 June-July      Since April, 2018      y/y June            y/y July

core inflation:      +0.29 percent      +2.79 percent     +2.13 percent   +2.21 percent

fresh fruits           +0.60 percent      +1.67 percent     +0.86 percent   +0.33 percent

  & vegs:

fresh fruits:             0 percent           -1.55 percent      -1.85 percent    -2.74 percent

fresh vegs:           +1.28 percent       +5.49 percent    +4.09 percent   +3.96 percent

processed             -0.68 percent        +0.04 percent    +1.70 percent   +1.45 percent

  fruits & vegs

canned fruits:       -1.56 percent        +2.30 percent    +3.93 percent   +2.87 percent

  & vegs

canned fruits:       -0.44 percent        +0.99 percent     +2.02 percent  +1.89 percent

canned vegs:         -2.33 percent       +3.28 percent     +5.28 percent  +3.13 percent

soups:                   -0.18 percent       +0.28 percent     +0.30 percent   +0.04 percent

malt bevgs           +0.72 percent       +3.13 percent     +1.69 percent   +2.58 percent

  at home:

alcoholic bevgs   +0.38 percent       +1.90 percent     +1.05 percent   +1.43 percent

  away from home:

non-frozen, non-  -0.05 percent       +2.99 percent     +2.71 percent   +2.33 percent

  carbonated non-

  alcoholic rinks:

carbted drinks:      -0.47 percent      +3.39 percent     +3.15 percent   +3.14 percent 

juices & non-        -0.23 percent      +3.11 percent     +2.86 percent    +2.62 percent

  alcoholic drinks

new cars/trucks:    -0.19 percent     +1.17 percent     +0.58 percent    +0.34 percent

motor vehicle        -0.51 percent     +2.07 percent     +1.91 percent    +1.42 percent

  parts:

appliances:            -0.83 percent      +2.00 percent    +2.56 percent    +0.62 percent

major                     -0.98 percent      +4.13 percent    +2.94 percent     -0.75 percent

  appliances:

laundry                     0 percent          +2.83 percent    -3.98 percent     -4.63 percent

  equipment:

non-electric         -1.78 percent          -5.14 percent    -1.94 percent    -2.94 percent

  cookware & tableware:

tools, hardware,  +0.62 percent        +0.83 percent    +1.06 percent   +1.35 percent

  outdoor equipment:

The waning of inflationary pressures can be seen by comparing the core inflation rate since the advent of the metals tariffs with the inflation rates of the metals-using industries.

The latest data show that prices rose faster than that core rate in only six of the sixteen metals-using categories shown. Moreover, in four of these categories (beer and other malt beverages consumed at home; non-frozen, non-carbonated, non-alcoholic drinks; carbonated drinks; and all juices and non-alcoholic drinks), the results need to be treated with caution, since these products are also sold in non-metal containers.

The previous month’s data showed that prices rose faster than core inflation in ten of these metals-using categories – with the results in three complicated by the use of non-metal containers.

That total in turn was up from the nine of sixteen instances of relatively strong inflation in metals-using industries in both February and March (with the non-metal container issue muddying the waters for four of those nine categories in February and three in March).

As for the China-related evidence, I’m hesitant to examine it for the time being not only because of the aforementioned data issues, but because U.S. policy has changed so dramatically in the last few weeks – with the President in early August threatening ten percent tariffs by September 1 for a $300 billion tranche of imports from China that would have been dominated by consumer goods, and then today postponing their imposition until December 15 (or until a satisfactory bilateral trade deal is struck).

Nonetheless, the metals tariff-related data shows that inflation for these levies so far has never been especially strong (except, for a time, in large household laundry equipment – which had faced separate, product-specific duties since February, 2018), and whatever strength it’s shown, hasn’t lasted very long. (In fact, even for those laundry machines, the table shows that their super-charged price hikes are now turning into super-charged price drops.)

And of course, as Breitbart.com‘s John Carney keeps pointing out, the economy’s overall weak rate of inflation means that even when tariffs have pushed prices up, many other forces have been pushing other prices down.  (Further, these low overall inflation rates almost by definition mean that price pressures from the existing China tariffs can’t be impressive, either.)

That’s not to say that Mr. Trump’s trade policies therefore can’t be hurting the U.S. economy in other ways (although the evidence to date here is also pretty feeble). And it’s entirely possible that the widely tariff-mageddon could still hit Americans on a variety of fronts if the trade war with China in particular lasts long enough. But inflation claims have always been central to the Trump trade critics’ case, as made clear by how quickly #tariffsaretaxes became a hashtag, and how it’s persisted. And if the critics have been wrong on this crucial score, why should anyone be confident in any of their other predictions?

(What’s Left of) Our Economy: Decoupling is Still the Biggest – & Still Growing – U.S.-China Trade War Story

Tags

China, exports, GDP, gross domestic product, imports, tariffs, Trade, trade deficit, trade war, Trump, {What's Left of) Our Economy

Amazing as it sounds given the rush of developments and headlines over the last week, one big U.S.-China trade-related story remains largely overlooked, even though it keeps getting more and more important: Mainly because of President Trump’s tariffs and retaliatory duties from Beijing, the American and Chinese economies not only continue decoupling from each other. The decoupling so far has been unmistakably good for the United States. More specifically, U.S. economic growth has less and less to do all the time with trade with China, whether we’re talking exports or imports.

The story begins with the importance of two-way U.S.-China trade to the American economy as a whole. Since the Trump tariffs began, in the spring of 2018, it’s shrunk dramatically in the goods category. (Timely info on bilateral services trade isn’t available – and it’s a relatively small share of total trade anyway.) The table below shows goods exports and imports between the two countries as a share of the U.S. economy (gross domestic product, or GDP) in pre-inflation dollars – the measure most commonly used and followed. As you can see from those left-hand column numbers, since the current U.S. economic recovery from the last recession began (in the middle of 2009), this figure rose steadily through 2014, and has nosedived rapidly this year. (The 2019 figures measure growth since the first and second quarters of 2018, respectively – i.e., over most of the course of the trade war so far.)

And of special significance, as this shrinkage has gathered steam, the United States has turned in most of its strongest recent growth numbers. This development can be seen by comparing the left-hand column with the middle column (showing annual current-dollar growth rates). Or look at it this way: Two-way bilateral trade was last in this neighborhood as a share of the economy in 2009 – as an historically deep recession was ending. Nowadays, however, growth is solid by the last decade’s standards.

This relationship is even clearer from the right-hand column, which shows the relationship between China trade as a share of the U.S. economy and U.S. growth rate. Specifically, under the Obama administration, as this trade was rising as a share of GDP, the latter strongly exceeded the former only once (that is, approached the results of the Trump years) in 2014. (That is, the number on the left of the colon was significantly higher than the “one” on the right.) But during all of the Trump years, these results have hit that lofty level – and then some.

2-way China trade/GDP   GDP change   ratio of China trade/GDP to GDP change

2009:      2.53                        -1.79                                    n/a

2010:      3.05                         3.76                                  1.24:1

2011:      3.24                         3.67                                  1.13:1

2012:      3.31                         4.21                                  1.27:1

2013:      3.35                         3.63                                  1.08:1

2014:      3.38                         4.42                                  1.31:1

2015:      3.29                         3.98                                  1.21:1

2016:      3.09                         2.69                                 0.87:1

2017:      3.25                         4.30                                 1.32:1

2018:      3.21                         5.43                                 1.69:1

1Q 2019:  2.51                       4.64                                 1.85:1

2Q 2019:  2.61                       4.04                                 1.55:1

Then there’s the notion that the U.S. economy usually happens to grow fastest when its trade deficits overall (including with China) balloon – supposedly meaning that these trade shortfalls at least reflect strong economic performance, and that any policies meant to reduce them are dangerously misguided. But the latest U.S. data continue to debunk that notion completely.

The table below shows annual pre-inflation percentage GDP growth in the left-hand column, starting in 2009 and ending with the figures for the years ending in the first and second quarters of this year. The middle column shows the annual percentage growth rate of the American goods deficit with China, and the right-hand column shows the ratio between the two.

          GDP change                      China goods trade deficit growth          ratio

2009:     -1.79                                                -15.36                               -8.58:1

2010:      3.76                                                  20.35                                5.41:1

2011:      3.67                                                    8.13                                2.22:1

2012:      4.21                                                    6.72                                1.60:1

2013:     3.63                                                     1.14                                3.18:1

2014:     4.42                                                     8.20                                1.86:1

2015:     3.98                                                     6.53                                1.64:1

2016:     2.69                                                   -5.58                                   n/a

2017:     4.30                                                    8.25                                1.92:1

2018:     5.43                                                  11.75                                2.16:1

1Q 19    4.64                                                 -11.92                                  n/a

2Q 19    4.04                                                   -8.44                                  n/a

The above results for one of the Obama years shows robust U.S. economic growth as the goods trade deficit with China surged. But that year was 2009-10 – the first recovery year, when all U.S. trade snapped back sharply following an especially deep recessionary dive (as made clear in the 2008-09 results). Once the economy settled into a more sustainable mode, the supposed relationship breaks down completely.

And the results for the latest Trump years demonstrate strong growth occurring side-by-side with major reductions in the U.S.-China goods trade deficit.

Faring no better is the claim that many U.S.-based industries need inexpensive Chinese inputs (parts, components, materials) for their products in order to remain globally competitive. The following table shows the annual rates of change for the nation’s goods imports from China and its economic growth (or contraction, as in the case of 2009). Otherwise, how could the economy have registered its strong performance over the last year even as goods imports from China have been falling at double-digits percentage rates?

               US goods imports from China                  GDP change

2009:                  12.26                                                  -1.79

2010:                  23.14                                                    3.76

2011:                    9.43                                                    3.67

2012:                    6.57                                                    4.21

2013:                    3.48                                                   3.63

2014:                    6.37                                                   4.42

2015:                    3.14                                                   3.98

2016:                  -4.30                                                   2.69

2017:                   9.26                                                   4.30

2018:                   6.82                                                   5.43

1Q 19:              -13.11                                                   4.64

2Q 19:              -10.89                                                   4.04

And the idea that access to the China market is vital for the American economy?

               US goods exports to China                     GDP change

2009:                    -0.34                                              -1.79

2010:                   32.25                                               3.76

2011:                   13.29                                               3.67

2012:                     6.41                                               4.21

2013:                   10.16                                               3.63

2014:                     1.57                                               4.42

2015:                   -6.29                                               3.98

2016:                   -0.24                                               2.69

2017:                  12.29                                               4.30

2018:                   -7.43                                               5.43

1Q 19                -19.56                                               4.64

2Q 19                -18.20                                               4.04

According to the above figures, that claim didn’t even hold during the Obama years. (See, e.g., 2014 and 2015). And as with imports, the economy has grown impressively during the Trump years despite record declines in sales to China.

U.S. growth at acceptable rates as trade with an ever more belligerent China shrivels is of course good news from a national security standpoint. But given China’s long record of economic predation and other interventionist policies that inevitably distort markets for goods and services, it’s good news from a purely economic standpoint, too – whether it makes headlines or not.

(What’s Left of) Our Economy: The Jobs Fog of Trade War

Tags

aluminum, China, Jobs, manufacturing, metals tariffs, metals-using industries, steel, tariffs, Trade, trade war, Trump, {What's Left of) Our Economy

Domestic U.S. manufacturing turned in a mixed job creation performance in July, with this morning’s figures containing fodder both for the optimists and the pessimists. And the ambiguousness extended to interpreting the results of President Trump’s tariff-centric trade policies – which is not entirely surprising, especially given the nature of the China duties, which have been imposed in phases, and where threats have displayed an on-again-off-again nature.

Overall, the optimists could point out that the new Bureau of Labor Statistics (BLS) data showed a fourth straight sequential gain for manufacturing employment, as industry added 16,000 net new jobs in July. Moreover, the monthly rate of payroll increases is up from 3,000 in April. In fact, the July sequential gain was the sector’s best since January, when manufacturers grew net employment by 17,000.

Nonetheless, the revisions were decidedly negative, with May’s increases being downgraded from 4,000 to 2,000, and June’s all the way down from 17,000 to 12,000. Moreover, July’s 157,000 year-on-year manufacturing employment improvement was the lowest in absolute terms since October, 2017’s 146,000.

Identifying a clear bottom line from the trade war-specific manufacturing employment results is just as difficult. First, let’s look at the performance of the major metals-using sectors, which have faced varying levels of tariffs on steel and aluminum since spring, 2018. (April was the first full month in which they were in place.) Here’s the comparison between their employment changes since then, and those of manufacturing overall and the American private sector overall. Also included are the figures for home appliances (where producers of large household laundry machines have been dealing not only with the metals tariffs but with separate, product-specific levies that began that February). It’s also important to note that figures for these goods and for aerospace products and parts are one month behind the rest. So for those two sectors, the results are for (from left to right), the previously reported May figures, the latest May figures, and the June figures.

An optimist could observe that two of the durable goods sectors, fabricated metals products and automotive, have increased their hiring momentum versus the broader economy, the overall manufacturing sector, and even the durable goods super-sector (where the main metals-using industries are found).

The pessimists, however, could say that through the end of 2018, the metal users in general were clearly besting all of their counterparts in job creation, and that their relative strength has faded since.

                                                       Old thru June     New thru June     Thru July

entire private sector:                     +2.14 percent      +2.13 percent   +2.25 percent

overall manufacturing:                 +1.74 percent      +1.69 percent   +1.82 percent

durable goods:                              +2.11 percent      +2.10 percent   +2.25 percent

fabricated metals products:          +1.49 percent      +1.71 percent   +1.74 percent

non-electrical machinery:            +2.92 percent      +2.73 percent   +2.40 percent

automotive vehicles & parts:       +0.27 percent      +0.33 percent   +1.06 percent

household appliances*:                -4.73 percent        -4.89 percent    -6.15 percent

aerospace products & parts*:      +7.46 percent       +7.44 percent   +7.64 percent

*data are one month behind

And two final complications: First, the low (in absolute terms) hiring gains for the automotive sector surely in large measure reflect not only tariffs on metals, but the slow decline of auto and light truck sales that began back in the summer of 2015 after a strong post-recessionary comeback – and well before any metals duties. And with the automotive sector such a big consumer of machinery and fabricated metals products, its troubles undoubtedly bleed into those industries and have dragged down their results for equally non-trade-related reasons.

Second, the aerospace industry is another big purchaser of inputs from throughout domestic manufacturing, and especially from other metals-using industries. So although its employment levels appear to have held up exceedingly well, they might be better still if not for the safety problems encountered by Boeing.

The case for optimism looks much stronger for those industries that seem to be most greatly affected by the China tariffs. But as usual, the results are surrounded by much greater uncertainties – mainly because the scope and level of these levies has changed so significantly since the first batch went into effect in July, 2018; because the use of Chinese inputs in domestic manufacturing is so widespread but also varies so considerably; and because the list of products hit by China tariffs uses a manufacturing classification system different from that used by the BLS to track jobs.

So the following China figures – presenting employment changes for what look like some of the main China-affected industries since July, 2018, plus those for broader parts of the economy to provide some context – should still be viewed with extreme caution. (I’ve added the results for non-durables, too, since the use of Chinese inputs is so widespread.) Moreover, as indicated below, the results for those main China-affected sectors are always one month late.

                                      July-May       Old July-June     New July-June   July-July

private sector:           +1.45 percent    +1.46 percent     +1.59 percent +1.71 percent

overall mfg:              +1.02 percent    +1.16 percent     +1.11 percent +1.24 percent

durable goods:          +1.22 percent     not available     +1.36 percent +1.51 percent

non-durable goods:  +0.67 percent     not available    +0.70 percent  +0.80 percent 

aircraft engines &     +1.51 percent    not available     +1.86 percent   not available

  engine parts:

industrial heating      +1.12 percent    not available     +2.24 percent   not available

  equip:

oil & gas drilling      +4.88 percent     not available    +5.56 percent    not available

  platform parts:

farm machinery        -1.00 percent     not available         0 percent      not available

  & equip

ball bearings:           +2.39 percent     not available    +3.16 percent    not available

At least through June, however, all of the apparent China tariff-specific industries have displayed much stronger recent hiring strength relative to industry and the economy as a whole. This greater momentum, moreover, is especially noteworthy given that the scale of the China duties has broadened so dramatically since July, 2018, and the tariff rates for so many products have been increased a second time.

Nonetheless, the China-related data are especially dodgy. And of course, President Trump just yesterday threatened a big new set of tariffs on the imports from China not already hit with duties. Which may or may not actually be imposed. And that may contain plenty of exemptions. All good reasons for analysts to remain data dependent – and prudent in the extreme – when judging how the U.S. economy is faring as the trade wars rage on.

(What’s Left of) Our Economy: Those New GDP Numbers Keep Showing Healthier Trade-Related Growth Progress Under Trump

Tags

debt, GDP, gross domestic product, inflation-adjusted growth, real GDP, real trade deficit, recession, recovery, Trade, trade deficit, {What's Left of) Our Economy

So much data were released yesterday morning on the U.S. economy’s growth rate – not only the initial read on the second quarter of this year, but revisions going back to 2014 – that it’s impossible to explore all the results and their implications in one post. As a result, I’ll focus today on the main messages being sent by how the tariff-centric Trump trade policies are affecting growth.

In a nutshell, the big takeaway for me was that, despite the sizable increase in the inflation-adjusted trade deficit in the second quarter of this year (to an annualized total of $978.70 billion – the second biggest ever, after the $983 billion mark hit in the fourth quarter of last year), the economy kept indicating that it can grow – and pretty strongly – without racking up big increases in trade gap. In other words, the United States is regaining the ability to expand at acceptable rates without getting deeper into hock. 

Still, there’s a major uncertainty hovering over these results: Signs continue that they’re being distorted by what’s called tariff front-running (accelerating purchases of imports in order to avoid announced or threatened duties), and the consequent effects on building and reducing business inventories. And since tariff threats hang over not only hundreds of billions of dollars of goods imports from China, but rhetorically anyway over automotive imports from all over the world, import and inventory levels could well remain volatile. Moreover, don’t forget the potential effect on exports: If President Trump carries through with tariff threats, foreign economies are likely to impose retaliatory levies on American goods, and curb these sales.

So far, though, so good.

As in recent reports on trade and the gross domestic product (or GDP – what economists define as “the economy”), this post will compare the economy’s growth rate with the growth rate of the trade deficit during two recent similar periods of time – the statistical year (e.g., four straight quarters) during which growth was fastest when former President Barack Obama was in office, and the statistical year during which growth has been fastest so far during President Trump’s administration.

Even with the latest revisions, the fastest statistical Obama growth year was between the second quarter of 2014 and the second quarter of 2015. Adjusted for inflation (the most closely followed GDP measure), the economy grew by 3.35 percent over those four quarters – just a little less than the 3.37 percent previously estimated. And during that period, the real trade deficit rose by 21.34 percent (a little more slowly than the 21.55 percent previously estimated).

Before today’s revisions, the fastest Trump era growth stretch took place between the first quarter of 2017 and the first quarter of 2018. But that 3.18 percent after inflation growth has now been downgraded all the way down to 2.65 percent. But growth between the second quarters of 2017 and 2018 has been revised up – to 3.20 percent. So there’s a new Trump growth champ.

But even though the Trump growth spurt has been only a little slower than its Obama counterpart, the story with the trade deficit was strikingly different. For during the Trump spurt, the gap widened by only 6.34 percent. That’s less than a third as fast as under Obama.

In other words, constant dollar growth under President Trump has taken place while piling up much less debt than similar growth during the Obama years. And growth that’s less reliant on debt is growth that’s a lot healthier and more sustainable.

Trump-era growth looks all the more sustainable upon realizing that during Mr. Trump’s administration so far, robust growth (at least by recent standards) has been much more self-reliant than during the Obama administration – at least until very recently. The table below shows the annual (calendar year, from fourth quarter to fourth quarter) real growth rates during the Obama and Trump presidencies starting in 2010 (the first full calendar yer of the current economic recovery); the growth rate of the after-inflation trade deficits, and the ratios between these two figures for each year:

Obama yrs          real GDP       real trade deficit      deficit growth to GDP growth

10-11:              1.61 percent       0.85 percent                         0.53:1

11-12:              1.47 percent      -0.92 percent                       -0.63:1

12-13:              2.61 percent     -8.89 percent                       -3.41:1

13-14:              2.88 percent    23.36 percent                        8.11:1

14-15:              1.90 percent    21.83 percent                      13.07:1

15-16:              2.03 percent    10.87 percent                       5:35:1

Trump years

16-17:             2.80 percent      5.90 percent                       2.11:1

17-18:             2.52 percent    11.22 percent                       4.45:1

The table shows that only once (between 2012 and 2013) did the Obama-era economy display any ability to grow faster than the humdrum rate of two percent with the trade deficit’s growth restrained. (In fact, it shrunk significantly.) Once growth accelerated (the following year), the trade shortfall exploded, and its rate of increase, along with those ratios, stayed high even as growth itself cooled notably.

Moreover, without pronounced tariff front-running, the 2017-18 Trump trade deficit figure and the resulting ratio both would likely have been much lower. And economic growth looks even more self-reliant, and therefore healthier, so far this year, as the follo  wing table shows:

                               real GDP      real trade deficit     deficit growth to GDP growth

4Q 18-1Q 19:       3.06 percent    -3.97 percent                       -1.30:1

1Q 19-2Q 19:       2.04 percent     3.68 percent                         1.80:1

The Trump record looks even better when presented on a rolling four quarters basis, starting with that peak Obama growth period between the second quarter of 2014 and the second quarter of 2015, and ending with the last such period – between the second quarter of 2018 and the second quarter of 2019:

                              real GDP      real trade deficit      deficit growth to GDP growth

2Q 14-2Q 15:    3.35 percent      21.34 percent                       6.37:1

3Q 14-3Q 15:    2.44 percent      30.60 percent                     12.54:1

4Q 14-4Q 15:    1.90 percent      21.83 percent                     11.49:1

1Q 15-1Q 16:    1.62 percent      11.72 percent                       7.23:1

2Q 15-2Q 16:    1.34 percent        9.59 percent                       7.16:1

3Q 15-3Q 16:    1.56 percent        2.42 percent                       1.55:1

4Q 15-4Q16:     2.03 percent     10.87 percent                        5.35:1

1Q 16-1Q 17:    2.10 percent       6.92 percent                        3.30:1

Trump

2Q 16-2Q 17:    2.16 percent    11.71 percent                        5.42:1

3Q 16-3Q 17:    2.42 percent      9.50 percent                       3.93:1

4Q 16-4Q 17:    2.80 percent     5.90 percent                        2.11:1

1Q 17-1Q 18:    2.86 percent     6.34 percent                       2.22:1

2Q 17-2Q 18:    3.20 percent     0.06 percent                       0.19:1

3Q 17-3Q 18:    3.13 percent   15.44 percent                      4.93:1

4Q 17-4Q 18:    2.52 percent   11.22 percent                      4.45:1

1Q 18-1Q 19:    2.65 percent     6.76 percent                      2.55:1

2Q 18-2Q 19:    2.29 percent   15.07 percent                      6.58:1

Though the figures fluctuate significantly, the difference under two different presidents at roughly the same phase of the same economic expansion is at least as significant. To start, the only time that annual real growth under Obama topped three percent during this stretch, the inflation-adjusted trade deficit soared 6.37 times faster. Under Trump, the economy has enjoyed two such periods. During the first, the real trade deficit barely budged. During the second, it rose 4.93 times faster than the economy.

During these Obama years, the after-inflation trade deficit’s annual growth rate slipped under ten percent three times. Real annual GDP growth never bested 2.10 percent during any of them. During the Trump years, sub-ten percent annual growth for the real trade deficit has occurred five times. Real annual GDP increased during those years at rates between 2.42 percent and 3.20 percent. The worst Obama ratio has been 12.54 percent. The worst Trump ratio has been 6.58 percent (coming during the most recent statistical year, and possibly indicating tariff front-running). 

Has President Trump managed to reduce the U.S. trade deficit as such, or made the U.S. economy, and especially strong growth, completely self-sufficient, and therefore free of debt dependence (in terms of parts of the economy where this is feasible, as opposed to, say, tropical fruit)? Of course not. The nearly $20 trillion American economy is obviously a supertanker that isn’t turned around easily or quickly. But it’s clear that whereas the United States was moving ever further from those goals before Mr. Trump was inaugurated, it’s now moving closer. Just as clear: If the President stays the course on tariffs (much less increase and/or broaden them), progress will likely continue.      

(What’s Left of) Our Economy: U.S. Job Quality Takes a Turn for the Worse

Tags

Employment, healthcare services, Jobs, private sector, public sector, recovery, subsidized private sector, {What's Left of) Our Economy

Here’s how bad America’s employment performance has been so far this year. Not only has job creation lagged quantitatively. But by one key measure that RealityChek has followed for years, job quality worsened, too. Specifically, after falling significantly during the first two years of the Trump administration as a share of total hiring, job creation in what I call the subsidized private sector of the economy is up sharply.

To review, the subsidized private sector – dominated by healthcare services – consists of those industries that are typically classified (including by federal government statisticians) as private sector industries, but whose levels of activity (including job creation) are determined largely by politicians’ decisions about levels of government support, not market forces.

This observation doesn’t imply any conclusion that subsidized private sector jobs are merit-less. But it does reflect the understandable and commonly held belief that the genuine private sector is the economy’s main source of productivity growth and innovation, and that therefore it should dominate job creation as well.

The main evidence comes in the form of the figures on the subsidized private sector’s share of total hiring in America, of hiring in the private sector as conventionally defined (which includes the subsidized numbers), and of hiring in the “real private sector” (the total resulting from subtracting the subsidized private sector from the conventionally defined private sector figures). And since we only have data for the first six months of this year (including those for June, which are still preliminary), the time frames compared here will consist of the first six months of each year since the June, 2009 beginning of the current economic recovery).

During the first six months on Mr. Trump’s watch, net new subsidized private sector job creation accounted for 22.29 percent of total job creation (“non-farm” hiring, as the Bureau of Labor Statistics – BLS – defines it), for 23.41 percent of such hiring in the conventionally defined private sector, and of 30.57 percent of the net new jobs in the “real private sector.”

During the first six months of 2018, these shares all declined – to 18.85 percent, 19.75 percent, and 24.61 percent, respectively. At least as important, they were among the lowest recorded during the current recovery. In particular, they were all lower than they were during the first six months of President Obama’s last year in office – when they reached 28.57 percent, 31.57 percent, and 46.13 percent. That is, from January through June of 2016, the increase in subsidized private sector payrolls was nearly half as large as all net new hiring in the rest of the private sector (the “real private sector”) – which is much larger.

But during the first six months of this year, the subsidized private sector made a tremendous comeback.

These industries’ share of total net new U.S. hiring jumped from 18.85 percent to 30.88 percent. Its share of conventionally defined private sector hiring rose from 19.75 percent to 33.06 percent. And net payroll increases in the subsidized private sector compared with “real private sector” payroll increases more than doubled – from 24.61 percent to 49.38 percent.

Even worse, all three results were the highest registered during the current recovery.

The only (mildly encouraging) news on the job quality front in this respect (accepting my assumption that relatively weak job creation in the “real private sector” is a troubling development): On a standstill basis (representing a snapshot, not measuring rate of change), the combined share of total hiring accounted for by the subsidized private sector and the public sector keeps falling. But that’s clearly because job creation in the public sector proper remains weak.

At the onset of the last recession – at the end of 2007 – these jobs amounted to 29.84 percent of all U.S. jobs tracked by the BLS. When the recovery began, this figure had increased to 32.20 percent. By last June, it has dipped to 30.94 percent. And as of this past June (again, preliminarily), it was down to 30.87 percent. That’s still higher than when the last recession began, so it’s possible to argue that the American labor market still hasn’t fully normalized. If the subsidized private sector’s recent job creation resurgence isn’t interrupted, such normalization will become an ever more distant goal.