(What’s Left of) Our Economy: New Data but Cloudier Skies on Trump’s Trade Policies and Manufacturing

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Barack Obama, China, Commerce Department, exports, GDP-by-industry, imports, manufacturing, manufacturing output, manufacturing trade deficit, tariff front-running, tariffs, Trade, trade war, Trump, {What's Left of) Our Economy

If only the Commerce Department’s data on gross domestic product (GDP) by industry didn’t come out on a basis timelier than once a quarter. For they’ve provided uniquely valuable information on how well the Trump administration is faring in its efforts to (1) reduce the humongous U.S. manufacturing trade deficit, and (2) reduce domestic industry’s reliance on imported parts, components, and materials, and boost total output and employment over the long-term by ensuring that more of the value in these manufactured products are Made in the USA.

More specifically, the data (whose latest edition came out this morning) shed light on the crucial question over whether the best business model for domestic manufacturing is that recommended by traditional trade theory, or whether an America First-type approach is more effective. The former, of course, holds that output of any kind is maximized by capitalizing on the principle of comparative advantage, and encouraging U.S.-based companies to use whatever inputs are made more efficiently abroad. The latter insists that such reliance on foreign inputs deprives the economy of the enormous output gains that are possible by encouraging growth in these very inputs.

Sadly, however, the reasonably clear analytical skies that permitted a reasonably clear verdict to be returned during the first two years of the Trump era in trade are rapidly clouding up, for a variety of reasons. And much of the growing confusion has been created by the President himself. 

During Mr. Trump’s first two (nearly) full years of the Trump administration (keeping in mind that the President didn’t take office until late January, 2017), his America First-style policies were looking pretty impressive. (It’s true that no new tariffs came on during the President’s first year. But he did put the kibosh on a major trade agreement signed by his predecessor, the Trans-Pacific Partnership, and made clear that levies were on the way.)

Since Mr. Trump actually began imposing tariffs in early 2018, however, the results have been harder to interpret for two main and related reasons. First, the administration’s tariff decisions have oscillated pretty dramatically, featuring not only steps to put in place, threaten, suspend, and remove such levies, but actual and threatened tariff rate changes on big chunks of imports (especially from China). Second, these policy swings have produced lots of “tariff front-running” – that is, U.S. importers speeding up their foreign purchases in order to avoid paying higher tariff-ed costs.

And this overall picture is exactly what’s been borne out by today’s figures (which incorporate revisions going back to 2014). The table below shows the new annual totals from 2011 (when the current economic recovery finished its early rapid bounce-back phase and settled into a more durable pattern) to 2018, The (slightly) revised numbers make clear that during the first two Trump years, domestic manufacturing did a much better job of generating healthy growth without ballooning manufacturing trade deficits (which reflect in part growing industry dependence on imported inputs) than during the previous Obama administration years.

The figure in the left-hand column represents U.S.-based manufacturing’s growth during the year in question (according to a gauge called “value added), the middle column represents the growth that year of the manufacturing trade deficit, and the right-hand column shows the ratio between the two growth rates (with the trade gap’s growth coming first). The higher the ratio, more closely linked manufacturing output growth is to the expansion of the manufacturing trade deficit. All figures are in pre-inflation dollars.

2011:             +3.93 percent           +8.39 percent            2.13:1

2012:             +3.19 percent           +6.27 percent            1.97:1

2013:             +3.36 percent          +0.77 percent             0.23:1

2014:             +2.93 percent        +11.78 percent            4.02:1

2015:             +3.72 percent       +13.65 percent             3.67:1

2016:              -1.19 percent         +4.66 percent                —

2017:             +3.99 percent         +3.16 percent            0.79:1

2018:             +6.23 percent         +3.96 percent            0.64:1

In other words, whereas during the Obama years, the manufacturing trade deficit nearly always expanded considerably faster than manufacturing output (and 3.67 and 4.02 times faster in 2014 and 2015), the first two Trump years saw both significantly higher output growth per se, and output growth that topped trade deficit growth. During 2018, moreover, numerous tariff were imposed, and not merely threatened.

This year, however, saw a major change. As shown below, the ratio of manufacturing output growth to manufacturing trade deficit growth returned to levels resembling the worst of the Obama years. And overall growth itself was feeble in comparison.

2Q 2017 – 2Q 2018:           +7.00 percent        +7.83 percent         1.12:1

2Q 2018 – 2Q 2019:           +2.03 percent        +7.27 percent         3.58:1

But here’s where the tariff front-running comes in, especially in the huge volume of trade with China – as made clear here. Unfortunately for trend-spotters, however, the administration’s success in fostering strong manufacturing output performance while weaning industry from imports won’t become any easier to identify anytime soon. The President’s China trade policies, after all, are likely to remain mercurial.  Further, the General Motors strike and Boeing’s safety problems are sure to distort the production numbers for at least the next quarter or two. Add a still-sluggish world economy that, along with foreign retaliatory tariffs, will keep weighing on U.S. exports, and you get uncertainty that could even dwarf that supposedly paralyzing American business investment.

Im-Politic: Claims that Trump Has Betrayed His Voters Economically Look Weaker than Ever

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Commerce Department, election 2016, Hillary Clinton, Im-Politics, Populism, real personal income, Trump

President Trump has betrayed all the (tens of millions) of working class and/or rural voters who supported him in 2016 – that’s been one of the most popular claims by his opponents politics and journalism alike. (See, e.g., this post.)  Even so, the evidence to the contrary being either ignored or unknown continues to impress.

At the end of last month, I presented some data showing that lower- and middle-income Americans have seen their economic lots improve faster relative to those of upper-income Americans under the first two years of Mr. Trump’s presidency than under the last two years of Barack Obama’s.  The gap hasn’t been enormous, but it sure seems to belie the idea that Trump voters were duped by a phony populist. 

This morning, the Commerce Department supplied some more in the form of its annual report on how inflation-adjusted personal income rose or shrank in each of the 50 states and the District of Columbia over the latest data year (in this case, 2016-2017).

A casual reading of the report doesn’t provide much encouragement for Trump supporters. For example, of the ten states that saw real personal income rise the fastest, six gave their electoral votes to Democratic presidential candidate Hillary Clinton in 2016, and only four to Mr. Trump. Moreover, of the ten states that performed the worst when it comes to personal income improvement, seven were in the Trump column and only three in Clinton’s.

Further, on average, the Clinton states enjoyed price-adjusted personal income advances of 2.60 percent in 2017. The comparable Trump state figure was only 2.05 percent.

So why do I argue that the Trump betrayal contentions get the story largely wrong? Because I’ve compared these 2016-2017 results with those of the year before – which was of course the last year of the Obama presidency. And what it shows is what surely matters to voters more the single year results – whether their personal incomes fared better or worse in 2017 than in 2016. And when these numbers are presented, the economic case for Trump votes looks awfully strong.

To be fair, after-inflation personal income nation-wide was much faster in Mr. Trump’s first year in office than in Mr. Obama’s last – and by a whopping 2.6 percent to 1.1 percent! Even so, the Trump states saw the best rates of improvement. Indeed, of the thirty states whose electoral votes were won by the President (and adding in Maine, which split its electoral votes), price-adjusted personal income grew faster in 2017 in fully 25 (or 80.65 percent). Income growth slowed year-on-year in only four 12.90 percent), and the rate stayed the same in two.

For most of the 21 Clinton states (including Maine), real personal incomes grew faster in 2017 than in 2016, too. But the percentage was lower (71.43 percent). In five of those 21 states (23.81 percent), inflation-adjusted personal income increases slowed, and Maine remained flat.

All together, inflation-adjusted personal income growth accelerated from 0.63 percent between 2015-2016 to 2.05 percent in 2016-17 for the Trump states – a much faster rate than the 1.58 percent to 2.60 percent speed-up for the Clinton states.

Especially interesting – between the two time periods, no fewer than seven Trump states saw their personal incomes grow in real terms in 2017 after shrinking in 2016. Only one Trump state (South Dakota) experienced the reverse. By contrast, none of the Clinton states suffered after-inflation personal income drops in 2016 – but none has experienced such dramatic improvement, either.

These state-wide numbers aren’t perfect measures of personal incomes developments, and they’re even more problematic as clues to political behavior. After all, most states are big enough to be highly diverse economically, and wide gaps between rich and poor can be found inside many. It’s also important to note that the Trump states generally keep lagging the Clinton states when real personal income growth is looked at in absolute terms.

But trends almost always deserve to count more than snapshots. And although the new real personal income numbers hardly show that the Trump states have entered economic nirvana, they make the betrayal claims look flimsier than ever.

(What’s Left of) Our Economy: Evidence that Tariffs Front-Running has Stalled Trump Trade Progress

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aluminum, China, Commerce Department, imports, manufacturing, manufacturing output, manufacturing trade deficit, steel, tariffs, Trade, trade war, Trump, value added, {What's Left of) Our Economy

Yesterday’s post on the morning’s slew of manufacturing data released by the federal government could have included one more report: the Commerce Department’s latest sounding on gross domestic product by industry. And although this read on how different major sectors of the economy have been growing (or not) isn’t a market mover, it’s useful for analyzing the trade policy debate – for it enables calculations on how changes in the U.S. manufacturing trade deficit (a major concern of President Trump’s) compare with changes in manufacturing output.

Because this perspective provides the kind of context lacking when trade deficit increases or decreases are examined in isolation, it represents a much better way to judge whether the president’s trade policies are succeeding or failing according to one of his own main yardsticks.

And the verdict stemming from this new Commerce report? Progress that had been taking place during Mr. Trump’s tenure in boosting domestic manufacturers’ trade-related fortunes has come to a halt – probably because of what’s been called tariff front-running. That is, the President’s actual trade curbs and, doubtless much more important, his threats of additional curbs, have led overseas producers and their U.S. customers to boost greatly shipments to the American market in order to avoid paying as many of the levies as possible.

Consequently, as of the third quarter of last year (the latest data made available by Commerce), the U.S. manufacturing trade deficit resumed its long-term pattern of growing faster than domestic manufacturing production.

Specifically, between the third quarter of 2017 and the third quarter of 2018, U.S.-based industry increased its output by 7.23 percent according to a measure of growth called value-added (before inflation). During the same period, however, the manufacturing trade deficit jumped by 12.45 percent.

As made clear by my previous post on the subject, these results both contrast with the second quarter findings – when manufacturing production grew by 8.02 percent while the trade deficit widened by just 7.23 percent – and reversed a trend that began pretty much when the Trump administration did.

Just as clear – the first major Trump tariffs (on steel and aluminum imports) were slapped on in late March. So their arrival, along with China levies that began in early July and the much more sweeping duties imposed in late September and strongly hinted at in June, surely super-charged America’s import system.

Even with this step backward, it’s still evident that, so far during the the Trump years, domestic manufacturing is much less dependent on imports than before.  During the last year of former President Obama’s administration, for example, American manufacturing imports rose by 7.31 percent, while output expanded by only 4.53 percent – a pattern in place for most of the last twenty years.

But the real test of the Trump tariffs – at least concerning the manufacturing trade deficit – will come if and when U.S. trade flows settle into a new, post-tariff, normal, or one that follows the conclusion of the new, improved trade deals the President has promised. In that vein, the next chance to check these data will be April 19, when Commerce is scheduled to publish its fourth quarter and full-year, 2018 figures. Stay tuned!

(What’s Left of) Our Economy: Puzzling New Glimpses into U.S. Manufacturing

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Bureau of Economic Analysis, Bureau of Labor Statistics, Commerce Department, durable goods, Labor Department, labor productivity, manufacturing, non-durable goods, productivity, real value-added, {What's Left of) Our Economy

Two important sets of economic statistics came out today that shed lots of new light on the health of American manufacturing. Unfortunately, little of it is especially encouraging. In fact, some of it’s pretty mystifying.

The Commerce Department’s Bureau of Economic Analysis issued its annual report on the growth rates of different sectors of the U.S. economy. The main manufacturing finding: Industry’s annual growth rate did pick up last year according to a measure called real value-added (which leads off the report, and which attempts to eliminate the double-counting of output that occurs when broader gauges fail to distinguish between final products on the one hand, and their parts, components, and other inputs on the other). Yet the acceleration from a 0.5 percent yearly expansion in 2016 to 2017’s 1.9 percent trailed that output increase of the economy as a whole – which improved from 1.5 percent to 2.3 percent. As a result, the economy became slightly more manufacturing light in 2017.

In addition, within manufacturing, growth leadership shifted dramatically. Whereas the non-durable goods super-sector outperformed its larger durable goods counterpart in 2016 (with the former’s real value-added improving year-on-year by 1.2 percent while the latter’s slipped by 0.2 percent), durable goods rebounded to a 3.4 percent annual growth rate in 2017 while non-durables’ real value-added inched up by just 0.1 percent.

The American economy’s overall growth leader in 2017 in real value-added terms? The mining sector, which jumped by 8.5 percent after plummeting by 13.3 percent the year before. The next fastest-growing industries were administrative and waste management services (4.9 percent), corporate management (4.6 percent), and information services (four percent even).

Today’s second data set (from the Labor Department’s Bureau of Labor Statistics) shows which sectors within manufacturing last year excelled in terms of labor productivity (the narrower of economists’ two main measures of efficiency), and which lagged and, once more, many of the results were surprising. (We already know that industry in toto had a dreary labor productivity year last year.) For instance, computer and computer peripheral equipment led the way last year, generating eleven percent more output per employees hour worked. But next came apparel knitting mills, at 10.5 percent, followed by agriculture, construction, and mining machinery at 10.4 percent, and cutlery and handtools at 9.4 percent.

The biggest productivity loser in 2017? Miscellaneous transportation equipment, where it nosedived by 11.5 percent. In ascending order, the next worst performers were electric lighting equipment (down 9.2 percent), sugar and confectionary products (down eight percent), and beverages (down 7.8 percent).

Other manufacturing sectors whose labor productivity worsened on year in 2017? Pharmaceuticals and medicine (down seven percent), metal-working machinery (which includes machine tools – and where labor productivity declined by 1.3 percent), communications equipment (down 2.2 percent), semiconductors (down 0.7 percent), motor vehicles (down 4.1 percent), and aerospace products and parts (down 3.1 percent).

And if you’re thinking that this list of productivity losers includes lots of so-called industries of the future, you’re of course right. Kudos also if you’ve noted that aerospace is the economy’s biggest trade surplus industry. It’s enough to instill a little humility in those of us who think we’re getting a handle on this gargantuan, complex American economy, or heighten for those who had some already.

(What’s Left of) Our Economy: So Trump Voters Got Fooled Economically?

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Bureau of Economic Analysis, Commerce Department, personal income, Trump, {What's Left of) Our Economy

One of the most common claims made this past year about President Trump’s favored economic policies is that many of their biggest victims have been or will be Trump voters. See here, here, and here for just a few examples.

So it’s more than a little bit interesting that the U.S. Commerce Department on Thursday released some data bearing on the issue, and they represent considerable evidence that exactly the opposite has been the case.

The data come in the form of the Bureau of Economic Analysis’ (BEA) new figures on the annual growth of personal income by state in 2017. Combined with BEA’s numbers for the last pre-Trump year (2016), they show that 2017 was a considerably more prosperous year for the populations of the states that voted for the President than 2016 was.

According to the BEA, average personal income for all states rose by 3.1 percent in pre-inflation terms between 2016 and 2017 – a much faster pace than the 2.3 percent improvement for 2015-16. But most of the 30 states that awarded their electoral votes to candidate Trump, fared much better than that. Twenty three of them saw their state-wide personal incomes rise faster in 2017 than in 2016. Moreover, the income growth slowdown in the Trump states was minor except in Iowa (from one percent to 0.3 percent), Tennessee (from 3.7 percent to 3.2 percent), and Utah (from 5.2 percent to 4.4 percent). And obviously, Tennessee and Utah still performed better than the national average. (Maine split its electoral votes in 2016, and saw its income growth slow slightly as well.)

Another sign that 2017 worked out well economically for the Trump states. Nine of the 30 saw their incomes rise at a faster pace than the 3.1 percent national average, and Texas matched that average. In 2016, eleven saw faster-than-average income growth – but overall national income growth was a good deal slower.

And P.S. – if you adjust for population growth, and measure state income growth per capita, you get virtually the same results.

Of course, these state-wide averages can mask major inequality within states. Also, let’s not fall into the trap of crediting a President with all the good news made by the economy, and blaming him (or her) for all the bad news. In addition, the full impact of Trump policy changes can’t possibly have been felt so far. And partly as a result, “past performance doesn’t guarantee future results.”

But the BEA statistics so far suggest that Trump voters have gotten a pretty good deal so far from their 2016 political choice. Time for lots of the chattering classes at least to modify their narratives?

(What’s Left of) Our Economy: Welcome Signs of Healthier U.S. Growth

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business investment, Commerce Department, GDP, gross domestic product, growth, housing, inflation-adjusted growth, Obama, personal consumption, real GDP, Republicans, tax reform, {What's Left of) Our Economy

With the Commerce Department having issued last week its second read on U.S. economic growth in the third quarter of this year, RealityChek can update its ongoing examination of a major but sorely neglected economic issue: Is the quality of America’s growth improving or worsening? That is, has the nation managed to generate more output in ways that will make a repeat of the last decade’s financial crisis and ensuing Great Recession likelier? Or is it still relying excessively on the same unsustainable growth engines that made the crisis inevitable?

Happily, the news here is pretty good. Not earthshaking, to be sure. But the new statistics confirm that, so far during 2017, the nation has made gradual (though by no means adequate) progress toward former President Obama’s essential goal of creating “an economy built to last,” rather than one dependent on spending and housing bubbles.

As suggested by that last sentence, RealityChek measures the health of growth by looking at the share of the inflation-adjusted gross domestic product (GDP) made up of consumer spending and housing – the toxic combination whose bloat let to the previous decade’s near meltdown.

These two sectors’ combined share of the after-inflation economy peaked in the third quarter of 2005, at 73.27 percent. Last week’s GDP statistics pegged it at 72.85 percent – the lowest since the 72.70 percent in the third quarter of 2016.

In the fourth quarter of 2016, this figure rose to 72.94 percent, and increased again to 73.14 percent in the first quarter of this year. But since then, it’s dipped for two straight quarters – the first such sequence since the first half of 2014.

The big change hasn’t come from personal consumption. In fact, it’s share of real GDP hit its all-time high in the second quarter of this year: 69.60 percent. And the latest third quarter figure is a still elevated 69.43 percent. What’s happened has been a dramatic shriveling of the housing sector. It peaked as a share of real GDP in the second quarter of 2005 at 6.17 percent. The new GDP report pegs it at just 3.42 percent

Business investment – another pillar of solid, healthy growth – may have picked up in the third quarter, too. The quarter’s first estimate of GDP judged that such spending accounted for 16.33 percent of its 2.96 percent annualized constant dollar growth. That would have continued a string of declining relative importance that began in the second quarter. But the newest data revises the business investment contribution upward to 18.10 percent of a (higher) 3.26 percent annualized price-adjusted growth rate.

This hardly a sterling performance. And it hasn’t lasted very long. But these results are considerably better than those for 2016 (when business spending actually subtracted 5.33 percent from the year’s 1.49 percent real growth) or for 2015 (when such investment’s role was positive, but it fueled only 10.34 percent of that year’s 2.86 percent real growth).

In addition, they could set the stage for an interesting test of the Republican party’s fundamental tax reform strategy: Use tax cuts to put more money into the pockets of businesses and wealthier Americans to encourage the building of more factories and labs and other kinds of productive facilities at home. If the Republican approach survives Congress intact, the GDP numbers will be a big help in seeing whether its promise of producing better and healthier growth is kept.

(What’s Left of) Our Economy: New GDP Figures Show Trade Keeps Boosting U.S. Growth

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Commerce Department, exports, GDP, gross domestic product, imports, inflation-adjusted growth, Made in Washington trade deficit, real trade deficii, recession, recovery, Trade, trade deficit, {What's Left of) Our Economy

The second estimate of third quarter real growth, which pegged the rate at 3.26 percent annualized, closely resembled last month’s initial read in showing a shrinking inflation-adjusted trade deficit to be a major engine of expansion. According to this morning’s Commerce Department report, trade fueled 0.43 percentage points of second quarter growth – up in absolute terms from its 0.41 percentage point contribution to the initial read’s 2.95 percent annualized growth, but down slightly in relative terms. This performance reflected the constant dollar trade deficit’s quarterly shrinkage from an initially estimated $595.5 billion annualized to $594.4 billion.

This third quarterly decrease – the first such stretch since a period overlapping 2012 and 2013 – brought the after-inflation trade shortfall to its lowest level since the third quarter of 2016 ($557.3 billion annualized). And the rate of decrease in the deficit from the first quarter level (12.52 percent annualized) was the fastest since the 46.14 percent annualized nosedive of the fourth quarter of 2013. Moreover, the new third quarter results continued to mark the first time since a 2012-13 stretch as well that trade has added to growth for three straight quarters. Even better, the pattern of deficit shrinkage – with real exports rising and real imports declining – revealed again that the economy had supplied increased demand from both abroad and at home simultaneously for the first time since the third quarter of 2014.

The new export figures were slightly weaker in general than the initial reads, but still remained at all time quarterly highs in all categories. All import categories showed slightly greater declines from the initial report’s levels. As a result, the quarterly rates of decrease remained at five- and six-year highs.

The price-adjusted trade deficit’s continuing fall also further reduced trade’s drag on real growth during the current recovery – from the 8.18 percent reported last month to 8.11 percent (or $228.1 billion in lost inflation-adjusted growth). In the second quarter, the trade drag was 9.24 percent. The trade drag of the Made in Washington deficit – which tracks flows heavily influenced by U.S. trade policy, decreased from 17.30 percent in the second quarter to 16.32 percent ($459.2 billion in lost real growth).

Here are the trade highlights from this morning’s report on the gross domestic product (GDP):

>The Commerce Department’s second read (of three) on third quarter inflation-adjusted economic growth confirmed last month’s finding that the narrowing of the real trade deficit played a major role in fueling expansion.

>The new figures showed that the trade shortfall’s decline to $594.4 billion at an annual rate contributed 0.43 percentage points to the quarter’s 3.26 percent price-adjusted annualized growth. The first reading – which judged the trade gap to have declined to $595.5 billion – pegged trade’s growth contribution at 0.41 percentage points to a 2.95 percent annualized growth rate.

>Thanks to the $594.4 billion figure (the lowest quarterly constant dollar trade deficit since the $557.3 billion reading in the third quarter of 2016), trade’s new growth-fueling role was its biggest since the fourth quarter of 2013 – when it added 1.29 percentage points to 3.90 percent annualized growth. The initial third quarter GDP data judged the trade contribution to be 0.41 percentage points to 2.95 percent annualized growth – a slightly bigger relative role.

>This morning’s GDP statistics also confirmed that in the third quarter, the real trade deficit fell sequentially for the third straight time. This kind of streak hasn’t been seen since a period starting in the second quarter of 2012 and lasting through the first quarter of 2013.

>In addition, the trade gap’s sequential rate of shrinkage in real terms in the third quarter (12.52 percent annualized) was its fastest since it plummeted by 46.14 percent annualized in the fourth quarter of 2013.

>The new GDP results also showed that the third quarter still marked the first time since the aforementioned 2012-2013 span that trade had generated real growth for three consecutive quarters.

>The pattern of real trade deficit shrinkage also remained encouraging. As with the initial read for the third quarter, the second report showed that the gap narrowed both because exports grew and imports shrank. In other words, the United States was supplying increased demand both at home and abroad simultaneously – the first time it has achieved that objective since the third quarter of 2014.

>Inflation-adjusted exports remained at quarterly records in the third quarter in all major categories, but overall their levels were slightly lower than in the initial read.

>Rather than increasing by a 2.31 percent sequential annual rate to $2.1937 trillion annualized, total exports are now judged to be up by 2.16 percent, to $2.1929 trillion.

>The price-adjusted goods export figure was revised up from an increase of 1.40 percent sequentially at an annual rate to $1.5056 trillion annualized, to an increase of 1.63 percent to $1.5065 trillion.

>But the inflation-adjusted services export results were revised down from a 4.04 percent increase at an annual rate to $689.2 billion, to a 3.17 percent increase to $687.7 billion.

>All import categories, however, showed slightly greater third quarter declines in this morning’s results than initially reported.

>The total imports decrease – the first sequential drop since the first quarter of 2016 (when annualized growth was a mere 0.58 percent) – was judged at 1.07 percent annualized, the fastest such fall-off since the fourth quarter of 2012 (3.82 percent). And the import level itself was revised down from $2.7892 trillion annualized to $2.7873 trillion.

>The inflation-adjusted goods import figures was lowered from $2.2914 trillion annualized to $2.2906 trillion – meaning that the sequential annualized decline was 0.65 percent. That represents the fastest rate since the 4.40 percent rate in the fourth quarter of 2012 – when overall growth was a bare 0.09 percent annualized.

>Real services imports were judged today to have fallen sequentially in the third quarter by 2.97 percent at an annual rate percent rather than 2.17 percent – still the fastest quarterly decrease since the 7.59 percent annualized plunge in the first quarter of 2011. The level of services imports was downgraded from $495.5 billion annualized to $494.5 billion.

>With the real trade deficit shrinking steadily, so is trade’s drag on the current economic recovery.

>The initial read on third quarter GDP pushed it down from 9.24 percent in the second quarter to 8.18 percent. The new data reduce it still further – to 8.11 percent, or $228.1 billion sliced off real growth during this recovery because of the after-inflation trade deficit’s expansion since the last recession ended.

>The growth-killing effects of the Made in Washington trade deficit have been considerably greater – but continue to fall as well.

>This trade deficit and its growth drag can be calculated by removing constant dollar oil trade and services trade from trade figures – two areas where trade liberalization’s impact so far has been modest at best. What’s left are the U.S. trade flows most heavily affected by trade agreements and other Washington policy decisions.

>When the first read on third quarter GDP came out, third quarter figures for the Made in Washington deficit were not available, but the second quarter GDP report revealed a drag of 17.30 percent, or $462.8 billion in real growth lost since the recovery began.

>Today’s GDP report shows that the Made in Washington trade drag is down to 16.32 percent, or $459.2 billion worth of real growth lost since the recovery began, in the middle of 2009.

(What’s Left of) Our Economy: America Keeps Getting More Manufacturing-Lite

Tags

Commerce Department, finance, GDP, Great Recession, gross domestic product, healthcare, manufacturing, real value-added, recovery, subsidized private sector, value added, {What's Left of) Our Economy

The Commerce Department’s “GDP [Gross Domestic Product] by Industry” reports aren’t considered market movers by those in the know in economics, business, and finance. Still, I find them well worth following because they provide the most authoritative evidence available on whether numerous claims about the economy’s strengths and weaknesses meet the reality test.

The big takeaway here? For all the post-financial crisis talk from politicians across the political spectrum about the need to reindustrialize the U.S. economy, manufacturing remains a major growth laggard. Indeed, by two key measures, it still hasn’t recovered fully from the Great Recession.

Commerce’s latest report takes the story up to the second quarter of this year, and revises the previously published results back to 2014. For some reason, the new 2014 numbers won’t come out till next month, but we do have the 2015, 2016, and first quarter 2017 revisions. Here’s what they say.

From 2015 through the first quarter of this year, manufacturing’s inflation adjusted growth rate – according to a gauge called “real value added,” which aims at eliminating unintentional double-counting – has been a few ticks lower than originally judged. The 2015 performance was revised down by 0.6 percentage points, the 2016 growth was upgraded by a full percentage point, and the first quarter 2017 result was downgraded by 0.8 percentage points. As for the latest, second quarter 2017 number, it’s a healthy four percent at an annual rate.

Manufacturing real value added’s contributions to growth have been a little more modest, too – which means that it’s been growing more slowly than the rest of the economy. That trend comes through more clearly from the Commerce data showing industry’s actual share of GDP. The main numbers are presented in current dollar terms, meaning that they don’t factor in inflation. But they make clear that manufacturing value added has declined from representing 12.1 percent of total American economic output in 2015 to accounting for just 11.5 percent in the second quarter of 2017.

To make the point even more emphatically, when the Great Recession broke out, in the fourth quarter of 2007, manufacturing value added represented 12.4 percent of gross domestic product.

Of course, there’s a case to be made (not that I accept it) that as long as manufacturing is growing, it doesn’t matter whether it’s becoming a bigger or smaller share of American economic output. But even by these standards, U.S. manufacturing is faltering. The new Commerce numbers show that, since the recession began, manufacturing real value-added is down. It’s not down by much – 0.18 percent in toto. But we’re talking about absolute shrinkage over a period of nearly ten years.

As RealityChek regulars know, the Federal Reserve’s industrial production reports (which also adjust for inflation), peg manufacturing’s shrinkage since the end of 2007 at an even greater 4.26 percent. Only if you take price increases out of the picture does manufacturing show a real recovery. In current dollar value added terms, it’s grown by 18.26 percent during this period.

But even by these terms, manufacturing’s laggard status stands out. In fact, since the fourth quarter of 2007, it’s share of the economy’s value-added has fallen by 10.16 percent. That’s the greatest such drop in the whole economy after mining (26.09 percent) and construction (10.42 percent).

The leaders, by these criteria? The subsidized private sector (industries, notably healthcare services, whose size is determined largely by government largesse) is number one, increasing its share of value added by 16.22 percent. Next is a supersector comprising arts, recreation, accommodation, and food services (up 13.89 percent). And remember all the concern that the pre-recession, bubble-ized economy of the previous decade was too Wall Street heavy? Since it brought the entire world to the brink of economic disaster, the finance super-sector has boosted its share of value added by a healthy 5.05 percent.

(What’s Left of) Our Economy: Trade was a Marginal Growth Engine in the Second Quarter

Tags

Bureau of Economic Analysis, Commerce Department, exports, GDP, goods, gross domestic product, imports, inflation-adjusted growth, Made in Washington trade deficit, real GDP, real trade deficit, recovery, services, trade deficit, {What's Left of) Our Economy

The final (for now) solid 3.03 percent annualized real GDP growth figure for the second quarter benefited slightly on a sequential basis by a drop in the inflation-adjusted trade deficit to $613.6 billion – the lowest such level since the third quarter of 2016 ($557.3 billion). Trade’s role as a quarterly growth engine, however (adding 0.21 percentage points) decreased to its smallest on a relative basis since the third quarter of 2014 (when its fueled 0.28 percentage points of 5.11 percent annualized growth).

New quarterly constant-dollar records were all achieved for total exports and goods exports, and for all import categories. For total imports and goods imports, these records were their fifth straight. Real services exports increased sequentially at their fastest annualized rate (6.2 percent) since the first quarter of 2013 (7.1 percent). But services imports hit their eleventh straight quarterly record ($498.2 billion).

Trade’s subtraction from cumulative recovery-era real growth remained considerable in the second quarter, but shrank sequentially both in toto (from 10.04 percent in the first quarter to 9.24 percent) and in terms of the Made in Washington deficit that tracks trade flows heavily influenced by trade policy (from 17.40 percent to 17.30 percent).

Here are the trade highlights from Thursday morning’s GDP report from the Commerce Department’s Bureau of Economic Analysis:

>The final read on second quarter economic growth produced an unusual mix of results given all the attention focused on President Trump’s stated resolve to reform U.S. trade policy. On the one hand, a sequential drop in the inflation-adjusted trade deficit to $613.6 billion (its lowest level since the $557.3 billion in the third quarter of 2016) helped lift annualized quarterly growth to 3.03 percent – the best such result since the first quarter of 2015 (3.20 percent).

>On the other hand, trade’s positive contribution to growth was its smallest on a relative basis (adding 0.21 percentage points) since the third quarter of 2014 (0.28 percentage points out of 5.11 percent annualized real growth).

>On a stand-still basis, new quarterly records were set for nearly all after-inflation categories of trade flows, including across the board on imports.

>Real total exports increased by 3.48 percent sequentially at an annual rate, from $2.1623 trillion annualized to $2.1811 trillion – their second straight all-time high.

>Real goods exports also hit their second straight quarterly record, improving by 2.17 percent annualized, from $1.4923 trillion annualized in the first quarter to $1.5004 trillion.

>Real services exports rose quarter-to-quarter at their fastest annual rate (6.01 percent) since the first quarter of 2013 (6.86 percent). But their $682.3 billion total fell short of the record of $684.9 billion set in the second quarter of 2015.

>Real combined goods and services imports in the second quarter rose sequentially at their slowest annualized rate (1.48 percent) since the second quarter of 2016 (0.39 percent). But their $2.7948 trillion figure was still their fifth straight quarterly record.

>Real goods imports set their fifth straight quarterly record, too. They rose by just 1.33 percent on an annual basis (the slowest pace since the third quarter of 2016’s 1.23 percent) to hit $2.7948 trillion annualized.

>As for real services imports, they set their eleventh straight quarterly record ($498.2 billion) – even though they advanced by a mere 2.18 percent annualized (the slowest such pace since the 1.01 percent annual growth in the second quarter of 2016).

>The new GDP figures showed that trade kept subtracting from America’s cumulative growth during te current economic recovery, but that the growth drag lightened by both major measures.

>As of these final second quarter results, the increase in the inflation-adjusted trade deficit since the second quarter of 2009 (when the recovery officially began) has sliced $247.3 billion from the real gross domestic product’s improvement – a growth drag of 9.24 percent.

>As of the first quarter, this growth drag was 10.04 percent, or $255.9 billion.

>The bite into growth from the Made in Washington trade deficit’s increase was much greater, but diminished as well.

>The post-second quarter, 2009 widening in this trade deficit – which strips out trade in energy and services and focuses on import and export flows heavily influenced by trade policy – cost the economy $462.8 billion, resulting in a growth drag of 17.30 percent.

>The Made in Washington trade deficit’s growth drag in the first quarter was 17.40 percent, or $443.3 billion.

(What’s Left of) Our Economy: Again, A Better U.S. Trade Performance Produces More Growth

Tags

Bureau of Economic Analusis, Census Bureau, Commerce Department, exports, GDP, goods, Great Recession, gross domestic product, imports, Made in Washington trade deficit, real GDP, real trade deficit, recovery, services, Trade, {What's Left of) Our Economy

Sorry for being late with this analysis of the federal government’s final (for now) report on economic growth in the first quarter – which came out on Thursday. Life has this stubborn habit of intruding, etc. But the results are worth considering because they show once again that, even though the intertwined economics, business, and political establishments insist otherwise, a smaller trade deficit is usually better for the domestic economy, and especially for its productive side (the key to sustainable prosperity). Here’s a somewhat abbreviated version of the highlights:

>The government’s third report on the gross domestic product (GDP) showed that the downward revision of the first quarter’s inflation-adjusted trade deficit from $600 billion to $595.6 billion boosted trade’s contribution to growth – though it wasn’t big enough to prevent overall performance from weakening sequentially.

>The previous GDP report estimated that real net trade contributed 0.13 percentage points to the first quarter’s 1.15 percent annualized price-adjusted sequential growth. Now the quarter-to-quarter narrowing of the after-inflation trade deficit added 0.23 percentage points to 1.42 percent annualized constant dollar growth.

>And the first quarter’s trade role was a stunning turnaround from the fourth quarter’s. The final results for that period show that a jump in the real trade deficit subtracted 1.82 percentage points from 2.06 percent annualized growth. That is, a worse trade performance cut inflation-adjusted growth nearly in half.

>In fact, that difference produced the biggest positive swing in trade’s pro-growth role (of 2.05 percentage points) since the first quarter of 2009 (2.15 percentage points). At that time, the economy was in the depths of the Great Recession, when the economy, and contracting at a sickening 5.4 percent annual rate.

>At the same time, the newest $595.6 billion quarterly trade gap was still the second largest since the $623.7 billion deficit registered in the first quarter of 2008, as the economy was just starting to fall into recession.

>All categories of exports and imports tracked in the real GDP figures remained at new quarterly all-time highs in the first quarter. And with the exception of services exports, all categories exceeded the results from the previous GDP report.

>Combined annualized goods and services exports in the first quarter were upgraded from their record $2.168 trillion to $2.1740 trillion – and are now judged to be 1.71 percent higher than the fourth quarter’s level. The previous quarterly all-time high had been $2.1620 trillion annualized, set in the third quarter of last year.

>The record annualized goods export total was revised up from 1.4832 trillion to $1.4904 trillion – an increase of 2.53 percent over the fourth quarter. The previous record of $1.4792 trillion was also set in third quarter, 2016.

>Services exports were revised down from $685.8 billion annualized to $685.0 billion. That amount still exceeded the fourth quarter total by 0.18 percent, and still topped the previous record of $684 billion record set in the first quarter of 2015.

>Total annualized first quarter imports were revised slightly higher, from a record $2.7679 trillion annualized to $2.7696 trillion – one percent greater than the $2.7424 trillion fourth quarter level that was the previous record.

>Goods imports also were revised up fractionally, from $2.2782 trillion to $2.2792 trillion annualized. That represented a 1.08 percent increase over the fourth quarter level of $2.2549 trillion – also the previous record.

>Services imports were reported last month at their eighth straight quarterly record., and they remained so in today’s report. The previous $487.4 billion is now judged to be $488.1 billion – a 0.62 percent sequential increase.

>According to these new GDP figures, the trade drag on the current, historically weak, economic recovery continued to shrink. Initially coming in at 9.70 percent, it was revised down to 9.32 percent last month and in the third estimate equaled 9.11 percent. The total as of the fourth quarter was 9.71 percent. The new data mean that the economy has grown by $229.3 billion less in real terms during the recovery due to the increase in the real trade deficit.

>The trade drag created by the Made in Washington deficit is still more than twice as great, according to the GDP data (which comes from the Commerce Department’s Bureau of Economic Analysis) and separate figures compiled by the Census Bureau (another arm of Commerce). And it’s bounced back up as of the latest data from both sources.

>This deficit strips out U.S. trade in oil (which is rarely the subject of trade deals or related policy decisions) and services (where liberalization has made relatively little progress). The growth of the remaining real non-oil goods deficit during the current recovery has slowed cumulative inflation adjusted growth by fully 21.52 percent – slightly higher than the 21.26 percent produced by the previous set of results.

>And it mean that the growth of this policy-influenced trade deficit has cost the U.S. economy nearlyy $542 billion in cumulative inflation-adjusted production during this recovery.