(What’s Left of) Our Economy: New U.S. Inflation Numbers Show New U.S. Inflation Momentum

Tags

Biden administration, Commerce Department, consumer price index, core inflation, CPI, Federal Reserve, inflation, Labor Department, monetary policy, PCE, personal consumption, supply chains, transitory, {What's Left of) Our Economy

Claims made by Federal Reserve leaders and the Biden administration (along with Yours Truly) that current lofty levels of U.S. inflation are transitory took another hit this morning with the Commerce Department’s release of the October figures for the Personal Consumption Exepnditures (PCE) price indices.

For some reason, these data don’t get the same attention as the Labor Department’s Consumer Price Index (CPI), but they should, since they’re the Fed’s inflation gauge of choice, and the Fed’s power to control inflation (or not) through monetary so profoundly influences the cost of credit, and therefore how fast or slowly the economy grows.

And the new PCE numbers show that between September and October, monthly and yearly price increases regained momentum that had previously showed signs of waning. Let’s go the statistics lists (an economist’s version of “Let’s go to the videotape”). First, the year’s monthly percentage changes in overalll PCE inflation:

Jan.             0.3

Feb.            0.3

March         0.6

April           0.6

May            0.5

June            0.5

July            0.4

Aug.           0.4

Sept.           0.4

Oct.            0.6

Moreover, not only is the October increase back to the previous peaks in March and April, but the August and September results were each revised up from 0.3 percent.

As you can see from the next list, the same kind of pick up can be seen in overall PCE inflation rates on a year-on-year basis. And these percentage canges are more important than the monthly changes because they measure the trend over a longer period of time, and also smooth out the kind of fluctuations that can pop up for random reasons in the short term. Just FYI, the July result was revised down from 4.2 percent.

Jan.              1.4

Feb.             1.6

March          2.5

April            3.6

May             4.0

June             4.0

July              4.1

Aug.             4.2

Sept.             4.4

Oct.              5.0

The monthly core inflation figures strip out food and energy prices – because they can be volatile for reasons like weather, and foreign oil cartels, that have nothing to do with the economy’s underlying proneness to price increases (or decreases). They’ve been somewhat lower in absolute terms than the overall PCE monthly increases. In October, moreover, though they doubled over the September rate, they’re still lower than the price rises recorded in spring and early summer. But that doubling snapped a five-month streak of stabilization or declines. Here are these percentage changes.

Jan.              0.2

Feb.             0.1

March         0.4

April           0.6

May            0.6

June            0.5

July             0.3

Aug.            0.3

Sept.           0.2

Oct.            0.4

As for the year-on-year core percentage changes, they’ve arguably been worse momentum-wise than their monthly counterparts because they’d shown no signs of decline through September. Now they’ve become worse still with the jump to 4.1 percent in October (the biggest such surge in decades). And September’s rate has been revised up from 3.6 percent.

Jan.             1.5

Feb.            1.5

March        2.0

April          3.1

May           3.5

June           3.5

July            3.6

Aug.          3.6

Sept.          3.7

Oct.           4.1

My gut still tells me that current inflation will be transitory – and in some meaningful sense, not because “nothing lasts forever except death and taxes.” That’s because the CCP Virus-era economy is still so downright weird, and because its disruptions – along with the current severity of the disease – are bound to at least calm down at some point in the foreseeable future.

But the new numbers revealing new inflation momentum are telling the opposite story, and their importance is all the more impressive for basically matching the trends shown by the CPI figures. So the burden of proof on inflation’s future has definitely shifted to the shoulders of the transitory-istas.

(What’s Left of) Our Economy: Let’s Hope the Lousy New U.S. Trade Figures are Transitory, Too

Tags

Commerce Department, Donald Trump, exports, Federal Reserve, GDP, gross domestic product, imports, Jerome Powell, real GDP, real trade deficit, tariffs, Trade, trade deficit, West Coast ports, {What's Left of) Our Economy

No two ways about it. Until the longer term revisions come in, the first quarter of 2021 was a lousy one for inflation-adjusted U.S. trade flows – and lousy to a record extent. The only possible positive takeaway:  These numbers and the trends underlying them might be just as transitory and CCP Virus-induced as I (and many others)  believe today’s high inflation numbers are   

According to today’s final (for now) Commerce Department read on economic growth for the first three months of this year, the real gross domestic product (GDP – the government’s measure for the economy’s size) increased by 6.21 percent on an annual basis.

That’s an excellent figure although (like virtually all other economic data) it’s a considerably artificial number (because of the sudden reopening of the economy after equally sudden government-mandated shutdowns and resulting consumer caution), and although it’s a bit less than the 6.25 percent estimated last month. Indeed, it’s a big improvement over the 4.26 percent registered in the fourth quarter of last year

But the after-inflation trade deficit figures just keep rising – and reaching all-time highs. The initial read on this constant dollar trade gap for the first quarter was an annualized $1.1755 trillion. Last month, this figure was revised up to $1.1939 trillion. This morning’s result: $1.2123 trillion. Consequently, the price-adjusted first quarter trade deficit turns out to be 8.05 percent worse than the fourth quarter’s $1.1220 trillion.

Optimists can note that this sequential increase was smaller than the 10.12 percent rise between the third and fourth quarters of last year. But this slowdown is pretty modest.

Since the real trade deficit figure is higher than previously reported and grew faster, and the total economy grew slightly more slowly in inflation-adjusted terms, the trade shortfall’s bite into growth was bigger – 1.50 percent out of the 6.21 percent increase as opposed to the previously reported 1.25 percent out of 6.25 percent growth.

This means that, had the real trade deficit simply remain unchanged, the economy would have expanded 24.15 percent more after inflation in the first quarter. The previous GDP read yielded a figure of 20 percent.

In glass-half-full terms, that’s a smaller subtraction from growth than the multi-decade high 35.92 percent suffered in the fourth quarter. But it’s a lot of foregone growth nonetheless.

The constant dollar trade deficit as a share of GDP hit another new record, too – 6.35 percent. Upon recalling that the previous pre-pandemic high of 6.10 percent came in the fourth quarter of 2005, during the bubble whose bursting brought on the global financial crisis and ensuing Great Recession, that could be an ominous development.

And more bad news: The worsening of the real trade deficit came on both the export and import fronts in the first quarter. Today’s GDP report showed that inflation-adjusted U.S. overseas sales of goods and services dropped sequentially by 0.53 percent, while total American purchases from abroad increased by 2.30 percent.

So do these new figures foreshadow the new post-CCP Virus normal for U.S. trade – despite (or because of?) the Trump tariffs? We’ll find out more about the effects of trade policy once the next official monthly U.S. trade figures (for May) come out next Friday. 

For now, though (and probably after those new data), the most responsible answer I can provide is, “It’s too soon to tell.” Indeed, as if the U.S. economy still wasn’t being distorted enough by the rapid transition from pandemic-induced recession to robust expansion, and still facing enough consequent uncertainties, on top of the ongoing congestion at U.S. West Coast ports, a big logjam has emerged at a giant port in export-heavy China.

Last week, Federal Reserve Chair Jerome Powell noted that “This is an extraordinarily unusual time, and we really don’t have a template or any experience in a situation like this. We have to be humble about our ability to understand the data.” As the new U.S. GDP report should be making clear, American trade flows are no exception.

(What’s Left of) Our Economy: Recent Revisions Muddy the U.S. Manufacturing Picture Still Further

Tags

Barack Obama, CCP Virus, China, Commerce Department, coronavirus, COVID 19, Donald Trump, Federal Reserve, inflation-adjusted output, manufacturing, manufacturing output, metals, real value-added, tariffs, Trade, trade policy, trade war, value added, Wuhan virus, {What's Left of) Our Economy

As if the CCP Virus pandemic and its aftermath haven’t made gauging the real health of the U.S. economy difficult enough, the Federal Reserve late last month came out with its latest long-term (“benchmark”) revision of its domestic manufacturing production data that confuse the picture of industry’s recent status still further.

These revisions cover the 2017-2019 period, and as such, they’re especially important in gauging how U.S.-based industry fared under President Trump and the trade policy revolution he launched versus their performance during the second term of Barack Obama’s presidency and his standard trade policies. (As known by RealityChek regulars, these two time periods provide the best basis for comparison, since they came closest together during the same – expansionary – business cycle.) Moreover, because the revisions create a different baselines, they also affect the post-2019 period’s growth results for manufacturing, which include the pandemic period.

The Fed’s summary makes clear that the revisions show the inflation-adjusted expansion of manufacturing output during that Trump period to have been significantly slower than previously reported. That finding indicates that far from boosting manufacturing production, and particularly compared with the Obama years, the Trump tariffs (on steel and sluminum, and on hundreds of billions of dollars worth of goods from China) actually held it back.

Indeed, the revisions are so substantial that the picture they draw is a mirror image of the predecessor data – which showed that, at least before the virus struck, Trump-era manufacturing growth in real terms considerably bested the Obama-era performance. For that matter, the previous Fed numbers showed that domestic industry fared relatively well under Trump even counting the pandemic-induced recession year 2020.

Here are the results side-by-side for after-inflation manufacturing production growth in percentage terms:

                                                                   pre-revision               with revision

last four Obama years:                                   +2.45                          +1.30

Trump years pre-pandemic:                           +3.60                           -0.41

all four Trump years:                                     +2.13                           +0.82

So when it comes to growth – an especially important metric, since it’s tough to imagine creating many jobs without it – the new Fed revisions show that the second Obama term was better for U.S. manufacturers than Trump’s single term, CCP Virus or no.

Or were they? As also known by RealityChek regulars, the constant dollar output figures used by the Fed aren’t the only way to measure growth in manufacturing (or any other sector of the economy). Another is value-added, which attempts to avoid the double counting built into the standard output numbers created by their failure to distinguish between the value of the parts and components of a final product, and that of the final product itself. That’s why economists generally view them as the more revealing statistics. And in the above-linked announcement describing the revision and its methodology, the Fed says that the new numbers incorporate insights gleaned from the latest value-added figures (which are reported by the Commerce Department).

But when the latest version of these statistics are examined, they still show that domestic manufacturing grew much faster during the Trump years than during the final four Obama years. Here are the results in percentage terms when value-added is adjusted for inflation:

last four Obama years:                                    +3.88

Trump years pre-pandemic:                            +7.56

all four Trump years:                                       +9.22

One especially interesting feature of the above – the real value-added numbers show that U.S. manufacturing output actually grew further during the pandemic. In fact, even the revised Fed growth numbers show that industry has fared a good deal better so far during the pandemic than previously reported – with after-inflation production shrinking by just 0.92 percent between February, 2020 and this past April, not 1.42 percent.

Tomorrow the Fed will publish its first read on real manufacturing output for May. It will of course shed some more light on the status of domestic industry. But never forget that, given how the results will be revised not only several times during the next several months, but also about two years from now, the degree of illumination may be relatively modest.

(What’s Left of) Our Economy: New U.S. GDP Figures Report Record – and Virus-Distorted – Trade Deficits

Tags

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

Because the entire U.S. economy has been so distorted by sudden stop-start nature of the CCP Virus and subsequent lockdowns and reopenings, and massive government stimulus measures, I’ve been hesitant to draw firm conclusions about the messages sent by the various reports on the economy’s performance issued by the government since the pandemic arrived.

I’m still hesitant, but this morning’s Commerce Department report on the economy’s growth in the first quarter of this year seemed especially interesting due to the signs it contained that America’s trade flows might be returning to some semblance of normality. The signs consist of quarter-to-quarter changes in deficits, exports, and imports that are decidedly moderating.

To start, that conclusion is also consistent with the moderating of changes in economic growth itself. Measured in inflation-adjusted terms, this intiial read on America’s gross domestic product (GDP – the total of goods and services turned out by the nation) revealed growth of 6.24 percent at an annual rate in the first quarter. By the standards of normal times recent decades, this is a blistering pace. In fact, leaving out the pandemic period, it was the best such performance since the 6.80 percent achieved in the third quarter of 2003.

But by pandemic standards, although it’s a speed up from the 4.26 percent registered in the fourth quarter of last year, it’s not that much of a speed up, especially given how much stimulus has been poured into the economy. And compared with the 29.91 percent real GDP pop in last year’s third quarter, however, it’s definitely smallish beans.

The trade figures comprising part of this GDP report generally followed suit. For example, the first quarter’s after-inflation trade deficit of $1.1755 trillion was an all-time quarterly record both in absolute terms, and more important, as a share of the whole economy (6.16 percent). The last time the trade deficit’s relative size was remotely that big was during the fourth quarter of 2005 (6.10 percent) – during a time now known as the bubble decade that preceded the financial crisis and Great Recession of 2007-2009.

Yet the deficit’s quarter-to-quarter growth rate of 4.77 percent was considerably slower than the fourth quarter’s 10.12 percent, and the record (by a long shot) 31.47 percent recorded during that extraordinarily high growth third quarter.

The same pattern is unfolding so far with the trade gap in goods. At $1.3463 trillion annualized it marked the third straight quarterly record in absolute terms. But the sequential growth rate of 3.46 percent was well off quarterly the rate of 6.94 percent in the fourth quarter, much less the 21.58 percent in the third quarter.

Trade in services – the part of the national and global economies hardest hit by the virus and the lockdowns – has taken less of a straight line route in terms of quarterly change, but moderation can be seen here, too. The quarterly surplus of $165.1 million was the smallest recorded since the $1.57 million during the third quarter of 2009 – when the economy was just beginning to crawl out of the Great Recession.

The quarterly shrinkage of 4.95 percent was, though, As less than a third as great as the fourth quarter’s 17.29 percent – though that nosedive was greater than the third quarter’s 10.48 percent.

Approaching normality was also indicated by another trade-related figure – the degree to which these changes in the deficit have affected overall growth. During the first quarter of this year, the sequential rise of the price-adjusted trade deficit subtracted 0.87 percentage points from annualized real GDP growth figure, which hit 6.24 percent. So that trade shortfall increase affected 13.94 percent of the growth figure (for the worse).

As discouraging as that result was, however, the trade effect was much smaller than in the fourth quarter of last year. Then, the big surge in the inflation-adjusted trade gap cut 1.53 percentage points from real GDP growth, which hit 4.26 percent annualized. In other words, the trade deficit affected 35.92 percent of the growth figure (again for the worse).

The trade affect was actually smaller in relative terms during the record GDP growth third quarter – reducing real GDP expansion, which neared 30 percent at annual rates, by 3.21 percentage points.

But for some context, the last time the trade hit to real economic growth was seen in this statistical neighborhood was the third quarter of 1982, when dragged down a sequential after-inflation contraction of 1.53 percent by 3.22 percentage points. That is, without the increase in the trade deficit, the overall economy would have grown. And the all-time record was set way back in the fourth quarter of 1947 – when a rising trade shortfall cut 4.23 percentage points out of a growth rate that his 6.25 percent annualized.

Larger trade effects have been seen occasionally when a quarterly improvement in the deficit bolstered growth. But these instances came during deep downturns – as in the second quarter of 1980 and the first quarter of 1975.

Nevertheless, a case can be made that the CCP Virus related distortions of the economy and U.S. trade flows still have a ways to go. After all, more massive government stimulus seems to be coming, and new pandemic waves are washing over major portions of Europe and Asia, which of course are important American export markets. And until the roller coaster ride is over, assessing the true state of the economy and trade flows will remain a serious challenge.

Moreover, even if the distortions are indeed over, these particular trade figures are of little help in assessing the ongoing impact of the Trump trade policy revolution engineered from 2017 to last year.  Luckily, the next set of needed details is due out next Tuesday, when the March monthly trade report is slated to be released.      

(What’s Left of) Our Economy: More Evidence of U.S. Manufacturing’s Tariff-Bolstered Resilience

Tags

CCP Virus, China, Commerce Department, coronavirus, COVID 19, imports, Jobs, Labor Department, manufacturing, recession, recovery, tariffs, The Wall Street Journal, Trade, Trump, value added, Wuhan virus, {What's Left of) Our Economy

I must confess that I’m more than a little confused. On the one hand, I read in The Wall Street Journal two days ago that the Trump administration “used tariffs to try to drive manufacturing back home, although growth in factory jobs stalled once the administration resorted to levies that drove up costs for many factories.”

On the other hand, I read in The Wall Street Journal yesterday that U.S.-based manufacturing is recovering “quicker than expected” from the CCP Virus- and lockdowns-induced American recession. Moreover, this stellar performance is taking place amid “higher costs for materials used in everything from kitchen cabinets to washing machines to automobiles.”

Stranger still: Unquestionably, among the cost drivers for these materials have been those Trump tariffs, especially on imports from China – which are not only wide-ranging (covering some $360 billion worth of Chinese-made products when they were imposed in phases), and steep (with most standing at 25 percent).

In fact, “stellar” really isn’t the best adjective for the manufacturing surge. Try “record-shattering.” For the Commerce Department’s “GDP by Industry” statistics show that between the second and third quarters of this year, manufacturing value-added (an output measure that tries to eliminate the double-counting that results from including in manufacturing production levels both final products and all the parts, components, and materials that go into those products) shot up by 13.34 percent at an annual rate. That’s not only never happened before. It’s never come close to happening before – at least since 2005, when the relevant data series began.

To be fair, this growth stemmed from the rubberband-like effect of partial virus-related reopenings of economic activity. Specifically, it followed a record 12.47 percent nosedive between the first and second quarters. But who can reasonably doubt that the immense scale of the Trump tariffs suppressed the amount of Chinese goods that could have satisfied this renewed demand, as they had done so typically in the recent past – especially since China’s export machine recovered exceptionally quickly from the People’s Republic’s own virus outbreak and massive shutdowns?

Moreover, who can reasonably doubt that the exclusion of these imports from the U.S. market more than offset whatever price increases the tariffs created? Because however much these levies are reducing companies’ earnings and profits, every sale lost to a China-based rival – whether at home or abroad – means much less in the way of earnings and profits. 

And this strong American manufacturing growth pickup has put an end to that short-lived manufacturing jobs slowdown. From April of last year (when the CCP Virus’ economic impact peaked on a monthly basis ) through December, Labor Department data show that U.S. industry’s payrolls are up by 820,000 – much faster growth than the 37,000 increase during the same period in 2019. Of course, the incredibly abnormal sudden stop-and-start of virus-era economies not just in the United States but the world over (and in largely unsynchronized ways) sharply limits the use of all such comparisons, because they have so relatively little to do with the economic fundamentals.

At the same time, though, it’s entirely reasonable to expect U.S. manufacturing production and employment to keep expanding as post-CCP Virus normality returns. And as long as the Trump tariffs remain largely in place, the prospect of a renewed Chinese import flood will be one major headwind that domestic industry won’t have to fear.

(What’s Left of) Our Economy: The CCP Virus Lockdowns’ State-Level US Effects II

Tags

CCP Virus, Commerce Department, coronavirus, COVID 19, lockdowns, shutdowns, states, stay-at-home, Wallethub.com, Wuhan virus, {What's Left of) Our Economy

Yesterday’s RealityChek post presented some facts about the economic performance of America’s states during the CCP Virus era that struck me, anyway, as surprising and important. And it ended with the observation that two big states that have imposed relatively sweeping anti-virus curbs on business and consumer activity – New York and California – accounted for a considerably outsized share of the national economy’s shrinkage during the pandemic through the third quarter of this year (the latest economic statistics available).

Today’s post will use the same data – from a recent Commerce Department report – to show that overall, the states with the most restrictive lockdown etc regimes have generally experienced the biggest economic contractions. That conclusion may sound too obvious to bother thinking about, but it matters because economic distress, as I’ve written repeatedly, produces its own serious public health (both mental and physical costs). Moreover, at least according to most of the public health establishment, even if mass vaccination goes as quickly and smoothly as realistically possible, normality could still be nearly a year off.

As with the previous post, however, some qualifications need to be discussed, and in addition to yesterday’s, two more should be kept in mind. First, despite the connection between CCP Virus-related economic and business curbs on the one hand and slumping economies on the other, there’s a non-trivial number of exceptions, as will be shown below. So it’s distinctly possible that some states have found the kind of balance between still-sometimes (but not always) conflicting economic and public health imperatives that’s worth emulating.

Second, not only have the lockdowns etc been very on-and-off in nature since the pandemic became a pandemic in late winter, but measurements of these lockdowns’ scale unavoidably entail a pretty fair amount of subjectivity.

The source I’m using for this (at this link) looks on-target in general to me. But I have to admit puzzlement at some of the rankings. For example, the source organization, Wallethub.com, places Michigan right in the middle of these rankings – even though Michiganders have been among the most vehement opponents of virus curbs. Have many of the folks directly experiencing this state’s restrictions just been throwing unwarranted tantrums?

Moreover, Maryland, where I live now, has imposed pretty tight restrictions, too, although at least Republican Larry Hogan has been one of those governors who’s given different counties a fair amount of regulatory autonomy since the state (like even many smaller ones) is fairly diverse. But I’m not convinced that overall its curbs have been patchy enough to place it in the lockdowns-light half of states.

Meanwhile, New Mexico is ranked just a little more restrictive than Michigan, though my own look at this state’s policies concluded they’ve been quite lockdown-y.

But nobody’s perfect, so I’m going with Wallethub.com as my lockdown guide, and here’s what I did. First, I looked at the ten states whose economies grew the most (or contracted the least) between the firt and third quarters of this year, and identified where they stand in the Wallethub rankings, and then performed the same exercise with the ten states that suffered the worst contractions. The growth (and contraction) figures represented percentage changes in real gross domestic product, and the Wallethub scale assigns the least restrictive states the lowest numbers. Here are the results:

Top 10 1Q-3Q GDP                                               rank on lockdown scale

Utah: +1.07                                                                            3

Washington: +-0.44                                                             36

Delaware: -0.08                                                                   31

Arizona: -0.52                                                                     45

Iowa: -0.54                                                                            5

Idaho: -0.81                                                                           2

Indiana: -1.01                                                                      15

Georgia: -1.03                                                                     13

Arkansas: -1.27                                                                   10

Alabama: -1.34                                                                   14

The big takeaway? Of these ten states, seven imposed relatively light anti-CCP Virus restrictions

(earning rankings in the lowest half of the fifty states plus the District of Columbia). And four of these states were among the ten least restrictive states. So that looks like solid evidence that the relatively open states were rewarded with the best economic performances, and that this openness as such deserves significant credit. But three states on this list put into effect lockdowns on the tight side and fared relatively well economically, too – Washington, Delaware, and Arizona.

Have they found the policy sweet spot? Or is there something about their economies’ structures that have produced economic resilience? One observation pointing to the importance of structure: both Washington and Arizona boast highly developed tech sectors – Amazon and Microsoft, e.g., headquartering the former, and the latter containing much semiconductor production.

Here are the states with the worst growth performances during the pandemic:

Bottom 10 1Q-3Q GDP                                               rank on lockdown scale

Hawaii: -6.67                                                                              51

Wyoming: -5.24                                                                           7

New York: -4.56                                                                        38

Oklahoma: -3.84                                                                         4

Tenn: -3.33                                                                                18

Alaska: -3.28                                                                             12

Nevada: -3.14                                                                            20

New Jersey: -3.08                                                                     47

Vermont: -3.06                                                                          41

North Dakota: -2.98                                                                   9

And these results seem to cut against those of the previous list – because of these low growers, only four had imposed very restrictive lockdowns (Hawaii, New York, New Jersey, and Vermont). Further, three were among the very least restrictive states (Wyoming, Oklahoma, and North Dakota). And the other three were well in the half of states that have been least restrictive (Tennessee, Alaska, and Nevada).

Nonetheless, economic structure considerations as well as policy measures seem to be influencing these results. Principally, Wyoming, Oklahoma, and North Dakota all depend very heavily on a fossil fuels sector that has been plunged into a deep slump due to the virus’ overall economic effects. And lockdown-light-ish Nevada has suffered from the tourism depression.

Now let’s view the situation from the opposite perspective. Let’s take the states with the ten tightest and ten loosest lockdown regimes, and examine their respective economic performance. First, the ten tightest lockdowners, with the most resrictive at the top:

Most restrictive on lockdowns                                1Q-3Q GDP growth rank

Hawaii                                                                                    50

California                                                                               36

Mass.                                                                                      32

Maine                                                                                     34

New Jersey                                                                             47

Colorado                                                                                 33

Arizona                                                                                    4

Oregon                                                                                   20

Pennsylvania                                                                          37

Vermont                                                                                  41

Here the correlation between policy and performance looks awfully strong. Fully eight of the ten biggest economic loser states are among the states with the tightest lockdowns, and three of these are among the ten most restrictive. Interestingly, Arizona comes across as a standout according to this measure, too.

Economic structure is playing a role here, too – as seen by the presence of tourism-reliant Hawaii and Vermont. In addition, Pennsylvania’s become a big energy state thanks to the Marcellus shale formation, and Colorado has long depended heavily on both energy and tourism.

At the same time, Pennsylvania’s got lots of office workers who’ve been able to do their jobs from home – as does New Jersey (which along with New York was hit early and hard by the virus). And what gives with California – of course tourism-heavy, but in many ways the center of both high tech manufacturing and high tech service provision in the nation, not to mention research and development?

So lockdown decisions seem to have made major contributions to these states’ relatively deep downturns.

A similar conclusion seems justified from this list of the ten states that have permitted their economies to remain most open and imposed the fewest cubrs on behavior – with the least restrictive closest to the top:

Least restrictive on lockdowns                                1Q-3Q GDP rank

South Dakota                                                                     14

Idaho                                                                                   6

Utah                                                                                     1

Oklahoma                                                                         47

Iowa                                                                                    5

Wisconsin                                                                         11

Wyoming                                                                         49

Missouri                                                                           21

North Dakota                                                                   41

Arkansas                                                                            9

Seven of these ten lockdown-lightest states are in the top half of U.S. economic performers, four are in the top ten and one (Wisconsin) is Number 11. Moreover, the three conspicuous exceptions to this pattern – economically woeful Oklahoma, Wyoming, and North Dakota – are all, as previously pointed out, states that have suffered because they’re energy-heavy.

As a result, the way I see it, this table and at least two of the others of the four total presented here, along with yesterday’s state-level data, further strengthen the case that lockdowns per se have exacted major – though far from catastrophic –  economic prices. But by the same token, these results confront the nation with the question of far away the economic tipping point might be. 

(What’s Left of) Our Economy: The CCP Virus Lockdowns’ State-Level US Effects I

Tags

California, CCP Virus, Commerce Department, coronavirus, COVID 19, GDP, gross domestic product, inflation-adjusted growth, lockdowns, New York, real GDP, shutdows, states, stay-at-home, Utah, Washington, Wuhan virus, {What's Left of) Our Economy

One of my coolest holiday gifts came courtesy of Uncle Sam. Not a tax refund or stimulus check, but the Commerce Department’s release last week on “Gross Domestic Product by State, 3^rd Quarter, 2020.”

Seriously.

I always look forward to these data because they enable gauging how developments in the national economy are affecting individual states as well as regions, and vice versa, and this latest report is especially interesting because of all that it says about the economic impact of the highly diverse set of lockdowns and shutdowns and stay-at-home orders and the like that the states have imposed during the CCP Virus era.

This will be the first of two posts on the subject, and I’ll focus on some simple descriptive findings – many of which came as surprises to me. Beforehand, though, it’s important to lay out some warnings against drawing overly tight conclusions between a state’s economic performance and the virus curbs it’s put I effect.

Among the most important:

>The pandemic hit different states at different times, so differences in their growth rates (what these gross domestic product, or GDP, figures are particularly valuable for), in many instances have relatively little to do with their lockdown etc regimes.

>The states have highly diverse demographic profiles (e.g., average age of the population, population density) that can also produce highly diverse economic performances for reasons largely unrelated to economic curbs.

>Different state economies are also dominated by different industries, and as has become obvious, some industries’ health has been decimated by the virus (especially in-person services of all kinds like dining and travel and hospitality, but also energy) while some have held up fairly well (like manufacturing). It’s become just as obvious that many jobs that can be performed at home, and therefore the income and spending they generate have been much less affected by the pandemic than jobs requiring a worker’s presence (e.g., in those in-person service sectors).

>Finally (for now), state economies don’t exist in isolation from each other. Commuters and shoppers often cross state lines when traveling to work or stores, and their businesses often sell their products and offer their services to customers nation-wide – inevitably weakening or strengthening the impact of state-specific curbs.

Still, the new GDP-by-state numbers (which include the District of Columbia) reveal any number of important results since they take the story past the deep second quarter virus- and shutdown-induced downturn suffered by the entire national economy, as well as the strong third quarter rebound.

One big surprise: The entire U.S. economy saw output drop by 2.17 percent in inflation-adjusted terms (the gauge most closely watched) between the first quarter of the year (the last mainly pre-pandemic quarter) and the third. But two states actually managed to grow in inflation-adjusted terms (the gauge most closely watched by students of the economy): Utah (whose economy expanded by 1.04 percent in real terms) and Washington (0.44 percent).

The Washington result was unexpected, at least for me, because its West Coast location placed it closer to the CCP Virus’ origins in China, because the first virus case was recorded there in January (at least as far as is known to date), and because one of its economic crown jewels is aerospace giant Boeing, which has been hit so hard both by recent travel restriction and the safety woes troubling its jetliners.

The worst performing states, in relative (percentage terms) were less surprising. The leader here far and away was Hawaii, whose constant dollar GDP shrank by 6.67 percent) followed by Wyoming (down 5.24 percent by the same measure) and New York (4.56 percent). The Aloha State has of course been victimized by the depression in the travel and tourism industries, Wyoming is energy dependent, and New York collectively caught the CCP Virus early, when so little was known about its virulence and deadliness, and about which Americans were least and most vulnerable.

Oddly, however, the number of states that appear to have been especially hard hit economically between the first and third quarters was pretty limited. Only nine overall experienced price-adjusted contractions of more than three percent. In addition to the three biggest losers above, they were Oklahoma, Tennessee, Alaska, Nevada, New Jersey, and Vermont. And bonus points for you if you see major energy (Oklahoma, Alaska) and tourism (Nevada and Vermont) effects at work here.

Other than that, the economies of eighteen states shrank between two and three percent in constant dollar terms between the first and the third quarters – meaning that, generally, they weren’t far from the national total of 2.17 percent. The rest contracted by less than two percent or (as with Utah and Washington) eaked out some growth.

But this isn’t to say that the economic impact of the virus and related economic curbs haven’t been highly concentrated in at least one respect: A way outsized share of this production destruction has taken place as of the third quarter in just two states: New York and California.  

New York’s the champ here. During the first quarter, its economy represented 7.74 percent of the U.S. total in inflation-adjusted terms. By the third quarter, though, its $67.80 billion contraction represented 16.36 percent of the entire country’s $414.33 billion. In other words, measured by lost output, it punched more than twice above its economic weight.

During this period, California’s real GDP fell by more than New York’s in absolute terms ($74.30 billion). But its economy has long been bigger than New York’s – accounting for 14.81 percent of constant dollar US GDP during the first quarter, or nearly twice New York’s share. So its 17.93 percent shrinkage was smaller relative to the size of its economy than New York’s.

Their combined impact, however, is genuinely astonishing. Accounting for a combined 22.55 percent of the U.S. economy adjusted for inflation in the first quarter, they generated 34.29 percent of the nation’s economic shrinkage – more than a third.

And this is where the lockdown angle comes in: By one gauge of virus-era state economic regimes, (which themselves have almost all been on and off at least to some extent, thereby creating yet another complication) New York’s and California’s were among the strictest. And the next RealityChek post will examine in more detail the relationship these curbs and state economic growth.

(What’s Left of) Our Economy: Records and More Puzzles in the GDP Report’s Trade Numbers

Tags

(What's Left of) Our Economy, CCP Virus, Commerce Department, coronavirus, COVID 19, exports, GDP, global financial crisis, goods, Great Recession, imports, inflation-adjusted growth, real GDP, real trade deficit, recession, services, Trade, trade deficit, Wuhan virus

So many all-time and multi-year and even decade worsts revealed by the trade data revealed in the official U.S. economic growth figures released this morning! And even though these data on changes in the gross domestic product (GDP) for the third quarter of this year are pretty meaningless from an economic standpoint – because they’re so thoroughly distorted by the government-ordered shutdowns and reopenings due to the CCP Virus – they’re worth noting for the record, anyway.

But here’s something else worth noting – as with the last batch of GDP figures (the final-for-now results for the second quarter), the trade figures don’t seem to add up.

Let’s start with the records. Largely due to the strongest sequential U.S. growth on record (33.1 percent after inflation on an annualized basis), fueled by significant reopening plus massive government stimulus or relief funds (choose your own label), the quarterly inflation adjusted trade deficit hit an astounding $1.0108 trillion annualized. (The inflation-adjusted, or “real,” statistics are the ones most closely followed; therefore, unless otherwise specified, they’ll be the ones used from hereon in.)

Not only was that total a record in absolute terms. The 30.41 percent increase from the final second quarter level of $775.1 billion was the biggest since the Commerce Department began presenting trade deficit figures (as opposed to the simple export and import findings) in 2002. For context, the next greatest such jump was only 13.18 percent, between the first and second quarters of 2010.

The economy was recovering then, too – from the Great Recession that followed the global financial crisis – but that quarter’s annualized growth rate was only 3.69 percent.

As known by RealityChek regulars, the GDP reports treat increases in the trade deficit as subtractions from growth, and the third quarter’s was the worst in absolute terms (3.09 percentage points from that 33.1 percent annualized growth total) since the 3.22 percentage points sliced from growth in the third quarter of 1982. (For some reason, these data go back even further than that.)

In relative terms, though, the trade effect in 1982 couldn’t have differed more from the situation this year, as during that third quarter, the economy shrank in price-adjusted terms by 1.5 percent on an annual basis.

But those internal numbers!

According to the Commerce Department, exports in the third quarter added up to $2.1667 trillion annualized. But if you actually add the separate goods and services numbers provided, you get a sum of $2.1921 trillion. On the import side, the separate figures add up to a total of $3.2123 trillion, not the reported $3.1775 trillion. Therefore, the quarterly deficit would seem to be $1.0202 trillion, not the $1.0108 trillion presented.

As with the previous discrepancies, although this batch’s aren’t big enough to change the overall picture, they do raise some questions about the reliability of the rest of the data. So I’ll be hoping that the apparent confusion will be cleared up a month from now, when Commerce releases its second estimate for third quarter GDP – but not holding my breath.

(What’s Left of) Our Economy: Some Fishy New Official U.S. Trade Figures

Tags

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

Life as a blogger just gets more unpredictable all the time. Here I was this morning all set to try to figure out whether I’d write about the presidential debate last night or about the official new overall U.S. economic growth (actually contraction) numbers or about the official new figures for how domestic manufacturing fared. And I find my interest most piqued by apparent mistakes in those overall data on the shrinkage of the gross domestic product (GDP) in the second quarter.

As RealityChek regulars know, when I cover the GDP figures (which tell us how much in the way of goods and services the U.S. economy has turned out in a given time period, and how it’s changed over time), I tend to focus on the trade numbers that help make up these total figures. And I like to look at revisions, because the U.S. Commerce Department, which tracks these trends, doesn’t get it right the first time, or even the second time (because new information is being constantly received), and because it’s right up front about making these imperfections clear. (That’s why several revisions of these data are issued in the first place.)

Today’s report on the economy’s performance in the second quarter of this year was the third such report, and the final verdict for the time being. (So-called “benchmark” revisions will be coming down the road, going back several years, which speaks volumes about Commerce’s determination to get it right.)

And the “headline” trade number showed that between the first quarter and the second quarter, the total U.S. trade deficit declined from $788.0 billion to $775.1 billion. (All these trade figures are adjusted for inflation and presented at annual rates.) That’s an improvement. But it’s not as much of an improvement as the previous GDP report showed. According to that release, which came out about a month ago, the total second quarter real annualized trade deficit was $760.9 billion.

Or was it?

I can’t recount exactly what spurred me to look into the underlying figures, as opposed to taking the data’s accuracy for granted, as I normally do. But I began to check them out. And here’s what I found for that previous set of second quarter figures.

Last month’s GDP report judged that after-inflation U.S. goods exports for the second quarter totaled $1.3519 trillion annualized and U.S. goods imports were $2.3487 trillion. To get the balance, subtract second number from the first and you get a deficit of $996.8 billion.

For services, the second quarter results were previously reported as price-adjusted exports of $591.5 billion and imports of $372.8 billion. Doing the arithmetic produces a real services trade surplus of $218.7 billion.

To get the total trade deficit, the $218.7 billion services surplus has to be subtracted from the $996.8 billion goods deficit. And that number comes out to -$778.1 billion – not -$760.9 billion.

This difference is by no means major. But if my math is accurate, it reveals a final (for now) inflation-adjusted second quarter trade deficit that improved sligthly over the previously reported figure, rather than worsened.

In other words, the previous GDP report estimated that the second quarter real trade deficit improved on the first quarter’s results by a margin of $788 billion to $760.9 billion. But it looks like it should have reported a much less impressive narrowing – to just $778.1 billion. As a result, the $775.1 billion second quarter trade deficit figure reported this morning is a slightly better number than the incorrect previous estimate – not a worse result, as that incorrectly reported previous number indicated.

But guess what? That latest second quarter figure doesn’t add up, either. Specifically, today’s report pegs combined U.S. goods and services exports at $1.9274 trillion in real terms on an annual basis, with goods exports judged to be $1.3472 trillion and services exports reported as $582.1 billion. Add them up and you get $1.9293 trillion, not $1.9274 trillion.

On the import side, the Commerce Department now says that the second quarter total is $2.7025 trillion annualized, and that it’s comprised of $2.3480 trillion worth of goods imports and $372.1 billion worth of services imports. That adds up to $2.7201 trillion, not $2.7025 trillion. As a result, the total trade deficit was actually $790.8 billion annualized, not $775.1 billion (the difference between the new $2.7201 trillion total import figure and the $1.9293 trillion total export number).

Therefore, not only did the real trade deficit total worsen over the figure reported last month (from $778.1 billion to $790.8 billion, not to the $775.1 billion reported today). It also worsened from the first quarter’s $788.0 billion number.

At which point, it pains me to report that that first quarter total doesn’t add up, either.

The bottom line for me is that I’ll keep reporting the headline trade figures as they’re presented in the GDP reports by the Commerce Department. But I’ll be even more cautious than usual about assuming that they’re even accurate in measuring changes of direction, much less precise amounts. And I’ll be wondering if the rest of the federal government’s economic data is any better – at least until I can figure out what’s going on here.

(What’s Left of) Our Economy: More Trade Surprises in the New U.S. GDP Report

Tags

CCP Virus, Commerce Department, coronavirus, COVID 19, exports, GDP, goods trade, Great Recession, gross domestic product, imports, real GDP, recession, services trade, shutdowns, trade deficit, Wuhan virus, {What's Left of) Our Economy

First, let’s get the obvious out of the way: The U.S. economy took such a huge hit during the second quarter of this year that the 36.87 percent nosedive in output sequentially at an annualized rate reported this morning by the Commerce Departent was actually slightly good news. Specifically, it represented an improvement over the plunge estimated in last month’s advance read on the gross domestic product (GDP) – nearly 38 percent. Talk about a low bar!

(Just FYI, the above figures differ from what the Commerce Department itself has calculated and the media have reported. Mine are based on taking the second quarter annualized figure (in this case) of $17.2822 trillion in inflation-adjusted terms (the most closely watched of the GDP statistics) subtracting it from the first quarter figure ($19.0108 trillion), and then multiplying by four.)

Now for the less obvious: The GDP figures, which of course are historically awful because of the CCP Virus-induced shutdowns (and therefore maybe not very good measures of the economy’s underlying condition) keep producing noteworthy surprises on the trade front.

Specifically, last month’s initial Commerce Department GDP release pegged the inflation-adjusted trade deficit at $780.7 billion at an annual rate. This morning’s number was down to $760.9 billion. That’s a big revision, and it means that since the first quarter, the gap has narrowed not by the 3.71 percent estimated last month, but 13.76 percent – more than 3.7 times more! This shortfall, moreover, was the lowest since the second quarter of 2016’s $745.2 billion.

Interestingly, the main source of the improvement was on the goods side. Service sectors – which have suffered the most during the pandemic period because so many depend on human contact of some kind or other – saw their trade results barely budge from the previous estimates for the second quarter.

At the same time, let’s not overlook one stunning services trade-related result. As was the case with that previous second quarter services import figure of $372.7 billion annualized, this morning’s $372.8 billion result was the lowest in more than fourteen years, when the fourth quarter 2005 services import figure came in at $368.4 billion.

As for the rest of the components of inflation-adjusted U.S. trade flows (all annualized):

Second quarter U.S. total exports were revised up 0.60 percent, from $1.9316 trillion to $1.9431 trillion. That quarterly total was still the lowest since the first quarter of 2010 ($1.9026 trillion) – early in the recovery from the Great Recession of 2007-09.

Second 2Q total imports were revised down 0.30 percent, from $2.7123 trillion to $2.7040 trillion – the lowest since the third quarter of 2011 ($2.6970 trillion).

Second quarter goods exports were revised up 0.99 percent, from $1.3386 trillion to $1.3519 trillion. But that’s also the lowest such number since the first quarter of 2010 – which was exactly the same!

Second quarter goods imports of $2.3575 trillion represented a 0.37 percent upward revision from the previously reported $2.3487 trillion. That’s the smallest such figure since the second quarter of 2013 ($2.3381 trillion).

Second quarter services exports are now judged to have been $591.5 billion – just 0.12 percent lower than the first estimate of $592.2 billion – and the worst such total since the first quarter of 2010’s $586.8 billion.

And finally, that new second quarter services imports figure of $372.8 billion is virtually unchanged from the previous estimate of $327.7 billion. But again – it’s a nearly 15-year low.

For the time being, there’s one more second quarter GDP estimate to come from the Commerce Department – about a month from now. Then we’ll be getting into the reports for the third quarter, which is widely thought to have witnessed a strong but far from complete rebound in the economy. I for one can’t wait to see if those numbers produce any comparable trade surprises – and if so, what kind.