(What’s Left of) Our Economy: The Baseline Effect’s Gone and U.S. Inflation is Settling In

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baseline effect, consumer price index, consumers, cost of living, CPI, Federal Reserve, inflation, PPI, Producer Price Index, recession, {What's Left of) Our Economy

Sorry to be the bearer of bad news on the U.S. inflation front, especially considering even the modest cheers (at least in early Wall Street trading) that greeted this morning’s official data on rising prices. But I see the new figures confirming that inflation has entered a worrisome new phase, and mainly because they show that annual living costs are no longer soaring largely because they increased so feebly the year before. Instead, that “baseline effect” is unmistakably gone, and inflation has acquired its own momentum.

The yearly inflation figures by month are the strongest evidence. As noted last month, the baseline effect was most prominent from March through July of last year. During that stretch, the annual headline growth in the overall (or “headline”) Consumer Price Index (CPI) sped up from 2.64 percent to 5.28 percent. But this acceleration owed much to the fast (but choppy) economic recovery from the deep CCP Virus-induced recession of mid-2020, when the annual inflation rate actually fell fom 1.51 percent to 1.05 percent. That’s considerably below the two percent inflation target set by the Federal Reserve, the U.S. government agency with the greatest responsibility for keeping prices stable.

Moreover, from September, 2021 at least through January, 2022, the baseline effect made a major comeback. During those months, the annual inflation rates increased from 5.38 percent to 7.53 percent. Yet their counterparts from the year before dipped from a still low 1.40 percent to 1.36 percent – still below the Fed target.

As I also wrote in March, the February CPI report contained signs that the baseline effect was fading, and today’s April numbers leave no doubt that it’s gone. Headline CPI that month worsened on year much faster than the comparable January rate, and its 2021 predecessor worsened to its highest level since the previous February – not so coincidentally, just before the virus’ arrival in force.

And last month’s big jump in the annual inflation rate came off a March, 2021 annual increase in prices that was significantly higher than the Fed target.

It’s true that April’s 8.22 annual overall inflation rate was a little slower than that March figure of 8.56 percent. But the March cost surge came off a 2.66 percent annual increase for March, 2021. The April result is coming off an April, 2020-2021 jump of 4.15 percent. That was more than twice the Fed target.

In other words, inflation was already hitting disturbing levels last year, and now it’s advancing nearly twice as fast.

Much the same story emerges from the so-called core inflation rate, which strips out food and energy prices supposedly because they’re volatile for reasons having nothing to do with the economy’s underlying vulnerability to high inflation. Since energy prices in particular affect the cost of everything whose production requires energy (i.e., everything) the distinction tends to become pretty artificial after a while. But even playing along with this claim reveals grounds for concern.

As with the headline rate, April’s annual core CPI inflation of 6.13 percent was a moderation from March’s 6.44 percent. But the March result was coming off a March, 2020-2021 period when core inflation rose by 1.66 percent – again, well below the Fed’s two percent target. April’s number followed annual core inflation for the previous April of 2.97 percent – again, much higher than the Fed target.

Meanwhile, the month-to-month CPI data released today don’t bolster the case for inflation optimism emphatically, either. Glass-half-full types will correctly point out that the 0.33 percent sequential rise in the headline April CPI was the lowest since last August, and shrank dramatically from March’s 1.24 percent.

But in April, core CPI advanced on-month by 0.57 percent, a noteworthy increase from March’s 0.32 percent. And the recent rise in gasoline prices will surely push the May headline CPI back up.

Tomorrow, Washington will provide another clue on inflation’s future – the report for the Producer Price Index (PPI) for April.  Unlike the CPI, which measures the prices of what businesses sell to consumers, the PPI tracks what businesses themselves pay for the goods and services they need in order to turn out their whatever they sell to consumers.  Think of it as gauging wholesale inflation versus measuring retail inflation.

The March PPI hit a new record high, and since in a U.S. economy like this one, where consumer demand remains strong, businesses generally can pass on rising costs to consumers, this result made today’s hot CPI almost inevitable.  Unless tomorrow’s April PPI comes way down (which may happen soon since growth looks to be decelerating markedly — ironically because some indications of consumer inflation fatigue are appearing), the CPI will stay far too strong in May  And that news would surely boost the odds that the Fed sees no choice but to tame inflation by crippling demand further — possibly enough to induce a recession.     

(What’s Left of) Our Economy: U.S. Trade Figures Still on a (CCP Virus) Roller Coaster

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Biden, CCP Virus, China, consumers, coronavirus, COVID 19, Donald Trump, exports, Federal Reserve, goods trade, imports, Janet Yellen, manufacturing, non-oil goods deficit, recovery, stimulus, supply chains, tariffs, Trade, trade deficit, Wuhan virus, {What's Left of) Our Economy

Just as September’s official U.S. trade figures revealed numerous records and multi-month or year highs and lows (mainly of the bad kind), today’s October release reported its share of startling results – but mainly of the good kind. One black spot deserves mention right away, though – the country’s manufacturng trade deficit passed the $1 trillion mark for the fourth straight year. And we still have two data months left in 2021.

Still, the all-time monthly bests and similar extraordinary readings from October were nonetheless impressive. And combined with the September statistics, they make clear that the CCP Virus and government efforts to fight it are far from done distorting the U.S. and world economies. 

The chief records set were:

>Combined goods and services exports of $223.63 billion, which beat May, 2018’s previous record of $216.09 billion by 3.49 percent. Moreover, the 8.14 percent sequential improvement was the biggest since June, 2020’s 8.69 percent – which came during the strong national and global economic recoveries from the first wave of the CCP Virus and the short but sharp depression it caused.

>Total imports of $290.75 billion, which edged outthe previous month’s record of $288.23 billion by 1.06 percent.

>Goods exports, where the $158.73 billion figure exceeded the former record of $149.92 billion set in August by 5.87 percent. And the monthly increase of 11.07 percent was the biggest since March’s 10.18 percent.

>Goods imports of 242.67 billion, also the second straight all-time high, and a level that topped September’s $240.89 billion by 0.74 percent.

Another all-time best and worst came in non-oil goods trade. As known by RealityChek regulars, these trade flows deserve special attention, because they consist of exports and imports whose levels are significantly affected by trade agreements and other U.S. trade policy decisions (unlike trade in oil and services, where liberalization efforts are still at early stages at best).

The best? Non-oil goods exports climbed to an all-time high, with their $138.82 billion total standing 5.87 percent higher than the previous record of $131.12 billion set in August. Moreover, their monthly growth of 9.57 percent was the biggest such advance since the 10.65 percent increase of July, 2020 – also during that recovery from the first CCP Virus-related downturns.

The worst? Non-oil goods imports set their second straight record, coming in at $242.67 billion, or 0.74 percent higher than the September total of $240.89 billion.

And finally, when it comes to new records, imports of advanced technology products (ATP). Their $51.54 billion level also was a second straight, and surpassed September’s $50.50 billion by 2.06 percent.

But multi-month and even multi-year highs and lows abounded in the October trade report:

>The overall deficit plummeted from the record (and upwardly revised) $81.44 billion figure for September to $67.12 billion. The monthly total was the lowest since April’s $66.15 billion, and the sequential drop of 17.58 percent the greatest since April, 2015’s 18.16 percent.

>Similarly, in October, the goods deficit hit its lowest level ($83.95 billion) since November’s $86.23 billion, and the month-to-month decline of 14.33 percent (from September’s record $97.98 billion, was the biggest such drop since the 20.79 percent nosedive of February, 2009 – when the Great Recession following the global financial crisis was in its depths.

>The 11.40 percent monthly decrease in the non-oil goods deficit (the steepest fall-off since April, 2015’s 13.76 percent), brought this trade gap to its lowest level ($82.99 billion) since last November’s $85.73 billion.

October’s trade report contained some eye-popping numbers in U.S.-China goods trade, too.

>Goods exports to the People’s Republic shot up from $10.91 billion to a new record of $16.64 billion. Further, not only did this figure top the previous best (October, 2020’s $14.77 billion). But the 52.46 percent sequential jump was the biggest since the 71.04 percent recorded back in November, 1996 – when much smaller trade numbers made big percentage improvements much easier to generate.

>In addition, the U.S. goods trade deficit with China of $31.40 billion was the lowest since July’s $28.65 billion read, while the 13.99 percent monthly improvement was the biggest since the 25.19 percent figure reported for March, 2020 – when China had still shut down much of its economy due to the pandemic.

The China data also show that U.S. trade with the People’s Republic continue to perform better than U.S. trade in non-oil goods – the best global proxy for U.S. goods trade with China – and as a result, that the Trump (now Trump-Biden?) tariffs continue to work well.

For example, that 13.99 percent sequential narrowing of the U.S. goods trade gap with China in October was faster than the comparable 11.40 improvement in the non-oil goods deficit. That 52.46 percent monthly increase in goods exports to China, moreover, was nearly ten times greater than the 5.87 percent rise in non-oil goods exports.

The 1.30 percent increase in U.S. goods imports from China was nearly twice as fast as the 0.74 percent increase in America’s non-oil goods imports, but both absolute increases are modest.

And on a year-to-date basis, the U.S. goods deficit with China is still up less (13.67 percent) than the non-oil goods shortfall (16.73 percent).

On the down side, the U.S. manufacturing deficit did decline in October – by 3.32 percent, from a record $118.75 billion to $114.81 billion. But it remained astronomical by any reasonable standard.

Manufacturing exports improved on month by a healthy 10.99 percent, from $92.58 billion to $102.75 billion. But although manufacturing imports climbed by a much slower pace (2.95 percent, from $211.33 billion to $217.56 billion), they’re still more than twice as great.

Year-to-date, the 18.78 percent advance in manufacturing exports and the 19.56 percent rise in manufacturing imports has resulted in that trillion-dollar-plus manufacturing deficit ($1.083 trillion, to be precise). As of October, moreover, it’s running 18.26 percent ahead of last year’s pace.

The outlook for America’s trade flows? I’m still pretty sure that the deficits will keep rising in the near term – mainly because overall economic growth, and therefore consuming and importing are expected to stay so strong.  Longer term, though, uncertainties are still noteworthy and arguably could frustrate forecasts even more. 

After all, it’s still not clear how America’s and other governments will respond to the new Omicron variant ofthe virus (or whatever other strains come down the pike).

There’s the seemingly likely ebbing of the fiscal stimulus that’s boosted savings, and therefore purchasing and importing power, for the entire population during the pandemic period. Continued high inflation could start depressing consumer spending on its own – although less government stimulus all else equal should start restraining prices at some point.

Additionally, don’t forget the Federal Reserve, which has been prompted by faster-than-expected price increases to reduce the bond-buying program that’s provided another massive source of economic stimulus.  Is Treasury Secretary Janet Yellen right to be confident that consumer demand will stay strong nonetheless?  Beats me. 

Finally, it’s encouraging to read various claims that the global supply chain crisis is easing (e.g., here). But even if progress on this front continues and accelerates, new geopolitical threats to global commerce have emerged – especially rising tensions between China on the one hand, and the United States and most of China’s neighbors on the other, over the future of Taiwan and whether it gets decided peacefully.     

Since America’s economic growth is expected to be torrid in the final three months of this year (including, of course, October), I suspect that, despite all these questions and complications, the next few months of trade figures will worsen considerably (as I wrote last month). But the farther down the road I look, the cloudier my crystal ball gets

(What’s Left of) Our Economy: U.S. Manufacturing Returns to Growth – On Automotive’s Back

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aerospace, aircraft, aircraft parts, appliances, automotive, Boeing, CCP Virus, climate change, consumers, coronavirus, COVID 19, election 2021, electrical equipment, Federal Reserve, inflation, inflation-adjusted output, machinery, manufacturing, medical devices, medical equipment, monetary policy, petroleum and coal products, pharmaceuticals, printing, real output, Wuhan virus, {What's Left of) Our Economy

Just as earlier in this CCP Virus-whipsawed economy of ours, as goes the U.S. automotive sector, so goes domestic manufacturing when it comes to output (at least to a great extent). That’s the main story told not only by the inflation-adjusted manufacturing production figures released by the Federal Reserve this morning (for October), but by virtually this entire data series this year.

Domestic industry grew in price-adjusted terms by a healthy 1.30 percent on month in October, snapping a two-month losing streak, and the results were pulled up powerfully by combined vehicle and parts production – which shot up by 10.98 percent. That was its biggest sequential increase since July, 2020’s 29.39 percent, when industry and the entire economy were snapping back strongly from the steep but short virus-induced recession. Without this automotive spurt, real manufacturing output would still have risen nicely in October, but that 0.62 percent monthly gain was less than half the total with automotive.

Complicating the picture still further: Mainly because of the semiconductor shortage, after-inflation automotive output has been on a nothing less than a roller coaster this year. Here are the monthly results for 2021 so far:

January:         +0.63 percent

February:      -10.65 percent

March:            -3.99 percent

April:              -7.23 percent

May:              +5.20 percent

June:               -4.97 percent

July:               +8.54 percent

August:           -2.95 percent

September:     -7.12 percent

October:       +10.98 percent

And for a change, revisions didn’t make a big difference in either the recent overall manufacturing or automotive statistics.

Aside from automotive, manufacturing’s biggest growth winners among the big categories tracked by the Fed were petroleum and coal products (up 4.97 percent), chemicals (up 1.93 percent), printing and related support actvities (1.41 percent) and aerospace and miscellaneous transportation (1.36 percent).

The biggest losers? Electrical equipment, appliances and components (down 1.53 percent), machinery (down 1.27 percent), and miscellaneous durable goods (a grouping that includes much pandemic-related medical equipment – down 0.88 percent).

The machinery drop – the biggest since February’s 2.59 percent – was particularly discouraging, as its products are used throughout manufacturing and big non-manufacturing sectors (like agriculture and construction) alike.

As for manufacturing industries that have been prominent in the news during the pandemic, their October performance was decidedly unimpressive.

Aircraft and parts was the best of the lot. Their real output expanded by 1.43 percent on month in October, but September’s initially reported 1.83 percent increase was revised down considerably, to 0.45 percent. In all, price-adjusted aircraft and parts production is now 14.59 percent above its levels in February, 2020 – the U.S. economy’s last full pre-CCP Virus data month.

Moreover, the sector’s giant, Boeing, has had an excellent news week this past week – especially reports that China may end its two-year ban on buying the company’s jets. So even though aircraft and parts output after inflation has already topped February, 2020’s levels by 14.59 percent, even better times may lie ahead.

Pharmaceuticals and medicines, however, have lost significant growth momentum recently. Following August’s strong (but downwardly revised) 2.46 percent sequential real production increase, the sector has now slumped for two straight months. September’s previously reported 0.74 percent decline is now pegged as a 1.04 percent drop, and inflation-adjusted production sank another 0.51 percent in October. As a result, measured in constant dollars, these industries are just 11.86 percent bigger than just before the pandemic struck – and this despite massive vaccine production.

The news was only slightly better in the crucial medical equipment and supplies sector – which includes virus-fighting items like face masks, protective gowns, and ventilators. After-inflation production was off 1.08 percent in October from September levels, and September’s own initially reported 1.53 percent real monthly output growth is now estimated at just 0.73 percent. Since February, 2020, therefore, real output of these products has advanced by just 2.57 percent.

Whereas I was somewhat pessimistic about U.S. manufacturing’s near-term prospects in my post last month on the output data, the picture now looks brighter. As mentioned just above, the aircraft industry may be back after some very difficult years caused by the CCP Virus-caused slump in travel and Boeing’s safety problems. An infrastructure bill has been passed (though its impact is unlikely to be felt in a major way for many months). Strong overall economic growth seems likely for the fourth quarter of this year. And although the pandemic is by no means over, its main growth-depressing effects may well be past.

Moreover, most of the remaining threats to domestic industry – big business tax hikes and stricter environmental and climate-change regulations – seem less likely due to Republican victories in so many of this year’s elections. And manufacturing’s continued growth seems to indicate that, however serious supply chain snags have been, and however much longer they may last, companies are managing their way through them reasonably well.

The biggest cloud hanging over manufacturing – and the entire economy – looms bigger than ever, though: a tightening of monetary policy to try to tame heated inflation that looks less transitory with each passing month, and that also could curb consumers’ so-far-raging appetites all by itself. Don’t be surprised if volatile automotive stays a major key.  

(What’s Left of) Our Economy: Why That China Competitiveness Bill Urgently Needs Trade Fixes

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China, competitiveness, consumers, health security, inflation, Robert E. Lighthizer, Section 301, Senate, supply chains, tariffs, technology, Trade, Trade Act of 1974, U.S. Innovation and Competition Act, World Trade Organization, WTO, {What's Left of) Our Economy

Nearly two months ago, I complained here on RealityChek that Congress was working way too slowly on legislation aimed at helping restore the U.S. competitiveness needed to reopen a wide lead over China in the dust in the race for future global technological competitiveness. Now I see that more time to pass the bill is needed after all – because the version approved by the Senate June 8 contains some fatal trade policy flaws that urgently need fixing.

Trade policy, as I’ve explained previously is a vital dimension of beating back the China challenge. But as reported yesterday in a New York Times article by former Trump chief trade official Robert E. Lighthizer, key amendments to the U.S. Innovation and Competition Act

“would harm U.S. interests in three important ways: It would cut tariffs on medical supplies needed in a pandemic; reauthorize the so-called Miscellaneous Tariff Bill to cut tariffs on Chinese and other imports; and amend our enforcement laws in a way that will make it more difficult to battle predatory trade practices by our foreign competitors.”

And if you read the (2,300-page) bill, you see that he’s right. For example, a section titled “Facilitating Trade in Essential Supplies” (beginning on p. 1588) refers to America’s need “to maintain readiness and to surge production of essential supplies in response to an emergency” in national security and public health and safety, or in the security and functioning of “critical infrastructure.”

But consistent with an approach taken to this challenge by President Biden, the act makes clear that achieving these goals includes developing “a whole-of-government strategy to ensure that the United States has reliable access to essential supplies from its trading partners….” In other words, it will be equally fine if the nation remains dependent on imports of such goods. These two objectives clash with each other directly and violently.

If Washington could count on lots of reliable trade partners out there to step in in a pinch and fill supply gaps, this strategy of defining “Made in America” as “Made Overseas, Too” would be defensible (if not, in my view, optimal). But although the legislation directs federal officials to “identify unreliable trading partners,” its authors seem oblivious to just how many foreign governments qualified for this label with their bans and other curbs on vital medical goods during the height of the pandemic. It was 80 according to no less than the World Trade Organization (WTO).

According to Lighthizer, the bill would also undercut American industry’s broader ability to compete with China by renewing a Miscellaneous Tariff Bill that would reduce duties on more than 900 goods produced and exported by the People’s Republic. The list – which also includes hundreds of other goods, begins on p. 1526 and goes on (in tiny type) for thirty pages.

And the text also supports Lighthizer’s claims that the bill would “gut a provision that President Trump used to impose tariffs on Chinese goods in 2018,” and “also effectively surrender sovereignty over our own trade policy to the World Trade Organization by permanently weakening Section 301 unless the United States first wins a multiyear litigation before that body.”

Possibly, the most disturbing feature of the bill’s treatment of these so-called “301 tariffs” (named after the section of the 1974 Trade Act that initially authorized suc measures is the measure that bars the imposition of these duties without an analysis of their impact “on United States entities, particularly small entities, and consumers in the United States” (p. 1607), and additionally of whether they would “unreasonably increase consumer prices for day-to-day items consumed by low- or middle-income families in the United States” (p. 1609).

Although numerous RealityChek posts have documented (see, e.g., here) that none of the 301 tariffs had lasting effects on U.S. retail or wholesale price levels (largely because importers absorbed the higher costs), there’s no guarantee that significant time frames would be examined. In addition, there’s never any shortage of businesses or business organizations in particular ready to predict disastrous price hikes from any tariff increases regardless of the historical record. So the most powerful tool possessed by Washington to enforce trade agreements and combat foreign protectionism could well be neutered unless changes are made.

Finally, Lighthizer’s contention about permanently weakening America’s Section 301 authority appears borne out by pp. 1610-1611, which states that the process for excluding certain goods from that measure’s tariffs “shall not apply” in cases under consideration by the “dispute resolution process under the World Trade Organization [WTO].” In other words, if such U.S. tariffs are challenged at the WTO, they can’t legally be imposed until the WTO decides they’re kosher.

There shouldn’t be any doubt in anyone’s mind that time is not on America’s side as it tries to raise its competitiveness game, both against the Chinese and in general. But it’s also true that haste makes waste — and even worse. And these trade policy flaws in this China competitiveness bill aren’t eliminated, Americans will see a crucial economic and national security opportunity squandered.     

(What’s Left of) Our Economy: Why the U.S. Still Holds the Winning Economic Cards Versus China

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Biden, CCP, China, Chinese Communist Party, CNBC.com, consumers, consumption, demographics, Donald Trump, export-led growth, gross domestic product, IMF, International Monetary Fund, per capita GDP, population, technology, Trade, trade wars, workforce, {What's Left of) Our Economy

Since there seems to be no end in sight to the rise in U.S.-China tensions, it’s especially interesting that two analyses of the Chinese economy and its future that challenge some widely held views on the subject have just appeared. Also noteworthy: They matter greatly for America’s perceived prospects for success, and one of them comes from the Chinese Communist Party (CCP) itself.

More important still:  When you put them both together, the implications look positively startling – and encouraging – for America’s prospects in its economic and technological struggle with the People’s Republic.

The first apparently contrarian information comes from the International Monetary Fund in the form of this chart.

It shows recent and projected trends in U.S. and Chinese gross domestic product (GDP) per capita – that is, how much economic output each country turns out adjusted for population. This statistic is a valuable gauge of economic power and affluence because it reveals which national economies (or the economies of any other political unit) are a certain size simply because their populations are a certain size (big or small), and which economies are doing a particularly good or bad job generating goods and services given how many people are doing the producing.

For example: Let’s say you have one economy with a population of 100 and one with a population of 10,000, and the latter generates twice as much economic output than the former. The more populous country would have the larger economy in absolute terms, but its performance wouldn’t be seen as especially impressive because it took so many people to achieve this result – and indeed orders of magnitude more people than the smaller population economy.

Moreover, the latter economy would have much less wealth to distribute among its own people than the former, and therefore each of its citizens would be a good deal poorer than their counterparts in the smaller economy all else being equal.

But let’s not dismiss the bigger economy’s record altogether. For if the two ever fought a war – all else equal again – the bigger economy would have much more in the way of resources to build and equip a military, and keep it fighting, than the smaller.

Throughout modern history, the U.S. economy has greatly exceeded China’s by both measures, but because of the amazing progress made in recent decades by the People’s Republic and a slowdown in U.S. growth, China has been able to close the gap in terms of the size of the two economies. In fact, many forecasters (as made clear in the CNBC.com post containing the chart), believe that the Chinese will catch up before too long. As indicated above, the implications are sobering for Americans if the two countries come to blows, and by extension for any diplomatic jockeying they engage in – for relative military power always casts a political shadow.

China’s overall catch up has been so fast that you might think that the per capita GDP gap that’s been so large because China’s population has been so much bigger than America’s might start narrowing, too. But the chart makes clear that this hasn’t been the case at all. Indeed, the gap has continued to widen, and is projected to keep widening at least for the next four years.

And this finding and prediction suggests that the unquestionable surge in living standards that China has been able to foster due to its rapid growth – which has led so many U.S. and other non-Chinese businesses to pin their future hopes largely on selling to this huge and supposedly ever-burgeoning market – won’t even come close to American living standards for many years. So if the chart is right, the purchasing power growth of the typical Chinese will stall out at pretty low levels and disappoint many of these corporate hopes.

As a result, fears that a thorough “decoupling” of the two economies resulting mainly from U.S. concerns about over-dependence on an increasingly hostile country will kneecap many U.S.-based businesses and possibly the entire American economy could be seriously overblown, at least longer term. For if the chart is right, these expectations will be revealed as unrealistic no matter what course Washington follows – and even if China displayed any willingness (which it hasn’t) to permit foreign businesses to make any more inroads into its economy than are absolutely necessary.  (See here for the latest – and an unsually explicit – official Chinese designation of “complete” economic self-reliance as a goal.)  

All of which brings us to the second contrarian take on China that’s been expressed recently – and by the Communist Party. It’s a finding from the Deputy Director of a party-run research institute that the country’s “Consumption has already past the phase of rapid increase and will only rise slowly in the future.” And his opinion deserves big-time credibility because he clearly believed that he could express such a downbeat view without getting his head chopped off, or being sent for a few decades to a reeducation camp, or risking punishment for any immediate family and relatives.

In addition, however, Xu cited two specific, interlocking reasons for this judgement: an aging population and a shrinking workforce.  And although he seemingly didn’t mention this, if China will need to temper its plans to generate more economic growth through its own domestic consumption, it will need not only to rely more on the kinds of infrastructure investment he did cite.  It will also need to keep relying heavily on exports – which should ensure that the United States will retain plenty of leverage over the People’s Republic with its tariffs as long as the Biden administration decides to leave them in place. 

None of this means that former President Trump was right in claiming that trade wars are “easy to win,” or that maintaining satisfactory technological superiority will be a piece of cake, either, or that generally the United States can stop worrying so much about China threats on these scores.  But it does mean that if American leaders have the will to prevail – and to advance and safeguard U.S. interests adequately – they’ll have plenty of wallet to use.                                    

 

Im-Politic: Goya Adds to the Progressives’ Losing Streak

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Alexandria Ocasio-Cortez, AOC, authoritarianism, boycotts, cancel culture, CCP Virus, consumers, coronavirus, COVID 19, Democrats, election 2020, Goya, Hispanics, identity politics, Im-Politic, Julian Castro, Latinos, Lin-Manuel Miranda, progressives, Robert Inanue, The Squad, Trump, Wuhan virus

It’s almost enough to make even their opponents feel sorry for New York Democratic Representative Alexandria Ocasio-Cortez, her fellow members of Congress’ “Squad,” and the rest of Progressive World, especially those who have tried to use Cancel Culture to enforce their party line.

Since the Election 2020 period results have come in, these lefties, and their intolerant, extremist positions have been pilloried for their party’s setbacks in the House and lost opportunities in the Senate by many of their more moderate fellow Democrats.

Recently, however, reliable evidence also has appeared that one of their leading recent Cancel Culture campaigns has backfired spectacularly – their call for a boycott of Goya Foods products.

Goya says it’s America’s biggest Hispanic-owned food company, so at first glance, it would seem an odd target for the ire of Identity Politics-obsessed progressives. But at a July White House event for Hispanic business leaders, CEO Robert Unanue (whose family hails from Spain) committed the supposedly cardinal sin of praising President Trump.

Out came the progressive thought police, including not only Ocasio-Cortez (known of course by the pop culture-type monicker “AOC”) snarkily urging supporters to make their own adobo sauce without Goya’s popular seasoning mix, but Obama administration Housing and Urban Development Secretary and failed presidential candidate Julian Castro, and Hamilton composer Lin-Manuel Miranda.  (See here for the details.)  

For several months afterwards, I tried to find some hard data on the boycott’s impact, but failed – mainly because Goya is a privately held company. The boycotters and much of the press coverage contended that Goya was taking it on the chin, while Unanue claimed his business was profiting from a powerful backlash. But nothing more solid was available.   

Now it is. In October (sorry I didn’t spot this earlier), Goya announced plans for an $80 million investment in a factory in the Houston, Texas area. The facility, which serves as the company’s main hub for producing and distributing its products to the western United States, will be adding equipment needed for a product line that includes new organic offerings. Moreover, this project comes just two years after Goya completed a doubling of the factory’s square footage. So it should be clear that Unanue’s claims were reality-based.

And yesterday the coup de grace was delivered – in a devilishly clever way. Unanue revealed that the company had named AOC “Employee of the Month” for “bringing attention to Goya and our adobo.”

Ocasio-Cortez responded by calling descriptions of her boycott role “made up fantasies” and arguing that Goya’s increased sales stemmed from the shift from restaurant dining to home cooking prompted by CCP Virus lockdowns. And maybe there’s some truth to the latter – although American consumers have plenty of choices other than Goya for Hispanic food products. As for the former, though, it’s just an example of AOC lacking the courage of her convictions, and trying to wipe the huevos off her face.

I can’t help but close, though, by noting that even though President Trump – who joined the Twitter war on behalf of Goya – not only suffered no damage from this episode, but notably increased his support from Latino voters in last month’s election, can learn a lesson from Unanue. The Goya CEO (who also professed to excuse AOC for being “young” and “naive”) just killed a leading critic with kindness. Imagine if even just some of that kind of wit and subtlety had characterized the Mr. Trump’s own statements as candidate and President.

Making News: New Daily Caller Piece On-Line on the CCP Virus and the Economy

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bankruptcies, CCP Virus, consumers, coronavirus, COVID 19, DailyCaller.com, deflation, economy, exports, Im-Politic, Jobs, manufacturing, public health, real estate, recession, recovery, rent, reopening, restart, restaurants, retail, small business, testing, travel, unemployment, vaccines, Wuhan virus

I’m pleased to announce that my latest freelance article has just been published on the popular DailyCaller.com news site.  The title pretty much says it all:  “Don’t Expect A V-Shaped Recovery From Coronavirus,” and you can read it at this link.

And keep checking in with RealityChek for news of upcoming media appearances and other developments.

(What’s Left of) Our Economy: A Respectable Case for Optimism?

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CCP Virus, China, consumer confidence, consumers, coronavirus, COVID 19, Federal Reserve, Jerome Powell, lockdown, recovery, reopening, restart, restaurants, retail, second wave, shutdown, social distancing, Sweden, testing, vaccines, Wuhan virus, {What's Left of) Our Economy

At the risk of being (undeservedly) tarred as a CCP Virus pollyanna, I can’t help but being struck by the some new evidence that the U.S. economy’s recovery from its pandemic-induced swoon will be faster than widely feared. In fact, I still share these fears to some degree. But I can’t ignore increasing signs to the contrary.

To be clear, this evidence has little to do with the subject of yesterday’s post. Just because data can be cited showing significant national progress in beating back the virus threat doesn’t necessarily mean that a more so-called “V-shaped” economic rebound is on the way. The same goes for the impact of this progress on the economy reopening decisions of individual U.S. states – even though the more decline seen in numbers of new cases (despite gains in testing that should be revealing much more infection), numbers of deaths, and numbers of virus-related hospitalizations, the more reopening obviously will be seen.

Nor are my views being shaped by the strong rebound seen in U.S. stock markets so far (including today so far), or by the newly bullish recovery views voiced last night on “Sixty Minutes” by Federal Reserve Chair Jerome Powell. And this post isn’t even driven by the latest news about vaccine progress (though such reports will clearly help as long as the results continue being validated).

The reason: I’ve been convinced that the key to the recovery’s strength will be Americans’ willingness to start patronizing businesses in an economy where most activity – and most income earning opportunities – depend on consumer spending. So I’ve put considerable stock in predictions that, even though all the objective conditions can show that a return to normality will be safe, too many Americans will remain too fearful to boost the economy significantly.

I also take seriously the idea that all the restrictions on visiting retail stores (including restaurants) and personal service businesses will limit their customer flow either simply by forcing them to operate substantially below capacity, or by dissuading many customers from visiting in the first place, and thereby sharply reducing impulse consuming. Further, I’m well aware that the much more modest shock administered to Americans by the Great Recession triggered by the 2007-08 financial crisis was painfully slow to wear off. (See here and here where I write about reasons for recovery pessimism.)

In addition, the experiences of other countries that started reopening earlier has reenforced consumer caution concerns. Sweden, for example, has imposed fewer economic restrictions than any other major country. But this survey by the consulting firm McKinsey & Co. reports that consumer spending has dropped significantly anyway, and may not recover for months. China claims that it’s beaten the virus and its regime has been easing factory lockdowns since February. But as of late April, retail sales were still way down.

Finally, there’s the second wave threat, which could kneecap the economy as temperatures start dropping in the fall even if summer does witness a decent bounce back toward pre-virus consuming.

So the case against a relatively quick recovery with real legs is still awfully strong.

But don’t overlook reasons for more optimism. One that’s nothing less than amazing: The piece in this morning’s Washington Post reporting that even though virus testing is now much more widely available in the United States than previously, Americans are far from rushing to capitalize on these opportunities. Even accepting the various reasons offered in this article (e.g., not enough Americans know that the situation has changed; there’s too much mistrust of medical providers in some U.S. communities, particularly African-Americans), it’s difficult at least for me to conclude anything else but that many in the United States simply aren’t concerned enough about the pandemic to take this precaution. After all, if they were panic-stricken, wouldn’t they be following every bit of news about the supply of tests with baited breath?

Perhaps more important, the more news that emerges that the CCP Virus is much less lethal than early reports suggested, the (understandably) less concerned about infection more and more Americans seem to be.    

Then there are all the reports of Americans, whether in states that have eased lockdowns more vigorously and those that haven’t, violating social distance guidelines, either by not wearing masks where they’re supposed to, or seemingly ignoring social distancing rules in public place – and indeed returning to restaurants and bars and beaches in pretty impressive numbers. These reports are anecdotal, and therefore should be viewed with lots of caution. Also, please don’t assume that I’m endorsing this behavior! But there sure seems to be a lot of it, these reports also seem related to growing evidence of the virus’ relatively modest death rates, and and as an old adage goes, when enough anecdotes appear, they become data. 

Finally are several indicators pointing to an actual, non-trivial comeback in economic activity, and for a variety of sectors. This account mentions encouraging signs from the tech sector to the automotive industry. This article presents evidence of bottoming even in hard-hit bricks and mortars retail stores and restaurants. And click here for information on the housing industry.

Of course, the references above to “bottoming” could still be entirely consistent with pessimistic predictions of a painfully slow climb back to pre-virus prosperity. But I still find myself wondering if, having seen the overpoweringly depressive effect of various official edicts literally to halt and outlaw much economic activity, Americans might experience a reasonably powerful growth effect from their withdrawal – not to mention declining fears that infection is a death sentence.

Glad I Didn’t Say That! The Epic Fail of Tariff Fear-Mongering

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aluminum, China, consumer price index, consumers, core inflation, Glad I Didn't Say That!, inflation, manufacturing, metals, metals-using industries, Producer Price Index, steel, tariffs, Trade, trade war, Trump

“Trump’s trade war may soon hit consumers’ wallets and paychecks.”

–NBC News, July 18, 2018

“Tariffs will surely lead to higher prices for imported goods and, to a lesser extent, prices for non-imported goods that use imported materials.”

–Wharton School of Business, University of Pennsylvania, July 18, 2018

“Tariffs are about to hit consumers, and it won’t be pretty.”

–CNBC, July 25, 2018

“Trade restrictions, by their nature, result in price increases for the goods in question. If the price of steel and aluminum goes up, manufacturers will be forced to pass those costs onto American consumers.”

–The Heritage Foundation, March 2, 2018

U.S. core consumer price* index year on year, November: +0.1 percent

U.S. core producer price index** year on year, November: +0.5 percent

*commodities less food and energy

**final demand goods less food and energy

(Sources: “Trump’s trade war may soon hit consumers’ wallets and paychecks,” by Ben Popken, NBC News, July 18, 2018, https://www.nbcnews.com/business/economy/trump-s-trade-war-may-soon-impact-consumers-wallets-paychecks-n890576: “Tariff Troubles: Will Consumers Feel the Pinch?” Public Policy, Knowledge@Wharton, Wharton School of Business, University of Pennsylvania, July 30, 2018, https://knowledge.wharton.upenn.edu/article/trumps-tariffs-will-impact-average-consumer/; “Tariffs are about to hit consumers, and it won’t be pretty,” by Jeff Cox, CNBC, July 25, 2018, https://www.cnbc.com/2018/07/25/tariffs-are-about-to-hit-consumers-and-it-wont-be-pretty.html; “3 Reasons Why Trump’s Tariffs Would Hurt American Workers,” by Tori K. Smith and Jay Van Andel, Commentary, The Heritage Foundation, March 2, 2018, https://www.heritage.org/trade/commentary/3-reasons-why-trumps-tariffs-would-hurt-american-workers. All compiled in “Christmas Miracle: Rising Wages and Low Inflation Promise a Very Merry Holiday Season,” by John Carney, Breitbart.com, December 11, 2018, https://www.breitbart.com/economy/2019/12/11/low-inflation-christmas/. “Consumer Price Index – November 2019, USDL-19-2144, News Release, Bureau of Labor Statistics, U.S. Department of Labor, December 11, 2018, https://www.bls.gov/news.release/pdf/cpi.pdf; and “Producer Price Indexes – November, 2019, USDL 19-2146, News Release, Bureau of Labor Statistics, U.S. Department of Labor, December 12, 2018, https://www.bls.gov/news.release/pdf/ppi.pdf)

(What’s Left of) Our Economy: Mainstream Media Never Trump-ism on Trade Gets Weirder and Weirder

Tags

China, consumers, inflation, Mainstream Media, retail, Reuters, tariffs, Trade, trade war, Trump, {What's Left of) Our Economy

It’s like they can’t help themselves. Even when Mainstream Media organizations and reporters conduct detailed research showing that President Trump’s tariffs-heavy China trade policies aren’t hurting U.S. consumers in the slightest, they feel compelled to issue dire warnings about the possibility. If you doubt me, check out this Reuters piece from the day before Thanksgiving on how the levies are affecting America’s major retailers.

Reuters, to its credit, actually took the trouble to look at prices to gauge the impact of the Trump levies by examining actual prices – as opposed to economists and to analysts from think tanks and other groups bought and paid for by the corporate offshoring lobby, who toss out apocalyptic numbers based on bogus-at-best methodologies.

The findings, “based on a pricing study conducted for Reuters by retail analytics firm Profitero, which examined online prices from seven large retailers for 21,000 products”?

From the October and November, 2018 to the same months this year, for goods “in key holiday categories including appliances, electronics, toys and video games,” leading big box and other retailers overall have held prices “lower than the average rate of inflation during the same period….”

More specifically, at “Walmart, Walmart-owned Jet.com, Amazon, Target Corp, Best Buy, GameStop, and Staples,” electronics prices rose somewhat more than prices in the U.S. economy across the board, but prices for the other products rose at much lower rates, and toys and video games actually became less expensive in absolute terms.

Nor did Reuters try to hide these results, as the headline reads “Top U.S. retailers absorb tariff pressure ahead of holiday shopping season,” and the same point was made in the lead paragraph.

Nonetheless, the report felt compelled to warn that “America’s trade war with China threatens to push up product prices, which could hurt consumer spending this holiday season, a period which makes up nearly 40% of annual revenue for many retailers.”

Sure that’s true in a technical sense. But this sentence is also about as responsible and accurate as one stating that “disciplining a child threatens to alienate him or her” when there’s no sign of that outcome developing, and when in fact all the evidence shows the discipline working. And as for hurting consumer sales, that currently seems far-fetched as well, based on what’s known about the current holiday shopping season. How do I know this? I read it in another Reuters article.

Moreover, it’s legitimate to ask why Reuters didn’t draw the opposite conclusion from its research: The Trump administration and tariff supporters so far have been right in insisting that consumers could be shielded from tariff-induced inflation, and in fact would be, because retailers know full well that they lack the leverage needed to force prices up, and would need to offset them themselves – by eating the extra costs, offsetting them by becoming more efficient, or some combination of the two.

Yes, this would have entailed writing something positive about the President and his trade policies.  But noxious as that might seem to the Mainstream Media, it would have gad the added virtue of being true.