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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Making News: Podcast of National Radio Interview on China’s Economy Now On-Line

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CCP Virus, China, coronavirus, COVID 19, Delta variant, Donald Trump, exports, globalization, Gordon G. Chang, logistics, Making News, supply chains, tariffs, The John Batchelor Show, Trade, trade war, transportation, Wuhan virus

I’m pleased to announce that the podcast is now on-line of my latest interview on John Batchelor’s nationally syndicated radio show. The segment, which aired last night, can be found here, and focused on China’s economic performance lately – which John, co-host Gordon G. Chang, and I all agreed is showing definite signs of struggling.

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

Making News: Back on National Radio Tonight Analyzing China’s Economy

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CCP Virus, China, coronavirus, COVID 19, debt, Delta variant, exports, Gordon G. Chang, Making News, supply chains, tariffs, The John Batchelor Show, Trade, trade war, Wuhan virus

I’m pleased to report that I’m slated to return tonight to John Batchelor’s nationally syndicated radio show. Our subject:  how well or poorly China’s economy is handling a CCP Virus surge among its own population and in many countries that are major markets for its exports.

I’m not sure exactly when the segment is scheduled for tonight’s program, but John’s show is on the air week nights from 9 PM to 1 AM EST, and it’s always provocative and informative. You can listen live to our China conversation – including co-host Gordon G. Chang – at this link. And for those of you who can’t tune in, I’ll post a link to the podcast as soon as one’s available.

Also – keep checking in with RealityChek for news of upcoming media appearances and other developments

(What’s Left of) Our Economy: More Trade Normality Revealed in New GDP Figures – But for How Long?

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CCP Virus, coronavirus, COVID 19, Delta variant, exports, GDP, goods trade, gross domestic product, imports, inflation-adjusted growth, lockdowns, real exports, real GDP, real imports, real trade deficit, recession, recovery, services trade, Trade, trade deficit, Wuhan virus, {What's Left of) Our Economy

Last month, I reported that the trade highlights of the first official read on U.S. economic growth in the second quarter of this year showed signs that some form of normality was returning to the nation’s international trade flows after months of unprecedented pandemic-era fluctuations. This morning, the second government estimate of the second quarter gross domestic product (GDP) came out (next month we’ll see the final version – for now), and the signs of a new normality look even stronger.

Specifically, the sequential growth of America’s inflation-adjusted trade deficit during this period was even slower than the slowish rate presented in last month’s GDP release – and using the phrase “to a crawl” seems justified in describing the pace.

That initial estiimate revealed that the real trade gap’s quarterly widening had slowed from the sizzling 31.81 percent in the third quarter of last year, when the economy was roaring back from its brief but epic CCP Virus- and lockdown-induced crash dive to just 2.69 percent between this April and June (a strong growth period itself, but nothing compared with the initial recession rebound). Today, however, the after-inflation trade shortfall’s expansion came in at just 1.71 percent for the second quarter – when real growth itself clocked in at 6.40 percent on an annual basis, not the 6.35 percent estimated last month.

The new number for the second quarter’s price-adjusted trade deficit, $1.2471 billion annualized, remains astronomical by any reasonable standard. Not only is it still the biggest such figure in absolute terms. It’s the biggest such figure in relative terms – as a share of real GDP – where it still stands at 6.44 percent. And this revised trade deficit remains the fourth straight all-time high recorded. For some more perspective, the inflation-adjusted gap is also still 47.13 percent wider than where it stood in the fourth quarter of 2019 ($847.6 billion), just before the pandemic and its effect began weakening and distorting the economy.

More encouragingly, though, the new trade deficit result is a significant improvement over the $1.2590 trillion first reported. Also on the plus side, the after-inflation trade deficit’s sequential rise cut only 0.24 percentage points from the quarter’s 6.40 percent growth at an annual rate. That is, had the second quarter deficit stayed at its first quarter level, second quarter growth would have been 6.64 percent annualized – or 3.75 percent faster.

It all adds up to the trade deficit’s best such effect on real GDP change in absolute terms since the second quarter of 2020, when the deficit’s shrinkage prevented the nearly 36 percent pandemic-produced real GDP plunge from becoming slightly worse. By contrast, in the first quarter of this year, the inflation-adjusted trade shortfall’s increase cut the 6.14 percent annualized real growth figure by 1.56 percentage point. So had there been no sequential increase at all, that quarter’s price-adjusted growth would have been 7.70 percent at annual rates – a difference of fully 25.41 percent.

The manner in which the second quarter’s constant dollar trade gap improved over the initial read was good news as well, as after-inflation exports rose faster and their import counterparts climbed more slowly than reported last month.

Rather than growing by 1.47 percent sequentially during the second quarter, total after-inflation exports were judged to have advanced by 1.60 percent. At $2.2980 trillion annualized, though, they’re still 9.98 percent lower than in the fourth quarter of 2019 – the last full quarter before the CCP Virus’ arrival. As a result, the second quarter’s real export performance was an even greater improvement over the first quarter’s 0.73 percent dip than previously thought.

Combined goods and services imports were reported up by 1.64 percent between the first and second quarters, not 1.90 percent, as originally reported. This new figure also beat the first quarter’s 2.25 percent sequential real import increase.

At the same time, the new inflation-adjusted total import figure of $3.5547 trillion annualized still represents their second straight quarterly record, and such purchases from abroad are still 4.26 percent higher than their fourth quarter, 2019 level.

Turning to goods (the vast majority of U.S. trade flows), the second GDP read for the second quarter left standing their dubious record of a fourth straight all-time high trade deficit. But as with the overall trade deficit, the new figure of $1.4014 trillion annualized was a solid improvement from the previously reported $1.4610 trillion. And as a result, the second quarter number was only marginally (0.40 percent) worse than the first quarter figure, making clear a major slowdown in this indicator’s rise as well (from 20.40 percent during last year’s super-growth third quarter).

Unfortunately, the revised second quarter real service trade figures told a story that was especially gloomy even given this sector’s well known and disproportionate virus- and lockdown-induced woes. The long-running service trade surplus is now pegged at $149.5 billion for the April-through-June period. That’s a figure lower than the $151.2 billion previously reported, and the weakest quarterly result since the $161.7 billion recorded in the third quarter of 2010, when the recovery from the 2007-2008 financial crisis and Great Recession was in its earliest stages.

Also unfortunate – and frustrating: Whatever is shown in the final (for now) second quarter GDP report, the results will be pre-Delta variant. So although today’s data shows trade normalization to be even closer than previously thought, that next set could be of limited use at best in figuring out how long it’s going to last.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(What’s Left of) Our Economy: Latest Figures Leave the U.S. Trade Picture as Foggy as Ever

Tags

aerospace, aircraft, Boeing, Canada, CCP Virus, China, coronavirus, COVID 19, Donald Trump, exports, goods trade, imports, Made in Washington trade deficit, manufacturing, non-oil goods deficit, reopening, services trade, tariffs, Trade, trade deficit, Wuhan virus, {What's Left of) Our Economy

With huge Chinese ports newly suffering the kind of congestion that’s clogged America’s West Coast ports for months, the U.S. and other national economies reopening at widely varying rates from their CCP Virus-induced shutdowns, and a worldwide shortage of semiconductors still undermining production throughout the world’s manufacturing industries, it’s tougher than ever to figure out what to make of the latest monthly U.S. trade figures (for May).

Oh, and I almost forgot: America’s long-time export and trade surplus standout, Boeing, keeps making bad news on the intertwined manufacturing and safety fronts, which means that its domestic and overseas sales could be depressed for months more.

So since they’re of such little help in figuring out the two biggest trade policy questions facing the country – about how different a post-pandemic trade normal may look from its pre-virus counterpart, and whether and how well the Trump tariffs are still working – it seems the best course to follow is simply reporting the highlights of the May report from the Census Bureau (and voicing some very tentative analyses where I have the courage).

These new data, which came out last Friday, revealed that the combined U.S. goods and services trade deficit increased by 3.14 percent between April and May – from $69.07 billion to $71.24 billion. The total was the second highest ever, trailing only March’s $75.03 billion.

The same general pattern characterized the goods trade gap, which widened by 2.76 percent (from $86.78 billion to $89.17 billion), also hit the second highest total on record, and also fell short of a March all-time high ($92.86 billion).

The best trade balance-related news came on the services side – which has been especialy hard hit by the virus and its effects, and where the surplus widened by 0.74 percent (from $17.80 billion to $17.93 billion) and improved for the first time since January.

Total exports advanced for the fourth straight month in May (by 0.64 percent, from $204.70 billion to $206.02 billion), and attained their highest level since December, 2019, just before the CCP Virus seems to have begun spreading from China.

Goods exports were something of a laggard – growing sequentially in May by just 0.30 percent (from $145.09 billion to $145.28 billion. More encouragingly, this level set its second straight monthly record.

Services exports fared better, up 1.47 percent on-month in May (from $59.62 billion to $60.49 billion) and producing their best monthly total since semi-pandemic-y March, 2020’s $60.62 billion.

But on all counts, U.S. imports rose faster.

The total import amount reached $277.26 billion in May, rising 1.27 percent from April’s $273.78 billion and representing the second highest total ever. Only the $277.69 billion figure from…yes…March has been higher.

Goods imports rose by a slower 1.18 percent, from $231.96 billion to $234.70 billion. And the total was another second highest, lagging only March’s $236.52 billion.

Despite their surplus growing, services imports rose considerably faster, by 1.77 percent, from $41.84 billion to $42.56 billion. That total was the highest since February, 2020 ($47.06 billion) – just before the virus’ arrival.

To a noteworthy degree, the worsening of the overall and goods deficits in May looks like a Boeing story. The narrowing of the U.S. civilian aircraft trade surplus (by $1.388 billion) accounted for nearly 64 percent of the increase deterioration in the overall trade balance, and 58.05 percent of the monthly growth of the goods trade gap.

Boeing’s troubles can’t be blamed for the entire year’s lofty deficit numbers. Far from it. In fact, between the January-to-May periods last year and this year, the $917 million shrinkage of the aircraft surplus has equalled less than one percent of the overall deficit’s increase during this time and just slightly more of the goods deficit. Aircraft trade numbers can be pretty volatile, too. But is the Boeing effect on the May data a portent of things to come? Stay tuned.

As known by RealityChek regulars, the best measure of how tariffs and similar trade policies are influencing U.S. trade flows is non-oil goods trade, which strips out oil (which hardly ever comes up in trade policymaking) and services (where global trade liberalization remains modest). And in this context, what jumps out right away from the May trade results (or what should jump out) is that this portion of the trade deficit rose much more slowly on month (0.33 percent) than the combined goods and services deficit (3.14 percent) or the total goods deficit (2.76 percent). And interestingly, without the poor civilian aircraft numbers, the “Made in Washington” trade deficit would have fallen month-to-month.

Moreover, on a January-to-May year-to-date basis, the non-oil goods trade deficit worsened just about half as much (by 23.99 percent) as the overall deficit (45.82 percent), and somewhat more slowly than the goods deficit (26.44 percent). Given that the Trump China tariffs alone of some $350 billion amounted to some 15.21 percent of total U.S. non-oil goods imports in 2019 (and remain in place today), that could be a sign that the levies have succeeded in restraining that deficit’s growth. When it comes to the Boeing effect, however, it’s negligible here, too.

May was an especially bad month for U.S. manufacturing trade, as its chronically huge shortfall jumped by 3.01 percent, from $103.60 billion to 106.72 billion. Huge as that sounds, it was only the fifth worst such figure ever. Exports increased by 0.91 percent while the much greater amount of imports climbed by 2.01 percent. Again, the Boeing effect generated much (nearly 45 percent) of the monthly deficit worsening but less than one percent of the $116.57 billion year-to-date difference.

May was also a bad month for China tariff supporters. The U.S. goods deficit with the PRC grew by 1.90 percent on month – much faster than the 0.33 percent increase in the non-oil goods deficit that’s its closest worldwide proxy. U.S. goods exports to the PRC advanced by a healthy 5.54 percent. May monthly imports grew much more slowly (3.04 percent), but they’re more than three times greater.

On a year-to-date basis, moreover, the Sino-American trade gap is 26.92 percent wider than last year, which stands not only as faster growth than that of the non-oil goods deficit (23.99 percent), but another sign that of tariff failure, as the China deficit by this measure has been rising faster non-oil goods deficit since March. Still, it’s difficult drawing firm conclusions, since the recovery of China’s export-heavy economy from its pandemic experience has been faster than that of most other (often also export-reliant) U.S. trade partners. Moreover, the difference between the growth rates of the two deficits has narrowed dramatically since March, so it’s possible that the pre-pandemic pattern – which reflected much better on the tariffs – is steadily returning.

And let’s end on an unexpected note: In May, the U.S. goods deficit with Canada surged by 56.98 percent sequentially, to $3.69 billion. That’s the highest level since December, 2019’s $4.95 billion and the fastest monthly increase since January’s 74.04 percent. This monthly rise, moreover, was driven by U.S. imports, which reached $29.08 billion – the biggest monthly total since October, 2014 ($30.72 billion). The monthly increase: a strong but hardly record breaking 5.86 percent. American goods exports to its northern neighbor, however, rose by just 1.09 percent, to $25.39 billion. And year-to-date, the U.S. goods deficit with Canada has more than doubled, soaring by a 108.93 percent.

(What’s Left of) Our Economy: If Australia Can Do It….

Tags

Australia, CCP Virus, China, competition, coronavirus, COVID 19, economics, exports, free trade, globalization, Reuters, Swati Pandey, Trade, Wuhan virus, {What's Left of) Our Economy

For almost as long as I’ve been writing systematically about trade policy (since the start of the 1990s), I’ve been convinced that however valid the centuries-old economic theories supporting the desirabiity of the most open possible trade policies may be , they’re largely irrelevant to the United States.

The main reason? With its abundance of a huge percentage every kind of product imaginable, its huge scale, and its dynamic free market-dominated economic system, America can satisfactorily duplicate on its own the global conditions supposedly needed to promote the greatest degree of competition. As a result, it’s amply capable of maximizing the incentives for cost-reduction, quality, efficiency, and innovation and thus realize the benefits of what’s loosely termed free trade that most other national economies can realize only by opening wide to foreign competition. (See this recent article for the most complete statement of my thinking.)

So it’s been especially gratifying to see evidence for these views continuing to pile up, and I’m pleased to report that more appeared in a Reuters report yesterday.

The gist of Swati Pandey’s article was nicely summed up in the non-clickbait-y headline: “Shut off from the world, Australia fosters red-hot growth a home.”

As the author writes, the country has recovered from its own CCP Virus-induced recession faster than expected, its economy is already bigger than before the pandemic, and “the very constraints that were expected to hurt demand, such as closed international borders and limited domestic mobility, have serendipitously channelled new sources of growth.”

Fiscal and monetary stimulus have played a big role in Australia’s renewed expansion, but as Pandy observes, although “the country is in the midst of a worsening trade war with the world’s largest trading nation, China, Australia’s exports are miraculously booming, thanks to soaring prices of iron ore and newer markets in Asia and Middle East to sell to.”

Australia seems to be overturning the conventional wisdom on immigration, too, for it’s been prospering even though “tens of thousands of Australian citizens still stuck overseas” because due to virus-related fears, “Australia has pledged to keep borders shut well into next year, which also means skilled migration – which was propelling the economy until 2019 – is practically impossible.”

An entirely predictable result: Because of these tight external border controls, and continuing restrictions on internal movement, wages are rising healthily.

All of which raises the question: If Australia, whose economy is less than a fifteenth the size of America’s and much less diverse industrially and technologically, can thrive while combating China on the trade front and, more generally, while relying largely on its own devices, why can’t the United States – in spades?

The Reuters piece doesn’t say that Australia can rely on this growth formula forever. And similarly, I’ve never urged America to shut itself off from all trade or immigration, either. Moreover, exports remain a leading growth driver. But if Australia’s potential for autonomous prosperity is this impressive, imagine the possibilities for the United States (including without significant export dependence because of its gargantuan home market). And that’s even after decades of Washington seeming to prioritize fostering interdependence (i.e., link itself ever more tightly to the global economy), and inevitably creating the kinds of vulnerabilities whose full dangers finally attracted broad attention during a health catastrophe. Maybe Americans and especially their leaders could learn some lessons from Australia before the next pandemic strikes?  

(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: The Latest Data Remain Full of Normalization Puzzles

Tags

Biden, CCP Virus, China, construction, coronavirus, COVID 19, Donald Trump, exports, goods trade, imports, inflation, inflation adjusted wages, labor shortages, leisure and hospitality, lockdowns, manufacturing, metals, non-oil goods trade deficit, non-supervisory workers, private sector, real wages, reopening, retail, services trade, shutdowns, tariffs, Trade, Trade Deficits, transportation, wage inflation, wages, Wuhan virus, {What's Left of) Our Economy

While I was away for a few days last week, two major U.S. government reports came out both giving off conflicting signals on on whether the economy has started to return to normal in critical ways as the CCP Virus subsides and reopening, along with consequent changes in consumer behavior, proceed.

The monthly trade figures (for April) showed a sequential decline, following a record surge, in America’s chronically huge gap between exports and much larger amounts of imports. Moreover the monthly drop took place as economic growth sped along at unusual rates after being shut down by government mandates and consumer caution. So maybe they’re an early sign that a return to immediate pre-virus conditions has begun?

Or is their most important message that these deficits, and especially the import levels, are still hovering near all-time highs in (the most widely followed) pre-inflation terms even though the economy as of the latest (first quarter) numbers is still a bit smaller in (the most widely followed) inflation-adjusted terms than during the last full pre-pandemic quarter (the fourth quarter of 2019)?

Indeed, the deficits are gargantuan even though President Biden has left former President Trump’s substantial tariffs on metals and goods from China practically untouched. 

The monthly inflation numbers (for May) are similarly confusing. They revealed that consumer prices (just one inflation measure published by Washington, but an important one) rose by 4.93 percent in seasonally adjusted terms. That was their fastest annual pace since September, 2008’s 4.95 percent. Surely, as widely claimed (including by the Federal Reserve, which wields so much influence over the economy, this upswing stems from a combination of bottlenecks resulting from (1) the sudden, widespread reopening; (2) the unusually low overall inflation numbers generated a year ago, when the economy was near the depths of its viruts- and shutdown-induced slump; and (3) the immense dose of stimulus injected into the economy by both elected politicians and the unelected Fed.

At the same time, the Fed has told us that its stimulus isn’t ending anytime soon, and although the Biden administration and Congressional Democrats are displaying some cold feet about approving more such levels of economic fuel (e.g., in the form of outlays on infrastructure, and a wide variety of income supports and enhanced unemployment benefits), it’s difficult to imagine that most or even much of this spending will actually be withdrawn even once a post-virus recovery is an indisputable reality.

But the biggest surprise of all: Despite the economy-wide inflation pressures, and by-now-routine claims that employers are dealing with nearly crippling labor shortages, wages overall adjusted for inflation keep going down.

Compounding the confusion over whatever conclusions can legitimately be drawn from these two reports: They cover two different months.

But let’s begin with the most important details from the April trade report. The ambiguity embodied in the data begins with the total deficit figure. The record March result was revised up from $74.45 billion to $75.03 billion but April’s $68.90 shortfall for goods and services combined, though the second worst monthly figure ever, was 8.17 percent smaller. That’s the biggest sequential drop since February, 2020 (8.39 percent), when China’s export-heavy economy was still largely closed because of the virus.

The same holds for the goods trade gap. The record March figure was revised up, too, from $91.56 billion to $92.86 billion. But April’s $86.68 billion result represented a 6.65 percent monthly decline, and this falloff was the biggest since the 8.39 percent plunge of January, 2019 – when American businesses were still adjusting both to Trump’s tariffs and anticipated tariffs.

Also still fueling the high U.S. deficits – a worsening of services trade balances. Here, U.S. trade has long been in surplus, but the surpluses keep shrinking because service sectors like travel are still suffering from the pandemic’s arrival and the consequent decimation of travel and othe transportation in particular. In fact, the April figure of $17.78 billion was the lowest since September, 2012’s $18.62 billion.

One key set of trade flows does, however, provide some evidence of Trump tariff effectiveness – U.S. non-oil goods trade, which encompasses those exports and imports whose magnitudes are most heavily influenced by trade policy (because, as known by RealityChek regulars, trade in oil is almost never the subject of any trade policy decisions and services trade liberalization remains at very early stages). In April, the monthly shortfall retreated 4.16 percent from its March record of $90.12 billion to $86.37 billion – which is only the fourth highest such total ever.

The import figures I focused on last month exhibit the same overall patterns: April saw big drops from record levels but the absolute numbers remain distressingly high. March’s initially reported record $274.48 billion in total imports was revised up considerably – to $277.69 billion. April’s total of $273.89 billion represented a 1.37 percent drop, but nonetheless was the second worst such figure on record.

March’s record monthly goods import figure was upgraded, too – from $234.44 billion to $236.52 billion. April’s total of $231.97 billion was a 1.92 percent drop but these purchases also still represented the second highest of alll time.

As for non-oil goods imports, the $215.33 billion April total was 1.98 percent down from an upwardly revised record $219.68 billion, and also the second biggest ever. Biggest drop since last April’s 10.91

Whether normalization is returning in manufacturing is more difficult to tell. Imports in March hit a record $207.59 billion, and did drop by 4.59 percent sequentially to $198.06 billion in April. That decrease, however, was a typical monthly move for manufacturing imports, and the April figure was still the third highest ever.

Incidentally, the April manufacturing deficit of $103.60 billion was 4.64 percent lower than March’s $108.66 billion. The March total was the second highest on record, but April’s figure was only the seventh all-time worst. The record, $110.20 billion, came last October, and it’s notable that the gap has narrowed on net despite the resilience shown during the pandemic period by manufacturing output.

More evidence of the Trump tariffs’ impact comes from the data on goods trade with China – whose products have attracted nearly all of these levies, and that cover hundreds of billions of dollars worth of products. The April figure of $37.59 billion was 6.56 percent lower than its March predecessor – a thoroughly unexceptional sequential decline and monthly level by historical standards. But the monthly dropoff was consideraby greater than the aforementioned 1.98 percent decrease for non-oil goods – the closest global proxy.

As a result of all these inconclusive developments, I’ll be awaiting the May trade report with even more interest than usual.

But despite all the uncertainties I mentioned at the start of this post, those May inflation figures have made me more confident than before in my previous contention that current price surges are anomalies by the extremely low inflation generated by the CCP Virus-battered economy of a year ago, and by the sudden reopening of so much of the economy following the long shutdowns and lockdowns. Even clearer, as I see it: Claims of significant, troubling wage inflation are especially weak.

After all, that 4.93 percent year-on-year May price increase followed a previous May-to-May rise that was just 0.22 percent. That was the feeblest such rise since September, 2015’s 0.13 percent. In addition, May’s month-to-month 0.64 price advance was smaller than April’s 0.77 percent. Two months do not a trend make, but these numbers certainly don’t point to raging inflation fires.

Nor do the wage data. Otherwise after-inflation total private sector wages wouldn’t be down more on-month in May (-0.18 percent) than in April (-0.09 percent). And the same couldn’t be said of constant dollar wages for non-supervisory workers (-0.20 percent in May versus flat in April).

Getting more granular, the price-adjusted wage trends are as bad or worse in construction; trade, transportation and utilities overall; retail trade; and education and health services.

The two big exceptions: the leisure and hospitality workforces that have been so decimated by the virus (and especially the non-supervisory group) and the transportation and warehousing sub-sector of the transportation and utilities industry category that contains a trucking sector unusually strained by the rapid reopening. In both cases, however, (and especially the leisure and hospitality industry), inflation-adjusted wages in absolute terms are well below the national private sector average. If anything, therefore, it seems like some wage inflation for these workers is long overdue.