(What’s Left of) Our Economy: A Big China Mystery Inside the Latest U.S. Trade Figures

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China, exports, goods trade, imports, merchandise trade, non-oil goods trade deficit, Trade, trade deficit, U.S. International Trade Commission, {What's Left of) Our Economy

The big mystery about yesterday’s monthly U.S. trade report (for May) concerns China. Specifically, why are imports from the People’s Republic streaming into the American economy again, considering the stiff, sweeping tariffs on hundreds of billions of dollars worth of Chinese-made goods destined for U.S. markets, and of course the continuing troubles faced by the U.S. economy from the CCP Virus?

I won’t be able to provide a detailed answer till sometime next week – when I expect the U.S. International Trade Commission to post the data on its website. But I can say right now that these imports were great enough account for more than all of the blame for $4.85 billion (9.74 percent) sequential widening of the overall U.S. trade gap in May.

That combined goods and services trade shortfall hit $54.60 billion – its highest level since October, 2008’s $60.88 billion. And back then, more than half that overall trade deficit was oil. In May, the United States ran an oil trade surplus – as it’s done since last fall.

Moreover, the overall May U.S. goods trade deficit (also known as the merchandise deficit) of $76.06 billion was the biggest such total since December, 2018’s $80.21 billion –and represented a $4.24 billion (5.90 percent) increase from April’s levels.

The specific China goods numbers? The bilateral trade gap widened by $4.49 billion (19.99 percent) sequentially in May – a figure 92.58 percent as big as the entire monthly U.S. trade deficit increase and, as mentioned above, greater than the monthly increase in the merchandise shortfall. In other words, as the goods trade deficit from everywhere else in toto fell during May, it rose from China. (Of course, because the U.S. trades with so many different countries, this doesn’t mean that goods trade shortfalls fell with every one of them other than China. But overall, the non-China goods trade gap narrowed.)

And the role of merchandise imports was as crucial as it is puzzling. U.S. goods imports from China rose on month in May by $5.53 billion (or 17.79 percent). So they alone exceeded the $4.85 billion sequential increase in the overall trade deficit and the $4.24 billion rise in the goods deficit.

Even weirder – goods imports from China were up in May while overall imports and global goods imports were down (by 0.88 percent and by 0.76 percent, respectively).

Despite the widening of the merchandise trade gap with China, U.S. goods exports to the People’s Republic improved on month in May – by $1.04 billion, to $9.64 billion. That’s not terribly surprising, since all indications are that China’s economy began recovering sooner than America’s from its own CCP Virus-induced shutdown. In fact, that monthly merchandise export total is the highest since last November’s $10.10 billion – meaning that those U.S. sales are back in their range for the whole of last year, before the virus broke out in China.

But was the U.S. economy rebounding strongly enough in May to explain easily a resumption of buying from China that also brought goods imports back to their highest level since November, and well inside their range, too, for all of last year? That’s hard to accept, if only because overall U.S. goods imports remain significantly depressed from last year’s levels, and because of those Trump tariffs. Such bewilderment seems justified even given that in recent years, May has been a month during which merchandise imports from China have risen strongly. After all, this wasn’t a normal May.

It’s true that on a year-to-date basis through May, U.S. goods imports from China in 2020 are down 15.90 percent – more than the 12.60 percent drop for goods imports total (but not that much more). The difference is somewhat greater with the 10.35 percent decrease in January-May total U.S. non-oil goods imports – which are a better global comparison with China goods imports, since China doesn’t sell oil to the United States.

It’s also true that the United States’ merchandise deficit with China through May of this year has shrunk much faster (24.58 percent) than its overall global goods deficit (7.78 percent) and much, much faster than its global non-oil goods deficit (2.34 percent). But it’s true as well that a non-trivial amount of this progress has reversed itself this month (as well as in April).

And that’s why I’ll get you the detailed answer to the “what are these China imports” question ASAP.

(What’s Left of) Our Economy: U.S. Manufacturing’s Jobs Recovery Continues Strongly

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automotive, CCP Virus, coronavirus, COVID 19, exports, Jobs, manufacturing, NFP, non-farm jobs, non-farm payrolls, private sector, services, Trade, Wuhan virus, {What's Left of) Our Economy

The big question raised by today’s second straight expectations-clobbering official monthly U.S. jobs report (for June) is whether the surge in recovered employment can withstand whatever second CCP Virus wave of infections, or resurgence of the first wave, numerous states have been seeing lately.

I can’t answer that knowledgeably – and I suspect few others can, either. What I can do is note that the June numbers roughly repeat or confirm some of the patterns visible for May. Mainly, manufacturing held up better than the rest of the American jobs market, and within manufacturing, the swings have been dominated by the automotive sector.

Domestic industry added a net 356,000 workers to its payrolls in June, and revisions for the last two months – as with non-farm jobs as a whole (the U.S. government’s jobs universe) – were slightly positive (virtually unchanged at a 1.32 million net loss for April, upgraded from a 225,000 to a 250,000 net gain in May).

Fully 55 percent (195,800) of those 356,000 new June manufacturing jobs came in the automotive sector – a rubber band-like comeback surely reflecting the outsized hit this industry has taken since the CCP Virus threw the entire economy into a deep downturn. Even with this improvement, since February, combined vehicle and parts employment is down more than twice as much relatively speaking (12.11 percent) as overall manufacturing employment (5.89 percent).

Further, overall manufacturing’s record of pandemic-era resilience continued in June. Its monthly jobs growth was only 3.03 percent – slower than the rate for the total non-farm sector (3.61 percent) and the private sector (4.27 percent).

But a main reason is that manufacturing has taken a much smaller CCP Virus hit than the rest of the economy. That 5.89 percent employment loss since February has been considerably less than that of the non-farm sector (9.62 percent) or the private sector (10.17 percent).

Manufacturing employment could face some intriguing crosswinds in the months ahead. A second virus wave or a re-strengthening first wave may well slow its jobs rebound going forward, since U.S.-based industry sells so much to those domestic service industries that have borne the brunt of the pandemic-created economic damage. At the same time, domestic manufacturers were selling just under 18 percent of their gross output overseas as of the end of last year, so if recoveries quicken overseas, U.S.-based manufacturers and their workers could benefit significantly.

In this vein, one possibly hopeful sign is that as of May, according to this morning’s monthly U.S. trade report from the Census Bureau, manufacturing exports are down a whopping 15.74 percent year-to-date. And they fell 5.28 percent in May alone. Therefore, precisely because the “comps” have been so lousy, domestic manufacturers could experience something of a rubber-band-like bounceback of their own – at least in the near-term future.

(What’s Left of) Our Economy: A Major Virus-Related U.S. Economy Hit Confirmed – With Much Worse Numbers Sure to Come

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CCP Virus, coronavirus, COVID 19, exports, GDP, goods, Great Recession, gross domestic product, imports, inflation-adjusted output, lockdown, real exports, real GDP, real imports, recession, services, shutdown, Wuhan virus, {What's Left of) Our Economy

This is a catch-up post on the CCP Virus-induced contraction of the U.S. economy growth, as well as a report on today’s latest update from the Commerce Department. The big news this morning: During the first quarter of this year, the economy’s sequential shrinkage for the first quarter of this year was pegged in this morning’s third, and final (for now) estimate at 5.09 percent at an annual rate in inflation-adjusted terms. That compares with the 4.87 percent drop in real output recorded in the first estimate, and a 5.15 percent decline estimated in the second estimate, which yours truly missed when it came out last month.

So things economic are looking slightly less terrible than previously thought – but still pretty terrible. In fact, this first quarter economic downturn was America’s most severe since the fourth quarter of 2008’s 8.66 percent – when the Great Recession spurred by the financial crisis was at its low point.

And there’s no doubt much worse to come in the second quarter figures, whose initial release will be a month from now (along with a regularly scheduled revision of all the data on the gross domestic product [GDP] and its changes going back to 2015). After all, the first quarter numbers only include the first month (March) during which the CCP Virus and its growth-killing effects began to be fully suffered.

Before delving into the trade-related details, a cautionary/explanatory note should be repeated: The phrases “at an annual rate” and “annualized” mean that an economic contraction of this historic scale didn’t take place al at once. Instead, they mean that in the economy contracted at a rate that would add up to the current 5.09 percent if the shrinkage continued at this pace for an entire year. This qualification is especially important because of the tremendous expected worsening of the slump in the second quarter.

Today’s GDP report revealed that the after-nflation annualized combined goods and services trade deficit during the first quarter was $815.5 billion. That’s a bit worse than the $816.0 billion figure reported last month but a bit better than the $817.4 billion calculated in the first estimate. And this so-far-final number represents a 9.34 percent decline from the $900.7 billion level reported for the fourth quarter of last year.

These results leave the drop-off the steepest since the 18.13 percent quarter-to-quarter nosedive during the second quarter of Great Recession-y 2009. And because the gap between these two results remains so big, it will be fascinating to see the numbers for the second quarter, when impact of mandated shutdown of much of the economy will first become apparent.

The quarterly decrease in total real exports for the first quarter is now judged to be 2.33 percent (non-annualized – as are the following numbers). This decline is worse than that estimated in the two previous first quarter GDP reports (2.24 percent and 2.25 percent, respectively). But as with the trade deficit figures, this slump pales with that suffered the last time constant dollar goods and services exports dropped significantly – the 8.08 percent crash dive during the first quarter of 2009, during the depths of that Great Recession.

On the import side, the 4.17 percent sequential price-adjusted fall-off reported this morning was bigger than either the 4.12 percent decrease previously judged and the 4.08 percent initially estimated. Again, however, that was the biggest such decline since a Great Recession result that was much greater – the 9.88 percent recorded in the first quarter of 2009.

The “final” first quarter figure for the inflation-adjusted goods deficit ($996.8 billion annualized) was 7.64 percent lower than the fourth quarter figure. But in services, the real surplus widened by 1.22 percent – even though the super-sector’s exports plummeted by nine percent. The first quarter annualized total of $714.9 billion annualized was the meagerest since the $706.2 billion level for the fourth quarter of 2013, and the rate of decline (much greater than the 0.49 percent in goods exports) was the fastest ever in a data series going back to 2002. In fact, the previous record was only 2.95 percent (during the Great Recession-y first quarter of 2009) – as with the export figures underscoring the outsized impact of the CCP virus’ impact on the travel industry.

Similar trends can be seen in after-inflation services imports. which sank by a record 8.06 percent in the quarter – much faster than the 3.19 percent fall in goods imports.

(What’s Left of) Our Economy: Full Virus-Distortion Mode for New U.S. Trade Figures

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aerospace, Boeing, CCP Virus, China, civilian aircraft, coronavirus, COVID 19, decoupling, exports, imports, manufacturing, manufacturing trade deficit, Phase One, Trade, Trump, Wuhan virus, {What's Left of) Our Economy

Here’s a heck of a way to start a blog post: On the one hand, it’s a relief to.be writing about something other than the shameful George Floyd killing and its too-often-violent aftermath, and focus on an economic issue like the latest U.S. trade figures. On the other hand, because of the CCP Virus and the deep U.S. and global recessions (and possibly worse) it’s triggered, it’s hard to make the case that the new numbers (for April) even say much of anything useful about that month, much less about how trade flows and their impact on the economy might evolve going forward.

Even less serious is the notion that they shed light on the past, present, or likely future effectivness of President Trump’s Phase One trade deal with China – which incidentally only went into effect in mid-February.

All the same, speaking of China, the month-on-month change was discouraging at least on the surface. The goods deficit nearly doubled between March and April – from $11.83 billion to $22.27 billion. The last change of that magnitude came back in April, 1989, when trade flows were orders of magnitude smaller, and therefore huge fluctuations much easier to generate. Moreover, this trade gap bounceback followed two straight months of dramatic decline that brought the shortfall to its lowest level since March, 2004.

Worth noting in this regard for additional context. On a year-to-date basis, the U.S. goods shortfall with China is down by 28.55 percent. That’s more than three times greater than the 8.17 percent decrease in the global U.S. merchandise deficit, and more than six times faster than the 4.52 shrinkage of America’s worldwide non-oil goods gap, which is a better global proxy for U.S.-China trade.

In other words, here’s clear evidence of major progress toward President Trump’s unstated but apparent goal of decoupling the U.S. and Chinese economies.

U.S. merchandise exports to the economy of the People’s Republic, which by most accounts has started recovering steadily from its own pandemic setback – did rise by 7.94 percent. But the much greater value of imports shot up by 56.88 percent. That’s the biggest percentage increase ever. In second place? The 49.92 jump back in January, 1986, when trade flows were miniscule.

Year-to-date, U.S. goods exports to China are down by 9.03 percent – a little less than overall U.S. goods exports (9.46 percent) and than overall U.S. non-oil goods exports (10.86 percent).

The comparable imports figures: America’s merchandise purchases from China are off by 23.88 percent. That’s more than twice decrease of its total goods imports (9.03 percent) and of its non-oil goods imports (8.45 percent).

In other words, here’s clear evidence that the decoupling and contraction of the bilateral deficit is taking place exactly where it should from an American standpoint – on the import side.

Some other notable takeaways from the April trade report:

>The combined goods and services trade deficit soared sequentially in April by 16.66 percent, to $49.41 billion. That’s the highest monthly total since last August’s $50.78 billion, and the biggest such rise since…March’s revised 22.11 percent.

But that revision is a story in and of itself. The originally reported $44.42 billion figure for the month is now estimated at just $42.34 billion – 4.68 percent lower. That’s an unusually big change, and indicates some major, CCP Virus-related data-gathering and analysis problems.

Year-to-date, the total trade deficit has fallen by 13.36 percent.

>Total U.S. exports took by far the biggest hit in April. plunging by 20.46 percent, from an upwardly revised $190.18 billion to $151.28 billion. That’s the lowest monthly total since the $150.01 billion recorded in April, 2010, when the last economic recovery was still young.

Moreover, the monthly nosedive was both nearly twice as bad as the old record holder of 10.19 percent set in CCP Virus- and shutdown-impacted March, and nearly doubled the previous all-time high (going back to 1992) of 5.50 percent set in September, 2001 – the month of the September 11 terror attacks.

Goods exports fell even faster – by 33.71 percent, from a downardly revised $127.72 billion to $95.52 billion. This contraction has just obliterated the previous record of 10.03 percent, from Great Recession-y December, 2008. (For comparison’s sake, goods exports declined by 5.80 percent in September, 2001).

>Combined goods and services imports were down dramatically, too, on month in April. But although an all-time high, the 13.36 percent decline — from an upwardly revised $232.52 billion to $200.69 billion – was much smaller than that for exports. In addition, it only slightly exceeded the previous monthly record of 11.58 percent, from the Great Recession month of November, 2008. Further, as with exports, the new April monthly total was also the lowest since April, 2010.

April’s monthly goods import decrease was only a bit greater – 13.62 percent, from an upwardly revised $193.74 billion to $167.35 billion. The monthly level was the lowest since November, 2010 and the rate of decrease just a hair above that of the aforementioned November, 2008.

>The longstanding and huge U.S. manufacturing trade deficit also grew sequentially in April – by 9.63 percent, from $75.08 billion to $82.31 billion..That was the biggest monthly total since October, 2019’s $92.70 billion.

Manufacturing exports sank by 30.51 percent on month in April, while the much larger value of imports was 12.78 percent lower.

Interestingly, the sequential worsening of the manufacturing trade shortfall was dominated by the country’s civilian aerospace industry – once far and away America’s trade surplus and surplus growth leader. But between March and April, this surplus tumbled by 73.21 percent, from $4.05 billion to $1.09 billion. The $2.97 billion decrease accounted for fully 41 percent of the widening of the manufacturing trade gap, and stems from the combined impact of aerospace giant Boeing’s continuing safety woes and production cutbacks, the virus-induced global recession, and its especially great impact on the travel industry.

Year-to-date, moreover, the manufacturing trade gap has narrowed by 6.62 percent, from $324.59 billion to $303.59 billion.

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: More Ridiculous Myths About Trump’s China Trade Policies

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CCP Virus, China, coronavirus, COVID 19, election 2020, enforcement, exports, Hong Kong, imports, Phase One, Trade, trade war, Trump, Wuhan virus, {What's Left of) Our Economy

Time to scotch two myths that have come up recently about U.S.-China relations that are close to a class in themselves in terms of weirdness.

Myth Number One: President Trump is clinging to the “Phase One” trade deal he signed in January because he thinks its continuation is crucial to his reelection.

No less than every single reason cited is wrong. First is the suggestion that it’s a lousy deal but that Trump needs it because it’s one of the only results of his China or overall trade record that can be called an “accomplishment” to any extent.

Actually, even leaving aside Mr. Trump’s record of significant success in disentangling the U.S. economy from China’s (which admittedly isn’t universally viewed as a plus), the trade deal is undoubtedly a major success on terms every American except agents of the multinational Offshoring Lobby should cheer. As I’ve explained, it not only committed China to buying an enormous amount of U.S. goods way above and beyond what its import patterns suggested. It also contained an ingenious enforcement system likely to hold China’s feet to the fire by leaving Beijing only the option of pulling out of the entire deal if it’s dissatisfied with any U.S.actions – including new American tariffs to punish China for treaty violations.

In sharp contrast to their predecessors under pre-Trump administrations, the President’s negotiators acted like they understood that China’s heavy dependence on exporting to the U.S. market would prevent Beijing from walking away – for fear of losing any remaining access. But because the United States needs China’s market much less, a U.S. withdrawal would be a supremely credible threat.

It’s true, as so many critics have charged, that China’s promises in the Phase One deal to cease or cut back on its wide-ranging predatory trade and related practices are pretty general. But the lopsided nature of the enforcement mechanism provides a great way to solve this problem. If Washington decides that Beijing isn’t living up to even vague promises, it can retaliate however harshly it wishes. The only legal option open to China is ending the entire agreement. None of the kinds of tit-for-tat retaliations that Beijing used so skillfully to spark domestic U.S. complaints about the President’s earlier tariffs are authorized. If China tries going down this road, it would likely face even stiffer U.S. tariffs.

Slightly more reasonable – but only slightly – have been observations that Mr. Trump urgently needs the extra Chinese purchases to sustain his claim of guiding the American economy to impressive levels of prosperity. Make no mistake: The export promises specified in Phase One represent valuable, production-based growth opportunities – the more so since 40 percent of those exports were specified to be manufactures, which add so much value to the American economy, as well as create so many family wage jobs.

But the economy – including the trade-sensitive manufacturing sector – was climbing out of a soft patch by the end of last year. Now that the CCP Virus has induced a prolonged national economic shutdown, any growth boost would of course be welcome, including from exports to China. But the downturn has been so gargantuan, and so heavily concentrated in the personal services sectors, that China trade has receded far into the background for the time being. Nor will it matter much to any substantial recovery – which will mainly require a rebound in those same personal services.

But couldn’t a collapse of the Phase One deal – for whatever reason – still threaten the President’s cherished goal of a strongly rising stock market? No, and because investors also appear aware of the trade deal’s marginality to the real economy for time being – and, it seems, especially keenly. In fact, their behavior as Sino-American tensions have risen recently for all sorts of reasons (the virus, China’s apparently impending further crackdown on Hong Kong) contrasts strikingly with their reactions to the trade war’s previous ups and downs. Then, they traded – often frantically – on the resulting headlines. Since the March bottom, though, it’s been a decidedly seller’s market.

Which leads to the second myth that should be headed for the circular file – that the Chinese know they have the upper hand on the President at least during this election year, and that they’re about to use an obscure clause in the deal to get them off the import hook. I’ve always doubted that anyone outside top Chinese leadership circles has any handle on what’s going on and being thought in Chinese leadership circles.

Luckily, howeve, there’s no need for entrails-reading. What matters most of all are Chinese actions. And the record shows that Beijing has never brought up the so-called force majeure clause (see Article 7.6 at the very end of the treaty text), which could enable China to suspend promised increases of imports due to extraordinary circumstances like the virus – which continues to take a heavy toll on its own economy. Indeed, at the recent meeting of China’s rubberstamp legislature, Premier Li Keqiang, second in command to China’s supremo Xi Jinping, explicitly affirmed China’s commitment to meet its Phase One obligations. 

Because that legislature has now passed the newly proposed Hong Kong crackdown law, Mr. Trump will face the challenge of developing a response. His options are wide-ranging, and predicting them seems a thankless task. What does seem certain is that his choices will be accompanied by a new round of bizarre China policy myths.   

(What’s Left of) Our Economy: Through the Looking Glass With the New US GDP Report?

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CCP Virus, coronavirus, COVID 19, durable goods, exports, GDP, goods, Great Depression, Great Recession, gross domestic product, imports, inflation-adjusted growth, non-durable goods, oil, real GDP, real trade deficit, services, trade deficit, Wuhan virus, {What's Left of) Our Economy

Today’s U.S. government report on the shrinkage of the American gross domestic product (GDP) in the first quarter of the year is fascinating not because it can provide any idea about how bad the CCP Virus-induced economic downturn is right now, much less how bad it will get. Instead, it’s fascinating because it provides (and confirms) some insights on which sectors of the economy have been the biggest winners and losers, and which could fare best and worst going forward.

First, a vitally important explanatory point: When you read that the economy contracted by 4.8 percent between the last three months of 2019 and the first three months of 2020 after factoring in inflation, remember that this figure is an annualized figure. That is, it doesn’t mean that the nation’s output of goods and services (the definition of GDP) fell by that amount all at once during the first quarter. It means that if the contraction that did occur continued at the same pace over the course of a full year, the cumulative drop would add up to 4.8 percent. (NB: The real decline was 4.87 percent, even though the Commerce Department rounded it down to 4.8 for some reason.)

The same cautionary note goes for all the terrifying predictions for the second quarter in particular, to the effect that inflation-adjusted GDP would plummet by 20 percent of 30 percent. They’re annualized rates, too.

No doubt about it – even the new annualized numbers are terrible. (And unless otherwise specified, all the following statistics will represent sequential – i.e., quarter-to-quarter – rates of change.) That’s not because they’re the worst that Americans have seen lately. That dubious honor goes to the fourth quarter of 2008, during the Great Recession, when real GDP sank at an 8.66 percent annual rate. Instead, it’s because the main shutdowns of business didn’t start until mid-March. Since the first quarter ended on March 31, a genuinely appalling amount of damage took place in a very short period of time.

As a result, surely the numbers for the second quarter will be much worse, as the lockdowns themselves spread for weeks thereafter, and their effects have had time to sink in (even though the second quarter figures presumably will reflect some of the cautious easing and reopening that’s begun). Also possibly leading to more depressing future results: Today’s first quarter figures are the first of three reports for the first quarter we’ll be getting this year. As Washington gathers more complete information, the reported nosedive could well get steeper.

The principal ray of hope comes in the nature of the downturn. It was literally ordered by America’s national, state, and local governments. Whatever recession or depression that’s begun says little about the fundamentals of the economy pre-virus – unlike typical recessions, which result from weaknesses in expansions that for various reasons finally come to light, or are brought to light by the Federal Reserve (in many cases) – which in modern times, has reacted to signs of economic excesses (like accelerating inflation), by raising interest rates (that is, increasing the cost of borrowing for everyone) and trying to bring price changes back under control. (And yes, a big exception was the Fed’s record during the previous, so-called Bubble Decade, when its principal aim seemed to be to juice growth at all costs – in that case, at the risk of scary degrees of financial instability.)

All the same, the biological roots of this economic slump create great uncertainties about the rate of recovery, since no one can know how quickly Americans will return to patronizing service sector business in particular, which comprise the vast bulk of the economy, and so many of which largely serve customers in person.

In that vein, it’s more than a little interesting that output in services shrank in the first quarter at a much faster annual rate (10.63 percent) than goods output (1.35 percent). Dig a little deeper, though, and you see that the numbers for goods are sharply divided. After-inflation output of durables (products supposed to last for three years or more either in use or on the shelf – like autos and appliances) plunged by 17.12 percent at annual rates. But constant dollar production of non-durables (notably processed food but also chemicals and paper and textile and plastics and others) actually increased – by 6.77 percent.

Those goods and services figures are contained in the “personal consumption expenditures” category of each GDP report. And overall, such consumption dropped by 7.78 percent annualized in the first quarter. Notably, that’s a much worse result than anything seen during the last, Great, recession (which, by the way, was the previous deepest economic slump experienced in the United States since the Great Depression of the 1930s). During that most recent downturn, personal spending’s decrease bottomed out with a 3.72 percent annualized fall in the fourth quarter of 2008.

No – to get to a worse consumption figure than just recorded, you need to go all the way back to the second quarter of 1980, during a horrible period marked by a painful recession and roaring inflation partly produced by sharp oil price increases. Then, such spending cratered at a 9.01 percent annual rate, and the entire economy shrank by 8.23 percent annualized.

Of course, the American economy entails more than just personal consumption (although, as known by RealityChek regulars, such spending represented a big majority of all economic activity– 69.27 percent of real GDP at present – even after the big decreases in the first quarter). Business investment amounted to 14.03 percent of GDP after inflation, and its levels were off considerably, too, in the first quarter – by 8.92 percent.

No doubt, that’s going to worsen, since the lower personal spending, as well as the lower business spending itself, mean that so many businesses will be short of customers for the time being. Even so, the Great Recession numbers were much worse. From the fourth quarter of 2008 through the second quarter of 2009, this “non-residential fixed investment” tumbled at double-digit quarterly rates, with the bottom coming during the first quarter of 2009 (a 30.14 percent plummet!).

And what about America’s trade performance? The constant dollar trade deficit narrowed by 9.25 percent – from $900.7 billion (again, that’s an annualized figure) to $817.4 billion. That deficit number is the lowest quarterly figure since the $761.4 billion recorded in the fourth quarter of 2016. Yet the rate of decrease was almost matched by that of the fourth quarter of last year (9.03 percent). To find a comparable result, you’d have to go back to the fourth quarter of 2013 (9.24 percent).

One big question: How much of this latest drop was due to oil? We know that the general answer is “a lot” – even though in principle these results take into account (i.e., factor out) the recent crash in oil prices. Nonetheless, a dramatically slowed U.S. economy is going to consume less oil overall (ditto for a recessed global economy, something to ponder since the United States is now an oil exporter). So we’ll need to look at the volume numbers and then compare them with those of previous quarters when the trade deficit dropped significantly for a fuller picture.

What is clear so far, though – in terms of the real overall trade deficit, the first quarter 2020 decline pales before those experienced during the Great Recession. In particular, the real trade gap decreased by 15.08 percent annualized during the first quarter of 2009 and by 18.13 percent during the following quarter.

In line with the consumption findings, moreover, services trade performed worse than (the much greater amount of) goods trade. The goods deficit was 7.39 percent narrower in the first quarter of 2020 ($0.9995 trillion annualized) than during the fourth quarter of 2019 ($1.0792 trillion annualized). But the services surplus rose by only 2.07 percent (from $188.2 billion annualized to $192.1 billion).

Especially revealing were the import and export findings. For goods, exports were off by only 0.30 percent – from $1.7823 trillion annualized to $1.7769 trillion. But for services, they dropped by 5.85 percent (from $758.6 billion annualized to $714.2 billion).

The services export and imports decreases were the biggest on record – by far. And although figures only go back to the first quarter of 2002, can anyone seriously doubt that these results reflect the numerous international travel bans sparked by the United States – and so many other countries?

Because services play such a predominant role in the economy, and because services that need to be delivered in person, like dining out and travel, represent such big shares of the economy (just short of 3.25 percent of all private sector output for restaurants, bars, and lodging places alone as of late 2019, and a much bigger 11.06 percent of the private sector workforce), it seems reasonable at this point to expect these sectors to keep taking particularly powerful blows at least as long as the virus remains a pandemic.   

(What’s Left of) Our Economy: Yes, These New (Pre-CCP Virus) U.S. Trade Figures Really Matter

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Atlanta Fed, Boeing, Census Bureau, China, exports, GDP, gross domestic product, imports, Made in Washington trade deficit, manufacturing, New York Fed, Pacific Rim, real GDP, tariffs, Trade, trade deficit, Trump, {What's Left of) Our Economy

There’s no doubt that the pre-CCP Virus U.S. economic data that still keep coming out (and that will continue coming out for months) has at best strongly limited utility nowadays – with one gigantic caveat. They speak volumes about how the economy was faring before the virus’ invasion, and the message they’re sending is especially important for evaluating the effects of President Trump’s tariff-heavy trade policies.

Specifically, they make abundantly clear that the economy was humming along just (and in many ways, increasingly) fine even though steep Trump levies have remained on literally hundreds of billions of dollar worth of potential goods imports – mainly on products from China and steel and aluminum from numerous countries. So you can take the mountain of claims that these duties would wreck American prosperity and throw them on the trash heap. And new reinforcement for this analysis has appeared this morning in the form of the latest official monthly U.S. trade figures (for February) from the Census Bureau.

First, let’s look at the growth numbers, as reported in terms of a measure called “gross domestic product” (GDP). It gauges the nation’s output of goods and services, and the most closely watched figures are those adjusted for inflation.

There’s no doubt that real growth slowed from the time the first Trump-specific tariffs (on metals) were imposed in March, 2018. That year, after-inflation GDP expanded by a healthy 2.93 percent. But the rate slowed notably during that year, certainly at least coinciding with the impact of the tariffs taking hold. It’s also important to point out that China duties began in mid-year, were increased, and plans for many more were announced. (See the timeline linked immediately above for the specifics). 

Growth slowed in full year, 2019, but just to 2.33 percent – still solid by recent U.S. (meaning post-2008 financial crisis) standards. And the nation was dealing not only with trade war fallout, but the safety problems plaguing aircraft giant Boeing and its vast national supply chain.

We don’t have constant dollar GDP results for the first quarter of this year yet, but two regional branches of the Federal Reserve system try to track growth on a timely, ongoing basis. And the pre-virus grades they both gave the economy were encouraging. According to the Atlanta Fed, first quarter after-inflation growth was proceeding at a better-than-three percent annual pace through late March – even though virus infections and deaths were rising troublingly.

(It’s crucial to note, especially in light of shockingly bad recent virus-era growth – and in fact contraction – estimates from private sector economists, that such annualized figures describe growth rates as if the quarterly results lasted for an entire year. That is, the growth or contraction they describe does not represent actual GDP change for that quarter – and as a result, they shouldn’t be taken to revealing that the increases or decreases that are forecast will take place all at once.)

The New York Fed’s estimates tend to be lower than Atlanta’s, but they still predicted an annualized 2.14 percent inflation-adjusted first quarter growth rate as late as February 28. By March 27, that estimate had fallen to 1.68 percent annualized.

And what’s happened to the U.S. trade deficit for the first two months of 2020 – in other words, the first two-thirds of the first quarter of the year? By the broadest measure, which counts both goods and services, it’s down 18.71 percent year-on-year. (This and the following trade numbers are presented in pre-inflation terms, since such figures dominate the detailed results contained in the monthly trade reports.) Better yet, decline has been accelerating. Between December and January, the total trade gap fell by 6.44 percent – from $48.61 billion to $45.48 billion. From January to February, it sank by another 12.20 percent – nearly twice as fast – to $39.93 billion. (The initially reported January number was revised up slightly today.)

That February figure was the lowest since the $39.92 billion registered in April, 2016 – when the economy was growing only a bit more slowly, but when there were no serious problems facing then-export standout Boeing. Moreover, the February monthly drop was the biggest since March, 2018 (12.34 percent) – just as the first Trump metals tariffs were coming into effect.

As known by RealityChek regulars, the best way to judge how trade policy decisions have affected the trade figures is to look at the data measuring the nation’s trade flows minus oil and services (which have never been greatly affected by trade agreements or tariffs). For the first two months of this year, this Made in Washington trade deficit is off by 9.64 percent in pre-inflation terms. Here, too, the rate of decrease is getting faster, with February’s sequential 7.97 percent plummet the biggest such decrease since the 9.45 percent nosedive that took place in January, 2019 – as the China trade war was peaking in terms of tariff impositions. And the $60.76 billion February total is the lowest for a single month since September, 2017’s $60.65 billion.

Speaking of China, a combination of Beijing’s widespread CCP Virus lockdowns and Trump tariffs brought the February U.S. goods trade gap with the People’s Republic all the way down to $16 billion. That’s the lowest such total since the $15.65 billion recorded in Great Recession-ary March, 2009. And the monthly falloff (38.62 percent) was the biggest since December, 1993’s 39.46 percent. That was more than 26 years ago!

Moreover, even though U.S. merchandise exports to China slipped by 5.55 percent on month, U.S. goods imports from China dropped by 31.45 percent. The actual U.S. export level of $6.82 billion was indeed the lowest since June, 2010’s $6.73 billion. But the import level of $22.81 billion was the lowest monthly total since Great Recession-ary May, 2009’s $22.73 billion. And the sequential import drop was the biggest since the 34.07 percent of April, 1986 – nearly 34 years ago, when the much smaller volumes of U.S.-China trade made big percentage moves much easier to produce.

Also important – even as the China year-to-date goods trade deficit has declined by 28.99 percent, the U.S. goods trade gap with Pacific Rim countries (a grouping that does not include Western Hemisphere countries like America’s U.S.-Mexico-Canada trade agreement partners) is off by 25.30 percent. So say so long to the claim that the Trump tariffs have simply shifted the deficit to other Asian countries.

The news was equally good on the manufacturing trade front. America’s mammoth manufacturing trade deficit shrank on month in February from $81.93 billion to $63.01 billion. The February total is the lowest such figure since February, 2017’s $60.47 billion. Meanwhile, the 23.09 percent monthly drop is the biggest since December, 2012’s 27.11 percent decrease.

Further, the deficit fell for all the right reasons. Despite the continued overall economic growth, U.S. manufacturing imports were off 8.98 percent, to $153.07 billion while exports actually grew – by 4.42 percent, to $90.06 billion.

As a result, the manufacturing trade shortfall is down year-to-date so far as well – by 9.65 percent, from $160.43 billion to $144.94 billion.

Those Stubborn Facts: Why Health Security Should “Trump” Free Trade for Americans

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active pharmaceutical ingredients, CCP Virus, China, coronavirus, COVID 19, European Union, exports, free trade, globalization, health security, India, medical devices, pandemic, pharmaceuticals, surgical equipment, Those Stubborn Facts, Trade

“[White House Office of Manufacturing and Trade Policy Director Peter] Navarro raised a lot of eyebrows when he warned that [international trade] fights over [healthcare-related goods] loomed and told Fox Business Network on Feb. 23: ‘People need to understand in crises like this, we have no allies.’ But what then seemed potentially alarmist now looks like foresight.”

– Bloomberg News, March 16, 2020

Number of countries that have curbed exports of healthcare-related goods*: 38**

 

*Includes pharmaceuticals, active pharmaceutical ingredients, medical devices, surgical appliances and supplies

**India, China, India, Taiwan, Indonesia, Belarus, Malaysia, Thailand, South Korea, Russia, United Kingdom, and the 27 members of the European Union

 

(Sources: “Export Wars Erupt as Officials Curb Supplies to Battle Virus,” by Shawn Donnan, Bloomberg News, March 16, 2020, https://www.bloomberg.com/news/articles/2020-03-16/trade-war-latest-welcome-to-the-coronavirus-export-wars-of-2020-k7uf1k01; “The Global Mask Shortage May Get Much Worse,” by K Oanh Ha, Ibid., March 10, 2020, https://www.bloomberg.com/news/articles/2020-03-10/the-global-mask-shortage-may-be-about-to-get-much-worse; “Export Trade News,” Foreign Trade Online [latest daily edition], https://www.foreign-trade.com/export_trade.htm; “The World Needs Masks. China Makes Them – But Has Been Hoarding Them,” by Keith Bradsher and Liz Alderman, The New York Times, March 16, 2020, https://www.nytimes.com/2020/03/13/business/masks-china-coronavirus.html; and “UK bans parallel export of two COVID-19 treatment candidates to protect national supply,” by Janet Beal, “Life Sciences,” IHS Markit, February 26, 2020, https://ihsmarkit.com/research-analysis/uk-bans-parallel-export-of-two-covid19-treatment-candidates.html)

(What’s Left of) Our Economy: Solid Manufacturing Jobs and Trade Numbers Despite Boeing’s Woes

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Boeing, China, exports, imports, Jobs, manufacturing, manufacturing jobs, manufacturing trade deficit, Phase One, tariffs, Trade, trade deficit, {What's Left of) Our Economy

You say U.S. manufacturing jobs keep growing too slowly? You say manufacturing’s trade deficit remains too high, and its exports inadequate? According to two big new government reports on the state of the American economy this morning, if you do, you should also be saying (with beaucoup de snark) “Thanks, Boeing!”

For it keeps getting clearer that the aerospace giant’s safety woes and resulting production halt of its (once) popular 737 Max model are sandbagging both measures of manufacturing’s performance – and not trivially. Don’t forget the silver lining, however.  Despite the Boeing effect, domestic industry has been holding up encouragingly well. 

The evidence is clearest from the trade figures. As reported last month in RealityChek, if not for a big deterioration in the civilian aircraft trade balance (until recently the sector of the entire economy with the biggest trade surplus), the full-year 2019 manufacturing trade shortfall would barely have grown over the 2018 level. And since industry itself increased output last year in pre-inflation terms, (at least through the latest – third quarter – data available), that represented a heartening sign that domestic manufacturing was becoming more self-reliant.

In January, the manufacturing shortfall actually fell month-to-month (by 0.38 percent, from $82.24 billion to $81.93 billion, and $850 million in absolute terms). The mix wasn’t exactly ideal: Imports were down 3.11 percent, but the value of exports (which are much smaller) fell by 5.58 percent.

But the civilian aircraft trade surplus plunged 44.43 percent – from $3.06 billion to $1.70 billion. So in January, had the sector simply equaled its December trade performance, the January manufacturing deficit would have been not $81.93 billion but $80.57 billion – the lowest total since last March’s $76.96 billion, and a monthly drop of 2.03 percent, not 0.38 percent. Further, manufacturing exports would have been $87.93 billion rather than $86.25 billion – or down only 3.74 percent, not 5.58 percent.

The picture is muddier for manufacturing employment because the data for civilian aircraft and their parts is reported one month after most other industry-by-industry jobs statistics. Another complication: The new jobs report overall goes up to February.

More puzzling still: Although latest statistics for the Boeing-related categories are January, they’re little changed from the December totals even though the 737 Max production suspension was announced in the middle of that month.

But it’s still legit to wonder whether they would’ve been better without the Boeing crisis. And how much better? Moreover, the vast aircraft supply chain encompasses dozens of manufacturing sectors beyond the engines and parts themselves. After all, these systems are in turn made of any number of components and materials. Boeing’s difficulties, therefore, could have been holding back manufacturing job growth broadly speaking for months.

Even so, industry as a whole added 15,000 jobs sequentially in February – it’s best such performance (except for a November increase that was aided by the end of the General Motors strike) since January, 2019’s 20,000.

And let’s not forget – industry achieved this employment gain even though the “Phase One” trade deal with China has left stiff U.S. tariffs on hundreds of billions of dollars worth of imported goods from China, as well as on much foreign steel and aluminum.

No doubt the coronavirus outbreak could send the manufacturing performance arrows pointing down again, or leveling off, in the next few months. But the new jobs and trade data make clear that despite an external (Boeing) shock that has nothing to do with President Trump’s trade wars, and despite the trade curbs he has enacted, domestic manufacturing has been on the rebound lately, and showed impressive resilience that bodes well for its future – and the entire economy’s.