(What’s Left of) Our Economy: A Doubly Bad New U.S. Inflation Report

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consumer inflation, consumers, cost of living, election 2024, Federal Reserve, inflation, PCE, personal consumption expenditures index, {What's Left of) Our Economy

Today’s third official report on U.S. inflation in April (contained in this release) was bad in no fewer than two ways. First, it confirmed the results of its two predecessors, which showed that price increases in America have begun to speed up again after months of some evidence (never terribly convincing IMO) of slowing. Second, the numbers presented in this morning’s release were those for the price index for personal consumption expenditures (PCE) – the preferred gauge of the Federal Reserve, which is Washington’s prime inflation-fighting agency.

So these discouraging statistics seem most likely to convince the Fed to continue its policy of raising interest rates high enough to weaken inflation by weakening U.S. economic growth – which risks creating a recession. Previously, the central bank was strongly hinting that it might pause in the hope that it’s already slowed economic activity enough to tame prices without producing an actual economy-wide slump (that is, engineering a “soft landing”).

Now, justifying a pause has become especially difficult because each of the four inflation measures presented in the PCE report got worse.

Headline month-to-month PCE jumped from an unrevised 0.1 percent in March to 0.4 percent and snapped a two-month string of declining sequental increases. Moreover, that April rise was the biggest since January’s 0.6 percent.

The annual headline PCE figures displayed the same trend but revealed additional bad news as well. April’s 4.4 percent result also snapped a two-month easing streak, and was the hottest annual PCE read since January’s 5.4 percent. The extra bad news? Revisions to these numbers have been slightly negative – meaning in this case that for January and February, annual headline PCE is judged to have been a bit worse than originally reported.

April also saw the end of a two-month stretch of improvement for core PCE, which strips out the results for food and energy costs because they’re volatile for reasons having little or nothing to do with the economy’s fundamental vulnerability to inflation.

The April rate of 0.4 percent was also the highest since January’s (0.6 percent), and revisions have been negative, too.

As for annual core PCE, April’s 4.7 percent pace represented an uptick from March’s 4.6 percent. But contrary to the fluctuations in the other PCE measures, annual core PCE has been stuck in the 4.6 percent-4.7 percent range for every month since last November.

By now, the main reason for all this inflation stickiness should be no mystery at all: Consumers keep spending robustly. Indeed, as always the case, today’s PCE results came along with data on personal consumption. And even when price increases are taken into account, it rebounded in April from a 0.2 percent dip in February and a flatline in March to a 0.5 percent advance.

As a result, since businesses aren’t charities, they’ll keep raising prices as long as their customers make clear their willingness to pay.

No one can doubt that the economy and therefore consumers face some important headwinds. The full effects of the Fed’s economy-slowing steps – which include both interest rate hikes and cuts in the money supply – usually take many months to appear. By all indications, the banking system weaknesses first revealed by the collapses of California-based Silicon Valley Bank and New York City’s Signature Bank are beginning to tighten the credit spigots on consumers and businesses alike. And all that money pumped into consumers’ pockets by the various government stimulus measures passed since the CCP Virus struck the nation in force are running out.

But these funds remain considerable by any realistic standard. Employment levels keep rising past their pre-pandemic peaks, so wages and salaries keep providing households with new cash flow. And even if President Biden accepts every single one of the House Republicans’ budget proposals in the current debt ceiling negotiations, federal discretionary spending (let alone outlays for entitlements like Social Security and Medicare) would continue increasing for most of the 10-year period that will be covered by a final deal. With inflation tailwinds like these blowing, too (supplemented by approaching election year pressures to keep consumers – and therefore voters – happy), I still can’t see how worrisomely high prices and price increases don’t start becoming U.S. economic features, not bugs,

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(What’s Left of) Our Economy: The Latest Upside Surprise for U.S. Manufacturing

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aircraft, aircraft parts, apparel, automotive, computer and electronics products, Federal Reserve, furniture, inflation, inflation-adjusted output, machinery, manufacturing, medical equipment, miscellaneous durable goods, pharmaceuticals, plastics and rubber products, primary metals, recession, {What's Left of) Our Economy

Sorry for the tardiness of this post on the latest official (April) figures for U.S. manufacturing output. Sometimes life gets in the way. But I hope you agree that they’re still worth reviewing because even without a stupendous performance by the automotive sector, they’d have still been solid.  And the more so with domestic-based industry and the entire economy either supposedly headed for recession or already in one.

These results don’t change the recent big-picture description of U.S.-based manufacturing production essentially flat-lining. But it hasn’t experienced a significant drop-off, either.

In fact, the April sequential growth of 1.02 percent in inflation-adjusted terms (what’s measured by these data tracked by the Federal Reserve and what will be used in this post unless otherwise specified) was the strongest since January’s 1.59 percent. And revisions were slightly positive.

And leaving aside the vehicle and parts sectors, April’s increase would have been a highly respectable 0.38 percent.

The April report shows that American manufacturers have now boosted their output by 1.20 percent since February, 2020, just before the state-side arrival in force of the CCP Virus pandemic As of last month, this figure was 0.93 percent.

The biggest April production winners among the broadest industry-specific manufacturing categories monitored by the Fed were:

>automotive, whose blazing 9.30 percent expansion not only was its best since October, 2021’s 10.44 percent but enabled the industry to achieve a new all-time production record. It topped December, 2018’s previous historic high by 1.89 percent.

Automotive output figures, though, can be volatile. Indeed, the strong April advance followed a downwardly revised March tumble of 1.93 percent that was the sector’s worst monthly performance since February, 2022’s 3.37 percent dive. So it’s still far from clear whether April represents a blip or the start of a lengthy upswing.

What is clear that, pending revisions, the April monthly jump pushed automotive production to 1.57 percent above its immediate pre-pandemic level, versus the 0.97 percent calculable last month;

>computer and electronics products, whose 2.15 percent April gain broke a weak spell of four months and stands as the sector’s best performance since its 2.62 percent advance in May, 2021. These industries have now grown by 1.57 percent since immediately pre-pandemic-y February, 2020, versus the 0.97 percent increase calculable last month. This rate seems modest, but computer and electronics products fell off only modestly during the deep CCP Virus-induced economy-wide downturn;

>plastics and rubber products, where production expanded by 1.16 percent in April for the sector’s second straight improvement after a long spell of weakness. In fact, the April results for plastics and rubber products makers was their strongest since February, 2022’s 2.67 percent. But due to some major downward revisions, these industries’ output sank from 0.37 percent below pre-pandemic levels to 2.01 percent below.;

>primary metals, which boosted production by 0.90 percent. But these industries have still shrunk by 2.71 percent during the pandemic era and it aftermath, versus the 2.90 percent calculable last month.

The biggest losers among these broad sectors were:

>miscellaneous durable goods, where output in April tumbled by 1.32 percent in the worst performance by this diverse group of industries since last December’s 1.79 decrease. Miscellaneous durable goods producers have still increased their production by 9.59 percent since February, 2020, but last month, growth during this period was 11.30 percent;

>apparel and leather goods, where production was cut by 0.80 percent, and post-February, 2020 growth was nearly halved – from the 9.12 percent calculable last month to 5.25 percent. Nonetheless, despite this progress, because of decades of penny-wage foreign competition, these sectors remained mere shadows of themselves:

>machinery, whose output decreased by 0.50 percent and extended a three-month losing streak. These results are discouraging because this diverse grouping is a bellwether for the rest of manufacturing and the economy overall, since its products are so widely used for expansion and modernization. Machinery’s poor recent performance has dragged its CCP Virus-era-and-beyond growth from the 5.85 percent calculable last month to 3.54 percent; and

>furniture and related products, whose -0.43 percent April output slip was its sixth retreat in the last seven months. These industries are now 12.43 percent smaller than in just before the CCP Virus’ arrival, versus the 11.49 percent calculable last month.

Manufacturing sectors of special importance since the pandemic began depressing and distorting the economy followed a solid March with a comparably good April.

The global semiconductor sector shortage that began during the virus period has now eased dramatically for most types of chips, and in that vein, it’s no surprise that U.S.-based producers increased output in April for the third straight month. The 2.08 percent improvement pushed the sector’s production 10.54 percent higher since February, 2020, versus the 8.05 percent calculable last month.

April production of pharmaceuticals and medicines – including vaccines – was strong, too, with the 1.06 percent rise representing the best performance since last December’s 1.08 percent. This sector is now 14.57 percent larger than in immediately pre-pandemic-y February, 2020, versus the 13.38 percent calculable last month.

Aircraft and aircraft parts companies boosted their production only fractionally in April, but this marginal gain broke a string of four straight decreases. Even so, a substantial downward March revision helped reduce these firms’ output growth since the pandemic’s arrival state side in force to 7.07 percent, versus the 7.87 percent calculable last month.

The only April loser among this group was the medical equipment and supplies industry. It’s 1.03 percent production drop was the worst since last December’s 1.57 percent, and dragged its virus-era-and-beyond growth from the 14.52 percent calculable last month to 13.02 percent.

With a U.S. recession still a prediction rather than a fact, the economy continuing to show at least decent momentum, and a growing likelihood that the Federal Reserve will pause its campaign of combating inflation with growth-slowing interest rate hikes, it’s difficult to be gloomy about domestic manufacturing’s near-term future. And if the nation’s politicians succumb to their usual election-year temptation to throw more money at businesses and consumers, then industry’s medium-term prospects look pretty good, too.

Of course, if that’s so, it means that inflation will stay high as well. And how long both developments will remain tolerable for businesses, consumers and all the consumers who vote, and the Fed with its inflation-fighting responsibilities, is anyone’s guess.

(What’s Left of) Our Economy: U.S. Wholesale Inflation May Be Rebounding, Too

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baseline effect, consumer price index, CPI, Federal Reserve, inflation, interest rates, monetary policy, PPI, Producer Price Index, quantitative easing, quantitative tightening, wholesale inflation, {What's Left of) Our Economy

It’s not as if yesterday’s official report on U.S. wholesale inflation for April was as troubling as the consumer price figures released the day before. It’s just that it was a marked contrast to the very good previous set of wholesale price figures (the Producer Price Index, or PPI) that came in for March.

At the same time, I keep growing convinced that the PPI results are only secondary for puzzling out the U.S. inflation picture and forecast. Sure, if businesses have to pay higher prices for the goods and services they purchase in order to turn out goods and services for their final customers, they’ll face greater pressures to raise consumer prices.

But as I’ve explained, the extent to which businesses can pass those costs on depends on the spending power of their customers. The fact that inflation at the retail level remains so stubbornly high reveals that they can continue hiking prices for consumers whether their own costs are mounting or not.

As with the latest data on consumer inflation (the Consumer Price Index, or CPI), the worst aspect of the new PPI report has to do with the monthly heat-up of wholesale prices it shows.

Headline wholesale inflation rose sequentially by 0.23 percent in April – the highest monthly increase since January, and the biggest monthly acceleration (0.60 percentage points over March’s worse-than-originally-reported 0.37 percent drop) since January’s 0.72 percentage point change. It’s of some comfort that the revisions for the previous three months were slightly positive.

Core PPI strips out food and energy prices (because they’re volatile for reasons supposedly having little to do with the economy’s vulnerability to inflation) along with a logistics category called “trade services.” And it too quickened sequentially in April, from March’s marginal 0.07 percent increase to one of 0.18 percent.

This result snapped a two-month period of cooling, and revisions were moderately negative.

Meanwhile, baseline analysis makes clear that annual PPI results that look good on the surface still point to significant business confidence that customers retain plenty of purchasing power left, and that therefore they have plenty of pricing power left.

Headline PPI in April rose 2.38 percent on an annual basis – both the weakest rate since the 1.68 percent of January, 2021, and a big decline from March’s 2.75 percent increase (which was revised down from 2.79 percent). Even better, this yearly slowdown was the tenth in a row.

But that January, 2021 annual increase was coming off a PPI rise between January, 2019 and January, 2020 of just 1.97 percent. So during that latter year (ending just before the CCP Virus arrived stateside in force and began distorting the economy), wholesale inflation was increasing at a sluggish and steady pace. In other words, business’ views of its pricing power weren’t changing much, and indeed, that had been the case for decades before this current bout of inflation.

The baseline figure for the new April results, however, was 11.08 percent. The clear implication: After jacking up prices spectacularly between April, 2021 and April, 2022, businesses felt free over the following year to hike them at a rate that had slowed, but was still abnormally fast by pre-pandemic standards.

Ditto on nearly every count for core PPI. This measure of wholesale inflation was up annually in April by 3.37 percent – the best result since the 3.15 percent of March, 2021. The deceleration from March’s 3.70 percent (revised just a bit upward from the initially reported 3.67 percent) was encouraging, too – even though the “win streak” only dates from February.

Again, however, the March, 2021 baseline figure was just one percent – because wholesale prices began falling in absolute terms in March, 2020 – as the pandemic began hammering economic activity and thus the demand for goods and services. In early 2021, therefore, businesses were displaying some renewed optimism in their wholesale pricing power for core goods and services, but their enthusiasm was decidedly curbed.

The new April baseline? A robust 6.74 percent. To be sure, that’s a sizable improvement over the March, 2023 results – when the baseline for the 3.70 percent yearly worsening of the PPI followed a previous year’s jump of an even higher 7.06 percent. But I’m still more impressed by how strong business pricing power confidence remains.

As usual, one month’s worth of data does not a trend make – whether we’re talking monthly or annual changes. But over the last year, we’ve seen a stretch of historically steep Federal Reserve rate hikes and a roughly simultaneous reversal of the Fed’s stimulative bond-buying program (in which the unprecedented “quantitative easing,” or QE, pursued since Global Financial Crisis days has turned into “quantitative tightening,” or QT).

If both wholesale and consumer inflation still remain as stubborn as they have, those are signs that they’ll persist until the economy slows dramatically going forward, and even until these central bank policies actually do manage to trigger a recession.

(What’s Left of) Our Economy: Signs That Inflation Might Have Stopped Cooling

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banking crisis, banking system, baseline effect, consumer price index, cost of living, CPI, election 2024, Federal Reserve, green manufacturing, inflation, infrastructure, monetary policy, PPI, Producer Price Index, semiconductors, stimulus, {What's Left of) Our Economy

This morning the Labor Department reported U.S. consumer inflation figures that investors, after an initial burst of enthusiasm, now (as of mid-day trading) seem to recognize as pretty disappointing.

For when it comes to the new April results for the Consumer Price Index (CPI), there isn’t even any need to use baseline analysis – which adds crucial context to the annual numbers – to identify significant reasons for pessimism. That’s because both measures showed monthly acceleration.

Headline CPI rose in April sequentially by 0.37 percent. The rate of increase quickened for the first time in three months, and the difference between it as March’s 0.05 percent (the best such figure since last July’s 0.03 percent dip) was the greatest in absolTute terms since the 0.52 percentage point jump between last April and May.

Core CPI strips out food and energy prices because they’re volatile supposedly for reasons having little to do with the economy’s overall prone-ness to inflation. In April, it didn’t speed up over March’s pace as much as headline inflation, but it still resumed climbing faster after slowing down for the first time in four months. Plus, the 0.41 percent sequential rise was one of the higher rates lately.

The story for April’s annual CPI increases was better, but just marginally so. And using baseline analysis (which entails comparing back-to-back annual increases in order to determine whether inflation is genuinely gaining or losing momentum over these longer periods) barely brightens the picture.

April’s slowing annual headline CPI was the tenth straight, and brought the rate to 4.96 percent – it’s lowest since May, 2021’s 4.92 percent. The sequential improvement over March’s 4.99 percent annual increase was pretty skimpy, though.

And now for the baseline analyis. Both the March and April, 2021-22 annual CPI increases were well north of a torrid eight percent. So businesses feeling free to raise prices another nearly five percent on top of that indicates continued real confidence in their pricing power.

That’s especially apparent upon realizing that the baseline figure for May, 2021’s 4.92 percent annual inflation was just 0.23 percent – because it stemmed from early in during the devastating first wave of the CCP Virus pandemic, when the economy was still such deep trouble and consumer demand so weak that businesses on average had almost no pricing power.

It’s also discouraging that between this March and April, annual CPI fell less (0.03 percentage points) than it fell between last March and April (0.28 percentage points). If businesses were losing significant pricing power between last spring and this spring, we’d have been the opposite results.

No baseline analysis is needed to show how unexciting the new annual core inflation figure is. At 5.60 percent in April, it was (a bit) lower than March’s 5.60 percent. But with January and February having come in at 5.55 percent and 5.53 percent, it’s plainly stayed in the same neighborhood so far all of 2023.

As has been the case in recent months, the future of U.S. consumer inflation is still going to be determined by a free-for-all among:

>the Federal Reserve’s determination to force inflation down further, and even risk of recession, by growth-slowing monetary policy moves;

>the ongoing growth impact of Fed measures already taken;

>the countervailing effect of more cautious bank lending resulting from the turmoil in the ranks of small and mid-sized institutions;  

>the economic strength that can be expected from the amount of fuel available for consumer spending (despite higher borrowing costs) that’s coming from very high employment levels, and from remaining CCP Virus stimulus funds in households’ bank accounts; 

>major, stimulative government spending that’s starting to flow in to the economy from the impressive legislative victories won by President Biden on infrastructure, green manufacturing, and semiconductors; and

>the powerful temptation politicians facing reelection tend to feel to keep voters happy with yet more spending, or tax cuts, or some combination of both.

I’m still betting that the inflation-boosting forces win out, and that we’ll get some more evidence tomorrow when the Labor Department releases data on the prices businesses charge each other to supply their customers (the Producer Price Index or PPI). And that’s even though those monthly numbers are telling us that consumer inflation may not even be cooling anymore.   

(What’s Left of) Our Economy: U.S. Inflation Stays in a (High) Holding Pattern

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{What's Left of) Our Economy, inflation, recession, Federal Reserve, PCE, personal consumption expenditures index, baseline effect, core PCE

Today’s official U.S. inflation figures (for March) added up to another “more of the same” report. And since they’re the data taken most seriously by the Federal Reserve (the federal government’s main fighter against the multi-decade high prices and price increases the nation has experienced lately) that probably means that it will stay on what seems to be its current current inflation-fighting course. That is, expect it to keep credit much tighter than it had been in many years – at least until it becomes clear that this growth-slowing effort drags the economy into a recession.

The best news contained in this release on the Personal Consumption Expenditures Prices Indices (PCE – which are measures of consumer, not wholesale, inflation) was the monthly drop-off in the headline number. It fell from 0.3 percent in February to 0.1 percent, its weakest advance since last July.

The core PCE result (which strips out food and energy prices supposedly because they’re volatile for reasons largely unrelated to the economy’s fundamental vulnerability to inflation) wasn’t quite so encouraging. March’s 0.3 percent sequential increase matched the February rise, and was unexceptional by recent standards.

The annual results paint a similar picture – but also make possible the baseline analysis needed to make clear the essential context. And it continues to support inflation-success pessimism unless the economy really tanks. The New York Times just provided a good explanation of how such analysis illuminates why today’s superficially easing price increases are at least as troubling as earlier, stronger hikes.

In the first months of the current inflationary surge, the data “were being measured against pandemic-depressed numbers from the year before, which made the new figures look elevated. But by the end of summer 2021, it was clear that something more fundamental was happening with prices.”

That’s because the year-before comparison numbers (the baseline) had gotten considerably higher. And since inflation rates stayed lofty, the obvious conclusion has been that robust price increases were no longer something of a statistical illusion that would turn out to be “transitory” (as the Fed, among many, predicted) once the economy returned to a quasi-normal post-CCP Virus condition. Instead, other drivers of heated inflation had emerged, and unless they were addressed, prices would keep displaying dangerous momentum.

So we can still hold the applause upon learning, as we did in this morning’s PCE report, that yearly headline inflation had tumbled from 5.1 percent in February (revised up from five percent) to 4.2 percent.

Yes, that’s the best such figure since August, 2021’s matching figure. But that August, 2021 baseline figure was 1.4 percent between August, 2019 and August, 2020. This latest March baseline figure? A 6.6 inflation rate that’s more than four times higher. So obviously businesses believe they still have plenty of pricing power, and will continue to raise prices till they’re proven wrong.

The core annual PCE result was even more discouraging. Between February and March, it stayed at 4.6 percent. (To be sure, the February number has been revised down from a,n initially reported 4.7 percent.)

So although that’s still the slowest annual core PCE increase since October, 2021’s 4.2 percent, the baseline figure for the latter was just 1.4 percent, whereas for last month’s figure, it was 5.2 percent. Again, it looks like businesses have been confident that they can keep charging their customers much more.

Interestingly, the same government release containing the PCE inflation figures also indicated that consumers might finally be balking at high prices (supporting the adage that a sure cure for high prices is high prices). Their spending has slowed notably since January. But I’m still betting that a Fed reluctant to create a downturn and politicians determined to keep voters’ finances buoyant as another presidential election approaches will ride to their rescue, and keep inflation higher than virtually anyone wants.          

(What’s Left of) Our Economy: The Real Trade Deficit at a Crossroads

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exports, Federal Reserve, GDP, goods trade, gross domestic product, imports, inflation, inflation-adjusted growth, real GDP, real trade deficit, recession, services trade, Trade, trade deficit, {What's Left of) Our Economy

Today’s first official estimate of U.S. economic growth in the first quarter of this year was one of the most peculiar reports in this series I can remember.

On the one hand, this read (which will be revised twice in the next two months) showed a 1.06 percent improvement after inflation at annual rates in America’s gross domestic product (GDP – the standard measure of an economy’s size). That’s a marked slowdown from the fourth quarter’s 2.55 percent real annualized growth. So not great economic news.

On the other hand, price-adjusted GDP still grew, and the price-adjusted total trade deficit slipped. In fact, it shrank for the third straight time while the economy expanded. That kind of streak hasn’t been seen since the period between the first and fourth quarters of 2007 – just before the arrival of the Great Recession spurred by the Global Financial Crisis.

Despite that reference, that’s encouraging economic news, since it indicates that the growth, however measly per se, remained healthy quality-wise. In other words, it stemmed more from producing than from spending – the opposite result from the typical consumption-led growth pattern usually signaled by a widening rising trade gap.

Specifically, in the first quarter, the constant dollar goods and services trade deficit dipped by 0.23 percent, from the fourth quarter’s inflation-adjusted $1.2386 trillion to $1.2358 trillion. (After-inflation figures at annual rates will be the measure used in this post unless otherwise specified.) The drop was also the fourth straight sequential decrease of any kind – which hadn’t happened since the year between the second quarters of 2019 and 2020.  The end of that period, of course, is when the economy began suffering the effects of the CCP Virus. And the new level is the lowest since the $1.2309 trillion recorded in the second quarter of 2021.

The first quarter deficit represented 6.08 percent of the after-inflation GDP – down from the fourth quarter’s 6.14 percent and also the lowest such figure since the second quarter of 2021 (6.06 percent). All these numbers are way below the record of 7.47 percent in the first quarter of 2022.

Not surprisingly, though, the slight contraction in the overall trade deficit contributed little to first quarter growth either in absolute or relative terms – fueling just 0.11 percentage points of the 1.06 percent advance. In the fourth quarter, the reduction in the goods and services deficit accounted for 0.42 percentage points of the 2.55 percent growth.

The first quarter data left the total trade shortfall 48.39 percent greater than the amount in the fourth quarter of 2019 – the final full data quarter before the pandemic arrived stateside in force. As of the fourth quarter, it had been 48.73 percent higher.

Total exports climbed in the first quarter by 1.18 percent, from $2.5796 trillion to a new record $2.6101 trillion. The first quarter result topped the previous all-time high of $2.6041 trillion (in the third quarter of last year) by 0.23 percent. These overseas sales have now increased by 1.49 percent since that immediately pre-pandemic-y fourth quarter of 2019. As of last year’s fourth quarter, they were a bare 0.30 percent higher.

Total imports in the first quarter rose for the first time in three quarters – by 0.73 percent, from $3.2830 trillion to $3.8460 trillion. These purchases now top the fourth quarter, 2019 total by 12.96 percent. As of the fourth quarter of last year, they were up by 12.14 percent.

The trade shortfall in goods dipped by 1.09 percent sequentially, from $1.4182 trillion to $1.4028 trillion. This fourth straight decrease matched that of the span between the second quarters of 2019 and pandemic-ridden 2020, and the level was the lowest since the $1.3965 trillion from the second quarter of 2021. This deficit is now 31.52 percent greater than just before the CCP Virus began roiling the economy, versus 32.96 percent growth as of the fourth quarter of 2022.

Goods exports reached an all-time high as well, increasing from the fourth quarter’s $1.8468 trillion to $1.9098 trillion. The old record of $1.9010 trillion in the third quarter of 2022 was 0.46 percent lower. These exports have now risen by 6.90 percent since the last pre-pandemic fourth quarter of 2019, versus the 4.38 percent growth as of last year’s fourth quarter.

As with total imports, goods imports rose for the first time in three quarters, too. The advance was 0.73 percent, from $3.8182 trillion to $3.8460 trillion, and it brought the post-fourth quarter, 2019 increase to 12.96 percent. As of last year’s fourth quarter, the increase was 12.14 percent.

The surplus in services trade, a major CCP Virus-era victim, sank in the first quarter sequentially from $177.7 billion to $167.7 billion. The 5.63 percent pull-back was the biggest since the 20.94 percent nosedive in the second quarter of 2021. Yet it also followed big third and fourth quarter jumps of 9.44 percent and 8.69 percent, respectively.

Still, the services surplus is down 28.88 percent since the fourth quarter of 2019, versus the 24.64 percent fall-off as of fourth quarter, 2022.

Services exports fell 1.41 percent in the first quarter, from $731.4 billion to $721.1 billion. This decrease was the first since the second quarter of 2020 – the first quarter heavily affected by the virus. Consequently, these sales are off by 8.35 percent since the last pre-pandemic quarter, versus the 7.04 percent calculable as of last year’s fourth quarter.

Services imports contracted only from $553.7 billion to $553.4 billion, but the decrease was the third straight. These purchases have now risen by 0.44 percent since the arrival of the CCP Virus in force, versus the 0.49 percent calculable as of the previous quarter.

With the new feeble first quarter growth figure seeming to indicate surging odds of an imminent recession, the real trade gap presumably will keep narrowing, too. But the economy is still being distorted by the virus and Washington’s roller-coaster responses.

As I’ve written, the current slowdown – due to the Federal Reserve’s inflation-fighting efforts – could well stabilize and even reverse itself if the central bank pauses or ends its credit tightening for fear of bringing on a hard landing, and if politicians succumb to election-year temptations to keep voters happy with added government spending. In that case (the one I consider likeliest), the real trade deficit could well be headed higher once again, too.    

 

(What’s Left of) Our Economy: New Official Data Show U.S. Manufacturing Spinning its Wheels

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aerospace, aircraft, aircraft parts, apparel, appliances, automotive, CCP Virus, coronavirus, COVID 19, electrical components, electrical equipment, Federal Reserve, industrial production, inflation-adjusted output, machinery, manufacturing, medical devices, medicines, miscellaneous transportation equipment, non-metallic mineral products, paper, petroleum and coal products, pharmaceuticals, plastics and rubber products, real growth, recession, semiconductors, stimulus, wood products, {What's Left of) Our Economy

Including some long-term “benchmark” revisions issued late last month, today’s Federal Reserve figures show that U.S. manufacturing output after inflation fell sequentially in March for the first time in three months.

The drop followed upgraded results for January and February, but even with those latest longer term revisions, the more important takeaway is that as of March now, price-adjusted manufacturing production (the measure used by the Fed, and the one that will be used in this release unless specified otherwise) was virtually unchanged over the past year.

And since February, 2020, just before the state-side arrival in force of the CCP Virus pandemic, industry has now grown by just 0.93 percent. Last month’s pre-benchmark Fed report pegged this increase at 1.65 percent.

For some longer term perspective, the new Fed statistics tell us that since peaking way back in December, 2007, American manufacturing production is down 5.98 percent. As of the last pre-benchmark release, this shrinkage was 5.30 percent. So domestic industry’s decade-and-half-plus slump has been slightly worse than previously estimated.

Back to the most recent numbers, only eight of the twenty biggest individual industry sectors tracked by the Fed expanded production on month in March. The biggest winners were:

>the very small apparel and leather goods industries, where production jumped sequentially in March by 1.96 percent. Although hammered and greatly diminished by decades of penny-wage foreign competition, output by these companies is now up 9.12 percent since just before America’s pandemic era began, versus the 8.02 percent calculable last month;

>petroleum and coal products, whose output expanded in March for a fourth straight month, and whose by 1.29 percent advance was the strongest since the 2.34 percent surge last September. Petroleum and coal products production is now 3.88 percent off its immediate pre-pandemic level, versus being 1.41 percent higher as of last month’s Fed release;

>paper manufacturing, which grew by 0.78 percent in March for its best monthly gain since November’s 1.64 percent increase. Since February, 2020, this sector has contracted by 6.33 percent – a big decrease but much better than the 13.69 percent plunge calculable last month;

>aerospace and miscellaneous transportation, where the March increase of 0.73 percent was the fist gain since last August. Production is now 6.84 percent higher than immediately prior to the pandemic’s state-side arrival in force, much lower than the 23.06 percent gain calculable last month; and

>plastics and rubber products, where production also improved by 0.73 percent in the sector’s best advance since February, 2022’s 2.67 percent burst. These sectors’ output moved to within 0.37 percent of it immediate pre-pandemic level, much closer than the 5.62 percent shortfall calculable last month.

The biggest losers of these big sectors were:

>wood products, which saw output plunge by 2.90 percent in March. And that wasn’t even its worst recent setback – that dubious honor goes to December’s 3.18 percent drop. These dismal results dragge wood products production down to 5.46 percent below its February, 2020 level, versus the 2.49 percent calculable last month;

>non-metallic mineral product, where production decreased for the first time in four months. But the 2.56 percent sequential retreat was the sector’s worst since the 4.01 percent crater in winter-affected 2021. Thanks to the rest of the benchmark revision, though, output of non-metallic mineral products is now actually up by 6.95 percent post-CCP Virus, versus the 2.67 percent calculable last month;

>electrical equipment, appliance, and component, a 1.71 percent production loser in its weakest monthly performance since November’s 2.83 percent tumble. Output in this diverse sector slipped to being up just 0.56 percent since immediately pre-pandemic-y February, 2020 versus the 4.32 gain calculable last month; and

>automotive, whose fortunes have been central to those of domestic manufacturing overall during these last challenging years. Its 1.48 percent March production drop was the greatest since last November as well (2.09 percent). This setbacks plus other benchmark revisions have pushed output of vehicles and parts down to 5.14 percent below February, 2020 levels. As of last month’s Fed release, they were 0.12 higher.

Output drooped in another manufacturing sector of unusual importance – machinery. Its products are used widely throughout the rest of industry and the economy that its production performance suggests whether the American corporate sector overall has decided to expand and modernize or whether its views the future more pessimistically.

Machinery’s March output dip of 0.68 percent, therefore, could be a negative indicator. At the same time, the decline was the first in three months – so maybe it’s a hiccup. Machinery production has now grown by 5.85 percet since the CCP Virus’ arrival in force state-side, slightly better than the 5.54 percent calculable last month.

Although President Biden has just declared the pandemic to be officially over, manufacturing sectors of special importance during this period fared well in March.

The global semiconductor industry that was plagued by shortages for so long now seems to be in full glut mode – except for the auto sector, whose chip supply reportedly is still spotty. Domestic output climbed 0.55 percent in March for its second straight monthly improvement. Slated to receive tens of billions of dollars worth of production subsidies from Washington going forward, semiconductor manufacturers have now raised their virus-era production by 8.05 percent since February, 2020 – a startling turnabout from the 7.83 percent decrease calculable last month.

Despite the pandemic’s steady fade over the last year, companies in medical equipment and supplies kept increasing production, and March’s advance of 0.43 percent was the third straight month of increases. Since the start of the pandemic era, their output has risen by 14.59 percent, versus the 10.52 percent calculable last month.

Production in pharmaceuticals and medicines – including vaccines – gained another 0.38 percent in March. Nonetheless, due to those benchmark revisions, its output is now estimated to be 13.38 percent greater than just before the pandemic’s arrival, down considerably from the 20.42 percent increase calculable last month.

Aircraft and aircraft parts companies kept benefiting from the post-pandemic rebound in travel, and turned out 0.35 percent more products in March than in February. But again, revisions resulted in a startling downgrade in post-February output figures – from the 30.19 percent increase calculable last month to just 7.87 percent.

What to expect going forward for manufacturing output?  As discussed for the entire economy in my latest post on consumer inflation, gloomy for the short-term (as signs of an impending slowdown and even recession mount) but brighter longer term (mainly because politicians won’t be able to resist the temptation to keep voters happy by propping up their purchasing power – which should create more demand for manufactured goods, too).    

(What’s Left of) Our Economy: A Welcome, but Probably Temporary, Inflation Respite

Tags

baseline effect, consumer price index, core inflation, CPI, election 2024, energy prices, Federal Reserve, food prices, gas prices, inflation, interest rates, monetary policy, OPEC, Organization of Petroleum Exporting Countries, stimulus, Strategic Petroleum Reserve, {What's Left of) Our Economy

The titanic and therefore often unpredictable U.S. economy served up its second straight month’s worth of ambiguous inflation figures in March, according to today’s official figures. Encouragingly, though, the latest ambiguity in the new Consumer Price Index (CPI) report was more genuinely ambiguous than last month’s, which I wrote tilted toward the downbeat. And that’s the case even if you take into account baseline effects, which put monthly and annual developments into a necessary broader context.

At the same time, the outsized role played by falling energy prices in March, along with political considerations I’ve been citing recently, raise major questions as to how sustainable positive developments might be.

The good news came in headline inflation. The sequential change in March was just 0.05 percent – the best such performance since last July’s 0.03 headline CPI price dip. The rate of decrease compared with February’s 0.37 percent monthly rise was the biggest sequential drop since last July, too.

On an annual basis, headline consumer inflation was up 4.99 percent in March. On top of being the slowest yearly increase since the 4.92 percent recorded in May, 2021, this number was the ninth consecutive decrease. Further, the difference between it and February’s 5.98 percent yearly decline was the greatest in absolute and percentage terms since the peak of the devastating first wave of the CCP Virus pandemic. Between March and April, 2020, annual CPI plummeted from 1.54 percent to 0.35 percent.

Baseline analysis reveals that in May, 2021, when annual consumer inflation was running at the aforementioned rate of 4.92 percent, the figure for the previous Mays was just 0.23 percent. So the fact that the baseline figure for last month’s 4.99 percent year-on-year CPI climb was a red hot 8.52 percent looks  discouraging. Ordinarily, I’d view that development as a clear sign that businesses still believe they’re flush with pricing power, and that the inflation outlook going forward is gloomy.

But the first baseline comparison dates from that peak pandemic period when the economy was literally in free fall. The nation may not be back to normal yet, but it’s sure a lot closer. So I’m much more impressed with the facts that the yearly inflation between this February and March improved much faster (from 5.98 percent to 4.99 percent) than their baseline figures worsened (from 7.95 percent to 8.52 percent).

Since the peak of the pandemic, these two numbers have moved like this only once – last December, when annual headline CPI fell by 0.70 percentage points while its baseline figure increased by just 0.33 percentage points.

A very different picture unfortunately emerges from the core CPI results, which strip out food and energy prices because they’re supposedly volatile for reasons having essentially nothing to do with the economy’s fundamental inflation prone-ness.

Monthly core consumer inflation came down from February’s 0.45 percent to 0.38 percent in March. The sequential fall-off was the first since November, but the rate of price increases remained on the high side.

The annual figures were considerably worse. March’s yearly core CPI of 5.60 percent represented the first increase since last September, and the hottest such result since December’s 5.68 percent.

And baseline analysis offers no consolation. February’s 5.53 percent yearly core inflation increase followed a robust 6.43 percent rise between the previous Februarys, and March’s higher 5.60 percent increase followed an also higher 6.45 percent baseline rate since the previous March. Clearly businesses in general outside the food and energy sectors think they retain plenty of pricing power, too.

Moreover, as indicated above, there’s little reason to expect continued cooling of headline inflation in particular. After all, energy prices led the improvements, tumbling by 3.5 percent between February and March, and by 6.4 percent between March, 2022 and last month.

But gasoline prices have been rising for at least a month, according to the AAA because the OPEC (Organization of Petroleum Exporting Countries) cartel decided earlier this month to cut production. And don’t expect the Biden administration to resume releasing oil supplies from the nation’s Strategic Petroleum Reserve to compensate. At this point, its plans call for replenishing these supplies – which would tighten the oil market all else equal. Morever, even though the end of cold weather will ease pressures on heating oil prices, this year’s mild winter was restraining them to begin with. And the approach of summer driving season should buoy pump prices further.

In addition, and perhaps most important, although they’ve spent down more than half the excess savings they accumulated from pandemic stimulus and their own voluntary spending cuts, Americans’ spending is still holding up reasonably. So businesses are likely to take advantage and keep charging them more.

Can headwinds be detected? You bet. Consumers are showing signs of more caution (see, e.g., here) precisely because living costs are up so much, because the job market has been softening (see, in particular, the revisions mentioned here) , and because the economy may be (finally) slowing. Further, credit already appears to be tightening due both to the Federal Reserve’s anti-inflation interest rate hikes and to the recent outbreak of banking jitters and the advent of tighter lending restrictions on many lending institutions.

But I’m still convinced that these headwinds will abate – and even turn into tailwinds – because politicians will want to prop up the economy as a president election approaches, and because the Federal Reserve may chicken out of risking creating a recession with its tight monetary policies. So enjoy this latest minimally acceptable official consumer inflation report while you can. 

(What’s Left of) Our Economy: The New Official Data Seem to Portend Still Higher U.S. Trade Deficits

Tags

Advanced Technology Products, ATP, banking crisis, China, election 2024, exports, Federal Reserve, imports, inflation, Made in Washington trade deficit, manufacturing, monetary policy, non-oil goods trade, stimulus, Trade, Trade Deficits, {What's Left of) Our Economy

Yesterday’s official report on U.S. trade flows (for February) almost eerily resembled its January predecessor. Change generally was modest in the broadest categories of trade balances, exports, and imports tracked by the U.S. Census Bureau. But numerous developments in the narrower categories were more dramatic, including a new record (in services trade), and some monthly results that haven’t been seen since the peak of the CCP Virus in early spring, 2020.

And another key way in which the February data resemble January’s:  They appear to support the case that the U.S. trade deficit is on an upward path again – and this despite mounting signs that economic growth is slowing (which all else equal should reduce the shortfall).    

The services best came on the export side, with these overseas sales rising from an upwardly revised $80.31 billion to an all-time high of $81.97 billion. This total surpassed the old mark of $81.32 billion (set in December) by 0.81 percent. And the sequential rate of increase (2.08 percent) was the fastest since last April’s 3.31 percent jump.

More broadly, the total trade deficit rose in February for the third straight month. But the increase – from an upwardly revised $68.66 billion to $70.54 billion – was an unexceptional 2.46 percent. At the same time, the figure was the highest since last October’s $77.16 billion.

The trade gap in goods widened, too, by three percent, from an upwardly revised $90.27 billion to $92.98 billion. This total was also the biggest since October ($98.62 billion).

A much better performance was turned in by services trade. Its longstanding surplus was up 3.86 percent sequentially in February, from a downwardly revised $21.61 billion to $22.44 billion.

Combined goods and services exports retreated from January’s upgraded $258.01 billion (the best such result since September’s $259.14 billion) to $251.15 billion. The decline was the fifth in the last six months and its 2.66 percent pace was the fastest since the 20.20 percent nosedive back in April, 2020 – well into the deep depression triggered by the devastating first wave of the CCP Virus.

Goods exports sank in February, too – also for the fifth time in the last six months, from a downwardly revised $177.70 billion to $169.18 billion. And the 4.80 percent sequential tumble was also the worst since pandemic-dominated April, 2020 – when they plummeted by 25.25 percent.

Total U.S. imports dipped by 1.53 percent on month in February, from an upwardly revised $3.26.67 billion to $321.69 billion. The decrease was the first since last November and the biggest since that month’s 6.34 percent.

The same story held for goods imports, which slipped by 2.17 percent month-to-month in February, from an upwardly revised $267.97 billion to $262.15 billion. This decline was also the first and biggest since last November (when they plunged by 7.38 percent.

Services imports not only grew by 1.42 percent sequentially in February, by $58.70 billion to $59.33 billion. They also were up from a January level that was revised up by a hefty 1.37 percent. The February number was just shy of the record $59.55 billion set last September.

The non-oil goods deficit inched just 0.29 percent in February, from $91.85 billion to $92.13 billion. It’s always worth following both because

>as known by RealityChek regulars, it can be considered the Made in Washington trade deficit, since non-oil goods are the trade flows most heavily influenced by U.S. trade agreements and other trade policy decision; and

>because it’s the closest global proxy for U.S.-China goods trade. As a result, comparing trends in the two can indicate the effectiveness of the Trump-Biden China tariffs, which cover hundreds of billions of dollars worth of Chinese products aimed at the U.S. market.

So in this vein, it’s more than a little interesting that the chronic and enormous American goods shortfall with the People’s Republic plummeted by fully 24.28 percent on month in February, from $25.16 billion to $19.00 billion. This new level is the lowest since pandemic-y March, 2020’s $11.71 billion, and the monthly decrease the fastest since last November’s 26.23 percent.

In February, U.S. goods exports to China fell for the fourth straight month – by 11.26 percent, from $13.09 billion to $11.62 billion. And that total is the worst since last April’s $11.20 billion.

The February fall-off in U.S. goods imports from China was the first in three months. Moreover, the 19.95 percent drop, from $38.25 billion to $30.62 billion, was the biggest since the 31.48 percent recorded in February, 2020, which was the peak of China’s (and the world’s) first covid wave.

Another big – and encouraging – move was made by U.S. manufacturing. It’s also chronic and huge trade gap narrowed for the third time in the last four months, from $116.83 billion to $100.05 billion. The 14.36 percent sequential fall-off was the biggest since the 23.09 percent in that peak-China covid February, 2020, and the monthly total the smallest since February, 2021’s $89.29 billion.

Manufacturing exports were down by 4.36 percent, from $105.71 billion to $102.52 billion. That figure is the weakest since last February’s $94.55 billion.

The February manufacturing imports decrease was nearly twice as fast – 9.69 percent, from $219.36 billion to a $198.10 billion level that’s the lowest since April, 2021’s $198.06 billion.

Consistent with the China and especially manufacturing results, the trade deficit in advanced technology products (ATP) saw its fourth straight contraction in February, too – specifically by 0.73 percent, from $16.35 billion to $16.23 billion. That total is the lowest since last February’s $13.42 billion.

ATP exports retreated for the second straight month – by 9.20 percent, from $32.07 billion to $29.12 billion. The decrease was the biggest since November’s ten percent, and brought these foreign sales to their lowest level since last February’s $29.02 billion.

Another four-month decline streak was registered by ATP imports, which dropped from $48.42 billion to $45.35 billion. This total was also the lowest since last February’s $42.44 billion, indicating that ATP trade is partly shaped by seasonal influences.

The February bilateral trade figures for some major U.S. trade partners reminded again of how volatile these flows can be (partly because of small absolute numbers of course).

America’s goods trade surplus with the United Kingdom (UK), for example, cratered by 68.40 percent on month, from $2.74 billion to $870 million. This total was the worst (for the United States) since the UK ran a $140 million surplus last June. The percentage change was the biggest since then, too.

But this nosedive followed the U.S. surplus’ 80.47 percent increase to that January $2.74 billion total that was a new all-time best, eclipsing the old mark of $1.87 billion from immediately pre-pandemic-y February, 2020 by 47.40 percent.

The U.S. goods deficit with France, however, fell by 57.86 percent on month in February, from $1.17 billion to $490 million. This shortfall was the smallest since last September’s $470 million, and the decrease was the bigest since last May’s 66.09 percent.

The U.S. surplus with the Netherlands sank by 42.46 percent, from $3.20 billion to $1.84 billion. This figure was the lowest since January, 2022’s $1.79 billion and the biggest decrease since last November’s 42.86 percent.

The trade gap with Thailand was down 35.68 percent sequentially, from $3.74 billion to $2.40 billion. This February number is the lowest monthly level since February, 2021’s $2.23 billion, and the fall-off the greatest since the 40.60 percent in November, 2006 – when bilateral trade was much more meager.

Finally, the longstanding U.S. goods gap with India narrowed by 33.61 percent, from $4.99 to $3.31 billion. This total was the lowest only since December’s $2.41 billion. But the decline was the biggest since February, 2021’s 34.09 percent. And it followed a more than doubling (106.51 percent) of the shortfall in January that was the biggest since January, 2019’s 224.17 percent.

Just as the overall February U.S. trade results closely tracked those of January, the deficit outlook does, too. That’s largely because the developments pointing to more American import-attracting spending (like politicans’ temptation to stimulate the economy as a new presidential election approaches and what I’m increasingly convinced is a determination by the Federal Reserve to back off its recession-threatening inflation fight) look stronger than those signaling less of that spending (like an economic weakening that looks likelier principally because of the lagged effect of the monetary tightening already begun by the Fed, and because a credit crunch will likely emerge due to the recent banking jitters).

Add in ongoing and possibly greater weakening of the global economy – which will undermine U.S. exports – and it’s easy to see why higher U.S. trade deficits seem in the offing.

(What’s Left of) Our Economy: The New U.S. GDP Figures Remained a Mixed Bag on Trade

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banking crisis, consumers, consumption, exports, Federal Reserve, GDP, goods trade, gross domestic product, imports, inflation, inflation-adjusted growth, interest rates, monetary policy, real GDP, real trade deficit, services trade, Trade, trade deficit, {What's Left of) Our Economy

The third (and final for now) official read on U.S. economic growth in the fourth quarter of last year and full-year 2022 came in on Thursday, and the trade results strongly resembled those of the first and second reports on the increase in the gross domestic product (GDP): definite progress on reducing the ginormous trade deficit on a quarterly basis, but backsliding on an annual basis.

The one area in which revisions were noteworthy: services trade, which was hit so hard by the CCP Virus and consequent limits on in-person service industries, and which most economists agree is harder to measure than goods trade.

As with my last two posts on the trade highlights of these growth reports, we’ll start with the quarterly figures – and present them in inflation-adjusted annualized terms (those most closely followed by GDP observers) except when otherwise specified.

The new data show that the combined goods and services trade deficit contracted by 2.38 percent sequentially in the fourth quarter – from $1.2688 trillion to $1.2386 trillion. The previous report pegged this shrinkage at 2.40 percent (to $1.2384 trillion). So the latest revision was a slight improvement.

Moreover, these numbers mean that the deficit still fell for the third consecutive quarter – the first such span since the period from the second quarter of 2019 through the second quarter of 2020. And the statistics are still especially heartening since that stretch includes the CCP Virus’ arrival in the United States, which naturally depressed imports and the trade deficit by crushing the entire economy, including of course demand for all goods and services, By contrast, during last year’s third and fourth quarters, the economy expanded.

In fact, that two-quarter stretch of the economy expanding and the trade deficit decreasing was the longest since the span between the second quarter of 2019 and the first quarter of 2020. This combination signals growth relying more on the healthy recipe of investing and producing rather than on the crutch of borrowing and spending.

Moreover, the new fourth quarter level of $1.2386 trillion for the overall trade gap remains the lowest since the $1.2039 trillion recorded in the second quarter of 2021. The only discouraging note: During the second and third quarters of last year, the shortfall declined because exports rose and imports fell – the best of all possible trade flow worlds. During the fourth quarter, however, although both exports and imports retreated.

Also, the combined goods and services deficit is now 48.73 percent larger than in the fourth quarter of 2019 – the last quarter before the pandemic arrived state-side in force and began roiling and distorting economic activity. That’s a bit higher than calculable from last month’s GDP release (47.98 percent) but a sizable improvement over the 52.35 percent growth as of the third quarter.

Because the total trade deficit inched up from the second to the third GDP reports, so did its share of after-inflation GDP – from 6.13 percent to 6.14 percent. But this figure was higher in the third quarter (6.33 percent), and the fourth quarter result is still well below the record 7.47 percent, reached in the first quarter of 2022.

As a contributor to fourth quarter growth, trade decreased in both relative and absolute terms over the results from the second GDP read – from having added 0.46 percentage points (17.36 percent) to a 2.65 percent sequential expansion to accounting for 0.42 percentage points (16.47 percent) of 2.55 percent quarterly growth.

Both sets of figures, though, are way off their third quarter counterparts – when trade fueled nearly all (2.86 percentage points) of 3.20 percent growth. That was the biggest absolute amount in 42 years, though far from a long-term high in relative terms.

Put differently, had the deficit not changed from the second to third GDP releases for the fourth quarter, the economy would have grown not by 2.55 percent but by a considerably slower 2.13 percent. The comparable previous figures for the fourth quarter were growth of 2.19 instead of 2.65 percent.

The new GDP report shows that exports dropped more in the fourth quarter than previously estimated. The second read pegged the quarterly decline at 0.41 percent – from the third quarters’s record $2.6041 trillion to $2.5934 trillion. This slippage was the first since the first quarter of 2022.

Today’s results judged the decrease from the third quarter to be nearly twice as big (0.94 percent) – to $2.5796 trillion. At least it was still the second best total ever.

Nonetheless, the increase in total exports since the last pre-pandemic-y fourth quarter of 2019 is now just 0.30 percent. As of the previous read, it was 0.84 percent, and as of the third quarter, 1.26 percent.

By contrast, at an annualized $3.8317 trillion, the latest total real import figure was fractionally higher than that in last month’s GDP report, but 1.06 lower than the third quarter result – a dropoff steeper than that of exports. Moreover, this second straight quarterly decrease is still the longest since the year between the second quarter of 2019 and the peak pandemic-y second quarter of 2020. And since the last full pre-pandemic fourth quarter of 2019, they’re up just 12.54 percent as opposed to the 12.43 percent calculable last month and the 13.75 percent since the third quarter.

As for total real imports, they’re now pegged at $3.8182 trillion for the fourth quarter – 0.35 percent lower than the previous estimate of $3.8317 trillion, and 1.41 percent from the third quarter result.

But the sequential decrease is still the second straight – the longest such stretch since that CCP Virus-influenced year between the second quarter of 2019 and the second quarter of 2020. And since just before the pandemic’s arrival in force, overall imports are now up just 12.14 percent – versus the 12.43 percent calculable from last month’s report and the 13.75 percent as of the third quarter.

This latest fourth quarter GDP report pegged the trade deficit in goods at $1.4182 trillion – down from the previous read by 0.26 percent and from the third quarter total by 0.99 percent.

The goods trade gap, moreover, still decreased for the third straight quarter – a development that hasn’t been seen since the pandemic-heavy fourth quarter, 2019 to second quarter, 2020 period. And it remained the lowest total since the $1.4647 trillion recorded for the fourth quarter of 2021.

As a result, this trade shortfall is now 32.96 percent during the post-fourth quarter, 2019 period, down from the 33.31 percent calculable from the last GDP release and 34.30 percent as of the third quarter.

America’s trade in services is still in surplus, as has long been the case, but the fourth quarter estimate has now been lowered by fully 2.42 percent from the previous read – from $182.1 billion to $177.7 billion. But it’s still 8.69 percent higher than the third quarter result of 163.5 billion.

The previous GDP report pegged this service trade surplus as 22.77 percent below its immediate pre-pandemic level of $235.8 billion. Now it’s sunk to 24.64 percent below. Through the third quarter, the decrease was 30.66 percent.

The new GDP release shows fourth quarter goods exports to be $1.8648 trillion – which still represents their first sequential shrinkage since the third quarter of 2021. This figure is up fractionally from that in the previous read, and 2.37 percent below the record third quarter total of $1.9010 trillion.

These fourth quarter exports stayed at 4.38 percent above their immediate pre-pandemic level. As of the third quarter, they were 6.92 percent greater.

According to the second fourth quarter GDP release, constant dollar goods imports in the fourth quarter still decreased for the third consecutive time – the longest stretch since the economically weak period between the fourth quarter of 2019 through the second quarter of 2020.

At $3.2830 trillion, these purchases from abroad were down 0.11 percent from the previous estimate of $3.2866 trillion, and 1.51 percent from the third quarter’s $3.3334 trillion. And they still remained the lowest such total since the $3.2582 trillion from the fourth quarter of 2021.

Goods imports are now 15.07 percent higher than in the immediately pre-pandemic-y fourth quarter of 2019, versus the 15.19 percent increase calculable in last month’s GDP release. and the 16.83 percent increase as of the third quarter.

Big revisions were made in the fourth quarter services exports figures, however. Previously judged to be $744.1 billion (up 2.99 percent from the third quarter’s $722.5 billion), they’re now estimated at $731.4 billion. That’s fully 17.07 percent lower.

As a result, they’re now up just 1.23 percent from the third quarter, and down 7.04 percent since just before the CCP Virus’ arrival state-side in late, 2019, versus the 5.43 percent calculable from the previous GDP release.

What hasn’t changed: Services exports have still shrunk for an unprecedented ten consecutive quarters.

Revisions were also noteworthy for fourth quarter services imports. Previously reported at $562.0 billion (0.54 percent more than the third quarter’s $559.0 billion) they’re now pegged at $553.7 billion (0.95 percent less). And the downgrade from that previous fourth quarter total is 1.48 percent.

Services imports have still declined on a quarterly basis two straight times – for the first time since the pandemic-dominated year between the second quarter of 2019 through the second quarter of 2020. But since the virus’ arrival in force, services imports have now grown by just 0.49 percent, versus the1.56 percent calculable from the previous fourth quarter GDP release and the 1.47 percent increase as of the third quarter.

As with the first two fourth quarter GDP reports, the annual figures in the new release were worse than the quarterlies, but the differences were smaller because a longer timeframe is involved.

The final (for now) 2022 overall trade deficit of $1.3567 trillion (we’re no longer annualizing numbers) was just fractionally higher than the total in the second read, and represented both the ninth straight yearly increase and the ninth straight yearly record. The gap topped 2021’s total of $1.2334 trillion by ten percent.

This trade shortfall’s share of GDP ticked up, too, from the 6.77 percent calculable from the previous GDP read to 6.78 percent, and set an annual record for the third straight year. The third quarter figure was 6.29 percent.

The deficit’s subtraction from to economic growth last year was scaled down a bit in relative terms, from the 0.40 percentage points of 2.07 percent GDP expansion reported in the previous GDP release to 0.40 percentage points of 2.08 percent growth. In other words, without the rise in the gap, 2022 growth would have been 2.48 percent – or 19.23 percent higher.

But the deficit’s 2022 impact on growth differed dramatically from the results from 2021, when the gap subtracted 1.25 percentage points from that year’s 5.95 percent growth.

The total for the combined goods and services exports deficit`changed only marginally as well – from the $2.5378 trillion reported in the previous GDP release to $2.5344 trillion, a difference of 0.13 percent.

As a result, overall exports swelled from 2021’s $2.3668 trillion by 7.08 percent, not the 7.22 percent increase recorded in the previous GDP release. As of that previous report, this increase was the fastest since 2010’s 12.88 percent – when the economy was recovering from the Great Recession that followed the Global Financial Crisis. Now however, it’s slipped back to the fastest since 2011’s 7.17 percent. But the annual improvement is still the second straight.

Yet the estimate for last year’s combined goods and services imports edged down from that in the previous GDP read – by 0.09 percent, from $3.8944 trillion to $3.8910 trillion. As a result, these foreign purchases are now 8.08 percent above those of 2021’s $3.6002 trillion, not the 8.17 percent calculable from the previous release.

All the same, total imports still rose in 2022 for the second straight year, and set a second straight annual record.

The goods trade deficit was revised down fractionally, too – by 0.06 percent, from $1.5228 trillion to $1.5219 trillion. Consequently, this trade shortfall is now pegged at 7.62 percent greater than 2021’s $1.4141 trillion, not 7.69 percent higher.

But these downgrades still left the 2022 goods trade gap as the fourth straight annual record and the thirteenth straight annual increase. The latter is the longest such streak ever in a data series going back to 2002.

Also revised down – the longstanding services trade surplus in services. Reported in the previous GDP read at $162.3 billion, it’s now estimated at a 0.74 percent narrower $161.1 billion.

These new results left the 2022 services surplus 6.72 percent lower than 2021’s $172.7 billion level – instead of the 5.91 percent difference calculable from the previous release. The services surplus has still, however, contracted for the fifth straight year – the longest such period since these data began to be collected in 2002, and the 2022 total is still the lowest since 2010’s $158.6 billion.

Goods exports stayed unrevised in the latest GDP release at $1.8377. So their 2022 level was still 6.29 percent greater than 2021’s $1.7289 trillion, and the absolute total remained the second consecutive yearly increase and a new record – topping 2019’s $1.7915 trillion by 2.61 percent.

The 2022 goods imports estimate dipped by just 0.03 percent – from the previous GDP report’s $3.3605 trillion to $3.3596 trillion. The annual increase went from the 6.92 percent calculable from the previous GDP read to 6.89 percent, but the absolute 2022 figure remained a second straight all-time high.

The 2022 services exports total was also downgraded in the latest GDP report. Previously judged to be $717.3 billion, they’re now recorded at a 0.45 percent lower $714.1 billion. The increase over 2021’s $6.56.9 billion level also fell – from 9.19 percent to 8.71 percent. But it’s still the strongest improvement since 2007’s 13.08 percent spurt, and the annual advance is still the second straight.

Finally, the 2022 services import level was revised down as well, falling by 0.36 percent from the previous GDP report’s $555 billion to $553 billion. But the 14.21 percent annual increase was still the fastest ever, besting even 2021’s rapid 12.27 percent.

In last month’s report on the previous GDP release, I argued that because the latest domestic economic developments pointed to more consumer spending, and greater reluctance by the Federal Reserve to fight it with ever tighter monetary policies, the U.S. trade deficit looked set to resume rising.

Since then, another big reason for more Fed caution in inflation-fighting has of course emerged – the recent outbreak of turmoil in the banking system.  All else equal, the drop in lending that seems likely to take place should generate slower spending by both businesses and consumers.  Therefore, it should aid the anti-inflation fight without the need for a hard-line on interest rates and even shrinking the money supply from its current bloated levels.

Fed Chair Jerome Powell even said in his latest press conference that “you can think of [the lending effect of the banking woes] as being the equivalent of a rate hike or perhaps more than that….”    

But all else isn’t equal.  In particular, U.S. consumers overall are still flush with cash and as the next presidential election draws nearer, politicians will be increasingly tempted to prop up growth, employment, and therefore more consumption with more government stimulus.  So I remain convinced that despite the progess seen in the fourth quarter per se, the trade deficit is likely to start ballooning again.