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

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

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

Seriously.

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

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

Among the most important:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(What’s Left of) Our Economy: New Evidence that Trump’s Tariffs Have Bolstered U.S. Manufacturers

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aluminum, CCP Virus, China, coronavirus, COVID 19, GDP, gross domestic product, inflation-adjusted growth, lockdowns, manufacturing, metals, metals tariffs, real GDP, real value-added, recession, steel, tariffs, Trade, trade war, Trump, value added, Wuhan virus, {What's Left of) Our Economy

As everyone knows, at least as of the final (for now) official third quarter growth figures just released, the entire U.S. economy remains in a severe recession thanks to the arrival of the CCP Virus and the subsequent tight curbs on business activity.

Less widely known:  A separate set of official figures released along with yesterday’s government release on third quarter gross domestic product (GDP) shows that, by the measures most closely watched (i.e, inflation-adjusted), domestic manufacturing never suffered a recession by one crucial definition – a cumulative downturn lasting at least two quarters. And can it be mere coincidence that the entire time, President Trump’s sweeping and steep tariffs on hundreds of billions of dollars worth of Chinese goods, and of steel and aluminum from most major foreign producers, have remained in place?

Below are the growth (and contraction) figures for the entire U.S. economy and for the manufacturing sector for the entire CCP Virus period so far – the first quarter through the third quarter of this year. They come from the Commerce Department’s data on four measures of output tracked by the folks who look at “GDP by Industry” and consist of gross output both pre-inflation and adjusted for price changes, and value-added (a gauge of production that tries to remove the double-counting that results from gross output’s inclusion of both inputs for products and services and the final products and services themselves) in pre-inflation and price-adjusted terms. All the non-percentage numbers are in trillions of dollars at annual rates.

                                                      1Q                2Q                3Q            1Q-3Q

v/a whole economy:                 21.5611        19.5201        21.1703    -1.81 percent

v/a manufacturing:                     2.3643          2.0537          2.3291    -1.49 percent

real v/a whole economy           19.0108        17.3025        18.5965    -2.18 percent

real v/a manufacturing:              2.1999          1.9629          2.2132   +0.60 percent

gross output whole econ          37.8268        34.2600         36.9425    -2.34 percent

gross output mfg                        6.1163          5.3334           6.0134    -1.68 percent

real g/o whole economy           34.2613        31.3989         33.4440    -2.39 percent

real g/o manufacturing               6.2038          5.6162           6.2089    +0.08 percent

Probably the most important of these results is real value-added, since its topline economy-wide numbers are identical to the inflation-adjusted GDP figures regarded as the most important measures of economic growth. And in real value-added terms, manufacturing output in the third quarter was actually slightly (0.60 percent) higher than in the first quarter. Manufacturing expansion has also taken place according to the real gross output figures, though it’s been marginal.

Also crucial to note although both pre-inflation measures show first-third quarter cumulative manufacturing downturns, they’ve been shallower in both cases than the economy-wide slumps.

It’s true that the virus and related shutdowns have more dramatically impacted the service sector when it comes to first-order effects – because so many service industries entail personal contact. But the case for the tariffs’ benefits for manufacturing looks compelling upon realizing that U.S. services companies are major customers of domestic manufacturers. So although the virus obviously crimped these markets, it seems that the tariffs preserved a good many of them by pricing out much Chinese and foreign metals competition.

One way to test this proposition, of course, would be for apparent President-elect Joe Biden to lift the levies while the pandemic keeps spreading. Unless powerful evidence comes in to the contrary, manufacturers, their employees, and indeed all Americans should be hoping this is a bet Biden won’t make.

(What’s Left of) Our Economy: The Virus Leaves U.S. Growth and Trade Figures Still Distorted After All These Months

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CCP Virus, coronavirus, COVID 19, exports, GDP, goods trade, Great Recession, gross domestic product, imports, inflation-adjusted growth, real GDP, real growth, real trade deficit, recession, recovery, services trade, trade deficit, U.S. Commerce Department, Wuhan virus, {What's Left of) Our Economy

The final (for now) official read for America’s economic growth in the third quarter came out this morning, and it confirmed again that both the gross domestic product (GDP) and the country’s major trade flows changed (and were distorted by) historic rates during that phase of the CCP Virus pandemic.

At the same time, the new inflation-adjusted GDP data (the measure most closely followed by serious students of the economy) and the related trade figures make clear that in these 30,000-foot macroeconomic terms, trade has been a minor part of the post-virus growth picture. (In terms of specific products, like healthcare-related goods, the story is of course different, because their availability has affected the severity of the pandemic and resulting deep economic slump, and the expected schedule for recovery.)

Not surprisingly, given the slightly faster real expansion reported by the Commerce Department this morning (33.4 percent at an annual rate, versus the previously judged 33.1 percent), and continued economic sluggishness overseas, the quarter’s after-inflation overall trade deficit came in slightly higher, too – $1.0190 trillion annualized as opposed to $1.0164 trillion.

That’s a new quarterly record by an even wider margin than reported in the previous GDP report. So is the sequential increase – 31.47 percent as opposed to 31.13 percent. Just for some perspective, the next biggest quarterly jump in the constant dollar trade gap was just 13.18 percent (between the first and second quarters of 2010).

But as noted in last month’s RealityChek GDP post, 2010 was when the U.S. economy was recovering from the Great Recession that followed the global financial crisis, and annualized growth during that second quarter was just a ninth as fast (3.69 percent) as this year’s third quarter.

The subtraction from real economic growth generated by the latest surge in the trade deficit was big in absolute terms (3.21 percentage points), increased slightly over the previously reported 3.18 percentage points), and still stands just shy of the all-time biggest trade bite (3.22 percentage points, in the third quarter of 1982). But set against 33.4 percent annualized growth, it’s clearly not very big at all.

Combined goods and services exports and imports changed to roughly the same modest degree as the overall trade deficit. The quarter-to-quarter price-adjusted export increase was revised down from 12.56 percent to 12.41 percent, and the total real import increase is now judged to be 17.87 percent, not 17.89 percent. As a result, both figures remained multi-decade worsts and bests.

Somewhat greater relative changes took place in the service trade data – which isn’t surprising, with the service sector having been hit much harder by the pandemic than goods sectors.

All the same, whereas the previous GDP report showed that after-inflation services exports edged up on quarter by 0.21 percent (from $582.1 billion annualized to $583.3 billion), this morning’s release recorded slippage – by 0.14 percent, to $581.3 billion. Consequently, they now stand at their lowest quarterly level since the third quarter of 2009 – just as that Great Recession recovery was beginning.

As for real services imports, their quarterly price-adjusted increase was revised down from 5.91 percent to 5.70 percent, and their $393.3 billion level was the lowest since the third quarter of 2006.

Unfortunately, the prospect that these CCP Virus-related distortions in economic growth and trade figures will soon come to an end still seems as remote as the prospect that the virus itself will soon be tamed – even with the beginning of mass vaccination. As a result, for the time being, tracking these numbers will be useful for getting a sense of those distortions’ scale, but the underlying health of the economy, and of its trade flows, will remain elusive.

(What’s Left of) Our Economy: CCP Virus-Era U.S. Trade Figures Continue to Astound

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

Meet the new third quarter U.S. gross domestic product (GDP) figures. Practically the same as the old third quarter figures – including on the trade front. The nearly identical 33.1 percent inflation-adjusted annualized growth revealed in today’s second official look at the economy’s performance between July and September remains as meaningless in terms of the fundamentals as it is breathtaking.

After all, it’s completely distorted by the CCP Virus pandemic and resulting shutdown-like decisions and altered consumer behavior that now seem likely to end sooner rather than later due to recently announced vaccine progress. (More industry-specific shifts involving sectors like higher education and business travel and real estate and on-line shopping and the like? They’re of course shaping up as very different stories.)

But it’s worth reviewing the trade highlights of this morning’s figures (and the very similar numbers reported last month) to show just what incredible statistical outliers the pandemic and the government and consumer responses have produced.

The after-inflation quarterly trade deficit came in at $1.0164 trillion at an annual rate – a little worse than the $1.0108 trillion initially estimated. But that’s a staggering 31.13 percent increase from the second quarter total of $775.1 billion – a jump that positively dwarfs the previous record increase of 13.18 percent between the first and second quarters of 2010.

And keep in mind that jump came as the nation was rebounding from the Great Recession – which at that point was its worst economic slump since the Great Depression. Indeed, as reported last month, that quarter’s annualized growth rate was only 3.69 percent – only about a ninth as strong.

Because this year’s third quarter real trade deficit increased slightly while the economy’s growth remained essentially the same (for the record, the new GDP increase number was fractionally smaller than last month’s advance read), the hit to growth from that trade gap rose as well. Its subtraction from growth is now judged to be 3.18 percentage points, not 3.09. Only the 3.22 percentage points cut from growth in the third quarter of 1982 have bit deeper in relative terms.

The bigger trade deficit figure resulted from total imports that rose faster than exports. Last month, the Commerce Department estimated that the former were 12.42 percent greater than the second quarter level. Now the increase is pegged at 12.56 percent. The previous quarterly total import growth figure – which in absolute terms is much bigger – has been increased from 17.58 percent to 17.89 percent.

But where these changes stand in U.S. trade history is nothing less than stunning. The quarterly total import data go back to 1947, and their growth in the third quarter of this year was the strongest since the 21.88 percent recorded in the second quarter of 1969.

The quarterly total import statistics also began in 1947, and on this count, the third quarter’s increase was the worst since the 23.47 percent surge in the third quarter of 1950. These latest trade performances are all the more eye-opening upon realizing that overall U.S. trade flows in 1969 and 1950 were so much smaller than they are today, meaning that big percentage increases were much easier to generate.

The quarterly real trade figures for goods and services individually only go back to 2002, but although the timeframes are much shorter, they’re equally special. During the third quarter of this year, the sequential improvement in goods exports is now reported as 19.60 percent. That’s an all-time high that far surpasses the next best performance – the 6.94 percent advance achieved in the fourth quarter of 2009, during the recovery from that previous Great Recession.

Goods imports in the third quarter soared by 20.08 percent – again dwarfing the previous record of 5.67 percent not-so-coincidentally also recorded in that fourth quarter of 2009.

The story with services trade – which has received an historic blow both nationally and globally from the virus and the shutdowns – interestingly is somewhat less dramatic for the third quarter. Constant dollar services exports only inched up by 0.21 percent in the third quarter, from $582.1 billion annualized to 583.3 billion. These industries clearly are still reeling from the 20.27 percent sequential export collapse they experienced between the first and second quarters, and the 5.67 percent drop between the fourth quarter of 2019 and the first quarter of this year. As a result, these exports in real terms are sitting at their lowest levels since the second quarter of 2010.

Price-adjusted services imports rose a much faster 5.91 percent after inflation between the second and third quarters. But that increase was only the second biggest on record – after the 7.04 percent jump in the third quarter of 2003. These more modest historical changes reflect the impressive growth in services trade for most of this century – albeit from a base much smaller than that of goods trade.

Please keep in mind that the individual goods and services trade figures still don’t add up to the totals, as I first reported in September. But they’re not that far off, either, which means that the overall third quarter numbers still seem reliable enough, and still confirm how unusual CCP Virus-era trade flows have been – and are likely to be until the nation reaches the Other Side.

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

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

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

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

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

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

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

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

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

But those internal numbers!

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

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

(What’s Left of) Our Economy: So Much for That Pre-Virus Trump Manufacturing Recession?

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(What's Left of) Our Economy, Barack Obama, election 2020, Federal Reserve, GDP, gross domestic product, gross output, industrial production, Joe Biden, manufacturing, manufacturing recession, real GDP, real value added, tariffs, Trade, Trump, value added

A funny thing happened when the U.S. Commerce Department released its latest report on gross domestic product (GDP) by industry last Wednesday: Most of the evidence that American domestic manufacturing suffered a recession – even a mild one, as widely reported – before the CCP Virus struck disappeared.

The new figures also reveal that President Trump’s manufacturing record before most of the U.S. economy was literally ordered closed due to virus-related fears looks even better than previously thought in comparison with that of the Obama administration – in which the President’s Democratic rival for the White House, Joe Biden, served as vice president.

Focusing on this pre-virus data is anything but grasping at straws – unless you think the CCP Virus and its impact will last forever. For manufacturing’s fortunes have been closely connected to President Trump’s tariff-centric trade policies throughout his time in office because manufacturing is so thoroughly exposed to foreign competition both at home and abroad. And as this article (which featured unusual balance) made clear, recent evidence that industry had slumped last year – even before the virus’ arrival and the deep downturn it caused – was widely viewed as a major sign not only that the “trade war” was failing, and undermining Mr. Trump’s .broader determination to revive the sector.

Yet the new GDP by Industry numbers (which take the story through the second quarter of this year, and incorporate revisions going back to the first quarter of 2015 and which were part of a broader release of four different measures of manufacturing production) generally revised that recession away. So presumably, judgments about the effectiveness and impact of the Trump tariffs and similar trade decisions during normal economic times should turn much more positive.

Understanding that the federal government uses four different measures of manufacturing production is the key to understanding why those manufacturing recession claims now look largely mistaken, and why some uncertainty remains. The four measures are: gross output and inflation-adjusted (real) gross output, and value added and real value added. The latter two measures try to eliminate the double-counting in the gross output numbers that economists generally agree results from including in its results both the parts and components and other manufactured inputs of final products, along with the final products themselves.

As of now, the only one of these gauges that still shows a pre-virus Trump-era manufacturing recession (defined as two straight quarters of declining output) is current dollar (pre-inflation) gross output. According to these data, this downturn began in the second quarter of 2019 and continued through the end of the year – and of course into this year. But a recession doesn’t show up in any of the other measures, and its absence in the new real gross output figures is especially important, since that’s the measure that the Federal Reserve uses to measure manufacturing production in its closely followed monthly industrial production reports.

At the same time, those real gross output figures still leave one manufacturing production uncertainty remaining. For even though the Commerce Department’s tables, and their quarterly numbers, show no pre-virus Trump era recession by this measure, the Fed’s monthly numbers do. Specifically, they report three consecutive quarters of manufacturing production decrease last year – from the first through the third.

Yet the quarterly figures reported by the Commerce Department show that real gross output in manufacturing fell between the first and second quarters of 2019, but rose between the second and third before dropping again between the third and fourth. Even odder: Although these Commerce numbers show a weakening manufacturing output picture for the fourth quarter of last year, the Fed figures show a brighter one.

As for the comparison between administrations, here’s what the new numbers show for the two most comparable pre-virus periods (because they’re closest together in the same business cycle) – the last three years of the Obama administration and the first three years of the Trump administration. And they demonstrate that, whether due to Mr. Trump’s policies or not, industry performed considerably better during his watch. The Trump numbers are all the more impressive since 2019 was marked in part by major production woes at Boeing that greatly undercut the output numbers for the huge U.S. aerospace industry and its vast domestic supply chain.

last 3 Obama years first 3 Trump years

Gross output: -6.50 percent +12.71 percent

Real gross output: +1.40 percent +4.63 percent

Value added: +5.41 percent +11.72 percent

Real value-added: +2.33 percent +9.00 percent

This year, of course, has been terrible for domestic U.S. manufacturing. Between the first and second quarters, in real gross output terms it decreased by 1.03 percent at an annual rate between the fourth quarter of 2019 and the first quarter of 2020, and by 9.47 percent between the first and second quarters.

Interestingly, put together, those are about the same as the declines suffered by the entire U.S. private sector (1.11 percent and 9.14 percent, respectively), even though manufacturing employment during this that period held up notably better than its overall private sector counterpart. During the first and second quarters of this year, the private sector lost 9.92 percent of its jobs, compared with 6.25 percent for manufacturing.

The GDP by Industry figures for the third quarter won’t be out until well after the election (December 22), so voters won’t be able to judge the full Trump manufacturing output record during the CCP Virus period. But from what’s known so far, it looks like something the President can point to during the rest of the campaign as a promise kept.

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

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

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

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

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

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

Or was it?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Im-Politic: On the Economy, Obama’s Record Looks Stronger than Trump’s

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Barack Obama, CCP Virus, coronavirus, COVID 19, election 2020, Employment to Population Ratio, GDP, gross domestic product, Im-Politic, Jobs, Joe Biden, Labor Force Participation Rate, labor productivity, manufacturing, non-farm jobs, private sector, productivity, real GDP, real private sector, real wages, recession, subsidized private sector, Trump, value added, wages, Wuhan virus

Not surprisingly, as this U.S. presidential cycle gets ever more intense, so has the debate over which boasts a better record in helping steer the nation’s economy: the Obama administration in which Democratic presidential nominee Joe Biden served as second-in-command, or the incumbent Trump administration. I’ve just looked over some key data, and the verdict on most counts goes to the Obama administration. The margin of victory here isn’t huge, but it’s anything but razor thin, either. Moreover, any Obama edge is surprising given that the economy is President Trump’s major advantage in nearly all the polls.

All the same, here are the data. They compare performance during the last three full years of the Obama presidency and the first three full years of the Trump presidency. In my view, these time-frames deserve priority because they’re the ones closest to each other in the same expansionary business cycle, making apples to apples results much likelier.

The time-frames of course leave out the CCP Virus period, during which all the Trump numbers sank like stones. But if you regard the virus’ economic effects as purely artificial, having nothing to do with the economy’s fundamentals (as I do), then you want to strip them out.

Other methodological notes: Although the jobs-focused data come out from the federal government on a monthly basis, and therefore permit comparisons between completely identical (and virus-adjusted) three-year periods, the economic growth and productivity data don’t, so I show Trump results both through the first quarter of this year (affected by the shutdowns that began in March) and through the last quarter of 2019. In addition, regarding the monthly figures, because of the January 20 inauguration date, I peg the end of the Obama administration as January, 2017 and the beginning of the Trump administration as February, 2017.

And off we go, starting with overall employment, which consists of the Bureau of Labor Department’s U.S. employment universe – “non-farm jobs.”

Obama: +5.55 percent            Trump: +4.56 percent

But of course, non-farm jobs include all government jobs, and their status has much less to do with the economy’s underlying strengths and weaknesses than with politicians’ decision. So here are the numbers for private sector jobs.

Obama: +6.56 percent            Trump: +5.04 percent

So advantage Obama again. As RealityChek regulars know, however, not all private sector jobs are created equal. In fact, many barely deserve the term at all, because their circumstances depend so heavily on government spending. Healthcare is of course the leading example. Therefore, it’s useful to examine the employment results in what I’ve called the “real private sector”.

Obama +6.22 percent             Trump: + 4.63 percent

It’s another Obama out-performance. This string is broken when it comes to manufacturing jobs, however.

Obama: +2.38 percent           Trump: +3.78 percent

But Obama comes out ahead on inflation-adjusted wages for the entire private sector.

Obama +3.69 percent           Trump: +2.99 percent

And the margin is even bigger for real manufacturing wages.

Obama: +3.15 percent          Trump: +0.74 percent

One problem with looking at jobs gains or losses, or even the unemployment rate, is that these numbers don’t tell the whole story about the health of the labor market. To fill in the gaps, economists like to examine two performance measures called the Labor Force Participation Rate, and the Employment to Population Ratio.

The former, according to well regarded left-of-center economics think tank, reveals “the number of people in the labor force—defined as the sum of employed and unemployed persons—as a share of the total working-age population, which is the number of civilian, non-institutionalized people, age 16 and over.”

The latter, the same source explains, shows “the number of people currently employed as a share of the total working-age population, which is the number of civilian, non-institutionalized persons, age 16 and over.”

For what it’s worth, this reliable economics and finance website claims that the Employment to Population Ratio provides the best indication of job shrinkage or growth. So let’s begin there.

Obama: 58.8 percent to 59.9 percent       Trump: 59.9 percent to 61.1 percent

Pretty much a standoff.

As for Labor Force Participation:

Obama: 62.9 percent to 62.6 percent       Trump: 62.8 percent to 63.4 percent

Advantage, Mr. Trump.

As previously mentioned, the economic growth figures are only reported quarterly. Keeping that in mind, here’s how the two administrations stack up. The most commonly followed measure of the economy’s size and how it changes is inflation-adjusted gross domestic product (GDP).

Obama: +8.19 percent           Trump: +5.75 percent

These data, though, include shutdown-y March, 2020. Taking the story only through the end of 2019 brings the Trump years’ performance up to 7.11 percent – but he still trails.

Interestingly, even including the first quarter of this CCP Virus-y year, Mr. Trump’s record is slightly better when another metric for economic growth is used – value-added. Its value lies in trying to eliminate the double- and even more overcounting that results when the of the parts and other inputs of a complicated product are counted both when they’re turned out individually, and when they’re contained in that final product.

Obama: +12.09 percent          Trump: +12.24 percent

The Trump presidency’s margin is even bigger in manufacturing value-added, and even including the first quarter:

Obama: +7.09 percent            Trump: +10.58 percent

Importantly, all the above value-added numbers are pre-inflation. After-inflation value-added data are tracked by the federal government, too, but they’re not even measured on a quarterly basis. Only full-year numbers are available. So since these make precise comparisons less possible, I’m skipping them.

Finally, here are numbers that hardly ever make the news, but might be the most important of all – the productivity data. These various measures of efficiency are widely viewed by economists are crucial to determining how healthy and durable economic growth is and will be, and therefore how strongly and for how long living standards can rise.

Results aren’t up-to-date enough for the broadest measure of economic efficiency – multi-factor productivity. But they are for the narrower measure, labor productivity – which gauges how much a single worker can produce in a single hour on the job – starting with the overall economy

Obama: +3.97 percent           Trump: +3.95 percent

And if you want to remove the first quarter of this year, because of the virus effect in March, overall labor productivity during the Trump period was up 4.02 percent

Labor productivity is monitored for manufacturing, too, and here are those statistics including the first quarter of this year:

Obama: -2.57 percent           Trump: +0.29 percent .

Oddly, if the first quarter is removed, the Trump years’ performance worsens a bit – and even falls to an overall dip of 0.09 percent. But however poor, it still tops the record of the Obama years.

So why are the Trump economy poll numbers so good? One possible answer: The final year of the Obama presidency was feeble by nearly all measures. Real gross domestic product advanced by only 1.70 percent. Total employment grew by a mere 1.64 percent, versuss 2.19 percent in 2014. National manufacturing employment actually dipped by 6,000 from 2015 levels. Real wage growth overall slowed from 1.26 percent in 2014 to 0.56 percent in 2016. And inflation-adjusted manufacturing wages performed scarcely better.

Moreover, as the New York Times article linked above makes clear, the public’s evaluations of the Trump economic record are incredibly partisan – often conflicting with a respondent’s actual situation.

It’s also possible and legitimate, as I’ve noted, to point to some important reasons for this Trump under-performance.  The President’s trade policies clearly disrupted national and global supply chains, and the consequent inefficiencies surely dragged on GDP and employment in the short term.  Boeing aircraft’s safety woes have undercut national economic performance lately, too.  But good luck to you if you think these considerations are going to have any effect on voters.  

I’m hardly naive enough to think that these or other economic facts will be enough to determine November’s outcome. And I have no idea how voters will factor in the deep CCP Virus-induced recession into their thinking. But the facts aren’t a throwaway, either, and although the Obama record didn’t exactly thump Mr. Trump’s, it’ll certainly provide Biden with considerable ammunition.

(What’s Left of) Our Economy: Some Big Trade News in Today’s GDP Revisions

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constant dollars, current dollars, GDP, gross domestic product, inflation, real GDP, real trade deficit, shutdown, Trade, trade deficit, {What's Left of) Our Economy

And here I thought that the only big surprise in this morning’s U.S. government report on the nation’s economic output (the gross domestic product, or GDP) would come in the annual revisions – which update the data going back to the first quarter of 2015. After all, it’s long been obvious that the second quarter results would be dreadful, due to the CCP Virus-induced shutdown of so much of the U.S. economy.

The revisions were indeed pretty surprising, but the first set of estimates covering the second quarter of this year still contained one entirely (at least to me) unexpected finding: Despite the nearly 38 percent inflation-adjusted sequential crash dive of the economy (at annual rates), the real trade deficit didn’t fall much at all. Indeed, between the first and second quarters, the annualized decrease was only 3.71 percent (from $788 billion at annual rates to $780.7 billion).

The big virus-related effects came during the first quarter, when the annualized quarterly shrinkage was 34.13 percent annualized. Moreover, the price-adjusted trade shortfall had also plummeted by 37.33 percent at an annual rate between the third and fourth quarters of last year, as President Trump’s massive tariffs on China continued to be felt, and tariff front-running – which aimed at avoiding theatened and imposed new levies since the Trump trade wars began, and which inflated import totals over the short-term – subsided.

As for that huge first quarter sequential decrease in the price-adjusted trade deficit, it’s now the biggest such move since the 72.53 percent plunge between the first and second quarters of 2009, when the Great Recession was bottoming.

All the same, the revisions were indeed interesting – and important. For starters, that $788 billion annualized first quarter trade deficit was previously reported as being $815.5 billion. Meanwhile, the $780.7 second quarter after-inflation trade deficit is the country’s smallest quarterly gap since the $792.3 billion figure of the first quarter of 2017.

At least as interesting, the GDP revisions make the Trump administration’s trade record look a good deal better than previously reported, while leaving the results for the last two years of the Obama administration basically unchanged. That’s not obvious from the table below, which shows the old and new constant dollar trade deficit results for the last four full years in billions of dollars:

                 New                    Old

2019:       917.6                  953.9

2018:       877.7                  920.0

2017:       816.8                  858.7

2016:       763.6                  586.3

2015:       719.5                  540.0

But there’s a big problem with these statistics. They’re measuring apples versus oranges. The 2017-19 results have been presented by the Commerce Department in terms of 2012 dollars. The original 2015 and 2016 results, however, (which I found by going through pre-revisions GDP releases) were presented in 2009 dollars, but in their updated versions, they’re presented in 2012 dollars. In other words, the inflation adjustment factor is different. All the same, the Trump deficits, themselves, are notably smaller than they were previously reported.

To permit a legitimate comparison between the two administrations, it’s necessary to drop the inflation adjustment altogether, and present the annual trade deficit results in current (billions of) dollars. That’s what the next table shows:

                 New                   Old

2019:       610.5                 631.9

2018:       609.5                 638.2

2017:       555.5                 578.4

2016:       512.5                 521.2

2015:       526.6                 522.0

All three Trump results are, again, better than previously reported, although the difference is significantly smaller than for the inflation-adjusted figures. For the Obama years, the 2016 results are a little better, but the 2015 results are a little worse.

Even so, there’s still no doubt that the Trump trade deficits are higher than those of the last two Obama years. But as known by RealityChek regulars, sometimes individual data sets like this don’t tell the whole story. And with the trade figures, it’s important to compare them with the size of the whole economy. For this exercise, let’s keep it simple and stick with the new pre-inflation statistics. This table shows the current dollar trade deficit as a percentage of current dollar GDP:

2019:  2.85 percent

2018:  2.96 percent

2017:  2.84 percent

2016:  2.73 percent

2015  2.89 percent

Here a modest edge goes to those two Obama years, at least looking at the average. At the same time, the former President was conducting trade policy business-as-usual. Mr. Trump is conducting a major experiment in disruption that’s bound to create adjustment-related inefficiencies, at least in the short run. That is to say, the full results aren’t in. And a major question looming over the U.S. economy in this election year is how long it will be permitted to continue.