(What’s Left of) Our Economy: The Real U.S. 2020 Trade Deficit Remained a Record – & Virus-Distorted

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

The final (for now) official report on U.S. economic growth in the fourth quarter of last year and therefore for the full year contained modestly good news both in terms of the entire economy’s performance and its trade flows, but doesn change the big picture of major pandemic-related setbacks and distortions, and the latter likely to continue for the foreseeable future.

Starting at 30,000 feet, the new data show that in inflation-adjusted terms (those most closely watched), America’s gross domestic product (GDP – or the total of goods and services it produces) shrank by 3.49 percent in 2020, a bit better than the 3.50 percent decline reported last month. Real growth received a boost from a fourth quarter during which real GDP expanded sequentially by 4.23 percent at an annual rate, not the (already upwardly revised) 4.03 percent previously estimated.

Given the record nosedive last spring produced by the CCP Virus and related mandated and voluntary curbs on economic activity, and even given the strong (in fact, sequential, record) rebound in the third quarter, such growth isn’t overly impressive. But presumably the rate will accelerate as vaccination spreads, herd immunity finally arrives, lockdowns are lifted (hopefully for good), and consumer regain confidence about in-person services like dining and traveling.

All the same, 2020’s still ranks as the worst U.S. economic downturn since 1946, when after-inflation GDP tumble by 11.60 percent as the nation transitioned from a war-time to a peacetime footing. Last year’s recession was also worse than the real GDP drop of 2009 (2.53 percent), during the Great Recession triggered by the global financial crisis.

As for the constant dollar total trade deficit, it’s now pegged at $926 billion, up slightly from last month’s reported $925.8 billion, but better than the $926.3 billion estimated in the first read on fourth quarter and 2020 GDP. The annual increase was only 0.92 percent, and as a share of the total economy (5.03 percent), it remained well below the all-time high of 5.95 percent (which came at the height of the bubble decade, in 2005), the deficit’s absolute and relative levels are still remarkable given the economy’s contraction – which normally results in a trade deficit decrease. At the same time, as will be discussed below, the 2020 recession was unusual in most respects.

The trade highlights of this morning’s GDP report confirmed once again that the service sector has suffered the greatest pandemic period hit both domestically and internationally. Indeed, during 2020, the longstanding after-inflation American goods trade deficit dipped by 0.71 percent (from $1.1409 trillion to $1.1328 trillion) while the equally longstanding services surplus sank by eleven percent (from $224.5 billion to $199.8 billion).

The new GDP report upgraded America’s total price-adjusted export performance in 2020, estimating their decline to be 12.95 percent, not the previously judged 12.97 percent. But the decrease is still the worst since 1958’s 13.49 percent plunge, and the $2.2169 trillion level remains the lowest since 2012’s $2.1930 trillion.

Real goods exports in 2020 slid by 9.46 percent in today’s GDP report – a little better than the 9.48 percent calculated last month. But as with total exports, these levels still represented multi-year lows in terms of the magnitude of the decline (the fastest since Great Recession-y 2009) and the absolute amount ($1.6138 trillion, the lowest since 2013). As last months real GDP post reminded, though, goods and services trade figures began to be reported separately by the Commerce Department only since 2002.

The deterioration in real services exports was, again, much more dramatic, and faster than estimated in last month’s GDP figures. They plummeted by 19.26 percent on-year, not the 19.16 percent previously reported, and a record by a long shot. And at $620.5 billion, their yearly total is the lowest since 2010.

Total constant dollar U.S. imports, however, seem to have fallen sligthly more slowly last year (9.27 percent) than previously judged (an already downgraded 9.28 percent). Yet this decrease also remained the fastest since 2009, and the $3.1429 trillion level the lowest since 2015.

Consistent with the above results, the inflation-adjusted goods imports fall-off in 2020 was much less than the overall decline. Interestingly, the new 6.05 percent annual decline reported this morning was notably lower than the 5.45 percent decrease reported last month. It, too, however, was a multi-year worst (since recession-y 2009) and the new $2.7466 trillion level is the lowest since 2016.

The annual after-inflation services imports drop in 2020 reported today was unchanged, at a record 22.54 percent, and the same $420.7 billion level was the weakest since 2009.

On a quarter-to-quarter basis, the real trade deficit registered modest improvement, too. Previously pegged at a quarterly record $1.1230 trillion on an annual basis, it’s now estimated at $1.1220 trillion (still an all-time high), and the sequential increase downgraded from 10.20 percent to 10.11 percent.

Two other findings of note: Although the increase in the annual constant dollar total trade deficit reached an all-time high last year, its effect on economic performance was relatively slight. The trade gap’s widening accounted for 0.14 percentage points of that 3.49 percent annual real GDP drop. Proportionately, that’s less damage than was inflicted in 2019, when the higher trade deficit cut 0.18 percentage points from the 2.16 percent overall growth rate.

On a quarterly basis, though, the trade bite was much deeper, as the price-adjusted total deficit’s increase subtracted 1.53 percentage points from the 4.23 percent sequential inflation-adjusted annualized GDP increase. But not even this blow was the biggest ever relatively speaking – or even close. (The all-time worst such performance came in the second quarter of 1952, when 0.85 percent after-inflation annualized growth would have been 2.23 percentage points higher if not for the sequential increase in the trade deficit.)

(What’s Left of) Our Economy: New U.S. Growth Figures Leave Pandemic Trade Distortions Fully Intact

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

Fittingly, because this morning’s release of the first (of two short-term) revisions of the official figures on fourth quarter U.S. gross domestic product (GDP) tell us only a little more than the first about the U.S. economy’s growth at the end of last years, they also revealed little change in what was reported about U.S. trade flows – and how they were affected in 2020 by the CCP Virus.

The fundamental story remains the same: The pandemic has distorted the nation’s international trade tremendously. What today’s report – which describes growth in inflation-adjusted terms (the most widely followed) – shows is that real exports suffered a bit more than previously judged, and their import counterparts were a bit higher. As a result, the overall price-adjusted trade deficit was slightly greater than first estimated.

In addition, the new figures – which will be revised again next month, and several times down the line – indicate that the trade flow deterioration worsened toward the end of the year.

To set the context, the sequential growth rate for the fourth quarter was upgraded in the new release from the previously reported 3.95 percent at an annual rate after-inflation to 4.03 percent. Normally, that would be an excellent performance, but coming after the roughly 30 percent annualized rubber-band-like economic snap back between the second and third quarters, it’s still a major disappointment.

Moreover, the revisions were too small to affect the annual contraction rate for all of 2020, which stayed at 3.50 percent in constant dollars. That’s still the worst yearly downturn since the 11.60 percent nosedive in 1946, when the nation was transitioning from a war-time to a peacetime footing. In fact, 2020’s slump was much worse than the real GDP decline of 2009 – which was part of what’s now known as the Great Recession. That year, America’s output of goods and services after inflation fell by just 2.53 percent.

(Incidentally, sharp-eyed readers will note that this 2020 real GDP figure doesn’t match up with the one I cited here. That’s because that post’s number represented fourth quarter to fourth quarter constant-dollar output change, which tends to produce different results than those generated by comparing the annual figures, which sum up the collective change for all of a year’s four quarters.)

Luckily, the main reason for optimism remains intact, too, despite the humdrum fourth quarter: The pandemic-driven recession was driven by a virus, and by the widespread shutdowns of economic activity literally ordered by government at all level. That appears much less worrisome than the economic circumstances of the bubble decade of the 2000s, when bloated lending and spending masked fundamental weaknesses in the economy. When the finance sector essentially decided that the resulting Ponzi scheme had grown way too risky even for its tastes, a collapse was triggered that nearly took the entire global economy down.

Once again, the magnitude of the distortion of the GDP figures’ trade component came through loud and clear in this morning’s release. Even though the economy shrank – which typically depresses the trade deficit – the shortfall hit a new record in last year. This morning’s reported $926.3 inflation-adjusted level was marginally larger than the $925.8 billion estimated last month, and represents a 0.95 percent increase over 2019.

It’s true that 2020’s price-adjusted trade deficit wasn’t the largest ever as a share of real GDP. At 5.03 percent, it was well behind the all-time worst of 5.95 percent, set in bubbly 2005. But this percentage was astronomical for a recession year. In fact, you’d have to go back to 2002 (which was only partly recessionary) to find a figure even as high as 4.95 percent.

Since the pandemic and restrictions have hit service industries much harder than goods industries, with the travel and tourism sectors experiencing veritable decimation, it’s no surprise that most of the trade deficit deterioration took place in those parts of the economy. Specifically, between 2019 and 2020, the inflation-adjusted goods trade deficit rose by just $830 million, while the services surplus shrank by $24.7 billion. (And now for an apology – last month I reported the reverse, because I accidentally reported the services change in millions, not billions, of dollars.)

The real trade deficit increased last year in part because total constant dollar exports fell, with the new revisions reporting the drop at 12.97 percent, rather than the 12.96 percent estimated last month. That decrease is the biggest in percentage terms since 1958’s 13.49 percent plunge, and the $2.2165 trillion level was the lowest since 2012’s $2.193 trillion.

The 2020 decrease in goods exports was revised this morning from 9.46 percent to 9.48 percent, and this slide – the steepest since 2009’s 11.86 percent – brought the year’s level to $1.6136 trillion, the lowest since 2013’s $1.57 trillion. (Goods and services trade figures began to be reported separately by the Commerce Department only since 2002).

The new revisions actually showed a marginally better performance for real services exports. Rather than sinking by 19.20 percent in 2020, the dropoff is now judged to be 19.16 percent. But the fall is still a record by a long shot, and the new $620.2 billion level still the lowest since 2010’s $609.2 billion.

Total after-inflation constant dollar U.S. imports were lower in 2020 than in 2019, too, but the contraction was smaller than that for total exports. Today’s revisions report the annual decrease as 9.28 percent versus the previously reported 9.29 percent. This drop was still the biggest in percentage terms since recessionary 2009’s 13.08 percent, and the $3.1426 trillion absolute level was still the weakest since 2015’s $3.0948 trillion.

The reduction in goods imports was as relatively modest as that in goods exports, as they came in 5.45 percent lower in 2020 than in 2019. But last month, the drop was reported at a bigger 6.05 percent – still the biggest since recessionary 2009’s 15.30 percent. And the new $2.7642 trillion level is still the lowest since 2016’s $2.6477 trillion.

The annual services imports decrease in 2020 was also smaller than initially reported – 22.54 percent versus 22.59 percent. Nonetheless, this yearly shrinkage, too, was still by far the greatest ever, and the $420.7 billion level still the lowest since 2009.

On a quarter-to-quarter basis, the previously reported quarterly record $1.1211 trillion total real trade deficit at annual rates for the last three months of 2020 is now estimated at $1.1230 trillion. And the increase over the third quarter level has gone up from ten to 10.2 percent.

Quarterly total real exports today were judged to be 5.06 percent higher than the third quarter level, not 5.10 percent higher, but the new $2.2761 trillion annualized figure was still 8.78 percent below the level of last year’s first quarter – the final pre-pandemic figure.

The fourth quarter’s sequential rise in real goods exports was also revised down this morning – from 7.65 percent to 6.95 percent. But at $1.7224 trillion annualized, they’re just 2.94 percent below the first quarter total.

Not surprisingly, the quarterly export lag in services was much worse. The fourth quarter’s price-adjusted real sequential improvement was only revised down from 1.07 percent to 1.04 percent. But the annualized figure of $587.4 billion was a whopping 19.55 percent below that final first quarter pre-pandemic level.

Total constant dollar imports for the fourth quarter are now judged to have risen by 6.71 percent over the third quarter, not 6.67 percent. At $3.3991 trillion at an annual rate, they’re now 3.53 percent higher than during that immediate pre-CCP Virus first quarter.

After-inflation goods imports are estimated to have risen a bit more slowly on a quarter-to-quarter basis – by 5.25 percent between the third and fourth quarters instead of the previously reported 5.27 percent. Even so, as of the end of last year, they were running fully 8.49 percent higher at an annual rate ($3.0230 trillion) than during the first quarter.

Real services imports, however, expanded faster than previously reported – by 5.52 percent over third quarter levels, not 5.16 percent. But even though they’re now up to $415 billion at annual rates, in real terms, they still 17.41 percent below their pre-pandemic levels.

(What’s Left of) Our Economy: A Feeble Case Against U.S. Populism

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bubble decade, CCP Virus, coronavirus, COVID 19, Donald Trump, France, GDP, Germany, global financial crisis, gross domestic product, per capita GDP, Populism, real GDP, Wuhan virus, {What's Left of) Our Economy

Since I’m still glad that Americans elected a President with strong populist leanings in 2016 (however flawed he was in all the temperament and character ways on full display after his reelection loss), I was especially interested in a new academic study on how well populist leaders have run their nation’s economies when they’ve had the chance.

And since I’m particularly keen on properly assessing former President Trump’s record in this regard (it’s the selfish American in me), I was especially disappointed that this research on “The cost of populism” said nothing useful at all about the subject because it lumped the experiences of populist leaders in widely divergeant economies and across many equally divergeant periods of time into one category. Therefore, I thought I’d provide some perspective.

The authors, a trio of German economists, are pretty emphatic in their conclusion:

“When populists come to power, they can do lasting economic and political damage. Countries governed by populists witness a substantial decline in real GDP per capita, on average. Protectionist trade policies, unsustainable debt dynamics, and the erosion of democratic institutions stand out as commonalities of populists in power.”

And they highlight their finding that, after taking into account the circumstances faced by populist leaders once they’ve gained power or office (which presumably were pretty bad – otherwise, as the authors recognize, why would the populists have succeeded in the first place?), right after a populist victory, such economies as a group fared increasingly worse in terms of their growth rates compared with economies headed by more establishmentarian leaders. To their credit, the authors also try to adjust for whether the countries examined faced financial crises just before their populist political experiments began.

The question remains, though, whether a study encompassing and deriving averages or medians from a group of countries containing many chronically impoverished lands, as well as the high-income United States, can tell us about the latter, whose single populist leader during the period studied served for just a single brief term. Interpreting this American experience is further complicated by three important, concrete factors the authors apparently haven’t considered.

First, the pre-Trump growth rates of the United States were artificially inflated by interlocking bubbles in housing and consumer spending. And because the growth stemmed largely from these massive bubbles, by definition it should never have reached the levels achieved. So viewing that bubble-period growth as an achievement of establishment leaders isn’t exactly kosher methodology. Even more important: The financial crisis that (inevitably) followed these establishment-created bubbles nearly crashed the entire world economy. So maybe this debacle deserves at least a little extra weighting?

Second, U.S. growth during the populist Trump years compared well with that of the second term of the establishment-y Obama administration, especially before the CCP Virus struck and much economic activity was either voluntarily depressed or actually outlawed. For example, during the first three years of Donald Trump’s presidency, gross domestic product (GDP) after inflation (the most widely followed measure), increased by 7.68 percent. During the first three years of the second Obama term, it rose by 7.63 percent. And don’t forget: American economic expansions usually don’t speed up the longer they last.

Even if you include the results of pandemic-stricken 2020, real GDP improved by 3.90 percent under Trump – a rate much lower than the four-year Obama total of 9.47 percent, but hardly disastrous. Moreover, since this growth has already begun accelerating once again, the claim that Trump’s policies did lasting damage looks doubtful.

The price-adjusted GDP per capita statistics (i.e., how much growth the economy generates per individual American), tell a similar story. During the full second Obama term, this number improved by 6.25 percent as opposed to the four-year Trump advance of just 2.46 percent.

But the pre-CCP Virus comparison shows a 5.58 percent climb under Trump versus 4.81 percent during the first three years of Obama’s second term. And here again, the levels have snapped back quickly so far after plummeting during the worst pandemic and lockdown months. Therefore, the populist Trump administration likely left the pre-Trump trends intact at the very worst.

Third, if you want to go international, the Trump economic record holds up well compared to those of establishment leaders in Germany and France. During the CCP Virus year 2020, France’s economy shrank in real terms by 5.01 percent, and Germany’s by 3.88 percent. The U.S. contraction? Just 2.46 percent.

No reasonable person would conclude that these comparisons prove once and for all that American populism has been vastly superior in economic policy terms. And it’s entirely possible that the U.S. record has no or few lessons to teach other countries. But for Americans, nothing in this paper indicates that they’ve paid any “cost of populism,” and a deeper dive uncovers evidence that they’ve actually benefited.

(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: Mixed U.S. Trade News for June – but Little Good on China or Manufacturing

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CCP Virus, China, coronavirus, COVID 19, exports, global financial crisis, goods, Great Recession, imports, manufacturing, merchandise trade, Phase One, Trade, trade deficit, Wuhan virus, {What's Left of) Our Economy

This morning’s report from the Census Bureau on the newest (June) monthly U.S. trade figures is classic mixed bag – at best. The combined goods and services deficit came down for the first time since February, and a several new export growth records were set. Yet the results in China goods and manufacturing trade disappointed and the export records come with big asterisks – the strong growth followed much steeper CCP Virus-related nosedives.

The total U.S. trade gap narrowed by 7.48 percent on month in June, from May’s upwardly revised $54.80 billion to $50.70 billion. The results brought this trade deficit down 16.86 percent year-to-date – from $297.45 billion to $274.31 billion.

The monthly improvement was led by an all-time best 9.38 percent jump in exports – from $144.69 billion to $158.25 billion. (The data, which go back to 1992, show that the previous record was 8.52 percent, set in February, 1994.)

All the same, the June monthly goods and services export total was still the third lowest (after the April and May figures) since August, 2010’s $157.77 billion. In this vein, the June export advance needs to be seen in the context of the all-time worst 31.67 percent cratering of exports that occurred between February and May. Indeed, this three-month nosedive dwarfed that experienced during the gloomiest three months of the Great Recession that followed the global financial crisis (17.12 percent between October, 2008 and January, 2009). Moreover, total exports are down 15.75 percent on a January-June basis.

As for total imports, they rose 4.74 percent sequentially in June from an upwardly revised $199.49 billion to $208.95 billion. The increase, while not as historic as that for exports, was nonetheless the biggest since March. 2015’s 6.71 percent (also affected by natural disruption – that winter’s blizzards).

Yet virus-related distortions were clearly at work here, too, as the June import increase followed a 19.05 percent drop in total U.S. purchases from abroad between February and May. (Interestingly, the Great Recession’s greatest three-month import fall-off was a slightly larger 22.32 percent – and as with exports, took place between October, 2008 and January, 2009.)

For flows of goods specifically, the 5.29 percent June decline in the trade deficit (from an upwardly revised $76.18 billion in May to $72.15 billion) was also the first monthly decrease since February.

June’s 14.49 percent monthly advance in goods exports was another record – significantly exceeding the 9.01 percent registered in March, 1994. Even so, this impressive performance represented another incomplete recovery from a virus-related blow. For it came on the heels of a 35.01 percent collapse in these shipments between February and June – a fall-off much bigger than that seen between the Great Recessionary period between October, 2008 and January, 2009 (21.51 percent).

So it shouldn’t be surprising that June’s $102.87 billion goods export figure was the third lowest (again, after April and May) since April, 2010. Moreover, on a year-to-date basis, goods exports are 16.74 percent below 2019’s levels.

Goods imports were up 5.42 percent month-to-month in June. As with total trade, this change was considerably smaller than that for exports, and below the record of 7.78 percent set in March, 2015. (Those blizzards again.) But it, too, was CCP Virus-distorted, since it followed a 16.42 percent fall from Feb. through May.

The US-#China goods #trade deficit rose by 6.46% on-month in June, from $26.96 billion $28.40 billion. The only good news embedded in this result is that the monthly rate of growth slowed maredly from May’s 19.99 percent. The June number, moreover, was the highest since last October’s $31.26 billion.

Most discouraging – U.S. merchandise goods exports to the recovering economy of the People’s Republic were down 4.14%, month-to-month, from $9.64 billion to $9.24 billion. Especially important – overall U.S. goods sales to China on a January-June basis are running nearly 16 percent below their 2017 level, the baseline year for judging Beijing’s U.S. import commitments under the Phase One trade deal. The total import number doesn’t necessarily mean that China is way behind on this pledge, since it covered many specific sectors of the economy. But so many sectors are covered that the lag does raise important treaty violation questions.

U.S goods imports from China rose 2.85 percent sequentially in June, from $36.60 billion to $37.64 has also slowed significantly from the 17.79% monthly jump in May and the nearly 57 percent surge in April. That month’s performance reflected the restart of China’s factories following widespread CCP Virus-related shutdowns that depressed these sales to the US by 40.49 percent between January and March.

Manufacturing’s June trade figures were even worse. The deficit increase 5.30 percent over May’s $84.68 billion total, and the new $89.16 billion mark was the biggest since last October’s $92.70 billion.

Between May and June, manufacturing exports grew a healthy 15.46 percent, from $61.88 billion to $71.45 billion. But the much greater amount of imports expanded strongly as well, from $146.55 billion to $160.61 billion, or 9.59 percent.

Year-to-date, though, the manufacturing trade deficit is off by 4.53 percent, with exports running 17.17 percent below comparable 2019 levels and imports 11.24 percent less.