(What’s Left of) Our Economy: The Latest Data Remain Full of Normalization Puzzles

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(What’s Left of) Our Economy: New U.S. GDP Figures Report Record – and Virus-Distorted – Trade Deficits

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

Because the entire U.S. economy has been so distorted by sudden stop-start nature of the CCP Virus and subsequent lockdowns and reopenings, and massive government stimulus measures, I’ve been hesitant to draw firm conclusions about the messages sent by the various reports on the economy’s performance issued by the government since the pandemic arrived.

I’m still hesitant, but this morning’s Commerce Department report on the economy’s growth in the first quarter of this year seemed especially interesting due to the signs it contained that America’s trade flows might be returning to some semblance of normality. The signs consist of quarter-to-quarter changes in deficits, exports, and imports that are decidedly moderating.

To start, that conclusion is also consistent with the moderating of changes in economic growth itself. Measured in inflation-adjusted terms, this intiial read on America’s gross domestic product (GDP – the total of goods and services turned out by the nation) revealed growth of 6.24 percent at an annual rate in the first quarter. By the standards of normal times recent decades, this is a blistering pace. In fact, leaving out the pandemic period, it was the best such performance since the 6.80 percent achieved in the third quarter of 2003.

But by pandemic standards, although it’s a speed up from the 4.26 percent registered in the fourth quarter of last year, it’s not that much of a speed up, especially given how much stimulus has been poured into the economy. And compared with the 29.91 percent real GDP pop in last year’s third quarter, however, it’s definitely smallish beans.

The trade figures comprising part of this GDP report generally followed suit. For example, the first quarter’s after-inflation trade deficit of $1.1755 trillion was an all-time quarterly record both in absolute terms, and more important, as a share of the whole economy (6.16 percent). The last time the trade deficit’s relative size was remotely that big was during the fourth quarter of 2005 (6.10 percent) – during a time now known as the bubble decade that preceded the financial crisis and Great Recession of 2007-2009.

Yet the deficit’s quarter-to-quarter growth rate of 4.77 percent was considerably slower than the fourth quarter’s 10.12 percent, and the record (by a long shot) 31.47 percent recorded during that extraordinarily high growth third quarter.

The same pattern is unfolding so far with the trade gap in goods. At $1.3463 trillion annualized it marked the third straight quarterly record in absolute terms. But the sequential growth rate of 3.46 percent was well off quarterly the rate of 6.94 percent in the fourth quarter, much less the 21.58 percent in the third quarter.

Trade in services – the part of the national and global economies hardest hit by the virus and the lockdowns – has taken less of a straight line route in terms of quarterly change, but moderation can be seen here, too. The quarterly surplus of $165.1 million was the smallest recorded since the $1.57 million during the third quarter of 2009 – when the economy was just beginning to crawl out of the Great Recession.

The quarterly shrinkage of 4.95 percent was, though, As less than a third as great as the fourth quarter’s 17.29 percent – though that nosedive was greater than the third quarter’s 10.48 percent.

Approaching normality was also indicated by another trade-related figure – the degree to which these changes in the deficit have affected overall growth. During the first quarter of this year, the sequential rise of the price-adjusted trade deficit subtracted 0.87 percentage points from annualized real GDP growth figure, which hit 6.24 percent. So that trade shortfall increase affected 13.94 percent of the growth figure (for the worse).

As discouraging as that result was, however, the trade effect was much smaller than in the fourth quarter of last year. Then, the big surge in the inflation-adjusted trade gap cut 1.53 percentage points from real GDP growth, which hit 4.26 percent annualized. In other words, the trade deficit affected 35.92 percent of the growth figure (again for the worse).

The trade affect was actually smaller in relative terms during the record GDP growth third quarter – reducing real GDP expansion, which neared 30 percent at annual rates, by 3.21 percentage points.

But for some context, the last time the trade hit to real economic growth was seen in this statistical neighborhood was the third quarter of 1982, when dragged down a sequential after-inflation contraction of 1.53 percent by 3.22 percentage points. That is, without the increase in the trade deficit, the overall economy would have grown. And the all-time record was set way back in the fourth quarter of 1947 – when a rising trade shortfall cut 4.23 percentage points out of a growth rate that his 6.25 percent annualized.

Larger trade effects have been seen occasionally when a quarterly improvement in the deficit bolstered growth. But these instances came during deep downturns – as in the second quarter of 1980 and the first quarter of 1975.

Nevertheless, a case can be made that the CCP Virus related distortions of the economy and U.S. trade flows still have a ways to go. After all, more massive government stimulus seems to be coming, and new pandemic waves are washing over major portions of Europe and Asia, which of course are important American export markets. And until the roller coaster ride is over, assessing the true state of the economy and trade flows will remain a serious challenge.

Moreover, even if the distortions are indeed over, these particular trade figures are of little help in assessing the ongoing impact of the Trump trade policy revolution engineered from 2017 to last year.  Luckily, the next set of needed details is due out next Tuesday, when the March monthly trade report is slated to be released.      

(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: A Trump-y New U.S. Trade Report – in a Good Way

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Biden, CCP Virus, China, coronavirus, COVID 19, Donald Trump, exports, goods trade, imports, Made in Washington trade deficit, manufacturing, non-oil goods trade deficit, Phase One, services trade, Trade, trade deficit, trade war, Wuhan virus, {What's Left of) Our Economy

Although it covered a presidential transition month, there wasn’t much transitional about the official U.S. international trade figures for January that came out Friday. Trump-y policy fingerprints were all over them – and mostly in a good way – mainly in the form of continuing declines in the monthly deficits for China and the manufacturing sector, two main targets of the former President’s efforts to reduce the overall shortfall.

At the same time, also visible were the distorting affects of the CCP Virus, and the stop-and-start nature of so much economic activity in the United States and throughout the world, which seem certain to impact all economic data for several more months.

Overall, the combined goods and services trade deficit rose 1.86 percent sequentially in January, and the $68.21 billion total was the second highest on record – after November’s $69.04 billion. The goods deficit also hit its second largest total in history, with its $85.45 billion level representing a 1.58 percent increase over December’s total, and trailing the $86.89 billion all-time high also set last November. The services surplus, meanwhile, inched up on month in January by 0.47 percent, to $17.24 billion. This monthly improvement was the first since June for this virus-battered segment of the U.S. and world economies.

Total exports rose by a mere 0.53 percent, to $191.14 billion, and goods exports grew by 1.56 percent, to $135.66 billion. These were the best monthly performances in both categories since last February. Services exports, however, dipped for the first time since July, with the 0.47 percent monthly January decrease bringing the level to $56.28 billion.

A new record was set on the import side – January goods purchases from abroad reached $221.11 billion, surpassing October, 2018’s 218.91 billion, and exceeding December’s total by 1.57 percent. Total imports grew by 1.19 percent on month, to $260.16 billion, but services imports fell sequentially in January by 0.88 percent, to $39.05 billion – the first monthly decrease since May.

In an apparent setback for Trump’s tariffs and other elements of his trade policy, January also saw the second highest monthly deficit in U.S. non-oil goods trade. RealityChek regulars know these trade shortfalls as the “Made in Washington trade deficit”, since they strip out the results for petroleum and services – sectors that are rarely dealt with in trade deals or similar policies, and in which liberalization efforts remain minor.

But the $85.52 billion January level has been topped only by November’s $86.40 billion.

Nonetheless, the U.S. manufacturing deficit in January sank by 6.32 percent, from $106.52 billion to $99.79 billion. The decrease was the third straight, and the monthly gap was the smallest since last June’s. Manufacturing exports declined by 3.47 percent sequentially, to $81.66 billion, while imports dropped by a greater 5.05 percent, to $181.46 billion.

One big reason for this encouraging manufacturing performance was the January narrowing of the manufacturing-heavy U.S. goods deficit with China. January’s $26.50 billion total was 3.60 percent lower than December’s $27.23 billion, and the best such figure since May’s $26.96 billion.

U.S. goods exports to the People’s Republic plunged sequentially by 12.19 percent, to $12.86 billion, and this fall-off was especially discouraging given Beijing’s commitments under the year-old Phase One trade deal to boost imports. Moreover, the monthly decrease (to the lowest level since October) was the biggest percentage-wise since the January, 2020 crash dive of 18.96 percent, when much of China’s economy was shut down by the virus.

Yet China’s much greater goods exports to the United States fell by 6.60 percent, from $41.86 billion to $39.11 billion. This monthly total was the lowest since July’s $40.66 billion, and the sequential decrease also was the third straight. This slump, coming on top of the 3.59 percent decrease in U.S. goods imports from China in 2020, was no doubt due in part to the Trump tariffs on some $360 billion worth of Chinese goods that were as central to the former President’s China trade policies as the trade deal, and that President Biden has decided to keep so far.

Even more important, it can’t be a complete coincidence that U.S. manufacturing output has held up well during the pandemic period as these levies stayed in place. They must have played a significant role in preventing Chinese products from outcompeting their domestic counterparts for the American demand for manufactures that the virus left over.

As a result, the clearly related China and manufacturing performances could be teaching a valuable lesson to the Biden administration: Although virus-related distortions to U.S. trade flows will end sooner or later for reasons only partly related to official policy decisions, the fate of Trump’s China tariffs is entirely up to the President. That makes his eventual decision whether to continue or lift them the most important trade-related wildcard of all still facing the U.S. economy.

(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: No Trade Highlights in the Year-End 2020 U.S. GDP Figures

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

With this morning’s release of the official figures on fourth quarter and 2020 U.S. gross domestic product (GDP), the process of closing the books on the Trump economy took a big step forward. For even though several more revisions of this advance result will be coming (starting next month), these data show preliminarily how the American economy shrank during the first CCP Virus year, and of course the final year of Trump’s presidency, and how the pandemic influenced the nation’s trade flows.

The headline figures will be widely reported, but are worth presenting anyway. The new numbers show that the economy shrank in 2020 in inflation-adjusted terms (the most widely followed gauge) of 3.50 percent. How bad is that? It’s not only the worst such performance since the Great Recession that followed the global financial crisis. (In 2009, real GDP sank by 2.53 percent.) It’s the worst such performance since 1946. The year after the end of World War II, when bloated levels of military output understandably nosedived, national output cratered by 11.60 percent.

Also discouraging – the sequential growth during the fourth quarter was only 3.95 percent at an annual rate. This pace both came in well below generally reliable forecasts like that put out by the Atlanta branch of the Federal Reserve, and means that little lasting momentum was created by the third quarter’s virus- and reopening-related record rebound of nearly 30 percent annualized after inflation.

The only positive takeaway possible this news is that this “miss” largely reflected government orders literally to shut down or keep shut down economic activity, as opposed to the kinds of market-related forces (and purely economic policy decisions) that normally determine growth and contraction rates. So once the pandemic is over, economic normality and some degree of growth should return. In fact on Tuesday, the International Monetary Fund projected that, by the end of 2022, the United States will be the country that’s back closest to its pre-CCP Virus growth path. (The Fund’s prediction, though, of course preceded these new subpar fourth quarter U.S. GDP figures.

The trade component of the GDP figures has been just as thoroughly distorted as the overall numbers. At $925.8 billion in price-adjusted terms, the 2020 trade gap set a new annual record, and represented an increase of 0.89 percent over 2019’s total. And this rise, however modest, was startling on its face since the shortfall almost always decreases when growth shifts into reverse. Should Donald Trump’s trade policies therefore be labeled a failure? We’ll find out more when the detailed year-end trade statistics as such come out (on February 5).

Interestingly, the new GDP figures indicate that most of the trade deficit’s year-on-year worsening ($8.2 billion in real absolute terms) came on the goods side, even though national and global services industries have taken the biggest economic hit by far during the pandemic. Yet the American inflation-adjusted services surplus dipped by only $24.7 million between 2019 and 2020.

For all of 2020, total U.S. real exports plummeted by 12.96 percent, from $2.5466 trillion to $2.2165 trillion. The latter is the lowest level since 2012, and the fall-off was the biggest percentage-wise since the 13.49 percent decline in 1958 – when trade flows were much smaller in absolute terms, and therefore big percentage moves in either direction much easier to generate.

Goods exports last year dropped by 9.46 percent in price-adjusted terms, from $1.7825 trillion to $1.6138 trillion. The latter was the lowest level since 2013, and the decrease the biggest in percentage terms since 2009’s 11.86 percent. (Goods and services trade figures began to be reported separately by the Commerce Department only since 2002).

As expected, the damage to services exports was considerably greater. They plunged by 19.20 percent between 2019 and 2020 – by far the biggest plunge ever – and last year’s $620.2 billion level was the lowest since 2010.

Overall U.S. imports worsened as well in 2020, sinking by 9.29 percent, from $3.4642 trillion to $3.1423 trillion. The year’s total was the lowest since 2015, and the drop the biggest in percentage terms since the 13.08 percent slump in 2009.

As with exports, the goods imports decrease was relatively modest. Yet their 6.05 percent decline (from $2.9234 trillion to $2.7644 trillion) was also the greatest relatively speaking since 2009’s 15.30 percent, and consequently they reached their lowest level since 2016.

Services imports, by contrast, contracted by 22.59 percent, from $543.1 billion to $420.4 billion. This decrease was by far the biggest ever by any measure, and dragged these purchases to their lowest level since 2009.

The fourth quarter’s combined inflation-adjusted goods and services trade deficit hit an all-time high for such three-month periods as well, with its $1.1211 trillion annualized total slightly surpassing the previous record (set in the third quarter) by ten percent.

Quarterly total real exports of $2.2770 trillion annualized were 5.10 percent higher than the third quarter total of $2.1665 trillion. But they remained well below the first quarter’s $2.4951 trillion – just before the virus’ first wave and full economic effects hit with full force.

The comparable goods exports total rose by 7.65 percent, to $1.7232 trillion annualized. But they, too are off their last pre-CCP Virus levels – by 2.89 percent.

After-inflation services exports improved sequentially, too – by 1.07 percent, from $581.3 at an annual rate to $587.5 billion. But in the first quarter, they stood at $730.1 billion – 19.53 percent higher.

Total real imports increased faster during the fourth quarter than total real exports, expanding by 6.67 percent, from $3.1855 trillion annualized to $3.3981 trillion. As a result, they’re now actually higher than their last quarterly pre-pandemic level – by 3.50 percent.

Constant dollar goods imports have risen robustly, too. They passed their first quarter level by the third quarter, and in the fourth quarter advanced by another 5.13 percent (from $2.8723 trillion annualized to $3.0238 trillion.

Real services imports improved significantly as well. Their $413.6 billion annualize fourth quarter total represents a 5.16 percent gain from the third quarter total. But they’re still 17.69 percent below their last pre-pandemic quarterly level of $502.5 billion.

Two other findings of note: First, although the increase in the annual constant dollar trade deficit reached an all-time high last year, its effect on economic performance was relatively slight. The trade gap’s widening accounted for 0.13 percentage points of that 3.50 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.

Second, on a quarterly basis, the trade bite was much deeper, as the deficit’s increase subtracted 1.52 percentage points off of the 3.95 percent sequential inflation-adjusted 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 a full 2.23 percentage points higher if not for the sequential increase in the trade deficit.)

(What’s Left of) Our Economy: A Strange U.S. Monthly Trade Report Even by 2020 Standards

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Agence France-Presse, Boeing, China, goods trade, goods trade deficit, manufacturing, manufacturing trade deficit, merchandise trade, services trade, Trade, trade deficit, {What's Left of) Our Economy

Because the economy, its strengths and weaknesses, and the policy issues they raise haven’t disappeared despite, yesterday’s outrageous attack on the U.S. Capitol Building, I’m reporting as usual in detail on this morning’s monthly international trade figures (for November).

But a first read of the data, anyway, reveals something pretty unusual (aside from the now-standard CCP Virus- and lockdowns-related distortions) – the 7.97 sequential increase in the combined goods and services deficit, to the second biggest monthly level ever, came from a very large number of sources. And some of the biggest standard culprits (including recent problem sectors like services) played a very minor role.  

At the same time, it’s important to remember that the makeup of that all-time worst overall monthly trade gap ($68.28 billion, in August, 2006), was completely different from the latest $68.14 billion total in that 38.31 percent consisted of oil. The latest trade data show a small oil surplus. That change has major policy implications, since (as known by RealityChek regulars), it means that now the entire trade shortfall in goods (the bulk of the overall deficit) comes in those flows heavily influenced by trade policy. And we’ll get back to that “Made in Washington” portion of the trade gap below.

The November figure brought the year-to-date total trade deficit figure to $604.82 billion – 4.85 percent bigger than last year’s counterpart of $576.85 billion. As a result, the December results are certain to produce a new annual record (currently held by 2018’s $579.94 billion).

Nevertheless, this projected figure as a share of the total U.S. economy (measured as pre-inflation gross domestic product or GDP) would be well below 2006’s record of 5.58 percent, and could trail some levels hit in the 2010s.

Meanwhile, the goods, or merchandise, trade deficit hit its own all-time high in absolute terms (not the relative terms described immediately above), with the $86.36 billion level topping August’s $83.90 billion. And the November surplus of $18.21 billion represented the worst monthly services trade performance since August, 2012’s $17.08 billion.

The rise in the November overall trade deficit stemmed entirely – and then some – from the 2.94 percent increase in total imports from $245.11 billion to $252.32 billion. And worsening goods imports were just about the whole story, growing 3.04 percent sequentially from $207.76 billion to $214.08 billion. Total exports improved by 1.19 percent, from $182.00 billion to $184.17 billion.

As suggested above, the “Made in Washington” trade deficit (which strips out not only oil, but services, since the former is almost never the focus of trade policy, and liberalization in the latter remains embryonic globally) hit a new monthly record, too. The $85.70 billion November figure was 5.54 percent higher than October’s $81.20 billion total, and slightly exceeded August’s previous $84.65 billion all-time high.

Standing at $830.21 billion to date this year, this trade gap, too, will certainly top the annual record of $840 billion set in 2019.

Strangely, though, two of the biggest historical pieces of the trade deficit – the China goods and manufacturing gaps – were little changed on-month in November.

The former increased by 1.90 percent month-to-month, to $30.68 billion, as U.S. exports fell slightly and the much greater amount of imports increased fractionally. Moreover, year-to-date, this deficit is down 11.51 percent year-to-date, making clear that the Trump tariffs have diverted trade to countries that much friendlier politically, and much less predatory economically.

More evidence for this proposition – and for the overall economic success of the Trump levies: As recent news accounts of China’s official trade figures continually emphasize, the People’s Republic’s global goods exports have been booming lately. This Agence France-Presse article reported that China’s November goods exports represented a 21.1 percent jump on a year-to-date basis, and its merchandise trade surplus surged 29.06 percent on-month.

But if the U.S. November data are to be believed, almost none of this Chinese growth – and, most significant, its trade-fueled economic growth – has been achieved at America’s expense.

The even more chronic and much bigger manufacturing trade deficit actually declined slightly on month in November – by 1.74 percent from October’s record $110.20 billion. But at $108.28 billion, this monthly trade shortfall was still the second biggest of all time.

Year-to-date, the manufacturing trade gap stood at $1.00626 trillion – 5.83 percent bigger than last year’s $950.86 billion. As a result, the 2020 annual figure will certainly break last year’s record $1.03314 billion. But it will be important is by how much, since this trade deficit’s annual growth has slowed markedly since 2013 – from 11.78 percent in 2014 to 1.31 percent in 2019. In fact, as previously reported here, if not for Boeing’s safety woes crippling the trade performance of the big surplus-generating aerospace sector, the 2019 manufacturing trade deficit would have barely worsened at all.

(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: New U.S. Figures Show That a Trumpian Trade Boom Could Follow Trump

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aerospace, automotive, Boeing, CCP Virus, Census Bureau, China, consumer electronics, coronavirus, COVID 19, goods trade, healthcare goods, manufacturing, merchandise trade, Phase One, recession, services trade, Trade, trade deficit, travel, Wuhan virus, {What's Left of) Our Economy

As usually the case when the U.S. government’s data keepers, in their infinite wisdom, decide to issue several sets of important statistics on the same day, I prioritized the monthly jobs report in last Friday’s blogging. After all, it may be the nation’s single most closely followed economic indicator.

But that doesn’t mean that the monthly trade figures released on the same day deserved to be overlooked. In fact, they were unusually interesting for making clearer than ever how these numbers have been thoroughly distorted this year – and for the worse, in terms of America’s trade deficits – by the CCP Virus’ impact on the U.S. and global economies. The effects were especially evident in aerospace trade, which has suffered both from the virus’ decimation of much air travel around the world, and from the lingering damage inflicted by Boeing’s safety woes.

At the same time, these distortions also both point to a big silver lining for U.S. trade and especially the country’s manufacturing sector – especially if apparent President-elect Joe Biden is smart enough to keep most of President Trump’s tariffs in place. For if these trade curbs – highly concentrated on Chinese goods – remain largely on the books, not only will the pandemic’s eventual  (vaccine-induced?) end and recent steps toward returning Boeing’s troubled 737 Max model to the air boost the huge aerospace sector tremendously. In addition, domestic industry will be able to keep making progress filling the demand gap that’s clearly been left by the absence of Chinese products in the U.S. market, and capitalizing on Beijing’s commitment under the Trump Phase One trade deal to increase its imports from the United States.

As for the new monthly trade data – which cover October – one of the biggest stories concerned the revisions of September data, which dramatically changed the overall trade deficit number, and which stemmed almost entirely from astounding new services trade figures.

October’s combined goods and services trade deficit came in at $63.12 billion, according to the Census Bureau analysts who monitor the nation’s trade flows. On the surface, that represented a 1.68 percent increase over September’s total, and continued a troubling pattern of the overall trade gap continuing to widen even though the CCP Virus and associated business and consumer restrictions keep depressing U.S. economic growth dramatically.

Indeed, the October monthly total deficit was the second highest figure recorded since July, 2008’s $66.99 billion. And on a year-to-date basis, this shortfall is now 9.50 percent bigger in 2020 than in 2019.

But that September trade gap itself was revised down from the previously reported $63.86 billion – a huge 2.79 percent adjustment. And all that revision and much, much more resulted from re-estimates of the service trade numbers – where the surplus was revised up from $16.82 billion to $18.69 billion. Even given the relative difficulty of measuring any service sector economic activity, that 11.10 percent revision is nothing less than a mind-blower.

Underscoring the virus effect on all the service sub-sectors that go into economic activity, and on the travel industry in particular, the October service surplus of $18.29 billion was a 2.17 percent sequential decline, and the smallest such figure since August, 2012’s $17.08 billion. And through the first ten months of this year, the service surplus has shrunk by 15.60 percent.

The monthly and year-to-date moves in goods trade haven’t been nearly as big. This deficit did hit $81.41 billion in October (the second largest such total ever, after August’s $83.90 billion). But the monthly increase was only 1.28 percent, and year-to-date this merchandise gap has risen by a mere 1.28 percent.

Still, it’s legitimate to ask why the goods trade gap has risen at all with the economy still exiting (however rapidly in the third quarter) its deepest downturn since the Great Depression of the 1930s. It’s also legitimate to ask whether this increase despite a major (14.01 percent) drop in the year-to-date China goods deficit means that the Trump tariffs simply shifted this shortfall to other countries.

Given China’s burgeoning power and its growing aggressiveness around the world, the strategic benefits of such “trade diversion” to much less threatening countries shouldn’t be minimized. But in purely economic terms (which matter considerably), the Trump policies appear to be nothing more than a wash, and a disruptive one to corporate supply chains.

And this is where the aerospace sector comes in. From January-October, 2019 to the same period this year, the U.S. surplus in civilian aircraft, aircraft engines, and non-engine aircraft parts combined has plummeted by $43.48 billion. Had it simply remained at its 2019 levels, the huge, chronic U.S. manufacturing trade deficit – a major measure of domestic industry’s health as the Trump administration and many others, like me, see it – would be down on a year-to-date basis by five percent, rather than up by 3.22 percent.

As for the combined goods and services deficit, had the aerospace surplus not worsened, it would have increased by only 0.63 percent (to $493.21 billion), not 9.50 percent (to $536.69 billion). And if the services surplus remained the same rather than plunging by $37.26 billion, the year-to-date total trade deficit would look even better. In fact, the total trade gap actually would have shrunk during this period by 6.97 percent, to $455.95 billion.

Not that the Trump tariffs have solved all of U.S. manufacturing’s trade, or the nation’s overall trade woes. In October, industry still recorded its biggest monthly deficit ever ($110.20 billion) even though the aerospace surplus soared by nearly 36 percent sequentially. The big automotive and consumer electronics products deficits kept growing, and although detailed enough October data haven’t been posted yet, so, too, surely have been the shortfalls in protective and other pandemic-related medical equipment.

But the good October aerospace numbers indicate that this trade-crucial sector is already starting to reverse its fortunes, and as the pandemic subsides, the services trade surplus should return to normal levels as well. If a Biden administration keeps its promises to reshore crucial medical- and national security-related supply chains, the manufacturing trade balance will clearly benefit as well. And if, as he’s indicated he will, the former Vice President holds off on lifting the Trump China tariffs, and keeps the Phase One deal in force, domestic industry could be headed for salad days not only in trade terms, but on the production and employment fronts as well.

(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.