(What’s Left of) Our Economy: Trade-Wise, the New U.S. GDP Report Reveals the Worst of All Worlds

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currency, dollar, exchange rates, exports, GDP, goods trade, gross domestic product, imports, inflation, inflation-adjusted growth, real GDP, real trade deficit, services trade, trade deficit, {What's Left of) Our Economy

The U.S. economy’s quarterly shrinkage in the first quarter of this year that U.S. government data just revealed – the first such inflation-adjusted decline since the darkest days of the CCP Virus pandemic in the second quarter of 2020 – was led by leaps and bounds by a soaring and all-time record quarterly U.S. real trade deficit.

Even as the gross domestic product (GDP – the chief measure of the economy’s size) fell sequentially in price-adjusted terms by 1.42 percent at annual rates, the after-inflation trade gap swelled to a record $1.5417 trillion by the same measure. In other words, the trade deficit and growth arrows are moving in the worst possible combination of ways.     

This ballooning reduced real GDP in the first quarter by 3.20 percentage points – the biggest such subtraction in absolute terms since the 3.25 percentage point loss recorded in the third quarter of 2020 (when the economy was rapidly recovering from the deep downturn induced by the first CCP virus wave).

Had the price-adjusted trade deficit simply stayed the same in the first quarter, the economy would have actually expanded by 1.78 percent at annual rates.

Moreover, this soaring constant dollar trade deficit’s hit to growth was the greatest since the second quarter of 1982, when the shortfall’s sequential surge reduced growth by 3.22 percentage points as the economy shriveled by 1.53 percent after inflation. And for good measure, the quarterly swing in the trade deficit’s effect on growth (from a 0.23 percentage point subtraction) was the greatest in absolute terms since that first pandemic recovery between the second and third quarters of 2020 – when the impact changed from a 1.53 percentage point boost to growth to a 3.25 percentage point contraction.

The first quarter’s record trade deficit was the seventh straight, and the 14.19 percent sequential widening was the biggest since the 31.81 percent jump between the second and third quarters of 2020 – again, when the economy was bouncing back rapidly from that pandemic-induced cratering, not contracting. In fact, these latest GDP figures revealed the first time that both the economy shrank and the trade deficit grew since the first quarter of 2020 – when the virus’ economic impact was first starting to be felt.

At least as bad, at 7.81 percent of real GDP in the first quarter, the relative size of the inflation-adjusted trade deficit blew past the old record of 6.82 percent – set in the previous quarter. Since the fourth quarter of 2019, the final quarter before the CCP Virus began impacting the U.S. economy significantly, the overall inflation-adjusted trade gap is up by fully 81.89 percent.

Nor did the all-time and multi-month worsts stop with the total real trade deficit.

The first quarter real goods trade deficit of $1.6685 trillion annualized was the seventh straight record and the 13.65 percent increase over the fourth quarter tota was the biggest sequential rise since the 20.40 percent between the second and third quarters of 2020 – during that early pandemic recovery. Since the CCP Virus era began, the after-inflation goods trade shortfall has worsened by 55.73 percent.

The firist quarter’s services trade surplus of $120.9 billion annualized was actually slightly higher than the fourth quarter’s $120.1 billion, and represented the third straight quarter of improvement. The absolute level, moreover, was the highest since the $152.4 billion recorded in the second quarter f 2021. But since the fourth quarter of 2019, the services surplus is down by 44.46 percent, reflecting the uusually hard virus-related blows this portion of the economy has suffered.

Inflation-adjusted combined goods and services exports dipped by 1.51 percent on quarter – from an annualized $2.3906 trillion to $2.3545 trillion. The drop was the fourth in the nine quarters since that first pandemic-affected first quarter of 2020. On a quarterly basis, total U.S. constant dollar exports are down 7.79 percent since the last pre-pandemic fourth quarter of 2019.

Yet total imports achieved their fifth straight quarterly record, reaching $3.8963 trillion in real terms at annual rates. The 4.16 percent sequential increase was only slightly smaller than the 4.21 percent rise in the fourth quarter of last year. These imports are now 14.57 percent greater than they were in the immediate pre-pandemic fourth quarter of 2019.

Goods exports sank by 2.50 percent on quarter, from an after-inflation $1.793 trillion at annual rates to $1.7482 trillion. The sequential drop was also the fourth in the nine quarters since the pandemic first arrived in the United States and the biggest since the 23.08 percent collapse in the second quarter of 2020. Quarterly goods exports have now decreased by 1.92 percent since the fourth quarter of 2019.

Constant dollar goods imports grew by 4.77 percent in the quarter, from $3.2611 trillion annualized to a second consecutive record of $3.4167 trillion. The increase was the third in a row, and its rate was the fastest since the 6.80 percent for the fourth quarter of 2020. On a quarterly basis, these overseas purchases have surged by 19.72 percent since just before the pandemic struck in force.

Real services exports climbed 0.94 percent sequentially in the first quarter, from $627.7 billion at annual rates to $633.6 billion. This second straight advance propelled these sales to their highest absolute level since the first quarter of 2020’s $695.3 billion. At the same time, quarterly-wise, inflation-adjusted services exports have plummeted 18.11 percent from immediate pre-CCP Virus levels.

Real services imports rose one percent sequentially in the first quarter, and the increase from $507.6 billion to $512.7 billion annualized sent them to their highest level since that immediate pre-pandemic fourth quarter of 2019. But these results still left these purchases 6.27 percent below that $547 billion annualized number.

And the lousy trade news doesn’t seem likely to stop, even if U.S. economic growth continues to under-perform because of multi-decade high inflation, Federal Reserve efforts to tame it by slowing the economy via monetary policy tightening, and ongoing supply chain disruptions due to China’s Zero Covid policy and the Ukraine War.

The main reasons? First, growth overseas is much more vulnerable to supply chain issues than American growth, and all else equal, relative U.S. economic strength will surely pull in more imports and crimp exports. Second, as of today, the U.S. dollar’s recent rise has brought the greenback to its highest level in twenty years, which will increase the cost of American exports versus the global competition and decrease the cost of U.S. imports versus the domestic competition. And finally, the Biden administration has been dropping broad hints that it will cut tariffs on many imports from China before long – ostensibly to help fight inflation.

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(What’s Left of) Our Economy: A February Reprieve from Lousy U.S. Trade News

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CCP Virus, Census Bureau, China, coronavirus, COVID 19, Federal Reserve, goods trade, inflation, manufacturing, monetary policy, non-oil goods trade deficit, oil, services trade, trade deficit, Ukraine-Russia war, Wuhan virus, {What's Left of) Our Economy

It wouldn’t be accurate to start off this post with a statement on the order of “As bad as the full-year 2021 inflation-adjusted trade figures released last week were, the new pre-inflation data for February were good.” But a contrast was unmistakable, with yesterday’s latest monthly report from the Census Bureau containing some decidedly encouraging news – even though the numbers were pre-Ukraine war, and therefore pre- all the disruption to global supply chains – in particular in the food and energy sectors – that the conflict has already brought.

And the story even begins at the beginning. The combined goods and services trade deficit decreased sequentially for the first time since October. The slippage was only 0.05 percent, and the monthly total ($89.19 billion) was still the second highest ever (behind January’s $89.23 billion). But that January figure itself was revised down 0.52 percent.

Goods trade produced somewhat better results. February’s shortfall of $107.47 billion represented its first monthly drop since October, and the decrease was 1.04 percent. The February goods trade gap was the second biggest on record, too, but January’s $108.60 billion mark was downgraded by 0.24 percent.

When it comes to the broadest trade balance results, the only black mark was found in the service sector. In February, its long-time surplus shrank for the second straight month, decreasing by 5.62 percent, from $19.37 billion to $18.29 billion. That total was the smallest since November’s $18.30 billion. At least the January number was revised up by 1.05 percent.

More good news came on the export front. Total American sales abroad climbed 1.84 percent on month to $228.63 billion – a new record that nosed ahead of the previous all-time high (December’s $228.35 billion) by 0.12 percent.

Goods exports were up to on a monthly basis in February – by 1.79 percent, to $158.78 billion. That total was the second highest ever – 0.15 percent below October’s $159.02 billion.

Services exports improved, too in February. At $69.85 billion, they were 1.96 percent higher than January’s $68.51 billion. But reflecting the outsized hit this sector took from the CCP Virus and related lockdowns and behavioral changes, these totals remain below pre-pandemic levels.

Combined goods and services imports set their seventh straight monthly record in February, increasing 1.30 percent from $313.72 billion in January to $317.81 billion. The January total, however, was revised down by 0.12 percent.

Goods imports alone lengthened their string of monthly records, too, in February, with its $266.25 billion total topping January’s $264.59 billion by 0.63 percent. Their January total was downgraded fractionally.

The biggest relative imports increase came in services, where February’s $51.57 billion in purchases from abroad represented a 4.95 percent jump from January’s $49.13 billion. And the February total marked an all-time high – beating November’s $50.49 billion by 2.14 percent.

Oil was responsible for the overall February trade figures not being considerably better. The petroleum deficit soared by $2.67 billion on month, from a miniscule $115 million to $2.78 billion – the highest.monthly total since September’s $3.37 billion. And this surge was led by an 18.57 percent increase in oil imports. The monthly total of $23.11 billion, moreover, was the highest since December, 2014’s $25.01 billion.

Much higher prices per barrel of oil bought obviously deserve the blame for much of this news. But even adjusting for inflation, U.S. oil imports for February increased by 4.31 percent – the biggest relative rise since last May’s 6.47 percent.

In line with the improvement in the overall February trade deficit, the non-oil goods shortfall fell by 3.43 percent on month in February. At $103.56 billion, this deficit – which RealityChek regulars know covers the trade flows most affected by U.S. trade policy – was still the second highest on record, after January’s $107.24 billion. But the decrease was the first since October. And it resulted from the ideal combination of both a rise in exports and a decline in imports.

This ideal combination also encouragingly appeared in the February data for two long-term (and related) problem areas in U.S. trade flows – manufacturing and China.

The chronically huge American manufacturing trade gap shrank in February by 12.01 percent – from a record $121.03 billion to $106.49 billion. The decrease was the third straight and the biggest percentage-wise since the 12.70 percent plunge in November, 2019. In addition, the new level the lowest since April, 2021’s $103.60 billion.

As indicated, moreover, manufacturing exports were up on month in February – by 2.40 percent, from $92.33 billion to $94.55 billion. The increase, however, did follow a 7.80 percent sequential decrease in January that brought these foreign sales to their lowest level since last August.

Manufacturing imports, though, decreased for the third straight month – by 5.78 percent, from $213.36 billion to $201.03 billion. The monthly drop was the biggest in percentage terms since February, 2021’s 6.98 percent (amid the CCP Virus’ powerful second wave), and the new February total was the lowest since last April’s $198.06 billion.

America’s trade with China is dominated by manufactures, so it’s not surprising that its also chronically huge goods surplus with the United States plummeted by 15.69 percent sequentially in February, from $36.37 billion to $30.67 billion. This nosedive was the greatest in percentage terms since the 25.19 percent of February, 2020, when the Chinese economy was still seized up by sweeping CCP Virus-induced lockdowns.

Just as important, this monthly cratering was more than 4.5 times bigger than the monthly drop in the U.S. global non-oil goods deficit – the closest worldwide proxy for U.S.-China goods trade. It’s the latest evidence of the Trump tariffs’ effectivness at keeping enormous amounts of Chinese products out of the U.S. market.

As for the new February U.S.-China goods deficit’s level, it was the lowest since last July’s $28.65 billion.

And goods exports to and goods imports from China moved in exactly the right ways from an American standpoint. The former edged up 1.04 percent, from $11.48 billion to $11.59 billion – a performance that snapped a three-month losing streak. But the latter dropped for the second straight month, by 11.68 percent, from $47.85 billion to $42.26 billion. Decreases in imports from China are typical in post-holiday season February, and this latest drop-off was the biggest in percentage terms since last February’s 13 percent.

All the same, as promising as these February trade results are, one month’s worth of data alone reveal nothing about longer term trends and possibilities. And as mentioned at the outset, the Ukraine war impact is yet to be recorded. Further, more major changes may be in store in the U.S. and global economies, especially as the Federal Reserve is sounding more determined than ever to cool torrid inflation dramatically even if it means slowing growth dramatically. (Unless the central bank chickens out, if only because of the unmistakably political impact such tightening would have during an election year?) And as if all this uncertainty wasn’t enough, never forget that the trade figures are just about the most lagging-y set of indicators that the federal government releases.

So as with so many other dimensions of the U.S. economy, meaningful clarity on trade flows looks unlikely to emerge until the impacts of external shocks like the CCP Virus and the Ukraine war wear off.  That day will come at some point, won’t it?   

P.S. Yes, because my own schedule this past week has been disrupted nearly as much as the economy these last few years, this is my latest effort to catch up on reporting on recent economic releases.  More to come! 

 

(What’s Left of) Our Economy: A Rough January for U.S. Trade

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Advanced Technology Products, ATP, China, goods trade, Made in Washington trade deficit, manufacturing, non-oil goods deficit, Russia, services trade, tariffs, Trade, trade deficit, Ukraine, Ukraine invasion, Ukraine-Russia war, {What's Left of) Our Economy

As known by RealityChek readers, yesterday I decided to put off finishing my normal same-day report on the new official monthly U.S. trade figures in order to spotlight some critical (and oddly neglected) developments in the Ukraine war/crisis.

But the trade results (for January) are still worth examining in detail, even though (as always), they’re lagging indicators, and even though they of course pre-date all the likely disruption to the global economy and U.S. trade flows seemingly sure to stem from the Russian invasion of Ukraine and ensuing conflict.

Notably, the combined goods and services trade gap hit its second straight monthly record in January, rising 9.43 percent sequentially, to $89.69 billion. Moreover, the deterioration came on virtually all key fronts. And the December total was revised up by a big 1.52 percent, from $80.73 billion to $81.96 billion.

The January goods deficit increased, too and hit its third consecutive record. The increase was 6.99 percent, from an upwardly revised $101.75 billion to $108.86 billion.

Meanwhile, the longstanding U.S. surplus in services, which has been considerably depressed by a CCP Virus pandemic that’s hit this sector particularly hard the world over, sank by 4.40 percent, from $19.79 billion to $19.17 billion. The sequential decrease came to 3.13 percent, the decline was the first since August, and the downward revision of the initially reported December level was a huge 4.40 percent.

Total exports fell on month for the first time since September – by 1.73 percent, from an upwardly revised and all-time high of $228.35 billion to $224.40 billion.

Goods exports dipped, too, and also for the first time since September. The decline was 1.47 percent, from a downwardly revised $158.21 billion to $155.89 billion.

As for services exports, they sagged by 2.32 percent, from an upwardly revised $70.14 billion to $68.51 billion. This decline was the first since August.

Overall imports climbed by 1.04 percent, from an upwardly revised $310.30 billion to $314.09 billion, and they hit their sixth monthly record in a row.

Goods imports rose 1.84 percent, from an upwardly revised $259.96 billion to $264.75 billion, and achieved their fifth consecutive all-time high.

Services imports in January, however, decreased month-to-month for the second time in a row – which hasn’t happened since January and February, 2021. The fall-off was 2.01 percent, from an upwardly revised $50.35 billion to $49.34 billion. That latter total was the lowest since August, and the December revision was a substantial 2.38 percent.

As known by RealityChek regulars, non-oil goods trade is the vast portion of U.S. trade flows heavily affected by America’s trade deals and other trade policy decisions – hence my monicker “Made in Washington” trade. (Trade liberalization in services remains at an early stage globally, and oil is rarely on the table in national trade policy-making or diplomacy.)

The export-import gap in this category hit its third straight record in January, widening by 6.55 percent, from $100.56 billion to $107.15 billion.

Non-oil goods exports sank sequentially by 1.72 percent, from $138.38 billion to $136.00 billion, while imports set their fifth straight record. They increased by 1.76 percent, from $238.94 billion to $243.14 billion.

The nation’s oil trade gap soared on a relative basis in January – nearly quadrupling on a pre-inflation basis (the same gauge used for all the numbers in RealityChek trade reports unless specified otherwise). But the January total of $426 million was tiny in absolute terms.

The two big (but modest) exceptions to the January pattern of expanding trade shortfalls came in manufacturing and Advanced Technology Products (ATP).

The former’s chronic and mammoth trade deficit actually retreated for the second straight month in January. The decline was 1.32 percent – from December’s $122.65 billion to $121.03 billion. But the new total was still the third highest ever.

Manufacturing exports plunged by 7.80 percent on month in January, from $100.14 billion to a $92.33 billion level that was the lowest monthly total since August’s $97.13 billion.

Industry’s imports shrank by 4.23 percent in January, from a record $222.79 billion to $213.36 billion – the lowest since September’s $211.33 billion.

The decrease in the January ATP trade deficit was 1.77 percent, from $19.80 billion to $19.45 billion, and the drop was the second in a row – a first since last June and July.

ATP exports plummeted in January from a record $34.46 billion to $29.65 billion. That 13.96 percent drop was the biggest such figure since the 16.55 percent nosedive in January, 2020 – as the pandemic was raging through and locking down China. And the January figure was the lowest since August’s $29.49 billion.

ATP imports were off significantly, and from a record, too. The December-January swoon of 9.66 percent, from $54.36 billion to $49.11 billion, was the biggest since last February’s 13.09 percent, and brought these purchases to their lowest level since last August’s $45.56 billion.

The enormous U.S. goods deficit with China was up in January, but by just 0.61 percent sequentially, from $36.15 billion to $36.37 billion. The increase was much smaller than that for non-oil goods (the closest global proxy for U.S.-China trade) – and adds to the evidence (see most recently here) that the Trump China tariffs have helped rein in this trade gap. But the monthly level was the highest since December, 2018’s $36.60 billion.

U.S. goods exports to China, however, decreased in January for the third consecutive month – by 14.27 percent, from $13.38 billion to $11.47 billion. That drop, moreover – to the lowest level since last September’s $10.91 billion – illustrates again, how short the Trump Phase One trade deal with China keeps falling of its targets.

U.S. goods imports from China declined as well in January – by 3.41 percent, from $49.53 billion to $47.85 billion. That shrinkage was the first since last April, and brought the monthly total to its lowest level since September’s $47.41 billion.

Since, as noted, these January trade figures predate the invasion of Ukraine (as will February’s), future prospects are especially murky.  So the wisest course of action seems to be holding off on the prognostication and focusing on data as it comes out until some clarity emerges – at least until the next next global shock.   

(What’s Left of) Our Economy: A Record Number of Records in U.S. Trade II

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Advanced Technology Products, ATP, Biden, CCP Virus, China, coronavirus, COVID 19, Donald Trump, Federal Reserve, goods trade, interest rates, Made in Washington trade deficit, manufacturing, monetary policy, non-oil goods trade deficit, services trade, tariffs, Trade, trade deficit, trade war, Wuhan virus, {What's Left of) Our Economy

Just because yesterday’s first RealityChek post on the U.S. government’s latest official trade data focused on all the monthly records set by the December monthly results doesn’t mean that the annual figures for 2021 were lacking in all-time highs and lows – and for the same CCP Virus-related reasons.

So let’s get to them – and conclude with some needed context. For as known by RealityChek readers, isolated data don’t tell all the story, or even the most important part of the story. And the big takeaway from examining the context is that in a surprising number of ways, 2021 looked pretty ordinary trade-wise.   

For now, though, let’s start by noting that last year’s combined goods and services trade deficit hit a record $859.13 billion – the second straight all-time high, and a 26.96 percent jump from 2020’s $676.68 billion.

But don’t think that annual increase was in a class by itself. Far from it. Here are the first bits of context: As recently as 1998 and 1999, the total trade gap widened by 53.45 percent and 53.97 percent, respectively. In 1984 and 1993, the figures were 88.82 percent and 79.31 percent, respectively.

Further, in 1983, the trade shortfall more than doubled (surging by 139.14 percent), and in1972 and 1977, it more than quadrupled. In addition, three times during the 1970s, the trade balance switched from surplus to deficit, and in the 1960s, major drops in the surplus occurred.

Even so, it’s crucial to remember that during these periods, oil and its price changes were major chunks of U.S. trade flows and deficits. Big rises in the dollar’s value have also often contributed substantially to big past increases in the trade shortfall. And never forget that the absolute numbers were much smaller then, so large percentage changes were much easier to generate.

Still, the trade deficit’s growth last year ranks as pretty impressive. Ditto for the fact that unlike was the case for decades, it’s largely unrelated to oil (although the small $13.98 billion surplus in this sector turned into an $8.44 billion deficit).

Speaking of oil’s role in U.S. trade, as known by RealityChek regulars, it matters in part because it’s rarely the subject of trade deals and other trade policy decisions. In fact, stripping out from U.S. trade flows oil and services (where liberalization efforts have made relatively little progress) yields the statistics for non-oil goods – the trade flows that are heavily influenced by U.S. trade policy.

And 2021 represented the seventh straight year of record deficits in this “Made in Washington” trade account. Moreover, the $1.06993 trillion level topped 2020’s by 15.66 percent. This increase, though, impressive as it was, was well short of the biggest in history, too (in a series going back to 1992). That dubious distinction goes to 1993’s 76.63 percent, but as recently as 2015, the Made in Washington deficit was climbing at a 21.23 percent annual rate.

Last year’s goods trade gap of $1.09068 trillion was the second straight all-time high and an 18.29 percent widening from 2020’s $922.03 billion. Again, however, the all-time worst is orders of magnitude higher (227.86 percent in 1977), and all the aforementioned influences and qualifiers apply. But as recently as 2010 (another first year of recovery following a steep economic downturn), the goods deficit was up 27.27 percent on year.

The $231.55 billion surplus in U.S. services trade was no record, either, but it was the lowest annual total since 2012’s $215.21 billion, reflecting how hard this sector has been hammered by the pandemic and the economic policy and behavior curbs it’s spawned.

In terms of trade flows closely followed by RealityChek, the huge and chronic deficit in manufacturing soared by 19.23 percent year-on-year in 2021, from $1.11527 trillion to $1.32977 trillion. The shortfall was an eleventh straight annual record and the fourth consecutive year it topped the trillion-dollar mark. The annual increase was high by recent standards, but smaller than 2010’s 27.90 percent.

The Advanced Technology Products (ATP) category saw its fifth straight record annual deficit, and the $197.16 billion total was 3.13 percent above 2020’s $191.18 billion.

The also huge and chronic U.S. goods trade deficit with China was up 14.52 percent on year in 2021, from $310.26 billion to $355.30 billion. Not only was this figure well below the record $418.23 billion set in 2018, but the annual increase was slower than in the non-oil goods deficit – which indicates that the sweeping and often steep Trump administration tariffs on imports from the People’s Republic have been having their intended effects.

Total U.S. exports grew by a healthy 18.46 percent on year in 2021, from $2.13444 trillion to $2.52854 trillion. But they’re still below the all-time high of $2.53864 trillion, set in 2018.

Goods exports were up on year in 2021, too – by 23.32 percent, from $1.42880 trillion to $1.76197 trillion, but also remain lower than their peak – the $1.67691 trillion also achieved in 2018.

The hard hit services industries managed an 8.63 percent annual improvement in exports in 2021, from $705.64 billion to $766.50 billion. But they still remain 12.52 percent shy of their record of $876.30 billion, set in 2019.

Non-oil goods exports rose to an all-time annual high of $1.55849 trillion in 2021 – a figure 20.42 percent higher than 2020’s $1.29421 trillion. But they’re also short of a 2018 record ($1.49101 trillion).

Domestic manufacturing boosted its exports even faster last year – by 18.91 percent, from $953.02 billion to $1.13325 trillion. But it’s all-time high of $1.19227 trillion dates from way back in 2014!

Despite ATP overseas sales advancing by a nearly as strong 18.57 percent, in 2021, from $300.78 billion to $356.62 billion, they’re still below their record, too – 2018’s $368.63 billion.

U.S. goods exports to China were 21.35 percent higher in 2021 than in 2020 – rising from $124.49 billion to $151.07 billion. The growth rate of 21.35 percent was slightly higher than that for global proxy non-oil goods – a likely result of former President Trump’s 2020 Phase One trade deal.

Arguably more impressive, it was the fastest such growth since the 32.25 percent hit in 2010, when the United States was recovering from the Great Recession. (The best performance in U.S. goods exports to China came way back in 1988 – 43.59 percent – when the absolute numbers of course were tiny.)

The nation’s import figures continued the string of trade flow records. Combined goods and services imports of $3.38767 trillion were an all-time high, and grew 20.51 percent over 2020’s $2.81113 trillion. They also blew past the previous peak of $3.11959 trillion, set in 2018.

Stronger growth (21.35 percent) was registered by goods imports, which expanded from $2.53083 trillion to $2.82565 trillion. The previous high – which also came in 2018 – was $2.55566 trillion.

In services, annual import growth was just 16.23 percent in 2021 – rising from $460.30 billion to $535.02 billion. The yearly record for these purchases was 2019’s $591.12 billion,

The record story remained intact in non-oil goods imports. These increased from $2.21934 trillion to $2.62842 trillion – an 18.43 percent growth rate. The previous all-time high for these imports was 2018’s $2.31086 trillion.

Imports in manufacturing reached their own record in 2021 – $2.64303 trillion. That surpassed 2018’s previous all-time high of $2.17711 trillion and topped 2020’s $2.06829 trillion level by 19.09 percent.

For ATP, annual imports advanced by 12.52 percent in 2021 – from $491.96 billion in 2020 to $553.78 billion. The previous record was just $496.06 billion, also set in 2018.

And Americans bought $506.37 billion worth of goods from China in 2021. That topped 2020’s $434.75 billion total by 16.47 percent, but was considerably short of 2018’s record $538.51 billion and the growth rate was slower than that for global proxy non-oil goods – likely another effect of the Trump tariffs that have been largely maintained by President Biden.

But true to the truth that context is crucial, let’s return to that methodology. The main context for last year’s record trade deficits is their size compared with that of the entire economy. And here, in particular, 2021 doesn’t look like such a trade disaster.

Specifically, the combined goods and services deficit as a share of total gross domestic product (GDP) in pre-inflation dollars (to produce apples-to-apples results) came to 3.74 percent in 2021. That’s a big jump from 2020’s 3.24 percent. But it’s not only lower than the record 5.53 percent of 2006, but than the 5.50 percent of 2005, the five percent of 2004, the 4.91 percent of 2007, the 4.82 percent of 2008, and the 3.85 percent of 2002.

Nor is the 2021 growth rate of 15.43 percent in this share unheard of – or even close. For example, during the first calendar year of the economy’s recovery from the Great Recession, in 2010, it was up by 22.34 percent. And between 1999 and 2000, it soared by 35.71 percent. (The growth rate was twenty percent in also pandemic distorted 2020.)

The same goes for the goods deficit as a share of GDP. Last year it was 4.74 percent – a 7.48 percent increase from 2020’s 4.41 percent. But the 4.74 percent figure has been exceeded no fewer than six times going back to 1999 alone. And the growth rate has been topped by 2011’s 10.21 percent, 2010’s 22.44 percent, 2005’s 10.29 percent, 2004’s 15.01 percent, 2003’s 8.74 percent, 2002’s 9.02 percent, and 2000’s 24.57 percent (the 21^st century record), along with 9.43 percent in pandemic-distorted 2020.

The Made in Washington trade deficit as a share of GDP did hit a 21^st century record in 2021 – 4.65 percent. And before 2020’s 4.43 percent, the next highest such figure was 2005’s 4.17 percent. But here, too, the 2021 growth rate in the deficit as a share of GDP of 4.97 percent is ordinary. Leaving aside 2020’s 13.30 percent, it’s been bested no fewer than nine times since 2000, including the record 18.84 percent in 2010.

As a result, it’s not entirely unreasonable to approach 2022 with some trade optimism. Big wild cards remain – mainly how the CCP Virus evolves, how effective the U.S. and global responses become, the future of those China tariffs, and Federal Reserve’s upcoming decisions on interest rates and bond-buying – which could greatly influence the economy’s growth rate.

But if there’s a case that even with all the virus-related distortion and massive government stimulus, the U.S. trade numbers were held in check last year, there’s one that even better results may soon start appearing.        

(What’s Left of) Our Economy: A Record Number of Records in U.S. Trade I

Tags

Advanced Technology Products, ATP, China, goods trade, Made in Washington trade flows, manufacturing, non-oil goods trade deficit, services trade, Trade, trade deficit, trade surplus, {What's Left of) Our Economy

As made abundantly clear by today’s official U.S. report, which brings the story up to December, 2021 and therefore the full year – last year was one for the books when it came to U.S. trade flows – and specifically the record books. The same goes for the month of December. I can’t remember ever seeing data revealing so many monthly and annual bests and worsts in terms of exports, imports, and trade balances.

There’s no question that the responsbility rests with the continuing and wildly fluctuating impact on the entire U.S. and world economies of the CCP Virus and the related lockdowns and other curbs on business and consumer activity. But the records are so numerous that they’re definitely worth listing.

Let’s start cover the December monthly figures today, and save the annual data for tomorrow – just to break things up into digestable pieces. The month’s combined goods and services trade deficit came in at $80.73 billion, a modest increase of only 1.76 percent from November’s $79.33 billion that may have reflected a U.S. economic growth slowdown toward the end of the fourth quarter.  And that November number was revised down by a noteworthy 11.05 percent. The December total wasn’t an all-time monthly high, but it did trail only the $80.81 billion level of September.

A record was set by the monthly goods deficit, and at $101.43 billion, it was the second straight, and an increase of 3.21 percent over November’s $98.27 billion.

For a change, the total December trade gap was held down by the $20.70 billion services surplus – the highest since May’s $21.33 billion.

As known by RealityChek regulars, the portion of U.S. trade flows that best reflects the effectiveness of past and present U.S. trade policy decisions is the non-oil goods deficit – which strips out services trade because liberalization efforts here are still in their infancy, and trade in energy-related petroleum products because they’re rarely the objects of trade diplomacy.

And this “Made in Washington” trade shortfall hit its second straight record in December, with the $100.54 billion level 4.48 percent higher than November’s $96.23 billion.

Turning to some trade flows followed by RealityChek with special interest, the manufacturing trade deficit in December retreated by 1.14 percent from the all-time monthly high of $124.06 billion set in November. But the latest $122.65 billion level now stands as Number Two.

The trade gap in Advanced Technology Products (ATP) dropped on month in December, too – by a steep 8.98 percent, from $21.76 billion to $19.80 billion. The record is November, 2020’s $21.90 billion, leaving the new December total as the third highest on record.

The huge and longstanding goods deficit with China hit its second highest level of the CCP Virus era in December – $36.25 billion. (September, 2021’s $36.50 billion was the highest.) The total was a robust 11.86 percent higher than November’s $36.22 billion, but well short of the October, 2018’s record of $42.89 billion, set when U.S. importers were tying to “front run” new anticipated Trump administration tariffs.

December’s $228.14 billion worth of combined goods and services exports were a third straight record, and topped November’s $224.73 billion figure by 1.52 percent.

Goods exports of $158.27 billion in December were 1.25 percent higher than November’s $156.25 billion level, but were 0.47 percent shy of the record $159.01 billion set in October.

The $69.88 billion in services exports in December were far from an all-time high in a sector that’s been especially hard it during the pandemic period, but they were 2.03 percent better than November’s $68.48 billion. They also represented the best performance since December, 2019’s $73.18 billion and the third straight sequential high of the CCP Virus era.

As for non-oil goods, their December exports of $138.48 billion topped November’s $135.60 by 2.09 percent, but October’s $139.15 billion still stands as the monthly record.

In the manufacturing sector, exports improved on month in December by 1.68 percent, from $98.49 billion to $100.14 billion. They have a ways to go, however, before matching the all-time high of $105.61 billion, set in March, 2018.

Interestingly, though, that December manufacturing exports advance came despite a 16.70 monthly nosedive in U.S. goods exports to China – still often touted as a promising market for American industrial products. The swoon from $16.07 billion to $13.38 billion was the worst since the 26.83 percent plunge in February, and the monthly figure the lowest since September’s $10.91 billion.

ATP exports performed better in December, jumping 12.03 percent from November’s $30.76 billion to a record $34.46 billion. The new level is fractionally better than the former all-time high of $34.26 billion set in October.

On the import side, combined U.S. purchases of foreign goods and services of $308.87 billion in December was a fifth straight monthly record and a 1.58 percent increase from November’s $304.07 billion.

Also a fifth straight all-time high were December goods imports of $259.70 billion. And they were 2.03 percent higher than November’s $254.52 billion.

December’s services imports of $49.18 billion were actually 0.74 percent below November’s $49.54 billion, but were still the second best performance of the pandemic period.

The December non-oil goods imports total of $238.98 billion, however, were a fourth straight monthly record, and beat the November figure of $231.82 billion by 3.09 percent.

December imports of $222.79 billion in the manufacturing sector represented a third straight record, but only a 0.11 percent increase from November’s $222.55billion.

And four straight monthly records are now on the books for ATP imports, which climbed by 3.31 percent, from $52.52 billion in November to $54.26 billion in December.

Finally, as far as December is concerned, at $49.53 billion, U.S. goods imports from China set a fourth straight CCP Virus-era record, and stood 2.38 percent higher than November’s $48.39 billion. But that December total has been topped three times before, including the record $52.08 billion set during the tariff front-running days of October, 2018.

Tomorrow we’ll examine those annual 2021 trade results – which you’ll see are just as records-rich! 

 

(What’s Left of) Our Economy: A (Lasting?) Turn for the Better in U.S. Trade Flows

Tags

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

Here’s how bad America’s recent trade performance has been – at least in inflation-adjusted terms: Yesterday’s first official read on real economic growth in the fourth quarter of 2021 showed that the sequential change in the price-adjusted trade deficit neither added to nor subtracted from the 6.71 percent increase in the price-adjusted gross domestic product (GDP) at annual rates. And that was the best such trade-related result since the second quarter of 2020 – when the peak of the first wave of the CCP Virus stateside tanked the trade deficit because the entire economy crashed.

For the full year last year, the story was much different and much worse – indeed historically so. More on that later. For now, let’s just observe that the latest, better quarter-to-quarter numbers are still noteworthy. Nonethless, although because the CCP Virus isn’t yet in the rearview mirror, and America’s public health authorities are showing little recognition that the decreasing severity of successive strains safely permits faster progress toward normalizing economic and other aspects of life again, it’s still too early to declare that a normalization of trade flows is truly in sight.

The combined goods and services trade deficit rose by 1.63 percent between 2021’s third and fourth quarters, from $1.3166 trillion to $1.3380 trillion. The latter is the sixth straight quarterly record, but the 1.63 percent rate of increase was the second slowest of the pandemic period – behind only the 1.50 percent widening between the first and second quarters of last year.

Moreover, that quarterly increase was too small to either speed up the economy’s growth or slow it down. And this zero effect was also the best in this series since that second quarter of 2020 – when the recession-induced drop in the gap added 1.53 percentage points to growth. (That said, this boost was awfully modest given that the economy shrank by a nauseating 31.2 percent at annual rates that was by far the worst such performance since the Commerce Department began putting out quarterly GDP statistics in 1947.)

Much better – the sequential improvement in the real trade gap’s impact on growth (from the 1.26 percentage point subtraction during the third quarter) was the biggest since the 1.58 percentage point turnaround between the first and second quarters of 2020.

And perhaps best of all in this vein – between the third and fourth quarters, the economy’s constant dollar growth sped up strongly (from the 2.28 annualized rate in the third quarter) with hardly any deterioration in the trade shortfall. Nonetheless, the real trade deficit as a share of real GDP dipped only fractionally from the record 6.76 percent reached in the third quarter.

Total price-adjusted exports advanced sequentially in the fourth quarter from $2.2730 trillion annualized to $2.4009 trillion. This 5.63 percent surge was the greatest since the 11.49 percent jump in the third quarter of 2020, when the economy was bouncing back strongly from the deep slump triggered by the virus’ first wave. But the absolute level is still significantly below the record of $2.5829 trillion in the second quarter of 2018.

The much greater amount of total imports increased as well, but by a slower 4.16 percent. The $3.7389 trillion annualized total, however, was the fourth straight quarterly record,

The fourth quarter goods trade deficit of $1.4601 trillion annualized was a more discouraging result. It was not only the sixth straight quarterly record, but the 2.72 percent increase was the fastest since the first quarter’s 6.36 percent.

Goods exports improved by 5.61 percent sequentially in the fourth quarter, from $1.7013 trillion to $1.7967 trillion annualized. The increase was the best since the 5.87 percent achieved in the fourth quarter of 2020, but the total was still somewhat below the all-time high of $1.8203 trillion in the second quarter of 2018.

Goods imports of $3.2586 trillion annualized, however, were a record, Their 4.29 percent sequential growth rate was strong, too, and also the highest since the fourth quarter of 2020 (6.80 percent).

In contrast to goods, the after-inflation service trade surplus registered its first expansion since the pandemic’s arrival in the United States in the second quarter of 2020,with the fourth quarter’s $124.4 billion annualized total coming in 16.04 percent better than the third quarter’s $107.2 billion.

Even so, the fourth quarter figure makes clear how hard services trade has still been hit by the pandemic when adjusted for price changes. That third quarter figure stemmed from an utterly unprcedented 29.66 percent sequential collapse of the surplus. Indeed, during the first quarter of 2020, the final data quarter before the pandemic began roiling the U.S. economy, the annualized services surplus stood at $200.9 billion.

Real services exports led the way, growing by 5.69 percent on quarter – the best such performance since the 5.83 percent of the fourth quarter of 2006.  Yet the $633.9 billion total at annual rates was still 18.82 percent below the peak of $780.9 billion, reached in the first quarter of 2018.

Constant dollar services imports rose as well, but only by 3.51 percent.  And at $509.5 billion annualized, this latest quarterly total remained 7.75 percent less than these purchases all-time high – the $552.3 billion in the third quarter of 2019. 

Turning to the annual results, the 2021 combined goods and services trade gap of $1.2813 trillion smashed the old record of $942.7 billion set in 2020 by 36.62 percent. The all-time high was the third straight, and the rate of increase by far the fastest ever (at least going back to 2002, when the Commerce Department began presenting the combined deficit figure), topping 2015’s 25.45 percent runner-up.

Further, the bite out of the change in real GDP taken by this deficit increase swelled in both relative and absolute terms. In 2020, the shortfall’s increase worsened that year’s 3.40 percent slump in price-adjusted GDP by 0.29 percent points. In other words, the trade gap’s rise accounted for 8.53 percent of the decline.

Last year, the rise of the trade deficit cut 1.39 percentage points out of constant dollar growth of 5.67 percent. In other words, it reduced that year’s growth by 19.69 percent. In these relative terms, that’s the biggest subtraction from growth since the deficit’s increase in 2015 sliced 0.78 percentage points out of that year’s 2.71 advance in real GDP , thus reducing the increase by 22.35 percent.

But it’s still a far cry from 1958, where the price-adjusted trade deficit’s increase reduced growth by 117.57 percent – literally overwhelming all the other parts of the economy that were expanding (though on net modestly). Specifically, without the 0.87 percentage point trade deficit hit, real GDP would have eaked out a 0.13 percent annual expansion rather than a 0.74 percent dip.

In absolute terms, that 1.39 percentage point drag on real growth in 2021 was the biggest annual total since 1984’s 1.54 percentage points out of 7.24 percent growth.

At 6.60 percent of real GDP, the full-year 2021 inflation-adjusted combined trade deficit easily topped the previous mark of 6.14 percent set in 2005, and the 28.65 percent rise in this figure was the fastest rate going back to 2002.

Inflation-adjusted total exports did climb by 4.64 percent in 2021 – from $2.2076 trillion to $2.3101 trillion. The rate of increase was the best since 2011’s 7.17 percent. But the total is still 9.61 percent below the record of 2,5556 trillion set in 2018.

Constant dollar combined goods and services imports did reach an all-time high in 2021, with the $3.5914 trillion total breaking the previous record of $3.5492 (set in 2019) trillion by a healthy 3.82 percent. And the 14 percent yearly rise the fastest since the 16.21 percent pop in 1988.

The real goods trade deficit of $1.4198 trillion in 2021 was 24.17 percent higher than 2020;s $1.1434 trillion figure. Both the latest total and the yearly increase were records (again, going back to 2002).

Inflation-adjusted goods exports rose by 7.64 percent on year in 2021, from $1.6068 trillion to $1.7296 trillion. The rate of increase was the fastest since the 15.14 percent recorded in 2010 – early in the recovery from the Great Recession that followed the global financial crisis. But the absolute level is 3.36 percent below 2018’s all-time high of $1.7897 trillion.

After-inflation goods imports did set a record in 2021 – $3.1494 trillion – while the 14.51 percent annual increase was the fastest since the 15.38 percent, also reached in 2010.

The ongoing pain in services trade was visible in the 1.30 percent annual decline in services exports in 2021, from $617.2 billion to $609.2 billion. The total was the lowest since the $572.7 billion during the Great Recession year of 2009, and the drop was the first since a fractional loss in 2016 – the only other year on record seeing a decrease. These transactions, moreover, are off 20.90 percent from the 2018 peak of $770.2 billion.

Last year actually saw a record annual 11.56 percent rise in services imports – from $423.8 billion to $472.8 billion. But the annual total was the second lowest since 2013, and 13.63 percent below the all-time high of $547.4 billion, set in the final pre-pandemic year 2019.

As mentioned near the beginning, between the persistence of the CCP Virus and of federal mitigation approaches that seem increasingly outdated, it’s tough to read too much into the relatively good trade numbers of the fourth quarter. Add to that great uncertainty about how much monetary policy tightening the Federal Reserve is really willing to impose over any serious length of time, and about how long global supply chains will remain snagged for so many reasons (e.g., the difficulty of adding new worldwide semiconductor production capacity quickly, China’s stubborn, lockdowns-obsessed Zero Covid policy) and the future of the inflation-adjusted trade deficit and its effects on growth seem as murky as ever.

(What’s Left of) Our Economy: November Was an Awfully Cruel Month for U.S. Trade

Tags

Advanced Technology Products, Canada, CCP Virus, Census Bureau, China, coronavirus, COVID 19, European Union, exports, Federal Reserve, goods trade, imports, inflation, Japan, manufacturing, non-oil goods trade deficit, Omicron variant, services trade, stimulus, supply chains, Trade, trade deficit, Wuhan virus, {What's Left of) Our Economy

So maybe the global and especially U.S. supply chain snags of the last year are finally unraveling? That could well be a message being sent by this morning’s official release on American trade figures for November – which was dominated by huge increases in the nation’s goods imports, often to record levels.

Interestingly, though, little of this surge in goods from abroad came from China – probably reflecting some combination of the continuing effects of the Trump (and now Biden) tariffs, the ongoing semiconductor shortage that creates outsized problems for a country so reliant on electronics exports, and widespread power outages stemming from tight coal supplies.

Today’s report from the Census Bureau showed that the overall U.S. trade deficit swelled sequentially from $67.16 billion in October (the smallest since April’s $66.15 billion) to $80.17 billion. That total was the second largest ever (after September’s $81.44 billion). In addition, the 19.38 percent monthly increase was the most since July, 2020’s 19.87 percent. (The worst all-time relative month-to-month increase was 44.12 percent way back in December, 1996, when U.S. trade flows were much smaller, and therefore percentage increases much easier to generate.)

The November goods deficit of $98.99 billion was a record (topping the previous $97.83 billion all-time high of September), and the18.04 percent increase over October’s $83.86 level was the second greatest ever (after the 25.18 percent spurt of March, 2015 that resulted largely from a recovery after the previous month’s harsh winter weather).

Although November’s petroleum trade deficit more than quadrupled on month (to a still-modest $1.07 billion), the month’s shortfall in non-oil goods – the trade flows most influenced by U.S. trade policy decisions – soared by 17.06 percent, to $96.97 biillion. That total is a new record (eclipsing September’s $93.67 billion), and the increase was the biggest since the record 31.24 percent also set in March, 2015.

The roughly $13 billion absolute monthly rise in the November overall trade deficit resulted entirely (and then some) from combined goods and services imports, which were up $13.44 billion. The month’s $304.89 billion total was a second straight record (besting October’s $291.04 billion), and the 4.60 percent increase the biggest since March’s 7.18 percent. (The record relative total monthy import incease was July, 2020’s 10.58 percent.)

The story was similar in goods imports. They, too, set a second straight record, with the $254.93 billion level 5.05 percent higher than October’s previous all-time high of $242.67 billion, and the rate of increase the fastest since March’s 7.73 percent. (This record, too, was set in July 2020 – at 11.93 percent).

Continuing November’s string of consecutive all-time highs was the non-oil goods category of imports. At $232.30 billion, these purchases broke October’s previous record of $221.82 billion by 4.73 percent, a relative rise that was the fastest since March (7.12 percent). Their fastest increase came in July, 2020, too (11.88 percent). 

As indicated earlier, though, goods trade with China departed from this pattern. These imports advanced as well – but by just 0.73 percent. Their $48.39 billion level was the year’s highest, but only slightly above October’s $48.03 billion. Moreover, though elevated, these inflows fell short of the record $52.08 billion in October, 2018 – when U.S. companies were “front-running” their China purchases to bring them into the country before steep tariffs kicked in.

Moreover, the $32.32 billion goods deficit with China was far from the high for the year (September’s $36.50 billion), much less anywhere close to the monthly record ($42.89 billion, which also came in October, 2018).

So geographically speaking, where did U.S. goods deficits go up the most month-to-month in November? Among the nation’s biggest trade partners, Canada was the biggest culprit percentage-wise. America’s $6.12 billion of goods purchases from its northern neighbor were the most of 2021 and the biggest such total since September, 2008’s $7.36 billion. And the sequential leap of 60.67 percent (which, to be fair, followed a big October decline of 26.09 percent) was the fastest since January, 2021’s 74.04 percent surge.

The goods deficit with the European Union was up 28.59 percent sequentially in November to a record $20.85 billion. The increase, moreover, was the greatest since the 73.82 percent rate of March, 2020, as Europe was climbing out of its first CCP Virus wave.

And the goods gap was up by 17.74 percent with Japan to $4.16 billion. The total was the year’s second lowest (after February’s $4.02 billion) but the increase was the fastest since July’s 27.43 percent (though it followed a 23.21 percent plunge in October).

Turning to specific products, more new trade records came in the manufacturing sector. The November trade deficit for industry hit a new all-time high of $124.06 billion – a total that broke the old mark (September’s $118.75 billion) by 8.06 percent. Manufacturing exports sank sequentially in November by 4.15 percent, from $102.752 billion to $98.488 billion, and the 2.29 percent increase in manufacturing exports brought them to their second straight monthly worst – $222.553 billion.

With one month left in data year 2021, the manufacturing trade deficit stands at $1.209 trillion, and is running 11.63 percent ahead of 2020’s record rate.

Not that the records stop with manufactures. In Advanced Technology Products, imports of $52.52 billion set their third staight all-time high, and the November deficit of $21.76 billion trailed only November, 2020’s $21.90 billion in this data series’ 33-year history.

One positive all-time trade high was set in November: At $224.22 billion, total exports established their second record monthly total. But the monthly improvement was a measly 0.16 percent.

November’s $155.94 billion worth of goods exports were the second highest monthly total on record – but the level was down 1.81 percent sequentially.

The pandemic-beleaguered services sector delivered some good trade news, too. Its longstanding trade surplus remains low by historic standards, but did climb by 12.68 percent, to $18.82 billion. The increase was the fastest since the 28.08 percent recorded in September, 2004 (when services trade flows were much smaller than today’s), and the total was the best since June’s $20.33 billion.

Services exports enjoyed a strong November, too. They hit $68.27 billion, for their highest mark since the $69.12 billion reached in February, 2020 – just before the pandemic arrived in the United States and began seriously distorting its trade flows and entire economy. Further, the 4.97 percent improvement was the best since January, 2002’s 5.56 percent.

Will November prove to be the cruelest month – at least for the time being – for U.S. trade? A further removal of supply chain bottlenecks and the huge savings still amassed by American consumers say “No.” But the opposite conclusion could easily be reached by pointing to a reduction in the Federal Reserve’s economic stimulus programs, the unlikelihood of Congress approving big spending bills during this midterm election year, and still lofty inflation rates – which at some point will produce a consumer pullback.

The impact of the CCP Virus, it’s highly infectious Omicron variant, and possible future strains? Those are the $64,000 questions that trade and economic policy analysis may well find excruciatingly difficult to answer.

(What’s Left of) Our Economy: New U.S. Growth Figures Reveal Historic Service Trade Surplus Collapse

Tags

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

The second official read on U.S. economic growth for this third quarter of this year, released by Washington last month, showed such marginal change from the advance report – and so paled in importance to other developments (chiefly, faster U.S. inflation) – that I didn’t post my usual analysis of the trade highlights.

This morning, the final (for now) numbers came in, and the results once more underscore how thoroughly the CCP Virus and official mitigation efforts (like lockdowns), voluntary behavior changes, and resulting supply chain bottlenecks keep distorting the economy.

And remember: These statistics on changes in the country’s gross domestic product (GDP) after adjusting for inflation all predate the arrival stateside of the highly infectious Omicron strain of the virus.

More specifically, it’s now clear that the third quarter saw a widening of the U.S. trade deficit despite relatively slow national growth rate (2.28 percent in real terms at annual rates), in contrast to the stabilization of the trade deficit during a second quarter of much stronger (6.56 percent) growth. That’s exactly the opposite of what almost always happens, since faster U.S. economic expansion tends to pull in more goods and services from abroad on net.

In addition, these latest after-inflation U.S. trade figures make clearer than ever that much of the virus-related damage to the nation’s trade flows is concentrated on the services side.

So let’s begin with services trade. The United States has long run an inflation-adjusted surplus in these sectors, and the surplus continued in the third quarter of this year. But at $107.6 million, it was the smallest since the first quarter of 2007 ($106.1 million). Moreover, the surplus shrank all the way from its $152.4 million second quarter level.

That’s a deterioration of just under 30 percent – which is not only the most dramatic narrowing of all time (in a data series that began in 2002), but the most dramatic narrowing by a huge margin. The runner up? The 17.62 percent fall-off between the third and fourth quarters of 2004 (17.62 percent), when the absolute totals were much smaller, and therefore big percentage changes much easier to generate.

Most of this deterioration came on the services imports side. Between the second and third quarters, they jumped by 7.80 percent, to $492.2 million. That rate was the fastest since the 8.30 percent increase in the fourth quarter of last year. Services exports were off sequentially by 1.51 percent, to just under $600 million.

As for the other figures, the combined inflation-adjusted goods and services trade deficit hit $1.3166 trillion annualized in the third quarter, still the fifth straight quarterly record, and an increase of 5.79 percent over the second quarter’s $1.2445 trillion.

That growth rate was much higher than the 1.50 percent between the first and second quarters, but remained the second lowest of the pandemic era.

Significantly, though, that after-inflation trade deficit increase was enough to cut overall third quarter economic growth by a sizable 1.26 percentage points. That’s seven times deeper than the 0.18 percentage point reduction in the second quarter, and means that, had the trade gap remained the same, third quarter real growth would have been 3.54 percent annualized – or 55.26 percent stronger.

In fact, on a relative basis, that was the biggest trade hit to U.S. economic expansion since the fourth quarter of 2018, when the gap’s widening knocked 0.51 percentage points off the feeble 0.89 percent annualized real growth rate.

And in another gloomy worst-ever result, the real trade defiicit as a share of the economy hit 6.76 percent – eclipsing the old first quarter record of 6.43 percent.

The third quarter’s goods deficit of $1.4215 trillion annualized was also just modestly (1.43 percent) higher than the second quarter’s $1.4014 trillion. But it, too, was a fifth straight all-time quarterly high.

Total price-adjusted exports dropped by 1.35 percent sequentially in the third quarter, to $2.2730 trillion annualized. The decrease was the biggest since the 20.44 percent nosedive between the first and second quarters of 2020, when the virus first began distorting trade and the entire economy.

Combined goods and services imports only rose by 1.15 percent, to $3.5896 trillion at annual rates – the best performance in this category since the second quarter of 2020 as well, when they sank 17.24 percent. But the absolute import figure still represented the third straight monthly record.

Constant dollar goods exports sagged during the third quarter, too – by 1.29 percent seqentially – to $1.7013 trillion annualized, while goods imports dipped fractionally from the second quarter’s record $3.1255 trillion annualized to $3.1228 trillion.

With strong GDP growth expected for the fourth quarter of this year, the real trade deficit seems sure to keep extending further into record territory. Unless the virus-distorted economy throws observers yet another curve ball?

(What’s Left of) Our Economy: U.S. Trade Figures Still on a (CCP Virus) Roller Coaster

Tags

Biden, CCP Virus, China, consumers, coronavirus, COVID 19, Donald Trump, exports, Federal Reserve, goods trade, imports, Janet Yellen, manufacturing, non-oil goods deficit, recovery, stimulus, supply chains, tariffs, Trade, trade deficit, Wuhan virus, {What's Left of) Our Economy

Just as September’s official U.S. trade figures revealed numerous records and multi-month or year highs and lows (mainly of the bad kind), today’s October release reported its share of startling results – but mainly of the good kind. One black spot deserves mention right away, though – the country’s manufacturng trade deficit passed the $1 trillion mark for the fourth straight year. And we still have two data months left in 2021.

Still, the all-time monthly bests and similar extraordinary readings from October were nonetheless impressive. And combined with the September statistics, they make clear that the CCP Virus and government efforts to fight it are far from done distorting the U.S. and world economies. 

The chief records set were:

>Combined goods and services exports of $223.63 billion, which beat May, 2018’s previous record of $216.09 billion by 3.49 percent. Moreover, the 8.14 percent sequential improvement was the biggest since June, 2020’s 8.69 percent – which came during the strong national and global economic recoveries from the first wave of the CCP Virus and the short but sharp depression it caused.

>Total imports of $290.75 billion, which edged outthe previous month’s record of $288.23 billion by 1.06 percent.

>Goods exports, where the $158.73 billion figure exceeded the former record of $149.92 billion set in August by 5.87 percent. And the monthly increase of 11.07 percent was the biggest since March’s 10.18 percent.

>Goods imports of 242.67 billion, also the second straight all-time high, and a level that topped September’s $240.89 billion by 0.74 percent.

Another all-time best and worst came in non-oil goods trade. As known by RealityChek regulars, these trade flows deserve special attention, because they consist of exports and imports whose levels are significantly affected by trade agreements and other U.S. trade policy decisions (unlike trade in oil and services, where liberalization efforts are still at early stages at best).

The best? Non-oil goods exports climbed to an all-time high, with their $138.82 billion total standing 5.87 percent higher than the previous record of $131.12 billion set in August. Moreover, their monthly growth of 9.57 percent was the biggest such advance since the 10.65 percent increase of July, 2020 – also during that recovery from the first CCP Virus-related downturns.

The worst? Non-oil goods imports set their second straight record, coming in at $242.67 billion, or 0.74 percent higher than the September total of $240.89 billion.

And finally, when it comes to new records, imports of advanced technology products (ATP). Their $51.54 billion level also was a second straight, and surpassed September’s $50.50 billion by 2.06 percent.

But multi-month and even multi-year highs and lows abounded in the October trade report:

>The overall deficit plummeted from the record (and upwardly revised) $81.44 billion figure for September to $67.12 billion. The monthly total was the lowest since April’s $66.15 billion, and the sequential drop of 17.58 percent the greatest since April, 2015’s 18.16 percent.

>Similarly, in October, the goods deficit hit its lowest level ($83.95 billion) since November’s $86.23 billion, and the month-to-month decline of 14.33 percent (from September’s record $97.98 billion, was the biggest such drop since the 20.79 percent nosedive of February, 2009 – when the Great Recession following the global financial crisis was in its depths.

>The 11.40 percent monthly decrease in the non-oil goods deficit (the steepest fall-off since April, 2015’s 13.76 percent), brought this trade gap to its lowest level ($82.99 billion) since last November’s $85.73 billion.

October’s trade report contained some eye-popping numbers in U.S.-China goods trade, too.

>Goods exports to the People’s Republic shot up from $10.91 billion to a new record of $16.64 billion. Further, not only did this figure top the previous best (October, 2020’s $14.77 billion). But the 52.46 percent sequential jump was the biggest since the 71.04 percent recorded back in November, 1996 – when much smaller trade numbers made big percentage improvements much easier to generate.

>In addition, the U.S. goods trade deficit with China of $31.40 billion was the lowest since July’s $28.65 billion read, while the 13.99 percent monthly improvement was the biggest since the 25.19 percent figure reported for March, 2020 – when China had still shut down much of its economy due to the pandemic.

The China data also show that U.S. trade with the People’s Republic continue to perform better than U.S. trade in non-oil goods – the best global proxy for U.S. goods trade with China – and as a result, that the Trump (now Trump-Biden?) tariffs continue to work well.

For example, that 13.99 percent sequential narrowing of the U.S. goods trade gap with China in October was faster than the comparable 11.40 improvement in the non-oil goods deficit. That 52.46 percent monthly increase in goods exports to China, moreover, was nearly ten times greater than the 5.87 percent rise in non-oil goods exports.

The 1.30 percent increase in U.S. goods imports from China was nearly twice as fast as the 0.74 percent increase in America’s non-oil goods imports, but both absolute increases are modest.

And on a year-to-date basis, the U.S. goods deficit with China is still up less (13.67 percent) than the non-oil goods shortfall (16.73 percent).

On the down side, the U.S. manufacturing deficit did decline in October – by 3.32 percent, from a record $118.75 billion to $114.81 billion. But it remained astronomical by any reasonable standard.

Manufacturing exports improved on month by a healthy 10.99 percent, from $92.58 billion to $102.75 billion. But although manufacturing imports climbed by a much slower pace (2.95 percent, from $211.33 billion to $217.56 billion), they’re still more than twice as great.

Year-to-date, the 18.78 percent advance in manufacturing exports and the 19.56 percent rise in manufacturing imports has resulted in that trillion-dollar-plus manufacturing deficit ($1.083 trillion, to be precise). As of October, moreover, it’s running 18.26 percent ahead of last year’s pace.

The outlook for America’s trade flows? I’m still pretty sure that the deficits will keep rising in the near term – mainly because overall economic growth, and therefore consuming and importing are expected to stay so strong.  Longer term, though, uncertainties are still noteworthy and arguably could frustrate forecasts even more. 

After all, it’s still not clear how America’s and other governments will respond to the new Omicron variant ofthe virus (or whatever other strains come down the pike).

There’s the seemingly likely ebbing of the fiscal stimulus that’s boosted savings, and therefore purchasing and importing power, for the entire population during the pandemic period. Continued high inflation could start depressing consumer spending on its own – although less government stimulus all else equal should start restraining prices at some point.

Additionally, don’t forget the Federal Reserve, which has been prompted by faster-than-expected price increases to reduce the bond-buying program that’s provided another massive source of economic stimulus.  Is Treasury Secretary Janet Yellen right to be confident that consumer demand will stay strong nonetheless?  Beats me. 

Finally, it’s encouraging to read various claims that the global supply chain crisis is easing (e.g., here). But even if progress on this front continues and accelerates, new geopolitical threats to global commerce have emerged – especially rising tensions between China on the one hand, and the United States and most of China’s neighbors on the other, over the future of Taiwan and whether it gets decided peacefully.     

Since America’s economic growth is expected to be torrid in the final three months of this year (including, of course, October), I suspect that, despite all these questions and complications, the next few months of trade figures will worsen considerably (as I wrote last month). But the farther down the road I look, the cloudier my crystal ball gets

(What’s Left of) Our Economy: Little to Like Trade-Wise in the New U.S. GDP Report

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

Today’s first official report on U.S. economic growth in the third quarter of this year was not only much worse than the final results revealed for the second quarter. It was also a near-mirror image of its predecessor estimate of the increase in the gross domestic product (GDP) in terms of its trade figures – and not in a good way.

Chiefly, during the second quarter, the economy grew at a strong clip (6.56 percent after inflation at an annual rate) while the real trade deficit practically stabilized versus the first quarter figure. In fact, this progress prompted me to venture that a pretty encouraging post-CCP Virus trade normal could be settling in for Americans.

But third quarter inflation-adjusted annualized growth was just two percent – the worst such performance since the pandemic-induced nosedive of last year’s second quarter – and the trade deficit increased sequentially by 5.40 percent. The $1.3117 trillion annualized total, moreover, was the fifth straight record quarterly high. And just for good measure this level also represented an all-time high for the real deficit as a share of price-adjusted GDP (6.74 percent).

The quarterly trade gap growth rate was still the second slowest of the current (still CCP Virus-distorted) economic recovery. But it’s much faster than the 1.50 percent increase between the second and third quarter. Worse, the prospect of stronger future GDP growth (assuming the pandemic resumes easing), and an untangling of the supply chain bottlenecks that have dramatically impacted both import and export flows, could well create a renewed trade shortfall surge in the coming quarters.

That possibility should concern more than just trade watchers, because that sequential increase in the deficit reduced third quarter growth for the total economy by 1.14 percentage points. So if the trade gap hadn’t increased at all, GDP would have expanded by 3.14 percent in real annualized terms. That’s still not spectacular, but it would have been an improvement of fully 57 percent. And it’s the biggest relative trade hit to growth since the third quarter of 2018, when the deficit’s increase sliced 1.66 percent points off of the 1.93 percent total growth figure – cutting it by 86.01 percent.

The only small bright spot in the new GDP report came in goods trade – which accounts for the vast bulk of U.S. trade flows. Its after-inflation annualized third quarter trade deficit of $1.4234 trillion was just 1.53 percent higher than the second quarter figure. And although it represented an acceleration ove the second quarter’s sequential increase of just 0.44 percent, the speed-up was far from alarming.

The big problem with the third quarter real trade figures came on the services side. The sector has suffered the most virus-related damage of any in the economy, but the plunge in its long-time surplus of 25 percent, to $114.3 billion, was stunning nonethless. The level was the lowest level since the $110.9 billion recorded in the second quarter of 2007, and the sequential drop by far the biggest ever on a relative basis– surpassing those during the Great Recession following the financial crisis of 2007-08, and even during the early CCP Virus and lockdowns period.

Services exports actually rose a bit sequentially – by 0.94 percent, to $614.7 billion. The total was the best of the pandemic era, but still 20.55 percent below pre-pandemic (fourth quarter, 2019) levels. Services imports, however, jumped by 9.59 percent. The new $500.4 billion total was also the highest of the CCP Virus period and 8.52 percent below that of the fourth quarter of 2019. In addition, the quarterly increase was the biggest of all time. (Detailed service trade figures only go back to 2002.)

If it lasts, the heavy concentration of the economy’s trade problems in services industries could provide the real deficit’s growth with some extra oomph.  The problem isn’t just that the virus’ resilience could keep the sector under continuing and unusual pressure, which would mean that it won’t be nearly as much of a trade winner as before 

It’s also that there seems to be only a slim chance that trade policy can make much of a difference – since so many countries view service sectors like telecommunications and finance (and now digital services) as crucial to their own futures, and want to maintain and increase their own players’ advantages.  That’s mainly why services trade liberalization has made so much less progress than goods trade liberalization. Indeed, the United States and five European countries have just managed to avoid a trade war fought over and with digital services taxes – which would have been new trade barriers. 

At this point, it seems, the nation will have its hands full simply preventing higher trade deficits from becoming major drags on growth.  Anyone awaiting significant reductions in the shortfall, even as a share of GDP, will likely need lots of patience.