(What’s Left of) Our Economy: Don’t Forget About the Quality of U.S. Growth

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business spending, Financial Crisis, GDP, Great Recession, gross domestic product, growth, housing, inflation-adjusted growth, Obama, personal consumption, real GDP, recovery, Trump, {What's Left of) Our Economy

One of the biggest economic questions facing Americans this holiday season – whether they’re heavily into the roller-coaster stock market or not – is whether the nation will slide into recession. I’m skeptical on that score, but I’m still wondering more about what I’ve long regarded as an even more important question: Will the quality of America’s growth start improving meaningfully?

As I’ve often explained, I prioritize this issue because, as significant as maintaining economic growth is, not all growth is created equal. In particular, unhealthy growth eventually tends to produce terrible results – the prime lesson Americans should have learned since the bubble-ized expansion of the previous decade collapsed into a terrifying financial crisis and the worst recession since the Great Depression.

So this looks like a good time once again to check into whether the U.S. growth recipe has changed since then, and if so, how much. As known by RealityChek regulars, the main indicator is how heavily increases in the inflation-adjusted gross domestic product (the growth measure most widely followed by knowledgeable students of the economy) depend on personal consumption and housing. For these are the parts of the economy whose bubble-decade bloat directly sparked the crisis. And the big takeaway as of last week’s release of the final (for now) figures on third quarter GDP? The situation is turning around, but at supertanker-like (i.e., painfully slow) speed.

Specifically, what I’ve called the toxic combination of personal consumption and housing (parts of the economy dominated by spending and borrowing, rather than saving and investing) came in at 72.66 percent of real GDP in the third quarter. This means that it’s decreased consistently since the first quarter of 2017 – the first quarter of the Trump administration’s stewardship of the economy – when it stood at 73.01 percent. For the record, as of the last quarter of the Obama economy (the fourth quarter of 2016), this figure stood at 72.93 percent

So that’s cause for encouragement. It’s also crucial, however, to recall that at the start of the last recession – at the end of 2007 – personal consumption plus housing as a share of real GDP was 71.49 percent. As a result, over that key time-span, the economy has evolved exactly the way we shouldn’t want. But at least by this measure the economy isn’t nearly as bubbly as at its peak during that bubble decade – when the toxic combination reached 73.74 percent of after-inflation GDP.

Another measure of America’s progress toward recreating an “economy built to last” (a wonderfully on-target phrase used by former President Obama) is the share of real GDP devoted business spending. Here, however, the trends show some troubling recent signs of backsliding.

At the start of the current economic recovery, in the middle of 2009, such spending represented 11.19 percent of price-adjusted GDP. The annual numbers since then, through 2017, are presented below:

2010: 11.42 percent

2011: 12.22 percent

2012: 13.08 percent

2013: 13.37 percent

2014: 13.95 percent

2015: 13.80 percent

2016: 13.65 percent

2017: 14.06 percent

Through 2014, in other words, business spending (or investment, if you prefer) as a share of the economy rose healthily. But this growth shifted into reverse in 2015 and 2016, before rebounding in 2017.

For the third quarter of 2018, business investment as a share of real GDP reached 14.61 percent – which represents further improvement. But the quarterly story isn’t as positive:

1Q 18 14.48 percent

2Q 18 14.64 percent

3Q 18 14.61 percent

That is, business investment as a share of inflation-adjusted GDP dipped between the second and third quarters. Is this dip a blip? Or the start of a longer-term decline? I’m not in the crystal ball business; that’s why I’ll be watching these numbers closely going forward – and why I believe you should, too.

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(What’s Left of) Our Economy: Tariff-Spurred Front-Running Still Clear from New U.S. GDP Figures

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exports, GDP, gross domestic product, growth, imports, inflation-adjusted growth, Made in Washington trade deficit, real exports, real GDP, real imports, real trade deficit, recovery, Trade, trade deficit, {What's Left of) Our Economy

This morning came the government’s second read on U.S. economic growth in the third quarter of this year, and the trade results were virtually identical with those of the first report – including on the short-term noise created by President Trump’s tariff-centric policies and foreign retaliation. (The final set of three – for now – third quarter figures will come out toward the end of next month.)

In other words, the new statistics confirmed that, earlier this year, both American exporters and importers had been rushing shipments of goods to each other’s markets in order to beat the tariffs at home and abroad that have been actually imposed or threatened. The biggest new wrinkle is that the resulting boost to the inflation-adjusted U.S. trade deficit, and the resulting trade bite from real growth taken by the trade shortfall’s quarterly increase, was a bit larger than previously estimated.

According to the new release, the price-adjusted U.S. trade deficit hit $945.8 billion on an annual basis the third quarter – 0.72 percent greater than the $939.0 billion reported in the first read on the quarter’s real gross domestic product (GDP). That means that record level reached by the deficit in the third quarter has climbed higher. The previous all-time annualized high for a quarterly constant dollar trade deficit was $932.5 billion, attained in the third quarter of 2006 – shortly before the financial crisis broke out.

Consequently, a conspicuous sign of trade-related front-running – the increase in the real trade deficit between the second and third quarters – grew as well. Pegged last month at 11.65 percent, this sequential rise now stands at 12.46 percent. Nonetheless, it remains only the second biggest such increase on record (behind the 13.18 percent trade deficit widening during the second quarter of 2010, during the current economic recovery’s early stages).

Another sign of front-running (re)appeared in the goods exports numbers. During the second quarter, these exports jumped sequentially by 3.21 percent sequentially on an annual basis – the biggest such increase since the fourth quarter of 2013’s 3.93 percent annualized surge.

In the initial read on third quarter GDP, after-inflation goods exports were judged to have dropped by 1.79 percent – the worst such performance since the 2.44 percent decrease in the first quarter of 2015. Largely as a result, the real third quarter trade deficit ballooned. This morning, this decrease was upgraded – to 2.09 percent. Hence the even larger constant dollar trade deficit number.

The pattern for merchandise imports was similar, though not identical. During the second quarter, they were essentially unchanged sequentially, but as of the third quarter’s initial read, they increased by 2.48 percent – the biggest such increase since the 3.37 percent of the fourth quarter, 2017.

This morning, that increase was revised up slightly, to 2.49 percent.

Because the third quarter price-adjusted trade deficit was revised slightly higher in this latest third quarter GDP report while the growth rate remained at 3.46 percent annualized, the trade bite from growth was revised higher, too. Estimated last month as a 1.78 percentage point subtraction from the overall real economic growth rate, it’s now judged to be 1.91 percentage points. The last time the trade bite was that size in absolute terms was the third quarter of 1985.

In relative terms, the trade bite from growth increased as well – from 51.44 percent of such growth to 55.20 percent. But that remained only its highest level since the fourth quarter of 2016. Then, a growing real trade deficit subtracted 1.32 percentage points from that period’s much slower 1.75 percent annualized inflation-adjusted growth rate (or 75.43 percent of such growth).

With a higher third quarter constant dollar trade deficit came a bigger trade drag on America’s real growth during the current, still far-from-robust economic recovery. As of the initial third quarter GDP report, the real trade deficit’s increase since the recovery began in mid-2009 subtracted $461.7 billion from cumulative economic growth. That was a 13.05 percent hit. This morning’s results, however, pushed up those figures to $468.5 billion – translating into a 13.24 percent hit. As of the final second quarter data, trade had sliced $363.7 billion from cumulative recovery growth, 10.77 percent of the total at that time.

Importantly, though, the growth lost due to the expansion of the price-adjusted Made in Washington trade deficit continues to be much greater. That’s the trade gap calculable from trade flows minus sectors not greatly affected by American trade policy or related decisions – that is, energy and services – and adjusted for inflation.

As of the second quarter, the widening of the Made in Washington deficit resulted in cumulative recovery-era growth being $502.92 percent less than it otherwise would have been had it not grown at all. That’s 14.89 percent less growth.

The latest third quarter figures? Foregone after-inflation growth worth $587.2 billion, or 16.60 percent less growth. Sobering numbers for an economy that’s pulled out most of the available conventional growth-promoting stops (years of super-easy monetary policy being followed by super-easy fiscal policy) with so-far mediocre and likely bubbly results

(What’s Left of) Our Economy: The New U.S. Trade Figures are (Nearly) All About China

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China, exports, GDP, goods trade, gross domestic product, imports, inflation-adjusted growth, Made in Washington trade deficit, manufacturing, merchandise trade, recovery, Trade, trade deficit, {What's Left of) Our Economy

Today was one of those days when the U.S. government treated us with both the jobs numbers (for October) and the trade numbers (for September). But just because I posted on the former first doesn’t mean that the latter were humdrum – far from it. And the big story in so many ways was China – along with an important black mark revealed when trade flows are adjusted for inflation.

Specifically, the combined American goods and services trade deficit hit $54.02 billion – just 1.33 percent higher than August’s upwardly revised $53.31 billion, but the second highest monthly total during the current economic recovery. (The highest was February’s $54.96 billion.)

And the prime culprit was the 4.34 percent sequential increase in the immense, chronic U.S. merchandise trade gap with China – to a record $40.24 billion level that represented the third straight monthly all-time high.

This growth means that as of September, this trade shortfall is running 9.91 percent ahead of last year’s annual total – $375.58 billion, which so far has been the record. Also at all-time highs as of September: American goods imports from the People’s Republic. They topped the $50 billion monthly mark for the first time, and were up by 4.32 percent sequentially – possibly because many American companies were rushing their purchases from China ahead of tariffs.

U.S. merchandise exports to China were of course much lower – $9.79 billion in September. The figure was the year’s second lowest (after August’s $9.29 billion) and might have reflected some Chinese front-running of their own government’s retaliatory levies against the United States – although September’s 5.32 percent monthly increase followed a 9.43 percent sequential drop in August.

Contrasting with these China numbers were the September goods trade results with other U.S. trade partners. Specifically, the shortfalls with the European Union, the Eurozone, Germany, Japan, South Korea, Mexico, and Canada all narrowed, and by substantial percentages. Moreover, the China-heavy American manufacturing trade deficit declined as well – by 6.13 percent (albeit from a $92.51 billion August total that was a monthly record).

Moving up to the 30,000-foot level, combined U.S. goods and services exports rose by 1.49 percent, to $212.57 billion, from an August figure of $209.46 billion that was revised upward fractionally. That September total was the third highest ever – after the May and June levels of $214.67 billion and $213.20 billion, respectively.

The much greater amount of overall imports was up 1.46 percent on month in September, with the $266.58 billion figure marking a second straight all-time high. (The previous month’s record of $262.75 billion was revised fractionally higher as well.) So some pre-tariff front-running of purchases from abroad looks like it was at work here, too.  

Some other all-time monthly highs achieved in September: services exports ($70.71 billion – a second straight record as well) and services imports ($47.50 billion).

That black mark? The Made in Washington trade deficit. This is the trade shortfall comprised of flow heavily influenced by U.S. Trade agreements and related policy decisions. As such, it leaves out oil and services – since trade in those sectors is in only a very early stage of liberalization. And adjusting it for inflation enables calculating how much trade has been either contributing to or subtracting from after-inflation growth – the measure of the gross domestic product (GDP) that’s most widely followed.

From the start of the current economic recovery, in mid-2009, through the second quarter of this year, the increase in the price-adjusted Made in Washington trade deficit subtracted 14.89 percent from the period’s cumulative real economic growth of $3.3775 trillion. That’s a trade drag of $502.92 billion.

As of the third quarter, the drag increased to 16.60 percent of cumulative recovery inflation-adjusted growth of $3.5374 trillion. That amounts to $587.23 billion worth of lost growth.

(What’s Left of) Our Economy: So How Loud was That Trade Noise in the U.S. Growth Figures?

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exports, GDP, gross domestic product, imports, inflation-adjusted growth, Made in Washington trade deficit, real GDP, real trade deficit, recovery, tariffs, Trade, trade deficit, Trump, {What's Left of) Our Economy

With all the other news of the last few days, it’s been easy to overlook the release last Friday of the first read (of three soundings that will be released in the near term) the nation got on U.S. economic growth in the third quarter. That’s unfortunate because these data on the gross domestic product (GDP) continued to be distorted by sizable fluctuations generated by President Trump’s recent trade policy moves. As a result, the outlook for future growth looks especially cloudy, and that goes double for the odds that its recent acceleration from the crummy rates so far during the current economic recovery can continue. 

The impact of trade-generated short-term noise is clear from the change seen in the U.S. trade deficit between the second and third quarters. In inflation-adjusted terms (the GDP measure that’s most widely followed) during that period, the shortfall dropped by 6.80 percent, from $902.4 billion on an annualized basis to $841.0 billion. That was the biggest sequential decrease since the fourth quarter of 2013 (9.24 percent).

But in the third quarter, the real trade gap rebounded to $939.0 billion – its all-time highest (besting the previous record of $932.5 billion in the third quarter of 2006, during pre-financial crisis days). In addition, the quarterly increase of 11.65 percent was the biggest since the 13.18 percent during the second quarter of 2010 – during the early stages of the current economic recovery.

What’s been going on? As widely reported, both American exporters and importers have been rushing shipments of goods to each other’s markets in order to beat the tariffs at home and abroad that have been actually imposed or threatened. During the second quarter, the biggest rush was made by U.S. exporters – their shipments overseas jumped by 3.21 percent quarter-to-quarter on an annualized basis. That was the biggest surge since the 3.93 percent annualized rise in the fourth quarter of 2013. That’s largely why the trade deficit narrowed.

During the third quarter, at least according to these preliminary figures, goods exports fell back by 1.79 percent – their worst performance since the 2.44 percent decline registered in the first quarter of 2015. Hence, in part, the rebound in the trade deficit. (Again, all these numbers and those in the next paragraph are annualized.)

On the merchandise import front, U.S. purchases of foreign goods in the second quarter stayed pretty flat sequentially – which also contributed to the trade shortfall’s improvement. But in the third quarter, goods imports advanced by 2.48 percent – the biggest such rise since the fourth quarter of 2017 (3.37 percent).

At the same time, as just indicated, these fluctuations have been multi-year highs, not multi-decade highs. So even though the data were noisy, they weren’t epic-ally noisy, or even close.

More epic was the bite from after-inflation growth taken by the higher trade deficit in the third quarter. It chopped fully 1.78 percent points off the 3.46 percent annualized increase. That’s the highest such toll in absolute terms since the 1.91 percentage points taken from growth in the third quarter of 1985! But the picture looks much less dramatic if you measure this growth loss as a share of the actual growth.

During the third quarter, the trade bite amounted to 51.44 percent of that growth. But that’s only the biggest such figure since the fourth quarter of 2016, when the sequential increase in the trade deficit subtracted 75.43 percent (1.32 percentage points) of that period’s 1.75 percent annualized constant dollar growth.

All the same, for the time being, the trade drag on cumulative after-inflation growth over the course of the entire economic recovery is up again. As of the second quarter, it had cost the economy 10.77 percent of its cumulative growth – or $363.7 billion. The third quarter numbers reveal the trade hit at 13.05 percent of cumulative growth – or $461.7 billion.

Moreover, the growth lost during the recovery because of the increase of the Made in Washington trade deficit remains much greater. This gauge measures inflation-adjusted trade flows minus sectors (services and oil) still generally unaffected by trade agreements and related policy decisions.

The latest data are from the second quarter, but they show a Made in Washington trade drag of 18.01 percent on cumulative real recovery growth – which translates into $608.12 billion worth of foregone expansion The next set of monthly U.S. trade data, slated to come out on Friday, will provide the first look on the third quarter statistics.

Some more perspective can be gleaned from the price-adjusted trade deficit’s share of the price-adjusted gross domestic product on a stand-still basis. It’s definitely on the upswing – reaching 5.03 percent as of the third quarter. That’s the highest level since just before the financial crisis-induced ensuing Great Recession struck – during the third quarter of 2007, when the share hit 5.23 percent.

The only consolations identifiable are that overall economic growth today is faster than it was eleven years ago, and that it’s still possible that the real trade deficit’s share of GDP, and the size of the trade drag, will settle down once the trade noise goes away. Not that hope will be the test of Mr. Trump’s trade policy success.

(What’s Left of) Our Economy: New Economic Growth Report Confirms Recent U.S. Export Jump & Likely Front-Loading

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GDP, gross domestic product, inflation-adjusted growth, Made in Washington trade deficit, real GDP, real trade deficit, recovery, Trade, trade deficit, {What's Left of) Our Economy

The government’s final (for now) read on U.S. inflation-adjusted economic growth during the second quarter contained trade highlights confirming again that a jump in goods exports – likely aimed at avoiding current or threatened American tariffs contributed strongly to the robust performance during this period.

Largely as a result, trade’s drag on real growth during the current economic expansion shrunk more during the quarter than previously estimated.

The latest figures on the gross domestic product (GDP) show that apparent export front-loading helped produce a 12.82 percent annualized sequential second quarter increase in price-adjusted goods exports – a slightly greater rise than the 12.64 percent previously reported. Such merchandise exports had not increased this fast since the 15.71 percent advance in the fourth quarter of 2013.

These higher goods export totals helped these sales hit a new quarterly after-inflation record of $1.8092 trillion on an annual basis, slightly more than the $1.8078 trillion previously reported. They also led the quarter’s real trade deficit lower – from $843.5 billion to $841.0 billion annualized. During the first quarter, the inflation-adjusted trade gap had hit $902.4 billion – the highest such level since the $932.5 billion in the third quarter of 2006.

This annualized trade deficit’s quarter-to-quarter tumble, moreover, is now estimated at 27.22 percent, rather than the 26.01 percent previously reported. That still represents the biggest such slide since the 36.96 percent dive in the fourth quarter of 2013.

With the better second quarter trade numbers came a decline in the drag on economic growth that’s been exerted by the expansion of the trade deficit since the current economic recovery began in mid-2009.

As of the final GDP results for the first quarter of 2018, the after-inflation trade shortfall’s increase had reduced cumulative price-adjusted growth during the expansion by $457.20 billion, or 14.33 percent. The three readings on second quarter GDP have now reduced these figures to $404.7 billion, or twelve percent, in the first reading; $398.3 billion, or 11.79 percent in the second; and now to 11.72 percent, or $395.8 billion.

Far greater – but still on the way down – has been the Made in Washington trade deficit – which is comprised of real trade flows heavily affected by trade policy and trade agreements, and which therefore leaves out trade in oil and services.

As of the final first quarter GDP figures, this trade drag stood at 17.23 percent of cumulative real growth during the expansion – a $523.88 billion loss. According to this morning’s revised second quarter estimate, and separate Census Bureau figures, trade’s bite from real growth had fallen to 14.90 percent ($503.19 billion). These figures actually were a bit higher than the 14.88 percent and $502.90 billion that could be calculated as of the previous GDP release. 

Trade’s contribution to after-inflation second quarter growth remained solid in the final second quarter figures, at 1.22 percentage points out of 4.10 percent annualized growth. That was a somewhat greater role than judged in the second read – 1.03 percent out of 4.16 percent annualized growth. In the first quarter, trade subtracted 0.02 percentage points to 2.20 percent annualized growth.

(What’s Left of) Our Economy: New GDP Figures Confirm Trade as a U.S. Growth Booster – for Now

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exports, GDP, goods trade, gross domestic product, imports, inflation-adjusted growth, real GDP, real trade deficit, recovery, tariffs, trade deficit, {What's Left of) Our Economy

The revised second quarter U.S. government figures for change in the gross domestic product (GDP) came out this morning, and their trade highlights broadly confirm the picture painted in last month’s advance results: A significant sequential reduction in the inflation-adjusted U.S. trade deficit keyed by a jump in goods exports aimed at avoiding impending or threatened tariffs made an impressive contribution to a strong quarterly real growth rate.

As a result, the new data also left in place one of the biggest questions hanging over the second quarter’s performance:  Will this trade boost to growth peter out?

The new results show that this export front-loading was fractionally smaller than first reported, with merchandise exports rising sequentially in the second quarter by 12.50 percent on an annualized basis, not the 12.64 percent initially estimated. Yet this increase was still the biggest since the 15.71 percent jump in the fourth quarter of 2013. The second quarter’s goods exports also still amounted to a new record: $1.8078 trillion annualized.

In addition, the quarterly drop in the combined goods and services trade deficit was steeper than originally reported. The gap, which stood at $902.4 billion annualized in the first quarter (the biggest such total since the $932.5 billion recorded in the third quarter of 2006), decreased to $843.5 billion in this year’s second quarter, not the $849.9 billion reported last month.

This sequential slide, moreover (26.01 percent annualized), was still the biggest since the 36.96 percent plunge in the fourth quarter of 2013.

Trade’s contribution to after-inflation second quarter growth remained solid in the revised figures, at 1.03 percentage points of 4.16 percent annualized growth. That was only marginally lower than the 1.04 percentage point contribution to the 4.00 annualized rate originally estimated.

Even better, the new second quarter results reduced the drag on economic growth that’s been exerted by the expansion of the trade deficit since the current economic recovery began in mid-2009.

As of the final GDP results for the first quarter of 2018, the trade shortfall’s increase had reduced cumulative price-adjusted growth during the expansion by $457.20 billion, or 14.33 percent. The first read on second quarter GDP reduced these figures to $404.70 billion, or twelve percent. This morning’s revision shrunk them further – to $398.50 billion, or 11.79 percent.

The same has held for the growth drag of the Made in Washington trade deficit – comprised of trade flows heavily affected by trade policy and trade agreements, and which therefore leaves out trade in oil and services.

The final first quarter GDP figures pegged this trade drag at 17.37 percent of cumulative real growth during the expansion – a $523.88 billion loss. According to this morning’s revised second quarter estimate, the Made in Washington deficit’s bite from real growth declined to 14.88 percent, or $502.90 billion.

(What’s Left of) Our Economy: The Real Trade Messages of the New GDP Report

Tags

exports, GDP, Great Recession, gross domestic product, imports, inflation-adjusted growth, Made in Washington trade deficit, real exports, real imports, real trade deficit, recovery, tariffs, Trade, Trade Deficits, Trump, {What's Left of) Our Economy

Friday’s government report on U.S. economic growth in the second quarter of this year was a treasure trove of newsworthy information. It not only provided the first peak at how President Trump’s imposed and threatened tariffs have affected the nation’s economic performance. It also incorporated literally decades’ worth of revisions that contained some important surprises about the economy’s strengths and weaknesses – in particular over the last five years. These new findings entail considerably more than trade, but let’s focus on that subject for today, since it’s been making so many headlines.

As widely expected, these new figures on the gross domestic product (GDP) and how it changed in inflation-adjusted terms showed that the threatened tariffs and retaliatory levies boosted American exports significantly. The reason? Many foreign customers for U.S. goods decided to “front-load” their purchases to avoid the paying the new charges for as long as possible.

On a sequential basis, this first of this year’s three estimates for the second quarter judged that U.S. merchandise exports jumped by 8.96 percent on an annualized basis. That’s the biggest such increase since the 11.72 percent surge in the fourth quarter of 2013. At the same time, the contribution to total quarterly growth made by goods exports was nothing special. In fact, at 1.12 percentage points out of the quarter’s 4.10 percent annualized rate of inflation-adjusted expansion, they fueled less real growth relatively speaking than they did in the fourth quarter of last year, when they were responsible for 0.79 percentage points of that period’s 2.30 percent annualized constant dollar growth.

Interestingly, the tariffs didn’t result in U.S. customers of overseas producers displaying the same interest in maximizing their imports to the greatest possible extent. Indeed, these purchases inched up sequentially by only 0.12 percent at an annual rate after inflation. Yet at $3.4241 trillion after inflation and annualized, they set a new record, nosing out the previous quarter’s $3.4201 trillion.

Thanks to exports’ performance, which brought their quarterly total to a new record ($2.5742 trillion annualized in real terms) as well, the inflation-adjusted trade deficit plummeted by 23.27 percent annualized to $849.9 billion. (The absolute numbers are different from those reported in previous RealityChek posts because the new GDP report is presenting the inflation-adjusted figures using 2012 dollars, not 2009 dollars.) That quarterly trade shortfall was the nation’s smallest since the $845.9 billion annualized recorded in the third quarter of last year. And the sequential decrease was the biggest since the 36.96 percent nosedive in the fourth quarter of 2013.

In addition, according to the revisions, America’s trade performance between the fourth quarter of 2012 and the second quarter of this year was considerably worse than previously estimated. Combined goods and services exports rose a bit faster (at a 2.6 percent rather than a 2.5 percent average annual pace in real terms). But total import growth was much stronger during this period – a 4.2 percent average annual increase in constant dollars rather than 3.7 percent growth.

Trade deficits have therefore been higher than previously judged. Again, the changeover from reporting the figures in 2009 dollars to using 2012 dollars makes comparing the old and new levels pointless. But the difference can become clear by examining these deficits as a share of the total economy. Here are the previously reported percentages:

2013: 2.59 percent

2014: 2.67 percent

2015: 3.31 percent

2016: 3.51 percent

2017: 3.64 percent

And here are the revised data:

2013: 3.23 percent

2014: 3.42 percent

2015: 4.17 percent

2016: 4.45 percent

2017: 4.76 percent

Last year’s level was the highest for any year since 2007’s 5.27 percent – just before the Great Recession struck. It’s still a far cry from the historic quarterly high of 6.10 percent, set in the fourth quarter of 2005. But the trend shows that the real trade deficit has been climbing steadily toward these heights.

In fact, during the first quarter of this year, the overall real trade deficit hit 4.92 percent of GDP, before falling back to 4.59 percent in the second.

The revised GDP figures also shed new light on trade’s drag on economic growth during this sluggish recovery. Before this revision, the increase in the constant dollar trade deficit since the expansion began, in the middle of 2009, had sliced $302.1 billion off of the economy’s cumulative inflation-adjusted growth through the second read on first quarter GDP. That amounted to a trade drag of 9.99 percent.

With the revision in place, the trade drag as of the first quarter’s final read was $457.2 billion – or 14.33 percent. The decline in the price-adjusted trade gap as of Friday’s first read on second quarter GDP pushed the drag down to twelve percent. But that figure still represented $404.7 billion in lost real growth.

The growth drag created by the increase in the Made in Washington trade deficit has been much bigger. Before the new GDP revision, the growth of this trade shortfall (which is comprised of constant-dollar trade flows heavily affected by trade policy and trade agreement, and therefore leaves out trade in oil and services) had cut cumulative recovery era growth by 17.37 percent in real terms, or $523.88 billion, as of the final first quarter figures.

It won’t be possible to calculate revised figures for the first quarter and new figures for the second quarter until this Friday, when we’ll get the next monthly trade report (for June).

(What’s Left of) Our Economy: Higher Trade Deficit Pulls Down First Quarter U.S. Growth Rate

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exports, GDP, gross domestic product, imports, Made in Washington trade deficit, real GDP, real trade deficii, recovery, Trade, trade deficit, {What's Left of) Our Economy

The second read on the inflation-adjusted first quarter gross domestic product (GDP) revealed that the slight growth slowdown (from a 2.30 percent annualized increase to 2.16 percent) was driven by a higher trade deficit figure ($650.9 billion annualized) than initially reported ($645.9 billion annualized). This figure – though still lower than the fourth quarter’s $653.9 billion – remained the second highest price-adjusted quarterly trade shortfall since the $703.2 billion total reported for the third qurter of 2007 – just before the onset of the Great Recession.

The quarterly records for all major import and export figures remained intact in the new data, but all of the latest export totals came in slightly lower, and all of the latest import figures came in slightly higher. At the same time, the sequential slowdowns in the growth of total imports and goods imports (79.17 percent and 86.21 percent, respectively) remained the greatest since the first quarter of 2011 and the first quarter of 2009, respectively. The latter date came at the depths of the Great Recession.

The new GDP figures showed that trade’s drag on cumulative growth during the current recovery remained substantial – and the first quarter total (9.41 percent) was slightly higher than the initially reported 9.23 percent. As a result, though, this trade drag was down somewhat from the 9.82 percent it hit as of the fourth quarter of last year. But the subtraction from cumulative constant dollar economic growth was still an impressive $535.09 billion.

Here are the trade highlights from this morning’s second report on first quarter GDP growth from the Commerce Department:

>The Commerce Department’s second read on gross domestic product (GDP) in the first quarter of this year revealed that a higher quarterly inflation-adjusted trade deficit than initially estimated helped bring about the slightly lower growth figure contained in the new report.

>The increase in the quarterly trade deficit estimate (from $645.9 billion annualized to $650.9 billion annualized) contributed to the real quarterly growth estimate being reduced from 2.30 percent to 2.16 percent.

>The first quarter figure was lower than the fourth quarter’s $653.9 billion. But it still represented the second highest such trade shortfall since the $703.2 billion reported in the third quarter of 2007 – just before the Great Recession struck.

>Because of this quarterly decline in the after-inflation trade deficit, trade still added to constant dollar economic growth in the first quarter. But the contribution fell from a 0.20 percentage point contribution to 2.30 percent annualized growth to a 0.08 percentage point contribution to 2.16 percent annualized growth.

>Levels of all major categories of real American exports and imports remained at record levels in the latest GDP data. But all of the export figures came in slightly lower than initially reported, and all the import figures came in higher.

> Real total exports are now judged to have been $2.2529 trillion in the first quarter on an annualized basis, not $2.2563 trillion. As a result, the sequential increase on an annualized basis was 1.04 [ercent, not 1.19 percent.

>The new real total export total nonetheless remained the category’s fifth straight quarterly record.

>Real goods exports are now judged to have been $1.5696 trillion in the first quarter on a annualized basis, not $1.5722 trillion. As a result, the annualized sequential increase was 1.32 percent, not 1.49 percent.

>But this too was a fifth straight quarterly record.

>Real services exports are now judged to have been $687.4 billion annualized in the first quarter, not the $688.3 billion previously reported. As a result, the annualized sequential increase was 0.47 percent, not 0.60 percent. The new total, however, was a new record as well.

>The first quarter’s total real import figure has now been revised up from $2.9022 trillion on an annualized basis to $2.9038 trillion. As a result, the sequential increase is now 0.70 percent, not 0.64 percent. The new total is still a second straight quarterly record.

>The goods imports total is now estimated at $2.3993 trillion annualized, up from $2.3985 trillion. annualized represented this category’s second straight all-time quarterly high. As a result, the sequential growth is 0.56 percent, not the 0.52 percent previously reported, but the level is still a second straight quarterly record, too.

>Real services imports for the first quarter are now estimated at $502.9 billion annualized, not the $502.1 billion previously reported. As a result, their sequential growth is now 1.35 percent, not the 1.19 percent previously reported. But this new total is a record, too.

>At the same time, both the total imports and the goods imports growth rates still represent the biggest sequential slowdowns in years.

>Even the slightly higher inflation-adjusted total import growth reported for the first quarter (0.70 percent) was 79.17 percent lower than the fourth quarter’s 3.36 percent. That’s still the biggest such change since the first quarter of 2011 (81.87 percent).

>The slightly higher inflation-adjusted goods import growth reported for the first quarter (0.56 percent) was 86.21 percent lower than the fourth quarter’s 4.06 percent. That’s still the biggest such change since the first quarter of 2009 (87.63 percent) – near the low point of the Great Recession.

>With the modest increase between the initially reported first quarter annualized real trade deficit and today’s figure, trade’s drag on the current economic recovery became even larger.

>As of the latest data, the increase in the after-inflation trade deficit has reduced total real growth since the recovery’s onset in mid-2009 by 9.41 percent, or $284.6 billion. The initial first quarter read produced a figure of 9.23 percent, or $279.6 billion.

>Yet this growth drag is still a bit less than the fourth quarter’s 9.82 percent (or 287.6 billion.

>The growth drag of the increase in the Made in Washington trade deficit – which focuses on the non-oil goods trade flows most heavily influenced by trade agreements and other trade policies – has been much greater during the recovery.

>As of the first quarter, this Made in Washington recovery drag stood at 18.26 percent of cumulative real recovery growth ($535.09 billion). That’s a small improvement over its drag as of the fourth quarter of last year – 18.38 percent of cumulative recovery growth, or $538.81 billion.

(What’s Left of) Our Economy: First Quarter U.S. Growth was Encouraging Quality-Wise, Too

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business spending, GDP, Great Recession, gross domestic product, housing, non-residential fixed investment, personal consumption, real GDP, recovery, {What's Left of) Our Economy

Last Friday’s report from the government on America’s economic growth generally was hailed by the conventional wisdom both for beating most economists’ expectations, and for breaking a two-year string of absolutely dismal advances in the price-adjusted gross domestic product (GDP) during the first quarter of the year. (Actually, three of the previous four first quarters saw lousy GDP reads, including 2014’s dip in the country’s real production of goods and services).

I see an additional reason for liking the 2.30 percent annualized figure: This first estimate showed that first quarter growth was considerably healthier than the American pattern during the current economic recovery.

As known by RealityChek regulars, this expansion, which began in the middle of 2009, is one of the longest on record. But in addition to growth being notably weak, it’s been largely driven by the same dangerous engines that inflated the credit bubble of the previous decade – whose bursting of course led to a frightening global financial crisis and the worst U.S. economic slump since the Great Depression of the 1930s. More specifically, growth has relied heavily on personal consumption and housing, which I’ve called the “toxic combination.”

On a standstill basis, the new figures show that the economy’s make-up is only slightly less dominated by these two components of the GDP than it was at the height of the bubble decade. As of the first quarter, personal consumption and housing combined accounted for 72.89 percent of real GDP, not too far short of the record of 73.27 percent that was hit in the third quarter of 2005.

At the same time, this share was lower than the 73.12 percent of the fourth quarter of last year, and is the second lowest since the third quarter of 2016 (72.71 percent).

Especially encouraging in this regard were the personal consumption results. Quarter-to-quarter, it fell from 69.62 percent of the inflation-adjusted economy (an all-time high) to 69.41 percent – the very lowest since that third quarter of 2016 (69.25 percent).

As for personal consumption’s growth role, the new numbers reveal that it made its smallest relative contribution to real GDP expansion in the first quarter (0.73 percentage points – or 31.74 percent – of 2.30 percent annualized growth) since the second quarter of 2012 (0.45 percentage points – or 2406 percent – of 1.87 percent annualized growth).

And partly as a result, a much better guarantor of healthy growth – business spending – made its best contribution to the real GDP’s advance in the first quarter in more than a year. Non-residential fixed investment fueled 0.76 percentage points (33.04 percent) of that 2.30 percent annual first quarter growth. In the first quarter of 2017, such business spending’s contribution was much bigger (71.66 percent). But annualized growth was only 1.23 percent.

What about housing? Its share of real GDP has fluctuated in a pretty narrow range over the last year or so – between 3.42 percent and 3.58 percent. But this share is so much smaller than that of personal consumption, and has stayed so much lower than during the bubble decade (when it peaked at 6.17 percent in the second quarter of 2005), that it’s just not moving the growth quality needle much.

There’s no guarantee that this mildly encouraging trend will continue. In fact, many prominent observers argue that personal consumption in the first quarter was simply taking a breather after a torrid fourth quarter of 2017, and expect a rebound to show up in the second quarter figures. But more consumer spending wouldn’t necessarily be bad for the American economy – provided that the healthy growth engines, like business spending (and better trade performances) aren’t once again completely lost in the shuffle.

(What’s Left of) Our Economy: Record U.S. Exports and Imports Mark New U.S. Growth Report – Mainly as the Latter Stagnate

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exports, GDP, Great Recession, gross domestic product, growth, imports, inflation-adjusted growth, Made in Washington trade deficit, real GDP, real trade deficit, recovery, Trade, trade deficit, {What's Left of) Our Economy

According to the advance gross domestic product figures for the first quarter of 2018, all categories of U.S. exports and imports hit new all-time quarterly highs in inflation-adjusted terms and the real quarterly trade shortfall declined sequentially.

The real trade gap, though, was still the second highest annualized quarterly total ($645.9 billion) since the third quarter of 2007 ($703.2 billion) – just before the Great Recession began. Moreover, the constant dollar trade deficit’s 1.22 percent sequential drop-off resulted almost entirely from the greatest sequential slowdowns in the growth of total imports (80.95 percent) and goods imports (87.19 percent) since the fourth quarter of 2010 and the first quarter of 2009, respectively.

Trade continued in the first quarter of 2018 to subtract from cumulative real growth during the current economic recovery, the the drag diminished from the 9.82 percent figure for the fourth quarter of 2017 to 9.23 percent.

Here are the trade highlights from the Commerce Department’s report today on first quarter GDP growth:

>All categories of America’s exports and imports hit all-time highs in the first quarter of 2018 after inflation, according to the Commerce Department’s initial report on the new gross domestic product’s (GDP) growth for that period.

> Real exports totaled $2.2563 trillion on an annualized basis – 1.19 percent higher than the final (for now) level for the fourth quarter of last year, and American overseas sales’ fifth straight quarterly record.

>Real goods exports of $1.5722 trillion annualized topped the fourth quarter total by 1.49 percent – their fifth straight quarterly record as well.

>The first quarter constant dollar services export total of $688.3 billion was a 0.60 percent sequential improvement and a new record itself, but represented a rebound from the fourth quarter’s 0.35 percent sequential dip.

>On the import side, the United States’ total purchases from abroad came to $2.9022 trillion on an annualized basis – up 0.64 percent sequentially and their second straight quarterly record.

>But that growth rate contrasted dramatically with the 3.36 percent sequential increase in last year’s fourth quarter, and indeed was 80.95 percent slower.

>The goods imports total of $2.3985 trillion annualized represented this category’s second straight all-time quarterly high. Yet the 0.52 percent quarterly increase was 87.19 percent slower than the 4.06 percent quarterly rise in last year’s fourth quarter.

>In fact, both these slowdowns were the greatest since the fourth quarter of 2010 and the first quarter of 2009 – the latter a time when the Great Recession was bottoming. In the fourth quarter of 2010, the growth rate of total imports sank by 81.87 percent; in the first quarter of 2009, goods imports plunged sequentially at nearly double (87.63 percent) the rate that they fell in the third quarter.

>Real services imports reached $688.3 billion annualized in real terms in the first quarter, a 0.60 percent advance from the fourth quarter amount and a new record as well.

>The new GDP report revealed that trade remained a considerable drag on the U.S. economy’s after inflation expansion since the current recovery began. But the drag fell from the 9.82 percent of real growth cut by the trade deficit’s increase since the recovery began (in mid-2009), to 9.23 percent.

>In real absolute terms, this means that the trade deficit’s rise sliced cumulative recovery-era inflation-adjusted growth by $287.6 billion as of the fourth quarter of 2017, and by $279.6 billion as of the first quarter of 2018.

>The growth drag of the increase in the Made in Washington trade deficit – which focuses on the non-oil goods trade flows most heavily influenced by trade agreements and other trade policies – has been much greater during the recovery. But the exact numbers for the first quarter won’t be known until the March monthly trade data come out early next month.

>As of the fourth quarter of 2017, though, the increase in this trade deficit in real terms had reduced recovery growth by a 18.38 percent, or $538.81 billion