(What’s Left of) Our Economy: A Major Virus-Related U.S. Economy Hit Confirmed – With Much Worse Numbers Sure to Come

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

This is a catch-up post on the CCP Virus-induced contraction of the U.S. economy growth, as well as a report on today’s latest update from the Commerce Department. The big news this morning: During the first quarter of this year, the economy’s sequential shrinkage for the first quarter of this year was pegged in this morning’s third, and final (for now) estimate at 5.09 percent at an annual rate in inflation-adjusted terms. That compares with the 4.87 percent drop in real output recorded in the first estimate, and a 5.15 percent decline estimated in the second estimate, which yours truly missed when it came out last month.

So things economic are looking slightly less terrible than previously thought – but still pretty terrible. In fact, this first quarter economic downturn was America’s most severe since the fourth quarter of 2008’s 8.66 percent – when the Great Recession spurred by the financial crisis was at its low point.

And there’s no doubt much worse to come in the second quarter figures, whose initial release will be a month from now (along with a regularly scheduled revision of all the data on the gross domestic product [GDP] and its changes going back to 2015). After all, the first quarter numbers only include the first month (March) during which the CCP Virus and its growth-killing effects began to be fully suffered.

Before delving into the trade-related details, a cautionary/explanatory note should be repeated: The phrases “at an annual rate” and “annualized” mean that an economic contraction of this historic scale didn’t take place al at once. Instead, they mean that in the economy contracted at a rate that would add up to the current 5.09 percent if the shrinkage continued at this pace for an entire year. This qualification is especially important because of the tremendous expected worsening of the slump in the second quarter.

Today’s GDP report revealed that the after-nflation annualized combined goods and services trade deficit during the first quarter was $815.5 billion. That’s a bit worse than the $816.0 billion figure reported last month but a bit better than the $817.4 billion calculated in the first estimate. And this so-far-final number represents a 9.34 percent decline from the $900.7 billion level reported for the fourth quarter of last year.

These results leave the drop-off the steepest since the 18.13 percent quarter-to-quarter nosedive during the second quarter of Great Recession-y 2009. And because the gap between these two results remains so big, it will be fascinating to see the numbers for the second quarter, when impact of mandated shutdown of much of the economy will first become apparent.

The quarterly decrease in total real exports for the first quarter is now judged to be 2.33 percent (non-annualized – as are the following numbers). This decline is worse than that estimated in the two previous first quarter GDP reports (2.24 percent and 2.25 percent, respectively). But as with the trade deficit figures, this slump pales with that suffered the last time constant dollar goods and services exports dropped significantly – the 8.08 percent crash dive during the first quarter of 2009, during the depths of that Great Recession.

On the import side, the 4.17 percent sequential price-adjusted fall-off reported this morning was bigger than either the 4.12 percent decrease previously judged and the 4.08 percent initially estimated. Again, however, that was the biggest such decline since a Great Recession result that was much greater – the 9.88 percent recorded in the first quarter of 2009.

The “final” first quarter figure for the inflation-adjusted goods deficit ($996.8 billion annualized) was 7.64 percent lower than the fourth quarter figure. But in services, the real surplus widened by 1.22 percent – even though the super-sector’s exports plummeted by nine percent. The first quarter annualized total of $714.9 billion annualized was the meagerest since the $706.2 billion level for the fourth quarter of 2013, and the rate of decline (much greater than the 0.49 percent in goods exports) was the fastest ever in a data series going back to 2002. In fact, the previous record was only 2.95 percent (during the Great Recession-y first quarter of 2009) – as with the export figures underscoring the outsized impact of the CCP virus’ impact on the travel industry.

Similar trends can be seen in after-inflation services imports. which sank by a record 8.06 percent in the quarter – much faster than the 3.19 percent fall in goods imports.

(What’s Left of) Our Economy: Great New Developments on the U.S.-China Decoupling Front

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CCP Virus, Census Bureau, China, coronavirus, COVID 19, decoupling, FDI, foreign direct investment, GDP, goods trade, gross domestic product, National Committee on U.S.-China Relations, Rhodium Group, supply chain, tariffs, Trade, Trump, venture capital, Wuhan virus, {What's Left of) Our Economy

Amid the flood of terrible news that’s been engulfing the U.S. economy because of the CCP Virus and its shutdown effects, there’s a decidedly positive development to report: Major evidence has just come in showing that the decoupling of the U.S. economy from China’s keeps proceeding. And, even better, the data make clear that the United States is amply capable of prospering without extensive ties with (and resulting vulnerabilities to) the increasingly hostile and dangerous regime in Beijing.

The latest evidence for such conclusions about the so-called decoupling process comes from a study just jointly released by a research firm called the Rhodium Group and a pillar of the Offshoring Lobby called the National Committee on U.S.-China Relations. The real work was done by the folks at Rhodium, and the big takeaways are:

>that the value of Chinese “foreign direct investment” (FDI) in the United States (i.e., Chinese takeovers or acquisition of stakes in existing non-financial assets in the United States, and creation of new non-financial assets) fell slightly on year last year to its lowest annual level ($4.78 billion) since 2010, and is now nearly 90 percent below its peak annual level of $46.49 billion in 2016;

>that the value of Chinese “venture capital” investment (a strange term for originating in the state-controlled Chinese economy) going into the United States fell from its all-time high of $4.67 billion in 2018 to $2.57 billion last year;

>that the value of U.S. FDI made into the Chinese economy edged up sequentially last year, from $12.89 billion to $14.13 billion, but still remains well below its peak of $20.94 billion in 2008;

>and that the value of U.S. venture capital investment going into China plummeted from its all-time high of $19.57 billion in 2018 to $4.98 billion in last year.

Even if you’re not concerned about greater integration with a country that’s threatened cut off vital medical supplies to the United States during the current pandemic, or about the national security threat posed by Chinese access to defense- or surveillance- or hacking-related tech, this is great news for anyone valuing the benefits of free markets. For any participation by China’s state-controlled system in the U.S. economy can only distort the workings of free markets, and in particular, force U.S. businesses (which until the CCP Virus invaded needed to rely on private sources for their capital) to compete with Chinese rivals (which can rely on the Chinese treasury).

Rhodium’s research also found that Chinese investment flows into the United States plunged even further during the first quarter of this year (the first pandemic quarter) while U.S. flows into China remained pretty stable. But the pre-CCP Virus results are undoubtedly more revealing of the underlying longer-term trends.

Decoupling is proceeding even faster on the trade front. Last week’s monthly U.S. trade report from the Census Bureau (for March) showed that the two-way value of U.S.-China trade in goods (the sum of imports and exports) sank by 42.49 percent between the first quarter of 2019 and the first quarter of 2020. That’s the lowest quarterly level since the $72.16 billion level recorded for the first quarter of 2006.

More revealing, though: At that point, two-way goods trade represented 0.53 percent of the total U.S. economy. In the first quarter of 2020, the proportion was down to 0.35 percent.

Of course, the first quarter 2020 results have been distorted by the CCP Virus’ effects (and greater distortion surely lies ahead). More specifically, gross domestic product (GDP) decreased from the fourth quarter of last year to the first quarter of this year, and it grew a measly 2.10 percent before adjusting for inflation over the fourth quarter of 2019. (This and the following growth figures are different, and higher, than the growth figures featured in the most widely tracked GDP figures, which are adjusted for price changes. I’m using the pre-inflation GDP figures here because inflation-adjusted country-specific trade figures aren’t available.)

For more “normal” data, let’s check out the figures for the year preceding the fourth quarter of 2019. During that timespan, the value of two-way U.S.-China goods trade dropped by 19.48 percent – from $171.57 billion to $138.15 billion. But pre-inflation growth hit a solid 3.98 percent.

Slightly shifting the time periods examined produces the same pattern. Between the first quarter of 2018 and the first quarter of 2019, the value of two-way U.S.-China goods trade nosedived by 46.40 percent. In other words, it was cut nearly in half. Yet current dollar growth during that period hit 4.64 percent.

At this point, it’s necessary to point out that this big 2018-19 decline in the value of two-way goods trade came right on the heels of a huge 77.58 percent increase between 2017 and 2018. But this rise stemmed mainly from the major adjustments made by businesses on both sides of the Pacific – especially what’s called U.S. tariff “front-running” – to deal with President Trump’s steadily escalating increases in tariffs on imports from China.

The justification for confidence that, but for the virus’ impact, the New Normal in U.S.-China trade would be reflecting more decoupling comes from examining the trends before and after President Trump’s January, 2017 inauguration. From the time Mr. Trump entered office through the end of last year, the economy grew by a total of 13.23 percent. But the value of two-way bilateral goods trade became 0.32 percent higher. In other words, for all intents and purposes, it didn’t grow at all.

That marks a major turnaround from the eight years under former President Obama, when the only first-quarter-to-first-quarter shrinkage in two-way trade (7.35 percent, between 2015 and 2016) was accompanied by weak 2.45 percent GDP growth. Moreover the only Obama first-quarter-to-first-quarter period when strong GDP growth (5.14 percent) was accompanied by only relatively modest growth in two-way bilateral trade (5.28 percent) came between 2014 and 2015. For the rest of his term in office, the growth of two-way U.S.-China goods trade significantly topped the growth of the economy, before taking inflation into account.

One of the most important concepts in free market-oriented economics is that of trade-offs, often expressed with the phrase, “There’s no such thing as a free lunch.”  Decoupling America’s economy from China’s will no doubt entail further disruption and costs related to the inevitable inefficiencies of supply chain rejiggering.  But the U.S.’ ability to grow strongly even as its economic engagement with China shrivels adds to the evidence that this lunch, if not exactly free, is a terrific value.

Following Up: The CCP Virus is Making the Case for Free Trade Look Ever Sicker

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CBO, CCP Virus, China, Commerce Department, Congressional Budget Office, coronavirus, COVID 19, Financial Times, Following Up, free trade, GDP, Goldman Sachs, gross domestic product, Guggenheim, IMF, inflation-adjusted growth, International Monetary Fund, Morningstar, output gap, real GDP, Trade, Wuhan virus

A month ago, I put up a post claiming that the gargantuan economic losses stemming from the CCP Virus outbreak were shredding the standard economics case for free trade. Essentially, most economists have long insisted that the gains from trade always exceeded the losses that might be suffered by individual parts of the economy and their workers. (I purposely excluded the debate over whether more trade has exacted excessive non-economic costs, like eroded national security or more pollution.) Even better, the freest possible international trade flows would create enough additional wealth to permit generous compensation for these losers.

But I then documented that the virus-related hit to American economic output – which will clearly had stemmed from decades of freeing up trade and broader commerce with China – had already dwarfed the trade gains claimed even by cheerleaders for doing ever more business with the People’s Republic.

One month later, the China trade bonanza estimates haven’t gotten any better. But the projections of damage to the U.S. economy have greatly worsened.

My April 6 post cited two leading private sector forecasts of U.S. output losses for this year, measured in terms of gross domestic product (GDP) adjusted for inflation – Morningstar’s figure of $954 billion, and Goldman Sachs’ judgment of nearly $725 billion.

Since then, some official figures have been released, and most are bigger. For example, on April 29, the U.S. Commerce Department came out with its first read on real GDP for the first quarter of this year. Even though most of that January through March period preceded the onset of various shutdown orders across the nation, the Commerce statisticians still found that the economy shrank by 4.87 percent at an annual rate in price-adjusted terms. This means that if output kept falling at that rate for all of 2020, by year-end the economy would be $928.86 billion smaller than on New Year’s Day.

That’s still a smaller production plunge than estimated by Morningstar, but Commerce (as usual) never actually predicted that the drop-off would remain constant. Its annualized figures are simply notional.

A few days before, the Congressional Budget Office did engage in some prediction. Its expectation of constant-dollar GDP decline in 2020 was $1.27789 trillion. The International Monetary Fund’s (IMF) expectation for the U.S. economy was pretty similar – a $1.1253 trillion slump in inflation-adjusted U.S. GDP.   

As also noted in last month’s post, though, virtually everyone agrees that CCP Virus-induced damage will continue beyond 2020, and the way most economists try to quantify such losses is by calculating what they call an output gap. It’s an effort to specify how much lower output will be over a period of time as a result of a shock like the virus compared with how an economy would have performed had the shock never taken place.

The last time a major output gap-estimating exercise took place was in the aftermath of the Great Recession – caused by a shock resulting from the bursting of closely related credit and housing bubbles. As shown by the chart below (originally published in the Financial Times), a team at Guggenheim investments at least consider the gap to have started in 2010 (the first year after the recovery is generally thought to have started) at about $750 billion (according to my eyeballs). Thankfully, it proceeded to shrunk steadily thereafter. But the bad news is that it shrunk so slowly that the lost growth wasn’t made up for until 2018 – eight years later.

Nevertheless, if the Guggenheim economists are right, that output gap literally was nothing compared with the one that CCP Virus’ outbreak will open up. It starts this year at about $2.7 trillion (again, as my eyeballs see it) after factoring in price changes, and it closes at a rate no faster than that seen during the last economic recovery – which was historically sluggish. In other words, the decision to free up trade with China could cost the United States economy trillions of dollars of lost growth year after year for the foreseeable future.   

Maybe during this period, someone or some organization will come up with a study of the gains to America from freer trade with China that will claim purely economic benefits orders of magnitude greater than previously judged. In order to preserve a serious case that such trade expansion has turned out satisfactorily for the United States, they’ll have to.

(What’s Left of) Our Economy: Through the Looking Glass With the New US GDP Report?

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

Today’s U.S. government report on the shrinkage of the American gross domestic product (GDP) in the first quarter of the year is fascinating not because it can provide any idea about how bad the CCP Virus-induced economic downturn is right now, much less how bad it will get. Instead, it’s fascinating because it provides (and confirms) some insights on which sectors of the economy have been the biggest winners and losers, and which could fare best and worst going forward.

First, a vitally important explanatory point: When you read that the economy contracted by 4.8 percent between the last three months of 2019 and the first three months of 2020 after factoring in inflation, remember that this figure is an annualized figure. That is, it doesn’t mean that the nation’s output of goods and services (the definition of GDP) fell by that amount all at once during the first quarter. It means that if the contraction that did occur continued at the same pace over the course of a full year, the cumulative drop would add up to 4.8 percent. (NB: The real decline was 4.87 percent, even though the Commerce Department rounded it down to 4.8 for some reason.)

The same cautionary note goes for all the terrifying predictions for the second quarter in particular, to the effect that inflation-adjusted GDP would plummet by 20 percent of 30 percent. They’re annualized rates, too.

No doubt about it – even the new annualized numbers are terrible. (And unless otherwise specified, all the following statistics will represent sequential – i.e., quarter-to-quarter – rates of change.) That’s not because they’re the worst that Americans have seen lately. That dubious honor goes to the fourth quarter of 2008, during the Great Recession, when real GDP sank at an 8.66 percent annual rate. Instead, it’s because the main shutdowns of business didn’t start until mid-March. Since the first quarter ended on March 31, a genuinely appalling amount of damage took place in a very short period of time.

As a result, surely the numbers for the second quarter will be much worse, as the lockdowns themselves spread for weeks thereafter, and their effects have had time to sink in (even though the second quarter figures presumably will reflect some of the cautious easing and reopening that’s begun). Also possibly leading to more depressing future results: Today’s first quarter figures are the first of three reports for the first quarter we’ll be getting this year. As Washington gathers more complete information, the reported nosedive could well get steeper.

The principal ray of hope comes in the nature of the downturn. It was literally ordered by America’s national, state, and local governments. Whatever recession or depression that’s begun says little about the fundamentals of the economy pre-virus – unlike typical recessions, which result from weaknesses in expansions that for various reasons finally come to light, or are brought to light by the Federal Reserve (in many cases) – which in modern times, has reacted to signs of economic excesses (like accelerating inflation), by raising interest rates (that is, increasing the cost of borrowing for everyone) and trying to bring price changes back under control. (And yes, a big exception was the Fed’s record during the previous, so-called Bubble Decade, when its principal aim seemed to be to juice growth at all costs – in that case, at the risk of scary degrees of financial instability.)

All the same, the biological roots of this economic slump create great uncertainties about the rate of recovery, since no one can know how quickly Americans will return to patronizing service sector business in particular, which comprise the vast bulk of the economy, and so many of which largely serve customers in person.

In that vein, it’s more than a little interesting that output in services shrank in the first quarter at a much faster annual rate (10.63 percent) than goods output (1.35 percent). Dig a little deeper, though, and you see that the numbers for goods are sharply divided. After-inflation output of durables (products supposed to last for three years or more either in use or on the shelf – like autos and appliances) plunged by 17.12 percent at annual rates. But constant dollar production of non-durables (notably processed food but also chemicals and paper and textile and plastics and others) actually increased – by 6.77 percent.

Those goods and services figures are contained in the “personal consumption expenditures” category of each GDP report. And overall, such consumption dropped by 7.78 percent annualized in the first quarter. Notably, that’s a much worse result than anything seen during the last, Great, recession (which, by the way, was the previous deepest economic slump experienced in the United States since the Great Depression of the 1930s). During that most recent downturn, personal spending’s decrease bottomed out with a 3.72 percent annualized fall in the fourth quarter of 2008.

No – to get to a worse consumption figure than just recorded, you need to go all the way back to the second quarter of 1980, during a horrible period marked by a painful recession and roaring inflation partly produced by sharp oil price increases. Then, such spending cratered at a 9.01 percent annual rate, and the entire economy shrank by 8.23 percent annualized.

Of course, the American economy entails more than just personal consumption (although, as known by RealityChek regulars, such spending represented a big majority of all economic activity– 69.27 percent of real GDP at present – even after the big decreases in the first quarter). Business investment amounted to 14.03 percent of GDP after inflation, and its levels were off considerably, too, in the first quarter – by 8.92 percent.

No doubt, that’s going to worsen, since the lower personal spending, as well as the lower business spending itself, mean that so many businesses will be short of customers for the time being. Even so, the Great Recession numbers were much worse. From the fourth quarter of 2008 through the second quarter of 2009, this “non-residential fixed investment” tumbled at double-digit quarterly rates, with the bottom coming during the first quarter of 2009 (a 30.14 percent plummet!).

And what about America’s trade performance? The constant dollar trade deficit narrowed by 9.25 percent – from $900.7 billion (again, that’s an annualized figure) to $817.4 billion. That deficit number is the lowest quarterly figure since the $761.4 billion recorded in the fourth quarter of 2016. Yet the rate of decrease was almost matched by that of the fourth quarter of last year (9.03 percent). To find a comparable result, you’d have to go back to the fourth quarter of 2013 (9.24 percent).

One big question: How much of this latest drop was due to oil? We know that the general answer is “a lot” – even though in principle these results take into account (i.e., factor out) the recent crash in oil prices. Nonetheless, a dramatically slowed U.S. economy is going to consume less oil overall (ditto for a recessed global economy, something to ponder since the United States is now an oil exporter). So we’ll need to look at the volume numbers and then compare them with those of previous quarters when the trade deficit dropped significantly for a fuller picture.

What is clear so far, though – in terms of the real overall trade deficit, the first quarter 2020 decline pales before those experienced during the Great Recession. In particular, the real trade gap decreased by 15.08 percent annualized during the first quarter of 2009 and by 18.13 percent during the following quarter.

In line with the consumption findings, moreover, services trade performed worse than (the much greater amount of) goods trade. The goods deficit was 7.39 percent narrower in the first quarter of 2020 ($0.9995 trillion annualized) than during the fourth quarter of 2019 ($1.0792 trillion annualized). But the services surplus rose by only 2.07 percent (from $188.2 billion annualized to $192.1 billion).

Especially revealing were the import and export findings. For goods, exports were off by only 0.30 percent – from $1.7823 trillion annualized to $1.7769 trillion. But for services, they dropped by 5.85 percent (from $758.6 billion annualized to $714.2 billion).

The services export and imports decreases were the biggest on record – by far. And although figures only go back to the first quarter of 2002, can anyone seriously doubt that these results reflect the numerous international travel bans sparked by the United States – and so many other countries?

Because services play such a predominant role in the economy, and because services that need to be delivered in person, like dining out and travel, represent such big shares of the economy (just short of 3.25 percent of all private sector output for restaurants, bars, and lodging places alone as of late 2019, and a much bigger 11.06 percent of the private sector workforce), it seems reasonable at this point to expect these sectors to keep taking particularly powerful blows at least as long as the virus remains a pandemic.   

(What’s Left of) Our Economy: The CCP Virus is Also Killing the Economic Case for Free Trade

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CCP Virus, China, corona virus, COVID 19, economics, economists, free trade, GDP, Goldman Sachs, gross domestic product, health security, inflation-adjusted output, intellectual property theft, Morningstar, offshoring lobby, Oxford Economics, Trade, U.S. International Trade Commission, U.S.-China Business Council, USITC, World Trade Organization, WTO, Wuhan virus, {What's Left of) Our Economy

In a nutshell, the mainstream economics case for the freest possible flows of international trade holds that, whatever losses may be suffered by individual parts of the economy and their workers, overall national (and global) wealth will grow – and that that’s an unmistakable good. A logical follow-on is also important: Since overall wealth increases, so does the capacity to compensate those who have lost out from trade expansion.

True, this compensation may not be dispensed. But don’t blame greater trade, most economists would insist (with not inconsiderable justification). Instead, blame national political systems or societies that fail to take advantage.

Let’s assume all these claims for the economic case (as opposed to the longstanding national security or emerging health security cases) for free trade are true. It’s noteworthy, then, that it looks like they’ve been blown out of the water by the almost certain impact of the CCP Virus emergency on the U.S. economy. At least there’s now an impressive case that trade expansion with China, anyway, has started reducing the nation’s GDP (gross domestic product – the standard measure of the economy’s size).

After all, the virus originally broke out in China, and spread to the United States because of the mushrooming of economic ties between the two countries that freer trade and commerce with the People’s Republic has produced. Some might counter that virus impact has nothing to do with trade expansion with China per se, and instead is due to the disease itself. But given the evidence that China is pandemic prone (arguably because of safety and hygiene standards that remain dreadful throughout the country despite its phenomenal recent economic progress, along with its regime’s obsession with secrecy), and the related likelihood that this problem won’t go away, it’s getting harder and harder to argue that the bilateral trade and investment boom and pandemic threats have nothing to do with each others. In other words, it’s at least reasonable to contend that rising pandemic threats have been an integral feature of freer trade and broader commerce with China.

For some specific numbers (uncertain as they inevitably remain), let’s look at a recent examination of the CCP Virus’ likely economic impact from the investment research and analysis firm Morningstar. Its take on the subject is worth highlighting because it’s the most bullish I’ve seen,

According to Morningstar, the virus’ spread as such is going to reduce the U.S. economy’s size by five percent this year in inflation-adjusted terms (the most closely followed GDP figures). That would amount to a loss of nearly $954 billion. The firm doesn’t explicitly quantify the long-term hit to the U.S. economy. But based on its assessment of the long- and short-term tolls on the global economy, and its belief that these short-term losses in percentage terms will be about half those for the United States itself, it appears that Morningstar expects the inflation-adjusted GDP losses to be some two percent. Using 2019 as the pre-virus baseline, that adds up to $381.46 billion during the (unspecified) first year of long-term effects. But since the economy would be in growth mode by then (although from a lower starting point), the yearly losses in absolute terms would grow each year, since they would represent some two percent of an ever larger pie as long as they lasted.

And remember – these forecasts are on the optimistic end. Another financial firm, Goldman Sachs, anticipates that this year, real U.S. GDP will plunge by as much as 3.8 percent this year. If correct, the national output shrinkage would be nearly $725 billion. (Unlike Morningstar, Goldman doesn’t isolate the specific CCP Virus share of these losses, but if its methodology is comparable, it could top $1 trillion.)

So those are (admittedly ballpark) figures for China trade-related losses for the whole economy. Have the claimed or estimated economic gains been greater? Not even close.

During the late-1990s, when it appeared likely that China would enter the World Trade Organization (WTO), and therefore trigger a surge in its trade with the United States and the entire world, Congress asked the U.S. International Trade Commission (USITC) to model the economic effects of the kinds of major tariff cuts to which China would agree. In its 1999 report, the Commission forecast a “minor” lift to real GDP – meaning an ongoing boost of less than 0.05 percent annually on an ongoing basis.

In 1999, that would’ve meant a $63 billion constant dollar GDP gain for the first year following China’s entry

To be sure, the USITC also tried to estimate the impact of the elimination of the multitude of non-tariff barriers China has long thrown up to the outside world – rules and regulations, often developed and carried out in secret, that can block or slow the growth of imports more effectively than tariffs. The Commission’s findings suggested that success on this crucial front – also predicted by supporters of China’s WTO entry – would double the U.S. GDP gains produced by expected tariff cuts. If correct, the ongoing American yearly output increase would be 0.10 percent of after-inflation GDP, or $126 billion, in the first year after these reforms were made.

Because of subsequent GDP growth, these annual gains would increase in absolute terms, and over the nearly two decades between China’s year-end 2001 WTO entry and today, could easily total trillions annually.

But many of these China tariff and especially China non-tariff barrier promises are still unkept, as even the Obama administration – a strong supporter of U.S. participation in the WTO – admitted in its final report to Congress on the subject. Maybe that’s why the private economic research firm Oxford Economics (in a study for the U.S.-China Business Council, a major pillar of the U.S. corporate Offshoring Lobby) pegged the annual GDP gains of U.S. business with China at $216 billion as of early 2017. That’s not much of a compounding gain.

Moreover, consistent with Offshoring Lobby practices, the Oxford report completely ignores the economic impact of U.S. imports from China – which have greatly exceeded exports for decades. And since China’s WTO entry through last year, the growth of the goods trade deficit has been a vigorous 235.36 percent. Nor did I see anything in its study about China’s massive theft of U.S.-owned intellectual property. Estimates vary, but even these China pollyannas admit it could amount to $600 billion each year. 

As with pandemics, you could argue that intellectual property theft’s growth isn’t a built-in feature of trade with China or any other country.  But since China has been far more theft-prone than it’s been pandemic-prone, and since its thieving ways were well known to Washington as WTO entry was being orchestrated, these costs clearly belong in the “costs of free trade” category – at least with China.      

Finally, of course, these purely economic arguments for free trade overlook non-economic arguments for trade curbs and national self-sufficiency that have always been compelling and that the virus outbreak has now turned into slam-dunk winners. Think “national security” and “healthcare security” – unless you’re thrilled with America’s current dependence on foreign sources of vital medicines, their building blocks, and medical devices.

Predictions understandably are abounding the the CCP Virus emergency will change some lasting behaviors and ideas nationally and globally. If the above, arguably realistic, view of the economic case is correct, free trade practice and ideology belong near the top of this list.

(What’s Left of) Our Economy: Yes, These New (Pre-CCP Virus) U.S. Trade Figures Really Matter

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Atlanta Fed, Boeing, Census Bureau, China, exports, GDP, gross domestic product, imports, Made in Washington trade deficit, manufacturing, New York Fed, Pacific Rim, real GDP, tariffs, Trade, trade deficit, Trump, {What's Left of) Our Economy

There’s no doubt that the pre-CCP Virus U.S. economic data that still keep coming out (and that will continue coming out for months) has at best strongly limited utility nowadays – with one gigantic caveat. They speak volumes about how the economy was faring before the virus’ invasion, and the message they’re sending is especially important for evaluating the effects of President Trump’s tariff-heavy trade policies.

Specifically, they make abundantly clear that the economy was humming along just (and in many ways, increasingly) fine even though steep Trump levies have remained on literally hundreds of billions of dollar worth of potential goods imports – mainly on products from China and steel and aluminum from numerous countries. So you can take the mountain of claims that these duties would wreck American prosperity and throw them on the trash heap. And new reinforcement for this analysis has appeared this morning in the form of the latest official monthly U.S. trade figures (for February) from the Census Bureau.

First, let’s look at the growth numbers, as reported in terms of a measure called “gross domestic product” (GDP). It gauges the nation’s output of goods and services, and the most closely watched figures are those adjusted for inflation.

There’s no doubt that real growth slowed from the time the first Trump-specific tariffs (on metals) were imposed in March, 2018. That year, after-inflation GDP expanded by a healthy 2.93 percent. But the rate slowed notably during that year, certainly at least coinciding with the impact of the tariffs taking hold. It’s also important to point out that China duties began in mid-year, were increased, and plans for many more were announced. (See the timeline linked immediately above for the specifics). 

Growth slowed in full year, 2019, but just to 2.33 percent – still solid by recent U.S. (meaning post-2008 financial crisis) standards. And the nation was dealing not only with trade war fallout, but the safety problems plaguing aircraft giant Boeing and its vast national supply chain.

We don’t have constant dollar GDP results for the first quarter of this year yet, but two regional branches of the Federal Reserve system try to track growth on a timely, ongoing basis. And the pre-virus grades they both gave the economy were encouraging. According to the Atlanta Fed, first quarter after-inflation growth was proceeding at a better-than-three percent annual pace through late March – even though virus infections and deaths were rising troublingly.

(It’s crucial to note, especially in light of shockingly bad recent virus-era growth – and in fact contraction – estimates from private sector economists, that such annualized figures describe growth rates as if the quarterly results lasted for an entire year. That is, the growth or contraction they describe does not represent actual GDP change for that quarter – and as a result, they shouldn’t be taken to revealing that the increases or decreases that are forecast will take place all at once.)

The New York Fed’s estimates tend to be lower than Atlanta’s, but they still predicted an annualized 2.14 percent inflation-adjusted first quarter growth rate as late as February 28. By March 27, that estimate had fallen to 1.68 percent annualized.

And what’s happened to the U.S. trade deficit for the first two months of 2020 – in other words, the first two-thirds of the first quarter of the year? By the broadest measure, which counts both goods and services, it’s down 18.71 percent year-on-year. (This and the following trade numbers are presented in pre-inflation terms, since such figures dominate the detailed results contained in the monthly trade reports.) Better yet, decline has been accelerating. Between December and January, the total trade gap fell by 6.44 percent – from $48.61 billion to $45.48 billion. From January to February, it sank by another 12.20 percent – nearly twice as fast – to $39.93 billion. (The initially reported January number was revised up slightly today.)

That February figure was the lowest since the $39.92 billion registered in April, 2016 – when the economy was growing only a bit more slowly, but when there were no serious problems facing then-export standout Boeing. Moreover, the February monthly drop was the biggest since March, 2018 (12.34 percent) – just as the first Trump metals tariffs were coming into effect.

As known by RealityChek regulars, the best way to judge how trade policy decisions have affected the trade figures is to look at the data measuring the nation’s trade flows minus oil and services (which have never been greatly affected by trade agreements or tariffs). For the first two months of this year, this Made in Washington trade deficit is off by 9.64 percent in pre-inflation terms. Here, too, the rate of decrease is getting faster, with February’s sequential 7.97 percent plummet the biggest such decrease since the 9.45 percent nosedive that took place in January, 2019 – as the China trade war was peaking in terms of tariff impositions. And the $60.76 billion February total is the lowest for a single month since September, 2017’s $60.65 billion.

Speaking of China, a combination of Beijing’s widespread CCP Virus lockdowns and Trump tariffs brought the February U.S. goods trade gap with the People’s Republic all the way down to $16 billion. That’s the lowest such total since the $15.65 billion recorded in Great Recession-ary March, 2009. And the monthly falloff (38.62 percent) was the biggest since December, 1993’s 39.46 percent. That was more than 26 years ago!

Moreover, even though U.S. merchandise exports to China slipped by 5.55 percent on month, U.S. goods imports from China dropped by 31.45 percent. The actual U.S. export level of $6.82 billion was indeed the lowest since June, 2010’s $6.73 billion. But the import level of $22.81 billion was the lowest monthly total since Great Recession-ary May, 2009’s $22.73 billion. And the sequential import drop was the biggest since the 34.07 percent of April, 1986 – nearly 34 years ago, when the much smaller volumes of U.S.-China trade made big percentage moves much easier to produce.

Also important – even as the China year-to-date goods trade deficit has declined by 28.99 percent, the U.S. goods trade gap with Pacific Rim countries (a grouping that does not include Western Hemisphere countries like America’s U.S.-Mexico-Canada trade agreement partners) is off by 25.30 percent. So say so long to the claim that the Trump tariffs have simply shifted the deficit to other Asian countries.

The news was equally good on the manufacturing trade front. America’s mammoth manufacturing trade deficit shrank on month in February from $81.93 billion to $63.01 billion. The February total is the lowest such figure since February, 2017’s $60.47 billion. Meanwhile, the 23.09 percent monthly drop is the biggest since December, 2012’s 27.11 percent decrease.

Further, the deficit fell for all the right reasons. Despite the continued overall economic growth, U.S. manufacturing imports were off 8.98 percent, to $153.07 billion while exports actually grew – by 4.42 percent, to $90.06 billion.

As a result, the manufacturing trade shortfall is down year-to-date so far as well – by 9.65 percent, from $160.43 billion to $144.94 billion.

(What’s Left of) Our Economy: The U.S. is Racing to the Bottom in Growth Quality Again

Tags

Barack Obama, bubbles, Financial Crisis, GDP, Great Recession, gross domestic product, housing, personal consumption, Trump, {What's Left of) Our Economy

Although Thursday’s latest official report on U.S. economic growth was encouraging from a trade policy and national self-sufficiency perspective, as I contended, it was much less heartening from a quality of growth perspective. That, as known by RealityChek regulars, is the crucial issue of whether America’s output is being powered by the kind of engines that can last, or by the kinds (specifically housing spending and personal consumption) that tend to inflate bubbles and produce calamitous burstings.

Specifically, Thursday’s figures pegging a pretty solid rate of economic growth  both for the fourth quarter of 2019 (2.06 percent at an annual rate), and for the entirety of last year (2.33 percent least preliminarily), also made clear that way too much of this growth stemmed from housing and personal consumption – which I call the toxic combination because their combined and indeed intertwined bloat produced the last (terrifying) financial crisis and ensuing (punishing) Great Recession.

The highlights (lowlights?): On a quarterly basis, the toxic combination’s share of the total U.S. economy (technically, the gross domestic product, or GDP) in real terms (how all the following dollar figures will be presented) during the last three months of last year came to 72.91 percent. That’s nothing less than the highest such figure during the current economic recovery.

The personal consumption share alone totaled 69.78 percent of inflation-adjusted GDP and actually fell slightly from the third quarter’s 69.79 percent. Even so, that figure was the recovery’s second highest. The housing share of the after-inflation economy hit 3.13 percent – up from the third quarter’s 3.10 percent, but the highest total only since the fourth quarter of 2018 (3.16 percent). That’s an indication that housing spending has been notably subdued for about the last three years – and in fact that only personal consumption levels still deserve that “toxic” label.

On a yearly basis, the combined personal consumption and housing share of price-adjusted GDP climbed from 72.68 percent in 2018 to 72.90 percent in 2019 – the highest such level since the 73.04 percent of 2006, when the bubbles were about to burst. Personal consumption climbed from 69.45 percent in 2018 to 69.79 percent – its highest since 2004, when the previous decade’s bubbles were inflating strongly. De-toxified housing’s real GDP share fell from 3.23 percent in 2018 to 3.11 percent in 2019 – its lowest level since 2014’s 2.98 percent.

Another sign of some recent decline in the quality of U.S. growth: the combined personal consumption and housing share not of constant dollar GDP on a standstill basis, but on the economy’s annual real growth. In 2019, they powered 74.25 percent of a 2.33 percent expansion in after-inflation output. The previous year’s share was just 68.62 percent.

This performance still leaves Trump era price-adjusted growth less bubblier and higher quality by this measure than growth during Barack Obama’s presidency (as shown by the table below). But it’s a regression all the same – as growth itself slowed:

                                  Toxic combination share of total growth      Total growth

09-10:                                               46.92%                                       2.56%

10-11:                                               80.63%                                       1.55%

11-12:                                               60.91%                                       2.25%

12-13:                                               73.89%                                       1.84%

13-14:                                             117.22%                                       2.53%

14-15:                                              96.90%                                        2.91%

15-16:                                            130.00%                                         1.64%

16-17:                                               86.82%                                        2.37%

17-18:                                               68.62%                                        2.93%

18-19″                                              74.25%                                        2.33%

In fact, overall, 80.74 percent of U.S. inflation-adjusted growth during the 32 full quarters of the Obama presidency’s stewardship of the economy stemmed from the growth of personal consumption and housing. The figure for the eleven quarters of the Trump economy has totaled 74.12 percent. But that Trump percentage is gaining on the Obama figure, and this kind of race to the bottom in growth quality isn’t one the President and his supporters should want to win.

(What’s Left of) Our Economy: New GDP Data Show a Trade Deficit Being Brought to Heel Under Trump

Tags

Barack Obama, GDP, gross domestic product, Made in Washington trade deficit, real GDP, real trade deficit, trade deficit, Trump, {What's Left of) Our Economy

The fourth quarter (and therefore full-year) 2019 U.S. economic growth statistics are now in, and they’re chock full of results showing that President Trump’s promise to strengthen the American economy in part by reducing the trade deficit is being fulfilled.

To be sure, this conclusion needs several important qualifications. Notably, today’s report on the gross domestic product (GDP) from the Commerce Department is preliminary. It’ll be revised twice in the next two months alone. Further, the trade data the report contains aren’t all shaped by government trade policy decisions alone. For the numbers include the flows of services and oil trade, which are rarely dealt with in trade agreements or similar trade-related measures.

Even so, the new figures entitle the President and his supporters to take at least a slow, or partial, victory lap.

In the first place, the pre-inflation GDP data show that the overall U.S. trade deficit did indeed fall in 2019. The annual decline wasn’t much – 0.97 percent. But it marked the first yearly decrease in this number since 2016’s 0.19 percent. And it looks even better in the proper context – i.e., seen against the backdrop of changes in the GDP themselves.

After all, trade deficits often (but not always) fall for bad reasons – specifically, a shrinkage in America’s output that slashes the economy’s demand for foreign goods and services. That, however, wasn’t the story in 2019. Although the trade gap narrowed slightly, the overall economy expanded by 4.12 percent. That’s considerably faster than in 2016, when growth was only 2.69 percent. And remember – the trade deficit decrease was faster.

When examined after factoring in inflation (the GDP numbers most closely followed by students of the economy), the results don’t endorse the Trump trade approach quite so strongly. But they’re unmistakably encouraging.

In these real terms, the trade deficit rose by 3.72 percent last year (from $920 billion to $954.2 billion). This increase, however, was the slowest annual increase since 2013 (when the gap actually shrank by 6.30 percent). Even better, real economic growth in 2019 still totaled 2.33 percent. In 2013, it was only 1.84 percent.

Those results still don’t look like great news for backers of the President’s trade policy, for they indicate that making significant progress in lowering the trade deficit was at least associated with a very sluggish economy.

Yet if you take a longer view, and recognize that longstanding trends in an economy as gigantic as America’s don’t turn around overnight, the picture looks more encouraging.

The table below shows the relationship in recent years between the annual change in after-inflation (“real”) GDP and the annual change in the real trade deficit. The year 2011 is the chosen baseline because that’s when the current economic recovery settled into a reasonably normal state following the unusually deep dive it took during the Great Recession and the not surprisingly strong rebound it enjoyed during the subsequent expansion’s early stages. Low deficit-growth-to-economic growth ratios identify years during which the constant dollar GDP was able to expand without a major widening of the trade gap, and high ratios reveal the opposite situation. (Negative ratios demonstrate an economy that grew while the trade shortfall actually shrank.)

Another way to think of the matter: When the economy grows faster than or just about as fast as the trade deficit, it’s making progress toward self-sufficiency – a goal that most economists disdain (at best), which that arguably is better for the nation than growth strongly dependent on a still-dangerous and/or slow-growing world. And when the growth of the trade deficit is compared with economic growth, it’s clear that the Trump administration has made major headway on this score.

ama years                      real GDP growth   real trade deficit growth       ratio 

10-11:                              1.55 percent               0.83 percent                 0.54:1

11-12:                              2.25 percent               0.01 percent                 0.04:1

12-13:                              1.84 percent             -6.30 percent                -3.42:1

13-14:                              2.53 percent              8.33 percent                 3.29:1

14-15:                              2.91 percent            25.01 percent                 8.59:1

15-16:                              1.64 percent              8.61 percent                5:25:1

Trump years

16-17:                             2.37 percent              8.43 percent                3.57:1

17-18:                             2.93 percent              8.26 percent               2.82:1

18-19:                             2.33 percent              3.72 percent               1.60:1

Under the Obama administration, for three years, the economy managed to grow in after-inflation terms while the after-inflation trade deficit fell overall. Unfortunately, the growth itself was unimpressive. During its last three years, GDP expanded faster (especially in 2014 and 2015). But the trade deficit rose considerably faster still. So the U.S. economy became more dependent on that dicey world.

During the three full Trump years, the economy’s growth rate has been a bit stronger than under the last three Obama years. But the growth rate of the trade deficit has been a good deal slower. And although the overall economic growth rate has slowed slightly overall between 2017 and 2019, the growth rate of the trade deficit has been more than halved.

Similar trends are apparent from examining a different measure – the real trade deficit as a share of the gross domestic product. As shown by the table below, notable progress was made during the first three Obama years below in reducing both that actual percentage, its growth rate, and the ratio between the economy’s inflation-adjusted growth and the growth of its inflation-adjusted trade shortfall as a share of GDP.

During the next three Obama years, these trends generally shifted into reverse. But although the inflation-adjusted trade deficit as a share of real GDP has continually risen during the first Trump years, its own growth rate has weakened significantly even as growth itself has remained solid and impressive compared with the growth rates of those three final Obama years.

                       real trade deficit/GDP   real GDP   real trade deficit      ratio   

Obama years

2011:                   3.59 percent          1.55 percent     -1.10 percent     -0.71:1

2012:                   3.51 percent          2.25 percent     -2.23 percent     -0.99:1

2013:                   3.23 percent          1.84 percent     -7.98 percent     -4.34:1

2014:                   3.41 percent          2.53 percent      5.57 percent      2.20:1

2015:                   4.15 percent          2.91 percent    21.70 percent      7.46:1

2016:                   4.43 percent          1.64 percent      6.75 percent      4.12:1

Trump years

2017:                  4.69 percent          2.37 percent      5.87 percent      2.48:1

2018:                  4.94 percent          2.93 percent      5.33 percent      1.82:1

2019:                  5.00 percent          2.33 percent      1.21 percent      0.52:1

Unfortunately, we’ll have to wait a few days to judge how the Trump administration has performed in terms of loosening the link between economic growth and that portion of the trade deficit most directly affected by trade policy. I call it the Made in Washington trade deficit, and as stated above, it consists of the total deficit minus trade in services and oil. Here’s how those figures luck (including the inflation-adjusted Made in Washington deficit).

Obama years        real GDP       real Made in Washington deficit      ratio 

10-11:                1.55 percent                 11.92 percent                      7.69:1

11-12:                2.25 percent                 10.23 percent                      4.55:1

12-13:                1.84 percent                   6.15 percent                      3.34:1

13-14:                2.53 percent                 15.85 percent                      6.26:1

14-15:               2.91 percent                  22.70 percent                     7.80:1

15-16:               1.64 percent                    2.54 percent                     1.55:1

Trump years

16-17:              2.37 percent                    6.64 percent                     2.80:1

17-18:              2.93 percent                  13.15 percent                     4.49:1

18-19:              2.33 percent                    4.54 percent*                   1.95:1

*November-to-November

It’s evident from here that the portion of the trade deficit most directly affected by trade policy has grown much slower during the Trump years than during the Obama years, even though Trump growth on average has been somewhat stronger. In fact, during the only two Obama years in which that Made in Washington trade deficit increased nearly as slowly as during any of the Trump years (2013 and 2016) were years in which that growth was weak (less than two percent). Annual economic growth during the Trump years has never sunk to that level, or even close.

So no one should imagine that, even by its own standards, the Trump administration has made nearly enough progress in either reducing the trade deficit, or increasing the economy’s self-sufficiency. But although the numbers themselves say nothing about the value or dangers of greater self-reliance, they make clear that it’s happening, and that much of the progress has taken place where trade policy matters most.

(What’s Left of) Our Economy: So You Think Trade is an Engine of Productivity Growth?

Tags

economics, economists, European Central Bank, exports, free trade, GDP, gross domestic product, imports, International Monetary Fund, labor productivity, productivity, productivity growth, total factor productivity, Trade, trade openness, World Bank, {What's Left of) Our Economy

The idea that the more international trade a country engages in, the more strongly its productivity will grow, is widely accepted among economists. Indeed, no less than the World Bank, the International Monetary Fund, and the European Central Bank (the eurozone’s version of America’s Federal Reserve) say so.

How then, can these august institutions and other believers explain the following: On the one hand according to the United Kingdom’s Royal Statistical Society, the country’s feeble annual average labor productivity growth of 0.3 percent over the last ten years was its “statistic of the decade”? Worse, it was the poorest decade for British productivity growth since the early 19^th century.

Yet on the other hand, during this period, the United Kingdom’s openness to foreign trade – a data point created by adding a country’s imports and exports and then expressing this sum as a percentage of its entire economy, or gross domestic product (GDP) – has for the most part been hovering near post-1960s highs. In other words, the more foreign trade the UK has been engaging in, the lower its productivity growth seems to have become.

Nor is this phenomenon restricted to the UK. The same pattern can be seen in the United States, although the country’s openness to trade is much lower than the United Kingdom’s in absolute terms (not surprising, since we’re comparing an island with a continental sized economy). RealityChek regulars shouldn’t have to be reminded about America’s discouraging collapse in labor productivity growth.

What about trade? In fairness, America’s openness to trade has been falling recently. But no, that’s not President Trump’s “fault.” The decline began in 2011, when trade’s share of GDP hit a post-1960 high of 30.79 percent. As of 2017 (the latest data year available according to this source), it still stood at 27.09 percent – much higher than the period average of 19.29 percent.   

Also in fairness: Simply because openness to trade for these two big national economies has coincided with lousy productivity growth doesn’t mean that openness to trade causes the problem (or vice versa). It doesn’t even mean that openness to trade is the main productivity culprit, for many different characteristics of an economy influence any single characteristic.

But certainly in light of the American and British experiences, even if the conventional wisdom is right and trade openness does encourage productivity growth, it’s clearly a policy choice that’s often overwhelmed by other features of that same economy. P.S. – it ain’t just the Anglo-Americans. The World Bank’s databases also portray global trade at only slightly off its all-time high as a share of the global economy. And guess what? It turns out that global productivity growth has been crappy lately, too, whether we’re talking labor productivity or total factor productivity (a broader gauge that measures output from the use of many different inputs, not just labor).

As a matter of fact, it’s not difficult to think of ways in which more trade can undermine productivity growth – e.g., if import floods decimate the sectors of the economy that have historically been its manufacturing leaders, or if trade policy fosters their offshoring. (Strong cases can be made for both propositions when it comes to American domestic manufacturing.) 

So the case that trade fosters productivity growth is hardly a slam dunk.  And that’s one more reason to believe that the broader case for free trade isn’t, either.

(What’s Left of) Our Economy: U.S. Growth Takes a Bubbly Turn

Tags

Barack Obama, bubble decade, Financial Crisis, GDP, gross domestic product, housing, inflation-adjusted growth, personal consumption, real GDP, Trump, {What's Left of) Our Economy

As encouraging as last week’s official report on U.S. economic growth was – with the rate picking up even more than expected in the second quarter despite numerous forecasts of continued and even worsening slowdown – one big fly was visible in this ointment. The quality of the nation’s expansion has been weakening considerably this year, and as known by RealityChek regulars, growth overly dependent on the wrong engines can inflate the kinds of bubbles that burst so disastrously a decade ago, and triggered a frightful global financial crisis and a deep, punishing recession.

The specific internals of these reports on the gross domestic product (GDP) to track for signs of bubble-ization are personal consumption and housing. For their bloat provided most of the hot air during the 2000s (along with most of the actual growth). And the GDP report for the third quarter of this year (the most recent data available), as was the case since the second quarter, showed that these two GDP elements have driven growth much more powerfully than during that deceptively prosperous era. Further, during the last two quarters overall, growth has looked far bubblier by this measure than at any time during former President Barack Obama’s administration, with one exception. In fact, the second quarter of this year was the bubbliest ever. (More specifically, since 2002, when government figures enabled these calculations to be made.)

The table below shows the actual annual figures from 2002 through 2018 (leaving out only the recession years 2007-2008, and 2008-2009). The left-hand column shows how much total inflation-adjusted growth (the growth rate most closely followed by students of the economy) in each year was fueled by growth in personal consumption plus growth in housing. The center column shows the annual after-inflation growth rate for that year. And the right-hand column shows the difference between that toxic combination’s growth rate, and growth itself.

That ratio is important because it helps makes clear the relationship between growth’s health on the one hand and its rate on the other. Put differently, it makes possible answering the question of whether and when the U.S. economy has been growing acceptably without excessive contributions from the toxic combination.

                      percent of growth       actual growth rate          difference

02-03:                     91.11%                     2.86%             31.86 times greater

03-04:                     74.65%                    3.80%              19.64 times greater

04-05:                     79.25%                    3.51%              22.58 times greater

05-06:                    58.86%                     2.86%              20.58 times greater

06-07:                    27.01%                     1.88%              14.37 times greater

09-10:                    43.77%                     2.56%              17.10 times greater

10-11:                    82.80%                    1.55%               53.42 times greater

11-12:                   59.64%                     2.25%               26.51 times greater

12-13:                   71.58%                    1.84%               38.90 times greater

13-14:                   83.80%                    2.54%               32.99 times greater

14-15:                   96.58%                    2.91%                33.19 times greater

15-16:                127.04%                    1.64%               77.46 times greater

16-17:                  81.13%                    2.37%               34.23 times greater

17-18:                 69.55%                     2.93%                23.74 times greater

One conclusion that leaps out from these results: They bounce around considerably. But they show that growth during the Obama years was somewhat bubblier than during the previous and notorious bubble decade (even leaving out the huge jump in 2015-16), and that its health from that anomalous year steadily improved during the first two years of the Trump administration.

Especially noteworthy: The best Trump growth year (2017-18) was significantly less bubbly than the best Obama year (2014-15) even though that Trump year saw somewhat faster growth.

But what a turnaround since then! As the table below shows, major growth quality improvement continued into the first quarter of this year. Was the economy finally demonstrating the ability to grow strongly by using much safer engines? Unfortunately not, as growth’s quality simply collapsed in the second quarter, and even the third quarter improvement registered so far has kept it in the danger zone. 

                       percent of growth           actual growth rate           difference 

1Q 19:                   24.62%                            3.06%              8.05 times greater

2Q 19:                 150.42%                            2.00%            75.21 times greater

3Q 19*                102.70%                            2.11%            48.67 times greater

*still preliminary

On a standstill basis, the economy lately has looked bubblier than at any time during the Obama years, and in fact is approaching its bubble decade condition. During that period, personal consumption and housing combined regularly stayed above 73 percent of real GDP. Its annual peak came in 2005 – 73.50 percent.

The toxic combination’s share of the economy fell fairly steadily thereafter until 2012 – as did the growth rate itself – and then began rising again (while growth itself continued to slump) from 70.62 percent to 72.58 percent in 2016.

The trend continued into 2017 (72.96 percent) before the percentage dropped the following year to 72.69 – as growth itself picked up.

After falling further in the first quarter of this year (to 72.35) as growth itself rose further, the toxic combination’s role swelled to 72.90 percent in the third quarter – not far off the bubble decade levels. Unfortunately, growth itself has tailed off dramatically to 2.11 percent annualized.

Overall, the Trump economy still remains less bubbly

than the Obama economy. For the 32 months during which the former President was in charge of economic performance, the toxic combination generated 80.74 percent of total growth. During the nine months of Mr. Trump’s economic stewardship, that figure stands at 72.64 percent. But the gap has been closing this year, and as long as it keeps narrowing, President Trump’s economic legacy will remain very much up in the air.