(What’s Left of) Our Economy: An Encouraging June Swoon for the U.S. Trade Deficit

Tags

China, energy, exports, GDP, goods trade, gross domestic product, imports, Made in Washington trade deficit, manufacturing, non-oil goods deficit, recession, services trade, supply chain, Trade, trade deficit, Ukraine War, Zero Covid, {What's Left of) Our Economy

This morning’s official data (for June) show that U.S. trade was firing on practically all cylinders that month. In addition, the shrinkage in the combined goods and services deficit to the lowest level ($79.61 billion) since last December ($78.87 billion) was clearly attributable not only or even mainly to developments holding the nation’s imports down – ranging from a slowing in American economic growth (and therefore in most consumption) to the wounds China is inflicting on its export-heavy economy due to its insanely over-the-top Zero Covid policy to separate renewed backups at U.S. ports.

Instead, it’s also happening because many exports are up (to record levels), and that’s especally impressive because the dollar is so strong (which places U.S.-origin goods and services at price disadvantages all over the world, including in their home market) and because global growth is getting so weak (which tends to dampen demand for America’s offerings). And P.S. – these rising exports encompassed more than just the U.S. natural gas and other fossil fuels in such demand due to the Ukraine war and related sanctions on Russia.

The June figures reported one important exception, though: a monthly surge in the goods trade deficit with China to its highest level since November, 2018.

The June sequential drop in the overall trade deficit of 6.23 percent, from May’s $84.91 billion, was the third straight monthly decrease – a streak that hasn’t been seen since the second half of 2019, when the shortfall dropped sequentially six consecutive times – between June and November. Even better, the May total trade gap was revised down by a healthy 0.75 percent.

The deficit in goods trade – which dominates U.S. trade flows – tumbled 4.74 percent on month from $104.43 billion to $99.48 billion, its lowest level since last November. It, too, decreased sequentially for the third straight month, the first such stretch since December, 2019 through February, 2020 – just before the CCP Virus’ arrival in force began roiling and distorting the entire U.S. economy.

Meanwhile, the longstanding surplus in trade in services – which has been hit particularly hard by pandemic-related lockdowns and more cautious consumer behavior – advanced by 1.76 percent, from May’s upwardly revised (by 0.58 percent) $19.53 billion to $19.87 billion.

Combined goods and services exports hit their fifth straight monthly high in June, rising 1.67 percent from May’s upwardly revised $256.52 billion to $260.80 billion.

Energy goods exports were indeed way up – with natural gas overseas sales jumping by 26.51 percent, fuel oil exports increasing by 8.66 percent, and miscellaneous petroleum products climbing by 3.97 percent.

But they were far from the only significant export winners. For example, machinery and equipment exports soared by 13.78 percent on month in June; of foods, feeds, and beverages exports improved by 5.81 percent; and high tech goods’ foreign sales gained 4.51 percent.

In fact, goods exports overall also reached unprecedented heights for a fifth straight month in June, rising 1.97 percent sequentially from $179.51 billion to $183.04 billion.

As for services, their foreign sales hit their third straight all-time high, growing 0.97 percent on month, from $77.01 billion to $77.76 billion.

Overall imports, as mentioned, inched down sequentially – by 0.30 percent – in June, from $341.43 billion to $340.41 billion.

Another small monthly June decrease was registered by goods imports, which sagged by 0.50 percent, from $283.94 billion to $282.52 billion.

Only services imports broke this pattern: They set their own fifth consecutive record, increasing by 0.70 percent, from $57.49 billion to $57.89 billion.

The news in manufacturing trade was good, too – but only in comparison to industry’s recent alarming performance. The sector’s chronic, mammoth trade deficit was down 1.92 percent on month in June, from $132.60 billion to $130.05 billion. But this most recent total was still the third highest ever, after March’s $142.22 billion and the May figure.

Manufacturing joined the list of June export winners, as foreign sales increased sequentially from $112.15 billion to a new record $114.78 billion.

Manufactures imports inched up by mere 0.04 percent on month in June, from $244.75 billion to $244.83 billion. But this number was the second worst on record, after March’s $256.18 billion.

All told, at the statistical midway point of the year, the manufacturing trade deficit is running 22.13 percent ($756.53 billion vs $619.42 billion) ahead of last year’s record total. As a result, it’s all but certain that the United States in 2022 will rack up its fifth straight $1 trillion-plus manufacturing trade gap.

Year-to-date manufacturing exports are up 16.26 percent – from $548 billion to $637.12 billion. But the much greater amount of manufacturing imports has risen even faster – by 19.38 percent, from $1.16742 trillion to $1.39365 trillion.

Until very recently in the pandemic period (and its possible aftermath), as noted here, domestic manufacturing output and employment have held up remarkably well despite U.S.-based industry’s ballooning trade gap. The reason, as I pointed out here, is that Americans’ demand for manufactured goods has grown so strongly that domestic producers have been able to boost output even as imports flooded in much faster.

But with domestic manufacturing output decreasing in inflation-adjusted terms in both May and June, it looks like an economy-wide U.S. slowdown is weakening this demand, and that U.S.-based industry is finally paying a price for the share of its home market that it’s been losing.

The June China trade front news was even worse than that for manufacturing. The U.S. goods deficit with the People’s Republic soared by 17.13 percent sequentially, from $31.54 billion to $36.95 billion. That level is the highest since November, 2018’s $37.69 billion, and the increase the biggest since the 20.45 percent recorded in May, 2020 – when China and the United States were making recoveries from the first CCP Virus wave.

U.S. goods exports to China slumped by 5.22 percent, from $12.32 billion to $11.68 billion, while imports popped by 10.85 percent, from $43.86 billion to $48.63 billion – the highest total since last December’s $49.53 billion.

At least as important, this bilateral goods trade deficit is now up 27.51 percent on a year-to-date basis, as opposed to the 24.34 percent increase over the same period for its closest global proxy – the U.S. non-oil goods deficit.

For most of the time since the imposition of the first China tariffs imposed by former President Donald Trump in early 2018, this “Made in Washington” trade deficit (so named because by omitting services and oil trade, it tracks the U.S. trade flows most heavily influenced by U.S. trade policy) has been rising more slowly than the China goods deficit. Yet the gap, as noted in last month’s trade report, has been narrowing lately, and the June figures signal that it might be gone for the time being.

In general, though, the June trade report was a pleasant surprise given the currency and global growth headwinds mentioned above. Additional cause for some optimism:  The latest official release on the size of the U.S. economy in inflation-adjusted terms told much the same story of the trade gap narrowing for the “right reasons.”

But can the trade deficit keep falling due mainly to better exports, rather than following the typical slowdown and recession pattern of shrinking mainly due to the falling exports caused by weaker demand? In other words, can the falling deficit contribute to the quality of U.S. growth rather than simply reflect a feebler economy? Those are different questions altogether.

(What’s Left of) Our Economy: Is the U.S. Trade Deficit’s Latest Dip More than Recession-y?

Tags

CCP Virus, China, coronavirus, COVID 19, economic growth, exports, GDP, goods trade, gross domestic product, imports, inflation-adjusted growth, real GDP, real trade deficit, recession, services trade, supply chains, Trade, trade deficit, Ukraine War, Zero Covid, {What's Left of) Our Economy

Although yesterday’s official figures show that the U.S. economy has now shrunk for the second straight quarter, the nation’s chronic and immense trade deficit played a diametrically different role in producing the final results. Whereas during the first quarter of this year, the trade gap’s widening was the difference between expansion and contraction of the gross domestic product (GDP – the standard measure of the economy’s size), during the second quarter (at least according to the new advance figures), its narrowing kept the drop in GDP from being considerably worse.   

The tumble of 0.94 percent at annual rates revealed in GDP after inflation (the most widely followed measure, and the GDP gauge that will be used throughout this post unless otherwise specified) came on top of a 1.58 percent decrease in the first quarter. As many have observed, two consecutive quarters of real GDP decline has long been a common definition of a recession.

This time around, however, a 4.53 percent fall-off in the inflation-adjusted trade shortfall, from a record $1.5447 trillion at annual rates to $1.4747 trillion, generated 1.43 percentage points of sequential growth in the second quarter. Although the new deficit was still the second biggest on record, the improvement prevented the quarter’s GDP drop from reaching 2.37 percent – which would have been the worst such performance since the nearly 36 percent crash dive recorded between the first and second quarters of 2020, when the CCP Virus pandemic and its impact on the economy were at their worst.

This year’s second quarter, moreover, marked the first time that America’s trade flows had added to growth, and the biggest such contribution in absolute terms, since that spring of 2020, when the pandemic and related mandated and voluntary curbs on economic activity greatly depressed U.S. imports. In relative terms, the second quarter’s trade contribution to growth was the best since the second quarter of 2009, near the end of the Great Recession that followed the global financial crisis. During that quarter, real GDP sank at an annual rate of 0.68 percent, but trade generated 1.53 percentage points of growth.

By contrast, during the first quarter, the trade deficit’s expansion subtracted a whopping 3.23 percentage points from the change in GDP – which turned what would have been a 1.65 percent sequential increase into that 1.58 percent shrinkage.

The reduction in the trade deficit also enabled the shortfall to decrease as a percentage of the entire economy from the first quarter’s all-time high of 7.83 percent to 7.49 percent. Further, the 4.34 percent sequential decrease represented by this progress was the biggest since the 9.45 percent decline in the fourth quarter of 2019 – just before the pandemic arrived state-side in force.

At the same time, at 7.49 percent of real GDP, the second quarter trade deficit was still the second highest ever, and since that immediately pre-pandemic-y fourth quarter of 2019, the trade shortfall has ballooned by 73.99 percent. As of the first quarter, it had swollen during this period by 82.24 percent.

Ordinarily, the reasons for this trade deficit decline would be a clearcut positive:  Even though the gap usually narrows as the economy weakens, it stemmed from  total exports (counting goods and services) advancing much faster than the much larger amount of imports. But as the nation and world are still in the CCP Virus and in the middle of the Ukraine War, with all the supply chain turbulence they’ve both brought on and will surely keep bringing, drawing strong conclusions still seems unusually hazardous.   

Those total U.S. exports improved by 4.22 percent on quarter, from $2.3613 trillion at annual rates to $2.4410 trillion – the highest such total since the $2.5533 trillion recorded in the fourth quarter of 2019, just before the pandemic hit the U.S. economy. The results were especially encouraging since total exports fell sequentially in the first quarter (by 1.23 percent), and given the global economic slowdown and the dollar’s strengthening to roughly 20-year highs versus nearly all currencies. This move in and of itself put U.S.-origin goods and services at a price disadvantage versus foreign competitors the world over.

Combined goods and services exports are now down just 3.61 percent since that fourth quarter of 2019, versus the 7.52 percent calculable last quarter.

Total imports inched up just 0.76 percent, although the new $3.9357 trillion annualized level did amount to a sixth straight record and an eighth consecutive quarterly increase. These purchases have now climbed by 15.37 percent during the pandemic era, versus the 14.85 percent calculable last quarter.

The goods trade deficit, meanwhile, declined by 3.96 percent sequentially, from the first quarter record total $1.6572 trillion annualized to $1.5916 trillion. This drop was the first since the peak pandemic-y second quarter of 2020, and the biggest since the 6.52 percent shrinkage in the fourth quarter of 2019. The goods trade gap, consequently, has grown by 48.55 percent since the end of 2019, as opposed to the 54.68 percent calculable last quarter.

Goods exports in the second quarter rose 3.69 percent from the first quarter’s $1.7577 trillion at annual rates to a new record $1.8225 trillion – surpassing the previous all-time high of $1.8046 trillion set in the first quarter of 2019. These new results also mean that goods exports have finally exceeded pre-pandemic levels (by 2.24 percent). After the first quarter ended, they were still down 1.39 percent since the fourth quarter of 2019.

Goods imports, however, recorded their first quarterly decrease since the third quarter of 2021 – though only from a worst ever $3.4149 trillion annualized to $3.4141 trillion. But these imports are still 19.63 percent higher than in that immediate pre-pandemic fourth quarter of 2019.

The services trade surplus improved by 8.60 percent between the first and second quarters, from $109.3 billion at annual rates to $118.7 billion. Reflecting the unusually hard hit delivered by the pandemic to the service sector, however, this surplus is still 47.64 percent lower than its level just before the virus began seriously affecting the U.S. economy. That is, it’s been nearly cut in half.

Services exports in the second quarter actually increased sequentially for the third straight time. And the 5.56 percent advance, from $631.5 billion annualized to $666.6 billion was the strongest since the 5.83 percent jump in the fourth quarter of 2006. Nonetheless, services exports remain 13.84 percent off their immediate pre-pandemic level, versus the 18.38 percent calculable last quarter.

Services imports are now back above their pre-pandemic levels, too (by 1.65 percent), having risen 4.92 percent sequentially in the second quarter, from $522.2 billion at annual rates to $547.9. The improvement, moreover, was the fastest since the 7.80 percent recorded in last year’s third quarter.

As mentioned above, usually it’s unambiguously good news for both trade, and to a lesser extent, the entire economy, when the trade deficit diminishes because exports are up considerably faster than imports. It’s normally even better news when these kinds of results are delivered in challenging international and exchange rate environments. But with the Ukraine War and China’s Zero Covid policy still distorting U.S. and global trade flows and unlikely to end anytime soon, unbridled optimism is hard to justify. So like the Federal Reserve, RealityChek will remain data dependent as it tries to detemine the outlook for U.S. trade’s fortunes.

(What’s Left of) Our Economy: Hold Your Applause on Inflation Progress Signs

Tags

consumers, demand, Employment, Federal Reserve, fiscal policy, gas prices, GDP, gross domestic product, household spending, housing, inflation, Jobs, manufacturing, manufacturing jobs, manufacturing production, monetary policy, mortgages, personal consumption, personal spending, recession, retail sales, trade deficit, {What's Left of) Our Economy

At the end of last month, I wrote that if a national government (including its central bank) wants to get inflation down, it’s not a rocket science-type challenge.” Basically all that’s needed is the willingness to take some combination of the kinds of fiscal and monetary measures that are guaranteed to slow economic growth.

Keep that in mind as you read the mushrooming number of claims that America’s recent historic burst of inflation is either peaking (see, e.g., here, here, and here) or should peak soon (e.g., here, here, and here). Because wherever softening prices can be seen, levels of demand have fallen off either because goods and services are becoming unaffordable and sales are down, or because easy money has gotten harder, or some degree of both. So let’s not conclude that inflation progress stems from a sudden outburst of policy-making genius.

Anyone doubting the start of a economic downshifting should check out the many of the latest reports released by the federal government on the economy’s performance. In the first quarter of this year, the gross domestic product (GDP – the standard measure of the economy’s size) fell by 1.58 percent at an annual rate adjusted for inflation, and the pretty reliable forecasters at the Atlanta branch of the Federal Reserve system expect about the same kind of contraction for the second quarter.

If this prediction holds, the United States will have entered a recession by the most widely used yardstick – two straight quarters of what economists call “negative growth.”   

Manufacturing production – which RealityChek regulars know has held up very well during the pandemic period – has now dropped sequentially for two straight months. And a downshifting U.S. economy is importing less, which has reduced the bloated trade deficit for two straight months as well.

The employment picture is better (including in manufacturing) but on an economy-wide basis some signs of deterioration are visible as well. Chiefly, if you look at three-month averages (which help smooth out often misleading short-term fluctuations, you see that from January through March, this measure of private sector job growth totalled 527,000. From April through June, it dropped to just under 362,000, and may sink lower, as the April and May figures have been downwardly revised, signaling that the same may be in store for June’s results.

Some of the best evidence of declining affordability – across the board – come from the official retail sales figures. On an annual basis, their increase is down from the mid-double digit levels of January and February (propped up by the unusually weak numbers from the heavily pandemic-affected figures for the previous – baseline – winter), to 9.26 percent in June.

That may not sound like a lot, but when inflation is considered, these retail sales increases turn into decreases for three of the last four months through June’s preliminary report. In other words, because of rapidly rising prices, consumers weren’t actually buying more in the way of goods and services. They were simply paying more for quantities that had actually shrunk. And the month-on-month sales numbers have been negative for three of the last four months, too.

The affordability issue is especially clear from the recent decrease in gasoline prices. Yes, they’ve tumbled for more than a month. But less driving is the obvious reason. For example, here we are in the middle of peak summer driving season, when the subsiding of the pandemic supposedly has millions of Americans determined to engage in so-called “revenge travel.”

But according to the U.S. Energy Information Administration, gasoline consumption “is just above the same time two years ago [when revenge travel was popular, too, as the virus’ first wave receded, but was still taking a much bigger toll than today] but below every other year going back to 2000.”

The American Petroleum Institute added that last month’s 9.1 million barrels per day of demand was “down 2.3% y/y compared with June 2021—a third straight month in which gasoline trailed its year-ago levels.” Moreover, so far, this year’s May-June increase of 0.4 percent in gasoline use has badly “lagged the average 2.9% seasonal increase seen between May and June in 2012-2021.”

Meanwhile, the role of higher interest rates (and consequently tighter credit) is best seen in the housing market. Summarizing the latest findings of the National Association of Realtors, The Wall Street Journal just reported that “sales of previously owned homes fell for a fifth straight month, dropping 5.4% in June to an annualized rate of 5.12 million.”

The main reason? The big run up in mortgage rates has depressed mortage applications for three straight weeks has pushed them down to their lowest levels since 2000. That means they’re below where they were even during the deflation of the mid-2000s housing bubble that helped trigger the global financial crisis and Great Recession.

Most important of all, even those believing that American leaders deserve credit for figuring out a successful anti-inflation fighting strategy, should remember that although interest rates are higher, they’re far from historically high and even fall well short of even recent very low norms; and that even though some prices are down, they’re still historically high. And that’s not even considering that the supply chain troubles also contributing to recent inflation could well intensify as long as the Ukraine war drags on, and the threat of more over-the-top Zero Covid lockdowns in China can’t be dismissed.

So even though this kind of bitter policy medicine is needed to avoid worse inflation down the road, and genuinely harsh austerity measures (especially as long as U.S. leaders seem to lack a clue regarding the inflation-fighting potential of productivity growth improvement), American voters aren’t likely to be grateful this November – or in any elections in the foreseeable future. And who could blame them?

 

(What’s Left of) Our Economy: Continued Worsening Both for America’s Growth and its Trade Deficit

Tags

exports, GDP, goods trade, gross domestic product, imports, inflation, real GDP, real trade deficit, recession, services trade, Trade, trade deficit, {What's Left of) Our Economy

The final (for now) official U.S. report on the change in the economy’s output (gross domestic product, or GDP) during the first quarter of this year came in this morning, and just as the estimates of sequential shrinkage have gotten slightly worse since the initial read two months ago, so did the estimates of the nation’s trade deficit. As known by RealityChek regulars, that’s one of the worst combinations of economic data possible.   

And although the growth-cutting impact of these swelling trade shortfalls remained unrevised from the 3.23 percentage points recorded in the previous GDP read, it’s still bigger than the 3.20 percentage points estimated in the initial release, and sizable by any measure. Indeed, it was big enough to represent the difference between quarterly growth and quarterly contraction.

First, the overall GDP results. The Commerce Department now judges the economy to have shriveled by 1.58 percent at annual rates after adjusting for inflation. (The measure most widely followed.) That’s worse than both the second estimate (a 1.52 percent decline) and the first read (1.42 percent). This confirmation of first quarter contraction, moreover, means that the economy has now officially proceeded halfway toward a recession according to the most common definition: two straight quarters of real GDP decreases.

The trade gap has widened similarly – from the initially reported inflation adjusted and annualized $1.5417 trillion to $1.5435 trillion to today’s $1.5447 trillion.

This total amounts to a new all-time quarterly high, and the seventh straight such record registered. The real growth bite of this deficit wasn’t a record in absolute terms. That distinction belongs to the third quarter of 2020. But that period’s 3.25 percentage point hit to inflation-adjusted GDP came in the context of that quarter’s roaring comeback from the short but deep CCP Virus-induced downturn from earlier that spring. So the trade deficit’s impact was barely noticed.

Without such a big (14.41 percent) sequential jump in the trade deficit, the economy would have expanded by 1.65 percent at real annual rates in the first quarter – no great shakes by any means, but certainly better than a slump.

In addition, on a relative basis, the 3.23 percentage point drag on first quarter growth stayed the biggest ever – slightl eclipsing the 3.22 percent drag on the 1.53 percent total real GDP contraction way back in the second quarter of 1982.

Moreover, the quarter-to-quarter swing in the trade gap’s growth impact – from a 0.23 percentage point hit during the fourth quarter – was the biggest since mid-2020, when the 1.53 percentage point boost to growth in the second quarter became a 3.25 percentage point subtraction in the third quarter.

And for good measure, the sequential swing in the trade gap’s absolute growth impact between the fourth quarter of 2020 – when a small worsening of the inflation-adjusted trade deficit subtracted just 0.23 percentage points from growth – to the first quarter remained the biggest since mid-2020. Then, a percentage point boost to growth in the second quarter became a 3.25 percentage point subtraction in the third quarter. But again, that latter figure came during a quarter of 30.19 percent annualized constant dollar growth!

The newest increase in the price-adjusted quarterly trade deficit also generated a new record in terms of its share of the overall economy. As of today, the real trade gap represents 7.83 percent of inflation-adjusted GDP – compared with the 7.82 percent calculable last month.

One bottom line: The after-inflation trade deficit is now 82.24 percent higher than in the fourth quarter of 2019 – the last quarter before the CCP Virus’ arrival began seriously affecting and especially distorting the economy. That’s not so far from a doubling.

Today’s GDP report showed that total inflation-adjusted exports fared a little better in the first quarter than first estimated. The new $2.3613 trillion inflation-adjusted annualized figure is 0.15 percent higher than the second read’s and 0.29 percent above the first’s.

Yet these overseas sales are still down 1.23 percent from last year’s fourth quarter and fell sequentially for the fourth time in the nine quarters that have passed since the first pandemic-affected quarter (the first quarter of 2020). Further, these exports are still 7.52 percent lower than immediately before the virus’ arrival in force, in the last quarter of 2019.

The total first quarter real imports numbers, however, have continued to rise, too. This morning’s constant dollar annualized figure of $3.9060 trillion was up 0.12 percent from the second read and 0.25 percent from the first.

As a result, the first quarter remains the new record-holder for quarterly total after-inflation imports, and the all-time high is still the fifth in a row. The sequential increase of 4.42 percent, moreover, is still the biggest since the 17.29 percent explosion between those second and third quarters of 2020, and total price-adjusted imports are now up 14.85 percent since that last pre-pandemic fourth quarter of 2019.

Interestingly, the new GDP report also confirmed that the nation’s trade in goods has been improving modestly while trade in services – not only the economy’s biggest sector, but the one hit hardest by the pandemic – has been deteriorating.

In this vein, the final estimate of the real goods trade deficit came in at $1.6572 trillion at annual rates. That figure is 0.65 percent smaller than that in the second GDP report, and 0.68 percent less than the initial result.

At the same time, the new total is still a seventh straight record, and the increase of 12.88 percent over the $1.4681 trillion gap reported for the fourth quarter of last year remained the biggest sequential increase since the 20.40 percent surge between the second and third quarters of pandemic-ridden 2020. Moreover, the new first quarter total is 54.68 percent higher than the $1.0714 trillion during the fourth quarter of 2019 – the last data quarter before the CCP Virus began playing havoc with the economy and economic data.

By contrast, the new estimate shows that the chronic U.S. services trade surplus keeps decreasing. The latest figure for the first quarter – $109.3 billion in real terms at annual rates – was fully 8.15 percent lower than the second estimate and 9.59 percent smaller than the first. Due to this third estimate, the services surplus fell by 9.88 percent from the fourth quarter’s $120.1 billion real annualized total, and has been cut by more than half (51.79 percent) from its $226.7 billion level in the immediate pre-pandemic fourth quarter of 2019.

The goods and services trade divergence has marked both the export and import performances comprising the above trade balance figures. For goods exports, the final estimate for the first quarter ($1.7577 trillion annualized and adjusted for inflation) was up 0.33 percent from the second estimate and 0.54 percent from the first.

But real goods exports still dropped by 1.97 percent between the last quarter of 2019 and the first of 2022, this sequential fall-off (like that for total real exports) remains the fourth in the nine pandemic-affected quarters, and it’s still the biggest such decrease since that registered between the first and second quarters of pandemic-y 2020 (23.08 percent). And since the fourth quarter of 2019, goods exports are still off by 1.39 percent.

By contrast, constant dollar goods imports results have come down during the first quarter – though not in a straight line. The new total of $3.4149 trillion on a real, annualized basis is 0.15 percent below the second read but just 0.05 percent below the first.

Today’s real goods imports figure, though, was also the second straight all-time high and a 4.72 percent increase over the fourth quarter figure – the greatest sequential increase since the 6.80 percent rise in the fourth quarter of 2020. These imports, moreover, are now 19.66 percent above their fourth quarter, 2019 level.

The after-inflation services exports estimates, however, kept weakening in the first quarter GDP reports. The $631.5 billion real annualized total reported today was a 0.61 percent improvement over the fourth quarter’s $627.7 billion, the second straight quarterly gain, and the best quarterly result since the $695.3 billion recorded in he first quarter of 2020.

But it was down 0.28 percent from the second read and 0.33 percent from the first. and since the final pre-pandemic fourth quarter of 2019, these exports have plunged by 18.38 percent.

As for the price-adjusted services imports estimate, it grew quickly in the first quarter. The third read of $522.2 billion at price-adjusted annual rates is 1.54 percent higher than the second and 1.85 percent above the first. And these purchases were 2.88 percent higher than the fourth quarter total.

This final (for now!) first quarter after-inflation services imports figure is the highest since the $547 billion figure for the fourth quarter of 2019. But since then, these purchases have sagged by 4.53 percent.

A glass-half-full type might point out that this final first quarter GDP report — and the last few official monthly trade releases, might represent peak trade deficit for the United States.  But a glass-half-empty type tight counter that the main reason could be an economic slowdown and possibly imminent recession that would primarily — and finally — depress Americans’ importing and other spending. That’s hardly the ideal formula for narrowing the trade gap and indebtedness it fuels.  But it’s one that seems unavoidable for now.         

(What’s Left of) Our Economy: Curb Your Enthusiasm About Those New U.S. Inflation Figures

Tags

Atlanta Federal Reserve Bank, consumer price index, core inflation, CPI, economic growth, GDP, gross domestic product, inflation, PCE, personal consumption expenditures index, stagflation, {What's Left of) Our Economy

Don’t get me wrong – any signs that U.S. inflation is cooling are welcome, and some can be found in today’s official report containing data on the Federal Reserve’s preferred gauge of consumer price increases. At the same time, for two main reasons, I’d recommend at least curbing enthusiasm about the inflation outlook.

The first concerns the baseline effect I’ve been writing about since prices began surging early last year. The second has to do with the likely relationship between the new (April) results for the price indexes for personal consumption expenditures (PCE) and the sagging rate of American economic growth.

But let’s first examine the reasons for inflation optimism contained in the new Commerce Department numbers (which are one of two data sets on consumer price trends produced by the federal government, the other being the Labor Department’s Consumer Price Index, or CPI).

The biggest is the steep drop in the monthly overall PCE inflation rate in April. It fell last month to 0.2 percent from 0.9 percent in March. That was the weakest such figure since the 0.1 percent increase in November, 2020 – when the CCP Virus’ first winter rebound was gathering steam, and the torrid economic recovery from the pandemic’s initial arrival earlier that year was slowing dramatically.

Even more impressive, the fall-off between March and April overall PCE inflation (0.7 percentage points) was the steepest since December, 2011 and January, 2012 (0.8 percentage points).

Oddly, though, no change was recorded in the monthly rate of core PCE inflation (which, like its CPI counterpart, strips out food and energy prices because they’re supposedly volatile for reasons unrelated to the economy’s fundamental inflation prone-ness). April’s sequential rise was the same as March’s – 0.3 percent. Still, it’s down from the 0.5 percent neighborhood in which core PCE stayed from October, 2021 and this past January.

The year-on-year PCE inflation rates weren’t devoid of good news, either, but it was less impressive than the latest monthly overall PCE result precisely because of that baseline effect and because of the overall economy’s dreary recent performance.

As known by RealityChek regulars, the annual figures are followed more closely than the monthlies because they show trends over a longer period of time, and therefore are less likely to be thrown off by random short-term fluctuations. As also known by the regulars, the high annual inflation figures of all kinds for much of last year were somewhat misleading because their point of comparison – i.e., their baseline – was the set of annual figures for pandemic-depressed 2020. And these were so unusually low. For many months, therefore, even a simple return to normal price increases was bound to show up as a major jump.

But the baseline for this year’s annual figures is no longer 2020 – when inflation was practically gone and even turned into deflation for a stretch – but 2021, and its artificially high (but still high) inflation rates.

So the slowdown in last month’s annual overall PCE inflation (from 6.6 percent to 6.3 percent) shouldn’t be overlooked. But it’s crucial to keep in mind that it’s coming off an April, 2020-2021 overall PCE increase of an already elevated 3.6 percent. Moreover, that April, 2020-21 rate was not only lofty, but accelerating. It’s March counterpart was only 2.5 percent.

Ditto for the slowdown in annual core PCE inflation from 5.2 percent in May to 4.9 percent in April. It’s certainly better than a speed up! But its baseline figure is last April’s warm-ish 3.1 percent, and that figure was much warmer than March’s two percent even – a pace the Fed views as ideal.

Now for the second reason for caution in cheering the new PCE results: They’re surely coming down because the economy’s growth rate has downshifted significantly. In the fourth quarter of last year, it shot up by 6.9 percent at annual rates after inflation. In the first quarter of this year, the gross domestic product (GDP) actually shrank – by 1.5 percent annualized in real terms. And the pretty reliable forecasters of the Atlanta Federal Reserve Bank believe growth in the second quarter will rebound only to 1.9 percent by the same measure.

Students of the economy call the combination of sluggish growth and strong inflation “stagflation.” Unfortunately, I think that’s the likeliest outcome for America’s foreseeable future being signaled by the new PCE results.

(What’s Left of) Our Economy: A Deeper U.S. Contraction and a Bigger Trade Bite

Tags

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

This morning Americans and the rest of the world found out that the U.S. government now believes that the American economy shrank a little more during the first quarter of this year than first estimated. And the details show that the nation’s towering and still-soaring trade deficit was a major culprit.

According to today’s release from the Commerce Department, the combined goods and services trade gap for the quarter totaled $1.5435 trillion at annual rates adjusted for inflation. That new record total – the seventh straight such all-time high – was 0.12 percent greater than the $1.5417 trillion dollar gap reported by Commerce in its first look at the changing size of the economy (termed the gross domestic product, or GDP).

And accompanying this finding was the news that the first quarter’s inflation-adjusted contraction was 1.52 percent at annual rates – not the 1.42 percent previously reported. So last month’s thoroughly depressing picture of an economy shrinking as its trade deficit surges (which last occurred in the first quarter of 2020) became slightly grimmer.

The swelling trade deficit reduced first quarter real GDP by 3.23 percentage points – more than the 3.20 percentage point subtraction estimated in the initial first quarter GDP report. For good measure, this growth loss was the worst in absolute terms since the 3.25 percentage point hit suffered during the third quarter of 2020 – when the economy roared back from the short but deep CCPVirus-induced downturn earlier that spring.

Yet that lost growth figure was dwarfed by the actual expansion that occurred (an a blazing 30.19 percent annualized in real terms). The trade deficit’s impact on the first quarter of this year helped turn slow growth into shrinkage. Specifically, had the already astronomical trade shortfall simply not gotten worse between the fourth quarter of last year and this year’s first quarter, the economy would have expanded by 1.71 percent

Worse, the growth toll exacted by the ballooning trade deficit in relative terms reached a new record. The 3.23 percentage point drag on an economy that shriveled by a total of 1.52 percent was slightly bigger than the 3.22 percent drag on the 1.53 percent total contraction recorded in the second quarter of 1982 – the previous all-time high.

Moreover, the quarter-to-quarter swing in the trade gap’s growth impact – from a 0.23 percentage point hit during the fourth quarter – was the biggest since mid-2020, when the 1.53 percentage point boost to growth in the second quarter became a 3.25 percentage point subtraction in the third quarter.

Because the real trade deficit during the first quarter was rising faster than first thought even as the overall economy was shrinking faster, the gap’s share of real GDP set a new record, too – 7.82 percent, compared with the 7.81 percent calculable from last month’s initial first quarter numbers. And the increase in this figure over its fourth quarter counterpart was a full percentage point.

In line with that latter result, the latest first quarter trade deficit figure now exceeds the fourth quarter level by 14.32 percent, not the 14.19 percent calculable from last month’s GDP release. That sequential increase remained the biggest since the 31.81 percent jump between the second and third quarters of 2020 – again, when the economy was bouncing back rapidly from that pandemic-induced cratering, not getting smaller.

And all told, the after-inflation trade deficit is now up 82.10 percent since the fourth quarter of 2019, the last quarter before the CCP Virus’ arrival began seriously affecting and especially distorting the economy.

The first quarter U.S. constant dollar goods trade deficit actually came in fractionally smaller in this morning’s government release than reported last month – $1.6680 trillion at annual rates versus $1.6685 trillion. Still a seventh straight record, this total now tops that of the fourth quarter by 13.61 percent, not the 13.65 percent calculable last month. Nonetheless, that increase remained the biggest since the 20.40 percent surge between that second and third quarter of 2020. And since that last pre-pandemic fourth quarter of 2019, the goods trade deficit has swelled by 55.58 percent.

By contrast, the new estimate shows that the chronic U.S. services trade surplus reached only $119 billion – 1.57 percent lower than the initially reported $120.9 billion. This new figure produced the first sequential decline in this surplus since the second quarter of 2021. Since the fourth quarter of 2019, this surplus has been cut nearly in half – by 47.51 percent, to be precise – as the virus has hit global activity in this sector unusually hard.

As for total inflation-adjusted exports, they’re now judged to be 0.14 percent higher in the first quarter than initially reported – $2.3577 trillion annualized versus $2.3545 trillion. But they’re still 1.38 percent lower than in the fourth quarter, and the sequential decrease remained the fourth in the nine quarters since that first pandemic-affected quarter – the first quarter of 2020. Moreover, in real terms, combined goods and services exports are still off by 7.66 percent since pre-pandemic-y fourth quarter, 2019.

Total inflation-adjusted first quarter imports are also now estimated as higher than initially reported (by 0.13 percent). Therefore, the $3.9012 trillion annual level still represents the fifth consecutive quarterly record. Meanwhile, the new 4.29 percent quarterly increase was the biggest since the 7.04 percent recorded between the third and fourth quarters of 2020 – when the economy was growing. As a result, total real imports are now 14.71 percent greater than in the fourth quarter of 2019.

After-inflation goods exports of $1.7519 trillion were slightly (0.12 percent) higher in the first quarter than previously reported, but still down 2.29 percent from the fourth quarter level. That decrease, moreover, was still the biggest since the 23.08 percent nosedive between the first and second quarters of 2020 – when the CCP Virus-induced downturn hit. And they, too, have fallen on a quarterly basis for four of the nine quarters that have passed since the pandemic first arrived in force in early 2020. In all, goods exports are now 1.72 percent lower than their immediate pre-pandemic levels.

Price-adjusted goods imports were also slightly (0.09 percent) higher in the first quarter than initially reported. The $3.4199 trillion annualized total was still the second straight all-time high and the second straight increase, and the 4.87 percent quarterly rate of increase still the fastest since the 6.80 percent rise in the fourth quarter of 2020. These overseas purchases have now increased by 19.83 percent since that final pre-pandemic fourth quarter of 2019.

Real services exports, however, were 0.05 percent weaker in the first quarter than initially judged – $633.3 billion at annual rates as opposed to $633.6 billion. Even so, that total climbed for the second quarter in a row (by 0.89 percent), and represented the best level since the $695.3 billion annualized recorded for the first quarter of 2020. All the same, and again, reflecting the outsized CCP Virus blows taken by the sector, constant dollar services exports have fallen by 18.15 percent since the last pre-pandemc quarter.

Yet price-adjusted services imports were revised up by a significant 0.31 percent during the first quarter, and the $514.3 bi1lion annualized level was 1.32 percent higher than the fourth quarter total and represented the strongest real services import total since the $547 billion annualized figure for the fourth quarter of 2019.

These new overall GDP numbers confirm that the U.S. economy’s growth has been slowing markedly (as does this usually pretty on-target forecast for the second quarter). But with one possible exception, all the forces and developments cited in my trade and GDP post last month pointing to continued increases in the inflation-adjusted U.S. trade deficit remain in place, ranging from the strong dollar, the Federal Reserve’s stated determination to reduce growth in order to fight inflation, and continued economic troubles in major U.S. trade partners like the European Union and China – which, along with the robust greenback, figures to curb American exports.

The possible exception – recent stock market declines start to crimp American consumer spending in a reversal of the wealth effect. But even if such caution appears, purchases of imports would need to fall much faster than buys of domestically produced goods and services in order even to retard the trade deficit’s surge, and this kind of favorable outcome for the economy is hardly a guarantee.

(What’s Left of) Our Economy: The New U.S. GDP Report Shows the Economy Not Just Shrinking but Bubblier Than Ever

Tags

bubbles, GDP, global financial crisis, Great Recession, gross domestic product, housing, inflation-adjusted growth, personal consumption, real GDP, toxic combination, {What's Left of) Our Economy

For an official report showing that the U.S. economy shrank, the Commerce Department’s initial read on the gross domestic product (GDP – the leading measure of the economy’s size) for the first quarter of this year garnered lots of good reviews. (See, e.g., here and here.)

According to these cheerleaders, when you look under the hood and examine why GDP fell, the details are encouraging – and even point to growth resuming shortly. I’m not so sure about that – and especially about the claim that the skyrocketing trade deficit so largely responsible for the negative print is only an accounting phenomenon that results from the peculiar way GDP changes are calculated, and therefore says nothing about the economy’s main fundamentals. (Indeed, I’ll have more to say on this point later this week.)

But if we’re going to examine carefully the components of the economy’s growth and shrinkage, let’s examine them all. Because some other key details of the latest GDP report – and some immediate predecessors – draw a more troubling picture. They show that the economy is looking even more bubble-ized than in the mid-2000s, when expansion became over-dependent on booms in consumer spending and housing, neglected the income, savings, and investment needed to generate sustainable growth, and inevitably imploded into the global financial crisis and ensuing Great Recession. 

The pre-crisis bloat in personal consumption and housing is clear from the magnitude they reached at the bubble-era’s peak. In the third quarter of 2005, this toxic combination of GDP components accounted for a then-record 73.90 percent of the total economy after inflation (the measure most widely followed) on a stand-still basis. And for that quarter, they were responsible for 85.26 percent of the 3.45 percent real growth that had taken place over the previous year.

During the first quarter of this year, consumer spending and housing accounted for 88.17 percent of the 3.57 percent real growth that had taken place since the first quarter of 2021. (Remember – inflation-adjusted growth for all of 2021was a strong 5.67 percent.) And on a stand-still basis, the toxic combination made up a new record 74.04 percent of the economy in price-adjusted terms. 

For the full year 2021, personal spending and housing represented 73.78 percent of inflation-adjusted GDP on a stand-still basis, and generated 101.5 percent of its constand dollar growth.  (Some other GDP components acted as drags on growth.) That stand-still number topped the old full-year record of 73.68 percent (also set in 2005) and share-of-growth figure trailed only the 114.3 percent in very-slow-growth 2016.    

There are three big differences, though, between the peak bubble period of the mid-2000s and today. Back then, the federal funds rate – the interest rate set by the Federal Reserve that strongly influences the cost of credit, and therefore the economic growth rate for the entire economy, was about four percent. Today, it’s in a range between 0.25 and 0.50 percent. That is, it’s only about a tenth as high.

In addition, the Fed hadn’t spent years stimulating the economy by buying tens of billions of dollars worth of government bonds and mortgage-backed securities each month. This disparity alone justifies concern about the health and durability of the current economic recovery. Finally, inflation during that bubble period was much lower.

Even worse, these purchases have now stopped and the central bank has made clear its determination to bring torrid current inflation down by raising interest rates. If these tightening moves cut back on toxic combination spending, it’ll be legitimate to ask where else adequate levels of U.S. economic growth are going to come from, and whether policymakers will try to revive the expansion in an even bubblier way.  

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

Tags

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(What’s Left of) Our Economy: With or Without Inflation, Last Year Was Awful for U.S. Trade

Tags

exports, GDP, gross domestic product, imports, inflation, real GDP, real trade deficit, Trade, trade deficit, {What's Left of) Our Economy

This entry represents my first effort to catch up on U.S. economic data released while I was on jury duty last week, and will cover the latest inflation-adjusted trade figures – which carry the story though the fourth quarter of last year and therefore the full year, and seem to me especially important because inflation has been so much hotter lately than what Americans have gotten used to for decades.

At the same time, the big picture they draw is very similar to that created by the full-year 2021 pre-inflation trade figures, which came out February 8: Last year was lousy in record terms for America’s trade flows, even if a few reasons for optimism can be seen.

The lousy records start with the annual price-adjusted total trade deficit: At $1.2843 trillion, the 2021 level was the second straight yearly all-time high. And the 36.24 percent increase over 2020’s $942.7 billion was the biggest since 1999’s 47.97 percent (when the much smaller absolute numbers made such huge relative increases much easier to generate).

The fourth quarter of 2021 was even more record-y. Its $1.3501 trillion annualized total was the sixth straight quarterly record. But at least the sequential rise of 2.54 percent was far from a record. In fact, it was downright modest compared with the 5.79 percent quarterly increase in the third quarter, the 8.24 percent sequential rise registered in the first quarter, much less the 31.81 percent burst of the second quarter of 2020, when the economy was rebounding so strongly from the sharp downturn caused by the CCP Virus’ first wave and related lockdowns and behavioral curbs. That’s the greatest jump in nearly 40 years – since the 33.82 percent in the third quarter of 1983 (when again, the absolute numbers were much smaller.

Viewed in context, moreover, the price-adjusted trade deficit picture is equally bad. As a share of after-inflation gross domestic product (GDP – the standard measure of a national economy’s size) the real trade deficit reached 6.61 percent – breaking the old record of 6.14 percent set in 2005.

On a quarterly basis, the fourth quarter of 2021’s constant dollar trade deficit of 6.76 percent of constant dollar GDP was a new all-time high as well, eclipsing the 6.43 percent of the first quarter.

Moreover, these figures aren’t just of academic interest. The real trade deficit’s year-on-year surge chopped 1.40 percentage points off of 2021’s annual growth. In other words, rather than the 5.67 percent recorded, the economy would have expanded by 7.07 percent. That’s the biggest loss in absolute terms since the trade shortfall’s increase reduced inflation adjusted growth by 1.54 percentage points in 1984.

In addition, the 2021 annual increase in the trade deficit’s subtraction from real growth in absolute terms – from 0.29 percentage points in 2020 – was the biggest since trade turned from a supporter of growth in 1949 (by 0.08 percentage points) to a subtractor of 1.28 percentage points in 1950.

Relatively speaking, though, the 2021 trade bite from growth looks just slightly better. It’s only the biggest since the deficit’s increase reduced 2015’s 2.71 percent price-adjusted GDP growth by 0.78 percentage points, or 28.78 percent.

In quarterly terms, however, the impact of the trade deficit’s increase on after-inflation growth looks better still. Whereas this increase chopped 1.26 percentage points off the sequential real GDP improvement of 2.28 percent at an ainnual rate in the third quarter of last year, it subtracted only 0.23 percentage points from the much stronger sequential 6.72 percent annualized advance in the fourth quarter .

Regarding the components of the inflation-adjusted trade deficit, total real exports in 2021 were up 4.53 percent – the fastest pace since the 12.88 percent jump in 2010, as the economy was recovering from the Great Recession that followed the 2007-08 global financial crisis. But the $2.3075 trillion amount was still 9.71 percent below the all-time high of $2.5556 trillion, achieved in 2018.

Last year’s after-inflation total imports, however, did set a new record. At $3.5919 trillion, they topped 2020’s $3.1503 trillion level, by 14.02 percent and the old (2019) mark of $3.5492 trillion by 1.20 percent. The latest annual growth rate, moreover, was the greatest since they soared 24.34 percent in 1984 – when, again, the absolute levels were much smaller.

On a quarterly basis, the $2.3906 trillion annualized in combined goods and services exports for the last three months of last year represented a 5.17 percent rise from the third quarter’s $2.2730 trillion. The improvement was the fastest since the fourth quarter of 2020’s 5.20 percent, but the total was 6.81 percent below the record of $2.5653 trillion, from the first quarter of 2019.

Total imports for that fourth quarter, though, were the fourth straight all-time high. At $3.7408 trillion, they bested the previous quarter’s by 4.21 percent.

The final catch-up item: The February inflation rates according to the Federal Reserve’s preferred gauge – which were issued last Thursday. Hoping I can report on them tomorrow – but life sure has taken some interesting turns lately!

(What’s Left of) Our Economy: Lots of U.S. Growth – & Even More Inflation

Tags

Biden, consumer price index, CPI, GDP, gross domestic product, inflation, inflation-adjusted growth, inflation-adjusted wages, real GDP, State of the Union, wages, {What's Left of) Our Economy

With President Biden’s State of the Union address coming up tonight, a Bloomberg.com headline the other day nicely summed up a major feature of commentary on the economy over the last year: “Inflation Pain Means Biden Gets No Credit for Roaring Economy.”

At least the article lacked the infantile and indeed ignorant “No fair!” tone of many other articles and remarks focusing on the contrast between the downbeat national mood on the state of the economy and the strong data being reported on its actual performance in terms of generating growth and jobs. (See here for my takedown of one leading example.)

As I explained, these complaints are ignorant (or deceitful, depending on your assessment of the complainer) because inflation is so high nowadays that it’s outstripping wage increases on the whole – which means that Americans (and especially the vast majority who rely on wages – and salaries – for the vast majority of their income) are experiencing falling living standards.

The Bloomberg piece thankfully didn’t display any of this whininess. But the headline suggests at least that Mr. Biden deserves at least some credit for the “roaring economy,” – which is a problem. That’s because especially when you look at inflation, too, the economy’s growth rate during his first year in office is anything but impressive. In fact, it looks like nothing more than the latest display by official Washington (including the Federal Reserve) that pumping unheard of amounts of money into the system will inevitably stimulate a certain amount of net positive economic activity – at least for a while.

Specifically, during that first Biden year in office, as fast as the economy expanded after stripping out the effects of rising prices (5.7 percent), it still increased more slowly than the inflation rate (7.0 percent as measured by the Consumer Price Index – CPI). And at least as important, economic growth trailing the inflation rate – in other words, output expanding while the typical American’s paycheck shrinks in real terms – hasn’t been the slightest bit common in recent decades.

During the pre-pandemic economic recovery that began in mid-2009 through the CCP Virus- and lockdowns-marked recessionary year 2020, the growth of inflation-adjusted GDP (gross domestic product, the U.S. government’s standard measure of the economy’s size and rate of change), trailed the inflation rate just once – in 2011. (The inflation data come from here, except for the 2021 number, which I took from the Labor Department. The GDP figures from the Commerce Department tables I always use.)

Further, from the beginning of this century through 2020, these results have appeared only six times – and three of those instances occurred during the bubble years of the century’s first decade. Since that economic story ended in the global financial crisis and worst downturn since the Great Depression of the 1930s, that’s kind of sobering.

Worse, the last time in U.S. economic history when inflation routinely exceeded after-inflation growth was from the mid-1960s through the early 1980s. That’s bad because that era was one of stubbornly high inflation – and because it’s not a time that evokes even minimally satisfactory economic memories for those who lived through it (like me).

I’d choose 1966 as the beginning of that inflation-prone period – not because prices were rising at such torrid rates (at least by subsequent standards) but because they’d abruptly doubled – to three percent from 1.6 percent. In addition, three percent hadn’t been seen since the mid-1950s (according to the table here, whose data differs slightly with the source used above). So it’s not surprising that inflation helped Republicans eat meaningfully into long-time Democratic Congressional majorities in that year’s offyear elections during the Democratic Johnson administration.

From that point, until 1983, when inflation slowed significantly basically because the Federal Reserve engineered two painful recessions, the CPI topped real GDP growth no fewer than 14 out of 18 years.

It’s anyone’s guess whether current inflation will produce comparably awful results. But it’s explaining how he’ll help avoid that scenario, and foster acceptable growth without high inflation, that should be on the President’s mind tonight – not wondering why the nation isn’t more appreciative of its roaring economy.