(What’s Left of) Our Economy: A Spring-y New U.S. Manufacturing Production Report

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aerospace, automotive, Biden, Boeing, CCP Virus, coronavirus, COVID 19, Donald Trump, Federal Reserve, health security, imports, industrial production, inflation-adjusted output, infrastructure, machinery, manufacturing, pharmaceuticals, PPE, real growth, semiconductor shortage, stimulus, supply chain, tariffs, Trade, trade war, vaccines, ventilators, West Coast ports, Wuhan virus, {What's Left of) Our Economy

You might call today’s March U.S. manufacturing production figures from the Federal Reserve a good news/bad news/good news story. Moreover, the new data on inflation-adjusted factory output contained a surprise worth noting.

First the good news/bad news/good news. The Fed report showed that real domestic manufacturing output rose by 2.79 percent on month in March. That was the best such result since July’s 4.25 percent – much earlier during the recovery from the deep CCP Virus- and lockdowns-induced recession. Rebounds from major downturns tend to be strongest earliest, especially for highly cyclical sectors of the economy like manufacturing, and that surely went double for a slump largely caused by an outside shock like a pandemic and dramatic government responses, rather than one caused by a market-based economy’s ordinary fluctuations.

The bad news was that this robust growth followed a February sequential drop of 3.72 percent that was the worst monthly performance since pandemicky April’s 15.83 percent plunge. Moreover, this revised February figure was a significant downgrade from the initially reported 3.12 percent decline. The other revisions, going back to October, were too small to affect the picture over the last few months.

But then there’s that second piece of good news: As the Fed’s release explained this morning, the lousy February numbers “largely resulted from widespread outages related to severe winter weather in the south central region of the country.” So they stemmed from a (temporary) outside shock, too.

The surprise? Although the U.S. automotive industry continues reducing production due to a global shortage of semiconductors, output in price-adjusted terms grew by 2.79 percent sequentially in March. At the same time, the February fall-off was revised down from 8.26 percent to ten percent even. And the shortage is expected to undercut vehicle production until the fall, so that’s a drag likely to weigh on the overall manufacturing figures for months.

The total March manufacturing figure means that domestic industry’s after-inflation production has grown by 22.88 percent since its recent low-point last April, and has climbed back to within 1.73 percent of its last pre-pandemic reading in February, 2020.

Manufacturing’s monthly current dollar output gains were broadbased in March, including in the crucial machinery sector. In this industry, whose products are widely used not only throughout manufacturing, but in many other important segments of the economy like construction and agriculture, price-adjusted production improved by 2.87 percent. And now it actually stands 2.16 percent higher than during that last pre-CCP Virus month of February, 2020.

Although the semiconductor shortage is bound to crimp production in many industries on top of automotive, domestic manufacturing still seems to be benefiting from two headwinds other than the economy’s generally improving strength that seem to have some staying power, too. The first is aerospace giant Boeing’s continuing, but sometimes uneven, progress exiting its protracted recent safety and manufacturing problems. The pandemic’s blow to air travel worldwide clearly didn’t help, either.

But in March, real output in aircraft and parts jumped by 4.09 percent sequentially, and is now fully 5.07 percent above its February, 2020 pre-CCP Virus level.

The picture was more mixed in the pharmaceutical and medicines category – which includes vaccines. Inflation-adjusted output advanced by 2.90 percent on month in March, but the previously reported January and February numbers were both downgraded dramatically – from an upwardly revised 2.57 percent to 0.85 percent, and from a 1.29 percent rise to a 0.05 percent dip. These moves left the sector’s output 5.83 percent higher than in pre-pandemic February, 2020 with the prospect of more impovement to come as vaccine production continues to boom.

Growth is still lagging, however, in the vital medical equipment and supplies sector – which includes virus-fighting items like face masks, face masks, protective gowns, and ventilators. February’s constant-dollar production was revised up from a 0.56 percent monthly decline to a 0.44 percent drop – but it was still a drop. Growth returned in March – but only by 0.61 percent in real terms. So price-adjusted output in this category – which includes many other products – is still slightly (0.39 percent) below pre-pandemic February, 2020’s levels, despite all the national talk of the need to improve America’s health security.

I’m still bullish on manufacturing’s outlook, though. No one should forget headwinds facing industry aside from the semiconductor shortage – chiefly, the fading of vaccine production at some point, the distinct possibility of many more regulations and higher taxes from a Democratic-conrolled federal government, and the supply chain disruptions resulting largely from clogged West Coast ports (which on top of the Trump tariffs are slowing the import of many foreign inputs still needed by Made in the USA companies).

But arguably more than offsetting these dangers is the so far better-than-expected resumption of total U.S. growth, the virtual certainty of even yet another gigantic dose of stimulus an infrastructure spending, along with President Biden’s decision to retain every dollar’s worth of those sweeping, often towering Trump trade curbs.

Yet much more important than my views is the continuing optimism registered by domestic manufacturers in all of the soft data surveys that come out each month from the private sector and from various branches of the Federal Reserve system. If they’re full of confidence, who am I to rain on their parade?

Im-Politic: Why Progressives (& Mainstream Democrats) May Ditch American Workers For Good

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Bernie Sanders, Biden, budget deficits, Democrats, Donald Trump, economics, Elizabeth Warren, Im-Politic, Immigration, imports, manufacturing, Modern Monetary Theory, productivity, progressives, Stephanie Kelton, The New York Times, Trade, wages, working class

If you want to start a (hopefully verbal only) fight about American politics, one good way is to tell a Democrat that his or her party – and especially its powerful progressive wing – has been abandoning the country’s private sector working class in favor of what New York Times columnist Ross Douthat just called “the winners of globalization, from wealthy suburbanites to Wall Street and Silicon Valley elites….”  (Here’s some polling evidence for this proposition.)

So it’s more than a little interesting that if you take this position, you’ve recently gotten some devastating ammunition from no less than one of progressivism’s leading intellectual lights – economist Stephanie Kelton.

Kelton has achieved renown for her pioneering “Modern Monetary Theory” take on economic policy. As she has explained, it holds that “Governments in nations that maintain control of their own currencies — like Japan, Britain and the United States, and unlike Greece, Spain and Italy — can increase spending without needing to raise taxes or borrow currency from other countries or investors.”

Naturally, Democrats of most stripes have seized on this argument to varying extents to justify running much bigger federal budget deficits to deal much more ambitiously with a whole host of national problems – to engineering an adequate recovery from the CCP Virus-induced recession to remedying major social and economic ills that they believe dangerously plagued the economy before the pandemic.

One aspect of Kelton’s views, though, has been widely ignored, and it’s this stance that led her last week to support explicitly measures with proven records of harming domestic U.S. private sector workers but with which the increasingly elitist Democratic Party has grown increasingly comfortable over the last decade or so – on trade and especially immigration policy.

The ignored Kelton stance: on inflation. As she has specified (in the column linked above), “Politics aside, the only economic constraints currency-issuing states face are inflation and the availability of labor and other material resources in the real economy.” And in the author’s latest column, she argues that it’s precisely the appearance of these threats today that require the Biden administration to embrace unfettered trade and mass immigration policies.

As Kelton puts it, the combination of (1) President Biden’s massive spending plans and (2) undeniable contraints on the nation’s capacity to supply all the new demand that they’ll create will produce worrisome inflationary pressures. Too many customers will be chasing too few products to buy, thereby forcing up the prices of the latter and possibly generating more economic problems than this new consumption solves.

Among the solutions she offers? Enabling the economy much more easily to satisfy all the new demand by accessing productive capacity from abroad. Thus she suggests both

“Repealing tariffs would make it easier and cheaper for American businesses to buy supplies manufactured abroad and easier for consumers to spend more of their income on products made outside of our borders, draining off some domestic demand pressures” and

“loosening legal-immigration policies, so that even once America nears full employment there would still be an adequate labor pool to meet the increased demand for workers.”

These arguments are entirely consistent with more conventional schools of economic thought – which have long insisted that the freest possible worldwide flows of goods, services, and people will lead to the greatest possible degree of prosperity for the world as a whole.

The problem, though, is that recent decades have taught that when the United States opens its economy wide to a world full of countries that still tightly protect their own markets, and when it opens its borders wide to enormous foreign populations with much lower living standards, American workers take major hits. Abundant research even in the mainstream economics community, for example, has documented the devastating impact of the “China shock” on trade, and the Trump years showed that when immigration curbs helped U.S. labor markets tighten to unprecedented levels, wages for low-income workers, who overall compete directly for employment against illegal aliens, rose especially strongly.   

For many years, Kelton’s fellow Democrats and progressives have been increasingly determined to deny these immigration realities – even when employment levels have been less than stellar. And although private sector labor union-oriented Democrats and even progressives like Senators Elizabeth Warren of Massachusetts and Bernie Sanders of Vermont still champion what might be called America First trade policies, the party’s rank and file has grown much more enthusiastic about the pre-Trump version of economic globalization — as indicated by the below survey results from the Pew Research Center.

Even more curious, and troubling for the economy as a whole: Kelton sorely neglects the concept of productivity, and the importance of continually boosting the economy’s efficiency in order to boost living standards in sustainable, as opposed to bubbly, ways.

Kelton does write that “Over time, the Biden plan’s investments in our physical and human infrastructure will enhance our economy’s productive capacity, leaving us with a better educated and more productive work force, more efficient railways, less congested roadways, improved technologies and much else.”    

But she also adds, crucially, “this can’t happen overnight. It will take years.”  Presumably, then she’d be OK with dropping the open trade policies at least to some degree.  What she misses, however, are the (further) productivity-killing effects bound to emerge during that period of re-enabling imports in sectors like manufacturing – which are central to the nation’s hopes for retaining sufficient productive capacity. 

Indeed, she seems unaware that those manufacturing sectors that have been heavily dependent on artificially cheap imports have been major productiviy laggards. (The same holds for parts of the economy that have leaned heavily on the comparable crutch of immigrant labor – especially low-wage, low-skill immigrant labor).

Kelton of course is only one Democratic party thinker, and as she complained in her latest Times column, too many Democratic leaders – including the President – are still clinging to their supposedly outmoded views on spending and taxing and promoting U.S.-made manufactures.  And as mentioned, even within progressive ranks, her views on trade may not prevail against the Warren and Sanders perspective.

But it’s just as reasonable to believe that progressives hold the whip hand among  Democrats today on many issues, and Kelton played the biggest role in turning their spending-happy views into virtual party orthodoxy.  If her immigration and especially trade positions take the same course, the Democrats’ once unchallengeable identity as “the party of the common man” will become an example of transparently false advertising.       

P.S. Special thanks to my Twitter friend who goes by the handle @RocCityBuilt for first alerting me to the trade and immigration material in Kelton’s latest article.   

(What’s Left of) Our Economy: A Record U.S. Trade Gap – & Cause for Trade Optimism??

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American Jobs Plan, Biden, Buy American, CCP Virus, Census Bureau, China, coronavirus, corporate taxes, COVID 19, Donald Trump, exports, goods trade deficit, green energy, imports, lockdowns, Made in Washington trade flows, Pacific Rim, reopening, semiconductor shortage, services trade, subsidies, supply chains, tariffs, tax policy, taxes, Trade, trade deficit, vaccines, West Coast ports, Wuhan virus, {What's Left of) Our Economy

Despite the overall U.S. trade deficit hitting an all-time monthly high in February, the new trade figures released by the Census Bureau this morning contained lots of encouraging news – including for fans of the Trump tariffs on China and on aluminum and steel (like me). I’m wary of running or continuing a victory lap, because there’s still too much short- and perhaps longer term economic noise surely masking the underlying trends. But the case for trade optimism and its possible policy causes deserves attention.

As for that economic noise, it comes of course not only from the ongoing stop/start CCP Virus- and lockdowns-/reopenings/vaccinations-related distortions of all economic data, but from the harsh winter weather that depressed February economic activity in key areas of the country like Texas; the global shortage of semiconductors that’s impacting output throughout the manufacturing sector (and that’s due in part to the pandemic); and the big backups at the West Coast ports that are greatly slowing the unloading of container ships containing lots of imports from China and the rest of Asia.

As for the data, the combined goods and services trade shortfall of $71.08 billion in February surpassed the previous record, November’s $69.04 billion, by 2.95 percent, and represented a 4.80 percent increase over January’s downwardly revised level of $67.82 billion.

The increase resulted both from a rise in the goods trade gap (of 3.27 percent, to its own record of $88.01 billion) and a shrinkage of the services surplus (of 2.93 percent, to $16.93 billion – the smallest since August, 2012’s $17.08 billion).

Trade flows not setting records, though, notably included any of the imports categories – despite numerous reports of the rapidly rebounding U.S. economy sucking in massive amounts of products (though not services, which have suffered an outsized CCP Virus blow) from abroad.

For example, total merchandise imports actually fell on month in February – by 0.89 percent, to $221.14 billion, from January’s record total of $221.12 billion. Still, the February figure remains in second place historically speaking.

Non-oil goods imports inched up by 0.38 percent sequentially in February – from $85.36 billion to $85.68 billion. But they still fell short of the November record of $86.40 billion. As known by RealityChek regulars, this trade category sheds the most light on the impact on trade flows of trade policy decisions, like tariff changes and trade agreements. (Hence I call the resulting shortfall the Made in Washington trade deficit.) But despite the lofty level, they’re actually down on net since November. Could it be those West Coast ports snags or the harsh winter storms of February or semiconductor-specific problems? Maybe.

The evidence for those propositions? U.S. goods imports from Pacific Rim countries – which are serviced by the West Coast ports – did sink by 11.81 percent on month in February. That’s a much faster rate than the 1.54 percent decrease in overall non-oil goods imports (a close proxy).

But goods imports from China dropped by a greater 13 percent even, which points to some Trump tariff effect as well. In fact, the $34.03 billion worth of February goods imports from China was the lowest monthly number since pandemicky last April. And February’s $24.62 billion bilateral merchandise trade deficit with China was 6.22 percent narrower than the January figure, and the smallest such total since April, too.

America’s goods deficit from Pacific Rim countries in total fell slightly faster than the gap with China (6.84 percent). China’s economy and its exports, however, are supposed to be recovering at world-and region-beating rates, so if that’s the case, it appears that the Trump trade curbs are preventing that rebound from taking place at America’s expense.

U.S. manufacturing trade numbers were encouraging, too, though again, the impact of tariffs as opposed to that of the virus distortions or the February weather or the ports issues or the semiconductor shortage or some combination thereof  is difficult to determine. But industry’s trade shortfall did tumble by 10.53 percent in February, from January’s $99.79 billion to $89.29 billion. That figure also was manufacturing’s lowest since June, 2020’s $89.16 billion and the 10.52 percent decrease was the by far the biggest in percentage terms since November, 2019’s 12.70 percent.

February manufacturing exports declined by 2.64 percent sequentially, from $81.66 billion to $79.51 billion. But the much greater volume of manufacturing imports sank by 6.98 percent, from $182.46 billion to $168.79 billion.

The China and manufacturing numbers could certainly change – and boost these U.S. trade gaps and the overall trade deficit – as Americans begin to spend their latest round of stimulus checks, as the U.S. recovery continues, and as the West Coast ports and semiconductor issues clear up. 

But especially due to those Chinese exports, this worsening of the U.S. trade picture was reported late last year. And the official U.S. trade figures show that such a surge simply never took place. Moreover, if executed properly, President Biden’s Buy American plans for federal government procurement and support for strengthening critical domestic supply chains could boost American manufacturing and other goods output without increasing imports. His budget requests for major subsidies for key U.S.-based manufacturing operations could help brighten the trade picture, too. Mr. Biden has also decided for now to retain the Trump trade curbs. And P.S. – those clogged West Coast ports hamper American exports as well.    

In addition, trade problems could reappear at some point due to the President’s proposed green energy mandates and corporate tax increases that would inevitably hike the relative cost of producing in the United States. But right now, it looks like due to ongoing and possibly upcoming economic nationalist American policies, the burden of proof is on the U.S. trade pessimists. And that’s quite a switch.

(What’s Left of) Our Economy: New U.S. Manufacturing Data Bolster Case for Keeping Trump’s Tariffs

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CCP Virus, China, China tariffs, consumer electronics, coronavirus, COVID 19, Donald Trump, exports, GDP-by-industry, gross domestic product, imports, manufacturing, Port of Los Angeles, recession, recovery, tariffs, Trade, trade deficit, value added, Wuhan virus, {What's Left of) Our Economy

As known by RealityChek regulars, throughout the CCP Virus period, I’ve been writing about how resilient the American domestic manufacturing industry has been, and how a good chunk of the credit should go to the Trump era tariffs. I’ve argued that they’ve rendered lots of imports – especially from China – much less price competitive, and created new opportunities for U.S.-based industry to sell to American customers.

With the release last Friday of the U.S. government’s latest “GDP (Gross Domestic Product) by Industry” data, this case looks ever more convincing.

The new figures bring the story up to the end of last year, and the key numbers entail the production and the trade deficit figures for the second quarter of 2020 (the first full quarter when the virus and related lockdowns and other mandated and voluntary economic activity curbs impacted economic data) and for the fourth quarter (the most recent numbers from this quarterly data set).

These new figures show that, during that period, according to an output measure called “value added” (a favorite of economists, because it seeks to eliminate the double-counting that inevitably results from including in manufacturing production levels both final products and all the parts, components, and materials that go into those products), manufacturing production increased by 14.32 percent. (This figure does not account for inflation’s effects, because the U.S. government doesn’t publish detailed inflation-adjusted data for the trade statistics we’ll also be examining.)

The comparable growth figure for the whole U.S. economy between the second and fourth quarter? Just 10.12 percent.

It’s true that the trade deficits for manufacturing and the whole economy rose strongly as well during this period. But manufacturing outperformed here as well, as its shortfall climbed by 24 percent, versus 24.46 percent for all U.S. goods and services industries combined.

That’s a tiny edge, of course, but any edge at all is pretty remarkable, especially given the massive pandemic-era popularity of the consumer electronics products sold so massively to Americans by China, and that most of these goods escaped the Trump levies. In this vein, it’s revealing that net imports of laptops, cell phones, and the like represented fully 22.07 percent of the second-to-fourth quarter manufacturing trade deficit’s worsening.

And even so, during this period, the manufacturing-dominated China goods trade shortfall increased by just 13.53 percent – a clear testament to the Trump tariffs.

It’s important to remember that many major U.S. services industries have taken outsized pandemic- and lockdowns etc-related hits because their business models depend on personal contact. But interestingly, between the first and second quarters, manufacturing output fell faster than total GDP – by 12.47 percent versus 9.47 percent on an annualized basis versus 9.47 percent. So industry had an unusually deeper hole to climb out of. And despite this challenge, whereas total U.S. current dollar output in the fourth quarter was still a bit (0.31 percent) lower than in the first quarter (the final full pre-CCP Virus-affected quarter), manufacturing value-added was fractionally higher.

There’s still a possible fly in the ointment – and a big one. Due to equipment and labor shortages, since late November there’s been there’s a big, growing backup in unloading ships laden with Asian imports at the Port of Los Angeles – a prime gateway for such commerce. And on a monthly basis, since November (and through January), U.S. goods imports from China are down 14.43 percent.

But underscoring the tariffs’ effects all the same: Goods imports from Vietnam, which is supposed to be a major winner from the U.S.-China trade conflict, dipped by just 3.93 percent during this period. And many Vietnamese products enter the United States through Los Angeles, too.

The manufacturing trade deficit remains way too high, and manufacturing’s value-added growth slowed dramatically last year – from an its all-time high of 13.4 percent between the second and third quarters to a mere 0.80 percent between the third and fourth.

But as the entire U.S. economy recovers from the pandemic due to vaccinations and the approach of herd immunity, as the lockdowns and consumer caution ebb, as more immense government stimulus kicks in, as aerospace giant (and traditional trade surplus star) Boeing recovers from its safety woes, as vaccine production booms, and as the Biden administration continues to keep the Trump tariffs in place, unless Washington makes some big policy mistakes, it seems tough at best to be a U.S. manufacturing pessimist these days.

(What’s Left of) Our Economy: The Real U.S. 2020 Trade Deficit Remained a Record – & Virus-Distorted

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

The final (for now) official report on U.S. economic growth in the fourth quarter of last year and therefore for the full year contained modestly good news both in terms of the entire economy’s performance and its trade flows, but doesn change the big picture of major pandemic-related setbacks and distortions, and the latter likely to continue for the foreseeable future.

Starting at 30,000 feet, the new data show that in inflation-adjusted terms (those most closely watched), America’s gross domestic product (GDP – or the total of goods and services it produces) shrank by 3.49 percent in 2020, a bit better than the 3.50 percent decline reported last month. Real growth received a boost from a fourth quarter during which real GDP expanded sequentially by 4.23 percent at an annual rate, not the (already upwardly revised) 4.03 percent previously estimated.

Given the record nosedive last spring produced by the CCP Virus and related mandated and voluntary curbs on economic activity, and even given the strong (in fact, sequential, record) rebound in the third quarter, such growth isn’t overly impressive. But presumably the rate will accelerate as vaccination spreads, herd immunity finally arrives, lockdowns are lifted (hopefully for good), and consumer regain confidence about in-person services like dining and traveling.

All the same, 2020’s still ranks as the worst U.S. economic downturn since 1946, when after-inflation GDP tumble by 11.60 percent as the nation transitioned from a war-time to a peacetime footing. Last year’s recession was also worse than the real GDP drop of 2009 (2.53 percent), during the Great Recession triggered by the global financial crisis.

As for the constant dollar total trade deficit, it’s now pegged at $926 billion, up slightly from last month’s reported $925.8 billion, but better than the $926.3 billion estimated in the first read on fourth quarter and 2020 GDP. The annual increase was only 0.92 percent, and as a share of the total economy (5.03 percent), it remained well below the all-time high of 5.95 percent (which came at the height of the bubble decade, in 2005), the deficit’s absolute and relative levels are still remarkable given the economy’s contraction – which normally results in a trade deficit decrease. At the same time, as will be discussed below, the 2020 recession was unusual in most respects.

The trade highlights of this morning’s GDP report confirmed once again that the service sector has suffered the greatest pandemic period hit both domestically and internationally. Indeed, during 2020, the longstanding after-inflation American goods trade deficit dipped by 0.71 percent (from $1.1409 trillion to $1.1328 trillion) while the equally longstanding services surplus sank by eleven percent (from $224.5 billion to $199.8 billion).

The new GDP report upgraded America’s total price-adjusted export performance in 2020, estimating their decline to be 12.95 percent, not the previously judged 12.97 percent. But the decrease is still the worst since 1958’s 13.49 percent plunge, and the $2.2169 trillion level remains the lowest since 2012’s $2.1930 trillion.

Real goods exports in 2020 slid by 9.46 percent in today’s GDP report – a little better than the 9.48 percent calculated last month. But as with total exports, these levels still represented multi-year lows in terms of the magnitude of the decline (the fastest since Great Recession-y 2009) and the absolute amount ($1.6138 trillion, the lowest since 2013). As last months real GDP post reminded, though, goods and services trade figures began to be reported separately by the Commerce Department only since 2002.

The deterioration in real services exports was, again, much more dramatic, and faster than estimated in last month’s GDP figures. They plummeted by 19.26 percent on-year, not the 19.16 percent previously reported, and a record by a long shot. And at $620.5 billion, their yearly total is the lowest since 2010.

Total constant dollar U.S. imports, however, seem to have fallen sligthly more slowly last year (9.27 percent) than previously judged (an already downgraded 9.28 percent). Yet this decrease also remained the fastest since 2009, and the $3.1429 trillion level the lowest since 2015.

Consistent with the above results, the inflation-adjusted goods imports fall-off in 2020 was much less than the overall decline. Interestingly, the new 6.05 percent annual decline reported this morning was notably lower than the 5.45 percent decrease reported last month. It, too, however, was a multi-year worst (since recession-y 2009) and the new $2.7466 trillion level is the lowest since 2016.

The annual after-inflation services imports drop in 2020 reported today was unchanged, at a record 22.54 percent, and the same $420.7 billion level was the weakest since 2009.

On a quarter-to-quarter basis, the real trade deficit registered modest improvement, too. Previously pegged at a quarterly record $1.1230 trillion on an annual basis, it’s now estimated at $1.1220 trillion (still an all-time high), and the sequential increase downgraded from 10.20 percent to 10.11 percent.

Two other findings of note: Although the increase in the annual constant dollar total trade deficit reached an all-time high last year, its effect on economic performance was relatively slight. The trade gap’s widening accounted for 0.14 percentage points of that 3.49 percent annual real GDP drop. Proportionately, that’s less damage than was inflicted in 2019, when the higher trade deficit cut 0.18 percentage points from the 2.16 percent overall growth rate.

On a quarterly basis, though, the trade bite was much deeper, as the price-adjusted total deficit’s increase subtracted 1.53 percentage points from the 4.23 percent sequential inflation-adjusted annualized GDP increase. But not even this blow was the biggest ever relatively speaking – or even close. (The all-time worst such performance came in the second quarter of 1952, when 0.85 percent after-inflation annualized growth would have been 2.23 percentage points higher if not for the sequential increase in the trade deficit.)

(What’s Left of) Our Economy: A Trump-y New U.S. Trade Report – in a Good Way

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(What’s Left of) Our Economy: New U.S. Growth Figures Leave Pandemic Trade Distortions Fully Intact

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

Fittingly, because this morning’s release of the first (of two short-term) revisions of the official figures on fourth quarter U.S. gross domestic product (GDP) tell us only a little more than the first about the U.S. economy’s growth at the end of last years, they also revealed little change in what was reported about U.S. trade flows – and how they were affected in 2020 by the CCP Virus.

The fundamental story remains the same: The pandemic has distorted the nation’s international trade tremendously. What today’s report – which describes growth in inflation-adjusted terms (the most widely followed) – shows is that real exports suffered a bit more than previously judged, and their import counterparts were a bit higher. As a result, the overall price-adjusted trade deficit was slightly greater than first estimated.

In addition, the new figures – which will be revised again next month, and several times down the line – indicate that the trade flow deterioration worsened toward the end of the year.

To set the context, the sequential growth rate for the fourth quarter was upgraded in the new release from the previously reported 3.95 percent at an annual rate after-inflation to 4.03 percent. Normally, that would be an excellent performance, but coming after the roughly 30 percent annualized rubber-band-like economic snap back between the second and third quarters, it’s still a major disappointment.

Moreover, the revisions were too small to affect the annual contraction rate for all of 2020, which stayed at 3.50 percent in constant dollars. That’s still the worst yearly downturn since the 11.60 percent nosedive in 1946, when the nation was transitioning from a war-time to a peacetime footing. In fact, 2020’s slump was much worse than the real GDP decline of 2009 – which was part of what’s now known as the Great Recession. That year, America’s output of goods and services after inflation fell by just 2.53 percent.

(Incidentally, sharp-eyed readers will note that this 2020 real GDP figure doesn’t match up with the one I cited here. That’s because that post’s number represented fourth quarter to fourth quarter constant-dollar output change, which tends to produce different results than those generated by comparing the annual figures, which sum up the collective change for all of a year’s four quarters.)

Luckily, the main reason for optimism remains intact, too, despite the humdrum fourth quarter: The pandemic-driven recession was driven by a virus, and by the widespread shutdowns of economic activity literally ordered by government at all level. That appears much less worrisome than the economic circumstances of the bubble decade of the 2000s, when bloated lending and spending masked fundamental weaknesses in the economy. When the finance sector essentially decided that the resulting Ponzi scheme had grown way too risky even for its tastes, a collapse was triggered that nearly took the entire global economy down.

Once again, the magnitude of the distortion of the GDP figures’ trade component came through loud and clear in this morning’s release. Even though the economy shrank – which typically depresses the trade deficit – the shortfall hit a new record in last year. This morning’s reported $926.3 inflation-adjusted level was marginally larger than the $925.8 billion estimated last month, and represents a 0.95 percent increase over 2019.

It’s true that 2020’s price-adjusted trade deficit wasn’t the largest ever as a share of real GDP. At 5.03 percent, it was well behind the all-time worst of 5.95 percent, set in bubbly 2005. But this percentage was astronomical for a recession year. In fact, you’d have to go back to 2002 (which was only partly recessionary) to find a figure even as high as 4.95 percent.

Since the pandemic and restrictions have hit service industries much harder than goods industries, with the travel and tourism sectors experiencing veritable decimation, it’s no surprise that most of the trade deficit deterioration took place in those parts of the economy. Specifically, between 2019 and 2020, the inflation-adjusted goods trade deficit rose by just $830 million, while the services surplus shrank by $24.7 billion. (And now for an apology – last month I reported the reverse, because I accidentally reported the services change in millions, not billions, of dollars.)

The real trade deficit increased last year in part because total constant dollar exports fell, with the new revisions reporting the drop at 12.97 percent, rather than the 12.96 percent estimated last month. That decrease is the biggest in percentage terms since 1958’s 13.49 percent plunge, and the $2.2165 trillion level was the lowest since 2012’s $2.193 trillion.

The 2020 decrease in goods exports was revised this morning from 9.46 percent to 9.48 percent, and this slide – the steepest since 2009’s 11.86 percent – brought the year’s level to $1.6136 trillion, the lowest since 2013’s $1.57 trillion. (Goods and services trade figures began to be reported separately by the Commerce Department only since 2002).

The new revisions actually showed a marginally better performance for real services exports. Rather than sinking by 19.20 percent in 2020, the dropoff is now judged to be 19.16 percent. But the fall is still a record by a long shot, and the new $620.2 billion level still the lowest since 2010’s $609.2 billion.

Total after-inflation constant dollar U.S. imports were lower in 2020 than in 2019, too, but the contraction was smaller than that for total exports. Today’s revisions report the annual decrease as 9.28 percent versus the previously reported 9.29 percent. This drop was still the biggest in percentage terms since recessionary 2009’s 13.08 percent, and the $3.1426 trillion absolute level was still the weakest since 2015’s $3.0948 trillion.

The reduction in goods imports was as relatively modest as that in goods exports, as they came in 5.45 percent lower in 2020 than in 2019. But last month, the drop was reported at a bigger 6.05 percent – still the biggest since recessionary 2009’s 15.30 percent. And the new $2.7642 trillion level is still the lowest since 2016’s $2.6477 trillion.

The annual services imports decrease in 2020 was also smaller than initially reported – 22.54 percent versus 22.59 percent. Nonetheless, this yearly shrinkage, too, was still by far the greatest ever, and the $420.7 billion level still the lowest since 2009.

On a quarter-to-quarter basis, the previously reported quarterly record $1.1211 trillion total real trade deficit at annual rates for the last three months of 2020 is now estimated at $1.1230 trillion. And the increase over the third quarter level has gone up from ten to 10.2 percent.

Quarterly total real exports today were judged to be 5.06 percent higher than the third quarter level, not 5.10 percent higher, but the new $2.2761 trillion annualized figure was still 8.78 percent below the level of last year’s first quarter – the final pre-pandemic figure.

The fourth quarter’s sequential rise in real goods exports was also revised down this morning – from 7.65 percent to 6.95 percent. But at $1.7224 trillion annualized, they’re just 2.94 percent below the first quarter total.

Not surprisingly, the quarterly export lag in services was much worse. The fourth quarter’s price-adjusted real sequential improvement was only revised down from 1.07 percent to 1.04 percent. But the annualized figure of $587.4 billion was a whopping 19.55 percent below that final first quarter pre-pandemic level.

Total constant dollar imports for the fourth quarter are now judged to have risen by 6.71 percent over the third quarter, not 6.67 percent. At $3.3991 trillion at an annual rate, they’re now 3.53 percent higher than during that immediate pre-CCP Virus first quarter.

After-inflation goods imports are estimated to have risen a bit more slowly on a quarter-to-quarter basis – by 5.25 percent between the third and fourth quarters instead of the previously reported 5.27 percent. Even so, as of the end of last year, they were running fully 8.49 percent higher at an annual rate ($3.0230 trillion) than during the first quarter.

Real services imports, however, expanded faster than previously reported – by 5.52 percent over third quarter levels, not 5.16 percent. But even though they’re now up to $415 billion at annual rates, in real terms, they still 17.41 percent below their pre-pandemic levels.

(What’s Left of) Our Economy: As Trump’s Tariffs Stay in Place, U.S. Manufacturing Output Keeps Surging

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aerospace, aircraft, aircraft parts, Boeing, CCP Virus, China, coronavirus, COVID 19, Federal Reserve, gloves, imports, industrial production, inflation-adjusted output, manufacturing, masks, pharmaceuticals, PPE, real growth, recession, tariffs, Trump, Wuhan virus, {What's Left of) Our Economy

It’s tough to describe this morning’s manufacturing production figures from the Federal Reserve (for January) as anything but excellent, and anything but another strong endorsement of the stiff, sweeping tariffs former President Trump imposed on goods, especially from China. By shielding industry from a flood of imports from the People’s Republic, these trade curbs have undoubtedly contributed to a manufacturing recovery that entered its ninth straight month in January, and brought its production to within a whisker of pre-CCP Virus levels.

Moreover, as noted last month, the sector’s prospects seem bright, since not only has the entire economy kept recovering as CCP Virus vaccination proceeds and accelerates, but the aerospace industry revives both from its Boeing safety-related woes and the pandemic-related travel slump, and vaccine production surges.

Domestic manufacturers’ real output rose by 1.04 percent sequentially, increases were broad-based, and revisions were strongly positive. Although December’s previously reported 0.95 percent growth was downgraded to 0.94 percent, November’s was revised up for the second straight time (from 0.83 percent to 1.10 percent), and October’s for a third straight time (from 1.34 percent to 1.51 percent).

Due to these revisions, despite the severely recessionary impact of the CCP Virus both at home and abroad, domestic manufacturing’s inflation-adjusted 2020 production decline now comes in at just 2.01 percent, rather than the 2.63 percent reported last month. In addition, price-adjusted manufacturing output has advanced by 24.11 percent since its April nadir, and is now a mere 0.75 percent below its last pre-pandemic level last February.

As encouraging as the January figures and revisions were was their breadth. In fact, for the second straight month, the constant dollar output improvement came despite a small (0.72 percent) sequential dip in the automotive sector, whose major ups and downs have heavily influenced overall manufacturing production results for much of the pandemic period.

One cautionary note: January monthly after-inflation output growth for the big machinery category – which turns out production equipment for the rest of manufacturing, and devices crucial for other major industries like construction and agriculture – was only 0.52 percent, just half that for the entire manufacturing sector. And revisions were mixed.

More encouraging: Machinery’s growth has been strong enough that its real output is now back to within 1.12 percent of its February pre-pandemic levels.

January also saw accelerating growth in aircraft and parts production. Monthly output in expanded by 2.89 percent in January, December’s strong initially reported 2.78 percent increase is now judged to have been 3.03 percent, and November’s has been upgraded from 2.39 percent to 2.50 percent.

In fact, recovery in these aerospace sectors has been so vigorous that their output is now 6.77 percent greater than their February pre-pandemic levels.

Probably reflecting the vaccine effect, price-adjusted production of pharmaceuticals and medicines increased by 2.42 percent on month in January – the best showing since July’s 2.57 percent. But revisions were mixed, and this vital sector’s real output is only 4.11 higher than in February, just before the pandemic struck the U.S. economy in full force. On the brighter side, immense vaccine demand makes clear that the industry’s upside is enormous for the time being.

As for medical equipment and supplies – including virus-fighting items like face masks,face masks, protective gowns, and ventilators – their production performance keeps lagging badly. Inflation-adjusted output for this category (which encompasses many other products as well) actually fell in January for the second straight month – and by 0.54 percent. In fact, constant dollar output in this sector is 2.18 percent lower than during the last pre-pandemic month of February, 2020.

(What’s Left of) Our Economy: The Latest U.S. Trade Data Start Bringing Trump Achievements into Focus

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aerospace, CCP Virus, China, computers, coronavirus, COVID 19, Donald Trump. Biden, exports, imports, infotech, lockdowns, Made in Washington trade deficit, manufacturing, non-oil goods trade deficit, services trade, tariffs, Trade, trade deficit, Wuhan virus, {What's Left of) Our Economy

With the release yesterday morning of the U.S. government’s trade report for December (the same morning, frustratingly for me, that the official January jobs figures came out), the final scorecard on former President Trump’s trade policy record is sort of in.

I say “sort of” because (1) these numbers will be revised several times; (2) the full impact of Trump’s tariff-centric policies on the economy won’t be apparent for many years (especially since President Biden has decided to keep in place for te time being all of the steep and sweeping Trump China levies); and (3) the powerfully distorting effects of the CCP Virus will be with us for at least many more months.

Keeping all these caveats in mind, let’s focus on the annual rather than the monthly figures, since they cover a much longer time frame, and see how even this preliminary 2020 data points to some important conclusions about what was and wasn’t accomplished under Trump.  And the accomplishments were anything but negligible.

As widely reported (see, e.g., here and here), the combined goods and services deficit hit $678.74 billion last year – the highest annual figure since 2008. So given Trump’s emphasis on narrowing the gap, and given the annual increase of 17.42 percent (far from a record) during the worst recessionary year since 1946, the result looks like a major Trump failure.

At the same time, RealityChek regulars know that economic data presented in isolation rarely prove informative. So in this vein, it’s important to note that the 2020 overall trade deficit as a share of the entire economy (gross domestic product, or GDP) was much lower than in 2008 – 3.24 percent versus 4.84 percent. P.S. 2008 was a recession year, too. And though it wasn’t nearly as deep as last year’s downturn, it still saw a slight increase in the trade shortfall. Finally, let’s remember that the previous Great Recession resulted from failures in the economy’s fundamentals that were permitted to reach crisis proportions.

This latest downturn has stemmed largely from government decisions literally to shut down much of the nation’s economic activity due to a pandemic coming from China, and created deficit-boosting problems having little to do with U.S. trade policy.

For example, $50.41 billion of the $101.56 billion annual increase in the deficit in absolute terms came from a shrinkage in the services trade surplus that was by far a record in absolute terms and the second greatest relatively speaking (17.54 percent) since recessionary 2001 (19.58 percent).

Another $36.01 billion of the increase in the overall 2020 deficit came from a drop in the civilian aviation sector surplus that had nothing to do with Trump tariffs or retaliation and everything to do with Boeing’s safety woes and the pandemic-induced nosedive in domestic and global air travel.

And another $20.92 billion of the deficit increase came from the computer and computer accessories sectors, where imports surged due to the growth of working, schooling, and otherwise Zooming from home prompted by the pandemic.

These shifts had an especially marked effect on that portion of U.S. trade flows deeply influenced by trade policy decisions like the Trump tariffs. As known by RealityChek regulars, I call the huge deficit still run in these sectors collectively the “Made in Washington” trade deficit, because it strips out two parts of the economy (services and energy) that are rarely the focus of trade agreements or related policies.

Between 2019 and 2020, this trade gap expanded by $83.03 billion, to an all-time high of $923.03 billion. But as just made clear, the non-trade policy growth in the civilian aviation and computer-related sectors made up $56.93 billion (or 68.57 percent) of the difference. And even counting these one-off developments, the Made in Washington trade deficit during the Trump years grew much more slowly as a share of GDP (by 22.16 percent) than during the second term of Barack Obama’s presidency (33.21 percent).

Similar trends can be seen in the manufacturing sector. Its deficit worsened in 2020 by $79.63 billion, to a record $1.1128 trillion. But without the bigger deficits in aviation and computers, it would have fallen year-on-year. That hasn’t happened since recession-y 2009. As a share of GDP, the manufacturing trade deficit also rose more slowly during Trump’s term (13.70 percent) than during Obama’s second term (14.14 percent).

Much of this progress, in turn, owed to the substantial reduction in the huge, chronic, U.S. manufacturing-dominated goods trade deficit with China. Even though the $83.03 billion widening of the comparable Made in Washington trade deficit gap in 2020 represented a 9.88 percent rise, the China goods deficit dropped by $34.04 billion, or 9.97 percent. And at $310.80 billion, the goods trade deficit with China was America’s smallest since 2011 ($295.25 billion). Surely Trump’s tariffs on $360 billion worth of Chinese imports (in pre-tariff times), and his Phase One trade deal, which required increased imports from the United States by Beijing, deserve considerable credit.

Further, as a share of U.S. GDP, the goods gap with China sank all the way to 1.48 percent in 2020. During Obama’s last year in office, that figure stood at 1.85 percent – a modest decrease from 1.95 percent in the last year of his first term. But even if you take away the deeply recessed U.S. economy of 2020 and look at only the first three Trump years, you see that the China goods deficit stood at only 1.61 percent of GDP – meaning it had still fallen considerably faster under his presidency.

What happens with U.S. trade flows – and all the sectors of the economy they profoundly affect – though, will remain unclear for the foreseeable future. For not only is the direction of Biden administration policy substantially up in the air. So is the future course of the pandemic, including whether vaccines can be rolled out fast enough to stem its tide, and whether they can keep up with mutations. And all of the CCP Virus-related uncertainties will of course largely determine how fast the economies of America’s trade partners recover, how much they export, and how much they import.

But even though the results of upcoming official trade reports will need to be taken with several boulders of salt, it’s nonethless clear that if the main policy-fostered Trump trends continue under the Biden administration, American workers and producers of all kinds will have reason to be grateful.

(What’s Left of) Our Economy: No Trade Highlights in the Year-End 2020 U.S. GDP Figures

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Two other findings of note: First, although the increase in the annual constant dollar trade deficit reached an all-time high last year, its effect on economic performance was relatively slight. The trade gap’s widening accounted for 0.13 percentage points of that 3.50 percent annual real GDP drop. Proportionately, that’s less damage than was inflicted in 2019, when the higher trade deficit cut 0.18 percentage points from the 2.16 percent overall growth rate.

Second, on a quarterly basis, the trade bite was much deeper, as the deficit’s increase subtracted 1.52 percentage points off of the 3.95 percent sequential inflation-adjusted GDP increase. But not even this blow was the biggest ever relatively speaking – or even close. (The all-time worst such performance came in the second quarter of 1952, when 0.85 percent after-inflation annualized growth would have been a full 2.23 percentage points higher if not for the sequential increase in the trade deficit.)