(What’s Left of) Our Economy: When Trade Reporters Can’t (Or Won’t?) Read Their Own Chart

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Bloomberg, CCP Virus, China, coronavirus, COVID 19, exports, global financial crisis, goods trade, Great Recession, imports, services trade, Trade, {What's Left of) Our Economy

I was going to focus this morning on the new U.S. official productivity data but then came across a chart about U.S.-China trade flows that was so ditzy that the data it portrayed completely belied a crucial part of the headline. So the productivity analysis will have to wait a bit. 

Here’s the chart, including the subtitle,”Despite heated rhetoric, trade with China shows no signs of slowing down,” which appeared in this version of a new Bloomberg report:

But unless I’ve suddenly developed real vision problems, it’s clear that that’s exactly what the chart shows since 2014 as compared to the years before. Here’s the actual data on annual changes in the value of bilateral goods exports and imports courtesy of the same U.S. Census Bureau figures on which the Bloomberg reporters in question based their conclusion:

Between 2014 and 2021, two-way Sino-American goods trade added up to $656.38 billion. Since 2014, it rose by 10.85 percent.

Between 2007 and 2014, this total rose by 77.08 percent. That’s not a slowdown – and a big one?

Yes, the Bloomberg chart only goes through November, 2022 (the latest data available). But two-way U.S.-China trade advanced by just 7.75 percent between the first eleven months of 2021 and the first eleven months of last year, so December’s results won’t make much of a difference.

Has the CCP Virus distorted the picture? Of course it’s affected the trade flows by significantly slowing the economies of both countries. But the 2007-2008 global financial crisis and ensuing Great Recession made a big difference, too. And although its impact on China’s economy didn’t remotely match the impact on America, the U.S. economy’s long recovery from that major slump was the weakest from a recession on record. And still bilateral goods trade (especially goods imports from China) surged.

Would counting services trade make a difference? No. Comparing changes in these sectors with those in goods sectors is complicated by the lag with which such exports and imports are reported officially. In fact, the latest numbers I could find go only through 2021. But as made clear by those 2021 figures supplied by the Congressional Research Service ($61.0 billion), and numbers from the U.S. Trade Representative’s office for the final pre-pandemic year 2019 ($76.7 billion), they’re far too small to change the trends notably.

It’s also crucial to observe that the headline claim about U.S.-China trade breaking records is fatally flawed, too. For it omits vital context.  Sure, in absolute terms, this commerce is at an all-time high. But much more important, as a share of the U.S. economy?  Not even close. In 2021, combined Sino-American goods imports and exports came to 2.82 percent of total U.S. output.  In 2014, just to use one comparison, this number was 3.37 percent.   

The big question raised by these discrepancies between the Bloomberg reporters’ claims and the facts is “Why were they ignored?” I’m not a mind-reader, but here’s my hunch: They stemmed from a desire – maybe witting, maybe not – to reinforce the economics and trade establishment tropes that (a) international trade is driven overwhelmingly by market forces; (b) that there’s nothing constructive or even significant governments can do (e.g., impose tariffs or tech controls) to intervene over any meaningful length of time; and (c) that because China’s become such an economic juggernaut (even with its current struggles) bilateral trade is nothing less than a force of nature that’s simply unstoppable in the larger scheme of things.

None of these contentions is crazy on its face. For example, as the pandemic has ironically demonstrated, literal forces of nature can play a huge role in impacting trade flows and their interpretation. (Unless the CCP Virus was produced by gain-of-function research?) So can non-policy-related influences like the Laws of Small and Large numbers, which tell us that big percentage changes are easier to generate from modest starting points than from less modest starting points.

But as of now, by the main measures, a major slowdown in U.S.-China trade unquestionably has taken place, and the possible policy implications shouldn’t be overlooked:  Since the erroneous conventional wisdom strongly supported the hands-off approach taken by pre-Trump administrations, this loss of momentum looks very much like an endorsement of the hands-on strategy pursued since. 

 

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(What’s Left of) Our Economy: A Glass Half Empty or Full Story for the Inflation-Adjusted Trade Deficit?

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

The trade highlights of yesterday’s first official estimate of U.S. economic growth in the fourth quarter of last year and full-year 2022 provide a great lesson on how the pictures drawn by data can vary greatly depending on which time frame you’re looking at – even within the span of a single year.

The quarter-to-quarter numbers look rather good – in terms of deficit reduction – but the annual numbers are pretty discouraging.

We’ll start with those quarterly data, which show that the inflation-adjusted trade deficit shrank for the third consecutive time in the fourth quarter – by 2.87 percent, from $1.2688 trillion at annual rates to $1.2324 trillion. This first such stretch since the year between the second quarter of 2019 through the second quarter of 2020, brought the quarterly shortfall down to its lowest level since the second quarter of 2021 ($1.2039 trillion annualized).

These results also confirmed that the fourth quarter was the second straight to see the economy expand as the deficit contracted. This marked the first time that’s been the case since the period between the second and fourth quarters of 2019, and signals that the economy has been growing healthily, relying more on investment and production than on borrowing and spending.

One sign of regression along these lines: The trade deficit declined in the previous two quarters because exports rose and imports dropped. In the fourth quarter, however, both decreased.

Moreover, the after inflation combined goods and services trade deficit is still 47.98 percent above its level in the fourth quarter of 2019 – just before the United States and its economy began suffering the full effects of the CCP Virus. As of the third quarter, this increase was 52.35 percent.

But overall, the new quarterly statistics still warrant a so-far-so-good interpretation.

Trade’s contribution to the fourth quarter’s growth was much smaller than in the third quarter. Then, it fueled 2.86 percentage points of the 3.20 percent real annual advance – the biggest absolute total in 42 years (but far from a long-term high in relative terms). Without that trade ooost, all else equal, the economy would have grown by a measly 0.34 percent after inflation at annual rates – just a little over a tenth as fast.

In the fourth quarter, trade’s growth contribution was just 0.56 percentage points of 2.86 percent real annualized growth. That’s still positive, though. And if not for this narrowing of the gap, constant dollar GDP would have still expanded, but just by a so-so 2.30 percent.

Drilling down, the new GDP report pegs fourth quarter sequential total exports at $2.5955 trillion in constant dollars at annual rates. This drop was the first since the first quarter of last year, but the slip was just 0.33 percent from the third quarter’s record $2.6041 trillion and the second best total ever.. At the same time, real exports are still only 0.92 percent higher than in the last pre-pandemic quarter. As of 3Q, these sales were 1.26 percent higher.

Total price-adjusted imports retreated, too – and as indicated above for the second consecutive quarter. That’s the longest such streak since the year between the second quarter of 2019 and the peak pandemic-y second quarter of 2020. The actual decrease was steeper than that of exports – 1.16 percent, to $3.8729 trillion at annual rates. Yet these purchases are fully 13.75 percent higher than just before the CCP Virus’ arrival stateside in full force. – roughly where they stood as of te third quarter.

The real deficit in goods sank by 2.84 percent on quarter, from $1.4324 trillion at annual rates to $1.3916 trillion. This sequential decrease was the third straight (the first such span since the peak CCP Virus-dominated period between the fourth quarter of 2019 and the second quarter of 2020). And it pushed this trade gap down to its lowest total since the first quarter of 2021’s $1.3809 trillion. Since just before the pandemic’s fourth quarter 2019 arrival stateside in force, the goods trade deficit is up by 27.54 percent. As of the third quarter, this increase was 34.20 percent.

The longstanding surplus in services jumped by 12.78 percent sequentially, from a price adjusted $163.5 billion annualized to $184.4 billion –the highest such level since the $187.50 billion of the fourth quarter of 2020. Yet reflecting the outsized hit taken by services industries since the virus struck the nation, this surplus is still 21.80 percent lower than in that immediately pre-Covid fourth quarter of 2019. As of this year’s third quarter, that decrease was 30.66 percent.

After-inflation goods exports dipped by 1.77 percent in the fourth quarter, from the $1.9101 trillion annualized total in the third quarter (marking the third straight quarterly record) to $1.8673 trillion. Real goods exports are now 4.51 percent greater than in the fourth quarter of 2019, versus the 6.41percent calculable as of the third quarter.

Constant dollar goods imports in the fourth quarter fell for te third consecutive time, too – a firs stnce the fourth quarter, 2019 through second quarter, 2020 period. The decrease of 1.43 percent, from $3.3334 trillion at annual rates to $3.2856 trillion, produced the lowest such goods import figure since the $3.2582 in the fourth quarter of 2021. In inflation-adjusted terms, goods imports are now 14.21 percent higher than in the immediate pre-pandemic-y fourth quarter of 2019, versus their 16.83 percent increase as of the third quarter.

Services exports in the fourth quarter expanded from $722.5 billion after inflation at annual rates to $740 billion, a 2.42 percent improvement that represented the tenth straight sequential increase in thse sales. But real services exports are still down by 5.44 percent since the fourth quarter of 2019, versus 8.17 percent off as of the third quarter.

Inflation-adjusted services imports were up for a tenth straight quarter, too, in the fourth quarter, but inched up just 0.11 percent, from an annualized $559 billion to $559.6 billion. As a result, their now 15.61 percent larger than just before the pandemic’s arrival in force, versus 14.52 percent as of the third quarter.

Many of the annual figures, however, showed deterioration. Between 2021 and 2022, the combined goods and services trade gap hit its ninth straight yearly record in real terms, as the gap widened by 9.87 percent, from $1.2334 trillion annualized to $1.3551 trillion.

In addition, as a share of real gross domestic product (GDP – the standard measure of the economy’s size), the trade gap set its third straight all-time high, worsening from 6.29 percent to 6.77 percent.

The trade shortfall’s yearly rise subtracted 0.40 percentage points from 2022’s 2.08 percent price -adjusted inflation adjusted growth – a share smaller in both absolute and relative terms than in 2021, when the larger trade deficit sliced 1.25 percentage points from 5.95 percent growth. Both figures are far from records.

Total real exports climbed for the second straight year in 2022, from $2.3668 trillion to 2.5384 trillion, with the 7.25 percent growth rate the strongest since 2010’s 12.88 percent in 2010 – when the economy was recovering from the Great Recession that followed the Global Financial Crisis.

Total real imports posted their second consecutive gain, too, as well as their second straight record. The 8.15 percent increase brought the total to $3.8935 trillion.

Another new all-time annual high in 2022 was set by the constant dollar goods trade deficit, and the record in this case was the fourth in a row. By widening by 11.50 percent, the gap hit $1.5220 trillion.

And continuing the bad news, the real services trade surplus slumped by 5.23 percent in 2022. Moreover, the $162.8 billion figure was the lowest since 2010’s $158.6 billion.

On the export front, constant dollar overeas sales of goods grew by 6.33 percent, from $1.7289 trillion to $1.8383`trillion. The increase was the second straight and the total a new record – topping 2019’s $1.7915 trillion by 2.61 percent.

Yet real goods imports rose even faster. The 6.91 percent advance brought them from $3.1430 trillion to $3.3603 trillion – a second consecutive all-time high.

After-inflation services exports jumped by 9.90 percent from 2021-2022, the biggest such increasesince 2007’s 13.08 percent. And the totals expanded from $656.9 billion to $717.3 billion..

As for price-adjusted services imports, their annual surge of 14.52 percent – from $484.2 billion to $554.0 billion was the fastest ever, surpassing even last year’s robust 12.27 percent.

As always with pandemict or post-pandemic (take your pick) U.S. economic data, the outlook for real trade flows is murky, and dependent on many big unknowables – mainly how much faster and higher the Federal Reserve will hike interest rates in order to fight inflation by slowing the economy, whether it will succeed, how long its inflation-fighting moves will take to impact economic growth and consumer spending fully, how China’s reopening after months of a lockdown-heavy Zero Covid policy will proceed, and whether growth in the rest of the world will perk up or slacken.

My hunch, for the short-term anyway, is that worse inflation-adjusted trade results may keep coming. For example, the quarterly real trade deficit decrease was the smallest of that current three-quarter string. Indeed, it was much smaller than the 11.30 percent plunge between the second and third quarters – which was the greatest since the 17.95 percent nosedive between the first and second quarters of 2009, when the economy was still mired in the Great Recession that followed the Global Financial Crisis.of 2007-08.

In addition, the latest government report projection for the monthly trade deficit (measured in pre-inflation dollars) shows a significant increase in the goods gap, which makes up the lion’s share of both total U.S. trade flows and the deficit. And even if the price-adjusted trade gap continues to fall, such results will be all the less impressive against the backdrop of the economic slowdown and even contraction that’s still being widely predicted.

More specifically, I suspect that American economic growth will either at least weaken as the trade deficit moves up, or that GDP will keep plowing ahead because personal consumption remains resilient, which will keep the trade shortfall on a rebounding course.  

(What’s Left of) Our Economy: What a U-Turn for the U.S. Trade Deficit!

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CCP Virus, China, coronavirus, expansion, exports, Federal Reserve, GDP, goods trade, gross domestic product, imports, inflation, manufacturing, non-oil goods trade deficit, pandemic, recession, services trade, supply chains, Trade, trade deficit, {What's Left of) Our Economy

As this morning’s stunning official U.S. international trade figures (for November) made clear, the CCP Virus pandemic really wasn’t over yet near the end of last year – at least when it came to China. The steep monthly drop in the November overall trade gap stemmed largely from the Chinese dictatorship’s erratic response to a new tidal wave of virus cases. Beijing at first ordered a series of new shutdowns in numerous major cities, and then abruptly tried reversing course following widespread protests from an outraged and pandemic-and lockdown-exhausted Chinese citizenry.

The resulting turmoil and confusion depressed the Chinese economy – including the export-focused sectors that had led the country to serve as the “world’s factory.”

At the same time, the renewed disruption of China-centric global supply chains only accounted for a little less than half of the November U.S. trade balance’s sequential improvement. And at least as strikingly, the combined goods and services shortfall cratered even though by most accounts the U.S. economy’s growth accelerated late last year. More surprising still, growth appears to have sped up in November – and during the rest of the quarter – even as imports fell off the table.

As known by RealityChek regulars, it’s been rare for the deficit to tumble when the gross domestic product (GDP – the standard measure of the economy’s size) increases, and largely because American expansion typically means that both U.S. consumers and businesses are stepping up their historically robust importing. Much more common are deficit drops mainly due to the economy sagging and this importing tailing off.

As the U.S. recession during the first half of last year came to an end, America’s trade performance racked up a short winning streak during which the trade gap shrank and – even better – exports increased and imports decreased. That’s “even better” because an economy that’s importing less and exporting more is one that’s growing less because of borrowing and spending and more because of producing.  Early in the third quarter, though, the return of growth seemed to start reproducing the standard pattern during which rising imports boosted the deficit.

November’s results sharply reversed that latest trend – to put it mildy. The overall deficit sank month-to-month in November by a whopping 20.93 percent. That’s the biggest fall-off since February, 2009’s (26.85 percent), when the economy was still mired in the Great Recession triggered by the Global Financial Crisis of 2007-08. And the $61.51 billion level (down from October’s $77.85 billion) is the lowest monthly figure since the $59.11 billion in September, 2020, when the economy was recovering from the first CCP Virus wave.

Total exports were off sequentially in November, but only by two percent, from $256.996 billion to $251.864 billion. That was the third straight decline, the biggest since January’s 2.01 percent, and the lowest monthly figure since April’s $244.230 billion. But given the sluggishness of the rest of the global economy, and the unusually level of the U.S. dollar then (which undermines the price competitiveness of U.S.-origin goods and services at home and abroad), this decrease seems pretty modest.

The bigger move by far was in total imports, which plunged by 6.41 percent, from $334.843 billion to $313.374 billion. The decrease was the biggest in percentage terms since the 13.16 percent nosedive of April, 2020, when the pandemic and its economic effects were at their worst in the United States.

The China effect was certainly a huge contributor. The U.S. goods gap with the People’s Republic (country-specific services data take much longer to release) slumped by fully 26.23 percent, from $28.87 billion to $21.30 billion. This $7.57 billion difference represented 46.33 percent of the $16.34 billion monthly improvement in the total trade deficit in November. For good measure, the sequential plunge was the greatest since the 38.93 percent nosedive of February, 2020 (when China was still struggling with the first virus outbreak), and the monthly total the lowest since April, 2020’s $22.30 billion.

And goods imports from China fell sequentially in November by $7.70 billion, from $44.57 billion to $36.88 billion. That decrease of 17.27 percent was steepest since the 31.47 percent collapse in February, 2020, and the monthly total the most modest since March, 2020’s $19.64 billion.

But as a result, more than half of the spectacular monthly drop in the November combined goods and services deficit came from other trade flows, as did 64.13 percent of the month’s total import decline of $21.47 billion.

More evidence that the monthly trade shortfall’s decrease was spurred by much more than China’s troubles: The U.S..global non-oil goods trade gap, the closest proxy to U.S.-China goods trade, was off by $15.21 billion on a monthly basis in November (more than twice the amount of the $7.57 billion decline in the U.S.-China deficit). And non-oil goods imports tumbled by $19.87 billion month-to-month in November – some two and a half times the amount of the $7.70 billion drop in goods imports from China.

In other noteworthy November trade developments, the U.S. goods deficit drooped by 15.44 percent on month, from $99.40 billion to $84.05 billion. That figure is the lowest since December, 2020’s $83.20 billion and the decrease the biggest relatively speaking since the 20.79 percent in Great Recession-y February, 2009.

The long-time surplus in services, the biggest sector of the U.S. economy, and a cluster of industries hit especially hard by the pandemic and its resulting economic damage, rose 4.60 percent, from $21.55 billion to $22.54 billion.  That monthly total was the highest since February, 2021’s $23 billion.

The November slippage in goods exports of 3.03 percent, from $176.16 billion to $170.82 billion, was the largest in percentage terms since the 3.34 percent of September, 2021.

Goods imports dropped 7.51 percent, from $275.56 billion to $254.87 billion. That total was the lowest since October, 2021’s $243.85 billion and the percentage decline the greatest since the 12.79 percent in pandemic-y April, 2020.

Services exports inched up by just 0.26 percent sequentially in November, but the $81.05 billion total was the eighth straight record, and the monthly advance the tenth in a row.

The huge, chronic trade deficit in manufacturing sank from $134.73 billion in October to $115.72 billion, with that November level the best since February’s $106.49 billion – when the last economic downturn had begun. And the sequential retreat of 14.11 percent was the greatest since the 23.09 percent in Great Recession-y February, 2020.

Manufacturing exports were down 4.71 percent on month, from $110.44 billion to $105.24 billion, and manufacturing imports plummeted by 9.88 percent, from October’s $245.17 million (the second worst monthly total ever, behind March’s $256.18 billion), to $220.95 billion.

On a year-to-date basis, however, the manufacturing deficit of $1.3902 trillion has already passed last year’s annual record of $1.3298 trillion, and is running 15.49 percent ahead of the 2021 pace.

Even by CCP Virus-era standards, the November U-turn taken by the trade deficit has rendered the U.S. economic outlook awfully fuzzy. Economists seem pretty confident that the economy is headed for a recession soon, but the latest prominent forecast shows that growth heated up notably between last year’s third and fourth quarters. So if a downturn really is imminent, it’s going to come incredibly abruptly.

That should improve the trade deficit further. But what if the Federal Reserve chickens out and decides to halt or just pause its strategy of cooling inflation by slowing growth significantly because…it becomes clear that the tightening it’s already pursued has begun slowing growth? What if all the money Washington has put into consumers’ pockets continues to fuel robust spending – which tends to pull in more deficit-widening imports? But if so, how come growth has been so much better in the second half of the year even as Americans’ purchases from abroad now look like they’re tanking?

And will China finally get control over the pandemic, and return its economy to some semblance of normalcy?

The answers to those questions seem to be way above any mortal’s pay grade.  And although I’m in the “recession’s coming” camp, so far, the economy doesn’t seem to care.  As a result, I’ll be following the incoming trade and other economic data unusually closely – and with unusual humility.      

(What’s Left of) Our Economy: A Trade High Water Mark Revealed in Today’s U.S. Economic Growth Report?

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

The trade highlights of today’s final (for now!) official estimate of U.S. economic growth in the third quarter of this year further contribute to a story line that only the stereotypical two-handed economist could love.

On the one hand, even though this morning’s trade figures from the Commerce Department weren’t quite as good as those in last month’s second estimate, they continued the encouraging trend of U.S. growth (as measured by changes in the gross domestic product, or GDP – the standard measure of a national economy’s size) picking up while the trade deficit fell.

Such results mean that growth (expressed in inflation-adjusted terms, which are the most widely followed) has been becoming healthier, based more on producing and less on debt-fueled spending. That’s much better than the usual reason for a trade gap narrowing – because the economy slowed significantly and even shrank, and imports therefore went way down.

In fact, even better, while inflation-adjusted imports did fall on quarter in the third quarter, real exports rose. Interestingly, that happy combination of events hasn’t happened since the fourth quarter of 2019, just before the arrival state-side of the CCP Virus pandemic.

On the other hand, the third quarter ended in September. Since then, both the September and October monthly trade reports have been released, and they strongly indicate that this winning streak (which began in the year’s first quarter) has ended.  (See here and here.)

For today, though, since the new numbers close out the third quarter, let’s focus on the good news. The Commerce Department upgraded its growth estimate for those months from 2.90 percent at annual rates in real terms to 3.20 percent. And although the quarter’s inflation-adjusted trade gap increased, the increase was tiny – from $1.2647 trillion at annual rates to $1.2688 trillion.

In addition, the new figures still show a second straight quarterly drop in the trade deficit (from the $1.4305 trillion annual level for the second quarter) – a development not seen since the period from the fourth quarter of 2019 through the second quarter of 2020, which covers the peak of the destructive first wave of the CCP Virus and the sharp economic downturn it triggered.

Further, that $1.2688 trillion amount is still the lowest quarterly constant dollar deficit total since the fourth quarter of 2021 ($1.2796 trillion annualized).

The quarterly deficit decrease of 11.30 percent wasn’t as fast as the 11.59 percent plunge calculable as of last month. But it was still the biggest since the 17.95 percent nosedive between the first and second quarters of 2009, when the economy was still mired in the Great Recession that followed the Global Financial Crisis.

And although the price-adjusted trade shortfall as a share of real GDP rose from the 6.31 percent recorded last month to 6.33 percent, that number is still the lowest since the 6.16 perccent of the second quarter of 2021 and a big improvement from the 7.19 percent in the second quarter of this year.

The sequential reduction in the trade deficit also remained a huge source of the third quarter’s growth, though its role was a little smaller than reported last month. Then, the deficit’s shrinkage accounted for 2.93 percentage points of the 2.90 percent real growth. That amount was the biggest absolute number since the 2.96 percentage point add in the third quarter of 1980.

And without this trade contribution, all else equal, real GDP would have slipped by 0.03 percent annualized and adjusted for inflation – which would have continued the recession that began in the first quarter. (As always the case with the GDP figures, one element like trade can produce more than all the total change because increases or decreases in other elements can offset it.)

As of today, a smaller trade deficit fueled a still impressive 2.86 percentage points of the 3.20 percent real annual growth estimate that remained the biggest absolute total in 42 years. So absent that trade contribution, the economy all else equal would have grown by a measly 0.34 percent after inflation at annual rates – just a little over a tenth as fast.

But in relative terms, trade’s role in the economy’s quarterly expansion or contraction remained far off the record. In fact, its relative importance was much greater in the second quarter, when its drop added 1.16 percentage points of growth while GDP dipped by 0.58 percent in real annual terms.

Even so, the recent trade deficit improvement needs to be put in perspective: The gap remains 52.35 percent wider than in the fourth quarter of 2019, the last full quarter of data before the CCP Virus’ arrival. That’s slightly worse than the 51.86 percent deterioration calculable last month.

According to the new GDP report, inflation-adjusted total exports rose by 3.46 percent sequentially in the third quarter, from $2.5169 trillion at annual rates to $2.6041 trillion. That’s a bit worse than the 3.63 percent advance calculable last month. But the new total is still a new record (surpassing the $2.5823 trillion of the first quarter of 2019). And such overseas sales are still 1.26 percent higher than their immediate pre-pandemic level, versus the 1.42 percent calculable last month.

Total price-adjusted imports were virtually unrevised from last month’s estimate, coming in this morning at $3.8729 trillion at annual rates. As a result, however, they still sagged quarter-to-quarter (by 1.90 percent from the second quarter’s record $3.9475 trillion) only for the first time since the second quarter of 2020 (the peak pandemic quarter). These U.S. overseas purchases are now up 13.75 percent since just before the pandemic’s arrival in force in early 2020.

Goods trade comprises the vast majority of total U.S. trade, so it’s important to note that it grew over the third quarter’ssecond estimate – from $1.4286 trillion at annual rates to $1.4324 trillion. But it’s still down for the second consecutive quarter. This “final” total is still the lowest since the $1.4144 trillion recorded in the third quarter of last year. And the sequential tumble of 9.60 percent (from $1.5846 trillion) is still the biggest since the 12.63 percent plunge during the Great Recession-y second quarter of 2009.

But whereas the goods deficit was up since the fourth quarter of 2019 by 33.94 percent as of last month, now the increase is 34.30 percent.

The flow of slightly worse trade news continued with the results from the service sector. Its longstanding surplus was revised down for the third quarter from $164.3 billion at annual rates to $163.5 billion. But the improvement over the second quarter’s $149.4 billion annualized was still a healthy 9.44 percent and this quarterly rise was still the strongest since the 12.90 percent in the fourth quarter of last year.

Yet the unusually hard pandemic hit taken by service industries is still clear from this surplus’ change from the fourth quarter of 2019. It’s 30.66 percent lower.

Taking inflation into account, goods exports remained at their third consecutive quarterly record according to the new GDP report, and the revised total was a fractionally upgraded $1.9010 trillion at annual rates. The improvement over the second quarter: 4.17 percent. And since just before the CCP Virus began roiling the U.S. economy, these exports have grown by 6.41 percent in constant dollars.

Goods imports came in 0.12 percent higher in today’s GDP report than last months – $3.3334 trillion annualized as opposed to $3.295 trillion. But they were nonetheless 2.23 percent lower than in the second quarter, and still fell in back-to-back quarters for the first time since that fourth quarter, 2019-second quarter, 2020 span covering the early pandemic period.

Moreover, these purchases are now 16.83 percent higher after inflation than in the fourth quarter of 2019, just before the CCP Virus’ arrival in force.

Real services exports climbed sequentially during the third quarter, too, but by just 1.83 percent over the second quarter’s $709.5 billion annualized, rather than the 2.40 percent judged last month. The new $722.5 billion figure is a full 8.17 percent below that of the fourth quarter of 2019.

Finally, the new GDP report showed that inflation-adjusted services imports actually fell by 0.20 percent sequentially in the third quarter, rather than increasing by 0.37 percent as reported last month. These results broke a five-month string of quarterly increases, and the new $559 billion total is now just 1.45 percent higher than its immediate pre-pandemic level, as opposed to the 2.03 percent advance calculable last month.

But as observed above, this final third quarter GDP release might mark a high water mark for U.S. trade flows for the time being.  The deficits could well keep falling in after-inflation terms (those aforementioned more downbeat recent monthly reports present the pre-inflation figures). The likeliest reason, though, would seem the advent of a U.S. recession that depresses imports. And however necessary this kind of slump may be needed to fight inflation and improve the chronic, still massive U.S. production-consumption imbalance over the longer term, that’s medicine that few Americans will be welcoming.  

(What’s Left of) Our Economy: Worsening U.S. Trade Deficits are Back for Now

Tags

Advanced Technology Products, CCP Virus, China, coronavirus, COVID 19, dollar, euro, Europe, exchange rates, exports, goods trade, imports, manufacturing, natural gas, non-oil goods, services trade, Trade, trade deficit, Wuhan virus, Zero Covid, {What's Left of) Our Economy

At least if you don’t factor in inflation, this morning’s official U.S. figures (for October) show that an encouraging recent winning streak for America’s trade flows and their impact on the economy has come to an end for now.

The winning streak consisted of overall monthly trade deficits that shrank sequentially from April through August, which means – according to how Washington and most economists calculate such things – that trade was contributing to the economy’s growth. And that five month stretch was the longest since the shortfall declined for six straight months between June and November, 2019.

Even better, this contribution translated into expansion that was healthier, fueled more by producing and less by borrowing and consuming. Better still, during the last part of this period, the deficit was falling while growth was taking place – as opposed to the more common pattern of a declining deficit limiting contraction mainly because a shriveling economy was buying fewer imports. And better still, for most of these months, the trade gap shrank both because exports climbed and imports dropped.

In October, however, the combined goods and services deficit rose for the second consecutive month, and by 5.44 percent, from an upwardly revised $74.13 billion to $78.16 billion. That total, moreover, was the highest since June’s $80.72 billion. And also for the second straight month – exports dipped and imports advanced.

That consecutive sequential export decrease was the first such stretch since the peak CCP Virus period of March thru May, 2020. The actual decline was 0.73 percent, from an upwardly revised $258.51 billion to $256.63 billion – a total that was the lowest since May’s $256.08 billion

The total import increase was also the second straight, and marked the first back-to-back improvements since January through March of this year (which capped an eight-month period of increases). These foreign purchases advanced by 0.65 percent in October, from an upwardly revised $332.64 billion to $334.79 billion.

Up for the second straight month as well as the goods trade deficit – a development that last happened from November, 2021 through January, 2022. The gap widened by 6.51 percent, from upwardly revised $93.50 billion to $99.59 billion, and this figure was the highest figure since May’s $104.33 billion.

Goods exports fell for the second straight month in October, too – a first since that peak virus period of March through May, 2020. (The streak actually began in February.) The October retreat was 2.06 percent, and brought the total from a downwardly revised $179.69 billion to $175.98 billion – its worst since April’s $176.80 billion

Goods imports grew a second straight month, too, from an upwardly revised $273.19 billion to $275.57 billion. The 0.87 percent increase resulted in the highest monthly level since June’s $282.68 billion.

Services trade, which is dwarfed by goods trade, nonetheless produced some bright spots in the October trade report. The longstanding surplus in this sector, which was so hard hit by the pandemic, improved for the first time in three months, froma downwardly revised $19.37 billion to $21.43. The 10.62 percent increase produced the best monthly total since last December’s $21.66 billion.

Most of this progress stemmed from the ninth consecutive advance and the seventh straight record in services exports. In October, they expanded from an upwardly revised $78.82 billion to $80.65 billlion.

Services imports dipped by 0.38 percent, from an upwardly revised record of $59.45 billion to $59.22 billion.

Manufacturing’s chronic and enormous trade shortfall became more enormous in October, worsening by 4.32 percent, from $129.14 billion to $134.73 billion. That total was the second highest ever, after March’s $142.22 billion.

Manufacturing exports inched down by 0.24 percent, from $110.69 billion to $110.42 billion, while imports surged by 2.07 percent, from $240.10 billion to a second-highest ever $245.17 billion (behind only March’s $256.18 billion).

At $1.2745 trillion (up 18.06 percent from the 2021 level), the year-to-date manufacturing trade deficit is already close to the annual record – last year’s $1.3298 trillion.

By contrast, dictator Xi Jinping’s over-the-top Zero Covid policies no doubt helped depress the also chronic and enormous U.S. goods trade deficit with China by 22.58 percent on month in October. The nosedive was the biggest since the 38.93 percent plummet in February, 2020, when the People’s Republic was locking itself down against the first CCP Virus wave. And the October monthly trade gap was the smallest since August, 2021’s 31.66 percent.

Interestingly, U.S. goods exports to China soared by 31.38 percent on month in October, from $11.95 billion to $15.70 billion. That amount was the highest since last November’s $15.87 billion, and the monthly increase of 31.33 percent was the fastest since October, 2021’s 51.23 percent.

Imports, however, sank by 9.49 percent, from $49.25 billion to $44.57 billion. The level was the lowest since May’s $43.86 billion and the rate of decrease the greatest since April’s 11.82 percent.

Year-to-date, the China goods trade gap has ballooned by 18.68 percent, once again faster than the rise of the U.S. non-oil goods deficit (17.53 percent), its closest global proxy.

In October, for a change, the widening of the overall U.S. trade deficit – and then some – came largely from a booming imbalance with Europe. The goods gap with the continent skyrocketed by 48.51 percent, sequentially, from $15.78 billion to $23.44 billion. That new total was the biggest since March’s $28.50 billion and the rate of increase the fastest since it shot up by 68.37 percent that same month.

U.S. goods exports to Europe actually set a new record in October ($44.27 billion, versus the old mark of $43.61 billion in June). But American global sales of natural gas, which are up 52.51 percent on a year-to-date basis due largely to the continent’s need to replace sanctioned Russian energy supplies, oddly pulled back by 9.90 percent.

At the same time, American goods imports from Europe, surely reflecting a weak euro, leaped by 16.35 percent, from $58.19 billion to $67.71 billion. That total was the second highest on record (trailing only March’s $70 billion) and the monthly increase (16.35 percent) the fastest since March’s 32.43 percent.

October trade in Advanced Technology Products (ATP) set several records, but most were the bad kind. The deficit worsened by 7.70 percent, from $24.32 billion to $26.19 billion, and hit its second straight all-time in the process.

Exports set a new record, rising 4.08 percent on month, from $34.33 billion to $35.73 billion. (The old mark of $34.91 billion dates back to March, 2018.)

Imports also reached their second straight all-time high, climbing 5.58 percent sequentially, frm $58.65 billion to $61.92 billion.

Moreover, year-to-date, the ATP trade shortfall is up 32.17 percent, and at $204.21 billion, it’s already set a new annual record.

Some relief could be in store for America’s trade flows in the coming months. The dollar has weakened in recent weeks, which will restore some price competitiveness for U.S.-origin goods and services at home and abroad. And a recession, a further growth slowdown, and/or continued high inflation could keep reducing imports as well (though that’s the kind of recipe for smaller trade deficits that no one should welcome).

At the same time, solid economic growth could continue, as it has throughout the second half of the year. Americans’ spending power could remain strong, given still huge (though dwindling) amounts of savings amassed during the pandemic. At the behest of U.S. allies, President Biden seems likely to weaken the Buy American provisions governing the green energy production incentives in the Inflation Reduction Act. And China’s export machine could revive as Beijing decides to back away from economically crippling levels of lockdowns.

At this point, however, I’m thinking that recent deficit improvement will keep “rolling over” as Wall Streeters call a steady reversal of investment gains. It’s not much more than a gut feeling. But my hunches aren’t always wrong.

(What’s Left of) Our Economy: The Good U.S. Trade and Growth News Continues – For Now

Tags

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

In my post on the first official read on America’s economic growth in the third quarter of this year, I wrote that “You couldn’t ask for a better” set of results on the trade front “unless you’re into making unreasonable requests.”

As it turns out, I may need to change my definition of “reasonable” somewhat. For however encouraging that initial estimate’s news that the economy grew at a solid rate after accounting for inflation while the trade deficit shrunk, today’s second release showed that real growth was a bit stronger than first judged, and the trade deficit decline a bit greater.

That’s cause for celebration because an expanding economy and a falling trade deficit means that growth is getting healthier – and more sustainable. Specifically, the gross domestic product (GDP, the standard measure of the economy’s size) is increasing less because Americans’ borrowing and spending are up than because they’re boosting production. And in that vein, the trade gap shrank for the ideal combination of reasons: Exports rose and imports decreased.

In that prior report on third quarter GDP, the U.S. government pegged growth at 2.54 percent in real terms at annual rates, and the trade deficit’s contraction from second quarter levels at 10.94 percent ($1.4305 trillion at annual rates to $1.2740 trillion).

This morning, those numbers were revised up to 2.90 percent annualized real growth and a trade deficit that came in at $1.2647 trillion. That’s not a lot lower, of course, but so far (there’s another GDP revision coming in a month), it’s the smallest quarterly trade shortfall since the $1.2309 trillion of last year’s second quarter.

Moreover, the new figures confirm that the constant dollar trade deficit has now retreated for two straight quarters since the stretch between the fourth quarter of 2019 and the second quarter of 2020. That period of course immediately preceded the arrival in force of the CCP Virus and its deeply depressing impact on the economy.

The 11.59 sequential narrowing of the trade gap also was still the biggest such improvement since the second quarter of 2009, when the economy was still stuck in the Great Recession that followed the global financial crisis (17.95 percent).

It brought the price-adjusted trade deficit as a share of real GDP down to 6.31 percent – its lowest level since that second quarter of 2021 (6.16 percent). And as of this latest government data, 12.24 percent plunge in this ratio from the second quarter’s 7.19 percent was the biggest sequentially since the 17.89 percent registered in that Great Recession-y second quarter of 2009.

All the same, the overall real trade deficit has ballooned by 51.86 percent since the last full pre-CCP Virus for the U.S. economy (the fourth quarter of 2019).

Trade’s contribution to third quarter growth rose in absolute terms from 2.77 percentage points to 2.93 percentage points – the best such performance since the 2.96 percentage points generated in the third quarter of 1980. (I mistakenly reported last month that the initial figure was the biggest since the second quarter’s 3.99 percentage points. But it was, as I correctly noted, the largest absolute figure for a quarter in which the economy expanded since that third quarter of 1980.)

In relative terms, though, trade’s contibution to third quarter growth was far from a record. Indeed, during the second quarter of this year, the decline of the trade deficit added 1.16 percentage points of growth while the economy contracted by 0.58 percent in real annual terms. (As with any individual element of GDP, the trade contribution can be greater than the overall growth rate when other elements decrease.)

Put differently, without this trade boost to growth, the economy in the third quarter would have been 0.03 percent smaller than in the second quarter in real, annualized terms – not 2.90 percent bigger.

Today’s GDP data showed that inflation-adjusted total exports rose by 3.63 percent sequentially (from $2.5169 trillion to $2.6083 trillion), The latter total is a new record (surpassing the old mark of $2.5823 trillion in the first quarter of 2019). And U.S. overseas sales of goods and services are now 1.42 percent above their immediate pre-pandemic level.

Total imports dipped sequentially not only for the first time since the second quarter of 2020 (the peak pandemic quarte) but by more than first judged – 1.89 percent versus 1.78 percent – and from a record $3.9475 trillion to $3.8730 trillion. They’re now 13.73 percent greater than in the immediately pre-pandemic-y fourth quarter of 2019.

In goods trade, which dominates U.S. trade flows, today’s figures show that the deficit sank on quarter by 9.84 percent versus the 9.51 percent estimated initially. This second straight shrinkage was the biggest in percentage terms since the 12.63 percent fall-off in that Great Recession-y second quarter of 2009 and depressed the shortfall to $1.4286 trillion – the lowest level since the third quarter of last year ($1.4144 trillion).

But the goods trade deficit has still worsened since just before the pandemic by 33.94 percent.

The U.S. after-inflation services trade figures also improved from the initial GDP report’s results, with the longstanding surplus – by 9.97 percent, from $149.4 billion at annual rates in the second quarter to $164.3 billion. The previous release put the increase at 7.43 percent, and the latest widening is the biggest since the 12.90 percent in the fourth quarter of last year.

Yet reflecting the hit globally taken by services industries, the services surplus is down 30.32 percent since just before the pandemic became roiling the national and world economies.

Inflation-adjusted goods exports in the third quarter hit $1.9009 trillion at annual rates – their third consecutive all-time high and an increase of 4.16 percent versus the 4.04 percent figure in the first estimate. These overseas sales have now risen by 6.40 percent since the fourth quarter of 2019.

By contrast, their imports counterparts declined by more than first judged – by 2.35 percent versus 2.26 percent, to $3.3295 trillion annualized. This second straight quarterly decrease was the first back-to-back drop since the fourth quarter, 2019-second quarter 2020 stretch that encompassed the CCP Virus’ devastating first wave.

After-inflation services exports in the third quarter were revised up as well, increasing by 2.40 percent versus the initial estimate of 2.03 percent, and now stand at $726.5 billion annualized. Yet just before the pandemic’s arrival, they were $786.8 billion – 8.30 percent higher.

Real services imports followed this trade balance improvement pattern, climbing by just 0.37 percent on quarter in the third quarter versus the 0.59 percent reported in the first estimate. And this sixth straight quarterly increase, to $562.2 billion at annual rates, means that these purchases are now up just 2.03 percent since the fourth quarter of 2019.

All good things must come to an end, however, and I’m concerned that this may be the case for the recent span of higher growth and smaller trade deficits. Principally, the third quarter ended in September, and the monthly U.S. trade reports (which also so far only go through September, and which aren’t adjusted for inflation) reveal precisely this dimmer picture.

In addition, the government’s advance figures on October goods trade (which also came out today) report both a big jump in the deficit, and one powered by falling exports and rising imports – exactly the opposite of the ideal pattern. But at least we’re due for one more estimate (for now) on third quarter GDP and inflation-adjusted trade flows. So make sure to enjoy that (likely) good trade news while you can! 

(What’s Left of) Our Economy: Two New Must-Read Reports on U.S. Trade Policy

Tags

African Americans, Ana Swanson, China, Donald Trump, globalization, imports, Information Technology and Innovation Foundation, intellectual property, ITIF, Jobs, manufacturing, mercantilism, minorities, non-market economy status, protectionism, Section 337, The New York Times, Trade, trade law, U.S. International Trade Commission, USITC, wages, {What's Left of) Our Economy

Good things just came in twos on the U.S. trade policy front, in the form of two separate reports that spotlighted a major, vastly under-appreciated result of America’s approach to the international economy for many decades, and that proposed an excellent new idea for shielding U.S.-based workers and businesses from Chinese (and some other foreign) predatory trade practices.

The first study was released November 14 by the U.S. International Trade Commission (USITC) and alertly covered by Ana Swanson of The New York Times. The USITC researchers usefully reviewed the academic literature on trade policy’s impact on various U.S. population groups and found that overall, and came to two major conclusions. First, “in the face of trade shocks [like the soaring levels of imports from China that followed Washington’s decision in the 1990s to expand greatly bilateral economic ties], Black and other Nonwhite workers [fared] worse than their White counterparts.” Second, “import competition had a large and disproportionately negative effect on wages of minority workers.”

The reasons, the USITC stressed, were many and varied, and included discrimination in hiring and firing practices and the generally lower education levels of minority groups, which has tended to concentrate them in labor-intensive manufacturing sectors that have been vulnerable the longest to penny-wage competition from China and other developing countries. But one conclusion that shone through was the historic importance of manufacturing generally – including the kind of heavy manufacturing found in the Midwest, to minority prospects for economic progress.

And these conclusions will come as no surprise to RealityChek regulars, as the harm done to minority communities by a trade policy that I’ve long argued has been offshoring- and import-friendly has been the subject of two posts from several years back. (See here and here.) But as the X indicated, and the USITC report emphasized, too many gaps remain in the data currently available and too much of what can be accessed is too poorly structured to create a genuinely satisfactory picture. So how about USITC folks getting on the horn to their Census Bureau counterparts to get cracking?

One other point worth mentioning (which the USITC understandably didn’t include): The first recent President who tried at all to change the trade policies that apparently have hit U.S. minorities hardest was one Donald Trump – who’s still being widely pilloried as a white supremacist.

The second, more forward-looking report was released Monday by the Infomation Technology and Innovation Foundation (ITIF), a Washington, D.C.-based think tank, and recommended a creative way to use U.S. trade law to shut out of the American market products whose competitiveness has benefited from “unfair trade practices in non-market, non-rule-of-law economies such as China.”

The trade law provision ITIF would employ is called Section 337. The reason? Unlike other U.S. trade law measures, rather than authorize the imposition of tariffs on imports that are sold to Americans at below-market prices (dumping) or enjoy certain kinds of subsidies, or profit from intellectual property theft (the main alleged trade crimes addressed by American trade law), in certain circumstances Section 337 authorizes completely banning U.S. imports from foreign entities shown to have profited from such practices.

ITIF proposes to increase greatly the number of these circumstances, especially for cases not involving intellectual property, for transgessions by China and other economic rogues.

Perhaps most important, in cases involving such outlier countries, it would eliminate the (already weakened) requirement that a plaintiff domestic company or industry has been injured by predatory trade practices. (In the U.S. trade law system, plaintiffs not only need to demonstrate that an outlawed practice exists, but that it has seriously harmed them.) As ITIF argues,

“It should be irrelevant if the domestic company is harmed in the here and now. The point is that the unfair practices should not be rewarded, period. The other point is that all too often, especially in technologically complex industries, by the time harm is determined it is too late: The company has suffered irreversible decline in its competitive position. Adjudicating blame becomes a coroner’s inquest over dead U.S. companies.”

Two other crucial ways ITIF would lower barriers to winning Section 337 cases involving non-market economies: First, it would spur U.S. trade law to cover foreign governments that provide predatory support for their entities, as well as specific foreign entities themselves. This improvement matters a lot because in so many instances (for example, in every single instance of Chinese transgressions), American businesses and workers are facing an entire national system aimed at creating advantages having nothing to do with free market forces. As a result, U.S. plaintiffs typically wind up facing a defendant with ultimately much deeper pockets, and the high costs of American trade lawyering and the uncertain chances of success deter many from going this route to begin with.

Second, current U.S. trade law implicitly assumes that the damage inflicted by foreign trade predation is limited to a plaintiff company or industry. But given all the linkages among industries nowadays, that view is way too narrow, and can leave the entire economy exposed to much wider-ranging and long-term damage.

To remedy both problems, ITIF would also entitle Washington to take up their causes by permitting any U.S. government agency to file a trade case against a non-market economy.

I’ve got a few bones to pick with these ITIF recommendations. For example, damaging trade predation is by no means confined to China. Many economies that it would let off the hook, especially in East Asia, operate national systems of protection and predation, too. At the same time, as the report suggests, this approach could induce the kind of international cooperation that would increase by orders of magnitude the price China – clearly a culpit in a class by itself – would pay for what ITIF rightly calls its “economic aggression.”

Moreover, the new trade law regime wouldn’t encompass “multinational firms operating in China.” That’s an awfully big loophole, not only because it’s these companies (including U.S.-owned companies) send stateside lots of products that benefit from China’s mercantilism, but because taking advantage of these predatory practices has been a prime reason for moving their factories to China to begin with (as well as lying behind their support for admitting China into the World Trade Organization, and thereby providing these exports with a vital layer of international legal protection against effective, unilateral responses from Washington).

But in the name of making sure the perfect doesn’t prevent the good, I can support this policy, too (at least as a start). And because ITIF’s proposals would go far toward adjusting the decades-old U.S. trade law system to recent global economic reality, I hope both major paties in Washington get behind it ASAP.

(What’s Left of) Our Economy: An End to a U.S. Trade Winning Streak?

Tags

Advanced Technology Products, China, consumption-led growth, dollar, economic growth, exchange rate, exports, Federal Reserve, goods trade, imports, inflation, interest rates, Jerome Powell, manufacturing, monetary policy, non-oil goods, services trade, Trade, trade deficit, yuan, zero covid policy, {What's Left of) Our Economy

Today’s official U.S. monthly trade data (for September) signal an end to an encouraging stretch during which the national economy both exported more and imported less – and engineered some growth at the same time. (See, e.g., here and here.)

That’s been encouraging because it means expansion that’s powered more by production than by consumption – a recipe for much more solid, sustainable growth and prosperity than the reverse.

But the new trade figures show not only that the total trade gap widened for the first time since March (to $73.28 billion), and reached its highest level since June’s $80.88 billion. They also revealed that the deficit increased because of lower exports and higher imports for the first time since January.

The discouraging September pattern also indicates that American trade flows are finally starting to feel the effect of the surging U.S. dollar, which hurts the price competitiveness of all domestic goods and services in markets at home and abroad.

Some (smallish) silver linings in the new trade statistics? A bunch of (biggish) revisions showing that the August improvement in America’s was considerably better than first reported.

At the same time, two new U.S. trade records of the bad kind were set – all-time highs in services imports and in imports of and the deficit for Advanced Technology Products (ATP). But services exports reached an all-time high as well.

The impact of the revisions can be seen right away in that combined goods and services trade deficit figure. The September total was 11.58 percent higher than its August counterpart. And it did break the longest stretch of monthly drop-offs since the May-November, 2019 period. But that new August figure is now reported at $65.28 billion, not $67.40 billion. That’s fully 2.55 percent lower.

The August total exports figures saw a noteworthy upward revision, too – by 0.72 percent, from $258.92 billion to $260.79 billion. In September, however, these overseas sales decreased for the first time since January, with the 1.07 percent slippage bringing them down to $258.00 billion. That’s the lowest level since May’s $254.53 billion..

As for overall imports, they were up in September for the first time since May. The increase from $326.47 billion to $331.29 billion amounted to 1.47 percent.

As with the total trade deficit, the August figure for the goods trade gap was revised down by a sharp 1.67 percent, from $87.64 billion to $86.17 billion. And also as with the total trade shortfall, its goods component in September rose for the first time since March. The 7.63 percent worsening, to $92.75 billion, brought the gap to its highest since June’s $99.26 billion.

Goods exports for August were upgraded significantly, too – by 0.75 percent, from $182.50 billion to $183.86 billion. But in September, they shrank on month by 2.01 percent, with the $180.17 billion level the lowest since May’s $179.76 billion.

Goods imports for their part climbed for the first time since May. Their 1.09 percent increase pushed these purchases up from $270.04 billion in August to $272.92 billion in September.

The revisions worked the opposite way for the longstanding service trade surplus. August’s total is now judged to be $20.49 billion – 1.24 percent higher than the originally reported $20.24 billion. And in September it sank for the second straight month, with the 5.01 percent decrease representing the biggest monthly drop since May’s 9.69 percent, and the resulting in a $19.47 billion number the weakest since June’s $18.38 billion.

Services exports for August were upgraded by 0.67 percent, from $76.42 billion to $76.93 billion. They climbed increased further in September – by 1.18 percent to a fourth straight record of $77.83 billion.

The August services import totals were also revised up, with the new $56.44 billion level 0.46 percent higher than the original $56.18 billion. Their ascent continued in September, with the 3.42 percent surge – to a record $58.37 billion – standing as the biggest monthly increase since February’s 5.13 percent.

Domestic manufacturing had a mildly encouraging September, with its yawning, chronic trade gap narrowing by 1.74 percent, from $131.71 billion to $129.41 billion.

Manufacturing exports slumped from $113.34 billion in August (the second best ever after June’s $114.78 billion) to $110.688, for a 2.34 percent retreat.

Manufacturing imports tumbled by 2.02 percent, from August’s $245.05 billion (the second highest all-time amount behind March’s $256.18 billion) to $240.10 billion.

Due to these figures, manufacturing’s year-to-date trade deficit is running 18.17 percent ahead of 2021’s record level (which ultimately came in at $1.32977 trillion). In fact, at its current $1.13974 trillion, it’s already the second highest yearly manufacturing deficit in U.S. history.

Since manufacturing trade dominates America’s goods trade with China, it wasn’t surprising to see the also gigantic and longstanding merchandise trade deficit with the People’s Republic declining in September for the first time in five months.

The small 0.39 percent monthly decrease, from $37.44 billion in August (this year’s top total so far) to $37.29 billion no doubt reflected the effects of Beijing’s continuing and economically damaging Zero Covid lockdowns.

Indeed, however modest, this decrease is noteworthy given that China allowed its currency, the yuan, to depreciate by 11.29 percent versus the dollar this year through September.

U.S. goods exports to the People’s Republic were down in September for the first time since June, with the 7.39 percent fall-off pulling the total from $12.91 billion (a 2022 high so far) to $11.95 billion. The monthly decrease was the biggest since April’s Zero Covid-related 16.25 percent, and the level the lowest since June’s $11.68 billion.

America’s goods imports from China were off on month in September as well – and also for the first time in June. The contraction from August’s $50.35 billion (the second highest all-time total) to September’s $49.25 billion was 2.24 percent.

On a year-to-date basis, the China deficit has now risen by 21.98 percent. That’s important because it continues the trend this year of growing faster than its closest global proxy, the non-oil goods trade deficit (which has widened during this period by just 17.21 percent).

Moreover, this gap has widened overwhelmingly because of China’s feeble importing. Year-to-date, the People’s Republic’s goods purchases from the United States are up just 3.05 percent. The non-oil goods counterpart figure is 15.88 percent.

Finally, the U.S. trade deficit in Advanced Technology Products (the U.S. government’s official name for these goods, hence the capitalization) surged by 18.79 percent sequentially in September, from $20.47 billion to a new monthly record of $24.32 billion. That level topped March’s previous high of $23.31 billion by 4.35 percent.

ATP exports rose a nice 5.39 percent on month in September, from $32.60 billion to $34.33 billion. But imports popped by 10.50 percent, from August’s $53.08 billion to a record $58.65 billion – which surpassed the old record (also set in March) of $56.71 billion by 3.41 percent.

Moreover, year-to-date the ATP deficit is up 29.65 percent, from $137.31 billion to !$178.01 billion. That’s already equal to the third highest total annual total ever, behind last year’s $195.45 billion and 2020’s $188.13 billion. So look for another yearly worst t be hit in these trade flows.

At this point, the trade deficit’s future is especially hard to predict. On the one hand, if the chances of a U.S. recession before too long seem to have increased due to the Federal Reserve Chair Jerome Powell’s hawkish remarks yesterday on inflation and interest rates. Normally, that would force the deficit down as tighter monetary policy depressed consumption – and imports.

On the other hand, higher interest rates could well keep strengthening the dollar and keep the deficit on the upswing. So could the still enormous levels of savings (and spending power) that Americans have amassed since the CCP Virus pandemic struck.

The only thing that seems certain, unfortunately, is that the sweet spot that American trade flows have found themselves in recently looks like it’s gone for the time being.

(What’s Left of) Our Economy: Trade Leads to Resumed and Healthier U.S. Growth

Tags

consumers, expansion, exports, Federal Reserve, GDP, goods trade, gross domestic product, imports, real GDP, real trade deficit, recession, services trade, stimulus, trade deficit, {What's Left of) Our Economy

You couldn’t ask for a better official first read on American trade flows and U.S. economic growth for the third quarter of this year than the one that came out on Thursday – unless you’re into making unreasonable requests.

On top of that report on the gross domestic product (GDP – the leading measure of the economy’s size) showing a return to expansion that ended the recession that marked the first half of the year; and on top of the trade deficit shrinking for the second straight quarter (a first since the third and fourth quarters of 2019), the trade gap shrank in the best possible way, for the best possible reason.

Here’s why. The new GDP figures (which will be revised twice more in the next two months, as is the case for every such release) estimated that the nation’s output of goods and services rose in inflation-adjusted terms (the measure most closely followed) by a solid 2.54 percent at annual rates.

And as real GDP climbed, the after-inflation trade deficit decreased from $1.4305 trillion annualized to $1.2740 trillion. That’s important because there’s nothing unusual about the trade shortfall declining when the economy contracts. In fact, that’s often the case. After all, a slumping economy pulls in fewer imports. But a smaller trade deficit during a quarter of growth? That’s unusual, and genuinely exciting, since it means that the growth has been healthy and, all else equal, sustainable – driven by production and not consumption.

Better yet, improvement was registered on both sides of the trade ledger, with exports up and imports down. The export progress was especially impressive, given that selling U.S.-origin goods and services abroad should be getting harder because of an economic slowdown in most of the rest of the world, and the surging U.S. dollar – which reduces their price competitiveness abroad (and at home, for that matter, too).

The third quarter constant dollar trade deficit hit its lowest level since the third quarter of last year ($1.2675 trillion annualized), and the consecutive declines were the first since the stretch between the fourth quarter of 2019 and the second quarter of 2020 – that’s of course when the CCP Virus began ripping through the nation and triggering a short but deep economic slump.

In addition, this latest sequential narrowing of the price-adjusted trade gap was the biggest in relative terms (10.94 percent) since the second quarter of 2009, when the economy was still mired in the Great Recession produced by Global Financial Crisis.

As a result, the real trade deficit as a share of constant dollar GDP sank to 6.36 percent – its lowest level since the second quarter of 2021 (6.16 percent). And the drop in this ratio from the 7.19 percent it reached in the previous quarter (11.54 percent) was the biggest also since the second quarter of 2009 (17.89 percent).

Trade’s contribution to third quarter growth was noteworthy as well. By generating 2.77 percentage points to the total quarterly after-inflation GDP increase of 2.54 percent annualized, it bolstered the economy by the greatest amount in absolute terms since the second quarter of 1980 – when it increased constant dollar GDP by 3.99 percentage points during a stretch when the economy shrunk overall by 5.48 percent at an annual rate. (As with any element of GDP, the trade contribution can be greater than the overall growth rate when other elements decrease.) 

Another way to look at this development:  All else equal, without this trade boost to growth, the economy would have shriveled by 0.23 percent at annual rates in the third quarter, and by the most influential measure, the recession would still be on.  

But again, it’s pretty standard for the trade to support growth during a contraction. Therefore, it’s also worth observing that its latest role during an expansion quarter was the biggest since the third quarter of 1980, when it added 2.96 percentage points to that period’s 2.66 percent annualized rebound.

Nonetheless, this trade contribution to growth was far from the biggest on record in relative terms. (This statistical series reports quarterly data going back to 1947.) For example, during the second quarter of this year, the decline of the trade deficit added 1.16 percentage points of growth while the economy contracted by 0.58 percent in real annual terms.

Moreover, it’s crucial to keep in mind that the third quarter’s trade deficit was still the fourth largest ever. (These quarterly data go back to 1947, too.) And it’s fully 52.98 percent higher than its level in the fourth quarter of 2019 – the last full quarter of data before the CCP Virus began roiling and warping the economy.

That third quarter export increase that helped the overall trade deficit shrink hit 3.43 percent – rising from $2.5619 trillion at annual rates in the second quarter to $2.6032 trillion. The result was a new all-time high. (The old record was the $2.5823 trillion annualized level in the first quarter of 2019.) This second straight quarterly improvemet in overseas sales of goods and services also finally pushed them above their immediate pre-pandemic level – by 1.22 percent.

On the import side, after setting five straight quarterly records, U.S. inflation-adjusted purchases of foreign goods and services sank by 1.78 percent sequentially in the third quarter, from $3.9475 trillion at annual rates to $3.8772 trillion. In fact, this quarterly retreat was the first since the second quarter of 2020, when the pandemic was spreading and depressing economic activity rapidly.

Yet this after-inflation import total was still the third highest on record, and the level of these total purchases remains 13.88 percent higher than in the immediate pre-pandemic fourth quarter of 2019.

Goods trade dominates U.S. trade flows and helped the total constant dollar deficit decrease by falling 9.51 percent sequentially in the third quarter, from $1.5846 trillion at annual rates to $1.4339 trillion. This second straight narrowing brought the goods deficit to its lowest level since the third quarter of last year $1.4144 trillion.

The improvement, moreover, was the biggest in percentage terms since the 12.63 percent plunge in the second quarter of 2009, when the economy was still mired in the Great Recession that followed the Global Financial Crisis.

Yet the goods trade deficit remains 48.57 percent above its level in that immediate pre-pandemic fourth quarter of 2019.

Meanwhile, the longstanding services trade surplus advanced by 7.43 percent in constant dollar terms, from $149.4 billion at annual rates to $160.5 billion. The increase in this sector followed two straight sequential drops in this surplus, and reflecting the outsized CCP Virus hit taken by this sector, is still down 31.93 percent since just before the pandemic’s arrival.

Real goods exports set their third consecutive record in the third quarter, growing 4.04 percent, from $1.8249 trillion at annual rates to $1.8986 trillion. These foreign sales are now 6.27 percent higher than in the fourth quarter of 2019.

After-inflation goods imports dipped for the second straight time, and by 2.26 percent – from $3.4095 trillion annualized to $3.3325 trillion. These purchases are still up 16.80 percent since just before the pandemic’s arrival.

Services exports in the third quarter advanced for the ninth straight time – climbing 2.03 percent, from $709.5 billion at annual rates to $723.9 billion. Yet they remain 7.99 percent below those pre-CCP Virus fourth quarter, 2019 level.

Services imports edged up by 0.59 percent in the third quarter. This sixth straight increase, from a $560.1 billion annualized level to $563.4 billion, brought them to 2.25 percent above their fourth quarter, 2019 level.

The big concern hanging over the good GDP news is the economy’s continued dependence on the massive stimulus provided to households and businesses during the pandemic era by Presidents and Congresses, and by the Federal Reserve – even though consumers are steadily spending down their windfalls. (See this post for the key consumer finance data.) That means that more towering inflation will be with Americans for many more months unless government policies change dramatically.

But however good the trade deficit and growth quality news, wild cards and potential headwinds and crosswinds still abound. Among them: the growth slowdown that’s coming as tighter Fed monetary policy works its way through the economy, to continuing economic woes in the major markets for U.S. exports, to the ongoing dollar surge, to the distinct possibility that the Fed will chicken out on the inflation-fighting front, and that the rest of the government will want to juice consumer spending power again if recession fears return. The last two developments, of course, could well draw in disproportionate amounts of imports, and as the next national election approaches, the odds that they play out seem certain to grow.  

(What’s Left of) Our Economy: Faint Recession Signs Visible in the Latest U.S. Trade Figures

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CCP Virus, China, coronavirus, COVID 19, dollar, Donald Trump, energy, exchange rates, exports, goods trade, imports, manufacturing, non-oil goods, recession, services trade, tariffs, Trade, trade deficit, {What's Left of) Our Economy

If you’re in the market for (still more) signs of how weird the American economy remains as it emerges from the CCP Virus pandemic, last week’s latest official U.S. trade figures (for August) are just the ticket.

Among other results, they showed astronomical monthly deficits for the nation’s manufacturing-heavy China trade, and for industry as a whole – along with passage of industry’s cumulative trade gap this year beyond the trillion-dollar mark, and toward a fifth straight year of annual shortfalls exceeding this level.

But as reported in the latest official figures, domestic manufacturing keeps boosting output and hiring new workers so far anyway – due mainly to the enormous new demand for manufactured goods from everywhere created by the unprecedented stimulus still coursing through the economy.

Less encouragingly, even though the overall trade deficit fell again sequentially, total exports retreated for the first time in seven months. Combined goods and services imports fell, too – with these two developments suggesting that the gap is now beginning to narrow not because U.S. growth is becoming healthier (which would be the case if exports were expanding and imports decreasing), but because the economy is weakening – and maybe heading into a recession.

More specifically, the total trade deficit sank by 4.34 percent on month in August, from $70.46 billion to $67.40 billion. The sequential decrease was the fifth in a row (the longest such stretch since May-November, 2019) and the level the lowest since May, 2021’s $66.33 billion.

The aforementioned combined goods and services exports decrease was modest – just 0.26 percent. And the monthly total – $258.92 billion – was still the second highest on record. It was all the more noteworthy given the continuing rapid rise in the value of the U.S. dollar, which undercuts the price competitiveness of American-origin products and services the world over.

Overall imports were down for the third straight month – the longest such streak since the five-month stretch from December, 2019 to May, 2020, during the pandemic’s first wave – and decreased by 1.04 percent. So we’re hardly talking about a collapse.

The trade deficit in goods – which make up the vast majority of U.S. exports and imports – also shrank for the fifth straight month in August, and this streak also was the longest since May-November, 2019. Having fallen by 3.74 percent from $91.07 billion to $87.64 billion, this shortfall is now the smallest since October, 2021’s $86.23 billion.

Goods exports were off for the second straight month, slumping 0.36 percent, from a record $183.26 billion to $182.50 billion. But the total was still the third highest ever.

Goods imports decreased for the third straight month (the longest such stretch since pandemic-y December, 2019 to May, 2020, too), and fell by 1.49 percent, from $274.23 billion to $270.14 billion.

The nation’s long-time services trade surplus, however, narrowed in August for the first time in three months – by 1.82 percent, from $20.62 billion to $20.24 billion.

Services exports were fractionally lower, but the $76.42 billion total remained an all-time high for all intents and purposes.

Services imports climbed by 0.66 percent, from $55.81 billion to $56.18 billion – the third highest monthly level on record (after June’s $57.09 billion and May’s $56.41 billion).

It’s easy to conclude that the August drop in the overall trade deficit was entirely an energy story. And indeed, while the combined goods and services shortfall stood at $3.06 billion, the monthly improvement in the petroleum balance ($2.27 billion) and in the natural gas surplus ($1.09 billion), was slightly greater.

But significant movement came in other sectors of the economy as well. As indicated above, the chronic and huge deficit in manufacturing became huge-er, jumping 7.87 percent, from $122.09 billion to $131.71 billion – the third highest monthly total ever (after March’s $142.22 billion and May’s $132.60 billion).

Strikingly defying that high dollar, manufacturing exports improved by 3.50 percent, from $109.50 billion to $113.34 billion – the second best total ever after June’s $114.78

But the much greater volume of manufacturing imports also hit their second highest level on record (behind March’s $256.18 billion) after increasing from $231.59 billion to $245.05 billion.

The August data brought this year’s manufacturing deficit to $1.01033 trillion, and it’s running 19.37 percent ahead of last year’s annual record pace.

Since China accounts for so much of U.S. manufacturing trade, it’s no surprise that in August, the American goods deficit with the People’s Republic surged by 8.85 percent, from $34.40 billion to $37.44 billion.

U.S. goods exports to China expanded on month by 5.22 percent – from $12.27 billion to $12.91 billion. But goods imports from China are about four times greater, and they rose faster – by 7.90 percent, from $46.66 billion to $50.35 billion. That was the second highest total ever, after October, 2018’s $52.08 billion, when Chinese exporters and U.S. importers were scrambling to conclude transactions before former President Donald Trump’s tariffs came into force.

On a year-to-date basis, the China goods deficit is now up 25.23 percent – considerably faster than its closest global proxy, the non-oil goods deficit (19.33 percent). That could indicate that whatever the impact of the Trump tariffs, it’s faded.

But the story becomes much more complicated after examining the separate export and import flows. Year-to-date, goods imports from China have risen faster (18.31 percent) than their global non-oil goods counterparts (16.94 percent). But the difference isn’t all that big, especially considering China’s still formidable worldwide competitiveness edge in so many industries.

What is all that big is the difference on the China import side. U.S. foreign sales of non-oil goods have increased by 15.31 percent so far ths year. But goods exports to China edged up by just 2.43 percent. Since China’s economy this year is widely expected to grow about as fast as the global economy, clearly something wrong and indeed quite protectionist is going on. Time for some new U.S. tariffs in response, I’d say.