(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.  

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(What’s Left of) Our Economy: New Official Manufacturing Output Figures Add to Recessionary Gloom

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aerospace, aircraft, aircraft parts, appliances, automotive, computer and electronics products, electrical components, electrical equipment, Federal Reserve, furniture, inflation-adjusted growth, machinery, manufacturing, medical supplies, pharmaceuticals, plastics and rubber products, printing, real growth, semiconductors, transportation equipment, wood products, {What's Left of) Our Economy

Yesterday’s Federal Reserve report on U.S. manufacturing production (taking the story through November) tells me that domestic industry’s inflation-adjusted output is rolling over into contraction – and not just because it fell last month for the first time since June. As I’ll spotlight below, it was also disturbing to see multi-month worsts in industries where such output has been remarkably stable lately, and sequential drops in some other sectors that were the biggest since the peak of the CCP Virus pandemic’s hit to the economy in April, 2020.

Production in real terms by U.S.-based manufacturers sagged by 0.62 percent sequentially last month – the first negative read since June’s 0.73 percent drop. Oddly, though, revisions of recent months’ results were slightly to the upside, although hardly stellar.

Still, as a result, since February, 2020, just before the pandemic struck the U.S. economy in force, such manufacturing production is up by 3.07 percent, versus the 3.76 percent calculable last month.

November’s manufacturing output losses were so broad-based that only four of the twenty broad industrial subsectors tracked by the Fed registered any sequential growth at all. They were:

>wood products, which grew by 3.59 percent in price-adjusted terms despite the continuing troubles of the housing industry. Indeed, that was the best such result since March, 2021’s 3.71 percent. But the November increase came after an October decrease of a downwardly revised 3.58 percent that was wood products’ worst month since constant dollar production plunged by 11.02 percent in April, 2020. wave. Other revisions were overall negative, too, but the November pop means that after-inflation wood products output is now up by 0.20 percent since immediately pre-pandemic-y February, 2020, versus being 2.67 percent below calculable last month:

>printing and related support activities, which enjoyed its second straight sequential real output improvement after difficult summer and fall. The sector’s 1.58 percent advance in November followed one of an upwardly revised 2.75 percent in October that was the best such figure since February’s 3.13 percent jump. Other revisions were mixed on balance but the recent growth spurt has brought the industry’s price-adjusted output to within 7.92 percent of its February, 2020 levels versus the 9.37 percent calculable last month; 

>aerospace and miscellaneous transportation equipment, which produced constant dollar production growth of 1.15 percent. Slightly positive revisions helped the sector push its post-February, 2020 output expansion to 26.37 percent in real terms, versus the 26.29 percent> calculable last month; and

>computer and electronics products, where inflation-production production was 0.53 percent higher in November than in October. Yet decidedly negative revisions helped push this diverse category’s real expansion since February, 2020 down to 5.70 percent, versus the 6.32 percent calculable last month.

The biggest November losers among the great majority of broad manufacturing sub-sectors seeing drooping after-inflation production were:

>automotive, whose volatility has shaped so much of manufacturing’s recent fortunes. November’s constant dollar output sank on month by 2.84 percent, the worst such result since February’s 3.81 percent tumble. Revisions were mixed but inflation-adjusted production of vehicles and parts is now 0.46 percent lower since just before the CCP Virus struck in force, versus being 3.18 percent higher as of last month.

>electrical equipment appliances and components, where output slipped 2.41 percent in November. – another post-April, 2020 worst. In addition, an initially reported October increase of 1.92 percent, which was the best such result since February’s 2.29 percent, was downgraded to 0.68 percent. Other revisions were negative as well, which dragged down this diverse sector’s after-inflation growth since February, 2020 all the way down to 2.83 percent, versus the 7.07 percent calculable last month;

>furniture, which experienced a 2.02 percent real output decrease that represented its worst such result since February, 2021’s 2.77 percent. Revisions were negative overall, and in real output terms the furniture industry is now 7.31 percent smaller than in immediately pre-pandemic-y February, 2020 versus the 4.80 percent calculable last month; and

>plastics and rubber products, whose 1.84 percent price-adjusted output slip was another worst since the 18.63 percent nosedive in peak pandemic-y April, 2020. Along with mixed revisions, the November drop depressed real plastics and rubber products output to 0.66 percent below February, 2020 levels versus having been 1.18 percent above as of last month.

The machinery sector is a major bellwether for the rest of domestic U.S. manufacturing and the entire economy because its products are so widely used. In November, its real output dipped for the first time (by 0.23 percent) since June’s 1.94 percent fall-off. Revisions were slightly negative, and inflation-adjusted production of machinery is now 7.53 percent greater than just before the CCP Virus’ arrival in force in February, 2020, versus 8.31 percent calculable last month.

The shortage-plagued semiconductor industry has also been key to domestic manufacturing’s fortunes, and will be receiving mammoth subsidies soon due to Congress’ passage of legislation aimed at boosting its American footprint. So November’s 0.39 percent real output expansion is good news, especially since it was the first increase since June’s 0.79 percent. Revisions were mixed, leaving constant dollar semiconductor output up 12.40 percent since February, 2020, versus the 12.16 percent calculable last month.

Since the pandemic struck, RealityChek has been paying special attention to several other manufacturing sectors that have either been especially hard hit by the pandemic, or that have been especially important in fighting it. Overall, they experienced downbeat Novembers in terms of production.

The exception was aircraft and parts, whose companies were hit so hard by the CCP Virus-related curbs on travel. In November, these companies boosted their after-inflation output by another 1.85 percent. Moreover, October’s initially reported gain of 2.51 percent was upgraded to one of 2.59 percent (the best such performance since April’s 3.01 percent). Other revisions were negative, but inflation-adjusted output in this sector is now 35.82 percent higher than just prior to the pandemic’s arrival in force, versus the 34.14 percent calculable last month.

The pharmaceutical and medicines industry (including vaccine makers) saw real production down by 0.16 percent, the first decline since June’s 0.50 percent. But revisions were positive enough (especially for October) to bring this sector’s real output 18.11 percent above February, 2020’s levels versus the 16.71 percent calculable last month.

Inflation-adjusted production slid by 1.55 percent after inflation for the medical equipment and supplies firms that turn out so many products used to fight the virus. This drop was another instance of a worst such result since peak pandemic-y April, 2020 (15.08 percent). Revisions were mixed, and real output in these industries is still up 13.23 since just before the pandemic. But as of last month, this figure was 15.75 percent.

It’s of course entirely possible that these dreary November manufacturing output results are blips, and that the sector will keep shrugging off bearish predictions. But with U.S. growth seemingly certain to slow down markedly at the least, and global growth already weak, it’s difficult to understand how domestic industry escapes these undertows.

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

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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: U.S. Manufacturing Dispels Recession Fears

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aircraft, aircraft parts, apparel, automotive, CCP Virus, computer and electronics products, coronavirus, Federal Reserve, inflation-adjusted growth, machinery, manufacturing, medical equipment, miscellaneous durable goods, non-metallic mineral products, paper, personal protective equipment, petroleum and coal products, pharmaceuticals, PPE, printing, recession, semiconductors, Wuhan virus, {What's Left of) Our Economy

If the U.S. economy is still in recession, or getting uncomfortably close to one, it seems no one’s told the nation’s manufacturers. Yesterday’s latest figures from the Federal Reserve show that domestic industry expanded its inflation-adjusted output by 0.43 percent on month in September. Moreover, revisions at this 30,000-foot level were modestly positive (as opposed to some for manufacturing sectors which, as you’ll see, were pretty dramatic).

August’s initially reported gain of just 0.09 percent – which seemed to indicate that the sector was heading into a downturn – is now judged to have been one of 0.38 percent. July’s originally reported 0.72 percent advance was revised down slightly again – from 0.62 percent to 0.60 percent. And June’s results were downgraded a third straight time – from an initially reported dip of 0 05 percent to a drop of 0.58 percent.

These new and revised figures pushed real U.S. manufacturing production is up 4.19 percent from 2020 – just before the CCP Virus and assorted mandated and voluntary behavioral curbs sparked a short but scary downturn and touched off waves of distortion that persist to this day. As of last month’s Fed report, industry’s inflation-adjusted production had risen by 3.49 percent during the pandemic period.

Among the broadest manufacturing sub-sectors tracked by the Fed, the biggest September winners in terms of after-inflation output were:

>apparel and leather goods, whose monthly constant dollar output jumped 1.56 percent. Revisions, moreover were strongly positive. August’s initially reported 0.53 percent downturn was lowered to a slump of 1.85 percent. But July’s results rebounded from a 1.46 percent gain to one of 1.66 percent, after having been revised down from 1.60 percent.

And get a load of the June figures! The initially reported 1.44 percent drop was revised to a boom of 6.09 percent (which would have been the best such increase since August, 2020’s 8.04 percent), then back down to a rise of just 1.46 percent, and finally (for now) back up to a 5.98 percent advance.

Apparel and leather goods’ real output is now 5.39 percent higher than in immediately pre-pandemic-y February, 2020, versus the 4.98 percent calculable last month;

>non-metallic mineral products, where inflation-adjusted production was up 1.41 percent for these companies’ best month since May’s 1.69 percent. Revisions, though, were moderately negative, with August’s initially reported 0.09 percent monthly dip being downgraded to a drop of -0.22 percent; July’s initially reported 0.52 percent increase revised down to a slip of 0.09 percent to a fractional decline; and June’s initially reported 1.07 percent fall-off significantly upgraded to a 0.48 percent increase, then revised down to growth of 0.46 percent, to a fractional decrease.

Still, price-adjusted output in non-metallic mineral products is now 1.48 percent higher than just before the CCP Virus arrived in force, versus the 0.12 percent calculable last month;

>petroleum and coal products, which grew inflation-adjusted output by 1.13 percent in September, and which saw overall positive revisions. August’s initially reported 3.54 percent is now judged to be an advance of 4.13 percent (the strongest since March, 2021’s 11.49 percent). July’s initially estimated 0.94 percent decrease has now been upgraded first to one of 0.25 percent and now to one of 0.23 percent. And June’s results stayed at a significantly downgraded 2.80 percent tumble.

Real output in these sectors is now 3.20 percent higher than in February, 2020, versus the 1.45 percent calculable last month; and

>computer and electronics products, whose constant-dollar production climbed 1.07 percent – now the best growth since February’s 1.20 percent. Yet revisions were negative, as August’s initially reported increase of 1.27 percent (which had been the best since May, 2021’s 2.44 percent) has been downgraded to one of 1.05 percent; July’s initially reported drop of 0.65 percent downgraded to one of 0.68 percent and now to one of 0.89 percent; and June’s results settling in at a 0.45 percent increase after the initially reported 0.21 rise was upgraded to 0.67 percent and then revised down to 0.46 percent.

After inflation production in these industries is now 6.78 percent higher than in that last pre-CCP virus data month of February, 2020 versus the 6.11 percent calculable last month.

September’s biggest price-adjusted growth losers were:

>printing and related support activities, where real output sank by 1.67 percent – its worst such perfomance since January’s 2.09 percent retreat. Just as bad, revisions were negative on net. August’s initially reported 0.27 percent decrease was revised up all the way to a 0.59 percent gain, but July’s loss is now judged to have been 1.60 percent after having been upgraded from on of 1.67 percent to one of 1.50 percent. And June’s initially reported 1.68 increase (then the best such performance since February’s 3.13 percent advance) has been revised since to a decrease of 0.51 percent, 0.40 percent, and 0.41 percent.

Conseqently, this hard-hit sector’s output is 11.81 percent smaller than in February, 2020, versus the 11.02 calculable last month.

>miscellaneous durable goods, the broad category that includes the personal protective equipment and other medical devices used so widely to fight the CCP Virus. Its inflation-adjusted production fell by 1.29 percent in September – the first decrease since March’s fractional dip. Even better, this decline comes off overall positive revisions of already excellent results.

August’s initially reported 1.71 percent increase is now estimated to have been one of 2.86 percent the – best since growth rate since July, 2020’s 5.96 percent, as the economy recovered from the pandemic’s first wave and medical equipment production was prioritiezed. July’s initially reported 1.23 percent improvement was downgraded to one of 0.89 percent and then back up to 0.95 percent, and June’s initially reported 2.25 percent growth stayed at a downwardly revised 0.67 percent following a downgrade to 0.87 percent.

Still, in constant dollar terms, production in this broad category is now 13.78 percent greater than in immediately pre-pandemic-y February, 2020, versus the 13.92 percent calculable last month; and

>paper, where real output in September sank by 0.92 percent. Revisions were mixed, with August’s initially reported 0.80 percent increase (the best such performance since February’s 2.26 percent jump) revised down to 0.69 percent; July’s initially reported 0.64 percent decrease upgraded for a second time, to one of 0.58 percent and now to 0.51 percent; and June’s numbers following a similar pattern, with an initially reported shrinkage of 0.88 percent revised up to losses of 0.62 percent and 0.57 percent, respectively.

Yet paper’s real output is now down by 3.78 percent since just before the pandemic arrived, versus the 2.83 percent worse calculable last month.

Good Septembers were also recorded in two manufacturing sectors of long-time special importance to the economy.

Machinery’s economic role is critical because of how widely its products are used throughout the economy and because its output largely reflects business’ expectations of future demand and growth. So it was good news that this diverse sector’s constant dollar output rose by 0.32 percent in Sept, and that revisions were positive on net.

August’s initially reported 0.99 percent increase (mistakenly reported in my last post as 0.91 percent), which had been the best such growth since April’s 1.97 percent was upgraded all the way up to 2.64 percent! That’s now the best production month since July, 2021’s 2.76 percent. This July’s initially reported 0.50 percent growth was upgraded again – from 0.68 percent to 0.78 percent – but June’s data has been revised down overall from a drop of 1.49 pecent to one of 1.27 percent, and back down to 1.75 percent and 1.83 percent.

These developments have now pushed up machinery’s post-February, 2020 real output to 7.23 percent, versus the 5.07 percent calculable last month.

The automotive sector has greatly influenced the manufacturing production statistics throughout the pandemic era, and its volatility continued in September, with after-inflation output up by one percent. Yet that result followed an August whose production decrease was revised down from 1.44 percent to one of 1.48 percent; a July whose output increase was downgraded from an initially reported 6.60 percent to one of 3.24 percent and now back up to 3.57 percent; and a June whose results have changed from -1.49 percent to -1.27 percent to -1.31 percent to -1.84 percent.

Real vehicle and parts production, however, is now back in the black since February, 2020, now aving risen by 0.89 percent, versus the 0.89 percent slippage calculable last month.

The news also was generally good in September for industries prominent in the news during the CCP Virus era.

Constant-dollar production in the shortage-plagued semiconductor sector rose by 0.45 percent, and revisions overall were mixed. August’s initially reported decline of 0.57 percent (the first in three months) is now judged to have been only 0.39 percent. July’s initially reported 1.16 percent growth has been revised down to 0.77 percent and now a measly 0.02 percent. But June’s initially reported 0.18 percent advance is now judged to have been one of 0.86 percent, after being revised way up to 2.09 percent, and then back down to 0.88 percent.

Real semiconductor production is now 17.29 percent higher since February, 2020, versus the 17.46 percent improvement calculable last month.

Inflation-adjusted production of aircraft and parts grew 0.59 percent in September, and revisions were mixed. August’s initially reported 3.11 percent surge (the best since January, 2021’s 8.61 percent) was downgraded significantly to 1.69 percent. But July’s numbers have been upgraded from an initially reported gain of 1.02 percent to one of 1.52 percent and now to one of 1.90 percent. And June’s initially reported 0.26 percent growth has been revised to a 0.18 percent advance, back up to a rise of 0.24 percent, and again to one of 0.56 percent.

Aircraft and parts production, therefore, has now increased by 31.18 percent since just before the pandemic’s arrival, versus the 30.60 percent rise calculable last month.

Pharmaceutical and medicines companies boosted their real monthly production by 0.64 percent in September, and revisions were mixed. August’s initially reported 1.62 percent improvement (the best since August, 2021’s 1.96 percent) was upgraded to 1.81 percent. But July’s initially reported 0.29 percent increase, which had been revised up to 0.30 percent, is now judged to have been a 0.55 percent loss – the first such setback since February’s 1.35 percent fall). And June’s results have gone from 0.39 percent to unrevised to a gain of 0.32 percent and now a rise of 0.43 percent.

As of last month, phamaceuticals’ and medicines’ after-inflation production level had grown by 16.56 percent since February, 2020.  Now the figure is 16.58 percent.

The lone exception to these good September results was medical equipment and supplies – where the personal protective devices and other pandemic fighting equipment is found. Its 1.33 percent after-inflation production fall-off last month was its first since last December (0.71 percent) and the worst such performance since the 15.08 percent crash dive in April, 2020 – at the height of the CCP Virus’ devastating first wave.

But August’s initially reported three percent increase was revised up to 4.40 percent – the best such result since July, 2020’s 9.84 percent. This July’s initially reported 1.90 percent rise was downgraded to 1.58 percent but then upgraded to 1.69 percent. And although June’s figure was revised down from an initially reported 3.12 percent to 1.01 percent and then to 0.67 percent, it was nudged back up to 0.68 percent yesterday.

These net gains pushed medical equipment and supplies’ real production to 17.95 percent above their February, 2020 levels, versus the 17.81 percent improvement calculable last month.

For what it’s worth, the normally pretty reliable forecasters at the Atlanta branch of the Federal Reserve system believe that the economy has now exited the recession it experienced in the first half of this year, and that will grow at a very respectable 2.9 percent after inflation at annual rates in the third quarter of this year. We’ll find out for sure starting October 27, when the first official read on third quarter growth comes out. But at this point, these new manufacturing production data support the idea that economic expansion is back for the time being – and certainly augur well for domestic industry’s prospects at least for the short term.

(What’s Left of) Our Economy: U.S. Manufacturing Output Keeps its Head Above Water

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aircraft, aircraft parts, appliances, automotive, CCP Virus, computer and electronics products, coronavirus, COVID 19, electrical components, electrical equipment, fabricated metal products, Federal Reserve, furniture, housing, inflation-adjusted growth, machinery, manufacturing, medical devices, miscellaneous durable goods, petroleum and coal products, pharmaceuticals, real growth, recession, semiconductor shortage, semiconductors, transportation equipment, wood products, Wuhan virus, {What's Left of) Our Economy

Yesterday’s figures from the Federal Reserve showed that U.S.-based manufacturing is still growing – by the barest of margins.

The data, covering August, revealed that domestic industry expanded in inflation-adjusted terms by just 0.09 pecent. Revisions were slightly negative.

As a result, after adjusting for prices, U.S. manufacturing output is 3.49 percent higher than in February, 2020 – just before the CCP Virus and assorted mandated and voluntary behavioral curbs sparked a short but scary downturn and touched off waves of distortion that persist to this day. As of last month’s Fed report, industry’s inflation-adjusted production had risen by 3.69 percent during the pandemic period.

Among the broadest manufacturing sub-sectors tracked by the Fed, the biggest August winners were:

>petroleum and coal products, whose 3.54 percent constant dollar monthly output surge was its best since the 11.49 percent jump of March, 2021, when the industry was bouncing back from the damage inflicted by that winter’s Texas blizzards. Revisions were mixed. July’s originally reported after-inflation drop of 0.94 percent upgraded to one of 0.25 percent. June’s preliminary figure, revised up last month from a real decrease of 1.92 to one of 1.50 percent revised back down to a 2.80 percent decline. But May’s initially reported 2.33 percent constant dollar sequential monthly shrinkage of 2.61 pcerent now standing as a fall of 1.30 percent.

Since immediately pre-pandemic-y February, 2020, inflation-adjusted production by these companies is up by 1.45 percent, versus the 1.27 decrease calculable last month;

>aerospace and miscellaneous transportation equipment, which rose month-to-month by 2.08 percent in real terms for its best such performance since February’s 2.52 percent. Revisions were slightly positive. June’s initially reported 1.54 percent improvement is now pegged at 1.55 percent. June had advanced from a fractional increase to a 0.14 percent dip to a 0.20 percent increase. But May’s results have deteriorated here, too – from an initially reported 0.85 percent decrease to a 1.25 percent drop.

In price-adjusted terms, this cluster is now 24.07 percent larger than in February, 2020, versus the 21.30 percent calculable last month;

>miscellaneous durable goods, a diverse sector containing the personal protective equipment and other medical gear used to widely to fight the CCP Virus saw inflation-adjusted production grow by 1.71 on month in August, its best such performace since last December’s 1.85 percent. Revisions, however, were negative. July’s initially reported 1.23 percent increase was revised down to one of 0.89 percent. June’s results have been downgraded from an advance of 2.25 percent to one of 0.87 percent to the 0.67 percent reported yesterday. And May’s improvement, first estimated at 1.17 percent, is now just to have been 0.63 percent.

Consequently, real production in miscellaneous durable goods has now increased by 13.92 percent since February, 2020, just before the pandemic’s arrival in force, versus the 13.38 percent calculable last month; and

>computer and electronics products, where constant dollar output climbed by 1.27 sequentially for their best month since May, 2021 (2.44 percent). Revisions were slightly negative, July’s results were downgraded from a decrease of 0.65 percent to one of 0.68 percent. June’s initially reported 0.21 percent was upgraded to a 0.67 percent gain before dropping back to one of 0.46 percent. And the initially reported May monthly rise of 0.50 percent is now recorded as a decrease of 0.11 percent.

After-inflation growth in this broad sector is now reported at 6.11 percent since that last CCP Virus data month of February, 2020 versus the 5.93 percent calculable last month.

Not so coincidentally, August’s two worst manufacturing production losers among the biggest manufacturing sub-sectors were closely related to the nation’s hard-pressed housing sector:

>furniture and related products, which suffered it sixth straight monthly price-adjusted production decrease. Moreover, the 2.13 percent shrinkage was the worst since February, 2021’s 2.77 percent. Moreover, revisions were overall negative. July’s initially reported retreat of 1.57 percent was revised up to one of 0.80. percent. But the June losses have been downgraded from one of 0.55 percent to one of 1.33 percent and then to one of 1.87 percent. And May’s initially reported 0.94 percent increase is now judged to have been a 0.96 percent decrease.

The furniture cluster is now 7.30 percent smaller after accounting for inflation since February, 2020, versus the 5.56 percent calculable last month’

>wood products, whose inflation-adjusted production slip of 1.70 percent was its second month-to-month decrease in a row and its worst since April’s 1.89 percent. Revisions were mixed. July’s initially reported 0.72 percent increase is now pegged as a -0.03 decline. June’s initially reported 0.73 percent rise has been revised down to one of 0.42 percent and yesterday to a 0.62 loss. But May’s results have been upgraded from a 2.64 plunge to a decrease of just 0.28 percent.

Whereas last month’s Fed release showed this sector to be 6.79 percent bigger since just before the pandemic began roiling and distorting the economy, this month’s estimates this increase to have been just 2.67 percent;

>automotive, whose roller-coaster ride continued with real output sinking by 1.44 percent in August. Worse, July’s initially reported 6.60 percent monthly production burst was cut by more than half – to an increase of 3.24 percent. June’s initially reported 1.49 percent decrease was first upgraded to one of 1.27 percent but now stands at 1.31 percent. And May’s initially reported 0.06 percent on month real output dip is now judged to have been a decrease of 1.96 percent.

As of last month’s Fed report, inflation-adjusted vehicle and parts production was recorded as being up by 4.73 percent since February, 2020. Now it’s pegged as being off by 0.20 percent; and

>electrical equipment, appliances (also related to housing), and components, whose inflation-adjusted production contraction (1.01 percent) was its second straight. Revisions, though, were overall positive. July’s initially reported 1.41 percent fall-off is now estimated as one of 1.44 percent., but June’s results have been upgraded a second consecutive time – from an advance of 1.34 percent to one of 1.42 percent to yesterday’s 1.45 percent. And although May remained an output loser, the decrease has been upgraded from an initially reported 1.83 percent to one of 1.68 percent (which was still its worst results since December’s 2.48 percent slump).

All told, though, this cluster’s price-adjusted shrinkage since that last pre-pandemic data month of February, 2020 fell to just 4.53 percent, versus the 4.83 percent fall-off calculable last month; and

>fabricated metal products, another volatile industry. After-inflation production was off by 0.95 percent sequentially in August, after improving by a figure of 1.79 percent that was revised down from an initially reported 2.05 percent but was still the best such result since February’s 2.49 percent jump. Other revisions were mixed, with June’s initially reported decrease of 0.83 percent revised down first to one of 1.40 percent and now to one of 1.59 percent, and May’s initially reported drop of 1.16 percent now pegged at just 0.98 percent.

As of last month’s Fed report, fabricated metals products’ constant dollar output had closed to within 0.14 percent of its immediate pre-CCP virus level. Now it’s off by 1.42 percent.

Better news came from the big and diverse machinery sector, which is a bellwether for both the rest of manufacturing and the rest of the entire economy, since so many industries use its products. It grew in real terms sequentially in August by 0.91 percent – its best such result since April’s 1.97 percent. Revisions were mixed. July’s initially reported 0.50 percent increase is now estimated to have been 0.68 percent. June’s results, first downgraded from a 1.14 percent decrease to one of 2.16 percent were revised back up to one of 1.75 percent. And May’s initially reported drop-off of 2.55 percent is now recorded as one of 3.20 percent – the worst since the 18.64 percent nosedive of April, 2020, during the height of the pandemic’s first wave.

Machinery has now grown by 5.07 percent during the pandemic period, versus the 2.82 percent calculable last month.

Interestingly, except for the still-shortage-plagued semiconductor industry, August was a banner output month for the sectors that consistently have made headlines during the pandemic.

Real output of microchips and related products did decrease by 0.57 percent, but the decline was the first in three months. Revisions were negative, though. July’s initially reported 1.16 percent rise has been downgraded to one of 0.77 percent and following a major upward revision from 0.18 percent growth to 2.09 percent, June’s real output now stands at 0.88 percent. But after a massive downgrade from 0.52 growth to 2.24 percent shrinkage, May’s performance is now recorded as a just a 0.72 percent loss.

After-inflation semiconductor production is now up 17.46 percent since pre-pandemic-y February, 2020, versus the 21.98 percent calculable last month.

Aircraft and parts surged by 3.11 percent sequentially in August after inflation, these industries’ strongest such performance since the 8.61 percent burst in January, 2021. Revisions were mixed, as July’s initially reported 1.02 percent real monthly output rise to one of 1.52 percent, but June’s initially reported 0.26 percent advance revised down to one of 0.18 percent and then back up to just 0.24 percent, and May’s initially reported 0.33 percent advance now judged to be have been a 0.47 percent retreat.

Even so, constant dollar aircraft and parts output is up by 30.60 percent since February, 2020, versus the 26.67 percent calculable last month.

In pharmaceuticals and medicines, real production was up month-to-month in August by 1.62 percent, these sectors’ best such performance since last August’s 1.96 percent. Revisions here, too, were mixed. July’s initially reported 0.29 percent increase was bumped up to growth of 0.30 percent. June’s results stayed at a 0.32 percent increase after being downgraded from 0.39 percent. But May’s initial growth figure of 0.35 percent now stands at 1.20 percent after some ups and downs.

Since just before the CCP Virus’ arrival in force, pharmaceuticals and medicines output (including vaccines) is now up 16.56 percent in real terms, versus the 14.69 percent calculable last month.

And medical equipment and supplies firms (including those that make anti-CCP Virus products) boosted their price-adjusted production in August by three percent in constant dollar terms – their best such performance since January’s 3.15 percent. Revisions were negative on net. July’s initially reported inflation-adjusted improvement of 1.90 percent was downgraded to an increase of 1.58 percent. June’s original 3.12 percent real growth figure has now been revised down twice – to 1.01 and 0.67 percent. May’s initial estimate of 1.44 percent real growth is now pegged at 1.36 percent.

Yet real production in this sector is now 17.81 percent higher than in immediately pre-pandemic-y February, 2020, versus the 16.15 percent calculable last month.

At this point, it’s easy to make the case that the headwinds facing domestic manufacturing are stronger than the tailwinds. There’s not only continued tighter inflation-fighting and growth-slowing monetary policies being pursued by the Fed along with mounting evidence that America’s overall economic growth will remain slow at best. There’s the end of the mammoth government deficit spending that’s also supported that growth for so long, and especially during the CCP Virus emergency. And don’t forget the continually darkening outlook for the global economy – and for the export markets on which U.S.-based industry relies significantly (nearly 18 percent of its gross output in 2021 by my calculations).

U.S.-based industry has been resilient since the pandemic arrived, but it wasn’t able to escape the undertow of the domestic and overseas economic downturns it generated. That seems like as good a forecast as any for domestic manufacturing output over the next few months, too.   

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(What’s Left of) Our Economy: A Second Straight Month of Production Shrinkage for U.S. Manufacturing

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aircraft, aircraft parts, apparel, appliances, automotive, CCP Virus, China, coronavirus, COVID 19, dollar, electrical components, electrical equipment, exchange rates, Federal Reserve, fiscal policy, inflation, inflation-adjusted growth, machinery, manufacturing, medical devices, medicines, metals, miscellaneous durable goods, monetary policy, personal protective equipment, petroleum and coal products, pharmaceuticals, production, real output, recession, semiconductor shortage, semiconductors, stimulus, supply chains, textiles, Trade Deficits, Wuhan virus, Zero Covid, {What's Left of) Our Economy

Yesterday’s after-inflation U.S. manufacturing production report (for June) marked a second straight decline in real output for domestic industry, adding to the evidence that this so far resilient sector is finally suffering the effects of the entire economy’s recent slowdown.

Another possible implication of the new downbeat results: The record and surging trade deficits being run in manufacturing lately may finally be starting undermine U.S.-based manufacturing’s growth. (See here for how and why.)

Also important to note: This release from the Federal Reserve incorporated the results of both typical monthly revisions but also its annual “benchmark” revision, which reexamined its data going back several years (in this case, to 2020), and updated the figures in light of any new findings.

And the combination has revealed some big surprises – notably that the domestic semiconductor industry, which along with its foreign competition has been struggling to keep up with recently booming worldwide demand, has turned out fully 36 percent less worth of microchips on a price-adjusted basis since the CCP Virus struck than was calculable from the (pre-revisions) May report.

In real terms, U.S.-based manufacturing shrank by 0.54 percent on month in June – the worst such result since last September’s 0.78 percent drop. Moreover, May’s originally reported 0.07 sequential percent dip is now judged to be a decrease of 0.52 percent.

The April results remained good, but were downgraded a second time, from 0.75 percent monthly growth in after inflation to 0.66 percent, while the March numbers told a similar story, with a third consecutive modest downward revision still leaving that month’s inflation-adjusted expansion at 0.76 percent.

Especially discouraging, though – the June report plus the two revisions left constant dollar U.S. manufacturing output just 2.98 percent greater than just before the pandemic struck the economy in full force and began distorting it, in February, 2020. The pre-benchmark revision May release pegged its virus-era real growth at a much higher 4.94 percent, and the first post-benchmark number was 4.12 percent.

May’s biggest manufacturing growth winners among the broadest manufacturing categories tracked by the Fed were:

>the very small apparel and leather goods industry. Its price-adjusted output surged by 2.54 percent month-to-month in June – its best such perfomance since May, 2021’s 2.63 percent. May’s initially reported 0.88 percent gain was revised down to a 0.34 percent loss, though. April’s upgraded 0.30 percent rise is now judged to be a 0.33 percent decrease, and March’s figures were revised down after two upgrades – from 1.54 to a still solid 1.30 percent. But whereas last month’s Fed release showed inflation-adjusted production in this sector up 4.59 percent during the pandemic era, this growth is now pegged at just 0.56 percent; 

>the miscellaneous durable goods sector, which contains the medical products like personal protective equipment looked to as major CCP Virus fighters. It’s June sequential output jump of 2.25 percent was its biggest since March, 2021’s 2.61 percent, and revisions were overall positive. May’s initially reported 0.96 percent monthly price-adjusted production gain was downgraded to 0.49 percent, but the April figure was revised up for a second time – to 0.71 percent – and March’s results were upgraded a third straight time, to 0.51 percent.

These industries are now 14.11 percent bigger in constant dollar terms than in February, 2020, versus the 11.41 percent gain calculable last month; and

>the electrical equipment, appliances, and components cluster, where price-adjusted production climbed 1.34 percent on a monthly basis in June, the strongest such showing since February’s 2.29 percent.. Revisions were positive on net, with May’s originally reported 1.83 percent monthly falloff downgraded to one of 2.35 percent, but April’s initially estimated -0.60 percent decrease upgraded a second time,to a 0.49 percent gain, and March’s three revisions resulting in an originally judged 1.03 percent increase now pegged at 1.23 percent. These results pushed these companies’ real production 5.59 percent higher than in immediately pre-pandemic-y February, 2020, not the 2.19 percent calculable last month;

The list of biggest manufacturing inflation-adjusted output losers for June was considerably longer, starting with

>printing and related support activities, where the monthly inflation-adjusted production loss of 2.16 percent was the worst such showing since February, 2021’s 2.26 percent. Revisions were actually net positive, with May’s initially reported dip of 0.35 percent upgraded to one of 0.15 percent; April’s results downgraded from a one percent advance to one of 0.33 percent after being revised up from an initially reported 0.49 percent; and March’s totals rising cumulatively from an initially reported 1.10 percent decrease to a decline of just 0.05 percent. All the same, the printing cluster is now judged to be 11.37 percent smaller in real terms than in February, 2020, not the 1.89 percent calculable last month;

>petroleum and coal products, whose June sequential production decrease of 1.92 percent was its biggest since January’s 2.96 percent. Revisions here were mixed, too, with May’s figure revised up from a 2.53 percent improvement to one of 2.61 percent; April’s totals downgraded a second time, from a 0.13 rise to one of 0.04 percent to a decrease of 1.91 percent; and March’s results increasing from an initial estimate of 0.72 percent to one of 1.03 percent. But whereas last month’s Fed release showed petroleum and coal products’ after-inflation output 1.21 percent above its last pre-pandemic level, this month’s reports that it’s 0.27 percent below.

>textiles and products, where price-adjusted output sank on month by 1.80 percent for its worst month since March’s 2.45 percent shrinkage. Revisions were negative, with May’s initially reported 0.02 percent real production decline downgraded to one of 0.35 percent, April’s upgraded 0.45 percent increase now pegged as a 0.05 percent decrease, and March’s initially reported 1.55 percent falloff now judged to be one of 2.45 percent. As a result, the sector is now 5.35 percent smaller in terms of constant dollar output, rather than down 3.80 percent as calculable last month; and

>primary metals, whose inflation-adjusted production sagged by 1.60 percent on month – its poorest performance since March’s 1.42 retreat. Revisions were overall positive here, with May’s initially reported 0.77 percent real output rise downgraded to one of 0.66 percent, April’s initially downgraded 1.22 percent increase revised up to 1.46 percent, and March’s initially reported 1.69 percent drop now judged to be that aforementioned 1.42 percent. Even so, primary metals price-adjusted production is now estimated as having inched up only 0.50 percent since the pandemic arrived, not the 4.45 percent increase calculable last month.

In addition, an unusually high three other major industry sectors suffered constant dollar output declines of more than one percent on month in June. On top of plastics and rubber products (1.25 percent), the were two that RealityChek has followed especially closely during the pandemic period – machinery and automotive.

As known by RealityChek regulars, the machinery industry is a bellwether for both the rest of manufacturing and the entire economy, since use of its products is so widespread. But in June, its real production was off by 1.14 percent on month, and May’s initially reported 2.14 percent decrease is now estimated at-3.14 percent – its worst figure since the 18.64 collapse recorded in pandemic-y April, 2020. And although this April’s numbers have been revised up twice, to have reached 2.20 percen, March’s initially reported 0.78 percent inflation-adjusted increase is now estimated to have been a 0.89 decrease. Consequently, in price-adjusted terms, the machinery sector is now estimated to be 4.70 percent larger than in February, 2020, not the 6.29 percent calculable last month.

As for motor vehicles and parts makers, dogged for months by that aforementioned semiconductor shortage, their real output was off by 1.49 percent on month in June, and May’s initially reported rise of 0.70 percent is now estimated as a1.86 percent decline. Following a slight downgrade, April’s output is now pegged as growing by 3.85 percent rather than 3.34 percent, and March’s initially reported 7.80 percent advance is now pegged at 9.08 percent – the best such total since last October’s 10.34 percent. Nonetheless, after-inflation automotive output is now reported to be 1.07 percent lower than just before the pandemic arrive in force, not the 1.17 percent higher calculable last month.

Notably, other industries that consistently have made headlines during the pandemic outperformed the rest of manufacturing in June.

Constant dollar output by aircraft- and aircraft parts-makers was up 0.26 percent month-to-month in June, but revisions were mixed. May’s initially reported 0.33 percent rise has now been downgraded to a 0.23 percent decline – snapping a four-month winning streak. April’s results were upgraded a second straight time – from a hugely upgraded 2.90 percent to an excellent 3.13 percent (the best such performance since January, 2021’s 8.60 percent burst). But the March figures have been substantially downgraded from an initially reported 2.31 percent to a gain of just 0.53 percent. After all this volatility, though, real aircaft and parts production is now 25.58 percent greater than in February, 2020, much better than the 19.08 percent calculable last month.

The big pharmaceuticals and medicines industry grew its real putput by another 0.39 percent in June, but revisions were generally negative. May’s initially reported 0.42 percent improvement, however, is now judged to be just an infinitesimal 0.01 percent. April’s upgraded 0.15 percent rise is now pegged as a 0.04 percent loss, and March’s results have been downgraded all the way from an initially reported 1.17 percent increase to one of just 0.49 percent. Price-adjusted output in these sectors, therefore, is now estimated at 12.98 percent higher than in February, 2020, versus the 14.64 percent calculable last month.

Medical equipment and supplies firms boosted their inflation-adjusted output for a sixth straight month in June, and by a stellar 3.12 percent – their best such performance since January’s 3.15 percent. May’s growth was downgraded from 1.44 percent to 1.01 percent, but April’s estimate rose again, from 0.51 percent to 1.01 percent, and March’s initially reported 1.81 percent improvement has been slightly downgraded to 1.67 percent. This progress pushed these companies’ real pandemic era output growth from the 11.51 percent calculable last month to 17.27 percent.

The news was significantly worse, though, in that shortage-plagued semiconductor industry. Real production rose by 0.18 percent sequentially in June, but May’s initially reported 0.52 percent advance is now judged to have been a 2.24 percent drop. Meanwhile, April’s already dreary initially reported 1.85 percent slump has now been downgraded again to one of 2.71 percent (the sector’s worst such performance since the 11.26 percent plunge in December, 2008 – in the middle of the Great Recession that followed the global financial crisis). Even March’s initially reported impressive 1.99 percent monthly price-adjusted production increase has been revised all the way down to 0.52 percent.

The bottom line: The pandemic-era semiconductor real production increase that was estimated at 23.82 percent last month is now judged to have been just 15.22 percent.

It’s not as if the recent official manufacturing data has been all disappointing. Employment, notably, rose respectably on month in June. And the pace of capital spending has actually sped up some (at least through May) – which, like employment is a sign of continued optimism among manufacturers about their future outlook.

But at this point, the headwinds look stronger – including continued credit tightening by the Federal Reserve (not to mention a drawdown in the massive bond purchases that also have significantly propped up the entire economy); the resulting downshifting in domestic economic growth at which the Fed is aiming in order to bring down raging inflation; an even worse slump in economies overseas, which have been important markets for U.S.-based industry; the strongest dollar in about two decades, which puts Made in America products at a price disadvantage the world over; and the ongoing supply chain snags resulting from the Ukraine-Russia War and China’s lockdowns-happy Zero Covid policy.

And don’t forget those stratospheric and still-rising manufacturing trade deficits, which could well mean that, once the unprecedented pandemic fiscal and monetary stimulus/virus relief that have helped create so much business for domestic industry starts fading significantly, U.S.-based manufacturers could might themselves further behind the eight-ball than ever.  

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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