(What’s Left of) Our Economy: The U.S. Trade Deficit Remains at a Crossroads

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

The encouraging streaks weren’t broken by much, but they were broken. That’s the main takeaway from the trade figures contained in last week’s official report on U.S. economic growth – the second look at the results for the first quarter of this year.

The first had consisted of three straight quarters of growth in inflation-adjusted terms (the most closely followed figures and those that will be used in this post unless specified otherwise) while the price-adjusted trade deficit shrank.

This streak was encouraging because it signaled that the economy was expanding mainly via saving and producing rather than by borrowing and spending. In other words, growth was high quality and sustainable, rather than bubbly and bound to end badly if it lasted too long.

Further, this version of the streak was the longest since the period between the first and fourth quarters of 2007 – just before the arrival of the Great Recession spurred by the Global Financial Crisis. I know – that timing doesn’t sound great. But that streak and that crisis were preceded by a long period of rapidly ballooning trade shortfalls.

The second winning streak consisted of four straight quarters of declining trade deficits irrespective of economic growth.

According to the latest read on the first quarter’s improvement in the gross domestic product (or GDP – the standard measure of the economy’s size and how it grows or shrinks), growth actually sped up some over the results of the first read (1.27 percent in annualized terms versus 1.06 percent). So that was good. But rather than dipping by 0.23 percent, from the fourth quarter’s $1.2386 trillion at annual rates to $1.2358 trillion, the combined goods and services trade gap widened sequentially by 0.40 percent, to $1.2435 trillion.

Optimists can argue that this overall deficit number remains the lowest since the $1.2309 trillion recorded in the second quarter of 2021. But pessimists could respond that it didn’t take much extra growth to put the deficit on a rising path once again, and that as a result, any acceleration of growth from the first quarter’s sluggish pace could push U.S. trade accounts deeper into the red – resuming the dominant pattern of recent decades that strapped the nation with gigantic deficits to begin with. For the record, I’m leaning (but not by much) toward that pessimistic take, even though a single quarter’s results are anything but definitive.

Because it was bigger than initially reported, the first quarter deficit now stands at 6.14 percent of real GDP – up from the 6.08 percent calculable from that initial release (which had been the lowest such figure since the 6.06 percent from the second quarter of 2021), and interestingly, right back to its fourth quarter level. But this number is still way better than the record 7.47 percent in the first quarter of 2022.

With the first quarter trade gap now worsening slightly from the first GDP read, just as growth has risen slightly faster, its role in fueling that first quarter growth dwindled to literally nothing. The initial first quarter release reported that the sequential decrease in the trade deficit had contributed 0.11 percentage points to 1.06 percent annualized growth. But now, the modest sequential increase in the trade shortfall is reported to have had no effect on the new 1.27 percent annualized growth figure.

Both results, though, were way down from those of the fourth quarter, when a much bigger sequential trade deficit fall-off accounted for 0.42 percentage points of its 2.55 percent annualized growth.

The larger first quarter trade deficit means that it’s now 49.32 percent higher than in the fourth quarter of 2019 – the last full-data quarter before the pandemic arrived stateside in force to roil the economy. The initial first quarter read pegged this increase at 48.39 percent, and as of the fourth quarter, it was 48.73 percent.

Total exports climbed in the first quarter by 1.18 percent in the first quarter, from $2.5796 trillion to a new record $2.6101 trillion. The first quarter result topped the previous all-time high of $2.6041 trillion in the third quarter of last year by 0.23 percent. These overseas sales have now increased by 1.49 percent since that immediately pre-pandemic-y fourth quarter of 2019. As of last year’s fourth quarter, they were a bare 0.30 percent higher.

At least total exports in the first quarter rose even faster (by 1.26 percnt sequentially) than originally estimated (1.18 percent). The new total of $2.6122 trillion annualized was still a new record, nosing out the previous first quarter total of $2.6101 trillion by 0.08 percent. And it beat the previous quarterly all-time high of $2.6041 trillion in last year’s third quarter by 0.31 percent.

As a result, combined goods and services exports are 1.57 percent greater of the immediate pre-pandemic level versus the 1.49 percent calculable from the initial first quarter read and the measly 0.30 percent improvement over the fourth quarter total.

Total imports in the first quarter rose faster than originally reported, too. In that first read, they increased sequentially by 0.73 percent, from $3.8182 trillion at annual rates to $3.8460 trillion. Last week, this sequential gain was revised up to 0.98 percent, for a total of $3.8556 trillion – 0.25 percent higher than that estimated last month.

As a result, combined goods and services imports have now grown by 13.24 percent since that last pre-pandemic full-data quarter total in the fourth quarter of 2019 – higher than the 12.96 percent calculable last month and the 12.14 percent as of the fourth quarter of last year.

The trade shortfall in goods encouragingly kept on decreasing for the fourth straight quarter as of the new first quarter read – a span last matched between the second quarters of 2019 and pandemic-ridden 2020. It also remained the lowest number since the $1.3965 trillion at annual rates of the second quarter of 2021. But the decrease is now judged to be 0.52 percent less than initially judged, with the new number standing at $1.4101 trillion versus $1.4028 trillion. And it’s now up 0.57 percent since the fourth quarter rather than the 1.09 percent calculable previously.

Moreover, these results pushed the goods deficit’s rise since the pandemic began roiling the U.S. economy from 32.21 percent versus the 31.52 percent calculable last month. As of the fourth quarter, this increase was 32.96 percent.

Goods exports came in even better than previously reported. In the first release for the first quarter, they rose sequentially by 3.41 percent, from the fourth quarter’s annualized $1.8468 trillion to a new record $1.9098 trillion. That total surpassed the old record of $1.9010 trillion in the third quarter of 2022 by 0.47 percent.

But the second release boosted that quarterly rise by 0.08 percent. The record total therefore climbed to $1.9113 trillion, and the improvement over the fourth quarter to 3.49 percent. In addition, goods exports are now up by 6.99 percent since the immediately pre-pandemic-y fourth quarter of 2019, versus the 6.90 percent calculable last month.

Goods imports expanded more in the second first quarter GDP read than in the initial, but the rate was much lower than that for goods exports. As opposed to the 0.90 percent sequential increase recorded last month (from $3.2830 trillion annualized in the fourth quarter to $3.3126 trillion), the new mark is now judged to be $3.3214 trillion – 0.27 percent greater than the initial read, and 1.17 percent higher than the fourth quarter total.

These results still represent the first increase in goods imports in three quarters, and have brought the gain since the fourth quarter of 2019 to 16.41 percent versus the 16.11 percent calculable last month.

At the same time, the longstanding surplus in services trade shrank sequentially more in the first quarter than initially reported. As of last month’s release, it had declined by 5.63 percent from the fourth quarter – from $177.7 billion to $167.7 billion. And this drop was the biggest since the 20.94 percent in the second quarter of 2021.

But in the new release, the sequential decrease came in at 5.91 percent (still the biggest pullback since the second quarter of 2021), and the new total was an annualized $167.2 billion – a dip of 0.30 percent from the previously reported first quarter total. So rather than having shriveled by 28.08 percent since the just before the pandemic’s arrival in force in the fourth quarter of 2019, the surplus in this sector – which was hit so hard by CCP Virus and its fallout – is now 29.09 smaller.

The sequential slippage in services exports is now seen as not having been quite so steep as reported in the previous first quarter GDP release. Then, at $721.1 billion at annual rates, it was 1.41 percent below the fourth quarter total of $731.4 billion. Now, the first quarter total is estimated at $721.6 billion – 0.07 percent better than that initial first quarter figure and down 1.36 percent from the fourth quarter level.

Consequently, services exports have drawn to within 8.29 percent of their immediate pre-pandemic total, versus the 8.35 percent shortfall calculable last month.

But rather than having tumbled a bit sequentially in the first quarter, as reported in last month’s release, services imports are now judged to have risen slightly. Last month, these purchases were reported to have been $553.4 billion at annual rates – 0.05 percent below the fourth quarter’s $553.7 billion. Now they’re pegged at $554.4 billion – 0.18 percent above the previous first quarter read and 0.13 percent above that fourth quarter total.

Services imports now have reportedly grown by 0.62 percent since that last full-data pre-pandemic fourth quarter of 2019, versus the 0.44 percent gain recorded last month. As of the fourth quarter of last year, this increase stood at 0.49 percent.

As mentioned at the start, these new trade and GDP results could mean that any speed up in U.S. economic growth could bring about renewed growth of the trade deficit – confirming the end of a streak of continued growth and falling deficits. But with the experts seemingly divided in their second quarter growth forecasts (see, e.g., here) the safest observation for now seems to be that the deficit’s course remains at much the same crossroads as described in my previous trade and GDP post.

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(What’s Left of) Our Economy: The Real Trade Deficit at a Crossroads

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

Today’s first official estimate of U.S. economic growth in the first quarter of this year was one of the most peculiar reports in this series I can remember.

On the one hand, this read (which will be revised twice in the next two months) showed a 1.06 percent improvement after inflation at annual rates in America’s gross domestic product (GDP – the standard measure of an economy’s size). That’s a marked slowdown from the fourth quarter’s 2.55 percent real annualized growth. So not great economic news.

On the other hand, price-adjusted GDP still grew, and the price-adjusted total trade deficit slipped. In fact, it shrank for the third straight time while the economy expanded. That kind of streak hasn’t been seen since the period between the first and fourth quarters of 2007 – just before the arrival of the Great Recession spurred by the Global Financial Crisis.

Despite that reference, that’s encouraging economic news, since it indicates that the growth, however measly per se, remained healthy quality-wise. In other words, it stemmed more from producing than from spending – the opposite result from the typical consumption-led growth pattern usually signaled by a widening rising trade gap.

Specifically, in the first quarter, the constant dollar goods and services trade deficit dipped by 0.23 percent, from the fourth quarter’s inflation-adjusted $1.2386 trillion to $1.2358 trillion. (After-inflation figures at annual rates will be the measure used in this post unless otherwise specified.) The drop was also the fourth straight sequential decrease of any kind – which hadn’t happened since the year between the second quarters of 2019 and 2020.  The end of that period, of course, is when the economy began suffering the effects of the CCP Virus. And the new level is the lowest since the $1.2309 trillion recorded in the second quarter of 2021.

The first quarter deficit represented 6.08 percent of the after-inflation GDP – down from the fourth quarter’s 6.14 percent and also the lowest such figure since the second quarter of 2021 (6.06 percent). All these numbers are way below the record of 7.47 percent in the first quarter of 2022.

Not surprisingly, though, the slight contraction in the overall trade deficit contributed little to first quarter growth either in absolute or relative terms – fueling just 0.11 percentage points of the 1.06 percent advance. In the fourth quarter, the reduction in the goods and services deficit accounted for 0.42 percentage points of the 2.55 percent growth.

The first quarter data left the total trade shortfall 48.39 percent greater than the amount in the fourth quarter of 2019 – the final full data quarter before the pandemic arrived stateside in force. As of the fourth quarter, it had been 48.73 percent higher.

Total exports climbed in the first quarter by 1.18 percent, from $2.5796 trillion to a new record $2.6101 trillion. The first quarter result topped the previous all-time high of $2.6041 trillion (in the third quarter of last year) by 0.23 percent. These overseas sales have now increased by 1.49 percent since that immediately pre-pandemic-y fourth quarter of 2019. As of last year’s fourth quarter, they were a bare 0.30 percent higher.

Total imports in the first quarter rose for the first time in three quarters – by 0.73 percent, from $3.2830 trillion to $3.8460 trillion. These purchases now top the fourth quarter, 2019 total by 12.96 percent. As of the fourth quarter of last year, they were up by 12.14 percent.

The trade shortfall in goods dipped by 1.09 percent sequentially, from $1.4182 trillion to $1.4028 trillion. This fourth straight decrease matched that of the span between the second quarters of 2019 and pandemic-ridden 2020, and the level was the lowest since the $1.3965 trillion from the second quarter of 2021. This deficit is now 31.52 percent greater than just before the CCP Virus began roiling the economy, versus 32.96 percent growth as of the fourth quarter of 2022.

Goods exports reached an all-time high as well, increasing from the fourth quarter’s $1.8468 trillion to $1.9098 trillion. The old record of $1.9010 trillion in the third quarter of 2022 was 0.46 percent lower. These exports have now risen by 6.90 percent since the last pre-pandemic fourth quarter of 2019, versus the 4.38 percent growth as of last year’s fourth quarter.

As with total imports, goods imports rose for the first time in three quarters, too. The advance was 0.73 percent, from $3.8182 trillion to $3.8460 trillion, and it brought the post-fourth quarter, 2019 increase to 12.96 percent. As of last year’s fourth quarter, the increase was 12.14 percent.

The surplus in services trade, a major CCP Virus-era victim, sank in the first quarter sequentially from $177.7 billion to $167.7 billion. The 5.63 percent pull-back was the biggest since the 20.94 percent nosedive in the second quarter of 2021. Yet it also followed big third and fourth quarter jumps of 9.44 percent and 8.69 percent, respectively.

Still, the services surplus is down 28.88 percent since the fourth quarter of 2019, versus the 24.64 percent fall-off as of fourth quarter, 2022.

Services exports fell 1.41 percent in the first quarter, from $731.4 billion to $721.1 billion. This decrease was the first since the second quarter of 2020 – the first quarter heavily affected by the virus. Consequently, these sales are off by 8.35 percent since the last pre-pandemic quarter, versus the 7.04 percent calculable as of last year’s fourth quarter.

Services imports contracted only from $553.7 billion to $553.4 billion, but the decrease was the third straight. These purchases have now risen by 0.44 percent since the arrival of the CCP Virus in force, versus the 0.49 percent calculable as of the previous quarter.

With the new feeble first quarter growth figure seeming to indicate surging odds of an imminent recession, the real trade gap presumably will keep narrowing, too. But the economy is still being distorted by the virus and Washington’s roller-coaster responses.

As I’ve written, the current slowdown – due to the Federal Reserve’s inflation-fighting efforts – could well stabilize and even reverse itself if the central bank pauses or ends its credit tightening for fear of bringing on a hard landing, and if politicians succumb to election-year temptations to keep voters happy with added government spending. In that case (the one I consider likeliest), the real trade deficit could well be headed higher once again, too.    

 

(What’s Left of) Our Economy: The New U.S. GDP Figures Remained a Mixed Bag on Trade

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banking crisis, consumers, consumption, exports, Federal Reserve, GDP, goods trade, gross domestic product, imports, inflation, inflation-adjusted growth, interest rates, monetary policy, real GDP, real trade deficit, services trade, Trade, trade deficit, {What's Left of) Our Economy

The third (and final for now) official read on U.S. economic growth in the fourth quarter of last year and full-year 2022 came in on Thursday, and the trade results strongly resembled those of the first and second reports on the increase in the gross domestic product (GDP): definite progress on reducing the ginormous trade deficit on a quarterly basis, but backsliding on an annual basis.

The one area in which revisions were noteworthy: services trade, which was hit so hard by the CCP Virus and consequent limits on in-person service industries, and which most economists agree is harder to measure than goods trade.

As with my last two posts on the trade highlights of these growth reports, we’ll start with the quarterly figures – and present them in inflation-adjusted annualized terms (those most closely followed by GDP observers) except when otherwise specified.

The new data show that the combined goods and services trade deficit contracted by 2.38 percent sequentially in the fourth quarter – from $1.2688 trillion to $1.2386 trillion. The previous report pegged this shrinkage at 2.40 percent (to $1.2384 trillion). So the latest revision was a slight improvement.

Moreover, these numbers mean that the deficit still fell for the third consecutive quarter – the first such span since the period from the second quarter of 2019 through the second quarter of 2020. And the statistics are still especially heartening since that stretch includes the CCP Virus’ arrival in the United States, which naturally depressed imports and the trade deficit by crushing the entire economy, including of course demand for all goods and services, By contrast, during last year’s third and fourth quarters, the economy expanded.

In fact, that two-quarter stretch of the economy expanding and the trade deficit decreasing was the longest since the span between the second quarter of 2019 and the first quarter of 2020. This combination signals growth relying more on the healthy recipe of investing and producing rather than on the crutch of borrowing and spending.

Moreover, the new fourth quarter level of $1.2386 trillion for the overall trade gap remains the lowest since the $1.2039 trillion recorded in the second quarter of 2021. The only discouraging note: During the second and third quarters of last year, the shortfall declined because exports rose and imports fell – the best of all possible trade flow worlds. During the fourth quarter, however, although both exports and imports retreated.

Also, the combined goods and services deficit is now 48.73 percent larger than in the fourth quarter of 2019 – the last quarter before the pandemic arrived state-side in force and began roiling and distorting economic activity. That’s a bit higher than calculable from last month’s GDP release (47.98 percent) but a sizable improvement over the 52.35 percent growth as of the third quarter.

Because the total trade deficit inched up from the second to the third GDP reports, so did its share of after-inflation GDP – from 6.13 percent to 6.14 percent. But this figure was higher in the third quarter (6.33 percent), and the fourth quarter result is still well below the record 7.47 percent, reached in the first quarter of 2022.

As a contributor to fourth quarter growth, trade decreased in both relative and absolute terms over the results from the second GDP read – from having added 0.46 percentage points (17.36 percent) to a 2.65 percent sequential expansion to accounting for 0.42 percentage points (16.47 percent) of 2.55 percent quarterly growth.

Both sets of figures, though, are way off their third quarter counterparts – when trade fueled nearly all (2.86 percentage points) of 3.20 percent growth. That was the biggest absolute amount in 42 years, though far from a long-term high in relative terms.

Put differently, had the deficit not changed from the second to third GDP releases for the fourth quarter, the economy would have grown not by 2.55 percent but by a considerably slower 2.13 percent. The comparable previous figures for the fourth quarter were growth of 2.19 instead of 2.65 percent.

The new GDP report shows that exports dropped more in the fourth quarter than previously estimated. The second read pegged the quarterly decline at 0.41 percent – from the third quarters’s record $2.6041 trillion to $2.5934 trillion. This slippage was the first since the first quarter of 2022.

Today’s results judged the decrease from the third quarter to be nearly twice as big (0.94 percent) – to $2.5796 trillion. At least it was still the second best total ever.

Nonetheless, the increase in total exports since the last pre-pandemic-y fourth quarter of 2019 is now just 0.30 percent. As of the previous read, it was 0.84 percent, and as of the third quarter, 1.26 percent.

By contrast, at an annualized $3.8317 trillion, the latest total real import figure was fractionally higher than that in last month’s GDP report, but 1.06 lower than the third quarter result – a dropoff steeper than that of exports. Moreover, this second straight quarterly decrease is still the longest since the year between the second quarter of 2019 and the peak pandemic-y second quarter of 2020. And since the last full pre-pandemic fourth quarter of 2019, they’re up just 12.54 percent as opposed to the 12.43 percent calculable last month and the 13.75 percent since the third quarter.

As for total real imports, they’re now pegged at $3.8182 trillion for the fourth quarter – 0.35 percent lower than the previous estimate of $3.8317 trillion, and 1.41 percent from the third quarter result.

But the sequential decrease is still the second straight – the longest such stretch since that CCP Virus-influenced year between the second quarter of 2019 and the second quarter of 2020. And since just before the pandemic’s arrival in force, overall imports are now up just 12.14 percent – versus the 12.43 percent calculable from last month’s report and the 13.75 percent as of the third quarter.

This latest fourth quarter GDP report pegged the trade deficit in goods at $1.4182 trillion – down from the previous read by 0.26 percent and from the third quarter total by 0.99 percent.

The goods trade gap, moreover, still decreased for the third straight quarter – a development that hasn’t been seen since the pandemic-heavy fourth quarter, 2019 to second quarter, 2020 period. And it remained the lowest total since the $1.4647 trillion recorded for the fourth quarter of 2021.

As a result, this trade shortfall is now 32.96 percent during the post-fourth quarter, 2019 period, down from the 33.31 percent calculable from the last GDP release and 34.30 percent as of the third quarter.

America’s trade in services is still in surplus, as has long been the case, but the fourth quarter estimate has now been lowered by fully 2.42 percent from the previous read – from $182.1 billion to $177.7 billion. But it’s still 8.69 percent higher than the third quarter result of 163.5 billion.

The previous GDP report pegged this service trade surplus as 22.77 percent below its immediate pre-pandemic level of $235.8 billion. Now it’s sunk to 24.64 percent below. Through the third quarter, the decrease was 30.66 percent.

The new GDP release shows fourth quarter goods exports to be $1.8648 trillion – which still represents their first sequential shrinkage since the third quarter of 2021. This figure is up fractionally from that in the previous read, and 2.37 percent below the record third quarter total of $1.9010 trillion.

These fourth quarter exports stayed at 4.38 percent above their immediate pre-pandemic level. As of the third quarter, they were 6.92 percent greater.

According to the second fourth quarter GDP release, constant dollar goods imports in the fourth quarter still decreased for the third consecutive time – the longest stretch since the economically weak period between the fourth quarter of 2019 through the second quarter of 2020.

At $3.2830 trillion, these purchases from abroad were down 0.11 percent from the previous estimate of $3.2866 trillion, and 1.51 percent from the third quarter’s $3.3334 trillion. And they still remained the lowest such total since the $3.2582 trillion from the fourth quarter of 2021.

Goods imports are now 15.07 percent higher than in the immediately pre-pandemic-y fourth quarter of 2019, versus the 15.19 percent increase calculable in last month’s GDP release. and the 16.83 percent increase as of the third quarter.

Big revisions were made in the fourth quarter services exports figures, however. Previously judged to be $744.1 billion (up 2.99 percent from the third quarter’s $722.5 billion), they’re now estimated at $731.4 billion. That’s fully 17.07 percent lower.

As a result, they’re now up just 1.23 percent from the third quarter, and down 7.04 percent since just before the CCP Virus’ arrival state-side in late, 2019, versus the 5.43 percent calculable from the previous GDP release.

What hasn’t changed: Services exports have still shrunk for an unprecedented ten consecutive quarters.

Revisions were also noteworthy for fourth quarter services imports. Previously reported at $562.0 billion (0.54 percent more than the third quarter’s $559.0 billion) they’re now pegged at $553.7 billion (0.95 percent less). And the downgrade from that previous fourth quarter total is 1.48 percent.

Services imports have still declined on a quarterly basis two straight times – for the first time since the pandemic-dominated year between the second quarter of 2019 through the second quarter of 2020. But since the virus’ arrival in force, services imports have now grown by just 0.49 percent, versus the1.56 percent calculable from the previous fourth quarter GDP release and the 1.47 percent increase as of the third quarter.

As with the first two fourth quarter GDP reports, the annual figures in the new release were worse than the quarterlies, but the differences were smaller because a longer timeframe is involved.

The final (for now) 2022 overall trade deficit of $1.3567 trillion (we’re no longer annualizing numbers) was just fractionally higher than the total in the second read, and represented both the ninth straight yearly increase and the ninth straight yearly record. The gap topped 2021’s total of $1.2334 trillion by ten percent.

This trade shortfall’s share of GDP ticked up, too, from the 6.77 percent calculable from the previous GDP read to 6.78 percent, and set an annual record for the third straight year. The third quarter figure was 6.29 percent.

The deficit’s subtraction from to economic growth last year was scaled down a bit in relative terms, from the 0.40 percentage points of 2.07 percent GDP expansion reported in the previous GDP release to 0.40 percentage points of 2.08 percent growth. In other words, without the rise in the gap, 2022 growth would have been 2.48 percent – or 19.23 percent higher.

But the deficit’s 2022 impact on growth differed dramatically from the results from 2021, when the gap subtracted 1.25 percentage points from that year’s 5.95 percent growth.

The total for the combined goods and services exports deficit`changed only marginally as well – from the $2.5378 trillion reported in the previous GDP release to $2.5344 trillion, a difference of 0.13 percent.

As a result, overall exports swelled from 2021’s $2.3668 trillion by 7.08 percent, not the 7.22 percent increase recorded in the previous GDP release. As of that previous report, this increase was the fastest since 2010’s 12.88 percent – when the economy was recovering from the Great Recession that followed the Global Financial Crisis. Now however, it’s slipped back to the fastest since 2011’s 7.17 percent. But the annual improvement is still the second straight.

Yet the estimate for last year’s combined goods and services imports edged down from that in the previous GDP read – by 0.09 percent, from $3.8944 trillion to $3.8910 trillion. As a result, these foreign purchases are now 8.08 percent above those of 2021’s $3.6002 trillion, not the 8.17 percent calculable from the previous release.

All the same, total imports still rose in 2022 for the second straight year, and set a second straight annual record.

The goods trade deficit was revised down fractionally, too – by 0.06 percent, from $1.5228 trillion to $1.5219 trillion. Consequently, this trade shortfall is now pegged at 7.62 percent greater than 2021’s $1.4141 trillion, not 7.69 percent higher.

But these downgrades still left the 2022 goods trade gap as the fourth straight annual record and the thirteenth straight annual increase. The latter is the longest such streak ever in a data series going back to 2002.

Also revised down – the longstanding services trade surplus in services. Reported in the previous GDP read at $162.3 billion, it’s now estimated at a 0.74 percent narrower $161.1 billion.

These new results left the 2022 services surplus 6.72 percent lower than 2021’s $172.7 billion level – instead of the 5.91 percent difference calculable from the previous release. The services surplus has still, however, contracted for the fifth straight year – the longest such period since these data began to be collected in 2002, and the 2022 total is still the lowest since 2010’s $158.6 billion.

Goods exports stayed unrevised in the latest GDP release at $1.8377. So their 2022 level was still 6.29 percent greater than 2021’s $1.7289 trillion, and the absolute total remained the second consecutive yearly increase and a new record – topping 2019’s $1.7915 trillion by 2.61 percent.

The 2022 goods imports estimate dipped by just 0.03 percent – from the previous GDP report’s $3.3605 trillion to $3.3596 trillion. The annual increase went from the 6.92 percent calculable from the previous GDP read to 6.89 percent, but the absolute 2022 figure remained a second straight all-time high.

The 2022 services exports total was also downgraded in the latest GDP report. Previously judged to be $717.3 billion, they’re now recorded at a 0.45 percent lower $714.1 billion. The increase over 2021’s $6.56.9 billion level also fell – from 9.19 percent to 8.71 percent. But it’s still the strongest improvement since 2007’s 13.08 percent spurt, and the annual advance is still the second straight.

Finally, the 2022 services import level was revised down as well, falling by 0.36 percent from the previous GDP report’s $555 billion to $553 billion. But the 14.21 percent annual increase was still the fastest ever, besting even 2021’s rapid 12.27 percent.

In last month’s report on the previous GDP release, I argued that because the latest domestic economic developments pointed to more consumer spending, and greater reluctance by the Federal Reserve to fight it with ever tighter monetary policies, the U.S. trade deficit looked set to resume rising.

Since then, another big reason for more Fed caution in inflation-fighting has of course emerged – the recent outbreak of turmoil in the banking system.  All else equal, the drop in lending that seems likely to take place should generate slower spending by both businesses and consumers.  Therefore, it should aid the anti-inflation fight without the need for a hard-line on interest rates and even shrinking the money supply from its current bloated levels.

Fed Chair Jerome Powell even said in his latest press conference that “you can think of [the lending effect of the banking woes] as being the equivalent of a rate hike or perhaps more than that….”    

But all else isn’t equal.  In particular, U.S. consumers overall are still flush with cash and as the next presidential election draws nearer, politicians will be increasingly tempted to prop up growth, employment, and therefore more consumption with more government stimulus.  So I remain convinced that despite the progess seen in the fourth quarter per se, the trade deficit is likely to start ballooning again.         

(What’s Left of) Our Economy: Latest U.S. Growth Figures Confirm (Ambiguous) Recent Trade Trends

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

The trade highlights of last Thursday’s second official estimate of U.S. economic growth in the fourth quarter of last year and full-year 2022 were nearly identical to those reported in the first read – pretty good on a quarter-to-quarter basis when it comes to reducing the long bloated trade deficit, but pretty discouraging on a year-to-year basis.

Starting with the quarterly numbers, the new data show that the inflation-adjusted trade gap narrowed somewhat less from the third quarter’s $1.2688 trillion at annual rates than initially reported – by 2.40 percent instead of 2.87 percent. (All value figures in this post will be in after-inflation dollars unless otherwise specified because the most closely followed numbers in the economic growth releases containing these quarterly trade statistics are those that are adjusted for price changes.)

But this means that as of the fourth quarter, the deficit still fell for the third consecutive three-month stretch – the first such span since the period from the second quarter of 2019 through the second quarter of 2020. That’s especially heartening since that stretch includes the CCP Virus’ arrival in the United States, which naturally depressed imports and the trade deficit because it crushed the entire economy. During last year’s third and fourth quarters, of course, the economy expanded.

In that vein, the fourth quarter also remains the second straight to see the economy expand as the overall deficit dropped – the kind of improvement that hasn’t been seen since the year between the second quarter and fourth quarters of 2019, and that signals growth relying more on the healthy combination of investing and producing rather than on the crutch of borrowing and spending.

Moreover, the new fourth quarter level of $1.2384 trillion annualized for the combined goods and services trade shortfall is still the lowest since the $1.2039 trillion recorded in the second quarter of 2021. One discouraging note, though: As with the previous fourth quarter growth report, the new release shows that the trade deficit sank on a decrease of both exports and imports. During the second and thid quarters, it fell because exports advanced and imports retreated.

Another step backward: As of the first fourth quarter report, the trade deficit had increased by 47.98 percent since the last pre-pandemic quarter, the fourth quarter of 2019. But the latest figures show that increase is up to 48.70 percent. At least that result is still better than the 52.35 percent recorded in the third quarter.

In addition, the slight increase in absolute terms of the fourth quarter trade deficit pushed it up from the 6.10 percent of inflation-adjusted gross domestic product (GDP – the standard measure of the economy’s size) to 6.13 percent. In the third quarter, however, this figure stood at 6.33 percent, and the new result is still much lower than the all-time high of 7.47 percent during the first quarter of last year.

Trade’s contribution to fourth quarter growth stayed relatively subdued as well. In the first read, the gap’s shrinkage fueled 0.56 percentage points (19.56 percent) of the estimated 2.86 percent real expansion at annual rates. In other words, had the deficit not changed, fourth quarter constant dollar annualized growth would have been just 2.30 percent.

The second read judges trade’s role as having added 0.46 percentage points (17.36 percent) of 2.65 percent annualized growth – dipping in both absolute and relative terms. And had the shortfall not declined, fourth quarter growth would have been just 2.19 percent.

In the third quarter, the trade deficit’s decrease was responsible for nearly all its growth – 2.86 percentage points of the 3.20 percent annualized price-adjusted GDP increase. That was the biggest absolute amount in 42 years, though far from a long-term high in relative terms.

As mentioned above, the new total export number for the fourth quarter was lower than the first release’s estimate, but only fractionally so. And at $2.5934 trillion at annual rates, these U.S. sales abroad were 0.41 percent less than the third quarter’s all-time high of $2.6041 trillion and still represented the first sequential decrease since the first quarter of last year. At the same time, the new fourth quarter total remains the second best ever.

The new results, though, leave total real exports a mere 0.84 percent above the level of that last pre-pandemic-y fourth quarter of 2019. As of the first read, that increase was 0.92 percent, and as of the third quarter, 1.26 percent.

By contrast, at an annualized $3.8317 trillion, the latest total real import figure was fractionally higher than that in last month’s GDP report, but 1.06 lower than the third quarter result – a dropoff steeper than that of exports. Moreover, this second straight quarterly decrease is still the longest since the year between the second quarter of 2019 and the peak pandemic-y second quarter of 2020. And since the last full pre-pandemic fourth quarter of 2019, they’re up just 12.54 percent as opposed to the 12.43 percent calculable last month and the 13.75 percent since the third quarter.

The second fourth quarter GDP report pegged the annualized trade deficit in goods at $1.4219 trillion – 0.23 percent higher than the first report’s $1.4186 trillion but down 0.74 percent from the third quarter’s $1.4324 trillion.

But despite continued GDP growth, this shortfall still fell for the third straight quarter – a streak that hasn’t been seen since the CCP Virus-dominated period from the fourth quarter of 2019 and the second quarter of 2020. In addition, the new goods trade deficit level was still the best since the $1.4647 trillion of the fourth quarter of 2021.

Consequently, the goods gap has now increased by 33.31 percent since the fourth quarter of 2019. As of last month’s read, the difference was 33 percent even, and as of the third quarter, 34.30 percent.

The longstanding surplus is now judged to have widened sequentially in the fourth quarter by 11.38 percent, from $163.5 billion at annual rates to $182.1 billion. This result marks a downgrade from the first fourth quarter report, which showed a surplus of $184.4 billion at annual rate (the highest such level since the $187.50 billion of the fourth quarter of 2020) and an increase over the third quarter total of 12.78 percent.

With the outsized pandemic-related hit taken by the service sector, this surplus is now still 22.77 percent below the immediate pre-pandemic level of $235.8 billion annualized. In the first GDP read for the fourth quarter, this decline was 21.80 percent, and as of the third quarter, 30.66 percent.

The latest fourth quarter result estimate still reports that goods exports registered their first sequential fall-off since the third quarter of 2021. But that the decrease from the third quarter record total of $1.9101 trillion annualized was greater (by 2.38 percent, to an annualized $1.8647 trillion) than initially judged (2.24 percent, to $1.8647 trillion).

Whereas last month’s GDP report estimated the pandemic period’s goods export improvement at 4.52 percent, it’s now pegged at 4.38 percent since the fourth quarter of 2019. As of the third quarter, goods exports were up 6.92 pecent.

According to the second fourth quarter GDP release, constant dollar goods imports in the fourth quarter fell fractionally less than initially reported, with the $3.2866 trilion anunalized total now down 1.40 percent from the third quarter’s $3.3334 trillion rather than the 1.43 percent reported last month. This decrease also remained the third straight – which hasn’t happened since that economically weak period between the fourth quarter of 2019 through the second quarter of 2020. And the new figure is still the lowest since the $3.2582 trillion recorded in the fourth quarter of 2021.

In inflation-adjusted terms, goods imports are now 15.19 percent higher than in the immediately pre-pandemic-y fourth quarter of 2019, versus the 15.16 percent increase calculable in last month’s GDP release. and the 16.83 percent increase as of the third quarter.

Services exports in the fourth quarter, by contrast, increased by more than judged in last month’s GDP report, to $744.1 billion at annual rates (up 2.99 percent from the third quarter’s $722.5 billion) instead of to $740.0 billion (up 2.42 percent).

This increase remained the tenth straight on a sequential basis, but these overseas sales still expanded from $722.5 billion after inflation at annual rates to $740 billion, a 2.42 percent improvement that represented the tenth straight sequential increase in thse sales. At the same time, real services exports are still down by 5.43 percent from the fourth quarter, 2019 level of $786.6 billion, rather than the 5.44 percent calculable in last month’s release and the 8.17 drop calculable from the third quarter figures.

Inflation-adjusted services imports, though, rose faster in the fourth quarter than the initial read judged – to $562.0 billion at annual rates (up 0.54 percent from the third quarter’s $559.0 billion) instead of edging up fractionally (to $559.6 billion) as initially estimated.

This advance places services imports growth during the pandemic period at two percent versus the 1.56 percent calculable from last month’s release and the 1.45 percent since the third quarter.

Turning to the notably worse annual figures, between 2021 and 2022, the combined goods and services trade gap still widened for a ninth consecutive year, and to a ninth straight yearly record, with the new $1.3566 trillion figure coming in slightly (0.l1 percent) higher than the $1.3551 reported last month. As a result, it’s now pegged at 9.99 percent higher than the 2021 total of $1.2334 trillion, not the 9.87 percent calculable as of the first fourth quarter GDP release.

But since the economy kept growing in real terms, although the total trade shortfall still set its third straight record as a share of GDP, the exact figure stayed at 6.77 percent. Its third quarter counterpart was 6.29 pecent.

The trade shortfall’s contribution to economic growth last year didn’t change much between the first and second GDP reads, either. Last month, it was reported as fueling 0.40 percentage points to a 2.08 percent inflation-adjusted annual growth pace. This month, it’s judged to have added the 0.40 percentage points to a 2.07 percent year-on-year expansion. As noted in last month’s RealityChek post, both figures are far from records.  So had the inflation-adjusted trade deficit not changed, real growth in the fourth quarter would have been a sluggish 1.77 percent. 

The total real exports results were scarcely changed, either. In the first fourth quarter GDP release, the second straight annual increase was pegged at 7.25 percent, from $2.3668 trillion to $2.5384 trillion. That jump was the highest since 2010’s 12.88 percent in 2010 – when the economy was recovering from the Great Recession that followed the Global Financial Crisis.

The second read downgraded the 2002 combined goods and services export total to $2.5378 trillion, resulting in a 7.22 percent annual improvement that remained the strongest since 2010.

Total real imports for 2022 were upgraded marginally, from the $3.8935 trillion estimated last month to $3.8944 trillion. This figure remained both the second consecutive quarterly increase and the second straight quarterly record. In addition, the annual increase went up from 8.15 percent to 8.17 percent from the 2021 level of $3.6002 trillion.

As for the goods trade deficit, it was revised fractionally higher, too, from $1.5220 trillion to $1.5228 trillion. This trade shortfall still represented both the fourth straight all-time annual high, and the thirteenth consecutive increase – itself a new record in a data series that began in 2002. And this shortfall is now 7.69 percent higher than 2021’s $1.4141 trillion, versus the 7.63 percent calculable last month.

The longstanding services trade surplus was revised down in the new GDP figures, from the $162.8 billion estimated last month to $162.3 billion, a difference of 0.31 percent. That means that the yearly decrease was 5.91 percent, not the 5.23 percent previously recorded. But the new 2022 total is still the lowest such number since 2010’s $158.6 billion, and this fifth consecutive annual contraction is the longest such streak ever in another data series that goes back to 2002.

Goods exports of $1.8377 trillion represented a fractional downward revision from the first fourth quarter GDP’s estimate of $1.8383 trillion, and brought annual 2022 growth from 6.33 percent to 6.29 percent. This yearly increase, however, remained the second straight and the annual total a new record – topping 2019’s $1.7915 trillion by 2.61 percent.

At $3.3605 trillion, the new 2022 real goods imports results were virtually unchanged from the previous GDP release’s $3.3603 trillion, and pushed the annual increase from 2021’s $3.1430 trillion from 6.91 percent to 6.92 percent. This figure remained a second consecutive record.

Staying unrevised were the services exports, which are still judged to have surged by 9.90 percent from 2021-2022, the biggest such increases since 2007’s 13.08 percent. In absolute terms, the increase was from $656.9 billion to $717.3 billion..

But services imports rose faster between 2021 and 2022 than previously reported. Instead of climbing by 14.52 percent (from $484.2 billion to $554.0 billion), the increase is now pegged as one of 14.62 percent (to $555.0 billion). The increase was still the fastest ever, surpassing even last year’s robust 12.27 percent.

Although the trade highlights of the first two fourth quarter GDP reports were quite similar, the U.S. economic landscape has undergone some notable changes in the last three months. Inflation seems to have stopped disinflating, at least for the time being (see, e.g., here) no doubt partly as a result because growth has held up better than expected – both domestically and abroad. And surprisingly strong inflation and expansion seem to have firmed the Federal Reserve’s resolve to keep raising interest rates high enough to cool down the continued demand that continues to prop up prices.

But does the Fed really want to tip the economy into recession, especially with a presidential election cycle already in its infancy? Would Congress really permit that to happen, and resist the urge to fill up consumers’ pockets again, whether through more spending or lower taxes or some combination of the two? That would surprise the living daylights out of me, which is why I’m still expecting a short, shallow recession, followed by stagflation – and by steadily worsening trade deficits.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(What’s Left of) Our Economy: 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.