(What’s Left of) Our Economy: New U.S. GDP Figures Report Record – and Virus-Distorted – Trade Deficits

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

Because the entire U.S. economy has been so distorted by sudden stop-start nature of the CCP Virus and subsequent lockdowns and reopenings, and massive government stimulus measures, I’ve been hesitant to draw firm conclusions about the messages sent by the various reports on the economy’s performance issued by the government since the pandemic arrived.

I’m still hesitant, but this morning’s Commerce Department report on the economy’s growth in the first quarter of this year seemed especially interesting due to the signs it contained that America’s trade flows might be returning to some semblance of normality. The signs consist of quarter-to-quarter changes in deficits, exports, and imports that are decidedly moderating.

To start, that conclusion is also consistent with the moderating of changes in economic growth itself. Measured in inflation-adjusted terms, this intiial read on America’s gross domestic product (GDP – the total of goods and services turned out by the nation) revealed growth of 6.24 percent at an annual rate in the first quarter. By the standards of normal times recent decades, this is a blistering pace. In fact, leaving out the pandemic period, it was the best such performance since the 6.80 percent achieved in the third quarter of 2003.

But by pandemic standards, although it’s a speed up from the 4.26 percent registered in the fourth quarter of last year, it’s not that much of a speed up, especially given how much stimulus has been poured into the economy. And compared with the 29.91 percent real GDP pop in last year’s third quarter, however, it’s definitely smallish beans.

The trade figures comprising part of this GDP report generally followed suit. For example, the first quarter’s after-inflation trade deficit of $1.1755 trillion was an all-time quarterly record both in absolute terms, and more important, as a share of the whole economy (6.16 percent). The last time the trade deficit’s relative size was remotely that big was during the fourth quarter of 2005 (6.10 percent) – during a time now known as the bubble decade that preceded the financial crisis and Great Recession of 2007-2009.

Yet the deficit’s quarter-to-quarter growth rate of 4.77 percent was considerably slower than the fourth quarter’s 10.12 percent, and the record (by a long shot) 31.47 percent recorded during that extraordinarily high growth third quarter.

The same pattern is unfolding so far with the trade gap in goods. At $1.3463 trillion annualized it marked the third straight quarterly record in absolute terms. But the sequential growth rate of 3.46 percent was well off quarterly the rate of 6.94 percent in the fourth quarter, much less the 21.58 percent in the third quarter.

Trade in services – the part of the national and global economies hardest hit by the virus and the lockdowns – has taken less of a straight line route in terms of quarterly change, but moderation can be seen here, too. The quarterly surplus of $165.1 million was the smallest recorded since the $1.57 million during the third quarter of 2009 – when the economy was just beginning to crawl out of the Great Recession.

The quarterly shrinkage of 4.95 percent was, though, As less than a third as great as the fourth quarter’s 17.29 percent – though that nosedive was greater than the third quarter’s 10.48 percent.

Approaching normality was also indicated by another trade-related figure – the degree to which these changes in the deficit have affected overall growth. During the first quarter of this year, the sequential rise of the price-adjusted trade deficit subtracted 0.87 percentage points from annualized real GDP growth figure, which hit 6.24 percent. So that trade shortfall increase affected 13.94 percent of the growth figure (for the worse).

As discouraging as that result was, however, the trade effect was much smaller than in the fourth quarter of last year. Then, the big surge in the inflation-adjusted trade gap cut 1.53 percentage points from real GDP growth, which hit 4.26 percent annualized. In other words, the trade deficit affected 35.92 percent of the growth figure (again for the worse).

The trade affect was actually smaller in relative terms during the record GDP growth third quarter – reducing real GDP expansion, which neared 30 percent at annual rates, by 3.21 percentage points.

But for some context, the last time the trade hit to real economic growth was seen in this statistical neighborhood was the third quarter of 1982, when dragged down a sequential after-inflation contraction of 1.53 percent by 3.22 percentage points. That is, without the increase in the trade deficit, the overall economy would have grown. And the all-time record was set way back in the fourth quarter of 1947 – when a rising trade shortfall cut 4.23 percentage points out of a growth rate that his 6.25 percent annualized.

Larger trade effects have been seen occasionally when a quarterly improvement in the deficit bolstered growth. But these instances came during deep downturns – as in the second quarter of 1980 and the first quarter of 1975.

Nevertheless, a case can be made that the CCP Virus related distortions of the economy and U.S. trade flows still have a ways to go. After all, more massive government stimulus seems to be coming, and new pandemic waves are washing over major portions of Europe and Asia, which of course are important American export markets. And until the roller coaster ride is over, assessing the true state of the economy and trade flows will remain a serious challenge.

Moreover, even if the distortions are indeed over, these particular trade figures are of little help in assessing the ongoing impact of the Trump trade policy revolution engineered from 2017 to last year.  Luckily, the next set of needed details is due out next Tuesday, when the March monthly trade report is slated to be released.      

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(What’s Left of) Our Economy: Why Today’s Fed U.S. Manufacturing Report is So Bullish

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737 Max, aircraft, aluminum, automotive, Boeing, China, Federal Reserve, inflation-adjusted growth, Joe Biden, machinery, manufacturing, medical supplies, metals, pharmaceuticals, PPE, real output, steel, tariffs, Trade, vaccines, {What's Left of) Our Economy

Think for a moment about this morning’s very good manufacturing production figures from the Federal Reserve (for December) and a case for major optimism about U.S. industry’s foreseeable future is easy to make. Not only has the advent of highly effective vaccines greatly boosted hopes for a return to normality sooner rather than later. But much of the underlying data was collected before the vaccine production surge began.

Moreover, although Boeing aircraft is still dealing with manufacturing problems, its popular 737 Max model is being recertified or nearly recertified for flight by numerous countries (including the United States) and any continued significant rebound in air travel levels is sure to help the company’s order book for all of its jets.

And again, the data themselves were strong. According to this first Fed read for the month, American inflation-adjusted manufacturing output rose by 0.95 percent sequentially. Moreover, November’s initially reported 0.79 percent improvement was upgraded to 0.83 percent, and October’s results were revised upward for a second time – to 1.34 percent.

These noteworthy advances – which add up to eight straight months of increases – brought price-adjusted U.S. manufacturing production to 22.05 percent above the levels it hit during its CCP Virus-induced nadir in April, and to within 2.40 percent of its last monthly pre-pandemic numbers (for February).

Especially interesting, and another cause for optimism: The December manufacturing growth was so broad-based that it was achieved despite a 1.60 percent monthly drop in constant dollar automotive production. Combined vehicle and parts output has rebounded so vigorously since its near-evaporation last spring (by just under six-fold) that on a year-on-year basis, it’s actually grown by 3.64 percent. But today’s Fed report represents evidence that many other sectors are now catching up.

The crucial (because its products are used so widely throughout the entire economy) machinery sector enjoyed a good December, too, with after-inflation production increasing by 2.07 percent sequentially. That welcome news more than offset a downward revision in the November results, from a 0.51 percent to 0.99 percent shrinkage. Due to this growth, this real domestic machinery output is now just 1.53 percent off its pre-pandemic level.

As for the pharmaceutical industry, its price-adjusted output expanded by a solid 2.12 percent sequentially in December, but November’s disappointing initially reported 0.76 percent fall-off was downgraded to a 0.84 percent decrease, and October’s results stayed at minus 1.01 percent.

Moreover, year-on-year constant dollar pharmaceutical production is up only 0.18 percent – anything but what you’d expect for a country suffering through an historic pandemic.

But the first batch of Pfizer anti-CCP Virus vaccines didn’t leave the factory until December 13, and key data behind this first read on the month’s performance were gathered beforehand. So it’s likely that the huge ramp in vaccine out could start showing up in the revised December results in next month’s Fed manufacturing report (for January), which will reflect more relevant statistics.

Similar optimism seems warranted for the U.S. civilian aerospace industry and especially its beleaguered collosus, Boeing. Despite the safety woes of the popular 737 Max model and its consequent production suspension, the domestic aircraft and parts sectors have actually staged a powerful real output recovery since a 32.85 percent nosedive in February and March. Since then, inflation-adjusted production has boomed by 52.30 percent, fueled in part by December’s 2.78 percent sequential jump and November’s upwardly revised 2.39 percent growth.

In fact, constant dollar output in civilian aerospace is now actually 2.27 percent higher than its last pre-CCP Virus level. The 737 effect isn’t over yet, as made clear by the 11.49 percent real production decline since last December. But it seems evident that the industry is and will remain on the upswing barring any new seriously bad news.

Unfortunately, little such optimism appears justified in the case of medical equipment and supplies – including face masks, protective gowns, ventilators, and the like. Inflation-adjusted production in their larger subsector sank in December by 0.36 percent on month, and although the November increase has been revised up from 1.56 percent to 1.60 percent, October’s growth has been downgraded again – from an initially judged 3.54 percent all the way down to a decidedly non-pandemic-y 1.75 percent.

And since April, the after-inflation production recovery has been only 21.02 percent – still less than that for all of manufacturing. The year-on-year December result is no better, as it’s down 5.44 percent. And of course, those 2019 levels were revealed by the pandemic to have been dangerously inadequate.

But before ending, I couldn’t forgive myself if I didn’t say something about tariffs, and as with last month’s Fed manufacturing figures, the performance of the primary metals sectors for December is sending this loud and clear message to President-Elect Joe Biden: Keep them on.

For in constant dollar terms, these protected industries have recorded strong monthly growth since June, and November’s upwardly revised sequential 3.98 percent pop has now been followed by a 2.51 percent increase in December.

All told, since the April bottom, price-adjusted production has risen by 29.01 percent – expansion that looks inconceivable without the trade curbs preventing the U.S. market from being flooded with Chinese steel and aluminum along with product transshipped through the ports of those U.S. allies with whom Biden is so keen on repairing tattered Trump era ties, and greater metals shipments they often send America’s way to offset their own China-related losses.

(What’s Left of) Our Economy: The CCP Virus Lockdowns’ State-Level US Effects I

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California, CCP Virus, Commerce Department, coronavirus, COVID 19, GDP, gross domestic product, inflation-adjusted growth, lockdowns, New York, real GDP, shutdows, states, stay-at-home, Utah, Washington, Wuhan virus, {What's Left of) Our Economy

One of my coolest holiday gifts came courtesy of Uncle Sam. Not a tax refund or stimulus check, but the Commerce Department’s release last week on “Gross Domestic Product by State, 3^rd Quarter, 2020.”

Seriously.

I always look forward to these data because they enable gauging how developments in the national economy are affecting individual states as well as regions, and vice versa, and this latest report is especially interesting because of all that it says about the economic impact of the highly diverse set of lockdowns and shutdowns and stay-at-home orders and the like that the states have imposed during the CCP Virus era.

This will be the first of two posts on the subject, and I’ll focus on some simple descriptive findings – many of which came as surprises to me. Beforehand, though, it’s important to lay out some warnings against drawing overly tight conclusions between a state’s economic performance and the virus curbs it’s put I effect.

Among the most important:

>The pandemic hit different states at different times, so differences in their growth rates (what these gross domestic product, or GDP, figures are particularly valuable for), in many instances have relatively little to do with their lockdown etc regimes.

>The states have highly diverse demographic profiles (e.g., average age of the population, population density) that can also produce highly diverse economic performances for reasons largely unrelated to economic curbs.

>Different state economies are also dominated by different industries, and as has become obvious, some industries’ health has been decimated by the virus (especially in-person services of all kinds like dining and travel and hospitality, but also energy) while some have held up fairly well (like manufacturing). It’s become just as obvious that many jobs that can be performed at home, and therefore the income and spending they generate have been much less affected by the pandemic than jobs requiring a worker’s presence (e.g., in those in-person service sectors).

>Finally (for now), state economies don’t exist in isolation from each other. Commuters and shoppers often cross state lines when traveling to work or stores, and their businesses often sell their products and offer their services to customers nation-wide – inevitably weakening or strengthening the impact of state-specific curbs.

Still, the new GDP-by-state numbers (which include the District of Columbia) reveal any number of important results since they take the story past the deep second quarter virus- and shutdown-induced downturn suffered by the entire national economy, as well as the strong third quarter rebound.

One big surprise: The entire U.S. economy saw output drop by 2.17 percent in inflation-adjusted terms (the gauge most closely watched) between the first quarter of the year (the last mainly pre-pandemic quarter) and the third. But two states actually managed to grow in inflation-adjusted terms (the gauge most closely watched by students of the economy): Utah (whose economy expanded by 1.04 percent in real terms) and Washington (0.44 percent).

The Washington result was unexpected, at least for me, because its West Coast location placed it closer to the CCP Virus’ origins in China, because the first virus case was recorded there in January (at least as far as is known to date), and because one of its economic crown jewels is aerospace giant Boeing, which has been hit so hard both by recent travel restriction and the safety woes troubling its jetliners.

The worst performing states, in relative (percentage terms) were less surprising. The leader here far and away was Hawaii, whose constant dollar GDP shrank by 6.67 percent) followed by Wyoming (down 5.24 percent by the same measure) and New York (4.56 percent). The Aloha State has of course been victimized by the depression in the travel and tourism industries, Wyoming is energy dependent, and New York collectively caught the CCP Virus early, when so little was known about its virulence and deadliness, and about which Americans were least and most vulnerable.

Oddly, however, the number of states that appear to have been especially hard hit economically between the first and third quarters was pretty limited. Only nine overall experienced price-adjusted contractions of more than three percent. In addition to the three biggest losers above, they were Oklahoma, Tennessee, Alaska, Nevada, New Jersey, and Vermont. And bonus points for you if you see major energy (Oklahoma, Alaska) and tourism (Nevada and Vermont) effects at work here.

Other than that, the economies of eighteen states shrank between two and three percent in constant dollar terms between the first and the third quarters – meaning that, generally, they weren’t far from the national total of 2.17 percent. The rest contracted by less than two percent or (as with Utah and Washington) eaked out some growth.

But this isn’t to say that the economic impact of the virus and related economic curbs haven’t been highly concentrated in at least one respect: A way outsized share of this production destruction has taken place as of the third quarter in just two states: New York and California.  

New York’s the champ here. During the first quarter, its economy represented 7.74 percent of the U.S. total in inflation-adjusted terms. By the third quarter, though, its $67.80 billion contraction represented 16.36 percent of the entire country’s $414.33 billion. In other words, measured by lost output, it punched more than twice above its economic weight.

During this period, California’s real GDP fell by more than New York’s in absolute terms ($74.30 billion). But its economy has long been bigger than New York’s – accounting for 14.81 percent of constant dollar US GDP during the first quarter, or nearly twice New York’s share. So its 17.93 percent shrinkage was smaller relative to the size of its economy than New York’s.

Their combined impact, however, is genuinely astonishing. Accounting for a combined 22.55 percent of the U.S. economy adjusted for inflation in the first quarter, they generated 34.29 percent of the nation’s economic shrinkage – more than a third.

And this is where the lockdown angle comes in: By one gauge of virus-era state economic regimes, (which themselves have almost all been on and off at least to some extent, thereby creating yet another complication) New York’s and California’s were among the strictest. And the next RealityChek post will examine in more detail the relationship these curbs and state economic growth.

(What’s Left of) Our Economy: New Evidence that Trump’s Tariffs Have Bolstered U.S. Manufacturers

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aluminum, CCP Virus, China, coronavirus, COVID 19, GDP, gross domestic product, inflation-adjusted growth, lockdowns, manufacturing, metals, metals tariffs, real GDP, real value-added, recession, steel, tariffs, Trade, trade war, Trump, value added, Wuhan virus, {What's Left of) Our Economy

As everyone knows, at least as of the final (for now) official third quarter growth figures just released, the entire U.S. economy remains in a severe recession thanks to the arrival of the CCP Virus and the subsequent tight curbs on business activity.

Less widely known:  A separate set of official figures released along with yesterday’s government release on third quarter gross domestic product (GDP) shows that, by the measures most closely watched (i.e, inflation-adjusted), domestic manufacturing never suffered a recession by one crucial definition – a cumulative downturn lasting at least two quarters. And can it be mere coincidence that the entire time, President Trump’s sweeping and steep tariffs on hundreds of billions of dollars worth of Chinese goods, and of steel and aluminum from most major foreign producers, have remained in place?

Below are the growth (and contraction) figures for the entire U.S. economy and for the manufacturing sector for the entire CCP Virus period so far – the first quarter through the third quarter of this year. They come from the Commerce Department’s data on four measures of output tracked by the folks who look at “GDP by Industry” and consist of gross output both pre-inflation and adjusted for price changes, and value-added (a gauge of production that tries to remove the double-counting that results from gross output’s inclusion of both inputs for products and services and the final products and services themselves) in pre-inflation and price-adjusted terms. All the non-percentage numbers are in trillions of dollars at annual rates.

                                                      1Q                2Q                3Q            1Q-3Q

v/a whole economy:                 21.5611        19.5201        21.1703    -1.81 percent

v/a manufacturing:                     2.3643          2.0537          2.3291    -1.49 percent

real v/a whole economy           19.0108        17.3025        18.5965    -2.18 percent

real v/a manufacturing:              2.1999          1.9629          2.2132   +0.60 percent

gross output whole econ          37.8268        34.2600         36.9425    -2.34 percent

gross output mfg                        6.1163          5.3334           6.0134    -1.68 percent

real g/o whole economy           34.2613        31.3989         33.4440    -2.39 percent

real g/o manufacturing               6.2038          5.6162           6.2089    +0.08 percent

Probably the most important of these results is real value-added, since its topline economy-wide numbers are identical to the inflation-adjusted GDP figures regarded as the most important measures of economic growth. And in real value-added terms, manufacturing output in the third quarter was actually slightly (0.60 percent) higher than in the first quarter. Manufacturing expansion has also taken place according to the real gross output figures, though it’s been marginal.

Also crucial to note although both pre-inflation measures show first-third quarter cumulative manufacturing downturns, they’ve been shallower in both cases than the economy-wide slumps.

It’s true that the virus and related shutdowns have more dramatically impacted the service sector when it comes to first-order effects – because so many service industries entail personal contact. But the case for the tariffs’ benefits for manufacturing looks compelling upon realizing that U.S. services companies are major customers of domestic manufacturers. So although the virus obviously crimped these markets, it seems that the tariffs preserved a good many of them by pricing out much Chinese and foreign metals competition.

One way to test this proposition, of course, would be for apparent President-elect Joe Biden to lift the levies while the pandemic keeps spreading. Unless powerful evidence comes in to the contrary, manufacturers, their employees, and indeed all Americans should be hoping this is a bet Biden won’t make.

(What’s Left of) Our Economy: The Virus Leaves U.S. Growth and Trade Figures Still Distorted After All These Months

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CCP Virus, coronavirus, COVID 19, exports, GDP, goods trade, Great Recession, gross domestic product, imports, inflation-adjusted growth, real GDP, real growth, real trade deficit, recession, recovery, services trade, trade deficit, U.S. Commerce Department, Wuhan virus, {What's Left of) Our Economy

The final (for now) official read for America’s economic growth in the third quarter came out this morning, and it confirmed again that both the gross domestic product (GDP) and the country’s major trade flows changed (and were distorted by) historic rates during that phase of the CCP Virus pandemic.

At the same time, the new inflation-adjusted GDP data (the measure most closely followed by serious students of the economy) and the related trade figures make clear that in these 30,000-foot macroeconomic terms, trade has been a minor part of the post-virus growth picture. (In terms of specific products, like healthcare-related goods, the story is of course different, because their availability has affected the severity of the pandemic and resulting deep economic slump, and the expected schedule for recovery.)

Not surprisingly, given the slightly faster real expansion reported by the Commerce Department this morning (33.4 percent at an annual rate, versus the previously judged 33.1 percent), and continued economic sluggishness overseas, the quarter’s after-inflation overall trade deficit came in slightly higher, too – $1.0190 trillion annualized as opposed to $1.0164 trillion.

That’s a new quarterly record by an even wider margin than reported in the previous GDP report. So is the sequential increase – 31.47 percent as opposed to 31.13 percent. Just for some perspective, the next biggest quarterly jump in the constant dollar trade gap was just 13.18 percent (between the first and second quarters of 2010).

But as noted in last month’s RealityChek GDP post, 2010 was when the U.S. economy was recovering from the Great Recession that followed the global financial crisis, and annualized growth during that second quarter was just a ninth as fast (3.69 percent) as this year’s third quarter.

The subtraction from real economic growth generated by the latest surge in the trade deficit was big in absolute terms (3.21 percentage points), increased slightly over the previously reported 3.18 percentage points), and still stands just shy of the all-time biggest trade bite (3.22 percentage points, in the third quarter of 1982). But set against 33.4 percent annualized growth, it’s clearly not very big at all.

Combined goods and services exports and imports changed to roughly the same modest degree as the overall trade deficit. The quarter-to-quarter price-adjusted export increase was revised down from 12.56 percent to 12.41 percent, and the total real import increase is now judged to be 17.87 percent, not 17.89 percent. As a result, both figures remained multi-decade worsts and bests.

Somewhat greater relative changes took place in the service trade data – which isn’t surprising, with the service sector having been hit much harder by the pandemic than goods sectors.

All the same, whereas the previous GDP report showed that after-inflation services exports edged up on quarter by 0.21 percent (from $582.1 billion annualized to $583.3 billion), this morning’s release recorded slippage – by 0.14 percent, to $581.3 billion. Consequently, they now stand at their lowest quarterly level since the third quarter of 2009 – just as that Great Recession recovery was beginning.

As for real services imports, their quarterly price-adjusted increase was revised down from 5.91 percent to 5.70 percent, and their $393.3 billion level was the lowest since the third quarter of 2006.

Unfortunately, the prospect that these CCP Virus-related distortions in economic growth and trade figures will soon come to an end still seems as remote as the prospect that the virus itself will soon be tamed – even with the beginning of mass vaccination. As a result, for the time being, tracking these numbers will be useful for getting a sense of those distortions’ scale, but the underlying health of the economy, and of its trade flows, will remain elusive.

(What’s Left of) Our Economy: CCP Virus-Era U.S. Trade Figures Continue to Astound

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

Meet the new third quarter U.S. gross domestic product (GDP) figures. Practically the same as the old third quarter figures – including on the trade front. The nearly identical 33.1 percent inflation-adjusted annualized growth revealed in today’s second official look at the economy’s performance between July and September remains as meaningless in terms of the fundamentals as it is breathtaking.

After all, it’s completely distorted by the CCP Virus pandemic and resulting shutdown-like decisions and altered consumer behavior that now seem likely to end sooner rather than later due to recently announced vaccine progress. (More industry-specific shifts involving sectors like higher education and business travel and real estate and on-line shopping and the like? They’re of course shaping up as very different stories.)

But it’s worth reviewing the trade highlights of this morning’s figures (and the very similar numbers reported last month) to show just what incredible statistical outliers the pandemic and the government and consumer responses have produced.

The after-inflation quarterly trade deficit came in at $1.0164 trillion at an annual rate – a little worse than the $1.0108 trillion initially estimated. But that’s a staggering 31.13 percent increase from the second quarter total of $775.1 billion – a jump that positively dwarfs the previous record increase of 13.18 percent between the first and second quarters of 2010.

And keep in mind that jump came as the nation was rebounding from the Great Recession – which at that point was its worst economic slump since the Great Depression. Indeed, as reported last month, that quarter’s annualized growth rate was only 3.69 percent – only about a ninth as strong.

Because this year’s third quarter real trade deficit increased slightly while the economy’s growth remained essentially the same (for the record, the new GDP increase number was fractionally smaller than last month’s advance read), the hit to growth from that trade gap rose as well. Its subtraction from growth is now judged to be 3.18 percentage points, not 3.09. Only the 3.22 percentage points cut from growth in the third quarter of 1982 have bit deeper in relative terms.

The bigger trade deficit figure resulted from total imports that rose faster than exports. Last month, the Commerce Department estimated that the former were 12.42 percent greater than the second quarter level. Now the increase is pegged at 12.56 percent. The previous quarterly total import growth figure – which in absolute terms is much bigger – has been increased from 17.58 percent to 17.89 percent.

But where these changes stand in U.S. trade history is nothing less than stunning. The quarterly total import data go back to 1947, and their growth in the third quarter of this year was the strongest since the 21.88 percent recorded in the second quarter of 1969.

The quarterly total import statistics also began in 1947, and on this count, the third quarter’s increase was the worst since the 23.47 percent surge in the third quarter of 1950. These latest trade performances are all the more eye-opening upon realizing that overall U.S. trade flows in 1969 and 1950 were so much smaller than they are today, meaning that big percentage increases were much easier to generate.

The quarterly real trade figures for goods and services individually only go back to 2002, but although the timeframes are much shorter, they’re equally special. During the third quarter of this year, the sequential improvement in goods exports is now reported as 19.60 percent. That’s an all-time high that far surpasses the next best performance – the 6.94 percent advance achieved in the fourth quarter of 2009, during the recovery from that previous Great Recession.

Goods imports in the third quarter soared by 20.08 percent – again dwarfing the previous record of 5.67 percent not-so-coincidentally also recorded in that fourth quarter of 2009.

The story with services trade – which has received an historic blow both nationally and globally from the virus and the shutdowns – interestingly is somewhat less dramatic for the third quarter. Constant dollar services exports only inched up by 0.21 percent in the third quarter, from $582.1 billion annualized to 583.3 billion. These industries clearly are still reeling from the 20.27 percent sequential export collapse they experienced between the first and second quarters, and the 5.67 percent drop between the fourth quarter of 2019 and the first quarter of this year. As a result, these exports in real terms are sitting at their lowest levels since the second quarter of 2010.

Price-adjusted services imports rose a much faster 5.91 percent after inflation between the second and third quarters. But that increase was only the second biggest on record – after the 7.04 percent jump in the third quarter of 2003. These more modest historical changes reflect the impressive growth in services trade for most of this century – albeit from a base much smaller than that of goods trade.

Please keep in mind that the individual goods and services trade figures still don’t add up to the totals, as I first reported in September. But they’re not that far off, either, which means that the overall third quarter numbers still seem reliable enough, and still confirm how unusual CCP Virus-era trade flows have been – and are likely to be until the nation reaches the Other Side.

(What’s Left of) Our Economy: Records and More Puzzles in the GDP Report’s Trade Numbers

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

So many all-time and multi-year and even decade worsts revealed by the trade data revealed in the official U.S. economic growth figures released this morning! And even though these data on changes in the gross domestic product (GDP) for the third quarter of this year are pretty meaningless from an economic standpoint – because they’re so thoroughly distorted by the government-ordered shutdowns and reopenings due to the CCP Virus – they’re worth noting for the record, anyway.

But here’s something else worth noting – as with the last batch of GDP figures (the final-for-now results for the second quarter), the trade figures don’t seem to add up.

Let’s start with the records. Largely due to the strongest sequential U.S. growth on record (33.1 percent after inflation on an annualized basis), fueled by significant reopening plus massive government stimulus or relief funds (choose your own label), the quarterly inflation adjusted trade deficit hit an astounding $1.0108 trillion annualized. (The inflation-adjusted, or “real,” statistics are the ones most closely followed; therefore, unless otherwise specified, they’ll be the ones used from hereon in.)

Not only was that total a record in absolute terms. The 30.41 percent increase from the final second quarter level of $775.1 billion was the biggest since the Commerce Department began presenting trade deficit figures (as opposed to the simple export and import findings) in 2002. For context, the next greatest such jump was only 13.18 percent, between the first and second quarters of 2010.

The economy was recovering then, too – from the Great Recession that followed the global financial crisis – but that quarter’s annualized growth rate was only 3.69 percent.

As known by RealityChek regulars, the GDP reports treat increases in the trade deficit as subtractions from growth, and the third quarter’s was the worst in absolute terms (3.09 percentage points from that 33.1 percent annualized growth total) since the 3.22 percentage points sliced from growth in the third quarter of 1982. (For some reason, these data go back even further than that.)

In relative terms, though, the trade effect in 1982 couldn’t have differed more from the situation this year, as during that third quarter, the economy shrank in price-adjusted terms by 1.5 percent on an annual basis.

But those internal numbers!

According to the Commerce Department, exports in the third quarter added up to $2.1667 trillion annualized. But if you actually add the separate goods and services numbers provided, you get a sum of $2.1921 trillion. On the import side, the separate figures add up to a total of $3.2123 trillion, not the reported $3.1775 trillion. Therefore, the quarterly deficit would seem to be $1.0202 trillion, not the $1.0108 trillion presented.

As with the previous discrepancies, although this batch’s aren’t big enough to change the overall picture, they do raise some questions about the reliability of the rest of the data. So I’ll be hoping that the apparent confusion will be cleared up a month from now, when Commerce releases its second estimate for third quarter GDP – but not holding my breath.