(What’s Left of) Our Economy: U.S. Trade Figures Still on a (CCP Virus) Roller Coaster

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Biden, CCP Virus, China, consumers, coronavirus, COVID 19, Donald Trump, exports, Federal Reserve, goods trade, imports, Janet Yellen, manufacturing, non-oil goods deficit, recovery, stimulus, supply chains, tariffs, Trade, trade deficit, Wuhan virus, {What's Left of) Our Economy

Just as September’s official U.S. trade figures revealed numerous records and multi-month or year highs and lows (mainly of the bad kind), today’s October release reported its share of startling results – but mainly of the good kind. One black spot deserves mention right away, though – the country’s manufacturng trade deficit passed the $1 trillion mark for the fourth straight year. And we still have two data months left in 2021.

Still, the all-time monthly bests and similar extraordinary readings from October were nonetheless impressive. And combined with the September statistics, they make clear that the CCP Virus and government efforts to fight it are far from done distorting the U.S. and world economies. 

The chief records set were:

>Combined goods and services exports of $223.63 billion, which beat May, 2018’s previous record of $216.09 billion by 3.49 percent. Moreover, the 8.14 percent sequential improvement was the biggest since June, 2020’s 8.69 percent – which came during the strong national and global economic recoveries from the first wave of the CCP Virus and the short but sharp depression it caused.

>Total imports of $290.75 billion, which edged outthe previous month’s record of $288.23 billion by 1.06 percent.

>Goods exports, where the $158.73 billion figure exceeded the former record of $149.92 billion set in August by 5.87 percent. And the monthly increase of 11.07 percent was the biggest since March’s 10.18 percent.

>Goods imports of 242.67 billion, also the second straight all-time high, and a level that topped September’s $240.89 billion by 0.74 percent.

Another all-time best and worst came in non-oil goods trade. As known by RealityChek regulars, these trade flows deserve special attention, because they consist of exports and imports whose levels are significantly affected by trade agreements and other U.S. trade policy decisions (unlike trade in oil and services, where liberalization efforts are still at early stages at best).

The best? Non-oil goods exports climbed to an all-time high, with their $138.82 billion total standing 5.87 percent higher than the previous record of $131.12 billion set in August. Moreover, their monthly growth of 9.57 percent was the biggest such advance since the 10.65 percent increase of July, 2020 – also during that recovery from the first CCP Virus-related downturns.

The worst? Non-oil goods imports set their second straight record, coming in at $242.67 billion, or 0.74 percent higher than the September total of $240.89 billion.

And finally, when it comes to new records, imports of advanced technology products (ATP). Their $51.54 billion level also was a second straight, and surpassed September’s $50.50 billion by 2.06 percent.

But multi-month and even multi-year highs and lows abounded in the October trade report:

>The overall deficit plummeted from the record (and upwardly revised) $81.44 billion figure for September to $67.12 billion. The monthly total was the lowest since April’s $66.15 billion, and the sequential drop of 17.58 percent the greatest since April, 2015’s 18.16 percent.

>Similarly, in October, the goods deficit hit its lowest level ($83.95 billion) since November’s $86.23 billion, and the month-to-month decline of 14.33 percent (from September’s record $97.98 billion, was the biggest such drop since the 20.79 percent nosedive of February, 2009 – when the Great Recession following the global financial crisis was in its depths.

>The 11.40 percent monthly decrease in the non-oil goods deficit (the steepest fall-off since April, 2015’s 13.76 percent), brought this trade gap to its lowest level ($82.99 billion) since last November’s $85.73 billion.

October’s trade report contained some eye-popping numbers in U.S.-China goods trade, too.

>Goods exports to the People’s Republic shot up from $10.91 billion to a new record of $16.64 billion. Further, not only did this figure top the previous best (October, 2020’s $14.77 billion). But the 52.46 percent sequential jump was the biggest since the 71.04 percent recorded back in November, 1996 – when much smaller trade numbers made big percentage improvements much easier to generate.

>In addition, the U.S. goods trade deficit with China of $31.40 billion was the lowest since July’s $28.65 billion read, while the 13.99 percent monthly improvement was the biggest since the 25.19 percent figure reported for March, 2020 – when China had still shut down much of its economy due to the pandemic.

The China data also show that U.S. trade with the People’s Republic continue to perform better than U.S. trade in non-oil goods – the best global proxy for U.S. goods trade with China – and as a result, that the Trump (now Trump-Biden?) tariffs continue to work well.

For example, that 13.99 percent sequential narrowing of the U.S. goods trade gap with China in October was faster than the comparable 11.40 improvement in the non-oil goods deficit. That 52.46 percent monthly increase in goods exports to China, moreover, was nearly ten times greater than the 5.87 percent rise in non-oil goods exports.

The 1.30 percent increase in U.S. goods imports from China was nearly twice as fast as the 0.74 percent increase in America’s non-oil goods imports, but both absolute increases are modest.

And on a year-to-date basis, the U.S. goods deficit with China is still up less (13.67 percent) than the non-oil goods shortfall (16.73 percent).

On the down side, the U.S. manufacturing deficit did decline in October – by 3.32 percent, from a record $118.75 billion to $114.81 billion. But it remained astronomical by any reasonable standard.

Manufacturing exports improved on month by a healthy 10.99 percent, from $92.58 billion to $102.75 billion. But although manufacturing imports climbed by a much slower pace (2.95 percent, from $211.33 billion to $217.56 billion), they’re still more than twice as great.

Year-to-date, the 18.78 percent advance in manufacturing exports and the 19.56 percent rise in manufacturing imports has resulted in that trillion-dollar-plus manufacturing deficit ($1.083 trillion, to be precise). As of October, moreover, it’s running 18.26 percent ahead of last year’s pace.

The outlook for America’s trade flows? I’m still pretty sure that the deficits will keep rising in the near term – mainly because overall economic growth, and therefore consuming and importing are expected to stay so strong.  Longer term, though, uncertainties are still noteworthy and arguably could frustrate forecasts even more. 

After all, it’s still not clear how America’s and other governments will respond to the new Omicron variant ofthe virus (or whatever other strains come down the pike).

There’s the seemingly likely ebbing of the fiscal stimulus that’s boosted savings, and therefore purchasing and importing power, for the entire population during the pandemic period. Continued high inflation could start depressing consumer spending on its own – although less government stimulus all else equal should start restraining prices at some point.

Additionally, don’t forget the Federal Reserve, which has been prompted by faster-than-expected price increases to reduce the bond-buying program that’s provided another massive source of economic stimulus.  Is Treasury Secretary Janet Yellen right to be confident that consumer demand will stay strong nonetheless?  Beats me. 

Finally, it’s encouraging to read various claims that the global supply chain crisis is easing (e.g., here). But even if progress on this front continues and accelerates, new geopolitical threats to global commerce have emerged – especially rising tensions between China on the one hand, and the United States and most of China’s neighbors on the other, over the future of Taiwan and whether it gets decided peacefully.     

Since America’s economic growth is expected to be torrid in the final three months of this year (including, of course, October), I suspect that, despite all these questions and complications, the next few months of trade figures will worsen considerably (as I wrote last month). But the farther down the road I look, the cloudier my crystal ball gets

(What’s Left of) Our Economy: Why Biden’s Trade Policies are Looking Trump-ier Than Ever

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America First, arbitrage, Biden, China, economic nationalism, environmental standards, global minimum tax, globalism, globalization, infrastructure, Jake Sullivan, Janet Yellen, labor rights, race to the bottom, subsidies, tariffs, tax policy, taxes, Trade, trade Deals, trade wars, {What's Left of) Our Economy

As the author of a book titled The Race to the Bottom, you can imagine how excited I was to learn that the main rationale of Treasury Secretary Janet Yellen’s new proposal for a global minimum tax on corporations is to prevent, or bring to an end, a…race to the bottom.

But this idea also raises a question with profound implications for U.S. trade and broader globalization policies: Why stop at tax policy? And it’s made all the more intriguing because (a) the Biden administration for which Yellen surprisingly seems aware that there’s no good reason to do so even though (b) the trade policy approach that could consequently emerge looks awfully Trump-y.

After all, the minimum tax idea reflects a determination to prevent companies from engaging in what’s known as arbitrage in this area. It’s like arbitrage in any situation – pitting providers and producers that boast little leverage into competition with one another to sell their goods and services at the lowest possible price, and usually triggering a series of ever more cut-rate offers.

These kinds of interactions differ from ordinary price competition because, as mentioned above, the buyer usually holds much more power than the seller. So the results are too often determined by considerations of raw power, not the kinds of overall value considerations that explain why market forces have been so successful throughout history.

When the arbitrage concerns policy, the results can be much more disturbing. It’s true that the ability of large corporations to seek the most favorable operating environments available can incentivize countries to substitute smart policies for dumb in fields such as regulation and of course taxation. But it’s also true, as my book and so many other studies have documented, that policy arbitrage can force countries to seek business with promises and proposals that can turn out to be harmful by any reasonable definition.

Some of the most obvious examples are regulations so meaningless that they permit inhumane working conditions to flourish and pollution to mount, and encourage tax rates to fall below levels needed to pay for public services responsibly. Not coincidentally, Yellen made clear that the latter is a major concern of hers. And the Biden administration says it will intensify enforcement of provisions in recent U.S. trade deals aimed at protecting workers and the environment – and make sure that any new agreements contain the same. I’ve been skeptical that many of these provisions can be enforced adequately (see, e.g., here), but that’s a separate issue. For now, the important point is that such arbitrage, and the lopsided trade flows and huge deficits they’ve generated, harm U.S.-based producers and their employees, too.

But as my book and many other studies have also documented, safety and environmental arbitrage aren’t the only instances of such corporate practices by a long shot. Businesses also hop around the world seeking currency arbitrage (in order to move jobs and production to countries that keep the value of their currencies artificially low, thereby giving goods and services turned out in these countries equally artificial, non-market-related advantages over the competition). Ditto for government subsidies – which also influence location decisions for reasons having nothing to do with free markets, let alone free trade. The victims of these versions of policy arbitrage, moreover, have been overwhelmingly American.

The Biden administration is unmistakably alert to currency and subsidy arbitrage. Indeed a major element of its infrastructure plan is providing massive support for the U.S. industry in general, and to specific sectors like semiconductors to lure jobs and production back home and keep it there. Revealingly, though, it’s decided for the time being to keep in place former President Trump’s steep, sweeping tariffs on China, and on steel and aluminum.

So it looks like the President has resolved to level these playing fields by cutting off corporate policy arbitrage opportunities of all types with a wide range of tools. And here’s where the outcome could start looking quintessentially Trump-y and America First-y. For it logically implies that the United States shouldn’t trade much – and even at all – with countries whose systems and policy priorities can’t promote results favorable to Americans.

Still skeptical? Mr. Biden and his leading advisers have also taken to talking about making sure that “Every action we take in our conduct abroad, we must take with American working families in mind.” More specifically, the President’s White House national security adviser, Jake Sullivan, wrote pointedly during the campaign that U.S. leaders

“must move beyond the received wisdom that every trade deal is a good trade deal and that more trade is always the answer. The details matter. Whatever one thinks of the TPP [the proposed Trans-Pacific Partnership trade deal], the national security community backed it unquestioningly without probing its actual contents. U.S. trade policy has suffered too many mistakes over the years to accept pro-deal arguments at face value.”

He even went so far as to note that “the idea that trade will necessarily make both parties better off so long as any losers could in principle be compensated is coming under well-deserved pressure within the field of economics.”

But no one should be confident that economic nationalism will ultimately triumph in Biden administration counsels. There’s no doubt that the U.S. allies that the President constantly touts as the keys to American foreign policy success find these views to be complete anathema. And since Yellen will surely turn out to be Mr. Biden’s most influential economic adviser, it’s crucial to mention that her recent speech several times repeated all the standard tropes mouthed for decades by globalization cheerleaders about U.S. prosperity depending totally on prosperity everywhere else in the world.

Whether she’s right or wrong (here I presented many reasons for concluding the latter), that’s clearly a recipe for returning trade policy back to its pre-Trump days – including the long-time willingness of Washington to accept what it described as short-term sacrifices (which of course fell most heavily on the nation’s working class) in order to build and maintain prosperity abroad that would benefit Americans eventually, but never seemed to pan out domestically.

Nor is Yellen the only potential powerful opponent of less doctrinaire, more populist Biden trade policies. Never, ever forget that Wall Street and Silicon Valley were major contributors to the President’s campaign coffers. Two greater American enthusiasts for pre-Trump trade policies you couldn’t possibly find.

And yet, here we are, more than two months into the Biden presidency, and key pieces of a Trump-y trade policy both in word and deed keep appearing.  No one’s more surprised than I am (see, e.g., here).  But as so often observed, it took a lifelong anti-communist hardliner like former President Richard M. Nixon to engineer America’s diplomatic opening to Mao-ist China. And it took super hard-line Zionist Menachem Begin, Israel’s former Prime Minister, to sign a piece treaty with long-time enemy Egypt. So maybe it’s not so outlandish to suppose that a died-in-the-wool globalist like Joe Biden will be the President establishing America First and economic nationalism as the nation’s new normals in trade and globalization policy.  

Our So-Called Foreign Policy: Biden Choices Signal a “What, Me Worry?” China Policy

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alliances, allies, Antony Blinken, BlackRock, Brian Deese, China, decoupling, Jake Sullivan, Janet Yellen, Joe Biden, Katherine Tai, Lloyd Austin, multilateralism, national security, Our So-Called Foreign Policy, Robert Lighthizer, sanctions, tariffs, tech war, Trade, trade war, transition, Trump, U.S. Trade Representative, USTR, Wall Street

Apparent President-elect Biden so far is sending a message about his China policy that’s unmistakably bad news for any American believing that the People’s Republic is a major threat to the nation’s security and prosperity – which should be every American. The message: “I’d rather not think about it much.”

In some limited senses, and for the very near future, the impact could be positive. Principally, although he blasted President Trump’s steep, sweeping tariffs on imports from China as disastrously counter-productive for the entire U.S. economy – consumers and producers alike – he’s stated that he won’t lift them right away. Presumably, he’ll also hesitate to remove the various Trump sanctions that have so gravely damaged the tech entities whose activities bolster China’s military strength and foreign espionage capabilities, along with new Trump administration restrictions on these Chinese entities’ ability to list on U.S. stock exchanges.

Looking further down the road, however, if personnel, as widely believed, is indeed policy, Biden’s choices for Cabinet officials and other senior aides to date strongly indicate that his views on the subject haven’t changed much from this past May, when he ridiculed the idea that China not only is going to “eat our lunch,” but represented any kind of serious competitor at all. In fact, in two ways, his choices suggest that his take on China remains the same as that which produced a long record of China coddling.

First, none of his top economic or foreign policy picks boasts any significant China-related experience – or even much interest in China. Like Biden himself, Secretary of State-designate Antony Blinken is an indiscriminate worshipper of U.S. security alliances who views China’s rise overwhelmingly as a development that has tragically and even dangerously given Mr. Trump and other America Firsters an excuse to weaken these arrangements by making allies’ China positions an acid test of their value. In addition, he’s pushed the red herring that the Trump policies amount to a foolhardy, unrealistic attempt at complete decoupling of the U.S. and Chinese economies.

As for the apparently incoming White House national security adviser, Jake J. Sullivan – who served as Biden’s chief foreign policy adviser during his Vice Presidential years – he shares the same alliances-uber-alles perspective on China as Biden and Blinken, and is on record as late as 2017 as criticizing the Trump administration for “failing to strike a middle course” on China – “one that encourages China’s rise in a manner consistent with an open, fair, rules-based, regional order.” I’m still waiting for someone to ask Sullivan why he believes that mission evidently remained unacccomplished after the Obama administration had eight years to try carrying it out.

On the defense policy front, Biden has chosen to head the Pentagon former General Lloyd Austin whose main top-level experience was in fighting Jihadist terrorists in the Middle East, not dealing with a near-superpower like China. That’s no doubt why Biden failed even to mention China when introducing Austin and listing the issues on which he’d need to focus – an omission worrisomely noted by the U.S. Asia allies the apparent President-elect is counting on to help America cope more effectively with whatever problems he thinks China does pose.

As for the Biden economic picks, Treasury Secretary and former Fed Chair Janet Yellen has expressed little interest in China or trade policy more broadly during her long career in public service. (See here for a description of some of her relatively few remarks on the subject.) His choice to head the National Economic Council, Brian Deese, has been working for the Wall Street investment giant, BlackRock, Inc. – which like most of its peers has long hoped to win Beijing’s permission to compete for a slice of the potentially huge China financial services market. But his focus seems to have been environmentally sustainable investments, and his own Obama administration experience centered on climate change.

One theoretical exception is Katherine Tai, evidently slated to become Biden’s U.S. Trade Representative (USTR). Both as a former lawyer at the trade agency  and in her current position as a senior staff member at the House Ways and Means Committee, she boasts vast China experience.

But history teaches clearly that the big American trade policy decisions, like handling China, are almost never made at the USTR level. Mr. Trump’s trade envoy, Robert Lighthizer, was a major exception, and his prominence stemmed from the President’s unfamiliarity as an outsider with the specific policy levers that have needed to be pulled to engineer the big China trade and broader economic policy turnaround sought by Mr. Trump. So expect Tai to be a foot soldier, nothing more.

The cumulative effect of this China vacuum at the top of the likely incoming administration creates the second way in which Biden’s seems to reflect a lack of urgency on the subject: It signals that there will be no China point person in his administration. It’s true that reports have appeared that the apparent President-elect will appoint an Asia policy czar. But more than a week after they’ve been posted, nothing further has been heard.

All of which suggests that, by default, China policy will be made by the alliance festishers Blinken and Sullivan. And if their stated multilateralist impulses do indeed dominate, the result will be basically a U.S. China policy outsourced to Brussels (headquarters of the European Union), and the capitals of Asia. As I’ve written previously, many of these allies have profited greatly from the pre-Trump U.S. and global China trade policy status quo, and their leaders are hoping for a return to this type of world as soon as possible. And it’s no coincidence that’s the kind of world Joe Biden was happy to help preside over during his last White House job.  

(What’s Left of) Our Economy: Real Wages are Nearly in Recession and Manufacturing Pay Extends its Slump

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Federal Reserve, inflation-adjusted wages, Janet Yellen, manufacturing, private sector, real wages, recession, recovery, technical recession, Trump, wages, {What's Left of) Our Economy

Here’s a question that reporters really should ask Janet Yellen this afternoon during her farewell press conference as Federal Reserve chair, and that journos and all Americans should be asking the Trump administration and Members of Congress at every opportunity: If the economy is so solid, and the job market is so historically tight, how come it’s now skirting a technical real wage recession, and why is the paycheck slump for manufacturing now nearly two years old?

My term “technical recession” doesn’t exactly match the standard version of an economic downturn – two straight quarters of contracting output. But it’s pretty darned close: at least two straight quarters over which some indicator (in this case, inflation-adjusted wages) has dropped cumulatively.

The real wage data released today by the Bureau of Labor Statistics (BLS) reveal that this is exactly the situation for the entire private sector. (These real wage data don’t include public sector workers since their paychecks are mainly determined by politicians’ decisions, not by market forces.) Since June – five data months ago – constant dollar hourly pay is down 0.56 percent. Indeed, this measure of compensation has now decreased for four straight months. One more and we’re in technical recession territory.

In manufacturing, where job-creation has perked up this year, the situation is even worse. Real wages in industry are down on net since March, 2016. They’re not down by much (0.09 percent). But it’s the longest such stretch since the January, 2012 to September, 2014 period.

On a monthly basis, after-inflation private sector wages dropped by 0.19 percent in November. Year-on-year, they’ve risen by the same meager amount. Between the previous Novembers, real private sector wages increased by 0.94 percent.

Since the beginning of the current economic recovery, more than eight years ago, this pay has advanced by only 3.98 percent.

In manufacturing, after-inflation hourly pay tumbled by 0.55 percent on month in November, and is 0.37 percent lower on a year-on-year basis. From November, 2016 to November, 2017, constant dollar manufacturing wages increased by 1.21 percent.

And their total improvement since the mid-2009 beginning of the current recovery? 0.65 percent.

It’s true that wages aren’t the economy’s only measure of compensation. But they’re clearly a major measure. Their weakness – which is not only chronic, now, but accelerating – is a clear sign that, contrary to the Fed’s judgment, there’s still plenty of slack in U.S. labor markets and that, contrary to the President’s claims, the nation’s employment picture is anything but Great Again.

(What’s Left of) Our Economy: Murky Jobs Signals from the New JOLTS Report

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BLS, Bureau of Labor Statistics, Federal Reserve, healthcare services, Janet Yellen, Jobs, JOLTS, recovery, subsidized private sector, turnover, {What's Left of) Our Economy

Economy-watchers just got another reminder today of how difficult it remains to figure out how healthy the current recovery is – from the data on employment turnover released by the Labor Department’s Bureau of Labor Statistics (BLS). The biggest surprise they delivered concerned the numbers of job openings reported (preliminarily) for February in the economy’s subsidized private sector.

Whereas the last few months of BLS data indicate that hiring in industries like healthcare services (which are heavily dependent on government support) hasn’t been quite so outsized as over the last decade, the new job turnover numbers (commonly known by their acronym JOLTS) suggest that they’re still punching above their weight.

If you think – as you should – that the real private sector should flat-out dominate job creation because it’s the economy’s leader in productivity and innovation, that’s not such a great development.

For the first three months of this year, the subsidized private sector accounted for 18.57 percent of the 533,000 total net new jobs America created. During the first three months of last year, this figure was 21.26 percent. These numbers will be revised several times more, but so far they signal that subsidized private sector jobs gains have lost some of their relative steam. (For more on the robust hiring in these industries during the current recovery, see this recent post.)

But the job turnover data appear to be sending the opposite message. Here we only have statistics going through February, and they’ll be revised down the road, too. But for the first two months of this year, 19.38 percent of the 11.368 million total job openings have come in the subsidized private sector. For the first two months of 2016, that figure was only 17.76 percent. In fact, the 1.138 million job openings estimated in the subsidized in February were the highest monthly total ever in absolute terms. (This data series started in 2000.)

To be sure, the subsidized private sector’s share of total job openings this year is a little below the levels that have held for most of the recovery. (See this post for more detail.) But its year-on-year rise is tough to square with the relative decline in actual job creation.

Another noteworthy result found in today’s job turnover report: The decline of retail job opportunities comes through plain as day. It’s not that the sector, whose bricks-and-mortars segment is under such tremendous pressure from on-line shopping, isn’t reporting any job openings at all. In fact, at 541,000 in February (on a preliminary basis), they were on the low end but still respectable by the standards of the last few years.

Look at the year-on-yer change, however, and you can see the retail employment problem. Reported job openings during January and February combined were down nearly ten percent. Those kinds of drops haven’t been seen since early in the recovery, in 2010.

These employment-related developments stand in especially stark contrast to the Federal Reserve’s apparent conclusion that the economy is just about fully recovered, and that the central bank’s new priority is sustaining “what we have achieved,” as chair Janet Yellen declared yesterday. This approach of course entails continuing to raise interest rates gradually, and reducing the immense amount of bonds the Fed bought as part of its stimulus program. Here’s hoping that the Fed’s confidence more accurately reflects the true state of the economy than these latest figures.

(What’s Left of) Our Economy: Real Wage Trends Seem to Clash with the Fed’s Rate Hike Decision

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ECI, Employment Cost Index, Federal Reserve, inflation-adjusted wages, interest rates, Janet Yellen, labor market, real wages, recovery, wages, {What's Left of) Our Economy

As I’m sure most of you know, the Federal Reserve this week decided to raise the short-term interest rate it controls directly by a quarter of a percentage point – to a range of between 0.50 percent to 0.75 percent. (This “Fed funds rate” is officially a target and is always expressed as a range.) And since the Fed funds rate can strongly influence borrowing costs throughout the economy, the hike – all else equal – is likeliest to slow growth in the short run at least. It’s the price that the central bank thinks the nation needs to pay to ward off inflation, and start returning rates to the historically normal levels widely thought to be essential for long-term economic health.

This key Fed decision (only the second rate hike in more than nine years), still leaves the funds rate near all-time lows. I won’t comment here on the wisdom of this move. But the timing makes me wonder if the central bankers had seen the latest American inflation-adjusted wage figures. For although Chair Janet Yellen has made clear her belief that the U.S. labor market keeps improving enough to warrant such tightening, the new real wage numbers look like they’re sending the opposite message.

Let’s start with the after-inflation wage figures that came out on Thursday. They showed that these wages in the private sector fell in November by 0.37 percent over October levels. That’s the worst monthly performance since the 0.39 percent decrease in February, 2013. Moreover, in October, real wages inched up by only 0.09 percent. Is the wheel turning? (The wage figures don’t include government workers because their compensation is set largely by politicians’ decisions, not market forces. Therefore, they reveal little about the underlying state of the economy.)

The year-on-year results don’t provide much encouragement, either. These wages’ 0.75 percent growth was the most sluggish since the 0.29 percent annual improvement in October, 2014. Between the previous Novembers, real wages advanced by 1.92 percent.

As a result, real wages since the current recovery began in mid-2009 are up only 3.59 percent. That’s over a more than seven-year stretch!

The picture if anything looks worse in manufacturing. There, November inflation-adjusted wages sank by 0.73 percent on month – the biggest decrease since the 0.76 percent falloff in August, 2012. In October, these wages increased by 0.28 percent on month.

The annual November data? Real manufacturing wages rose by just 0.93 percent year-on-year. That’s the slowest pace since the 0.38 percent in December, 2014. From November, 2014 to November, 2015, price-adjusted manufacturing wages increased by 1.90 percent.

And since the current recovery began, constant dollar manufacturing wages have risen only by 0.84 percent. That’s almost a rounding error.

Many economy bulls insist that the wage figures aren’t all that helpful, because they leave out non-wage benefits like health insurance coverage. The government keeps overall compensation data, too. But in inflation-adjusted form, they come out on a slightly less timely basis than the wage figures. All the same, we have them through the third quarter of this year, and they’re somewhat better – though not game changers.

Between the second quarter and third quarters, the Employment Cost Index (ECI) that captures these trends increased by 0.29 percent in real terms for the private sector. That’s a distinct improvement ove the 0.48 percent sequential decrease in the second quarter, but hardly torrid, since we’re talking about a three-month period.

Indeed, in the third quarter, the after-inflation ECI was up only 0.78 percent year-on-year – much less than the 1.89 percent rise the year before.

A little more impressive is the real ECI over the longer-term. During the current recovery, it’s increased by 3.40 percent after inflation. That’s better than the 2.36 percent increase during the previous recovery. But don’t forget – that expansion only last six years (from the end of 2001 to the end of 2007).

Better yet are the manufacturing ECI numbers. The last quarterly increase was also 0.29 percent – and it followed a second quarter drop almost identical to the private sector’s (0.49 percent). But year-on-year, the real manufacturing ECI was up faster than the overall private sector ECI (0.89 percent), though that, too, represented a big dropoff from the previous annual increase of 2.33 percent.

The real manufacturing ECI is also up a good deal more during this recovery than the overall private sector ECI – 4.72 percent. And that’s a nice improvement over the previous recovery’s 1.99 percent, even considering their different durations.

Chair Yellen and her Fed colleagues keep insisting that their interest rate decisions have depended on how the latest economic statistics have been looking. Which tells me that, last week, the central bankers must have been looking at data other than the real wage and compensation figures.

Following Up: Why Economists & Establishment Media Should be a Little More Humble on Trade

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Adam Davidson, Donald Trump, economics, economists, Federal Reserve, Financial Crisis, Following Up, Global Imbalances, Great Recession, Janet Yellen, Korea, Peter Navarro, The New Yorker, TPP, Trade, Trans-Pacific Partnership

A fascinating and revealing coda has just been provided to my brief brush with fame last week, when The New Yorker deemed my views on trade issues not worthy of consideration.  And the source was, of all people, Fed Chair Janet Yellen.

As I wrote on October 13, in a profile of Donald Trump economic adviser Peter Navarro, New Yorker writer Adam Davidson made clear that he considered one glaring weakness of the Republican candidate’s views on trade and other economic policies to be their lack of support among professional economists. As a result, Davidson was completely unimpressed when Navarro noted that I have endorsed them in general – since I lack an economics degree. Nor was his interest piqued when I reminded him by email that my predictions about the outcomes of major trade policy initiatives, like admitting China into the World Trade Organization, were much more accurate than those of most Ph.Ds .

Enter Chair Yellen. In a speech in Boston the very next day, she focused on “some ways in which the events of the past few years [since the outbreak of the financial crisis and Great Recession] have revealed limits in economists’ understanding of the economy….” And despite her understatement, these limits look awfully important. The subjects to which they apply include how demand influences supply, the makeup of the groups of actors economists study (which these scholars’ models assume are completely homogeneous), how finance affects the real economy, and “what determines inflation.”

Indeed, Yellen’s list raises the question of where economists’ knowledge really is solid – at least in terms of ideas that affect economies’ performance in the real world. And so does the economy’s abysmal performance on net since the outbreak of a near-financial cataclysm that virtually none of its members foresaw.

Yellen did add an international question that she believes deserves much more research: how changes in American monetary policy affect the rest of the world and then feed back to the United States. But even though other aspects of the nation’s relationship with the global economy strictly speaking don’t fall under the Fed’s purview, she still might have noted that major gaps still exist in her profession’s understanding of international trade.

Even more disturbing: Although the trade-fueled global imbalances that built up during the bubble decade have been identified as bearing great responsibility for the crisis’ outbreak, as Davidson’s attitude suggests, international commerce is the one area of economics where no significant thinking has been called for at all since the disaster. Indeed, judging from the reactions to Trump’s trade proposals, the conventional wisdom is more entrenched than ever.

Of course, none of this is to say that economists know nothing useful, whether on trade or elsewhere. But with evidence that those global imbalances are once again nearing pre-crisis peaks (albeit with a somewhat different composition), and with President Obama seemingly more determined than ever to win passage of a trade agreement (the Trans-Pacific Partnership) modeled on a Korea deal that has supercharged the U.S. merchandise deficit, you’d think that both economists and journalists would react to proposals for fundamentally new approaches with at least minimal humility.

(What’s Left of) Our Economy: This JOLTS Report Won’t Likely Jolt the Fed

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Employment, Federal Reserve, interest rates, Janet Yellen, job openings, Jobs, JOLTS, turnover, {What's Left of) Our Economy

It’s time again for the monthly JOLTS report – for July – an occasion eagerly anticipated by the economics, business, and investing worlds because these data on turnover in American employment are known to be among Fed Chair Janet Yellen’s favorite measures of the labor market’s health. As a result, they’re likely to play a big role in her decision on raising interest rates – which could come next week. This latest edition leaves one recovery-era story intact – regarding the outsized importance of low-wage jobs during this long but weak expansion). But another trend – the prominence of subsidized private sector positions – took something of a hit.

The JOLTS data track how many Americans are being hired and leaving their jobs, the reasons for the departures (voluntary or involuntary), and the numbers of job openings posted by employers each month. I focus on the openings, since they say the most about what employers are seeking, and therefore which sectors of the economy look to be the most robust,at least in terms of employment-creating power. And as known by RealityChek regulars, the share of openings accounted for by low-wage sectors has risen steadily during this recovery.

In July, low-wage businesses – in retail, leisure and hospitality, and the low-pay sub-sector of the generally high-paying professional and business services sector – were responsible for 32.91 percent of all job openings companies said they posted. That’s not a record for the recovery, but it’s not far off. (Also, it’s only preliminary.) Moreover, it’s about a full percentage point higher than the 31.90 percent final figure for June, which was downwardly revised from 31.99 percent.

For comparison’s sake, when the last recession began, in December, 2007, this figure was 31.94 percent. When the recovery began, in June, 2009, it had sunk to 28.38 percent. Maybe this partly explains why Americans are so down on the economy even though it’s officially been growing for more than seven years?

The subsidized private sector consists of those industries where levels of activity (including hiring) are determined largely by government decisions, even though they aren’t formally government-owned. Healthcare services are the leading example. Just as they’ve spearheaded job creation during the recovery, they’ve also generated a disproportionate share of jobs openings recorded by the JOLTS reports. In July, the number was 18.36 percent.

That’s not only much lower than the June figure of 19.97 percent (which was revised up from 19.90 percent). It’s nearly as low as it stood at the recession’s onset (18.31 percent). Yes, when the recovery began, subsidized private sector jobs accounted for 20.31 percent of all announced job openings. But at that time, American employment creation was still deeply recessed — to the point at which healthcare services in particular were practically the only game in town.

Since the Fed says it’s interest rate decision will be determined mainly by the economic data as it comes in, and since recent indicators for the U.S. economy have rarely been more confusing, even the central bankers may not know what they’re going to do when they meet next week. But if the above JOLTS internals shape their conclusions much, bet on yet another “Hold.”

(What’s Left of) Our Economy? New JOLTS Data Provide Little Visibility on Jobs

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Employment, Federal Reserve, Great Recession, Janet Yellen, job openings, JOLTS, low-wage jobs, recovery, turnover, wages, {What's Left of) Our Economy

I’m not sure why the economics and investment world seems pretty uninterested in the new figures released this morning on labor turnover in the U.S. economy. After all, as RealityChek regulars know, these are among the favorite labor statistics of prominent labor economist – and Federal Reserve Chair – Janet Yellen. And she has a lot to say about how low or high interest rates will be, and therefore about how vigorous or weak the current historically feeble recovery will become. Maybe it’s the dog-days-of-August syndrome?

What I am sure of is that the level and makeup of the job openings reported in the new “JOLTS” data leave plenty of room for debate over a key question overhanging the economic progress America has made since the Great Recession: Have hiring and opportunity been too concentrated in low-income sectors?

There’s no doubting that the share of job openings recorded in today’s release in low-wage sectors* is higher (32.17 percent, for June) than it was when the recession began at the end of 2007 (31.94 percent). But it’s not that much higher. This percentage, however, is much higher than it was when the current recovery began, in the middle of 2009 (28.38 percent). So over the longer haul, the “low-wage recovery” story remains intact.

Yet does this trend show more recent signs of ending, or at least moderating? That’s what the new numbers leave so unclear. For example that 32.17 percent figure for June (which is preliminary) is much lower than May’s final 33.30 percent. But the May number was revised up from its original 32.53 percent.

The initial June figure is also much lower than that of June, 2015 (33.67 percent) or June, 2014 (32.60 percent). But the comparable May numbers don’t tell a clear story. They fell from May, 2014 to May, 2015 (33.50 percent to 32.34 percent). But then they rose to that 33.30 percent this May.

It’s a good rule of thumb when examining data that the strongest (underlying) trends are revealed by looking at the longest time periods. But it’s also true that “things change,” and that the kinds of fluctuations seen over the last two years could be signs of a top – just as they sometimes (but only sometimes) are in stock prices. For now, it seems that the firmest conclusion we can draw is that more of the real picture will be revealed by the next set of JOLTS figures, which we’ll get next month. Unless of course it isn’t!

*These sectors are retail, leisure and hospitality, and the administrative and support services subsector of the big professional and business services sector.

 

 

Our So-Called Foreign Policy: First Thoughts on the Post-Brexit World

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2016 election, Brexit, Catalonia, David Cameron, Donald Trump, EU, European Union, Eurozone, Federal Reserve, France, globalization, Greece, Hillary Clinton, Im-Politic, Immigration, interest rates, Janet Yellen, NATO, North Atlantic treaty Organization, Obama, Scotland, Spain, terrorism, The Netherlands, TPP, Trade, Trans-Atlantic Trade and Investment Partnership, Trans-Pacific Partnership, TTIP, United Kingdom

I sure as heck was surprised by the United Kingdom’s decision yesterday to leave the European Union (EU). Were you? And now that “Brexit” will indeed take place, what’s in store for America and the world? My crystal ball has never worked perfectly, and much of Brexit’s ultimate impact will depend on how London executes the move, and how the EU and financial markets respond. America’s reactions of course will matter as well. Here are some initial reactions. 

>The unexpected Brexit verdict significantly changes the narratives about the global economy’s evolution, about the future of international trade and related economic policies, and about the fate of international political integration.

As recently as 48 hours ago, the safest bet was that British voters would behave similarly to voters elsewhere in Europe who have had the chance to change fundamental political arrangements. In September, 2014, the Scots voted to remain a part of the United Kingdom. Although Greek anti-EU sentiment runs high for reasons that are easily understandable given that country’s prolonged economic crisis, a much-feared (by those who were not hoping for it) “Grexit” vote never took place. Catalonia is still part of Spain, despite a strong separatist movement in the region – and a terrible Spanish economy. And in 2005, the French and Dutch electorates voted down a proposed new EU constitution that would have accelerated political and economic integration – chiefly by streamlining decision-making via greater powers for pan-European institutions. But the issue of departing the Union has not yet come up.

As with Scottish devolution in particular, I thought that instincts for caution would steadily overcome nationalist or ethnic (take your pick) feelings as election day approached, and that the British would ultimately reject a leap in the dark. And of course, my confidence was reinforced by my view that the UK is hardly an economic superpower, and that its prospects outside the EU objectively are iffy.

The British public’s refusal to back down – despite an unmistakable fear-mongering campaign by (now caretaker Prime Minister) David Cameron’s government and even the country’s central bank – signals that Europeans at least may be willing to shift integration into reverse, not simply keep it in place

>In that vein, one of the biggest worries of Brexit opponents entailed the possibilities of contagion – a “Leave” verdict encouraging similar EU opponents throughout the Union. And copycat Brexit votes are clearly back on the table, given widely acknowledged structural defects in the eurozone (a common currency area that includes 19 of the 28 – counting the UK – EU members, and that Britain never joined), Europe’s especially weak recent economic performance, and controversial EU decisions to admit large numbers of Middle East refugees.

Their success would be a genuinely historic, and indeed seismic, development, as Europeans themselves since the end of World War II have generally acknowledged that closer, more regularized economic ties were essential for breaking their centuries-old cycle of major conflict. It’s possible concerns about keeping Europe peaceful are overblown. For all the importance of economic integration, the main pacifier of the continent has been the American commitment to European defense embodied in the North Atlantic Treaty Organization (NATO). Brexit per se does nothing to change the UK’s role in the alliance.

Nevertheless, economic and security issues are never, or even often, completely separate. Therefore, particularly over the longer term, Brexit and other withdrawals from the EU could well turn Europe into a much less stable place than it’s been for the last 70 years. More uncertainty could be added to the European security scene if presumptive Republican presidential nominee Donald Trump, an outspoken critic of America’s NATO policy, won the presidency.

I’ve strongly critical of continued U.S. NATO membership, too – especially of what looks to me like a possibly suicidal nuclear security guarantee. Indeed, the risks created for America by its continued NATO role convinces me that fundamental changes in the alliance’s structure are inevitable anyway, since the U.S. promise to risk its existence on Europe’s behalf has become ever less credible. If Brexit brings the EU’s dissolution, or significant weakening, closer, then Washington will face fateful NATO choices it has long tried to avoid sooner rather than later. And the foreign policy establishment’s demonization of all proposals for proactively dealing with these dilemmas has left the nation completely unprepared for their growth to critical mass.

>Economically, Brexit carries disruptive potential, too. Just look at the financial and currency markets today. But epochal political events inevitably create short-term costs; any other expectations are completely unrealistic. Especially inane have been claims on social media (e.g., by The New Yorker‘s Philip Gourevitch) over the last twelve hours that the initial turbulence touched off by Brexit proves it a failure.

Sure to be complicated greatly, however, are efforts to conclude a major trade agreement between the United States and the EU. This Trans-Atlantic Trade and Investment Partnership (TTIP) has been a long slog anyway. But since such negotiations always entail achieving a delicate balance of interests, and since the UK is a significant part of the overall EU economy, any important compromises that have been struck in the talks would seem to be threatened.  

President Obama has already concluded with eleven other countries a Pacific rim-centered trade agreement called the Trans-Pacific Partnership (TPP), but it’s doubtful that Brexit will do much to dispel Congressional skepticism that has prevented Mr. Obama from formally submitting it for approval.

Keep in mind, though, that trade – including with Europe – is still a pretty minor part of the U.S. economy. The channel through which the biggest Brexit impact is likeliest to be transmitted to America is monetary policy – the province of the Federal Reserve. At the Fed’s June 15 meeting, Chair Janet Yellen made clear that the possibility of Brexit, and especially its impact on financial markets, was one factor behind the central bank’s decision to keep interest rates on hold. Until business-as-usual in the world economy resumes, don’t expect any rate hikes – good news if you believe that the U.S. desperately needs super-easy credit to sustain its current feeble recovery, and bad if you believe that prolonged near-zero rates have prevented the post-financial crisis adjustments needed to restore real health to the economy.

>In fact, such existing skepticism around these trade issues, as well as around immigration policy, makes me doubt that Brexit will have a notable effect on American politics and policy. Sure, the same kinds of economic anxieties that have fueled Trump’s campaign helped lead to victory for “Leave.” But his followers won’t be able to cast more votes for him as a result of the British decision.

Supporters of his presumptive rival, Democrat Hillary Clinton, are surely horrified by the resistance to unlimited immigration and massive refugee admissions signaled by Brexit, so they wouldn’t seem headed for the Trump camp. And it’s difficult to imagine many independent voters marking their ballots in November based on the British vote. Indeed, this poll tells us that Brexit isn’t even on the screens of most U.S. voters. Rightly or wrongly, that choice will be overwhelmingly Made in America.

One possible exception – but one that’s largely independent of Brexit: A wave of overseas terror attacks could easily heighten American anxieties about their own security, whether an Orlando or San Bernardino repeat occurs or not. Ditto for some major military success by ISIS or a similar group abroad, or an unrelated international crisis. More terrorism-related developments could favor Trump. Something like a showdown with Russia over Eastern Europe or China over the South or East China Seas could break in Clinton’s direction (due to judgment and experience considerations). In the process, these contingencies could also remind us how quickly Americans might forget all about Brexit.