(What’s Left of) Our Economy: The Transitory Inflation Story Endures

Tags

CCP Virus, consumer price index, core inflation, coronavirus, COVID 19, CPI, energy prices, Federal Reserve, food prices, inflation, Jay Bhattacharya, Jerome Powell, lockdowns, mandates, shortages, stimulus, supply chains, vaccine mandates, Wuhan virus, {What's Left of) Our Economy

Rather than presenting a good news/bad news story, today’s official U.S. figures on one key measure of inflation (bringing the story through December) put into pretty clear focus an important old news/new news story. And its main implication is that the current version of lofty inflation looks considerably different from the standard versions that have hit the nation previously. Therefore, it’s looking more “transitory” (at least in terms of stemming mainly from developments specific to the CCP Virus epidemic) than ever.

This distinction of course matters because evaluating the nature of today’s inflation will greatly influence how American policymakers (especially the Federal Reserve) respond, and how they should respond. If today’s price increases stem from standard sources, then a standard response – tighter monetary policy, less government spending – make sense. If current inflation is distinctive, more austere economic policies stil may be needed for any number of reasons, but inflation-fighting won’t be a strong one.

The new news? The U.S. government tracks two main measures of inflation: Overall price increases, and price increases for “core” goods and services. The latter gauge strips out food and energy prices – because ordinarily they’re supposed to be extraordinarily volatile for reasons mainly unrelated to the economy’s underlying inflation prone-ness.

But today’s inflation data (for what’s called the Consumer Price Index, or CPI), demonstrates that during the virus era, the core price increases have been more volatile than their overall counterparts.

Let me make clear two crucial points right at the outset, though: First, as I’ve written previously, “transitory” (a term used for months but “retired” recently by the Federal Reserve) doesn’t necessarily mean “short-lived.” That’s because the virus itself and its effects may well not be short-lived. Indeed, because of the unusually rapid spread of the Omicron variant, pandemic-related and inflation-fueling economic disruptions could well last for months more.

Second, viewing today’s inflation as transitory doesn’t mean that the Biden administration and Congress may not have made a serious mistake in supporting a major round of economic stimulus earlier this year – and therefore greatly boosting Americans’ spending power while the amount of goods and services remained limited for all sorts of (CCP Virus-related and other) reasons.

At the same time, precisely because the last stimulus bill was explicitly linked to the the pandemic’s effects, because the infusion of new money has been running out, and because President Biden’s Build Back Better bill looks pretty dead in Congress, this fiscal policy mistake’s effects are looking transitory, too.

Don’t forget, moreover, the immense monetary policy support for the economy provided by the Fed. It’s virus-related, too, and yesterday, Chair Jerome Powell made clearer than ever his view that the case for such emergency assistance no longer holds, and that the central bank’s decision to start withdrawing it is firmly on track.

In addition, some of the old news (at least for RealityChek readers) about today’s inflation still holds – and further reenforces the case for “transitory-ness.” And this old news concerns the baseline effects phenomenon – by which unusual results recorded at the beginning of a period of time in which comparisons are made exercise powerful, but intrinsically, misleading results at the end of that period. In this instance, the unusually low annual inflation numbers of 2019-2020 have been bound to play a significant role in generating abnormally strong increases for 2020-2021. (BTW, savvy investors take these baseline effects into account when evaluating stock performance, too. Just Google “easy comps.”)

Nevetheless, even this old news now reflects some of the new news. Meaning that for overall inflation, the baseline effect is fading and will continue to fade for the next two data months. For the core, however, the baseline effect will stay strong through March.

The month-by-month and year-by-year figures for both overall and core CPI illustrate all of these points nicely. First, let’s review the monthly changes in overall CPI for this calendar year:

Dec-Jan:                          0.26 percent

Jan-Feb:                          0.35 percent

Feb-March:                     0.62 percent

March-April:                  0.77 percent

April-May:                     0.64 percent

May-June:                      0.90 percent

June-July:                      0.47 percent

July-Aug:                      0.27 percent

Aug-Sept:                      0.41 percent

Sept-Oct:                      0.94 percent

Oct-Nov:                       0.78 percent

Nov-Dec:                      0.47 percent

That new December figure represents both the smallest such increase since July, and a big slowdown from November. So that’s a noteworthy sign of transitory-ness right there.

Yet on a monthly basis, as shown below, core inflation actually quickened a bit in December:

Dec-Jan:                      0.03 percent

Jan-Feb:                       0.10 percent

Feb-March:                  0.34 percent

March-April:                0.92 percent

April-May:                   0.74 percent

May-June:                    0.88 percent

June-July:                     0.33 percent

July-Aug:                     0.10 percent

Aug-Sept:                    0.24 percent

Sept-Oct:                     0.60 percent

Oct-Nov:                     0.53 percent

Nov-Dec:                    0.55 percent

A closer look, however, shows that the core’s ups and downs have been greater than that for overall inflation, and that was especially true early in the pandemic. From January through April, it skyrocketed from 0.03 percent to 0.92 percent, whereas overall price increases went up more slowly (though still impressively), from 0.26 percent to 0.74 percent.

Similar increase patterns are revealed in the annual overall and core inflation increases, but the volatility trends are somewhat different. First, the overall data:

Jan:                             1.37 percent

Feb:                            1.68 percent

March:                       2.64 percent

April:                         4.16 percent

May:                          4.93 percent

June:                          5.32 percent

July:                           5.28 percent

Aug:                           5.20 percent

Sept:                          5.38 percent

Oct:                            6.24 percent

Nov:                           6.88 percent

Dec:                           7.12 percent

Here the nation has experienced not only accelerating annual inflation, but a fourth straight month of acceleration.

Ditto for annual core inflation:

Jan:                            1.40 percent

Feb:                            1.28 percent

March:                       1.65 percent

April:                         2.96 percent

May:                          3.80 percent

June:                          4.45 percent

July:                          4.24 percent

Aug:                          3.98 percent

Sept:                          4.04 percent

Oct:                           4.58 percent

Nov:                          4.96 percent

Dec:                           5.49 percent

But rather than being more volatile early in the pandemic period, these prices sung the most between last June and September, and during December. Still, if the volatility of overall and core inflation have been in the same ballpark lately, that’s an indication that this most recent burst of inflation has broken the mold.

The baseline effects are also signaling the recent outsized volatility of core inflation. Since it was so unusually depressed early in the first pandemic year 2020, these effects, as mentioned above, will stay prominent in January and February, too. But the baseline effect for regular inflation is already fading and will continue on that path. 

As has been the case for nearly two years now, however, the wild card remains the CCP Virus and now its Omicron variant and even more particularly, government reactions to its stunning transmissability. Moreover, it’s not just the Biden administration that may contribute to inflation-boosting supply chain bottlenecks and shortages due to vaccine mandates, other curbs, and their impact on individual fears and behavior. China’s ongoing Zero Covid policy looms as a major threat, too.     

All of which brings up a point made by Stanford University medical school professor Jay Bhattacharya, a leading public health authority. He’s repeatedly written that “The end of the pandemic is primarily a social and political decision” because although “we have no technology to eradicate the virus,”`the knowhow and strategies for reopening safely and sustainably are already available. If, as I believe, he’s right, then ending virus-induced inflation and making it truly transitory is well within reach, too.  

 

(What’s Left of) Our Economy: The Greatest Presidential Job Creator Ever?

Tags

Biden, Bureau of Labor Statistics, CCP Virus, coronavirus, COVID 19, Donald Trump, Employment, Jobs, lockdowns, NFP, non-farm payrolls, reopening, Wuhan virus, {What's Left of) Our Economy

However unwittingly, President Biden rendered the nation a major public service on Friday with his remarks on his administration’s achievements in boosting American job creation. Specifically, he provided a good indication of how many ways and how dramatically economic data can be spun.

According to the President, “we have added 6.4 million new jobs since January of last year — in one year. And that’s one of the most — that’s the most jobs in any calendar year by any president in history.”

A look at the data provided by the U.S. Bureau of Labor Statistics (BLS) shows that Mr. Biden actually slightly understated calendar 2021 overall net new job creation. Non-farm payrolls (BLS’ definition of the American employment universe) increased by 6.448 million during this period.

Mr. Biden’s focus on the calendar year, however, means that he’s taking credit for January. Not only wasn’t he inaugurated until January 20, but each month’s BLS job increase numbers cover the period between the middles of each month. (See the “Technical Note” section of each month’s report.) So the January job creation he’s claiming as his own stopped days before he entered office.

If it’s assumed that the current administration’s impact on employment (and the rest of the economy) didn’t start until the President took the Oath of Office – on a monthly basis, in February – then the employment increase that’s taken place on his watch so far is 6.215 million. That’s nearly 200,000 less than he claimed.

There’s no question that the employment picture orders of magnitude better than that of the last calendar year of the Trump administration – when non-farm payrolls cratered by 9.416 million.

At the same time, that calendar year includes the depths of the steep economic downturn induced by the CCP Virus’ arrival in the United States. In March and April, American employment levels crashdove by a sickening 22.362 million. And as should be remembered, including by those who view the Trump response to the pandemic itself as disastrously bad, this employment calamity mainly stemmed not from Trump economic policy decisions that presumably were inferior to their Biden administration counterparts. They mainly stemmed from health-related economic and behavioral restrictions that the former President supported only belatedly and reluctantly.

In fact, once the economy began reopening (raggedly, to be sure), job creation skyrocketed. From April, 2020 through January. 2021 – bringing the story up to just about the end of Trump’s presidency – NFP rose 12.575 million. That’s twice as much in absolute terms in nine months as in Mr. Biden’s 11 months in office.

As implied, though, this rapid improvement wasn’t mainly Trump’s doing. Clearly, economic stimulus measures helped. But far more important was a reopening and highly uneven return to economic normality. Moreover, because of the federal government’s limited authority over issues such as whether businesses closed altogether, or operate during limited hours, or how their customers should behave, the reopening decisions were overwhelmingly taken at the state and local level.

But as known by RealityChek regulars, President Biden’s remarks ignore a more fundamental concern: The kinds of absolute increases touted by President Biden are far from the whole story when it comes to judging economic performance, and can profoundly mislead even factoring out the whopping distortions of the economy created by the CCP Virus. At least as important are relative increases (or decreases) – in this case, because the size of the American workforce keeps changing.

And when the Biden job creation record is presented in terms of percentage increase, it doesn’t look so extraordinary at all. The Washington Post‘s Andrew Van Dam put it perfectly yesterday:

“The 6.4 million jobs gained this year, while a record in absolute terms, represents only a 4.5 percent increase in the workforce. That’s smaller than the 5.0 percent growth seen in 1978, when a much smaller labor force added 4.3 million jobs. In fact, relative to the size of the workforce, it’s only the 11th best calendar year since record-keeping began in 1939.”

Biden’s boasts about the economy certainly aren’t the first issuing from the Oval Office. Indeed, they’re no more exaggerated than TrumpWorld’s repeated claims that, pre-virus, he “helped America build its strongest economy in history.” But they’re also a needed reminder that whoever’s in office – a Democrat or Republican, an establishmentarian or a disrupter – their economic pronouncements are bound to deserve some Pinocchios.       

Im-Politic: The Lockdown-Light States are Winning the U.S. Population Contest

Tags

CCP Virus, Census Bureau, coronavirus, COVID 19, demographics, Im-Politic, lockdowns, mandates, mask mandate, migration, population, reopening, states, vaccine mandates, Wallethub.com, Wuhan virus

Unless you don’t think that voting with one’s feet speaks volumes about what people like and dislike, (and how could you not, given what a pain most sane people consider moving to be?), you have to agree that data released last week by the U.S. Census Bureau data sent a powerful message about heavy CCP Virus-induced restrictions on various aspects of their lives. In a phrase, they can’t stand them. Or maybe they can’t stand how they’ve been implemented, which is pretty much the same thing.

Of course, people move for all sorts of reasons. But it’s undeniably striking that the Census data on which states gained and lost the most population during roughly the first pandemic year (April 1, 2020-July 1, 2021) show that those with relatively light anti-virus regimes have generally gained new residents, and those with relatively heavy rules and regulations experienced declines.

The most revealing indicator of these trends isn’t the headline set of population increases and decreases by state during the above time period. After all, those figures also include natural births and deaths (mainly because here we’re trying to measure not the states’ individual records in fighting the virus, but how Americans perceive them), as well as changes due to international migration (which say almost nothing about how the perceptions of the U.S. population as of spring, 2020).

Instead, the best indicators of public opinion about pandemic policies are the domestic migration data – that is, Americans’ movements among states over this latest data year.  They’re found in the third spreadsheet listed under “Tables” at this link, and the states’ April, 2020 populations that are used as the baseline are in the second spreadsheet. 

Our methodology? Comparing the new Census findings with Wallethub.com‘s ranking of individual states’ levels of virus restrictions as of this past April. Let’s start with a list of the ten states (out of 51, including the District of Columbia) that have performed best in absolute terms in attracting residents from other states (listed from most to least successful), with their restrictiveness rankings next to them. (The lower the number, the less restrictive a state.)

Florida                                263,958       2

Texas                                  211,289       5

Arizona                              119,650     15

North Carolina                  106,884      28

South Carolina                    78,812        7

Tennessee                           73,472      16

Georgia                              59,979       24

Idaho                                  56,439       11

Utah                                   36,084       18

Nevada                              34,280        30

What this list shows is that eight of these ten states are among the 50 percent of states that have the fewest anti-CCP Virus restrictions, three of the ten are among the five least restrictive, and four of the ten are in the ten least restrictive. That looks like the least restrictive states have been awfully attractive to Americans.

Similar results come from the list of the ten states that have attracted the most domestic movers as a share of their populations in April, 2020:

Idaho                                    3.07         11

Montana                              1.98         10

Arizona                               1.67          15

South Carolina                   1.54            7

Delaware                            1.45          49

Maine                                 1.25          43

Florida                                1.23           2

Nevada                               1.10         30

Utah                                   1.10         18

New Hampshire                 1.07         22

Tennessee                          1.06          16

Again, eight of this group of ten are found among the half of states with the fewest pandemic restrictions. The correlation, though, is slightly weaker. After all, Delaware and Maine are big outliers, attracting relatively large numbers of domestic movers despite having super-strict approaches to fighting and containing the virus. In addition, only one of these states is in the top five least restrictive states, and just three in the top ten least restrictive. Overall, though, this list supports the case that the least restrictive states have been popular moving destinations for Americans.

But does the opposite conclusion hold – that the most restrictive states have performed especially poorly in this demographic popularity contest? The following list of the ten states that have lost the most residents in absolute terms to other states, along with their restrictiveness rankings, says the answer is “It sure does.”

California                 429,383             45

New York                 406,257             46

Illinois                      151,512             34

Massachusetts            54,339             38

New Jersey                 39,954             41

Louisiana                   36,854              27

Maryland                   26,666              26

DC                             23,222              50

Hawaii                       16,174              37

Minnesota                 15,947               40

All of these states are in the group of 50 percent of states with the most virus restrictions, four of the ten are in the group of the ten most restrictive, and California and New York are among the five most restrictive states.

As with the states with the biggest percentage domestic migration increases, the list of states with the biggest relative domestic migration decreases is consistent with a strong correlation between virus policies and population gains, but one that’s not quite as strong as the relationship between virus policies and population change among states with the biggest absolute population losses.

DC                                3.38             50

New York                      2.01            46

Illinois                           1.18            34

Hawaii                           1.11            37

California                      1.08            45

North Dakota                0.91            17

Alaska                           0.81              6

Louisiana                      0.79            27

Mass.                            0.77            38

New Jersey                   0.43            41

Maryland                     0.43             26

Here, BTW, we’re dealing with eleven states, because New Jersey and Maryland have lost equal percentages of their populations. But this list reveals that two of the eleven are among the half of states with the fewest virus restrictions (versus none among the states with the biggest absolute domestic migration losses). Moreover, Alaska is one of the ten least restrictive states and North Dakota is among the twenty least restrictive.

At the same time, nine of the eleven are in the half of states that are most restrictive, two are among the ten most restrictive (the District and New York), with California right behind them. Moreover, the strength of the relationship between extensive CCP Virus restrictions and big population losses becomes even clearer given the outsized roles played by highly restrictive California and New York. Together, they account for fully 65.49 percent of the 1.276 million Americans who have moved from high-restriction to low-restriction states. (There’s considerable concentration among the states that have gained domestic migrants, but the top two – Florida and Texas – represent only 475,247 out of this total 1.066 million population, or 44.60 percent.

But there’s still the question of whether the population change and virus regime relationship looks the same when the variables are flipped. In other words, have the least restrictive states performed well and the most restrictive performed poorly in terms of population gains and losses? Here’s that list (starting with the least restictive state), including these states’ population changes in absolute and percentage terms:

Iowa                        -1,116               -0.04

Florida               +263,958               +1.23

Wyoming               +1,531               +0.27

South Dakota         +5,566               +0.63

Texas                  +211,289               +0.72

Alaska                     -5,912                -0.81

South Carolina     +78,812               +1.54

Mississippi (tie)      -7,132                -0.24

Oklahoma (tie)    +27,589               +0.70

Montana              +21,483               +1.98

Of the ten least restrictive states, seven have gained population, and three have gained lots both in absolute terms and percentage terms (Florida, South Carolina, and Texas). Moreover, one of the loser states (Iowa) has barely lost anyone by either measure.

And now for the population changes in the most restrictive states (starting with the most restrictive), again with the increases or decreases presented alongside their names in both absolute and percentage terms:

Vermont                +4,470               +0.70

DC                       -23,322                -3.38

Delaware            +14,387               +1.45

Virginia                -11,294               -0.13

Washington (tie)   +9,408               +0.12

New York (tie)   -406,257               +2.01

California           -429,383              +1.08

Maine                  +17,003              +1.25

Connecticut              +226              +0.01

Rhode Island            +291              +0.03

Among these most restrictive states, the correlation at first glance doesn’t look strong at all. Only three – the District, New York, and California – suffered a net migration outflow during the first pandemic year. But look below the surface and some of the relationship reappears. After all, two of the three are highly restrictive California and New York, whose population losses are enormous in absolute terms and significant in percentage terms. The other, the even more restrictive District of Columbia, saw an astonishing 3.38 percent of its people leave for other states – the highest percentage change whether we’re talking population increases of decreases.

Qualifiers for these conclusions should be kept in mind on top of those concerning multiple possibilities for inter-state moves.  First and foremost, I haven’t compared these migration patterns with those of past years.  If they turn out to be broadly similar, then maybe the CCP Virus isn’t a main determinant at all – and in this vein, the popularity of Sun Belt states like Florida, Arizona, and Texas is nothing new.  Nor are departures from northeastern states like New York and New Jersey. 

At the same time, Florida and Texas in particular have gotten terrible publicity all year long for their loose virus restrictions.  (Google, e.g., “Death-Santis.”)  And not only was Califonia’s annual population decline its first ever, but domestic out-migration was responsible for 143 percent of it.  (Positive population developments like births made up the difference.)  So something out of the ordinary demographically seems to have gone on in at least some big states during that first pandemic year.   And if it wasn’t the virus, I’d sure like to know what else it could have been. 

Im-Politic: So the Vaccines Work…Except in Europe?

Tags

CCP Virus, coronavirus, COVID 19, Europe, Im-Politic, infections, lockdowns, mortality, vaccination, vaccine mandates, vaccines, Washington Post, Worldometers.info, Wuhan virus

There’s no doubt about it: Europe is having a terrible time with what looks like a severe new CCP Virus wave. Not made nearly as clear by the coverage – this new wave is rising despite high vaccination rates in most of the countries being hit. As this post will show, two key trends are casting serious doubt on broad claims of vaccine effectiveness claimed by the U.S. public health establishment and others who have viewed it as the only reliable source of “The Science” on the pandemic and fighting it.

The first trend is in reported infection rates. As known by RealityChek regulars, I don’t take this metric especially seriously because it can be impacted by developments having little to do with the actual severity of the pandemic – like testing rates and numbers of asymptomatic infections. (The latter complicates the situation because people carrying the virus who are feeling no effects are relatively unlikely to take a test.)

But the public health establishment takes infection rates very seriously – and evidently in Europe as well as in the United States. So here are the relevant figures for eleven European countries – with their full vaccination rates as of November 22 on the left and the change in the seven-day moving average (7DMA) of daily new infections between November 15 and November 22 on the right. The vaccination rates come (with the exception noted below) from the Washington Post‘s virus tracker feature, and the infection rates from the worldometers.info website. And for comparison’s sake, I’m including the U.S. figures as well.

Netherlands:        73.0 percent*     +48.76 percent 

Germany:             68.0 percent      +30.62 percent

Belgium:              75.4 percent      +45.52 percent

Austria:                65.7 percent      +24.40 percent 

UK:                      69.1 percent        +9.06 percent 

France:                 69.6 percent      +81.76 percent 

Czech Republic:  58.6 percent      +39.58 percent 

Portugal:              86.9 percent      +48.04 percent

Denmark:             78.5 percent      +21.30 percent 

Spain:                   79.8 percent      +58.98 percent 

Italy:                     73.1 percent      +26.59 percent

USA:                    59.0 percent      +11.24 percent

*See here for the Netherlands vaccination rate   

It’s easy to see that there is absolutely no correlation between the two sets of numbers. Just look at the contrast in infection rate increases between the United Kingdom and France – even though their full vaccination rates are nearly identical. Also, how come highly vaccinated Spain and Portugal are seeing case numbers rise so quickly? Why are Italian case numbers rising much more slowly than those on the Iberian peninsula, even though it’s vaccination rate is somewhat lower? And why does the United States, with the second lowest vaccination rate (due to all those supposed kooks who won’t get vaxxed?) come in with the second lowest infection growth rate in this group?

But like I said, in my view, infection rates don’t deserve much relative attention. Death rates aren’t a flawless measure of virus severity, either, but they’re another matter – especially because so many inside and outside the public health establishment say that the main value of the vaccines is less their power to prevent infections than to prevent serious illness and death. That proposition holds more strongly for Europe, but as you’ll see, there are several big exceptions.

Below are the data comparing the same vaccination rates (on the left) and CCP Virus death rates (on the right) for the eleven European countries plus the United States. The death rate number is the change in the 7DMA between November 15 ad November 22 and is also from the worldometers.info site.

Netherlands:        73.0 percent*       +52.17 percent 

Germany:             68.0 percent        +22.35 percent

Belgium:              75.4 percent        +27.59 percent 

Austria:                65.7 percent        +27.27 percent

UK:                      69.1 percent           -5.80 percent

France:                 69.6 percent        +27.03 percent 

Czech Republic:   58.6 percent       +43.75 percent

Portugal:               86.9 percent       +30.00 percent 

Denmark:              78.5 percent       +50.00 percent

Spain:                    79.8 percent        -26.09 percent 

Italy:                      73.1 percent         +5.36 percent

USA:                      59.0 percent        +0.29 percent 

The lessons of this table are more difficult to draw for one main reason – the absolute numbers of deaths involved for most of these countries are extremely low. Meaning single or double digits low. And as known by RealityChek regulars, very low numbers can be highly volatile when it comes to percentage change terms, because only a tiny move in absolute numbers can produce huge relative moves. (For exampile, an increase of one to two in absolute terms equals a 100 percent increase.)

The three exceptions are Germany (where the daily deaths 7DMA have been growing recently by the high-100s), the United Kingdom (where they’re rising by the mid-100s), and the United States (where daily growth still exceeds 1,000). Even taking these disparities into account, it’s interesting that the U.S. daily death rate has been stable lately and in fact has come way down since August; and that in the United Kingdom, with its average vaccination rate, mortality is declining.

And in relative terms, on this front, both countries have been out-performing Germany – whose vaccination rate is a bit lower than the United Kingdom’s but a good deal higher than the United States’. It’s true that death rates are lagging indicators (because CCP Virus victims typically take a while to pass away). But the different directions in this indicator in these three countries don’t seem to have much to do with their vaccination rates.

As for the high vaccination countries, the rates of mortality increase are indeed worrisome, and simply because of their often-soaring infection rates could worsen. But the absolute numbers are still so low that the only reasonable conclusion is “Wait and see.”

That’s why even though tight virus-related restrictions are reappearing all over Europe (see, e.g., here, here, and here), it seems panicky at best to close down entire economies and societies – especially given all the collateral damage that would result. Sweepingly linking employment opportunities to vaccination status, as the Biden administration has sought seems equally unreasonable in light of these mounting signs that the jabs simply aren’t the panacea that was initially advertised.

An announcement yesterday by the President’s coronavirus response coordinator that “We can curb the spread of the virus without having to in any way shut down our economy,” indicates that Mr. Biden is learning the first lesson. A more targeted approach toward vaccinations and other responses, focusing on the most vulnerable, would be a welcome sign that he’s learning the second.

(What’s Left of) Our Economy: The Case for Transitory U.S. Inflation Just Weakened

Tags

CCP Virus, consumer price index, core inflation, coronavirus, COVID 19, CPI, inflation, Labor Department, lockdowns, logistics, prices, reopening, stay-at-home, supply chain, transportation, Wuhan virus, {What's Left of) Our Economy

At first glance, this morning’s U.S. inflation report almost had me throwing in the towel in the debate between those (like me) believing that recent price hikes will peter out sooner rather than later, and those believing that they’ll be much longer lasting.

My pessimism stemmed from the indisputable facts not only that by all the major month-on-month and year-on-year measures, the numbers for October were terrible in their own right. They also showed inflation gaining momentum. My case for optimism focused on a loss of momentum I’d identified through September.

Today’s statistics definitely shifted the weight of the evidence in favor of the pessimists. But I still see one possible reason for continued optimism – though the accent is on “possible.” Specifically, the year-on-year numbers may again be partly functions of unusually weak inflation last year, when the CCP Virus pandemic was undermining the economy even more than this year.

Let’s review the main monthly and annual numbers for this calendar year first, though, because it’s worth seeing just how bad they are and how much inflation momentum they reveal. First, the monthly results for overall inflation (as measured by the Labor Department’s Consumer Price Index, or CPI). As you can see, whereas sequential price increases between July and September had been coming in considerably lower than their June peak, in October they shot up past the June peak – to the highest level since June, 2008 (1.05 percent).

Dec-Jan:                          0.26 percent

Jan-Feb:                          0.35 percent

Feb-March:                     0.62 percent

March-April:                  0.77 percent

April-May:                     0.64 percent

May-June:                      0.90 percent

June-July:                      0.47 percent

July-Aug:                      0.27 percent

Aug-Sept:                      0.41 percent

Sept.-Oct:                      0.94 percent

The recent acceleration in the monthly changes in so-called core inflation was even stronger. (This gauge strips out food and energy prices, because however vital these commodities are to daily life, their price levels can be influenced by developments like bad weather or the decisions of the OPEC oil-producing countries’ cartel that supposedly say little about how fundamentally inflation-prone the economy is or isn’t.)

As of October, core inflation is still well below its peak in early spring. But it’s much highe than it’s been in the last three months:

Dec-Jan:                      0.03 percent

Jan-Feb:                       0.10 percent

Feb-March:                  0.34 percent

March-April:                0.92 percent

April-May:                   0.74 percent

May-June:                    0.88 percent

June-July:                     0.33 percent

July-Aug:                     0.10 percent

Aug-Sept:                    0.24 percent

Sept-Oct:                     0.60 percent

The case for acceleration is at least as strong for annual overall inflation. As I wrote last month, the rate of change had been more or less plateauing since May, but clearly shifted into a higher gear in October. Indeed, last month’s yearly increase was the biggest since December, 1990’s increase of 6.25 percent.

Jan:                             1.37 percent

Feb:                            1.68 percent

March:                       2.64 percent

April:                         4.15 percent

May:                          4.93 percent

June:                          5.32 percent

July:                           5.28 percent

Aug:                           5.20 percent

Sept:                          5.38 percent

Oct:                            6.24 percent

The same speed-up can be seen in the annual core inflation figures. And they’ve just hit their highest level since September, 1991 (4.60 percent).

Jan:                            1.40 percent

Feb:                            1.28 percent

March:                       1.65 percent

April:                         2.96 percent

May:                          3.80 percent

June:                          4.45 percent

July:                          4.24 percent

Aug:                          3.98 percent

Sept:                          4.04 percent

Oct:                           4.58 percent

But now the data providing (some) cause for optimism. They cover the annual inflation figures for 2019-2020, and the reason for examining them is that if inflation that year was unusually low, then whatever price hikes are recorded the year after will be unusually – and to some extent, artificially – high.

As clear from the below numbers, those 2019-2020 inflation rates became rock bottom as the CCP Virus began spreading, the economy began locking down, and consumers turned super cautious. From June through September, they rose again as the reopening after that first virus wave proceeded. But numbers like those, with one handles, hadn’t been seen recently since the summer of 2017, and even these were all well above 1.50 percent.

But October saw a sizable dropoff – from 1.41 percent to 1.19 percent.

Jan:                            2.47 percent

Feb:                            2.31 percent

March:                       1.51 percent

April:                         0.34 percent

May:                          0.22 percent

June:                          0.73 percent

July:                          1.05 percent

Aug:                          1.32 percent

Sept:                         1.41 percent

Oct:                          1.19 percent

And possibly as interesting: The November, 2019-2020 overall inflation rate (below) was even lower. December’s was higher, but not by much. So I’d argue that caution is warranted in reading too much into the latest big annual CPI increase.

Nov:                          1.14 percent

Dec:                           1.30 percent

The story told by the core inflation data is similar. Annual price hikes below two percent didn’t reappear until March, 2018 and stayed above that level until the depths of last year’s short but steep pandemic-induced recession. Following that first wave and its dramatic impact, annual 2019-2020 core inflation rates came back, but never approached two percent. And in October, fell back to 1.63 percent.

Jan:                           2.26 percent

Feb:                          2.36 percent

March:                      2.10 percent

April:                        1.44 percent

May:                         1.24 percent

June:                         1.20 percent

July:                         1.56 percent

Aug:                         1.70 percent

Sept:                        1.72 percent

Oct:                          1.63 percent

How did they perform through the end of 2020? Cumulatively, they drifted down further.

Nov: 1.65 percent

Dec: 1.61 percent

In this vein, it will be especially interesting to see how the annual 2021-2022 statistics look when they begin coming in early next year. My bet right now is that they’ll decline simply because this particular CCP Virus effect will be wearing off. And hopefully, progress toward untangling knotted global supply chains will help moderate the monthly numbers. (Until then, though, the holiday shopping season could well keep propping them up.) But if those logistics and transport troubles remain serious, all bets come off. Ditto for energy prices if they stay up.

None of this is to minimize the pain that recent and current inflation have inflicted on Americans, and especially lower income Americans. And the October results suggest that even if these price hikes prove to be a transitory development due largely to one-off CCP Virus-related disruptions, there’s no doubt that the definition of “transitory” keeps expanding chronologically – and possibly making this debate look pretty moot.

(What’s Left of) Our Economy: Now Oil’s Fueling the U.S. Trade Deficit’s Boom

Tags

Advanced Technology Products, Biden, CCP Virus, China, climate change, COP26, coronavirus, COVID 19, exports, Glasgow, imports, lockdowns, manufacturing, non-oil goods deficit, oil, oil imports, oil trade, OPEC, supply chains, tariffs, Trade, trade deficit, Trump, UN Climate Change Conference, vaccine mandates, Wuhan virus, {What's Left of) Our Economy

So many records and multi-month or year highs and lows were revealed in this morning’s official report on U.S. trade flows (for September) that it’s tough to know where to begin. What caught my eye immediately, though, was a development that concerned a product that hasn’t generated much major trade news lately, but has produced quite a few headlines in the last few weeks alone: oil.

With the United Nations’ latest global climate change conference still underway in Glasgow, Scotland, and President Biden still asking members of the Organization of Petroleum Exporting Countries to boost their production to ease national and global energy shortages, it’s more than a little interesting that September saw America’s oil trade deficit balloon from $28 million (yes, with an “m”) in August to $3.38 billion (with a “b”).

That monthly total is the biggest since May 2019’s $3.98 billion and the $3.35 billion sequential worsening is the greatest such change for good or ill in absolute terms since the $3.52 billion improvement in this deficit in Dec., 2012 (when the monthly oil deficits were regularly some five or six times larger). It’s also the biggest increase in the oil trade shortfall since Jan., 2013 ($3.86 billion).

At least as interesting: On a year-to-date basis, the oil trade balance has shifted from a $13.98 billion surplus to a $6.84 billion deficit, mostly because oil imports are up 23.55 percent during this period.

The monthly spurt in the oil trade deficit weighed heavily on the overall September trade figures, accounting for 41.26 percent of the rise in the total deficit to a record $80.93 billion.

Moreover, not only was the September combined goods and services trade shortfall an all-time high. It beat the previous record (set in June) by a healthy (or sickly?) 10.52 percent, and the 11.52 percent monthly jump was the greatest such widening since the 19.87 percent recorded in July, 2020, when the U.S. economy was rebounding sharply from the short but deep downturn produced by the CCP Virus’ initial wave and the shutdowns and lockdowns mandated in response, along with major consumer caution.

September’s deficit resulted from both major trade flows moving in exactly the wrong way. Total imports set their third straight monthly record, increasing by 0.58 percent to $288.49 billion. And overall exports sank by 3.01 percent, to $207.56 billion. That total was the first monthly falloff since February and the biggest since the 19.96 percent plunge in April, 2020 – when the pandemic’s impact on the U.S. economy was peaking.

Still worse was the trade story in goods, where the $98.16 billion gap grew by 9.99 percent over the August total to a new record $98.16 billion. That figure broke the old mark (also set in June) by 5.25 percent, and the monthly increase was also the biggest since July, 2020 – when it rose by 12.20 percent.

Here, too, both exports and imports can be blamed. As with total exports, the former also decline for the first time since February, and the 4.71 percent sequential decrease to $142.71 billion was the steepest since the 25.10 percent crash dive suffered in pandemic-y April, 2020.

Goods imports, meanwhile, climbed by 0.78 percent to $240.86 billion – a new record , too.

Since manufacturing dominates U.S. goods trade, it’s not surprising that much of this September deterioration on the merchandise side came in industry. This sector saw its own longstanding and massive deficit hit a second straight monthly record, rising 1.60 percent to $118.75 billion.

Manufacturing exports dropped on month by 4.69 percent, from $97.13 billion to $92.58 billion. But the much greater amount of imports was down only 1.25 percent, from $214.041 billion to $211.33 billion.

These new records have pushed the 2021 manufacturing deficit so far to $968.25 billion – 22.52 percent bigger than last year’s January-through September number. So the full-year shortfall is sure to top $1 trillion for the fourth straight year – and by October.

Yet another all-time high was reported in an important manufacturing sub-sector – advanced technology products (ATP). The $50.50 billion worth of these goods imported by Americans in September set a monthy record, and one that broke the previous mark of $47.24 billion set in October, 2019, by 6.91 percent. Largely as a result, the ATP deficit surged sequentially by 22.82 percent in September, to $19.74 billion. The total was the biggest since last November’s $21.90 billion and the increase the fastest since May, 2020’s 22.98 percent – early during that US rebound following the CCP Virus’ first wave.

With many of these ATP goods coming from China, the import boom in this category understandably led to a big (15.01 percent) increase in the bilateral merchandise deficit. Indeed, the monthly rise, from $31.74 billion to $36.50 billion was the biggest since the shortfall’s near-doubling in April, 2020 – when the Chinese economy was bouncing back from its own broad virus-related shutdown – and the level was the highest since December, 2018’s $36.60 billion.

Goods imports from China hit $47.41 billion – their highest level since October, 2018’s $52.08 billion. And their 10.27 percent jump in September was the biggest such monthly change since the 18.23 percent increase of this past March, at the start of the U.S.’ last post-CCP Virus recovery.

The China goods deficit in September did worsen faster than its closest global proxy – the U.S. non-oil goods deficit (which widened by 6.47 percent). It’s still also growing more slowly on a year-to-date basis – 14.89 percent versus 18.60 percent, which indicates that the Trump tariffs continued by Mr. Biden are still restraining it. But the gap is narrowing.

What’s especially sobering about these and other recent trade figures is that the overall deficit rose by 7.50 percent between the second and third quarters of this year while the rate of economic growth fell by 40.31 percent.  That’s not supposed to happen. Clearly, virus- and lockdowns- and mandates- and supply chain-related disruptions are distorting normal economic patterns, but that’s a huge discrepancy nonetheless.  Worse (in this sense), the American economy’s expansion is so far expected to speed up again in the fourth quarter. Although trees aren’t supposed to grow to the sky, it seems a safe bet that the U.S. trade deficit going forward will do a pretty good imitation.     

(What’s Left of) Our Economy: Another U.S. Trade Deficit Surge on the Way?

Tags

Biden administration, Canada, CCP Virus, China, coronavirus, COVID 19, Delta variant, exports, goods trade, imports, lockdowns, manufacturing, manufacturing trade deficit, merchandise trade, semiconductors, services trade, South Korea, Taiwan, tariffs, Trade, trade deficit, Wuhan virus, {What's Left of) Our Economy

A day after the Biden administration began laying out its “strategic vision” for trade policy toward China (which looks an awful lot like the tariff-heavy Trump administration policies decried by candidate Biden), this morning’s latest official U.S. monthly trade figures reminded that the predatory People’s Republic is hardly the only obstacle to an improved national trade performance.

Some of the distorting effects of the stop-start nature of the CCP Virus-era U.S. and global economies can be seen in the statistics. Principally, the last three data months have seen a month-on-month increase in the overall U.S. deficit in June, a decrease in July, and the rebound reported in today’s August release.

At the same time, through May, the growth of this total goods and services deficit was pretty sluggish. Since June, though, it’s remained above $70 billion for three straight months. (as will be detailed below).

At least as troubling – the rates of change in trade deficit increases and decreases, and in the economy’s rates of growth and shrinkage never match up exactly in the short run, because of lag times between orders and the receipt of supplies of traded goods in particular. But it’s not good news that whereas the U.S. economy grew at after-inflation annual rates topping six percent in each of the first and second quarters (ending in June) while the trade gap’s growth was pretty sluggish, third quarter growth could well be much slower (see, e.g., here), and the trade deficit seems to be settling in at higher levels.

To return to the China data – not that they were good. The S$31.74 billion U.S. merchandise deficit with the People’s Republic was the biggest monthly total since July, 2019’s $32.68 billion, and was up sequentially by 10.79 percent. Goods imports rose 6.51 percent on month to just under $43 billion for their highest level since last November. But merchandise exports sank month-to-month by 3.94 percent, to $11.26 billion – their lowest level since February.

Even so, the August trade report showed again that, longer term, the Trump tariffs are bringing and keeping America’s huge and longstanding China goods trade gap under control. Specifically, this deficit is up 13.65 percent year-to-date – much more slowly than the closest global proxy, America’s non-oil goods deficit (19.11 percent).

As for the headline U.S. combined goods and services trade deficit, it rose in August by 4.19 percent, from a slightly upwardly revised $70.30 billion to a new record $73.25 billion.

The merchandise trade shortfall increased, too – but by just 1.82 percent sequentially. And the $89.41 billion total, while high by historic standards, still trailed the $93 billion-plus top-two levels hit in March and June (the latter’s $93.26 billion remaining the record).

The August services trade surplus of $16.16 billion, however, was the lowest since December, 2011, and fell by 7.74 percent from July.

Several other records were set by the August results in the broadest U.S. trade flow categories. On the negative side, total U.S. imports hit an all-time high of $286.99 billion during the month, as did goods imports ($239.11 billion). But at $149.69 billion, August goods exports hit their second consecutive historical best.

And speaking of records, manufacturing’s $116.88 billion trade shortfall represented another. The August total was 5.76 percent greater than July’s $110.05 billion and exceeded the previous all-time worst (June’s $114.06 billion by 2.47 percent).

Delving more deeply into the manufacturing numbers, industry’s exports did improve by 1.95 percent sequentially, from $95.22 billion to $97.13 billion. But the much greater amount of imports jumped more than twice as fast – by 4.03 percent, from $205.72 billion to $214.01 billion.

On a January-August basis, the manufacturing deficit has ballooned by 23.77 percent, from $686.36 billion to $849.50 billion – making a fourth straight trillion-dollar trade gap for industry all but certain.

Year-to-date, manufacturing exports have grown by 19.28 percent, but imports remain more than twice as great, and they’ve swelled by 21.64 percent.

Some more records and notable results:

>At $3.73 billion, the August goods trade deficit with global semiconductor manufacturing superpower Taiwan set a fifth straight monthy record.

>The merchandise gap with South Korea, another leading semiconductor manufacturer, soared by 51.18 percent to $3.15 billion – its third highest total all-time.

>And the goods shortfall with Canada, America’s third largest goods trade partner (after the European Union and China, respectively) surged 24.48 percent, to a $5.33 billion level that was the loftiest monthly amount since October, 2008 ($5.65 billion).

The bear case for the trade deficit is easy to identify: For example, if it’s been rising even as the CCP Virus’ highly contagious Delta variant and related economic and behavior curbs are depressing growth, it’s sure to rise higher and faster as the Delta wave keeps showing signs of weakening, and growth picks up again. Further, whenever unsnarling begins of the kinds of logistical snags that have disrupted supplies of semiconductors and created long backups at ports on America’s West Coast and elsewhere, U.S. imports in particular will rise even more rapidly.

The bull case seems to depend mainly on the winding down domestically and internationally of the virus – which will help America’s trade partners finally to start catching up with the United States recovery-wise, and therefore to step up net buys of U.S. imports. (See, e.g., here.) There are also the arguments that supply chain normalization will help restore domestic U.S. business’ export potential; and that the Biden administration has just made clear that the vast bulk of the steep and sweeping Trump China tariffs will remain in place for the foreseeable future – which will keep pricing enormous amounts of imports from China out of the U.S. market.

At this point, the fence looks like the safest place to be analytically, as has often been the case for the pandemic economy. So that’s where I’ll sit regarding future prospects for the trade deficit – but leaning a little toward the bearish side for now.

Im-Politic: Anti-Pandemic Economy Clamps Could Be Strengthening Just as the Virus Threat is Weakening

Tags

Andrew Jackson, Battle of New Orleans, Biden, CCP Virus, CDC, Centers for Disease Control and Prevention, coronavirus, COVID 19, data, hospitalizations, Im-Politic, Jobs, lockdowns, mortality, OurWorldinData.org, stay-at-home, vaccination, vaccine mandates, vaccine passports, vaccines, War of 1812, Washington Post, Wuhan virus

What a stunning and thoroughly depressing point the U.S. fight against the CCP Virus may be at. Governments at all levels, private businesses, and non-profit institutions of all kinds are imposing all sorts of vaccination mandates on employees that could result in significant layoffs for the recalcitrant (including those with natural virus immunity) and equally important damage to the economy. And at the same time, the most reliable data now show that the virus’ destructive impact – recently renewed by the highly infectious Delta variant – is easing once again, and for reasons that look completely unrelated to vaccination rates.

Not that the most reliable CCP Virus data are incredibly reliable. As I’ve previously written, there are some awfully dubious definitions of “Covid-related deaths” being used across the country, and major holes in the coverage achieved by the official record keepers. In addition, serious problems have been revealed even in the hospitalization numbers – which I’d considered the most accurate gauge of the virus’ effects on human health.

All the same, the proverbial statistical curve for both indicators is now bending down for the first time since Delta began dominating the American virus scene in mid-summer.

As often the case, my source for the death and hospitalization figures are the Washington Post‘s very user-friendly CCP Virus databases. For this post, I’m also using some hospitalization figures for the U.S. Centers for Disease Control and Prevention’s (CDC) website. Unless otherwise mentioned, the specific numbers here are changes in seven-day averages (7DA), which smooth out random fluctuations that tend to occur on a day-to-day basis.

Regarding mortality, the 7DA for daily reported covid-related deaths bottomed out on July 6 at 209 and it had plummeted by nearly 30 percent during the previous week. And through July 27, the 7DA stayed below 300. But by August 16, it hit 651 and thereafter began soaring rapidly.

By the 18^th, the 7DA average had jumped by nearly 32 percent week-on-week, and the rate of increase continued surging until it peaked on the 24^th at an appalling 77.90 percent. But thereafter, these increases dropped dramaticaly. A week later, they were down to just over 21 percent. That is, consistent with the “bend the curve” criteria, the problem kept worsening, but it was worsening much more slowly, which counts as welcome progress.

This encouraging development continued through September 9, by which time the 7DA was rising on a weekly basis by just 3.17 percent. In other words, it nearly stopped rising altogether. But this fall-off proved to be a head fake. Almost immediately, the weekly increases in the 7DA for covid-related mortality bounced back, and reached a discouraging 27.49 percent in less than a week (by the 15^th).

Yet another decline has followed, and this one has been considerably deeper. By September 21, the weekly 7DA increase was back below ten percent, and just four days later, hit zero for the first time since the second half of July.

Since then, and through yesterday, the 7DA has not only been decreasing on a weekly basis. It’s been decreasing faster and faster. Yesterday, the decline stood at 6.74 percent.

The hospitalization story has been somewhat different, and brighter, especially since early September. The 7DA for daily new hospital admissions for CCP Virus-related reasons bottomed out on June 25 at 1,824 and at that point, it was down on week by just under 5.20 percent.

By August 9, the situation had turned around completely – and then some. The 7DA had soared by 34 percent. Afterwards, however, came a consistent decline. By the 20^th, the weekly rate of increase in the 7DA had fallen to ten percent, and by September 1, the increases had stopped. The weekly 7DA registered its first weekly decline on September 6 (down two percent), and its first double-digit decrease on the 21^st (ten percent).

Since then through the 30^th, it’s fallen by ten percent or more twice, and the weekly decrease in the 7DA hasn’t dipped below seven percent.

Given the mushrooming of vaccine mandates and widespread claims – including by President Biden – that the nation is now facing a “pandemic of the unvaccinated,” you’d think that the above improvements stemmed overwhelmingly from increased vaccination rates. But the data – in this case, from the OurWorldinData.org website, provide no support for this conclusion.

Specifically, on August 24, when the 7DA of daily covid-related deaths was skyrocketing at that awful 77.90 percent weekly rate, 51 percent of Americans were fully vaccinated against the CCP Virus, and 9.1 percent were partly vaccinated. By yesterday, these figures were only 55 percent and 8.8 percent, respectively.

On August 9, when the 7DA for covid-related hospitalizations was growing by 34 percent week-on-week, half of Americans were fully vaccinated and 8.5 percent were partly vaccinated. Through yesterday, those numbers hadn’t changed dramatically, either.

Could mask-wearing be responsible? Trouble is, I haven’t seen any figures on how this practice has changed in recent months. (If you have, let me know.) As far as I’m concerned, the real reasons for this good CCP Virus news have to do with rising levels of natural immunity (especially important given Delta’s virulence), the distinct possibility that the CCP Virus is one of those pathogens whose lethality wanes as it mutates (an important Delta consideration, too), and the nation’s better treatment record – due to a combination of more experienced doctors and new therapeutics.

In early 1815, then-General Andrew Jackson led American forces to a great victory over the British in the Battle of New Orleans. But due to that era’s painfully slow communications, the triumph came about two weeks after the United States and Great Britain signed the treaty ending the War of 1812.  It makes me wonder how long the U.S. public and private sectors — which don’t have the communications excuse — will keep threatening the economy’s recovery with redoubled anti-virus measures just as the pandemic tide appears to be turning.   

(What’s Left of) Our Economy: New U.S. GDP Data Still Show Trade Normalization — Pre-Delta

Tags

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

Today’s third (and final, for now) official read on U.S. economic growth in the second quarter confirms that at least as of June, the nation’s trade flows had made impressive progress toward returning to a pre-CCP Virus form of normality. The trouble still is, though, that these data cover a three-month stretch that came just before the highly infectious Delta variant of the virus arrived state-side in force, kicking off a new round of mandated and voluntary curbs on business and consumer behavior that will clearly impact the third quarter’s exports, imports, and trade balances – among other measures of economic performance.

The key sign of such trade normalization – the dramatically slowing rate at which the total U.S. deficit is increasing. It’s the same pattern that U.S. public health authorities spoke about early in the pandemic when they focused on “bending the curve.” The idea is that huge, powerful trends rarely reverse themselves overnight, or even quickly. When they’re harmful, the most realistic early aim policy- and other decision-makers can seek is slowing the rate at which they become worse.

And these latest second quarter numbers add to the evidence that trade deficit worsening has nearly stopped. Last month’s previous government estimate of the gross domestic product (GDP), its change, and how its individual components have grown or shrunk in inflation-adjusted terms (the terms most widely watched) revealed that the combined goods and services trade shortfall was only 1.71 percent wider ($1.2471 trillion at annual rates) than in the first quarter ($1.2261 trillion).

This morning, though, the overall trade gap was pegged at a smaller $1.2445 trillion – just 1.50 percent more than in the first quarter. The absolute level of the deficit remains enormous. In fact, as such, it’s still the biggest ever (and still the fourth straight record quarterly total). More important, at 6.43 percent the size of the total economy, it’s still the biggest trade gap ever in relative terms, too.

In addition, the second quarter’s inflation-adjusted overall trade deficit was a full 46.83 percent greater than the $847.6 billion annualized figure recorded in the fourth quarter of 2019 – the last full quarter before the CCP Virus began distorting U.S. trade flows by weakening the economy of enormous trade partner China.

But between the second and third quarters of last year, when the economy was rebounding strongly from its short but dizzying pandemic- and lockdown-induced recession, the real trade deficit skyrocketed by 31.81 percent. So the curve has not only been bent – it’s nearly flattened. And in price-adjusted terms, the government’s U.S. economic growth estimate for that April-through-June period this year came in this morning at 6.56 percent at annual rates – a bit better than last month’s 6.40 percent.

Slightly better trade deficit improvement coupled with slightly stronger economic growth is definitely good news, and it’s confirmed by the figures on the impact on growth of the trade deficit change. Last month, the Commerce Department (which compiles and reports the GDP statistics) announced that the constant dollar trade gap’s modest sequential increase over the first quarter level cut after-inflation U.S. growth by 0.24 percentage points. In other words, had the deficit simply remained the same, second quarter growth would have been 6.64 percent annualized, not 6.40 percent.

The new numbers show that the deficit’s smaller increase reduced second quarter growth by just 0.18 percentage points. So if the trade gap hadn’t worsened at all, real economic growth would have hit 6.74 percent, not 6.56 percent.

The manner in which the second quarter’s constant dollar trade gap improved over the second read was encouraging, too – although the pattern was not quite as positive as that reported last month.

That GDP release judged that total exports improved by 1.60 percent (to $2.298 trillion annualized) over the first quarter’s level, not by the originally reported 1.47 percent. Total imports, by contrast grew more slowly – by l.64 percent, not 1.90 percent (and reached $3.5457 trillion).

According to today’s GDP report, the total sequential export increase was a faster 1.85 percent (to $2.3042 trillion at annual rates), but the total import increase was as well (1.73 percent, to a slightly higher $3.5487 trillion).

Just as important, after-inflation total exports are still 9.76 percent below their immediate pre-virus (fourth quarter, 2019) levels, but total imports are 4.35 percent higher, and the latest second quarter figure is still a second straight quarterly record.

Goods trade accounts for the vast majority of U.S. trade flows and today’s second quarter revisions saw the longstanding constant dollar deficit level rise marginally, from $1.4014 trillion annualized to $1.4020 trillion. This figure remained the fourth straigh all-time high for this indicator, but was a mere 0.44 percent worse than its first quarter counterpart, and thus represented a major slowdown from the 20.40 percent spike seen during last year’s third quarter GDP boom.

For a change, even though the service sector has been the hardest hit by the virus by far, its new real trade surplus figures improved over the previous read – from $151.2 billion at annual rates, to $152.4 billion. Nonetheless, this still represented the weakest quarterly performance since the third quarter of 2010’s $161.7 billion – when the economy’s recovery from the 2007-2008 financial crisis and Great Recession remaine in early stages.

The rapid spread of the Delta variant and consequent business restrictions and renewed consumer caution are widely forecast to depress U.S. growth considerably (see, e.g., here) – which usually heralds a considerable reduction in the trade deficit. But even if economic form follows, the unpredictability of the pandemic and the responses it generates means that it’s anyone’s guess as to how long any particular trend will last.

(What’s Left of) Our Economy: Why the Fed is Still (Really) Dovish on Economic Stimulus

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CCP Virus, coronavirus, COVID 19, Employment, Federal Reserve, global financial crisis, Great Recession, interest rates, Jerome Powell, lockdowns, monetary policy, moral hazard, QE, quantitative easing, recovery, stimulus, taper, transitory, Wuhan virus, {What's Left of) Our Economy

Yesterday, I tweeted that the Federal Reserve’s just-published statement on its policy plans looked pretty dovish – that is, signaling a continued determination to keep pouring massive amounts of stimulus into the U.S. economy. Most every other student of the economy worth heeding read exactly the opposite into the message and some related materials it issued – including Chair Jerome Powell’s statement at his subsequent press conference that the central bank could start easing off the accelerator as early as November. (One notable exception:  CNBC’s Steve Liesman.)  

Here’s why I’m right – at least in the most important senses – and why the dovishness I see isn’t great news for the American economy at all over any serious length of time.

The folks reading hawkishness into the Fed’s stance pointed to three main reasons for their conclusion, and I’d be the last person to ignore them. First, the policy statement did declare that “moderation” in the central banks’ bond-buying program, known as “quantitative easing” (QE) “may soon be warranted” if the economy’s progress “continues broadly as expected.” That’s a big change even from the July statement’s analysis:

“Last December, the [Fed] indicated that it would continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month until substantial further progress has been made toward its maximum employment and price stability goals. Since then, the economy has made progress toward these goals, and the [Fed] will continue to assess progress in coming meetings.”

Second, at the press conference, Powell not only hinted at a November start for the so-called “taper” of Fed bond buying.  He added that the process could conclude “around the middle of next year.” So although the change is expected to occur gradually, the Fed is indicating it won’t take forever to accomplish. 

Third, in a regularly issued graphic summary of their (anonymous) future expectations (called the “dot plot”), fully half of these policymakers made clear they anticipated that next year would also see the interest rate they control begin rising. As Powell told the press, taking this step would mean that these Fed officials had seen much more economic progress than that required for the taper of bond purchases they appear ready to begin.

I actually agree that this evidence adds up to more Fed “hawkishness.” But “more” clears only a very low bar for an institution that’s been super-dovish for the better part of the last decade and a half (since it decided to fight the Great Recession following the 2007-08 global financial crisis by opening up the stimulus spigots to an unheard of extent).

In other words, a Fed that for many more months will be continuing to spur growth and employment by purchasing tens of billions of dollars of bonds every month (only less than the current $120 billion) still looks pretty devoted to easy money to me.

At least as important, Powell in particular made clear that the Fed’s expectations for ending what are, after all, measures taken to counter the Covid-induced economic emergency are so fragile that he and his colleagues could change their minds as soon as the current recovery – which has been strong by most measures – veers off track.

It’s true that at the press conference, the Chair stated that all it would take for him to decide that employment was still improving enough to support a prompt beginning of tapering would be a “reasonably good” and “decent” official U.S. jobs report come out next month – not a “knockout, great, super strong” result. (Powell already believes that the nation’s inflation record – the Fed’s other main “taper test” has already been good enough to warrant reducing those bond purchases.)

But aside from questions about how Powell defines “reasonably good,” etc., his remarks show that he (along with his policymaking colleagues, over whom he wields considerable influence) still believes that a single poor jobs report, or similar discouraging development, would suffice to keep the economy on its exact same monumental levels of literal life support even though the patient has long exited the emergency room.

And these exacting standards for merely reducing current stimulus gradually (which, as the Chair himself noted, would still leave its asset holdings “elevated” and “accommodative”) tell me at least that, however well the economy performs, the Fed will be remaining on a super easy-money course pretty much indefinitely.

The one development that could change this picture significantly: a big, sustained takeoff of inflation.

But if Powell’s right (which I believe he is), then the current burst of higher prices results from “transitory” developments peculiar to the dramatic stop-start dynamics created by the pandemic and its policy and behavioral fall-out. Prices, therefore, should start normalizing before too long.

So what’s the problem? First, if the Fed is afraid that the U.S. economy can’t prosper adequately without what are essentially massive government subsidies, that’s a pretty damning indictment of that economy’s ability to generate satisfactory levels of growth and employment and living standards improvements more or less on its own.

Even more important, even if this Fed judgment is wrong, clearly it’s going to keep the stimulus flowing at historically unheard of rates, and historically, anyway, super easy-money has undermined financial stability – and disastrously – by creating what economists call “moral hazard.” That’s the condition in which over-abundant, dirt-cheap resources produce any number of reasons for using these resources foolishly (i.e., unproductively). After all, they drive down the economic penalties for making these mistakes to rock bottom levels by all but eliminating interest costs.

And an economy that uses resources so inefficiently is bound to run into big trouble before too long and suffer punishing and lingering after-effects. If you’re skeptical, think back to that devastating financial crisis and Great Recession – which weren’t so long ago – and to the slowest U.S. recovery in decades that followed. If that’s not persuasive enough, ask yourself why even the easy-money pushers at the Fed are talking about tapering in the first place.