(What’s Left of) Our Economy: Dangerous New Bubbles or a Virus Mirage?

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bubbles, business investment, CCP Virus, consumer spending, coronavirus, COVID 19, Financial Crisis, GDP, Great Recession, gross domestic product, housing, lockdowns, logistics, nonresidential fixed investment, real GDP, recession, recovery, reopening, Richard F. Moody, semiconductor shortage, toxic combination, transportation, West Coast ports, {What's Left of) Our Economy

Here’s a great example of how badly the U.S. economy might be getting distorted by last year’s steep, sharp, largely government-mandated recession, and by the V-shaped recovery experienced since then.as CCPVirus-related restrictions have been lifted. Therefore, it’s also a great example of how the many of the resulting statistics may still be of limited usefulness at best in figuring out the economy’s underlying health.

The possible example?  New official figures showing that, as of the second quarter of this year, the U.S. economy is even more dangerously bubble-ized than it was just before the financial crisis of 2007-08.

As RealityChek regulars might recall, for several years I wrote regularly on what I called the quality of America’s growth. (Here‘s my most recent post.) I viewed the subject as important because there’s broad agreement that a big reason the financial crisis erupted was the over-reliance earlier in that decade n the wrong kind of growth. Specifically, personal spending and housing had become predominant engines of expansion – and therefore prosperity. Their bloated roles inflated intertwined bubbles whose bursting nearly collapsed the U.S. and entire global economies, and produced the worst American economic downturn since the Great Depression of the 1930s.

As a result, there was equally broad agreement that the nation needed to transform what you might call its business model from one depending largely on borrowing, spending, and paying for them by counting on home prices to rise forever, to one based on saving, investing, and producing. As former President Obama cogently put it, America needed “an economy built to last.”

Therefore, I decided to track how well the nation was succeeding at this version of “build back better” by monitoring the official quarterly reports on economic growth to examine the importance of housing and consumption (which I called the “toxic combination”) in the nation’s economic profile and whether and how they were changing.

For some perspective, in the third quarter of 2005, as the spending and housing bubbles were at their worst, these two segments of the economy accounted for 73.90 percent of the gross domestic product (GDP – the standard measure of the economy’s size) adjusted for inflation (the most widely followed of the GDP data. By the end of the Great Recession caused by the bursting of these bubbles, in the second quarter of 2009, this figure was down to 71.55 percent – mainly because housing had crashed.

At the end of the Obama administration (the fourth quarter of 2016), the toxic combination has rebounded to represent 72.31 percent of after-inflation GDP. So in quality-of-growth terms, the economy was heading in the wrong direction. And under President Trump, this discouraging trend continued. As of the fourth quarter of 2019 (the last quarter before the pandemic began significantly affecting the economy), this figure rose further, to 73.19 percent.

Yesterday, the government reported on GDP for the second quarter of this year, and it revealed that the toxic combination share of the economy in constant dollar terms to 74.24 percent. In other words, the toxic combination had become a bigger part of the economy than during the most heated housing and spending bubble days.

But does that mean that the economy really is even more, and more worrisomely lopsided than it was back then? That’s far from clear. Pessimists could argue that recent growth has relied heavily on the unprecedented fiscal and monetary stimulus provided by Washington since spring, 2020. Optimists could point out that far from overspending, consumers have been saving massively. Something else of note: Business investment’s share of real GDP in the second quarter of this year came to 14.80 percent – awfully lofty by recent standards.  During the 2005 peak of the last bubble, that spending (officially called “nonresidential fixed investment”) was 11.62 percent. 

My own take is that this situation mainly reflects the unexpected strength of the reopening-driven recovery and the transportation and logistics bottlenecks it’s created. An succinct summary of the situation was provided by Richard F. Moody, chief economist of Regions Bank. He wrote yesterday that the new GDP data “embody the predicament facing the U.S. economy, which is that the supply side of the economy has simply been unable to keep pace with demand.” The result is not only the strong recent inflation figures, but a ballooning of personal spending’s share of the economy.

Moody expects that both problems will end “later rather than sooner,” and for all I know, he (and other inflation pessimists) are right. But unless you believe that West Coast ports will remain clogged forever, that semiconductors will remain in short supply forever, that truck drivers will remain scarce forever, that businesses will never adjust adequately to any of this, and/or that new CCP Virus variants will keep the whole economy on lockdown-related pins and needles forever, the important point is that these problems will end. Once they do, or when the end is in sight, we’ll be able to figure out just how bubbly the economy has or hasn’t grown – but not, I’m afraid, one moment sooner.

(What’s Left of) Our Economy: Automotive’s Still in the U.S. Manufacturing Growth Driver’s Seat

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aircraft, aluminum, appliances, automotive, CCP Virus, China, coal, coronavirus wuhan virus, COVID 19, Delta variant, electrical equipment, facemasks, Federal Reserve, industrial production, inflation-adjusted growth, inflation-adjusted output, infrastructure, lockdowns, machinery, manufacturing, masks, medical devices, metals, petroleum refining, pharmaceuticals, PPE, real growth, recovery, reopening, steel, stimulus, tariffs, Trump, vaccines, {What's Left of) Our Economy

Talk about annoying! There I was last Thursday morning, all set to dig into the new detailed Federal Reserve U.S. manufacturing production numbers (for June) in order to write up my usual same-day report, and guess what? None of the new tables was on-line! Fast forward to this morning: They’re finally up. (And here‘s the summary release.) So here we go with our deep dive into the results, which measure changes in inflation-adjusted manufacturing output.

The big takeaway is that, as with last month’s report for May, the semiconductor shortage-plagued automotive sector was the predominant influence. But there was a big difference. In May, domestic vehicles and parts makers managed to turn out enough product to boost the overall manufacturing production increase greatly. In June, a big automotive nosedive helped turn an increase for U.S.-based industry into a decrease.

The specifics: In May, the sequential automotive output burst (which has been revised up from 6.69 percent in real terms to 7.34 percent) helped push total manufacturing production for the month to 0.92 percent after inflation (a figure that’s also been upgraded – from last month’s initially reported already strong 0.89 percent). Without automotive, manufacturing’s constant dollar growth would have been just 0.47 percent.

In June, vehicle and parts production sank by an inflation-adjusted 6.62 percent , and dragged industry’s total performance into the negative (though by just 0.05 percent). Without the automotive crash, real manufacturing output would have risen by 0.40 percent.

Counting slightly negative revisions, through June, constant dollar U.S. manufacturing production in toto was 0.60 percent less than in February, 2020 – the economy’s last full pre-pandemic month.

Domestic industry’s big production winners in June were primary metals (a category that includes heavily tariffed steel and aluminum), which soared by 4.02 percent after inflation; the broad aerospace and miscellaneous transportation sector, which of course contains troubled Boeing aircraft, (more on which later), and which turned in 3.75 percent growth, its best such performance since January’s 5.62 percent pop; petroleum and coal products (up 1.36 percent); and miscellaneous durable goods, which includes but is far from limited to CCP Virus-related medical supplies (up 1.21 percent).

The biggest losers other than automotive? Inflation-adjusted production of electrical equipment, appliances, and components, which dropped sequentially by 1.73 percent in real terms; the tiny, remaining apparel and leather goods industry (1.44 percent); and the non-metallic minerals sector (1.07 percent).

Especially disappointing was the 0.55 percent monthly dip in machinery production, since this sector’s products are used so widely throughout the rest of manufacturing and in major parts of the economy outside manufacturing like construction and agriculture.

But in one of the biggest surprises of the June Fed data (though entirely consistent with the aforementioned broad aerospace sector), real output of aircraft and parts shot up by 5.24 percent – its best such performance since January’s 6.79 percent. It’s true that the May production decrease was revised from 1.47 percent to 2.61 percent. But with Boeing’s related and manufacturing and safety-related woes continuing to multiply, who would have expected that outcome?

And partly as a result of this two-month net gain, after-inflation aircraft and parts output as of June is 7.83 percent higher in real terms than in pre-pandemicky February, 2020 – a much faster growth rate than for manufacturing as a whole.

The big pharmaceuticals and medicines sector (which includes vaccines) registered a similar pattern of results, although with much smaller swings. May’s originally reported 0.22 percent constant dollar output improvement was revised down to 0.15 percent. But June saw a 0.89 percent rise, which brought price-adjusted production in this group of industries to 9.33 percent greater than just before the pandemic.

Some good news was also generated by the vital medical equipment and supplies sector – which includes virus-fighting items like face masks, face masks, protective gowns, and ventilators. Its monthly May growth was upgraded all the way up from the initially reported 0.19 percent to 1.18 percent. And that little spurt was followed by 0.99 percent growth in June.

Yet despite this acceleration, this sector is still a mere 2.27 percent bigger in real terms than in February, 2020, meaning that Americans had better hope that new pandemic isn’t right around the corner, that the Delta variant of the CCP Virus doesn’t result in a near-equivalent, or that foreign suppliers of such gear will be a lot more generous than in 2020.

As for manufacturing as a whole, the outlook seems as cloudy as ever to me. Vast amounts of stimulus are still being pumped into the U.S. economy, which continues to reopen and overwhelmingly stay open. That should translate into strong growth and robust demand for manufactured goods. The Trump tariffs are still pricing huge numbers of Chinese goods out of the U.S. market. And the shortage of automotive semiconductors may actually be easing.

But the spread of the Delta variant has spurred fears of a new wave of local and even wider American lockdowns. This CCP Virus mutation is already spurring sweeping economic curbs in many key U.S. export markets. Progress in Washington on an infrastructure bill seems stalled. And for what they’re worth (often hard to know), estimates of U.S. growth rates keep coming down, and were falling even before Delta emerged as a major potential problem. (See, e.g., here.)

I’m still most impressed, though, by the still lofty levels of optimism (see, e.g., here)  expressed by U.S. manufacturers themselves when they respond to surveys such as those sent out by the regional Federal Reserve banks (which give us the most recent looks). Since they’re playing with their own, rather than “other people’s money,” keep counting me as a domestic manufacturing bull.

(What’s Left of) Our Economy: Chip Derangement Syndrome

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CCP Virus, Chad Bown, China, coronavirus, COVID 19, East Asia, export controls, fabless, Foreign Affairs, Huawei, infotech, lockdowns, Mainstream Media, manufacturing, metals, offshoring lobby, Peterson Institute for International Economics, reopening, semiconductor shortage, semiconductors, supply chains, tariffs, Trade, Trump Derangement Syndrome, Wuhan virus, {What's Left of) Our Economy

As some RealityChek regulars may have noted, I’m spending somewhat less time lately batting down ill-conceived, off-base, and downright incoherent individual books or articles etc on key subjects like trade and globalization, foreign policy, and immigration. It’s not that there’s any less “nonsense out there” these days. Goodness knows there remain enough mouthpieces of the Offshoring-, Forever Wars-, and Cheap Labor-Lobbies in and out of the Mainstream Media paid handsomely cranking out this bilge.

It’s just that they’re clearly so much less important these days, as the American political system has so markedly been ignoring their missives. I mean, even a longtime China coddler and offshoring trade deal supporter like President Biden knows – at least politically – that these stances don’t fly any more. Not that enough progress has been made. But champions of what I think can fairly be called the pre-Trump conventional wisdom in these areas are increasingly giving off those “wrong side of history” vibes – and lashing out at Trump policies in ever more desperate and arguably deranged ways.

I’m making an exception today, however, because Chad P. Bown’s new article in Foreign Affairs blaming the former president significantly for the global semiconductor shortage, appeared in such a (still) influential publication, and is such a thoroughly pathetic example of the marginalized trade policy establishment’s Get Trump and Trumpism obsession.

For the last few years, Bown has served as the MSM’s go-to economist for swipes at Trump’s tariffs and trade wars – every single one of them. As a result, it’s almost inevitable that, with Trump out of power, and Mr. Biden now having retained for months the principal Trump China and metals tariffs – every single one of them – that he’d be looking for new ways to show how mistaken these measures have been.

Although Bown admits that the unprecedened stop-start nature of the CCP Virus-era U.S. economy, the suddently booming demand for microchip-intensive infotech products during the pandemic, and weather-related production disruptions all contributed substantially to the shortage, he also claims that Trump’s trade and tech policies also “squeezed supply” – by definition enough to write about.

His main arguments: First, Trump’s tariffs on semiconductors made in China reduced U.S. imports on net because American purchases from other countries didn’t make up for those chips. Second, his restrictions on the sale of American-made semiconductors to Huawei led the Chinese telecommunications gear giant and other Chinese tech companies to start hoarding chips from everywhere for fear of inadequate overall supplies, and left fewer semiconductors for other users to buy. Third, these curbs on sales of U.S.-made semiconductor to such an enormous customer discouraged chip-makers from all over the world from investing in production capacity in the United States in favor of building factories that could supply China from elsewhere.

But even though, as noted above, Bown admits that other culprits deserve responsibility as well, he not only downplays their effects. He completely ignores the impact of much more fundamental, indeed root, causes. Highly conspicuous, for example, are the consequences of decades of the kinds of offshoring-happy trade policies so strongly supported by Bown and his Offshoring Lobby-funded think tank, the Peterson Institute for International Economics. These policies persuaded U.S.-owned semiconductor manufacturers to move to China and the rest of East Asia much production capacity that could have been installed in America – in large part because they sent to China and the rest of East Asia so much production of the infotech hardware production that buys so many semiconductors.

Nor does Bown mention the dangerously shortsighted decisions of so many U.S.-owned semiconductor companies to eschew manufacturing for a “fabless” business model of researching and designing chips and then farming out the production “foundries” run by separate contract companies – mainly in Asia. Largely as a result, the growth of inflation-adjusted American semiconductor output fell by fifty percent between the U.S. economic expansion of 2001-2007 and the longer expansion of 2009-2019. (See my National Interest article on the subject from last October for the statistics presented above and below.) 

The growth during the latter period (73.68 percent) seems impressive in isolation. But it wasn’t nearly enough to prevent the U.S. share of global semiconductor manufacturing capacity from sinking to 12 percent – less than half the percentage in 1990. And it’s not like the growth of this global capacity has been killing it lately, especially considering it’s an archetypical “industry of the future.”

You wouldn’t know this if you if you were relying solely on Bown, but by one key measure, this capacity’s 2013-2019 cumulative expansion (14.29 percent, as shown in the chart below (which comes from the main trade association of the global semiconductor manufacturing equipment industry) was actually slower than the after-inflation growth of total global output of everything (18.29 percent). And if that’s not a surefire formula for a global shortage to me, tariffs and export controls or not, I don’t know what is. Nor do Chad Bown, or the Foreign Affairs editors who published a diatribe that’s factually unhinged even by the rock bottom standards of Mainstream Media coverage of U.S. trade policy.      

Im-Politic: The Pandemic is Over! (Unless It’s Not?)

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Biden, CCP Virus, Chincoteague, coronavirus, COVID 19, facemasks, Im-Politic, lockdowns, Maryland, mask mandate, Prince George's County, Riverdale Park, shopping, shutdowns, stay-at-home, Wuhan virus

Some recent experiences of mine, though of course by definition anecdotal and therefore inconclusive, have still been mixed enough to indicate that President Biden is right about his plan for the July 4^th holiday. His idea of using Independence Day “to mark the country’s effective return to normalcy after 16 months of coronavirus pandemic disruption” may be just what many Americans still need to shed the “masks for all” and “stay at home” mentalities despite major signals from political and public health authorities’ at all levels of government that such hypercaution is no longer necessary.

In fact, these experiences have not only been mixed. A couple have been downright puzzling.

For instance, as I’ve written previously, my town in a Maryland suburb of Washington, D.C. is pretty darned woke. It’s granted the right to vote in local elections to all illegal aliens 16 years of age and older who can show they’ve just briefly resided in Riverdale Park. And when it comes to the virus, many residents seem to have been caught up in pandemic virtue-signaling and scolding. In addition, our county – Prince George’s – has been lifting virus-related restrictions much more slowly than the rest of the state. (In fairness, it’s infection and hospitalization rates have consistently been on the high side.)

But on one of my (quasi-) daily strolls through the town, during the same conversation, a thirty-something neighbor both proclaimed himself “one of the wokest people you’ll ever meet” and declared that “this [virus] thing is over!” And for the first time since I began noticing him sitting on his porch and met him a few months ago, we shook hands.

In addition, at the local farmer’s market where last summer I was scolded for lowering my mask to sniff some fruit for ripeness (see the above-linked September 26, 2020 RealityChek post) two weeks ago, no one scolded me for paying a visit maskless even though face coverings were still being worn a this outdoor venue (including by folks who almost certainly, like me, are fully vaccinated). And no one scolded me this time for sniffing some fruit.

Best of all, about a week ago, I was able to shop maskless at my mainstay grocery store. What a thrill to be able to spend my normal hour-and-a-half going through the aisles without a piece of cloth smothering my bearded visage and getting sucked halfway into my mouth with each inhalation!

At the same time, on my previous trip to this store, masks seemed to still be required – even though the county’s indoor mask mandate had been lifted, even though the company’s website specified that its stores in this county would no longer require masks, and even though the floor markers in the aisles aimed at aiding social distancing had been removed for about a month. (They remained for the checkout lines.)

Normality signals were even more oddly mixed on a recent trip to a favorite beach destination: Chincoteague, Virgina. Since the town relies heavily on vacationers, and presumably had been hard-hit by travel curbs and lockdowns, I expected that it hoped for virus-related curbs to be lifted sooner rather than later. Moreover, without having researched its politics, I surmised that it’s on the whole a risk-tolerance and decidedly conservative place – both because it’s still small and seemingly tradition-minded (though apparently by no means averse to the noteworthy development that’s taken place during the three decades that I’ve been visiting), and because more than a few residents still earn their living at hard-scrabble actitivies like fishing, or are descended from those who did. Indeed, on the three-hour drive there from Prince George’s, through other pretty similar towns and farmland, a handful of Trump-Pence signs could still be seen – but no Biden-Harris placards.

Yet I was still pretty taken aback by how crowded the area was for an early June mid-week stretch of days, and even more surprised to learn that Chincoteague had been hopping since March. As I was told by several wait staff and merchants, “People really want to get back to their lives.” Which made perfect sense to me upon remembering that Chincoteague tends to attract a much more middle-class and (for lack of a better term) middle-brow crowd than nearby beach towns that tend to be either college student or yuppie meccas.

Even so, one of three of the four restaurants we patronized (and always patronize) in town and along the way required masks in the waiting area and any time customers left their tables. All the staff wore face coverings, too. In our other three favorites, neither customers nor staff were wearing masks at any time. One of the town’s book stores mentioned on its website (but not on the premises) that masks are mandatory, but when I entered mask-less and offered to show the co-owner behind the counter my vaccination card, she laughed and said not to bother. This relaxed attitude, however, wasn’t evident on its upper level, which I’ve always liked because of the easy chairs that enable you to thumb through your prospective purchases while taking a load off. The easy chairs were marked off-limits till the pandemic passed – whenever that’s supposed to be.

Further, the much smaller, much more ramshackle book shop about halfway to (or from) Chincoteague greeted customers with a big “Masks Required” sign on the front door. I had my vaccination card with me then, too, but didn’t want to make a scene – partly because it’s a much more close-quarters place than its Chincoteague counterpart. So I endured the mask inhalation thing while squeezing through and contorting myself around the incredibly cramped (but incredibly well stocked) paperback science fiction section in search of gems for a buck.

So I’ll be rooting for the President to be in top form if he does indeed declare July 4^th to be Independence from the Virus Day. And due to his own hypercaution for so long, he could well be a highly credible carrier of the message that it’s finally time for all Americans who don’t need to take special precautions to understand that it’s really over.

(What’s Left of) Our Economy: The Latest Data Remain Full of Normalization Puzzles

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Biden, CCP Virus, China, construction, coronavirus, COVID 19, Donald Trump, exports, goods trade, imports, inflation, inflation adjusted wages, labor shortages, leisure and hospitality, lockdowns, manufacturing, metals, non-oil goods trade deficit, non-supervisory workers, private sector, real wages, reopening, retail, services trade, shutdowns, tariffs, Trade, Trade Deficits, transportation, wage inflation, wages, Wuhan virus, {What's Left of) Our Economy

While I was away for a few days last week, two major U.S. government reports came out both giving off conflicting signals on on whether the economy has started to return to normal in critical ways as the CCP Virus subsides and reopening, along with consequent changes in consumer behavior, proceed.

The monthly trade figures (for April) showed a sequential decline, following a record surge, in America’s chronically huge gap between exports and much larger amounts of imports. Moreover the monthly drop took place as economic growth sped along at unusual rates after being shut down by government mandates and consumer caution. So maybe they’re an early sign that a return to immediate pre-virus conditions has begun?

Or is their most important message that these deficits, and especially the import levels, are still hovering near all-time highs in (the most widely followed) pre-inflation terms even though the economy as of the latest (first quarter) numbers is still a bit smaller in (the most widely followed) inflation-adjusted terms than during the last full pre-pandemic quarter (the fourth quarter of 2019)?

Indeed, the deficits are gargantuan even though President Biden has left former President Trump’s substantial tariffs on metals and goods from China practically untouched. 

The monthly inflation numbers (for May) are similarly confusing. They revealed that consumer prices (just one inflation measure published by Washington, but an important one) rose by 4.93 percent in seasonally adjusted terms. That was their fastest annual pace since September, 2008’s 4.95 percent. Surely, as widely claimed (including by the Federal Reserve, which wields so much influence over the economy, this upswing stems from a combination of bottlenecks resulting from (1) the sudden, widespread reopening; (2) the unusually low overall inflation numbers generated a year ago, when the economy was near the depths of its viruts- and shutdown-induced slump; and (3) the immense dose of stimulus injected into the economy by both elected politicians and the unelected Fed.

At the same time, the Fed has told us that its stimulus isn’t ending anytime soon, and although the Biden administration and Congressional Democrats are displaying some cold feet about approving more such levels of economic fuel (e.g., in the form of outlays on infrastructure, and a wide variety of income supports and enhanced unemployment benefits), it’s difficult to imagine that most or even much of this spending will actually be withdrawn even once a post-virus recovery is an indisputable reality.

But the biggest surprise of all: Despite the economy-wide inflation pressures, and by-now-routine claims that employers are dealing with nearly crippling labor shortages, wages overall adjusted for inflation keep going down.

Compounding the confusion over whatever conclusions can legitimately be drawn from these two reports: They cover two different months.

But let’s begin with the most important details from the April trade report. The ambiguity embodied in the data begins with the total deficit figure. The record March result was revised up from $74.45 billion to $75.03 billion but April’s $68.90 shortfall for goods and services combined, though the second worst monthly figure ever, was 8.17 percent smaller. That’s the biggest sequential drop since February, 2020 (8.39 percent), when China’s export-heavy economy was still largely closed because of the virus.

The same holds for the goods trade gap. The record March figure was revised up, too, from $91.56 billion to $92.86 billion. But April’s $86.68 billion result represented a 6.65 percent monthly decline, and this falloff was the biggest since the 8.39 percent plunge of January, 2019 – when American businesses were still adjusting both to Trump’s tariffs and anticipated tariffs.

Also still fueling the high U.S. deficits – a worsening of services trade balances. Here, U.S. trade has long been in surplus, but the surpluses keep shrinking because service sectors like travel are still suffering from the pandemic’s arrival and the consequent decimation of travel and othe transportation in particular. In fact, the April figure of $17.78 billion was the lowest since September, 2012’s $18.62 billion.

One key set of trade flows does, however, provide some evidence of Trump tariff effectiveness – U.S. non-oil goods trade, which encompasses those exports and imports whose magnitudes are most heavily influenced by trade policy (because, as known by RealityChek regulars, trade in oil is almost never the subject of any trade policy decisions and services trade liberalization remains at very early stages). In April, the monthly shortfall retreated 4.16 percent from its March record of $90.12 billion to $86.37 billion – which is only the fourth highest such total ever.

The import figures I focused on last month exhibit the same overall patterns: April saw big drops from record levels but the absolute numbers remain distressingly high. March’s initially reported record $274.48 billion in total imports was revised up considerably – to $277.69 billion. April’s total of $273.89 billion represented a 1.37 percent drop, but nonetheless was the second worst such figure on record.

March’s record monthly goods import figure was upgraded, too – from $234.44 billion to $236.52 billion. April’s total of $231.97 billion was a 1.92 percent drop but these purchases also still represented the second highest of alll time.

As for non-oil goods imports, the $215.33 billion April total was 1.98 percent down from an upwardly revised record $219.68 billion, and also the second biggest ever. Biggest drop since last April’s 10.91

Whether normalization is returning in manufacturing is more difficult to tell. Imports in March hit a record $207.59 billion, and did drop by 4.59 percent sequentially to $198.06 billion in April. That decrease, however, was a typical monthly move for manufacturing imports, and the April figure was still the third highest ever.

Incidentally, the April manufacturing deficit of $103.60 billion was 4.64 percent lower than March’s $108.66 billion. The March total was the second highest on record, but April’s figure was only the seventh all-time worst. The record, $110.20 billion, came last October, and it’s notable that the gap has narrowed on net despite the resilience shown during the pandemic period by manufacturing output.

More evidence of the Trump tariffs’ impact comes from the data on goods trade with China – whose products have attracted nearly all of these levies, and that cover hundreds of billions of dollars worth of products. The April figure of $37.59 billion was 6.56 percent lower than its March predecessor – a thoroughly unexceptional sequential decline and monthly level by historical standards. But the monthly dropoff was consideraby greater than the aforementioned 1.98 percent decrease for non-oil goods – the closest global proxy.

As a result of all these inconclusive developments, I’ll be awaiting the May trade report with even more interest than usual.

But despite all the uncertainties I mentioned at the start of this post, those May inflation figures have made me more confident than before in my previous contention that current price surges are anomalies by the extremely low inflation generated by the CCP Virus-battered economy of a year ago, and by the sudden reopening of so much of the economy following the long shutdowns and lockdowns. Even clearer, as I see it: Claims of significant, troubling wage inflation are especially weak.

After all, that 4.93 percent year-on-year May price increase followed a previous May-to-May rise that was just 0.22 percent. That was the feeblest such rise since September, 2015’s 0.13 percent. In addition, May’s month-to-month 0.64 price advance was smaller than April’s 0.77 percent. Two months do not a trend make, but these numbers certainly don’t point to raging inflation fires.

Nor do the wage data. Otherwise after-inflation total private sector wages wouldn’t be down more on-month in May (-0.18 percent) than in April (-0.09 percent). And the same couldn’t be said of constant dollar wages for non-supervisory workers (-0.20 percent in May versus flat in April).

Getting more granular, the price-adjusted wage trends are as bad or worse in construction; trade, transportation and utilities overall; retail trade; and education and health services.

The two big exceptions: the leisure and hospitality workforces that have been so decimated by the virus (and especially the non-supervisory group) and the transportation and warehousing sub-sector of the transportation and utilities industry category that contains a trucking sector unusually strained by the rapid reopening. In both cases, however, (and especially the leisure and hospitality industry), inflation-adjusted wages in absolute terms are well below the national private sector average. If anything, therefore, it seems like some wage inflation for these workers is long overdue.

(What’s Left of) Our Economy: New GDP Figures Show Slower U.S. Trade Normalization

Tags

CCP Virus, coronavirus, COVID 19, GDP, gross domestic product, inflation-adjusted growth, lockdowns, real GDP, real trade deficit, reopening, semiconductor shortage, trade deficit, West Coast ports, Wuhan virus, {What's Left of) Our Economy

When the the U.S. government’s first read on the economy’s growth during the first quarter of this year came out, I wrote that the trade highlights showed some tentative signs of normalization for CCP Virus-distorted flows of exports, imports, and for the resulting trade balances.

As of this morning, we have the second report on change between January and March in the gross domestic product (GDP), and the normalization trend still looks intact – but in weakened form.

The new data judged that first quarter growth in inflation-adjusted terms at an annual rate was a bit faster than previously estimated – 6.25 percent versus 6.24 percent. Yet the real combined goods and services trade deficit of $1.1939 billion annualized is 1.57 percent bigger than the quarterly record $1.1755 trillion reported a month ago.

As a result, the overall deficit a represented a 6.41 percent worsening from the fourth quarter figure, as opposed to the 4.77 percent increase previously reported. That’s still much lower than the 10.12 percent rise from the third quarter to the fourth quarter. And it’s orders of magnitude less than the 31.47 percent recorded during the spectacularly high growth second to third quarter period. But it’s definitely a step backward.

Ditto for the impact on after-inflation economic growth of the overall trade deficit’s increase. The initial read for the second quarter reported that the gap’s widening subtracted 0.87 percentage points from the 6.24 percent annualized total real GDP growth figure. In other words, constant dollar GDP growth would have been 13.94 percent greater had the real trade deficit not climbed at all.

Now the growth-killing impact of the trade shortfall’s expansion is pegged at 1.25 percentage points from 6.25 percent annualized price-adjusted economic growth. So that real GDP growth would have been 20 percent faster had the deficit not worsened. As with the increase in the deficit itself, the impact on growth of the deficit’s rise is smaller than it was in the fourth quarter – when it hit 35.92 percent for the worse, a multi-decade high. But the improvement is now a good deal smaller than first thought.

On a static basis, however, the inflation-adjusted adjusted total trade deficit’s share of the real economy keeps surging. This morning, it came in at 6.25 percent – as opposed to the 6.16 percent first reported. The fourth quarter level was only 5.97 percent and the third quarter’s just 5.48 percent.

Consequently, the real trade deficit is still bigger relative to the whole economy than during the fourth quarter of 2005, when it hit 6.10 percent. That incidentally was the previous record, and that time is of course known as the bubble decade – after which the financial crisis and Great Recession quickly followed.

Moreover, although signs of overall economic normalization keep mushrooming (thanks, e.g., to the spread of CCP Virus immunity and continued stimulus spending), trade flows may still be in for months more of pandemic-related distortions. Indeed, they may worsen.

After all, on top of all the stimulus the economy will keep receiving for the foreseeable future, two major bottlenecks crimping growth are easing. Specifically, progress is now being reported not only in clearing West Coast ports congestion, but in alleviating the global semiconductor shortage (albeit partly because the production cuts it forced on customers are cutting their demand).

It’s true that these bottlenecks – which have stemmed largely from the sudden stop-start nature of transitions from lockdowns to reopenings – have affected both U.S. exports and imports. But with the United States still a strongly consumer-dominated economy, and almost certain to recover much faster than many of its leading trade partners (many of which will therefore be relying on generating their own trade surpluses for growth more than ever), it’s all too easy to see how its trade deficits will either keep setting records or at least stay at their current lofty levels well into the next year.

Im-Politic: Our Dysfunctional Watchdog of Democracy

Tags

Anthony S. Fauci, Barry Meier, Biden, Buzzfeed.com, CCP Virus, coronavirus, COVID 19, democracy, Donald Trump, facemasks, Im-Politic, journalism, lockdowns, Mainstream Media, masks, Russia, Steele dossier, The New York Times, The Washington Post, Thomas Jefferson, Trump-Russia, Wuhan virus, Yellow journalism

A New York Times article posted this past weekend strongly reinforces a suspicion that I’ve held for some time about the title of most worrisome – because largely neglected – existing threat to American democracy. It’s not demagogues who get elected to high (or even the highest) public office. It’s not white supremacists or Antifa. It’s not voter fraud or voter suppression. It’s not Russian leader Vladimir Putin. It’s not even the kind of disinformation and misinformation and even election interference that he and other foreign dictators (like China’s Xi Jinping) have engaged in.

Instead it’s our own Mainstream Media – including the gargantuan social media platforms that have come to play such a huge role in determining what news Americans see, watch, and hear.

Why are these news organizations so dangerous? For two main reasons. First, their democracy-subverting activities are much more subtle and therefore harder to identify than those of the above culprits. Second, their ever-growing partisanship and arrogance is destroying what has long been relied on as the nation’s fail-safe mechanism – a watchdog press.

To be fair, this idea has always been problematic, even though throughout U.S. history, prominent Americans have made statements like “Our liberty depends on the freedom of the press, and that cannot be limited without being lost” (Thomas Jefferson) and “Democracy Dies in Darkness” (the Washington Post).

Yes, despite the bedrock Constitutional system of separation of powers, it’s been essential for some influential force outside government to “guard the guardians.” But embedded in the very consequent need for private ownership (to ensure that the press can independently monitor the government) is the danger that these owners will solely or mainly use their power to further their own particular interests, not society’s.

All of which is to say that we’ve long had a national conundrum to deal with. But it doesn’t seem unreasonable to conclude that, once journalism clearly exited its sensationalistic “Yellow” phase and (probably in the years following Wold War II), started acting like a profession that needed to embody and uphold standards of accuracy and objectivity, the major media met its watchdog responsibilities fairly well – over both government and the private sector.

What the author of the Times piece, former journalist Barry Meier, makes clear, is that there’s not only more reason than ever to fear that the commitment to objectivity is rapidly weakening (and these fears have been amply justified lately, as I’ve reported here). There’s also more reason than ever to fear that the kind of commitment to accountability watchdogs must accept – inevitably entailing an acknowledgement of legitimate outside criticism and the imperative of correcting mistakes – seriously is fading as well.

These worries have been triggered by two specific observations made by Meier about the Mainstream Media’s handling of the charges that former President Trump colluded with Russia to ensure victory in the 2016 election. As Meier recounts, these accusations were supercharged by reports that a former British super-spy had uncovered evidence that Trump’s personal misbehavior had exposed him to Russian blackmail, and resulted in his turning into a latterday Manchurian Candidate who would be forced to do Moscow’s bidding.

The infamous “Steele dossier” that supposedly made this case was published by a website called Buzzfeed.com in January, 2017 – shortly before Trump’s inauguration – and although no serious efforts at confirmation or even finding any supporting evidence were made, “countless articles, television shows, books, tweets and blog posts about it appeared.” (The dossier also formed part of the basis of the FBI’s request to a special U.S. court to spy on the Trump campaign in 2016, and Bureau Director James Comey’s March, 2017 disclosure that this investigation was continuing poured additional fuel on the Trump Russia fire.)

By 2019, Meier goes on, the Steele dossier had been exposed as a bogus hatchet job. But by that time, of course, the collusion firestorm had dominated the Trump presidency, along with equally offbase news coverage of his administration, and surely compromised its ability to govern effectively.

Why this prolonged media focus? In large measure, as Meier explains, because “It was easy for many journalists to believe that Mr. Trump would do anything to win, even — given his stance with…Putin — collude with Russia.” Indeed, as the author observes, they picked up this ball and ran with it even though “Steele said that his information needed to be confirmed….”

This flagrant anti-Trump bias was bad enough. Much worse, though was the media’s response once the dossier had been debunked. In Meier’s words:

“[A] few reporters who had written about the dossier had backed away from it. ‘Some people have wanted to maintain that the dossier is checking out when, as far as I can tell, it hasn’t,’ said Michael Isikoff of Yahoo News. He was in the minority. When Erik Wemple of The Washington Post wrote a series of columns about the media infatuation with the dossier, most journalists he contacted either defended their work or ignored his inquiries.”

Even though Meier, Isikoff, and Wemple all work for Mainstream Media organizations themselves, these revelations are more disturbing because they cast doubt on these news organization’s willingness, either individually or collectively, to admit that a major preoccupation of theirs that shaped American politics for years was an utter crock. And in a similar vein, they’re grounds for great skepticism that these same media will produce accurate post-mortems on the actual actions by governments or by individual politicians that conformed with this Get Trump obsession.     

The reason for this reluctance is obvious: Their credibility – their most precious asset, even in this hyperpartisan era – would be devastated. But if these powerful companies won’t self-correct or correct the records of others – and in some systematic, comprehensive way that can make a difference, not in dribs and drabs – especially on a matter of this importance, then their watchdog reputation gets thrown out the window.

And as far as I’m concerned, good riddance. But if the big national media can’t be relied on to play this role responsibly, who or what can? And can a democracy worthy of the name long survive without actors that can credibly set the record straight before the archives are fully open to historians years and even decades from now?

Moreover, we’re getting an example of how such flawed Mainstream Media performance could be a literally fatal flaw – and on mass level.  Specifically,  evidence has appeared throughout the CCP Virus pandemic that sweeping lockdown- and mask-wearing-centric mitigation strategy pursued in most of the country at the behest of the public health establishment was completely and tragically mistaken. (See, e.g., here.)  America’s major national news organizations have obviously bought in to the stay-at-home and mask-up claims, as shown, for example, by their near canonization of leading lockdowns proponent Dr. Anthony S. Fauci, the federal government’s head immunologist and now President Biden’s top medical adviser. 

I’d like to believe that if conclusive evidence emerges invalidating this virus-fighting approach, and supporting measures with potentially greater effectiveness during future pandemics, the news would be trumpeted all over the Mainstream Media even if the federal government tried to hush it up.  But as of now, expressing the hope that the real story might become known looks like nothing so much as practicing quackery.  

(What’s Left of) Our Economy: The Big Missing Reason for the Big Jobs Miss

Tags

Anthony S. Fauci, automation, Biden, Build Back Better, CCP Virus, CDC, Centers for Disease Control and Prevention, child care, children, coronavirus, COVID 19, FDR, Franklin D. Roosevelt, immunity, Jobs, jobs report, lockdowns, New Deal, parents, productivity, reopening, school closings, skills, skills gap, teachers, unemployment, unemployment benefits, vaccinations, Wuhan virus, {What's Left of) Our Economy

As reported widely, the big miss marking last Friday’s official monthly U.S. jobs report (for April) ignited a heated debate among politicians, economists, and many others over why the U.S. economy created so much less new employment that month (266,000 net new positions overall) than generally estimated (in the million neighborhood). At the heart of this debate: Do the many positions employers consistently say they’re struggling to fill amid a continuingly high jobless rate mean that the enhanced unemployment benefits offered throughout the pandemic are discouraging Americans from returning to the workplace?

What I’m not seeing, however, is anyone asking whether this is the right debate. It’s increasingly obvious to me that it’s not.

It’s easy to see why those who answer yes are viewing the issue far too narrowly. Surely some unemployed workers are content to stay at home because they’re currently making more from jobless payments than they were making from their previous employer. That should be clear from the number of businesses raising wages to fill the shortages they’re experiencing. (I’m not saying that these raises are or aren’t long overdue or otherwise deserved; simply that the higher pay and other incentives employers are offering can only be interpreted as companies recognizing that the enhanced benefits have, to a degree, increased the relative attraction of remaining on the employment sidelines versus reentering the job market.)

At the same time, is it reasonable to ignore all the other major reasons for this big labor market anomaly? Like ongoing fears of catching the CCP Virus at the workplace, or the need to stay home with school-age children forced to learn remotely? And don’t forget all the uncertainties created by the sudden stop-start nature of the virus-era lockdowns on the economy.

Yes, a rapid U.S. reopening is taking place now. But all over the world, infection surges are producing new economic curbs. Can you blame workers for wondering whether shortly after they leave the unemployment and benefits rolls, their new workplace will need to close, or cut back on its operations, leaving them in the lurch while they either seek other jobs or file for new benefits?

It’s easy to see that all of these developments and circumstances and uncertainties and outright fears are keeping U.S. labor seemingly scarce. You can also add to the list the likelihood of growing skills mismatches in the American economy – that is, the numbers of jobs requiring more or different skills outgrowing the number of workers possessing these skills, and the numbers of companies replacing low-skill jobs with automation of some kind. Not that the resulting mismatches inevitably will be with the nation forever, or even long term. But they’re unmistakably present now.

So maybe the problem is simply too complicated for government to address? Or we’ll simply need to wait until a stable post-CCP Virus normality returns and labor markets start clearing as usual? It seems reasonable that the purely skills-based mismatches will defy ready solutions – unless America’s education system suddenly gets a lot better at preparing students for the economy they’ll be facing, and businesses get more serious about training and retraining workers, and turn  away from needlessly insisting on lofty credentials for jobs that don’t require anything close.

It’s also possible – though that’s the most I’m willing to say – that spreading automation will eventually help businesses become so much more productive that they’ll be able to turn out more products and services, and that this very success will generate all sorts of new jobs whose appearance can’t be predicted with any precision now. (My reservations stem from concerns that the newest forms of automation, especially artificial intelligence and super-sophisticated robotics, are qualitatively more capable of displacing many more kinds of labor than previous technological breakthroughs.)

As long as the federal government and the states remain willing to provide generous unemployment benefits (and other supports), the resulting situation would at least keep most of the jobless adequately fed, clothed, and housed. That’s a big “if,” though, for reasons economic (e.g., maybe Washington can’t keep borrowing and spending massively much longer?) and social and cultural (e.g., maybe ever longer term unemployment will start to produce more in the way of pathological behavior like drug abuse, violent crime, and worse classroom performance from students from families on the dole?).

Consequently, the more progress can be made returning the unemployed to work, the better, and however difficult the challenge of eliminating the purely or largely skills-based mismatches, Americans and their leaders shouldn’t overlook where policy can make a big difference. And the above analysis indicates that one big difference can be made by the U.S. government, and especially its public health authorities.

Specifically, they need finally to stop their CCP Virus alarmism and energetically spread the word that due to a combination of high and mounting degrees of various kinds of immunity, mass vaccinations, and the highly varying nature of the virus’ infectiousness and lethality, normality is unquestionably returning. Further, and crucially, although certain groups of Americans – like the elderly, and those with certain underlying medical conditions – are still too vulnerable and must be protected with special measures, the Biden administration and its health experts should acknowledge that nearly all others can safely return to normal activities because the already low odds of even getting the disease, much less suffering significantly from it, have now plunged to rock bottom.

In other words, Washington should announce that work places are safe to return to, bricks and mortars businesses are now safe to patronize, in-person schooling is just fine for both students and teachers and administrative staff alike, (thus solving the childcare dilemma), and that lockdowns have become a thing of the past.

Instead, of course, you’ve got a Centers for Disease Control and Prevention (CDC) that seems stuck in hyper- (and increasingly unscientific) caution territory, not to mention decimating its own message about vaccines’ effectivness by admitting almost no behavior payoff whatever; and a President and leading figures of his own party continuing to wear facemasks even in settings that “the science” had made crystal clear are as safe as they can be for the fully vaccinated.

To top if off, the President’s chief medical adviser, Dr. Anthony S. Fauci, has just taken pains to speculate that Americans may start wearing facemasks to guard against all sorts of respiratory diseases on a seasonal basis. Given this administration’s record so far, it doesn’t seem all that far-fetched to worry that new CDC guidelines along these lines, plus recommendations to resume some forms of social distancing, and even new business curbs, could quickly follow if this kind of Chicken Little-ism isn’t stopped. For now, though, no wonder so many Americans are still scared stiff of the virus.

It’s becoming more and more common to compare President Biden and his ambitious plans for “Building the U.S. Economy Back Better” with Franklin D. Roosevelt and his New Deal programs.  (See, e.g., here and here.) But it’s hard to imagine Mr. Biden succeeding to any lasting degree if his CCP Virus policy doesn’t start reflecting one of FDR’s most and most deservedly famous insights: “[T]he only thing we have to fear is fear itself.”

(What’s Left of) Our Economy: The Virus Keeps Trade Figures, Like the Whole U.S. Economy, on a Roller Coaster

Tags

Advanced Technology Products, CCP Virus, China, coronavirus, COVID 19, goods imports, imports, lockdowns, manufacturing, reopening, shipping, Trade, trade deficit, West Coast ports, Wuhan virus, {What's Left of) Our Economy

Since I keep writing that U.S. trade figures – as well as other economic data – have been and continue to be thoroughly distorted by the sudden stop-start nature of the CCP Virus-era economy, it seems time to replace my usual monthly format with one that shows just how out-of-the-ordinary trade flows have become.

The best evidence? The latest (March) monthly changes in imports reported today by the Census Bureau. Although the understandable headlines for the press coverage of this release focused on the record shortfalls in the overall trade gap ($74.45 billion) and in the goods shortfall ($91.56 billion), to me, the real story for March concerns the big, practically across-the-board jumps in American purchases from abroad – which of course also owe in part to the long-awaited easing of big (virus-related) backups in the West Coast ports through which so many goods enter the nation from Asia. (This congestion has also hampered American exports.)

So on to the March import figures. For combined goods and services, these purchases rose by 6.34 percent sequentially, to $274.45 billion. The absolute total is an all-time record, and the monthly increase the biggest since July’s 10.88 percent, when the economy was starting its first reopening phase.

Goods imports alone grew by 6.98 percent on-month in March, to $234.44 billion. That advance was also the biggest since July, when they surged by 12.31 percent. And the actual March level was the highest on record, too.

Interestingly, the import flows affected most by tariffs and other U.S. trade policy decisions – in goods other than oil – climbed a bit more slowly in March than overall goods imports: by 6.48 percent, to an all-time best (worst?) $217.69 billion. As with that non-oil goods category, the sequential rise was the fastest since July (12.18 percent), but these inflows rose only half as much.

The CCP Virus effect seems to have been especially pronounced in manufacturing. March imports of industrial goods hit a record $207.59 billion, and soared by 22.98 percent sequentially. That increase was the biggest since March, 2015 – when a 23.44 percent rise largely represented a February slump caused by harsh winter weather. By contrast, manufactures imports grew strongly last July, too – during the first economy-wide virus rebound – but by just 12.08 percent.

Within manufacturing, advanced technology imports in March, at $44.54 billion, fell short of their all-time high ($47.25 billion in October, 2018). But the sequential increase of 24.06 percent was the greatest since that weather afffected March, 2015 (24.87 percent).

March goods imports from China expanded a healthy 18.23 percent sequentially in March. But the $40.23 billion monthly total was well below record levels, too. This increase was also way less than the 59.02 percent rocket ride these purchases took in April, 2020, but that occurred when China’s economy was rebounding from its own CCP Virus lockdown. So the March figure could indicate that the Trump tariffs have started to fail.

At the same time, March goods imports from Asia-Pacific countries as a whole (a U.S. government grouping that includes China) ballooned by 25.11 percent on month – considerably faster than China’s increase, and their biggest monthly rise since that weather-affected March, 2015 (32.43 percent). That’s evidence that the Trump tariffs have indeed kept disadvantaging China.

As a result, even if the March trade figures simply extend an already lengthy string of CCP Virus-era official U.S. economic data, and say little about the economy’s fundamentals or even the effectiveness of U.S. tariffs, it still seems valuable to me to be reminded every now and then just how out-there these statistics remain.

Glad I Didn’t Say That! A Weird NY Times Definition of “Polarizing”

Tags

CCP Virus, coronavirus, COVID 19, experts, Florida, lockdowns, Mainstream Media, MSM, politics, polls, public health, reopening, Ron DeSantis, The New York Times, Wuhan virus

Florida Republican Governor Ron DeSantis “has become a

polarizing leader in the resistance to lengthy pandemic lockdowns,

ignoring the advice of some public health experts in ways that have

left his state’s residents bitterly divided over the costs and benefits of

his actions.”

– The New York Times, April 10, 2021

Latest two DeSantis Florida approval ratings: 53 % & 60 %

– Sarasota (Fla.) Herald-Tribune, March 2, 2021 and The Florida Times-Union, March 4, 2021

 

(Sources: “Could Ron DeSantis Be Trump’s G.O.P. Heir?  He’s Certainly Trying,” by Patricia Mazzei, The New York Times, April 10, 2021, Could Ron DeSantis Be Trump’s G.O.P. Heir? He’s Certainly Trying. – The New York Times (nytimes.com); “New poll shows 53% of Florida voters approve of DeSantis, a big increase from July,” by Zac Anderson, Sarasota Herald-Tribune, March 2, 2021, https://www.heraldtribune.com/story/news/politics/state/2021/03/02/florida-governor-ron-desantis-approval-rating-sees-big-increase-covid-pandemic-anniversary/6877677002/; and “UNF poll: Gov. DeSantis approval at 60 percent,” The Florida Times-Union, March 4, 2021, UNF poll: Gov. DeSantis approval at 60 percent – News – The Florida Times-Union – Jacksonville, FL )