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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

But those internal numbers!

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

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

(What’s Left of) Our Economy: So Much for That Pre-Virus Trump Manufacturing Recession?

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(What's Left of) Our Economy, Barack Obama, election 2020, Federal Reserve, GDP, gross domestic product, gross output, industrial production, Joe Biden, manufacturing, manufacturing recession, real GDP, real value added, tariffs, Trade, Trump, value added

A funny thing happened when the U.S. Commerce Department released its latest report on gross domestic product (GDP) by industry last Wednesday: Most of the evidence that American domestic manufacturing suffered a recession – even a mild one, as widely reported – before the CCP Virus struck disappeared.

The new figures also reveal that President Trump’s manufacturing record before most of the U.S. economy was literally ordered closed due to virus-related fears looks even better than previously thought in comparison with that of the Obama administration – in which the President’s Democratic rival for the White House, Joe Biden, served as vice president.

Focusing on this pre-virus data is anything but grasping at straws – unless you think the CCP Virus and its impact will last forever. For manufacturing’s fortunes have been closely connected to President Trump’s tariff-centric trade policies throughout his time in office because manufacturing is so thoroughly exposed to foreign competition both at home and abroad. And as this article (which featured unusual balance) made clear, recent evidence that industry had slumped last year – even before the virus’ arrival and the deep downturn it caused – was widely viewed as a major sign not only that the “trade war” was failing, and undermining Mr. Trump’s .broader determination to revive the sector.

Yet the new GDP by Industry numbers (which take the story through the second quarter of this year, and incorporate revisions going back to the first quarter of 2015 and which were part of a broader release of four different measures of manufacturing production) generally revised that recession away. So presumably, judgments about the effectiveness and impact of the Trump tariffs and similar trade decisions during normal economic times should turn much more positive.

Understanding that the federal government uses four different measures of manufacturing production is the key to understanding why those manufacturing recession claims now look largely mistaken, and why some uncertainty remains. The four measures are: gross output and inflation-adjusted (real) gross output, and value added and real value added. The latter two measures try to eliminate the double-counting in the gross output numbers that economists generally agree results from including in its results both the parts and components and other manufactured inputs of final products, along with the final products themselves.

As of now, the only one of these gauges that still shows a pre-virus Trump-era manufacturing recession (defined as two straight quarters of declining output) is current dollar (pre-inflation) gross output. According to these data, this downturn began in the second quarter of 2019 and continued through the end of the year – and of course into this year. But a recession doesn’t show up in any of the other measures, and its absence in the new real gross output figures is especially important, since that’s the measure that the Federal Reserve uses to measure manufacturing production in its closely followed monthly industrial production reports.

At the same time, those real gross output figures still leave one manufacturing production uncertainty remaining. For even though the Commerce Department’s tables, and their quarterly numbers, show no pre-virus Trump era recession by this measure, the Fed’s monthly numbers do. Specifically, they report three consecutive quarters of manufacturing production decrease last year – from the first through the third.

Yet the quarterly figures reported by the Commerce Department show that real gross output in manufacturing fell between the first and second quarters of 2019, but rose between the second and third before dropping again between the third and fourth. Even odder: Although these Commerce numbers show a weakening manufacturing output picture for the fourth quarter of last year, the Fed figures show a brighter one.

As for the comparison between administrations, here’s what the new numbers show for the two most comparable pre-virus periods (because they’re closest together in the same business cycle) – the last three years of the Obama administration and the first three years of the Trump administration. And they demonstrate that, whether due to Mr. Trump’s policies or not, industry performed considerably better during his watch. The Trump numbers are all the more impressive since 2019 was marked in part by major production woes at Boeing that greatly undercut the output numbers for the huge U.S. aerospace industry and its vast domestic supply chain.

last 3 Obama years first 3 Trump years

Gross output: -6.50 percent +12.71 percent

Real gross output: +1.40 percent +4.63 percent

Value added: +5.41 percent +11.72 percent

Real value-added: +2.33 percent +9.00 percent

This year, of course, has been terrible for domestic U.S. manufacturing. Between the first and second quarters, in real gross output terms it decreased by 1.03 percent at an annual rate between the fourth quarter of 2019 and the first quarter of 2020, and by 9.47 percent between the first and second quarters.

Interestingly, put together, those are about the same as the declines suffered by the entire U.S. private sector (1.11 percent and 9.14 percent, respectively), even though manufacturing employment during this that period held up notably better than its overall private sector counterpart. During the first and second quarters of this year, the private sector lost 9.92 percent of its jobs, compared with 6.25 percent for manufacturing.

The GDP by Industry figures for the third quarter won’t be out until well after the election (December 22), so voters won’t be able to judge the full Trump manufacturing output record during the CCP Virus period. But from what’s known so far, it looks like something the President can point to during the rest of the campaign as a promise kept.

(What’s Left of) Our Economy: Some Fishy New Official U.S. Trade Figures

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Commerce Department, exports, GDP, goods trade, gross domestic product, imports, real GDP, services trade, Trade, trade deficit, {What's Left of) Our Economy

Life as a blogger just gets more unpredictable all the time. Here I was this morning all set to try to figure out whether I’d write about the presidential debate last night or about the official new overall U.S. economic growth (actually contraction) numbers or about the official new figures for how domestic manufacturing fared. And I find my interest most piqued by apparent mistakes in those overall data on the shrinkage of the gross domestic product (GDP) in the second quarter.

As RealityChek regulars know, when I cover the GDP figures (which tell us how much in the way of goods and services the U.S. economy has turned out in a given time period, and how it’s changed over time), I tend to focus on the trade numbers that help make up these total figures. And I like to look at revisions, because the U.S. Commerce Department, which tracks these trends, doesn’t get it right the first time, or even the second time (because new information is being constantly received), and because it’s right up front about making these imperfections clear. (That’s why several revisions of these data are issued in the first place.)

Today’s report on the economy’s performance in the second quarter of this year was the third such report, and the final verdict for the time being. (So-called “benchmark” revisions will be coming down the road, going back several years, which speaks volumes about Commerce’s determination to get it right.)

And the “headline” trade number showed that between the first quarter and the second quarter, the total U.S. trade deficit declined from $788.0 billion to $775.1 billion. (All these trade figures are adjusted for inflation and presented at annual rates.) That’s an improvement. But it’s not as much of an improvement as the previous GDP report showed. According to that release, which came out about a month ago, the total second quarter real annualized trade deficit was $760.9 billion.

Or was it?

I can’t recount exactly what spurred me to look into the underlying figures, as opposed to taking the data’s accuracy for granted, as I normally do. But I began to check them out. And here’s what I found for that previous set of second quarter figures.

Last month’s GDP report judged that after-inflation U.S. goods exports for the second quarter totaled $1.3519 trillion annualized and U.S. goods imports were $2.3487 trillion. To get the balance, subtract second number from the first and you get a deficit of $996.8 billion.

For services, the second quarter results were previously reported as price-adjusted exports of $591.5 billion and imports of $372.8 billion. Doing the arithmetic produces a real services trade surplus of $218.7 billion.

To get the total trade deficit, the $218.7 billion services surplus has to be subtracted from the $996.8 billion goods deficit. And that number comes out to -$778.1 billion – not -$760.9 billion.

This difference is by no means major. But if my math is accurate, it reveals a final (for now) inflation-adjusted second quarter trade deficit that improved sligthly over the previously reported figure, rather than worsened.

In other words, the previous GDP report estimated that the second quarter real trade deficit improved on the first quarter’s results by a margin of $788 billion to $760.9 billion. But it looks like it should have reported a much less impressive narrowing – to just $778.1 billion. As a result, the $775.1 billion second quarter trade deficit figure reported this morning is a slightly better number than the incorrect previous estimate – not a worse result, as that incorrectly reported previous number indicated.

But guess what? That latest second quarter figure doesn’t add up, either. Specifically, today’s report pegs combined U.S. goods and services exports at $1.9274 trillion in real terms on an annual basis, with goods exports judged to be $1.3472 trillion and services exports reported as $582.1 billion. Add them up and you get $1.9293 trillion, not $1.9274 trillion.

On the import side, the Commerce Department now says that the second quarter total is $2.7025 trillion annualized, and that it’s comprised of $2.3480 trillion worth of goods imports and $372.1 billion worth of services imports. That adds up to $2.7201 trillion, not $2.7025 trillion. As a result, the total trade deficit was actually $790.8 billion annualized, not $775.1 billion (the difference between the new $2.7201 trillion total import figure and the $1.9293 trillion total export number).

Therefore, not only did the real trade deficit total worsen over the figure reported last month (from $778.1 billion to $790.8 billion, not to the $775.1 billion reported today). It also worsened from the first quarter’s $788.0 billion number.

At which point, it pains me to report that that first quarter total doesn’t add up, either.

The bottom line for me is that I’ll keep reporting the headline trade figures as they’re presented in the GDP reports by the Commerce Department. But I’ll be even more cautious than usual about assuming that they’re even accurate in measuring changes of direction, much less precise amounts. And I’ll be wondering if the rest of the federal government’s economic data is any better – at least until I can figure out what’s going on here.

(What’s Left of) Our Economy: More Trade Surprises in the New U.S. GDP Report

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CCP Virus, Commerce Department, coronavirus, COVID 19, exports, GDP, goods trade, Great Recession, gross domestic product, imports, real GDP, recession, services trade, shutdowns, trade deficit, Wuhan virus, {What's Left of) Our Economy

First, let’s get the obvious out of the way: The U.S. economy took such a huge hit during the second quarter of this year that the 36.87 percent nosedive in output sequentially at an annualized rate reported this morning by the Commerce Departent was actually slightly good news. Specifically, it represented an improvement over the plunge estimated in last month’s advance read on the gross domestic product (GDP) – nearly 38 percent. Talk about a low bar!

(Just FYI, the above figures differ from what the Commerce Department itself has calculated and the media have reported. Mine are based on taking the second quarter annualized figure (in this case) of $17.2822 trillion in inflation-adjusted terms (the most closely watched of the GDP statistics) subtracting it from the first quarter figure ($19.0108 trillion), and then multiplying by four.)

Now for the less obvious: The GDP figures, which of course are historically awful because of the CCP Virus-induced shutdowns (and therefore maybe not very good measures of the economy’s underlying condition) keep producing noteworthy surprises on the trade front.

Specifically, last month’s initial Commerce Department GDP release pegged the inflation-adjusted trade deficit at $780.7 billion at an annual rate. This morning’s number was down to $760.9 billion. That’s a big revision, and it means that since the first quarter, the gap has narrowed not by the 3.71 percent estimated last month, but 13.76 percent – more than 3.7 times more! This shortfall, moreover, was the lowest since the second quarter of 2016’s $745.2 billion.

Interestingly, the main source of the improvement was on the goods side. Service sectors – which have suffered the most during the pandemic period because so many depend on human contact of some kind or other – saw their trade results barely budge from the previous estimates for the second quarter.

At the same time, let’s not overlook one stunning services trade-related result. As was the case with that previous second quarter services import figure of $372.7 billion annualized, this morning’s $372.8 billion result was the lowest in more than fourteen years, when the fourth quarter 2005 services import figure came in at $368.4 billion.

As for the rest of the components of inflation-adjusted U.S. trade flows (all annualized):

Second quarter U.S. total exports were revised up 0.60 percent, from $1.9316 trillion to $1.9431 trillion. That quarterly total was still the lowest since the first quarter of 2010 ($1.9026 trillion) – early in the recovery from the Great Recession of 2007-09.

Second 2Q total imports were revised down 0.30 percent, from $2.7123 trillion to $2.7040 trillion – the lowest since the third quarter of 2011 ($2.6970 trillion).

Second quarter goods exports were revised up 0.99 percent, from $1.3386 trillion to $1.3519 trillion. But that’s also the lowest such number since the first quarter of 2010 – which was exactly the same!

Second quarter goods imports of $2.3575 trillion represented a 0.37 percent upward revision from the previously reported $2.3487 trillion. That’s the smallest such figure since the second quarter of 2013 ($2.3381 trillion).

Second quarter services exports are now judged to have been $591.5 billion – just 0.12 percent lower than the first estimate of $592.2 billion – and the worst such total since the first quarter of 2010’s $586.8 billion.

And finally, that new second quarter services imports figure of $372.8 billion is virtually unchanged from the previous estimate of $327.7 billion. But again – it’s a nearly 15-year low.

For the time being, there’s one more second quarter GDP estimate to come from the Commerce Department – about a month from now. Then we’ll be getting into the reports for the third quarter, which is widely thought to have witnessed a strong but far from complete rebound in the economy. I for one can’t wait to see if those numbers produce any comparable trade surprises – and if so, what kind.

Im-Politic: On the Economy, Obama’s Record Looks Stronger than Trump’s

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Barack Obama, CCP Virus, coronavirus, COVID 19, election 2020, Employment to Population Ratio, GDP, gross domestic product, Im-Politic, Jobs, Joe Biden, Labor Force Participation Rate, labor productivity, manufacturing, non-farm jobs, private sector, productivity, real GDP, real private sector, real wages, recession, subsidized private sector, Trump, value added, wages, Wuhan virus

Not surprisingly, as this U.S. presidential cycle gets ever more intense, so has the debate over which boasts a better record in helping steer the nation’s economy: the Obama administration in which Democratic presidential nominee Joe Biden served as second-in-command, or the incumbent Trump administration. I’ve just looked over some key data, and the verdict on most counts goes to the Obama administration. The margin of victory here isn’t huge, but it’s anything but razor thin, either. Moreover, any Obama edge is surprising given that the economy is President Trump’s major advantage in nearly all the polls.

All the same, here are the data. They compare performance during the last three full years of the Obama presidency and the first three full years of the Trump presidency. In my view, these time-frames deserve priority because they’re the ones closest to each other in the same expansionary business cycle, making apples to apples results much likelier.

The time-frames of course leave out the CCP Virus period, during which all the Trump numbers sank like stones. But if you regard the virus’ economic effects as purely artificial, having nothing to do with the economy’s fundamentals (as I do), then you want to strip them out.

Other methodological notes: Although the jobs-focused data come out from the federal government on a monthly basis, and therefore permit comparisons between completely identical (and virus-adjusted) three-year periods, the economic growth and productivity data don’t, so I show Trump results both through the first quarter of this year (affected by the shutdowns that began in March) and through the last quarter of 2019. In addition, regarding the monthly figures, because of the January 20 inauguration date, I peg the end of the Obama administration as January, 2017 and the beginning of the Trump administration as February, 2017.

And off we go, starting with overall employment, which consists of the Bureau of Labor Department’s U.S. employment universe – “non-farm jobs.”

Obama: +5.55 percent            Trump: +4.56 percent

But of course, non-farm jobs include all government jobs, and their status has much less to do with the economy’s underlying strengths and weaknesses than with politicians’ decision. So here are the numbers for private sector jobs.

Obama: +6.56 percent            Trump: +5.04 percent

So advantage Obama again. As RealityChek regulars know, however, not all private sector jobs are created equal. In fact, many barely deserve the term at all, because their circumstances depend so heavily on government spending. Healthcare is of course the leading example. Therefore, it’s useful to examine the employment results in what I’ve called the “real private sector”.

Obama +6.22 percent             Trump: + 4.63 percent

It’s another Obama out-performance. This string is broken when it comes to manufacturing jobs, however.

Obama: +2.38 percent           Trump: +3.78 percent

But Obama comes out ahead on inflation-adjusted wages for the entire private sector.

Obama +3.69 percent           Trump: +2.99 percent

And the margin is even bigger for real manufacturing wages.

Obama: +3.15 percent          Trump: +0.74 percent

One problem with looking at jobs gains or losses, or even the unemployment rate, is that these numbers don’t tell the whole story about the health of the labor market. To fill in the gaps, economists like to examine two performance measures called the Labor Force Participation Rate, and the Employment to Population Ratio.

The former, according to well regarded left-of-center economics think tank, reveals “the number of people in the labor force—defined as the sum of employed and unemployed persons—as a share of the total working-age population, which is the number of civilian, non-institutionalized people, age 16 and over.”

The latter, the same source explains, shows “the number of people currently employed as a share of the total working-age population, which is the number of civilian, non-institutionalized persons, age 16 and over.”

For what it’s worth, this reliable economics and finance website claims that the Employment to Population Ratio provides the best indication of job shrinkage or growth. So let’s begin there.

Obama: 58.8 percent to 59.9 percent       Trump: 59.9 percent to 61.1 percent

Pretty much a standoff.

As for Labor Force Participation:

Obama: 62.9 percent to 62.6 percent       Trump: 62.8 percent to 63.4 percent

Advantage, Mr. Trump.

As previously mentioned, the economic growth figures are only reported quarterly. Keeping that in mind, here’s how the two administrations stack up. The most commonly followed measure of the economy’s size and how it changes is inflation-adjusted gross domestic product (GDP).

Obama: +8.19 percent           Trump: +5.75 percent

These data, though, include shutdown-y March, 2020. Taking the story only through the end of 2019 brings the Trump years’ performance up to 7.11 percent – but he still trails.

Interestingly, even including the first quarter of this CCP Virus-y year, Mr. Trump’s record is slightly better when another metric for economic growth is used – value-added. Its value lies in trying to eliminate the double- and even more overcounting that results when the of the parts and other inputs of a complicated product are counted both when they’re turned out individually, and when they’re contained in that final product.

Obama: +12.09 percent          Trump: +12.24 percent

The Trump presidency’s margin is even bigger in manufacturing value-added, and even including the first quarter:

Obama: +7.09 percent            Trump: +10.58 percent

Importantly, all the above value-added numbers are pre-inflation. After-inflation value-added data are tracked by the federal government, too, but they’re not even measured on a quarterly basis. Only full-year numbers are available. So since these make precise comparisons less possible, I’m skipping them.

Finally, here are numbers that hardly ever make the news, but might be the most important of all – the productivity data. These various measures of efficiency are widely viewed by economists are crucial to determining how healthy and durable economic growth is and will be, and therefore how strongly and for how long living standards can rise.

Results aren’t up-to-date enough for the broadest measure of economic efficiency – multi-factor productivity. But they are for the narrower measure, labor productivity – which gauges how much a single worker can produce in a single hour on the job – starting with the overall economy

Obama: +3.97 percent           Trump: +3.95 percent

And if you want to remove the first quarter of this year, because of the virus effect in March, overall labor productivity during the Trump period was up 4.02 percent

Labor productivity is monitored for manufacturing, too, and here are those statistics including the first quarter of this year:

Obama: -2.57 percent           Trump: +0.29 percent .

Oddly, if the first quarter is removed, the Trump years’ performance worsens a bit – and even falls to an overall dip of 0.09 percent. But however poor, it still tops the record of the Obama years.

So why are the Trump economy poll numbers so good? One possible answer: The final year of the Obama presidency was feeble by nearly all measures. Real gross domestic product advanced by only 1.70 percent. Total employment grew by a mere 1.64 percent, versuss 2.19 percent in 2014. National manufacturing employment actually dipped by 6,000 from 2015 levels. Real wage growth overall slowed from 1.26 percent in 2014 to 0.56 percent in 2016. And inflation-adjusted manufacturing wages performed scarcely better.

Moreover, as the New York Times article linked above makes clear, the public’s evaluations of the Trump economic record are incredibly partisan – often conflicting with a respondent’s actual situation.

It’s also possible and legitimate, as I’ve noted, to point to some important reasons for this Trump under-performance.  The President’s trade policies clearly disrupted national and global supply chains, and the consequent inefficiencies surely dragged on GDP and employment in the short term.  Boeing aircraft’s safety woes have undercut national economic performance lately, too.  But good luck to you if you think these considerations are going to have any effect on voters.  

I’m hardly naive enough to think that these or other economic facts will be enough to determine November’s outcome. And I have no idea how voters will factor in the deep CCP Virus-induced recession into their thinking. But the facts aren’t a throwaway, either, and although the Obama record didn’t exactly thump Mr. Trump’s, it’ll certainly provide Biden with considerable ammunition.

(What’s Left of) Our Economy: Some Big Trade News in Today’s GDP Revisions

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constant dollars, current dollars, GDP, gross domestic product, inflation, real GDP, real trade deficit, shutdown, Trade, trade deficit, {What's Left of) Our Economy

And here I thought that the only big surprise in this morning’s U.S. government report on the nation’s economic output (the gross domestic product, or GDP) would come in the annual revisions – which update the data going back to the first quarter of 2015. After all, it’s long been obvious that the second quarter results would be dreadful, due to the CCP Virus-induced shutdown of so much of the U.S. economy.

The revisions were indeed pretty surprising, but the first set of estimates covering the second quarter of this year still contained one entirely (at least to me) unexpected finding: Despite the nearly 38 percent inflation-adjusted sequential crash dive of the economy (at annual rates), the real trade deficit didn’t fall much at all. Indeed, between the first and second quarters, the annualized decrease was only 3.71 percent (from $788 billion at annual rates to $780.7 billion).

The big virus-related effects came during the first quarter, when the annualized quarterly shrinkage was 34.13 percent annualized. Moreover, the price-adjusted trade shortfall had also plummeted by 37.33 percent at an annual rate between the third and fourth quarters of last year, as President Trump’s massive tariffs on China continued to be felt, and tariff front-running – which aimed at avoiding theatened and imposed new levies since the Trump trade wars began, and which inflated import totals over the short-term – subsided.

As for that huge first quarter sequential decrease in the price-adjusted trade deficit, it’s now the biggest such move since the 72.53 percent plunge between the first and second quarters of 2009, when the Great Recession was bottoming.

All the same, the revisions were indeed interesting – and important. For starters, that $788 billion annualized first quarter trade deficit was previously reported as being $815.5 billion. Meanwhile, the $780.7 second quarter after-inflation trade deficit is the country’s smallest quarterly gap since the $792.3 billion figure of the first quarter of 2017.

At least as interesting, the GDP revisions make the Trump administration’s trade record look a good deal better than previously reported, while leaving the results for the last two years of the Obama administration basically unchanged. That’s not obvious from the table below, which shows the old and new constant dollar trade deficit results for the last four full years in billions of dollars:

                 New                    Old

2019:       917.6                  953.9

2018:       877.7                  920.0

2017:       816.8                  858.7

2016:       763.6                  586.3

2015:       719.5                  540.0

But there’s a big problem with these statistics. They’re measuring apples versus oranges. The 2017-19 results have been presented by the Commerce Department in terms of 2012 dollars. The original 2015 and 2016 results, however, (which I found by going through pre-revisions GDP releases) were presented in 2009 dollars, but in their updated versions, they’re presented in 2012 dollars. In other words, the inflation adjustment factor is different. All the same, the Trump deficits, themselves, are notably smaller than they were previously reported.

To permit a legitimate comparison between the two administrations, it’s necessary to drop the inflation adjustment altogether, and present the annual trade deficit results in current (billions of) dollars. That’s what the next table shows:

                 New                   Old

2019:       610.5                 631.9

2018:       609.5                 638.2

2017:       555.5                 578.4

2016:       512.5                 521.2

2015:       526.6                 522.0

All three Trump results are, again, better than previously reported, although the difference is significantly smaller than for the inflation-adjusted figures. For the Obama years, the 2016 results are a little better, but the 2015 results are a little worse.

Even so, there’s still no doubt that the Trump trade deficits are higher than those of the last two Obama years. But as known by RealityChek regulars, sometimes individual data sets like this don’t tell the whole story. And with the trade figures, it’s important to compare them with the size of the whole economy. For this exercise, let’s keep it simple and stick with the new pre-inflation statistics. This table shows the current dollar trade deficit as a percentage of current dollar GDP:

2019:  2.85 percent

2018:  2.96 percent

2017:  2.84 percent

2016:  2.73 percent

2015  2.89 percent

Here a modest edge goes to those two Obama years, at least looking at the average. At the same time, the former President was conducting trade policy business-as-usual. Mr. Trump is conducting a major experiment in disruption that’s bound to create adjustment-related inefficiencies, at least in the short run. That is to say, the full results aren’t in. And a major question looming over the U.S. economy in this election year is how long it will be permitted to continue.

(What’s Left of) Our Economy: A Major Virus-Related U.S. Economy Hit Confirmed – With Much Worse Numbers Sure to Come

Tags

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

This is a catch-up post on the CCP Virus-induced contraction of the U.S. economy growth, as well as a report on today’s latest update from the Commerce Department. The big news this morning: During the first quarter of this year, the economy’s sequential shrinkage for the first quarter of this year was pegged in this morning’s third, and final (for now) estimate at 5.09 percent at an annual rate in inflation-adjusted terms. That compares with the 4.87 percent drop in real output recorded in the first estimate, and a 5.15 percent decline estimated in the second estimate, which yours truly missed when it came out last month.

So things economic are looking slightly less terrible than previously thought – but still pretty terrible. In fact, this first quarter economic downturn was America’s most severe since the fourth quarter of 2008’s 8.66 percent – when the Great Recession spurred by the financial crisis was at its low point.

And there’s no doubt much worse to come in the second quarter figures, whose initial release will be a month from now (along with a regularly scheduled revision of all the data on the gross domestic product [GDP] and its changes going back to 2015). After all, the first quarter numbers only include the first month (March) during which the CCP Virus and its growth-killing effects began to be fully suffered.

Before delving into the trade-related details, a cautionary/explanatory note should be repeated: The phrases “at an annual rate” and “annualized” mean that an economic contraction of this historic scale didn’t take place al at once. Instead, they mean that in the economy contracted at a rate that would add up to the current 5.09 percent if the shrinkage continued at this pace for an entire year. This qualification is especially important because of the tremendous expected worsening of the slump in the second quarter.

Today’s GDP report revealed that the after-nflation annualized combined goods and services trade deficit during the first quarter was $815.5 billion. That’s a bit worse than the $816.0 billion figure reported last month but a bit better than the $817.4 billion calculated in the first estimate. And this so-far-final number represents a 9.34 percent decline from the $900.7 billion level reported for the fourth quarter of last year.

These results leave the drop-off the steepest since the 18.13 percent quarter-to-quarter nosedive during the second quarter of Great Recession-y 2009. And because the gap between these two results remains so big, it will be fascinating to see the numbers for the second quarter, when impact of mandated shutdown of much of the economy will first become apparent.

The quarterly decrease in total real exports for the first quarter is now judged to be 2.33 percent (non-annualized – as are the following numbers). This decline is worse than that estimated in the two previous first quarter GDP reports (2.24 percent and 2.25 percent, respectively). But as with the trade deficit figures, this slump pales with that suffered the last time constant dollar goods and services exports dropped significantly – the 8.08 percent crash dive during the first quarter of 2009, during the depths of that Great Recession.

On the import side, the 4.17 percent sequential price-adjusted fall-off reported this morning was bigger than either the 4.12 percent decrease previously judged and the 4.08 percent initially estimated. Again, however, that was the biggest such decline since a Great Recession result that was much greater – the 9.88 percent recorded in the first quarter of 2009.

The “final” first quarter figure for the inflation-adjusted goods deficit ($996.8 billion annualized) was 7.64 percent lower than the fourth quarter figure. But in services, the real surplus widened by 1.22 percent – even though the super-sector’s exports plummeted by nine percent. The first quarter annualized total of $714.9 billion annualized was the meagerest since the $706.2 billion level for the fourth quarter of 2013, and the rate of decline (much greater than the 0.49 percent in goods exports) was the fastest ever in a data series going back to 2002. In fact, the previous record was only 2.95 percent (during the Great Recession-y first quarter of 2009) – as with the export figures underscoring the outsized impact of the CCP virus’ impact on the travel industry.

Similar trends can be seen in after-inflation services imports. which sank by a record 8.06 percent in the quarter – much faster than the 3.19 percent fall in goods imports.

Following Up: The CCP Virus is Making the Case for Free Trade Look Ever Sicker

Tags

CBO, CCP Virus, China, Commerce Department, Congressional Budget Office, coronavirus, COVID 19, Financial Times, Following Up, free trade, GDP, Goldman Sachs, gross domestic product, Guggenheim, IMF, inflation-adjusted growth, International Monetary Fund, Morningstar, output gap, real GDP, Trade, Wuhan virus

A month ago, I put up a post claiming that the gargantuan economic losses stemming from the CCP Virus outbreak were shredding the standard economics case for free trade. Essentially, most economists have long insisted that the gains from trade always exceeded the losses that might be suffered by individual parts of the economy and their workers. (I purposely excluded the debate over whether more trade has exacted excessive non-economic costs, like eroded national security or more pollution.) Even better, the freest possible international trade flows would create enough additional wealth to permit generous compensation for these losers.

But I then documented that the virus-related hit to American economic output – which will clearly had stemmed from decades of freeing up trade and broader commerce with China – had already dwarfed the trade gains claimed even by cheerleaders for doing ever more business with the People’s Republic.

One month later, the China trade bonanza estimates haven’t gotten any better. But the projections of damage to the U.S. economy have greatly worsened.

My April 6 post cited two leading private sector forecasts of U.S. output losses for this year, measured in terms of gross domestic product (GDP) adjusted for inflation – Morningstar’s figure of $954 billion, and Goldman Sachs’ judgment of nearly $725 billion.

Since then, some official figures have been released, and most are bigger. For example, on April 29, the U.S. Commerce Department came out with its first read on real GDP for the first quarter of this year. Even though most of that January through March period preceded the onset of various shutdown orders across the nation, the Commerce statisticians still found that the economy shrank by 4.87 percent at an annual rate in price-adjusted terms. This means that if output kept falling at that rate for all of 2020, by year-end the economy would be $928.86 billion smaller than on New Year’s Day.

That’s still a smaller production plunge than estimated by Morningstar, but Commerce (as usual) never actually predicted that the drop-off would remain constant. Its annualized figures are simply notional.

A few days before, the Congressional Budget Office did engage in some prediction. Its expectation of constant-dollar GDP decline in 2020 was $1.27789 trillion. The International Monetary Fund’s (IMF) expectation for the U.S. economy was pretty similar – a $1.1253 trillion slump in inflation-adjusted U.S. GDP.   

As also noted in last month’s post, though, virtually everyone agrees that CCP Virus-induced damage will continue beyond 2020, and the way most economists try to quantify such losses is by calculating what they call an output gap. It’s an effort to specify how much lower output will be over a period of time as a result of a shock like the virus compared with how an economy would have performed had the shock never taken place.

The last time a major output gap-estimating exercise took place was in the aftermath of the Great Recession – caused by a shock resulting from the bursting of closely related credit and housing bubbles. As shown by the chart below (originally published in the Financial Times), a team at Guggenheim investments at least consider the gap to have started in 2010 (the first year after the recovery is generally thought to have started) at about $750 billion (according to my eyeballs). Thankfully, it proceeded to shrunk steadily thereafter. But the bad news is that it shrunk so slowly that the lost growth wasn’t made up for until 2018 – eight years later.

Nevertheless, if the Guggenheim economists are right, that output gap literally was nothing compared with the one that CCP Virus’ outbreak will open up. It starts this year at about $2.7 trillion (again, as my eyeballs see it) after factoring in price changes, and it closes at a rate no faster than that seen during the last economic recovery – which was historically sluggish. In other words, the decision to free up trade with China could cost the United States economy trillions of dollars of lost growth year after year for the foreseeable future.   

Maybe during this period, someone or some organization will come up with a study of the gains to America from freer trade with China that will claim purely economic benefits orders of magnitude greater than previously judged. In order to preserve a serious case that such trade expansion has turned out satisfactorily for the United States, they’ll have to.

(What’s Left of) Our Economy: Through the Looking Glass With the New US GDP Report?

Tags

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

Today’s U.S. government report on the shrinkage of the American gross domestic product (GDP) in the first quarter of the year is fascinating not because it can provide any idea about how bad the CCP Virus-induced economic downturn is right now, much less how bad it will get. Instead, it’s fascinating because it provides (and confirms) some insights on which sectors of the economy have been the biggest winners and losers, and which could fare best and worst going forward.

First, a vitally important explanatory point: When you read that the economy contracted by 4.8 percent between the last three months of 2019 and the first three months of 2020 after factoring in inflation, remember that this figure is an annualized figure. That is, it doesn’t mean that the nation’s output of goods and services (the definition of GDP) fell by that amount all at once during the first quarter. It means that if the contraction that did occur continued at the same pace over the course of a full year, the cumulative drop would add up to 4.8 percent. (NB: The real decline was 4.87 percent, even though the Commerce Department rounded it down to 4.8 for some reason.)

The same cautionary note goes for all the terrifying predictions for the second quarter in particular, to the effect that inflation-adjusted GDP would plummet by 20 percent of 30 percent. They’re annualized rates, too.

No doubt about it – even the new annualized numbers are terrible. (And unless otherwise specified, all the following statistics will represent sequential – i.e., quarter-to-quarter – rates of change.) That’s not because they’re the worst that Americans have seen lately. That dubious honor goes to the fourth quarter of 2008, during the Great Recession, when real GDP sank at an 8.66 percent annual rate. Instead, it’s because the main shutdowns of business didn’t start until mid-March. Since the first quarter ended on March 31, a genuinely appalling amount of damage took place in a very short period of time.

As a result, surely the numbers for the second quarter will be much worse, as the lockdowns themselves spread for weeks thereafter, and their effects have had time to sink in (even though the second quarter figures presumably will reflect some of the cautious easing and reopening that’s begun). Also possibly leading to more depressing future results: Today’s first quarter figures are the first of three reports for the first quarter we’ll be getting this year. As Washington gathers more complete information, the reported nosedive could well get steeper.

The principal ray of hope comes in the nature of the downturn. It was literally ordered by America’s national, state, and local governments. Whatever recession or depression that’s begun says little about the fundamentals of the economy pre-virus – unlike typical recessions, which result from weaknesses in expansions that for various reasons finally come to light, or are brought to light by the Federal Reserve (in many cases) – which in modern times, has reacted to signs of economic excesses (like accelerating inflation), by raising interest rates (that is, increasing the cost of borrowing for everyone) and trying to bring price changes back under control. (And yes, a big exception was the Fed’s record during the previous, so-called Bubble Decade, when its principal aim seemed to be to juice growth at all costs – in that case, at the risk of scary degrees of financial instability.)

All the same, the biological roots of this economic slump create great uncertainties about the rate of recovery, since no one can know how quickly Americans will return to patronizing service sector business in particular, which comprise the vast bulk of the economy, and so many of which largely serve customers in person.

In that vein, it’s more than a little interesting that output in services shrank in the first quarter at a much faster annual rate (10.63 percent) than goods output (1.35 percent). Dig a little deeper, though, and you see that the numbers for goods are sharply divided. After-inflation output of durables (products supposed to last for three years or more either in use or on the shelf – like autos and appliances) plunged by 17.12 percent at annual rates. But constant dollar production of non-durables (notably processed food but also chemicals and paper and textile and plastics and others) actually increased – by 6.77 percent.

Those goods and services figures are contained in the “personal consumption expenditures” category of each GDP report. And overall, such consumption dropped by 7.78 percent annualized in the first quarter. Notably, that’s a much worse result than anything seen during the last, Great, recession (which, by the way, was the previous deepest economic slump experienced in the United States since the Great Depression of the 1930s). During that most recent downturn, personal spending’s decrease bottomed out with a 3.72 percent annualized fall in the fourth quarter of 2008.

No – to get to a worse consumption figure than just recorded, you need to go all the way back to the second quarter of 1980, during a horrible period marked by a painful recession and roaring inflation partly produced by sharp oil price increases. Then, such spending cratered at a 9.01 percent annual rate, and the entire economy shrank by 8.23 percent annualized.

Of course, the American economy entails more than just personal consumption (although, as known by RealityChek regulars, such spending represented a big majority of all economic activity– 69.27 percent of real GDP at present – even after the big decreases in the first quarter). Business investment amounted to 14.03 percent of GDP after inflation, and its levels were off considerably, too, in the first quarter – by 8.92 percent.

No doubt, that’s going to worsen, since the lower personal spending, as well as the lower business spending itself, mean that so many businesses will be short of customers for the time being. Even so, the Great Recession numbers were much worse. From the fourth quarter of 2008 through the second quarter of 2009, this “non-residential fixed investment” tumbled at double-digit quarterly rates, with the bottom coming during the first quarter of 2009 (a 30.14 percent plummet!).

And what about America’s trade performance? The constant dollar trade deficit narrowed by 9.25 percent – from $900.7 billion (again, that’s an annualized figure) to $817.4 billion. That deficit number is the lowest quarterly figure since the $761.4 billion recorded in the fourth quarter of 2016. Yet the rate of decrease was almost matched by that of the fourth quarter of last year (9.03 percent). To find a comparable result, you’d have to go back to the fourth quarter of 2013 (9.24 percent).

One big question: How much of this latest drop was due to oil? We know that the general answer is “a lot” – even though in principle these results take into account (i.e., factor out) the recent crash in oil prices. Nonetheless, a dramatically slowed U.S. economy is going to consume less oil overall (ditto for a recessed global economy, something to ponder since the United States is now an oil exporter). So we’ll need to look at the volume numbers and then compare them with those of previous quarters when the trade deficit dropped significantly for a fuller picture.

What is clear so far, though – in terms of the real overall trade deficit, the first quarter 2020 decline pales before those experienced during the Great Recession. In particular, the real trade gap decreased by 15.08 percent annualized during the first quarter of 2009 and by 18.13 percent during the following quarter.

In line with the consumption findings, moreover, services trade performed worse than (the much greater amount of) goods trade. The goods deficit was 7.39 percent narrower in the first quarter of 2020 ($0.9995 trillion annualized) than during the fourth quarter of 2019 ($1.0792 trillion annualized). But the services surplus rose by only 2.07 percent (from $188.2 billion annualized to $192.1 billion).

Especially revealing were the import and export findings. For goods, exports were off by only 0.30 percent – from $1.7823 trillion annualized to $1.7769 trillion. But for services, they dropped by 5.85 percent (from $758.6 billion annualized to $714.2 billion).

The services export and imports decreases were the biggest on record – by far. And although figures only go back to the first quarter of 2002, can anyone seriously doubt that these results reflect the numerous international travel bans sparked by the United States – and so many other countries?

Because services play such a predominant role in the economy, and because services that need to be delivered in person, like dining out and travel, represent such big shares of the economy (just short of 3.25 percent of all private sector output for restaurants, bars, and lodging places alone as of late 2019, and a much bigger 11.06 percent of the private sector workforce), it seems reasonable at this point to expect these sectors to keep taking particularly powerful blows at least as long as the virus remains a pandemic.