(What’s Left of) Our Economy: More Trade Normality Revealed in New GDP Figures – But for How Long?

Tags

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

Last month, I reported that the trade highlights of the first official read on U.S. economic growth in the second quarter of this year showed signs that some form of normality was returning to the nation’s international trade flows after months of unprecedented pandemic-era fluctuations. This morning, the second government estimate of the second quarter gross domestic product (GDP) came out (next month we’ll see the final version – for now), and the signs of a new normality look even stronger.

Specifically, the sequential growth of America’s inflation-adjusted trade deficit during this period was even slower than the slowish rate presented in last month’s GDP release – and using the phrase “to a crawl” seems justified in describing the pace.

That initial estiimate revealed that the real trade gap’s quarterly widening had slowed from the sizzling 31.81 percent in the third quarter of last year, when the economy was roaring back from its brief but epic CCP Virus- and lockdown-induced crash dive to just 2.69 percent between this April and June (a strong growth period itself, but nothing compared with the initial recession rebound). Today, however, the after-inflation trade shortfall’s expansion came in at just 1.71 percent for the second quarter – when real growth itself clocked in at 6.40 percent on an annual basis, not the 6.35 percent estimated last month.

The new number for the second quarter’s price-adjusted trade deficit, $1.2471 billion annualized, remains astronomical by any reasonable standard. Not only is it still the biggest such figure in absolute terms. It’s the biggest such figure in relative terms – as a share of real GDP – where it still stands at 6.44 percent. And this revised trade deficit remains the fourth straight all-time high recorded. For some more perspective, the inflation-adjusted gap is also still 47.13 percent wider than where it stood in the fourth quarter of 2019 ($847.6 billion), just before the pandemic and its effect began weakening and distorting the economy.

More encouragingly, though, the new trade deficit result is a significant improvement over the $1.2590 trillion first reported. Also on the plus side, the after-inflation trade deficit’s sequential rise cut only 0.24 percentage points from the quarter’s 6.40 percent growth at an annual rate. That is, had the second quarter deficit stayed at its first quarter level, second quarter growth would have been 6.64 percent annualized – or 3.75 percent faster.

It all adds up to the trade deficit’s best such effect on real GDP change in absolute terms since the second quarter of 2020, when the deficit’s shrinkage prevented the nearly 36 percent pandemic-produced real GDP plunge from becoming slightly worse. By contrast, in the first quarter of this year, the inflation-adjusted trade shortfall’s increase cut the 6.14 percent annualized real growth figure by 1.56 percentage point. So had there been no sequential increase at all, that quarter’s price-adjusted growth would have been 7.70 percent at annual rates – a difference of fully 25.41 percent.

The manner in which the second quarter’s constant dollar trade gap improved over the initial read was good news as well, as after-inflation exports rose faster and their import counterparts climbed more slowly than reported last month.

Rather than growing by 1.47 percent sequentially during the second quarter, total after-inflation exports were judged to have advanced by 1.60 percent. At $2.2980 trillion annualized, though, they’re still 9.98 percent lower than in the fourth quarter of 2019 – the last full quarter before the CCP Virus’ arrival. As a result, the second quarter’s real export performance was an even greater improvement over the first quarter’s 0.73 percent dip than previously thought.

Combined goods and services imports were reported up by 1.64 percent between the first and second quarters, not 1.90 percent, as originally reported. This new figure also beat the first quarter’s 2.25 percent sequential real import increase.

At the same time, the new inflation-adjusted total import figure of $3.5547 trillion annualized still represents their second straight quarterly record, and such purchases from abroad are still 4.26 percent higher than their fourth quarter, 2019 level.

Turning to goods (the vast majority of U.S. trade flows), the second GDP read for the second quarter left standing their dubious record of a fourth straight all-time high trade deficit. But as with the overall trade deficit, the new figure of $1.4014 trillion annualized was a solid improvement from the previously reported $1.4610 trillion. And as a result, the second quarter number was only marginally (0.40 percent) worse than the first quarter figure, making clear a major slowdown in this indicator’s rise as well (from 20.40 percent during last year’s super-growth third quarter).

Unfortunately, the revised second quarter real service trade figures told a story that was especially gloomy even given this sector’s well known and disproportionate virus- and lockdown-induced woes. The long-running service trade surplus is now pegged at $149.5 billion for the April-through-June period. That’s a figure lower than the $151.2 billion previously reported, and the weakest quarterly result since the $161.7 billion recorded in the third quarter of 2010, when the recovery from the 2007-2008 financial crisis and Great Recession was in its earliest stages.

Also unfortunate – and frustrating: Whatever is shown in the final (for now) second quarter GDP report, the results will be pre-Delta variant. So although today’s data shows trade normalization to be even closer than previously thought, that next set could be of limited use at best in figuring out how long it’s going to last.

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

Tags

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(What’s Left of) Our Economy: 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.

(What’s Left of) Our Economy: The Latest Sign of Trump Success on Trade

Tags

exports, GDP, gross domestic product, imports, inflation-adjusted growth, Made in Washington trade deficit, non-oil goods trade deficit, real exports, real GDP, real growth, real imports, real non-oil goods trade deficit, real trade deficit, tariffs, Trade, trade deficit, Trump, {What's Left of) Our Economy

It’s still not possible to say confidently that the impact of tariff-related distortions are over (at least for the foreseeable future), and that President Trump’s trade policies are once again enabling the U.S. economy to grow strongly faster than its debt-producing trade deficits (i.e., more healthily and sustainably). That moment won’t arrive until May 9, when the last of the monthly trade figures for the first quarter of this year will be reported (at least in a preliminary form).

But Friday’s initial first quarter results for the gross domestic product (GDP – the main measure of the economy’s size and its growth), bring the moment a good deal closer.

Just to recap the main issue: I’ve explained on RealityChek (e.g., here) and elsewhere (e.g., here) that the real measure of Mr. Trump’s trade policy success or failure isn’t the level of U.S. trade deficits presented in isolation. It’s whether the economy can grow at adequate rates without pulling in ever more imports – which are both bought by consumers and used by producers as parts, components, and materials for their final products. Either way, though, their increases on net plunge America deeper and deeper into debt.

With anything as big as the American economy, trends don’t reverse themselves quickly. So the best evidence of change would indicate that the relevant arc is starting to bend in the right direction. In this case, that means signs that growth becomes or remains adequate as the growth of the trade deficit slows. That’s exactly the story that could be told convincingly with some of the latest releases of trade-related numbers (see, e.g., here and here), and that the new first quarter GDP results strengthened further.

First, it’s important to note that the new advance data show that, after adjusting for inflation, as of the first quarter, the U.S. economy grew at its fastest pace over a four-quarter period (3.21 percent) since the second quarter, 2014-second quarter, 2015 period (3.37 percent).

But the first sign that the new growth has been healthier growth emerges when the change in the real trade deficit is examined. During that previous, somewhat faster, growth period, the price-adjusted trade gap widened by 21.55 percent. During the last growth period, which was only slightly slower, the trade deficit actually shrank slightly – by 0.34 percent.

As known by RealityChek regulars, though, changes in the overall real trade deficit have only limited utility for judging the usefulness of American trade policy because the total flows include oil and services trade. The first is rarely the subject of trade diplomacy or policy-making, and liberalization of the latter has made only embryonic progress so far.

The portion of the trade shortfall most heavily influenced by trade policy decisions is that in non-oil goods – what I’ve called the Made in Washington trade deficit. Unfortunately, exact comparisons between the 2014-15 and 2018-19 growth periods can’t yet be made because even the preliminary results for the first quarter of this year won’t be published until the March trade data are released on May 9.

But between the second quarter of 2014 and the second quarter of 2015, the Made in Washington trade deficit jumped by 18.83 percent. Between the first two months of 2018 and the first two months of 2019, it increased by only 3.17 percent. And because of the fading of the tariff front-running effect (described in this post), it’s highly unlikely that the March and full first quarter numbers will change this arc significantly.

The improving trade deficit and its contribution to healthier economic performance also can be seen by examining the contribution made by that better balance to quarterly growth. In the first quarter of 2019, the 5.90 percent sequential shrinkage of the trade gap was responsible for 1.03 percentage points of the 3.13 percent annualized sequential growth. That’s 32.91 percent of the total – and the highest such figure since the fourth quarter of 2013, when the trade deficit’s decrease fueled 1.23 percent points of the 3.19 percent annualized sequential growth (38.56 percent).

Some other trade-related highlights of the new GDP report:

>Combined goods and services exports in the first quarter hit a new record of $2.5765 trillion at an annual rate.

>Real goods exports were up, too, quarter-to-quarter. But their $1.7598 trillion annualized first quarter total was only the second all-time highest (after the $1.8092 trillion in the second quarter of 2018).

>After-inflation services exports represented a fifth straight quarterly record ($783.2 billion annualized).

>Constant dollar total imports in the first quarter fell on-quarter but they still represented the third highest total on record – $3.4758 trillion at an annual rate.

>After-inflation goods imports also fell sequentially to their third highest all-time level – $2.9131 trillion.

>Real services imports dropped quarter-to-quarter to their second highest all-time level – $563.3 billion.

(What’s Left of) Our Economy: Tariff-Spurred Front-Running Still Clear from New U.S. GDP Figures

Tags

exports, GDP, gross domestic product, growth, imports, inflation-adjusted growth, Made in Washington trade deficit, real exports, real GDP, real imports, real trade deficit, recovery, Trade, trade deficit, {What's Left of) Our Economy

This morning came the government’s second read on U.S. economic growth in the third quarter of this year, and the trade results were virtually identical with those of the first report – including on the short-term noise created by President Trump’s tariff-centric policies and foreign retaliation. (The final set of three – for now – third quarter figures will come out toward the end of next month.)

In other words, the new statistics confirmed that, earlier this year, both American exporters and importers had been rushing shipments of goods to each other’s markets in order to beat the tariffs at home and abroad that have been actually imposed or threatened. The biggest new wrinkle is that the resulting boost to the inflation-adjusted U.S. trade deficit, and the resulting trade bite from real growth taken by the trade shortfall’s quarterly increase, was a bit larger than previously estimated.

According to the new release, the price-adjusted U.S. trade deficit hit $945.8 billion on an annual basis the third quarter – 0.72 percent greater than the $939.0 billion reported in the first read on the quarter’s real gross domestic product (GDP). That means that record level reached by the deficit in the third quarter has climbed higher. The previous all-time annualized high for a quarterly constant dollar trade deficit was $932.5 billion, attained in the third quarter of 2006 – shortly before the financial crisis broke out.

Consequently, a conspicuous sign of trade-related front-running – the increase in the real trade deficit between the second and third quarters – grew as well. Pegged last month at 11.65 percent, this sequential rise now stands at 12.46 percent. Nonetheless, it remains only the second biggest such increase on record (behind the 13.18 percent trade deficit widening during the second quarter of 2010, during the current economic recovery’s early stages).

Another sign of front-running (re)appeared in the goods exports numbers. During the second quarter, these exports jumped sequentially by 3.21 percent sequentially on an annual basis – the biggest such increase since the fourth quarter of 2013’s 3.93 percent annualized surge.

In the initial read on third quarter GDP, after-inflation goods exports were judged to have dropped by 1.79 percent – the worst such performance since the 2.44 percent decrease in the first quarter of 2015. Largely as a result, the real third quarter trade deficit ballooned. This morning, this decrease was upgraded – to 2.09 percent. Hence the even larger constant dollar trade deficit number.

The pattern for merchandise imports was similar, though not identical. During the second quarter, they were essentially unchanged sequentially, but as of the third quarter’s initial read, they increased by 2.48 percent – the biggest such increase since the 3.37 percent of the fourth quarter, 2017.

This morning, that increase was revised up slightly, to 2.49 percent.

Because the third quarter price-adjusted trade deficit was revised slightly higher in this latest third quarter GDP report while the growth rate remained at 3.46 percent annualized, the trade bite from growth was revised higher, too. Estimated last month as a 1.78 percentage point subtraction from the overall real economic growth rate, it’s now judged to be 1.91 percentage points. The last time the trade bite was that size in absolute terms was the third quarter of 1985.

In relative terms, the trade bite from growth increased as well – from 51.44 percent of such growth to 55.20 percent. But that remained only its highest level since the fourth quarter of 2016. Then, a growing real trade deficit subtracted 1.32 percentage points from that period’s much slower 1.75 percent annualized inflation-adjusted growth rate (or 75.43 percent of such growth).

With a higher third quarter constant dollar trade deficit came a bigger trade drag on America’s real growth during the current, still far-from-robust economic recovery. As of the initial third quarter GDP report, the real trade deficit’s increase since the recovery began in mid-2009 subtracted $461.7 billion from cumulative economic growth. That was a 13.05 percent hit. This morning’s results, however, pushed up those figures to $468.5 billion – translating into a 13.24 percent hit. As of the final second quarter data, trade had sliced $363.7 billion from cumulative recovery growth, 10.77 percent of the total at that time.

Importantly, though, the growth lost due to the expansion of the price-adjusted Made in Washington trade deficit continues to be much greater. That’s the trade gap calculable from trade flows minus sectors not greatly affected by American trade policy or related decisions – that is, energy and services – and adjusted for inflation.

As of the second quarter, the widening of the Made in Washington deficit resulted in cumulative recovery-era growth being $502.92 percent less than it otherwise would have been had it not grown at all. That’s 14.89 percent less growth.

The latest third quarter figures? Foregone after-inflation growth worth $587.2 billion, or 16.60 percent less growth. Sobering numbers for an economy that’s pulled out most of the available conventional growth-promoting stops (years of super-easy monetary policy being followed by super-easy fiscal policy) with so-far mediocre and likely bubbly results

(What’s Left of) Our Economy: The Real Trade Messages of the New GDP Report

Tags

exports, GDP, Great Recession, gross domestic product, imports, inflation-adjusted growth, Made in Washington trade deficit, real exports, real imports, real trade deficit, recovery, tariffs, Trade, Trade Deficits, Trump, {What's Left of) Our Economy

Friday’s government report on U.S. economic growth in the second quarter of this year was a treasure trove of newsworthy information. It not only provided the first peak at how President Trump’s imposed and threatened tariffs have affected the nation’s economic performance. It also incorporated literally decades’ worth of revisions that contained some important surprises about the economy’s strengths and weaknesses – in particular over the last five years. These new findings entail considerably more than trade, but let’s focus on that subject for today, since it’s been making so many headlines.

As widely expected, these new figures on the gross domestic product (GDP) and how it changed in inflation-adjusted terms showed that the threatened tariffs and retaliatory levies boosted American exports significantly. The reason? Many foreign customers for U.S. goods decided to “front-load” their purchases to avoid the paying the new charges for as long as possible.

On a sequential basis, this first of this year’s three estimates for the second quarter judged that U.S. merchandise exports jumped by 8.96 percent on an annualized basis. That’s the biggest such increase since the 11.72 percent surge in the fourth quarter of 2013. At the same time, the contribution to total quarterly growth made by goods exports was nothing special. In fact, at 1.12 percentage points out of the quarter’s 4.10 percent annualized rate of inflation-adjusted expansion, they fueled less real growth relatively speaking than they did in the fourth quarter of last year, when they were responsible for 0.79 percentage points of that period’s 2.30 percent annualized constant dollar growth.

Interestingly, the tariffs didn’t result in U.S. customers of overseas producers displaying the same interest in maximizing their imports to the greatest possible extent. Indeed, these purchases inched up sequentially by only 0.12 percent at an annual rate after inflation. Yet at $3.4241 trillion after inflation and annualized, they set a new record, nosing out the previous quarter’s $3.4201 trillion.

Thanks to exports’ performance, which brought their quarterly total to a new record ($2.5742 trillion annualized in real terms) as well, the inflation-adjusted trade deficit plummeted by 23.27 percent annualized to $849.9 billion. (The absolute numbers are different from those reported in previous RealityChek posts because the new GDP report is presenting the inflation-adjusted figures using 2012 dollars, not 2009 dollars.) That quarterly trade shortfall was the nation’s smallest since the $845.9 billion annualized recorded in the third quarter of last year. And the sequential decrease was the biggest since the 36.96 percent nosedive in the fourth quarter of 2013.

In addition, according to the revisions, America’s trade performance between the fourth quarter of 2012 and the second quarter of this year was considerably worse than previously estimated. Combined goods and services exports rose a bit faster (at a 2.6 percent rather than a 2.5 percent average annual pace in real terms). But total import growth was much stronger during this period – a 4.2 percent average annual increase in constant dollars rather than 3.7 percent growth.

Trade deficits have therefore been higher than previously judged. Again, the changeover from reporting the figures in 2009 dollars to using 2012 dollars makes comparing the old and new levels pointless. But the difference can become clear by examining these deficits as a share of the total economy. Here are the previously reported percentages:

2013: 2.59 percent

2014: 2.67 percent

2015: 3.31 percent

2016: 3.51 percent

2017: 3.64 percent

And here are the revised data:

2013: 3.23 percent

2014: 3.42 percent

2015: 4.17 percent

2016: 4.45 percent

2017: 4.76 percent

Last year’s level was the highest for any year since 2007’s 5.27 percent – just before the Great Recession struck. It’s still a far cry from the historic quarterly high of 6.10 percent, set in the fourth quarter of 2005. But the trend shows that the real trade deficit has been climbing steadily toward these heights.

In fact, during the first quarter of this year, the overall real trade deficit hit 4.92 percent of GDP, before falling back to 4.59 percent in the second.

The revised GDP figures also shed new light on trade’s drag on economic growth during this sluggish recovery. Before this revision, the increase in the constant dollar trade deficit since the expansion began, in the middle of 2009, had sliced $302.1 billion off of the economy’s cumulative inflation-adjusted growth through the second read on first quarter GDP. That amounted to a trade drag of 9.99 percent.

With the revision in place, the trade drag as of the first quarter’s final read was $457.2 billion – or 14.33 percent. The decline in the price-adjusted trade gap as of Friday’s first read on second quarter GDP pushed the drag down to twelve percent. But that figure still represented $404.7 billion in lost real growth.

The growth drag created by the increase in the Made in Washington trade deficit has been much bigger. Before the new GDP revision, the growth of this trade shortfall (which is comprised of constant-dollar trade flows heavily affected by trade policy and trade agreement, and therefore leaves out trade in oil and services) had cut cumulative recovery era growth by 17.37 percent in real terms, or $523.88 billion, as of the final first quarter figures.

It won’t be possible to calculate revised figures for the first quarter and new figures for the second quarter until this Friday, when we’ll get the next monthly trade report (for June).

(What’s Left of) Our Economy: The First Quarter Trade Deficit Kept Rising, & its Growth Rate Kept Falling

Tags

exports, GDP, Great Recession, imports, inflation-adjusted growth, Made in Washington trade deficit, real exports, real GDP, real growth, real imports, real trade deficit, recovery, trade deficit, {What's Left of) Our Economy

For the second straight time, a higher estimate of the inflation-adjusted trade deficit weakened the real U.S. growth figure for the first quarter. According to the final (for now) read for the first quarter, the constant dollar trade shortfall was $656.8 billion – higher than the $650.9 billion reported in the previous growth figure for the first quarter. And partly because this increase turned net trade into a minor (0.04 percentage point) drag on growth, the quarter’s real GDP increase was marked down from a 2.16 percent annualized improvement to 1.98 percent.

Moreover, the new after-inflation trade deficit remained the second highest such quarterly figure since the $703.2 billion recorded for the third quarter of 2007 – just before the Great Recession began. It was also slightly higher the final (for now) fourth quarter level of $653.9 billion.

As with the second GDP report for the first quarter, the quarterly records for total exports and goods exports remained intact, but declined from the levels previously reported. The after-inflation services export figure, however, came in higher (at $690.8 billion on an annual basis) – and represented a new record as well. All of the latest import figures were upgraded from their previously reported record levels – the same pattern as with the first quarter’s second GDP report. Similarly, the sequential slowdowns in the growth of total imports and goods imports were not quite as great as previously reported (76.49 percent as opposed to 79.17 percent, and 83.99 percent versus 86.21 percent, respectively). But they were still the greatest such slowdowns since the fourth quarter of 2010 and the first quarter of 2009, respectively. The latter date came at the depths of the Great Recession.

Trade’s substantial drag on cumulative growth during the current U.S. recovery became heavier, according to the new GDP figures – reducing real growth by 9.99 percent ($301.2 billion), not the 9.41 percent reported in the second read. This trade drag was also up from the fourth quarter’s 9.82 percent ($287.6 billion). But the much larger hit to growth from the recovery-era increase in the Made in Washington deficit (which consists of trade flows impacted greatly by U.S. trade policy) actually decreased sequentially – from 18.38 percent of that cumulative growth ($538.81 billion) to 17.37 percent ($523.88 billion).

Here are the trade highlights from Thursday morning’s final (for now) report on first quarter GDP growth from the Commerce Department:

>The Commerce Department’s final read on gross domestic product (GDP) in the first quarter of this year revealed that America’s trade performance depressed the initially reported inflation-growth figure for the period for the second straight time.

>Partly because this latest estimate judges that the quarter’s after-inflation annualized trade gap was actually $656.8 billion rather than $650.9 billion, the period’s annualized growth figure was reduced from 2.16 percent to 1.98 percent.

>The constant dollar trade shortfall estimate was also (0.44 percent) higher than the fourth quarter of 2017’s $653.9 billion – and replaced it as the second highest such figure since the $703.2 billion during the third quarter of 2007 – just before the Great Recession began.

>Moreover, whereas the previous estimates pegged net trade as a minor contributor to growth during the first quarter (according to the second read, fueling 0.08 percentage points of the 2.16 percent real annualized growth), this final read determined that trade subtracted 0.04 percentage points from the lower 1.98 percent real annualized growth.

>As with the previous report on first quarter growth, levels of inflation-adjusted total exports and goods exports remained at record levels in the latest GDP data, but came in slightly lower than initially reported. Yet real services trade broke this pattern, as a higher export estimate lifted their new quarterly record higher.

> Real total exports are now judged to have been $2.2496 billion annualized, not the $2.2529 trillion estimated in the second first quarter read. As a result, the sequential increase on an annualized basis was 0.89 percent, not 1.04 percent.

>The new real total export total nonetheless remained the category’s fifth straight quarterly record.

>Real goods exports are now judged to have been $1.5622 trillion on an annual basis, not the $1.5696 trillion previously reported. As a result, the annualized sequential increase was 0.85 percent, not the 1.32 percent previously reported.

>But this too was a fifth straight quarterly record.

>Real services exports – the exception to the pattern – are now judged to have been $690.8 billion annualized, not the$687.4 billion previously reported. As a result, the annualized sequential increase was 0.96 percent, not 0.60 percent, and this category’s record performance improved further.

>On the import side, the pattern displayed in the previous read – quarterly records remaining intact but at lower levels – was repeated for all major categories.

>The first quarter’s total real import figure has now been revised up from $2.9038 trillion on an annual basis to $2.9065 billion. As a result, the sequential increase is now 0.79 percent, not 0.70 percent. The new total is still a second straight quarterly record.

>The goods imports total is now estimated at $2.4015 trillion annualized, up from $2.3985 trillion figure previously reported. As a result, the sequential growth is 0.65 percent, not the 0.56 percent previously reported, but the level is still a second straight quarterly record, too.

>Real services imports for the first quarter are now estimated at $503.3 billion annualized, not the $502.9 billion previously reported. As a result, their sequential growth is now 1.43 percent, not the 1.35 percent previously reported. But this new total is a record, too.

>Also as with the previous GDP report, the new figures show that both the total imports and the goods imports constant dollar sequential growth rates have experienced their biggest sequential slowdowns in years – though these slowdowns are now judged to be slightly more modest.

>Total real imports grew at a 0.79 percent quarter-to-quarter rate in the first quarter – faster than the previously reported 0.70 percent. But compared with the fourth quarter’s 3.36 percent rate, its still 76.49 percent lower – and it’s still the biggest such change since the 81.87 percent reported for the fourth quarter of 2010.

>Inflation-adjusted goods imports grew sequentially in the first quarter by 0.65 percent, not the 0.56 percent rate previously reported. But that rate was still 83.99 percent lower than the fourth quarter’s 4.06 percent – and the biggest such change since the 87.63 percent drop in the first quarter of 2009 – near the low point of the Great Recession.

>The upwardly revised first quarter real trade deficit figure increased the growth drag created by the increase in this shortfall during the current economic recovery.

>As of the previous GDP read, the real trade deficit’s widening since mid-2009 – when the current recovery began – reduced cumulative growth by 9.41 percent, or $284.6 billion.

>As of the latest GDP report, these figures have risen to 9.99 percent, and $301.2 billion.

>The new first quarter figures are also higher than the fourth quarter figures: 9.82 percent and $287.6 billion, respectively.

>The growth drag of the increase in the Made in Washington trade deficit – which focuses on the non-oil goods trade flows most heavily influenced by trade agreements and other trade policies – has been much greater during the recovery.

>The previous first quarter read pegged this growth drag at $535.09 billion – which had cut the recovery’s cumulative constant dollar GDP increase by 18.26 percent.

>The new read actually reduced the growth drag to 17.37 percent – or $523.88 billion in lost growth.

>And the new figures are also smaller than those for the fourth quarter – 18.38 percent, and $538.81 billion.