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

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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

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(What’s Left of) Our Economy: So How Loud was That Trade Noise in the U.S. Growth Figures?

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

With all the other news of the last few days, it’s been easy to overlook the release last Friday of the first read (of three soundings that will be released in the near term) the nation got on U.S. economic growth in the third quarter. That’s unfortunate because these data on the gross domestic product (GDP) continued to be distorted by sizable fluctuations generated by President Trump’s recent trade policy moves. As a result, the outlook for future growth looks especially cloudy, and that goes double for the odds that its recent acceleration from the crummy rates so far during the current economic recovery can continue. 

The impact of trade-generated short-term noise is clear from the change seen in the U.S. trade deficit between the second and third quarters. In inflation-adjusted terms (the GDP measure that’s most widely followed) during that period, the shortfall dropped by 6.80 percent, from $902.4 billion on an annualized basis to $841.0 billion. That was the biggest sequential decrease since the fourth quarter of 2013 (9.24 percent).

But in the third quarter, the real trade gap rebounded to $939.0 billion – its all-time highest (besting the previous record of $932.5 billion in the third quarter of 2006, during pre-financial crisis days). In addition, the quarterly increase of 11.65 percent was the biggest since the 13.18 percent during the second quarter of 2010 – during the early stages of the current economic recovery.

What’s been going on? As widely reported, both American exporters and importers have 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. During the second quarter, the biggest rush was made by U.S. exporters – their shipments overseas jumped by 3.21 percent quarter-to-quarter on an annualized basis. That was the biggest surge since the 3.93 percent annualized rise in the fourth quarter of 2013. That’s largely why the trade deficit narrowed.

During the third quarter, at least according to these preliminary figures, goods exports fell back by 1.79 percent – their worst performance since the 2.44 percent decline registered in the first quarter of 2015. Hence, in part, the rebound in the trade deficit. (Again, all these numbers and those in the next paragraph are annualized.)

On the merchandise import front, U.S. purchases of foreign goods in the second quarter stayed pretty flat sequentially – which also contributed to the trade shortfall’s improvement. But in the third quarter, goods imports advanced by 2.48 percent – the biggest such rise since the fourth quarter of 2017 (3.37 percent).

At the same time, as just indicated, these fluctuations have been multi-year highs, not multi-decade highs. So even though the data were noisy, they weren’t epic-ally noisy, or even close.

More epic was the bite from after-inflation growth taken by the higher trade deficit in the third quarter. It chopped fully 1.78 percent points off the 3.46 percent annualized increase. That’s the highest such toll in absolute terms since the 1.91 percentage points taken from growth in the third quarter of 1985! But the picture looks much less dramatic if you measure this growth loss as a share of the actual growth.

During the third quarter, the trade bite amounted to 51.44 percent of that growth. But that’s only the biggest such figure since the fourth quarter of 2016, when the sequential increase in the trade deficit subtracted 75.43 percent (1.32 percentage points) of that period’s 1.75 percent annualized constant dollar growth.

All the same, for the time being, the trade drag on cumulative after-inflation growth over the course of the entire economic recovery is up again. As of the second quarter, it had cost the economy 10.77 percent of its cumulative growth – or $363.7 billion. The third quarter numbers reveal the trade hit at 13.05 percent of cumulative growth – or $461.7 billion.

Moreover, the growth lost during the recovery because of the increase of the Made in Washington trade deficit remains much greater. This gauge measures inflation-adjusted trade flows minus sectors (services and oil) still generally unaffected by trade agreements and related policy decisions.

The latest data are from the second quarter, but they show a Made in Washington trade drag of 18.01 percent on cumulative real recovery growth – which translates into $608.12 billion worth of foregone expansion The next set of monthly U.S. trade data, slated to come out on Friday, will provide the first look on the third quarter statistics.

Some more perspective can be gleaned from the price-adjusted trade deficit’s share of the price-adjusted gross domestic product on a stand-still basis. It’s definitely on the upswing – reaching 5.03 percent as of the third quarter. That’s the highest level since just before the financial crisis-induced ensuing Great Recession struck – during the third quarter of 2007, when the share hit 5.23 percent.

The only consolations identifiable are that overall economic growth today is faster than it was eleven years ago, and that it’s still possible that the real trade deficit’s share of GDP, and the size of the trade drag, will settle down once the trade noise goes away. Not that hope will be the test of Mr. Trump’s trade policy success.

(What’s Left of) Our Economy: New Economic Growth Report Confirms Recent U.S. Export Jump & Likely Front-Loading

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

The government’s final (for now) read on U.S. inflation-adjusted economic growth during the second quarter contained trade highlights confirming again that a jump in goods exports – likely aimed at avoiding current or threatened American tariffs contributed strongly to the robust performance during this period.

Largely as a result, trade’s drag on real growth during the current economic expansion shrunk more during the quarter than previously estimated.

The latest figures on the gross domestic product (GDP) show that apparent export front-loading helped produce a 12.82 percent annualized sequential second quarter increase in price-adjusted goods exports – a slightly greater rise than the 12.64 percent previously reported. Such merchandise exports had not increased this fast since the 15.71 percent advance in the fourth quarter of 2013.

These higher goods export totals helped these sales hit a new quarterly after-inflation record of $1.8092 trillion on an annual basis, slightly more than the $1.8078 trillion previously reported. They also led the quarter’s real trade deficit lower – from $843.5 billion to $841.0 billion annualized. During the first quarter, the inflation-adjusted trade gap had hit $902.4 billion – the highest such level since the $932.5 billion in the third quarter of 2006.

This annualized trade deficit’s quarter-to-quarter tumble, moreover, is now estimated at 27.22 percent, rather than the 26.01 percent previously reported. That still represents the biggest such slide since the 36.96 percent dive in the fourth quarter of 2013.

With the better second quarter trade numbers came a decline in the drag on economic growth that’s been exerted by the expansion of the trade deficit since the current economic recovery began in mid-2009.

As of the final GDP results for the first quarter of 2018, the after-inflation trade shortfall’s increase had reduced cumulative price-adjusted growth during the expansion by $457.20 billion, or 14.33 percent. The three readings on second quarter GDP have now reduced these figures to $404.7 billion, or twelve percent, in the first reading; $398.3 billion, or 11.79 percent in the second; and now to 11.72 percent, or $395.8 billion.

Far greater – but still on the way down – has been the Made in Washington trade deficit – which is comprised of real trade flows heavily affected by trade policy and trade agreements, and which therefore leaves out trade in oil and services.

As of the final first quarter GDP figures, this trade drag stood at 17.23 percent of cumulative real growth during the expansion – a $523.88 billion loss. According to this morning’s revised second quarter estimate, and separate Census Bureau figures, trade’s bite from real growth had fallen to 14.90 percent ($503.19 billion). These figures actually were a bit higher than the 14.88 percent and $502.90 billion that could be calculated as of the previous GDP release. 

Trade’s contribution to after-inflation second quarter growth remained solid in the final second quarter figures, at 1.22 percentage points out of 4.10 percent annualized growth. That was a somewhat greater role than judged in the second read – 1.03 percent out of 4.16 percent annualized growth. In the first quarter, trade subtracted 0.02 percentage points to 2.20 percent annualized growth.

(What’s Left of) Our Economy: New GDP Figures Confirm Trade as a U.S. Growth Booster – for Now

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

The revised second quarter U.S. government figures for change in the gross domestic product (GDP) came out this morning, and their trade highlights broadly confirm the picture painted in last month’s advance results: A significant sequential reduction in the inflation-adjusted U.S. trade deficit keyed by a jump in goods exports aimed at avoiding impending or threatened tariffs made an impressive contribution to a strong quarterly real growth rate.

As a result, the new data also left in place one of the biggest questions hanging over the second quarter’s performance:  Will this trade boost to growth peter out?

The new results show that this export front-loading was fractionally smaller than first reported, with merchandise exports rising sequentially in the second quarter by 12.50 percent on an annualized basis, not the 12.64 percent initially estimated. Yet this increase was still the biggest since the 15.71 percent jump in the fourth quarter of 2013. The second quarter’s goods exports also still amounted to a new record: $1.8078 trillion annualized.

In addition, the quarterly drop in the combined goods and services trade deficit was steeper than originally reported. The gap, which stood at $902.4 billion annualized in the first quarter (the biggest such total since the $932.5 billion recorded in the third quarter of 2006), decreased to $843.5 billion in this year’s second quarter, not the $849.9 billion reported last month.

This sequential slide, moreover (26.01 percent annualized), was still the biggest since the 36.96 percent plunge in the fourth quarter of 2013.

Trade’s contribution to after-inflation second quarter growth remained solid in the revised figures, at 1.03 percentage points of 4.16 percent annualized growth. That was only marginally lower than the 1.04 percentage point contribution to the 4.00 annualized rate originally estimated.

Even better, the new second quarter results reduced the drag on economic growth that’s been exerted by the expansion of the trade deficit since the current economic recovery began in mid-2009.

As of the final GDP results for the first quarter of 2018, the trade shortfall’s increase had reduced cumulative price-adjusted growth during the expansion by $457.20 billion, or 14.33 percent. The first read on second quarter GDP reduced these figures to $404.70 billion, or twelve percent. This morning’s revision shrunk them further – to $398.50 billion, or 11.79 percent.

The same has held for the growth drag of the Made in Washington trade deficit – comprised of trade flows heavily affected by trade policy and trade agreements, and which therefore leaves out trade in oil and services.

The final first quarter GDP figures pegged this trade drag at 17.37 percent of cumulative real growth during the expansion – a $523.88 billion loss. According to this morning’s revised second quarter estimate, the Made in Washington deficit’s bite from real growth declined to 14.88 percent, or $502.90 billion.

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

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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

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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.

(What’s Left of) Our Economy: Record U.S. Exports and Imports Mark New U.S. Growth Report – Mainly as the Latter Stagnate

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

According to the advance gross domestic product figures for the first quarter of 2018, all categories of U.S. exports and imports hit new all-time quarterly highs in inflation-adjusted terms and the real quarterly trade shortfall declined sequentially.

The real trade gap, though, was still the second highest annualized quarterly total ($645.9 billion) since the third quarter of 2007 ($703.2 billion) – just before the Great Recession began. Moreover, the constant dollar trade deficit’s 1.22 percent sequential drop-off resulted almost entirely from the greatest sequential slowdowns in the growth of total imports (80.95 percent) and goods imports (87.19 percent) since the fourth quarter of 2010 and the first quarter of 2009, respectively.

Trade continued in the first quarter of 2018 to subtract from cumulative real growth during the current economic recovery, the the drag diminished from the 9.82 percent figure for the fourth quarter of 2017 to 9.23 percent.

Here are the trade highlights from the Commerce Department’s report today on first quarter GDP growth:

>All categories of America’s exports and imports hit all-time highs in the first quarter of 2018 after inflation, according to the Commerce Department’s initial report on the new gross domestic product’s (GDP) growth for that period.

> Real exports totaled $2.2563 trillion on an annualized basis – 1.19 percent higher than the final (for now) level for the fourth quarter of last year, and American overseas sales’ fifth straight quarterly record.

>Real goods exports of $1.5722 trillion annualized topped the fourth quarter total by 1.49 percent – their fifth straight quarterly record as well.

>The first quarter constant dollar services export total of $688.3 billion was a 0.60 percent sequential improvement and a new record itself, but represented a rebound from the fourth quarter’s 0.35 percent sequential dip.

>On the import side, the United States’ total purchases from abroad came to $2.9022 trillion on an annualized basis – up 0.64 percent sequentially and their second straight quarterly record.

>But that growth rate contrasted dramatically with the 3.36 percent sequential increase in last year’s fourth quarter, and indeed was 80.95 percent slower.

>The goods imports total of $2.3985 trillion annualized represented this category’s second straight all-time quarterly high. Yet the 0.52 percent quarterly increase was 87.19 percent slower than the 4.06 percent quarterly rise in last year’s fourth quarter.

>In fact, both these slowdowns were the greatest since the fourth quarter of 2010 and the first quarter of 2009 – the latter a time when the Great Recession was bottoming. In the fourth quarter of 2010, the growth rate of total imports sank by 81.87 percent; in the first quarter of 2009, goods imports plunged sequentially at nearly double (87.63 percent) the rate that they fell in the third quarter.

>Real services imports reached $688.3 billion annualized in real terms in the first quarter, a 0.60 percent advance from the fourth quarter amount and a new record as well.

>The new GDP report revealed that trade remained a considerable drag on the U.S. economy’s after inflation expansion since the current recovery began. But the drag fell from the 9.82 percent of real growth cut by the trade deficit’s increase since the recovery began (in mid-2009), to 9.23 percent.

>In real absolute terms, this means that the trade deficit’s rise sliced cumulative recovery-era inflation-adjusted growth by $287.6 billion as of the fourth quarter of 2017, and by $279.6 billion as of the first quarter of 2018.

>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. But the exact numbers for the first quarter won’t be known until the March monthly trade data come out early next month.

>As of the fourth quarter of 2017, though, the increase in this trade deficit in real terms had reduced recovery growth by a 18.38 percent, or $538.81 billion

(What’s Left of) Our Economy: So the Economy Can’t Grow When the Trade Balance Improves?

Tags

Associated Press, growth, inflation-adjusted growth, Paul Wiseman, real trade deficit, Trade, Trade Deficits, {What's Left of) Our Economy

Yesterday’s release of the December and full-year 2017 U.S. trade figures means that there will be lots of detailed data to mine for the next week or two. But the new numbers, and the press coverage, also create a great opportunity to dispel one of the leading myths surrounding the impact of trade – and especially trade deficits – on the U.S. economy.

The myth was nicely stated in the Associated Press coverage of the new trade report – which matters a lot because the AP is one of the leading sources of news for both the nation and the world. According to reporter Paul Wiseman,

“[W]hen it comes to trade, there’s a flip-side to good times [touted by President Trump and others]: ‘A stronger economy will draw in more imports’ as confident consumers seek out foreign products, says Bernard Baumohl, chief economist at the Economic Outlook Group.

“Recent history shows that the trade deficit tends to grow when times are good and shrink when they turn bad. The trade gap hit a record $762 billion in 2006 toward the end of a six-year economic expansion. It dropped to $384 billion in 2009, in the depths of the Great Recession as American consumers hunkered down and bought fewer imports.

“‘If the goal is to reduce the trade deficit, we know how to do that — just send our economy crashing and we won’t be able to afford to import as much’ says Bryan Riley, director of the conservative National Taxpayers Union’s Free Trade Initiative.”

This relationship holds more often than not. But the notion unmistakably conveyed by Wiseman and especially by the supposed authorities he cites – that it always holds – just doesn’t bear scrutiny.

The U.S. Census Bureau, which tracks the trade deficit, and the Bureau of Economic Analysis (like Census, another division of the Commerce Department), which tracks economic growth, both conveniently provide the historical statistics anyone needs should he or she show some actual curiosity about such claims. And what these figures show is that, for two and half decades – from 1961 till the early 1990s – the U.S. economy regularly managed to grow (and often quite nicely) in years when the trade balance improved. This includes years when a surplus increased, a deficit shrunk, or when a deficit turned into a surplus.

All told, such trade balance improvement took place thirteen times during this period: 1961, 1963, 1964, 1970, 1973, 1975, 1979, 1980, 1981, 1988, 1989, 1990, and 1991

And of these 13 years, the economy grew in nine on an inflation-adjusted basis (the most widely looked at measure): 1961, 1963, 1964, 1970, 1973, 1979, 1981, 1988, and 1990.

Moreover, even though improving trade balances (specifically, falling deficits) have been rarer since, they haven’t been unknown. This development took place in 1995, 2007, 2009, and 2012. And of these years, the economy grew in real terms in all except 2009.

What’s been seen more seldom – though not “never” – is a year-to-year speed-up in growth while the trade balance improves. But this combination has been seen five times since 1960: in 1964, 1973, 1981, 1988, and 2012. For good measure, the trade surplus expanded in 1961, and after-inflation growth remained at its previous-year level of 2.6 percent.

Nor does the picture change much when you look at the annual changes in the inflation-adjusted trade balance. From 1961 through the early 1990s, this trade balance improved in 13 years – the same number as that for the current-dollar trade balances, though the specific list is slightly different. These years were: 1963, 1964, 1970, 1973, 1974, 1975, 1979, 1980, 1987, 1988, 1989, 1990, and 1991

In ten of those years, the economy grew: 1961, 1963, 1964, 1970, 1973, 1979, 1987, 1988, 1989, and 1990

Since the early 1990s, the real trade balance has improved six times: 1995, 2007, 2008, 2009, 2012, 2013. And it remained roughly the same in 2011. In all of those years – except for 2008 and 2009 – the real economy expanded.

Re the accelerating growth criterion, through the early 1990s, it was met in three of the ten years during which the economy expanded and the trade balance improved. In two other years, the trade balance improved and economic growth held steady (1962 and 1987).

More recently, since the early 1990s, the economic grew in price-adjusted terms in four years when the trade balance improved. In addition, the trade balance barely budged (for the worse) in another growth year: 2011.

A bigger difference comes in terms of accelerating growth – an improving real trade balance has coincided with a growth speed-up only once during this period: 2012.

Now a skeptic could (correctly) observe that during the 1960s and 1970s, trade was considerably less important to the economy. At the same time, this observation also means that American economic policymakers have failed to meet the crucial challenge of helping the economy sustain healthy growth as it’s steadily – and sometimes rapidly – internationalized.

But the paramount point is that, contrary to the conventional wisdom, there’s no inherent reason why the economy’s trade position should worsen when it grows. And you can indeed look it up.

(What’s Left of) Our Economy: Trade Returns as a (Big) Drag on U.S. Growth

Tags

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

The first estimate of fourth quarter and full-year 2017 U.S. real growth came out Friday, and it completely overwhelmed me for two reasons. The first, and least important, was that I was traveling, so completing my analysis the same day wasn’t possible. The second, and most important, was that it was shot through with trade-related records and multi-year highs – mostly of the kind that hold back the American economy. So today I’ll be presenting an abbreviated version of my usual report, focusing almost entirely on those milestones.

>The new gross domestic product (GDP) figures showed that a sequential surge in the inflation-adjusted annualized trade deficit during the year’s last three months prevented the U.S. economy from achieving a current recovery first: three straight quarters or more of three percent or more annualized growth. In fact, the economy hasn’t seen such a period since late 2004-early 2005.

> That jump in the trade deficit jump cut 1.13 percentage points from the fourth quarter’s disappointing 2.53 percent annualized growth – the biggest such absolute and relative subtraction since the fourth quarter of 2016 (1.61 percentage points from 1.75 percent annualized growth). In fact, trade undermined after-inflation growth in the fourth quarter of 2017 for the first time since that end-of-2016 quarter.

>At the same time, on an annual basis, the trade drag on real GDP fell in 2017 to 0.18 percentage points of 2.25 percent inflation-adjusted growth from 2016’s 0.23 percentage points of 1.49 percent growth. In addition, the 2017 figure was the smallest annual growth drag since the 0.16 percentage point and 2.57 percent numbers of 2014.

>The fourth quarter real annualized trade deficit of $652.5 billion was the highest since the $703.2 billion reached during the third quarter of 2007 – just before the Great Recession’s onset. As a share of real GDP, it hit is highest level (3.78 percent) since the first quarter of 2008 (4.19 percent) – in the recession’s first months.

>For the full year, the trade shortfall’s share of real GDP reached its highest level in 2017 (3.64 percent) since 2008 (3.76 percent).

>New records were set for real total exports and goods exports on a quarterly basis ($2.2295 trillion and $1.5527 trillion on an annual basis, respectively) and for all major import categories ($2.8128 trillion for total imports, $2.3144 trillion for goods imports, and $496.3 billion for services imports – all at annual rates).

>Some rates of change for exports and imports were noteworthy as well. On a quarterly basis, the total imports increase of 13.2 percent annualized was the biggest since the 14.10 percent in the third quarter of 2010. The goods import rise of 15.84 percent annualized was the biggest since the 22.05 percent of the second quarter of 2010.

>For the full year, 2017’s real total exports improvement of 3.36 percent was the best such performance since 2014’s 4.28 percent rise, while the after-inflation goods export increase of 4.54 percent was the biggest advance since 2011’s 6.85 percent.

>On the import side, the 3.94 percent annual constant dollar rise in 2017 was the biggest for goods and services combined since 2014’s 4.96 percent. For goods, 2017’s 4.25 percent import increase in price-adjusted terms was the biggest since 2015’s 5.16 percent.

>The real trade deficit’s sequential fourth quarter jump boosted the trade drag on the current economic recovery from 8.23 percent to 9.82 percent – translating into $286.3 billion in lost constant dollar growth since the expansion began in the middle of 2009.

>The far greater 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 – won’t be known until the December monthly trade data come out early next month. But as of the third quarter, it had reduced cumulative recovery growth by 16.36 percent, or just under $460 billion in price-adjusted terms.

 

(What’s Left of) Our Economy: New Data Show Trade’s Still Fueling U.S. Growth – But a Little Less So

Tags

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

The final (for now) estimate of third quarter real growth, showed that the slight downward revision in the previously reported rate of expansion stemmed partly from a marginally worse trade performance. The combined goods and services shortfall was upgraded from $594.4 billion at an annual rate to $597.5 billion. As a result, trade’s contribution to third quarter expansion was downgraded from a 0.43 percentage point addition to 3.26 percent annualized after inflation growth to a 0.36 percentage point contribution to a 3.12 percent annualized real GDP advance.

Even so, the result remained three straight quarters of constant dollar trade deficit shrinkage for the first time since a 2012-2013 stretch. The combined deficit still shrank on a quarterly basis by the greatest annualized amount (10.50 percent) since the 46.14 percent annualized plummet in the fourth quarter of 2013. And trade’s growth-fueling effects still continued into their third straight quarter – also for the first time since 2012-2013. The composition of quarterly inflation-adjusted trade deficit reduction remained encouraging as well, with the combination of exports improvement and import fall-offs showing that domestic producers were supplying more demand both at home and abroad simultaneously for the first time since the third quarter of 2014.

The biggest downgrades in the trade figures came in services trade – especially a sequential real export increase now judged to have been 2.52 percent at annual rates, not 3.17 percent. The new GDP figures showed constant dollar exports in all major categories remained at record levels, but overall quarterly export growth was revised down from 2.16 percent annualized to 2.07 percent annualized. The price-adjusted quarterly total import decrease was revised down from 1.07 percent at an annual rate to 0.69 percent, but still remained the biggest drop since the fourth quarter of 2012 (3.82 percent annualized).

Because quarterly after-inflation trade shortfall was revised up, the trade drag on the current economic recovery inched up, too – from 8.11 percent to 8.23 percent ($231.2 billion in lost real growth). It’s still down considerably from the second quarter’s 9.24 percent. Similarly, the trade drag of the Made in Washington deficit – which tracks flows heavily influenced by U.S. trade policy – grew from the previously reported 16.32 percent to 16.36 percent ($459.5 billion in lost real growth). That’s still down significantly from the 17.30 percent second quarter drag.

Here are the trade highlights from this morning’s report on the gross domestic product (GDP):

>The Commerce Department’s final (for now) read on third quarter inflation-adjusted economic growth showed that a slightly worse trade performance than previously reported helped slow the economy’s expansion marginally.

>The annualized growth rate fell from 3.26 percent to 3.12 percent in part because the quarter’s real annualized trade deficit was upgraded from a downwardly revised $594.4 billion to $597.5 billion.

>As a result, trade’s contribution to real growth was downgraded from 0.46 percentage points of that 3.26 percent annualized growth to 0.36 percentage points out of 3.12 percent annualized growth.

>All the same, the new results still showed that the after-inflation trade deficit has fallen sequentially for three straight quarters – for the first time since a period in 2012-13.

>They also still showed, therefore, that trade fueled growth on net for three straight quarters for the first time since that 2012-13 period.

>And this morning’s results also still showed that the constant dollar deficit fell sequentially in the third quarter by its fastest rate (10.50 percent) since the 46.14 percent plunge in the fourth quarter of 2014.

>The pattern of real trade deficit shrinkage also remained encouraging. As with the first and second reads for the third quarter, this third report showed that the gap narrowed both because exports grew and imports shrank. In other words, the United States was supplying increased demand both at home and abroad simultaneously – the first time it has achieved that objective since the third quarter of 2014. That’s a much better reason for trade deficit shrinkage than, say, weak growth or contraction that depresses imports.

>The weak spot in these final third quarter GDP and trade figures seems to be services. Originally judged to be growing at an annualized sequential rate of 4.04 percent, this figure has now been downgraded to 3.17 percent and now 2.52 percent.

>Yet the new annualized total of $686.6 billion after inflation remained a quarterly record.

>Real services imports performed somewhat better. But their annualized quarterly decrease was still judged to be smaller than reported last month – 2.73 percent instead of 2.97 percent (for a quarterly annualized total of $494.8 billion).

>Nonetheless, services imports still fell at the fastest quarterly annualized rate since their 7.59 percent annualized swoon in the first quarter of 2011.

>Although the third quarter’s annualized real growth rate for inflation-adjusted total exports was further downgraded from 2.16 percent to 2.07 percent (resulting in a $2.1924 trillion annualized figure) this figure stayed in quarterly record territory.

>Goods exports, however, performed somewhat better on a price-adjusted basis. Their real annualized sequential growth rate was upgraded again – from 1.63 percent to 1.84 percent. And the $1.5073 trillion figure was a new inflation-adjusted quarterly record.

>As with services imports, total and goods imports declined less on a quarterly basis.

>Total inflation-adjusted imports sank by 0.69 percent sequentially at an annual rate in the third quarter, according to the new figures, not the 1.07 percent previously reported. But this decrease was still the biggest since the 3.82 percent quarterly drop in the fourth quarter of 2012 – when real growth was a paltry 0.09 percent annualized.

>The new total real imports figure for the third quarter was $2.7900 trillion.

>The previous GDP report showed inflation-adjusted goods imports falling in the third quarter at a 0.65 percent sequential rate – the fastest since the 4.40 percent pace during that dreary fourth quarter of 2012.

>This morning, this decline was judged to be only 0.24 percent – only the fastest rate since the first quarter of 2016’s 0.47 percent.

>The new third quarter real goods import figure is $2.2929 trillion.

>Since the real trade deficit is now judged to be slightly higher than in the previous third quarter GDP reports, the new numbers also revealed that trade’s drag on the current economic recovery increased a bit.

>As of the second quarter, the inflation-adjusted trade deficit’s increase since the recovery began – in the middle of 2009 – had reduced cumulative growth by 9.24 percent.

>The initial third quarter read lowered this number to 8.18 percent, and the second to 8.11 percent. But today’s figures produce a greater 8.23 percent drag, representing $231.2 billion worth of lost growth.

>The growth-killing effects of the Made in Washington trade deficit have been considerably greater – and inched back up as well per the new third quarter data.

>This trade deficit and its growth drag can be calculated by removing constant dollar oil trade and services trade from trade figures – two areas where trade liberalization’s impact so far has been modest at best. What’s left are the U.S. trade flows most heavily affected by trade agreements and other Washington policy decisions.

>When the first read on third quarter GDP came out, third quarter figures for the Made in Washington deficit were not available, but the second quarter GDP report revealed a drag of 17.30 percent. As of the second read, it had fallen to 16.32 percent.

>Today’s report, however, pushed the drag back up to 16.36 percent, or $459.5 billion in real growth lost since the recovery began.