(What’s Left of) Our Economy: New U.S. GDP Figures Report Record – and Virus-Distorted – Trade Deficits

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CCP Virus, Commerce Department, coronavirus, COVID 19, Donald Trump, exports, GDP, goods trade, gross domestic product, imports, inflation-adjusted growth, real GDP, real trade deficit, recession, recovery, services trade, Trade, trade deficit, {What's Left of) Our Economy

Because the entire U.S. economy has been so distorted by sudden stop-start nature of the CCP Virus and subsequent lockdowns and reopenings, and massive government stimulus measures, I’ve been hesitant to draw firm conclusions about the messages sent by the various reports on the economy’s performance issued by the government since the pandemic arrived.

I’m still hesitant, but this morning’s Commerce Department report on the economy’s growth in the first quarter of this year seemed especially interesting due to the signs it contained that America’s trade flows might be returning to some semblance of normality. The signs consist of quarter-to-quarter changes in deficits, exports, and imports that are decidedly moderating.

To start, that conclusion is also consistent with the moderating of changes in economic growth itself. Measured in inflation-adjusted terms, this intiial read on America’s gross domestic product (GDP – the total of goods and services turned out by the nation) revealed growth of 6.24 percent at an annual rate in the first quarter. By the standards of normal times recent decades, this is a blistering pace. In fact, leaving out the pandemic period, it was the best such performance since the 6.80 percent achieved in the third quarter of 2003.

But by pandemic standards, although it’s a speed up from the 4.26 percent registered in the fourth quarter of last year, it’s not that much of a speed up, especially given how much stimulus has been poured into the economy. And compared with the 29.91 percent real GDP pop in last year’s third quarter, however, it’s definitely smallish beans.

The trade figures comprising part of this GDP report generally followed suit. For example, the first quarter’s after-inflation trade deficit of $1.1755 trillion was an all-time quarterly record both in absolute terms, and more important, as a share of the whole economy (6.16 percent). The last time the trade deficit’s relative size was remotely that big was during the fourth quarter of 2005 (6.10 percent) – during a time now known as the bubble decade that preceded the financial crisis and Great Recession of 2007-2009.

Yet the deficit’s quarter-to-quarter growth rate of 4.77 percent was considerably slower than the fourth quarter’s 10.12 percent, and the record (by a long shot) 31.47 percent recorded during that extraordinarily high growth third quarter.

The same pattern is unfolding so far with the trade gap in goods. At $1.3463 trillion annualized it marked the third straight quarterly record in absolute terms. But the sequential growth rate of 3.46 percent was well off quarterly the rate of 6.94 percent in the fourth quarter, much less the 21.58 percent in the third quarter.

Trade in services – the part of the national and global economies hardest hit by the virus and the lockdowns – has taken less of a straight line route in terms of quarterly change, but moderation can be seen here, too. The quarterly surplus of $165.1 million was the smallest recorded since the $1.57 million during the third quarter of 2009 – when the economy was just beginning to crawl out of the Great Recession.

The quarterly shrinkage of 4.95 percent was, though, As less than a third as great as the fourth quarter’s 17.29 percent – though that nosedive was greater than the third quarter’s 10.48 percent.

Approaching normality was also indicated by another trade-related figure – the degree to which these changes in the deficit have affected overall growth. During the first quarter of this year, the sequential rise of the price-adjusted trade deficit subtracted 0.87 percentage points from annualized real GDP growth figure, which hit 6.24 percent. So that trade shortfall increase affected 13.94 percent of the growth figure (for the worse).

As discouraging as that result was, however, the trade effect was much smaller than in the fourth quarter of last year. Then, the big surge in the inflation-adjusted trade gap cut 1.53 percentage points from real GDP growth, which hit 4.26 percent annualized. In other words, the trade deficit affected 35.92 percent of the growth figure (again for the worse).

The trade affect was actually smaller in relative terms during the record GDP growth third quarter – reducing real GDP expansion, which neared 30 percent at annual rates, by 3.21 percentage points.

But for some context, the last time the trade hit to real economic growth was seen in this statistical neighborhood was the third quarter of 1982, when dragged down a sequential after-inflation contraction of 1.53 percent by 3.22 percentage points. That is, without the increase in the trade deficit, the overall economy would have grown. And the all-time record was set way back in the fourth quarter of 1947 – when a rising trade shortfall cut 4.23 percentage points out of a growth rate that his 6.25 percent annualized.

Larger trade effects have been seen occasionally when a quarterly improvement in the deficit bolstered growth. But these instances came during deep downturns – as in the second quarter of 1980 and the first quarter of 1975.

Nevertheless, a case can be made that the CCP Virus related distortions of the economy and U.S. trade flows still have a ways to go. After all, more massive government stimulus seems to be coming, and new pandemic waves are washing over major portions of Europe and Asia, which of course are important American export markets. And until the roller coaster ride is over, assessing the true state of the economy and trade flows will remain a serious challenge.

Moreover, even if the distortions are indeed over, these particular trade figures are of little help in assessing the ongoing impact of the Trump trade policy revolution engineered from 2017 to last year.  Luckily, the next set of needed details is due out next Tuesday, when the March monthly trade report is slated to be released.      

Making News: Podcast On-Line on Biden’s Infrastructure Plan and China…& More!

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American Jobs Plan, Biden, CCP Virus, China, competitiveness, coronavirus, corporate taxes, COVID 19, Donald Trump, Gatestone Institute, Gordon G. Chang, green energy, green manufacturing, IndustryToday.com, infrastructure, Making News, manufacturing, recession, tariffs, tax policy, tax reform, taxes, The John Batchelor Show, Wuhan virus

I’m pleased to announce that the podcast is now on-line of my latest interview on John Batchelor’s nationally syndicated radio show. Click here for a timely discussion among John, co-host Gordon G. Chang, and me on whether President Biden’s infrastructure and competitiveness package really will strengthen America’s position relative to China. Oh yes – we also speculated about the fate of former President Trump’s China tariffs in the Biden era.  

In addition, yesterday, Gordon quoted my views on the matter in a post for the Gatestone Institute. Here‘s the link.

Finally, on March 31, IndustryToday.com re-published my RealityChek post on recent U.S. manufacturing data strongly indicating that those Trump tariffs have greatly helped domestic industry weather the CCP Virus pandemic and subsequent recession in impressive shape. Click here to read (or re-read!).

And keep checking in with RealityChek for news of upcoming media appearances and other developments.

(What’s Left of) Our Economy: March U.S. Manufacturing Job Gains Lagged – For a Good Reason

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aerospace, aircraft, aircraft engines, aircraft parts, American Jobs Plan, automotive, Biden, Build Back Better, CCP Virus, coronavirus, COVID 19, Donald Trump, Employment, fabricated metal products, Jobs, Labor Department, lockdowns, machinery, manufacturing, non-farm jobs, pharmaceuticals, PPE, recession, recovery, regulation, semiconductor shortage, semiconductors, tariffs, taxes, Trade, travel services, vaccines, Wuhan virus, {What's Left of) Our Economy

This morning’s figures from the Labor Department show that U.S. domestic manufacturing was a bit of a jobs creation laggard in March – and that was good news. The reason? The employment gains for the rest of the economy were so enormous.

This latest monthly U.S. jobs report showed that non-farm payrolls (the definition of the U.S. jobs universe used by the Labor Department, which tracks these data), rose by 0.64 percent in March – to 144.210 million. Job-creation in the private sector advanced at a virtually identical rate.

Payrolls in manufacturing were up by a lower 0.43 percent – to 12.284 million. But they still increased by 53,000 – their best performance since September’s 55,000. It’s also possible that hiring in the automotive sector was held down by a global shortage of semiconductors – which has led to production cutbacks and even some layoffs.

The only disappointment in the new manufacturing jobs numbers concerned revisions – which were mostly negative. February’s initially reported 21,000 net employment gain is now estimated at 18,000. January’s 14,000 job loss (already downgraded from an initially judged 10,000) is now pegged at a still greater 18,000. But December’s improvement was upwardly revised again – from 34,000 to 35,000.

As a result, manufacturing has now regained 63.83 percent (870,000) of the 1.363 million jobs the sector shed during the peak CCP Virus lockdowns period of last March and April. That’s fewer relatively speaking than the recovery in private sector employment – 66.88 percent (14.172 million) of the 21.191 million jobs it lost during that period.

But because of continuing weakness in the public sector – which has recovered just 66.42 percent of its 22.362 million job loss last spring – manufacturing’s payrolls’ rebound is still ahead of the entire economy’s. In fact, manufacturing jobs now account for a higher (8.52 percent) of total non-farm employment than during the last full pre-pandemic data month (8.39 percent in February, 2020).

The biggest manufacturing jobs winners in March? Far and away the champ was the big fabricated metals products industry, which expanded employment by 13,700 – more than a quarter of the manufacturing total. Next came two smallish sectors – miscellaneous non-durable goods and printing and related support activities (up 7,400 and 5,900, respectively). Encouragingly, jobs increased by 3,500 in the big machinery sector – whose products are used throughout not only the rest of manufacturing but the entire economy.

The worst performers were transportation equipment – whose 3,000 lost March jobs included 1,000 in the automotive sector, which has been forced into production cutbacks and some layoffs due to the global semiconductor shortage – and furniture (down 1,300).

Unfortunately, these latest figures indicate that employment in many CCP Virus-fighting goods continues to lag. To be sure, their payrolls seem to be up from the last pre-pandemic levels whereas overall manufacturing jobs are down (by 4.02 percent). But given the nature of the emergency, and the shortages it revealed, it’s surprising they’re not higher still.

The relevant numbers only go through February, and in the broad pharmaceuticals sector, employment rose by 1,600 sequentially. And January’s initially reported 700 job loss has been upgraded to a decrease of only 100. But the sector’s payrolls have grown by a mere 2.60 percent since that last pre-pandemic month of February, 2020.

The performance of the pharmaceuticals subsector containing vaccines was considerably better. February payrolls expanded by 1,300 sequentially, and January’s gains are now estimated at 500, not 100. As a result, this vaccine-related sector’s employment levels are now 6.23 percent higher than in February, 2020.

The story, however, has been more discouraging lately in the manufacturing category containing personal healthcare-related protection devices (PPE) like facemasks, gloves, and medical gowns. Payrolls were flat on month in February, and the initially reported January job loss of 800 was only upgraded to a decline of 700. Still, payrolls in this sector have climbed by 7.98 percent since February, 2020.

Interestingly, despite the rebounding orders for Boeing’s popular but previously grounded 737 Max jetliner, the recovery of national and global travel, and the resumption of deliveries of its also-troubled 787 Dreamliner, none of these positive developments has shown up in the aerospace jobs numbers.

For example, aircraft employment in February (also the latest available figures) grew by only 1,000 on month and not only remains down 10.66 percent on year, but substantially lower than all of last year’s safety crisis- and the worst of the CCP Virus-plagued months. Similar trends hold for aircraft engines and engine parts, and non-engine aircraft parts.

The outlook for domestic manufacturing job creation still seem bright, as vaccinations are being administered rapidly, reopenings are spreading, igniting renewed overall economic activity, Boeing does seem to be emerging from its safety and manufacturing-related troubles, and the high, sweeping Trump tariffs keep pricing many Chinese goods out of the U.S. market, thereby creating new opportunities for American producers.

But that global semiconductor shortage, which will eventually affect much more than automotive output, may not end until late next year. It’s tough to know the overall impact of the Biden administration’s American Jobs Plan and other Build Back Better virus recovery proposals on the one hand, and the tax increases proposed to pay for them on the other, as well as the new regulations that will be involved – assuming even that they pass Congress reasonably intact. And vaccines production won’t be booming forever.

So no one concerned about domestic manufacturing’s health and prospects has any excuse not to peruse carefully all the industry-related data and news that are in store in the weeks and months ahead.

(What’s Left of) Our Economy: New U.S. Manufacturing Data Bolster Case for Keeping Trump’s Tariffs

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CCP Virus, China, China tariffs, consumer electronics, coronavirus, COVID 19, Donald Trump, exports, GDP-by-industry, gross domestic product, imports, manufacturing, Port of Los Angeles, recession, recovery, tariffs, Trade, trade deficit, value added, Wuhan virus, {What's Left of) Our Economy

As known by RealityChek regulars, throughout the CCP Virus period, I’ve been writing about how resilient the American domestic manufacturing industry has been, and how a good chunk of the credit should go to the Trump era tariffs. I’ve argued that they’ve rendered lots of imports – especially from China – much less price competitive, and created new opportunities for U.S.-based industry to sell to American customers.

With the release last Friday of the U.S. government’s latest “GDP (Gross Domestic Product) by Industry” data, this case looks ever more convincing.

The new figures bring the story up to the end of last year, and the key numbers entail the production and the trade deficit figures for the second quarter of 2020 (the first full quarter when the virus and related lockdowns and other mandated and voluntary economic activity curbs impacted economic data) and for the fourth quarter (the most recent numbers from this quarterly data set).

These new figures show that, during that period, according to an output measure called “value added” (a favorite of economists, because it seeks to eliminate the double-counting that inevitably results from including in manufacturing production levels both final products and all the parts, components, and materials that go into those products), manufacturing production increased by 14.32 percent. (This figure does not account for inflation’s effects, because the U.S. government doesn’t publish detailed inflation-adjusted data for the trade statistics we’ll also be examining.)

The comparable growth figure for the whole U.S. economy between the second and fourth quarter? Just 10.12 percent.

It’s true that the trade deficits for manufacturing and the whole economy rose strongly as well during this period. But manufacturing outperformed here as well, as its shortfall climbed by 24 percent, versus 24.46 percent for all U.S. goods and services industries combined.

That’s a tiny edge, of course, but any edge at all is pretty remarkable, especially given the massive pandemic-era popularity of the consumer electronics products sold so massively to Americans by China, and that most of these goods escaped the Trump levies. In this vein, it’s revealing that net imports of laptops, cell phones, and the like represented fully 22.07 percent of the second-to-fourth quarter manufacturing trade deficit’s worsening.

And even so, during this period, the manufacturing-dominated China goods trade shortfall increased by just 13.53 percent – a clear testament to the Trump tariffs.

It’s important to remember that many major U.S. services industries have taken outsized pandemic- and lockdowns etc-related hits because their business models depend on personal contact. But interestingly, between the first and second quarters, manufacturing output fell faster than total GDP – by 12.47 percent versus 9.47 percent on an annualized basis versus 9.47 percent. So industry had an unusually deeper hole to climb out of. And despite this challenge, whereas total U.S. current dollar output in the fourth quarter was still a bit (0.31 percent) lower than in the first quarter (the final full pre-CCP Virus-affected quarter), manufacturing value-added was fractionally higher.

There’s still a possible fly in the ointment – and a big one. Due to equipment and labor shortages, since late November there’s been there’s a big, growing backup in unloading ships laden with Asian imports at the Port of Los Angeles – a prime gateway for such commerce. And on a monthly basis, since November (and through January), U.S. goods imports from China are down 14.43 percent.

But underscoring the tariffs’ effects all the same: Goods imports from Vietnam, which is supposed to be a major winner from the U.S.-China trade conflict, dipped by just 3.93 percent during this period. And many Vietnamese products enter the United States through Los Angeles, too.

The manufacturing trade deficit remains way too high, and manufacturing’s value-added growth slowed dramatically last year – from an its all-time high of 13.4 percent between the second and third quarters to a mere 0.80 percent between the third and fourth.

But as the entire U.S. economy recovers from the pandemic due to vaccinations and the approach of herd immunity, as the lockdowns and consumer caution ebb, as more immense government stimulus kicks in, as aerospace giant (and traditional trade surplus star) Boeing recovers from its safety woes, as vaccine production booms, and as the Biden administration continues to keep the Trump tariffs in place, unless Washington makes some big policy mistakes, it seems tough at best to be a U.S. manufacturing pessimist these days.

(What’s Left of) Our Economy: The Real U.S. 2020 Trade Deficit Remained a Record – & Virus-Distorted

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

The final (for now) official report on U.S. economic growth in the fourth quarter of last year and therefore for the full year contained modestly good news both in terms of the entire economy’s performance and its trade flows, but doesn change the big picture of major pandemic-related setbacks and distortions, and the latter likely to continue for the foreseeable future.

Starting at 30,000 feet, the new data show that in inflation-adjusted terms (those most closely watched), America’s gross domestic product (GDP – or the total of goods and services it produces) shrank by 3.49 percent in 2020, a bit better than the 3.50 percent decline reported last month. Real growth received a boost from a fourth quarter during which real GDP expanded sequentially by 4.23 percent at an annual rate, not the (already upwardly revised) 4.03 percent previously estimated.

Given the record nosedive last spring produced by the CCP Virus and related mandated and voluntary curbs on economic activity, and even given the strong (in fact, sequential, record) rebound in the third quarter, such growth isn’t overly impressive. But presumably the rate will accelerate as vaccination spreads, herd immunity finally arrives, lockdowns are lifted (hopefully for good), and consumer regain confidence about in-person services like dining and traveling.

All the same, 2020’s still ranks as the worst U.S. economic downturn since 1946, when after-inflation GDP tumble by 11.60 percent as the nation transitioned from a war-time to a peacetime footing. Last year’s recession was also worse than the real GDP drop of 2009 (2.53 percent), during the Great Recession triggered by the global financial crisis.

As for the constant dollar total trade deficit, it’s now pegged at $926 billion, up slightly from last month’s reported $925.8 billion, but better than the $926.3 billion estimated in the first read on fourth quarter and 2020 GDP. The annual increase was only 0.92 percent, and as a share of the total economy (5.03 percent), it remained well below the all-time high of 5.95 percent (which came at the height of the bubble decade, in 2005), the deficit’s absolute and relative levels are still remarkable given the economy’s contraction – which normally results in a trade deficit decrease. At the same time, as will be discussed below, the 2020 recession was unusual in most respects.

The trade highlights of this morning’s GDP report confirmed once again that the service sector has suffered the greatest pandemic period hit both domestically and internationally. Indeed, during 2020, the longstanding after-inflation American goods trade deficit dipped by 0.71 percent (from $1.1409 trillion to $1.1328 trillion) while the equally longstanding services surplus sank by eleven percent (from $224.5 billion to $199.8 billion).

The new GDP report upgraded America’s total price-adjusted export performance in 2020, estimating their decline to be 12.95 percent, not the previously judged 12.97 percent. But the decrease is still the worst since 1958’s 13.49 percent plunge, and the $2.2169 trillion level remains the lowest since 2012’s $2.1930 trillion.

Real goods exports in 2020 slid by 9.46 percent in today’s GDP report – a little better than the 9.48 percent calculated last month. But as with total exports, these levels still represented multi-year lows in terms of the magnitude of the decline (the fastest since Great Recession-y 2009) and the absolute amount ($1.6138 trillion, the lowest since 2013). As last months real GDP post reminded, though, goods and services trade figures began to be reported separately by the Commerce Department only since 2002.

The deterioration in real services exports was, again, much more dramatic, and faster than estimated in last month’s GDP figures. They plummeted by 19.26 percent on-year, not the 19.16 percent previously reported, and a record by a long shot. And at $620.5 billion, their yearly total is the lowest since 2010.

Total constant dollar U.S. imports, however, seem to have fallen sligthly more slowly last year (9.27 percent) than previously judged (an already downgraded 9.28 percent). Yet this decrease also remained the fastest since 2009, and the $3.1429 trillion level the lowest since 2015.

Consistent with the above results, the inflation-adjusted goods imports fall-off in 2020 was much less than the overall decline. Interestingly, the new 6.05 percent annual decline reported this morning was notably lower than the 5.45 percent decrease reported last month. It, too, however, was a multi-year worst (since recession-y 2009) and the new $2.7466 trillion level is the lowest since 2016.

The annual after-inflation services imports drop in 2020 reported today was unchanged, at a record 22.54 percent, and the same $420.7 billion level was the weakest since 2009.

On a quarter-to-quarter basis, the real trade deficit registered modest improvement, too. Previously pegged at a quarterly record $1.1230 trillion on an annual basis, it’s now estimated at $1.1220 trillion (still an all-time high), and the sequential increase downgraded from 10.20 percent to 10.11 percent.

Two other findings of note: Although the increase in the annual constant dollar total trade deficit reached an all-time high last year, its effect on economic performance was relatively slight. The trade gap’s widening accounted for 0.14 percentage points of that 3.49 percent annual real GDP drop. Proportionately, that’s less damage than was inflicted in 2019, when the higher trade deficit cut 0.18 percentage points from the 2.16 percent overall growth rate.

On a quarterly basis, though, the trade bite was much deeper, as the price-adjusted total deficit’s increase subtracted 1.53 percentage points from the 4.23 percent sequential inflation-adjusted annualized GDP increase. But not even this blow was the biggest ever relatively speaking – or even close. (The all-time worst such performance came in the second quarter of 1952, when 0.85 percent after-inflation annualized growth would have been 2.23 percentage points higher if not for the sequential increase in the trade deficit.)

(What’s Left of) Our Economy: U.S. Manufacturers Seem to be (Trump-ily) Settling the Tariff Wars

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(What's Left of) Our Economy, Biden, CCP Virus, China, coronavirus, COVID 19, Donald Trump, manufacturers, manufacturing, metals, National Association of Manufacturers, recession, steel, tariffs, Trade, trade war, Wuhan virus

In recent months, I’ve written that there’s a strong case to be made for bullishness about U.S. domestic manufacturing (e.g., here and here), and added (pointedly) that this optimism is justified even though sweeping, steep Trump administration tariffs remain on hundreds of billions of dollars worth of imports from China, and from many steel-producing countries.

In fact, I’ve argued that these tariffs deserve much credit for domestic industry’s solid performance during the CCP Virus- and lockdowns-spurred downturn suffered by the U.S. economy over the last year – by preventing foreign-made goods from supplying much of the American demand for manufactures that had continued. I’ve also contended that as long as the tariffs remain in place, domestic manufacturers will keep enjoying a big edge over the foreign competition for satisfying the demand that will be restored as recovery proceeds.

Therefore, it’s great to report evidence that U.S.-based manufacturers appear to agree, at least implicitly, and it comes from the National Association of Manufacturers’ (NAM) latest survey of its members’ views on their future prospects. As the organization reports before presenting its new data:

“After plummeting sharply last year due to the COVID-19 pandemic and the global recession, manufacturing activity has rebounded sharply, with the sector being a bright spot in the economy in recent months. Manufacturing production is likely to exceed pre-pandemic levels in the next couple months, and employment in the sector has risen in all but one month since April 2020.”

That resilience, of course, was displayed with the trade curbs erected by the Trump administration fully in place. Strengthening the case that domestic manufacturers will keep performing strongly going forward are the NAM’s findings that the 450 respondent companies’ confidence about their outlooks were the brightest since December, 2019 – just before the virus and the lockdowns hit the American economy, and when the tariffs were of course also fully in place.

And when asked about their “primary current business challenge,” only 29.3 percent mentioned “trade uncertainties,” which included “actual or proposed tariffs” and “trade negotiation uncertainty.” By contrast, the respondents’ top worry by far was “increased raw material costs” (76.22 percent). Second was “attracting and retaining a quality workforce” (65.78 percent).

It’s true that some of the rising commodity prices mentioned by the companies are stemming from the Trump tariffs, especially on metals. But they’re also surely due to the surprising speed of the economy’s rebound, which itself inevitably has created numerous bottlenecks. (As RealityChek regulars know, metals are typically a small fraction of overall costs even in major metals-using industries like automotive.)

Further, the respondents were given these choices – so their answers weren’t exactly spontaneous. Indeed, NAM placed the “trade negotiation uncertainty” third in its list of twelve possible answers, and when pollsters ask such “closed-end questions” (as opposed to their “open-ended” counterparts,” where respondents aren’t prompted at all), placement can influence results – in this case, boosting the odds of being selected.

There’s little doubt that ideologues and economists of all stripes will keep fighting the trade and tariff wars – since the issue hasn’t remotely been settled in theory. But the new NAM survey and domestic manufacturing’s strong performance during one of the U.S. economy’s most challenging periods in decades encouragingly indicate that the matter is being settled where it counts – in fact, and in favor of the proposition that tariffs can be a boon for industry. So does President Biden’s decision that these levies aren’t going anywhere anytime soon.           

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

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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: As Trump’s Tariffs Stay in Place, U.S. Manufacturing Output Keeps Surging

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aerospace, aircraft, aircraft parts, Boeing, CCP Virus, China, coronavirus, COVID 19, Federal Reserve, gloves, imports, industrial production, inflation-adjusted output, manufacturing, masks, pharmaceuticals, PPE, real growth, recession, tariffs, Trump, Wuhan virus, {What's Left of) Our Economy

It’s tough to describe this morning’s manufacturing production figures from the Federal Reserve (for January) as anything but excellent, and anything but another strong endorsement of the stiff, sweeping tariffs former President Trump imposed on goods, especially from China. By shielding industry from a flood of imports from the People’s Republic, these trade curbs have undoubtedly contributed to a manufacturing recovery that entered its ninth straight month in January, and brought its production to within a whisker of pre-CCP Virus levels.

Moreover, as noted last month, the sector’s prospects seem bright, since not only has the entire economy kept recovering as CCP Virus vaccination proceeds and accelerates, but the aerospace industry revives both from its Boeing safety-related woes and the pandemic-related travel slump, and vaccine production surges.

Domestic manufacturers’ real output rose by 1.04 percent sequentially, increases were broad-based, and revisions were strongly positive. Although December’s previously reported 0.95 percent growth was downgraded to 0.94 percent, November’s was revised up for the second straight time (from 0.83 percent to 1.10 percent), and October’s for a third straight time (from 1.34 percent to 1.51 percent).

Due to these revisions, despite the severely recessionary impact of the CCP Virus both at home and abroad, domestic manufacturing’s inflation-adjusted 2020 production decline now comes in at just 2.01 percent, rather than the 2.63 percent reported last month. In addition, price-adjusted manufacturing output has advanced by 24.11 percent since its April nadir, and is now a mere 0.75 percent below its last pre-pandemic level last February.

As encouraging as the January figures and revisions were was their breadth. In fact, for the second straight month, the constant dollar output improvement came despite a small (0.72 percent) sequential dip in the automotive sector, whose major ups and downs have heavily influenced overall manufacturing production results for much of the pandemic period.

One cautionary note: January monthly after-inflation output growth for the big machinery category – which turns out production equipment for the rest of manufacturing, and devices crucial for other major industries like construction and agriculture – was only 0.52 percent, just half that for the entire manufacturing sector. And revisions were mixed.

More encouraging: Machinery’s growth has been strong enough that its real output is now back to within 1.12 percent of its February pre-pandemic levels.

January also saw accelerating growth in aircraft and parts production. Monthly output in expanded by 2.89 percent in January, December’s strong initially reported 2.78 percent increase is now judged to have been 3.03 percent, and November’s has been upgraded from 2.39 percent to 2.50 percent.

In fact, recovery in these aerospace sectors has been so vigorous that their output is now 6.77 percent greater than their February pre-pandemic levels.

Probably reflecting the vaccine effect, price-adjusted production of pharmaceuticals and medicines increased by 2.42 percent on month in January – the best showing since July’s 2.57 percent. But revisions were mixed, and this vital sector’s real output is only 4.11 higher than in February, just before the pandemic struck the U.S. economy in full force. On the brighter side, immense vaccine demand makes clear that the industry’s upside is enormous for the time being.

As for medical equipment and supplies – including virus-fighting items like face masks,face masks, protective gowns, and ventilators – their production performance keeps lagging badly. Inflation-adjusted output for this category (which encompasses many other products as well) actually fell in January for the second straight month – and by 0.54 percent. In fact, constant dollar output in this sector is 2.18 percent lower than during the last pre-pandemic month of February, 2020.

(What’s Left of) Our Economy: More Evidence of U.S. Manufacturing’s Tariff-Bolstered Resilience

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CCP Virus, China, Commerce Department, coronavirus, COVID 19, imports, Jobs, Labor Department, manufacturing, recession, recovery, tariffs, The Wall Street Journal, Trade, Trump, value added, Wuhan virus, {What's Left of) Our Economy

I must confess that I’m more than a little confused. On the one hand, I read in The Wall Street Journal two days ago that the Trump administration “used tariffs to try to drive manufacturing back home, although growth in factory jobs stalled once the administration resorted to levies that drove up costs for many factories.”

On the other hand, I read in The Wall Street Journal yesterday that U.S.-based manufacturing is recovering “quicker than expected” from the CCP Virus- and lockdowns-induced American recession. Moreover, this stellar performance is taking place amid “higher costs for materials used in everything from kitchen cabinets to washing machines to automobiles.”

Stranger still: Unquestionably, among the cost drivers for these materials have been those Trump tariffs, especially on imports from China – which are not only wide-ranging (covering some $360 billion worth of Chinese-made products when they were imposed in phases), and steep (with most standing at 25 percent).

In fact, “stellar” really isn’t the best adjective for the manufacturing surge. Try “record-shattering.” For the Commerce Department’s “GDP by Industry” statistics show that between the second and third quarters of this year, manufacturing value-added (an output measure that tries to eliminate the double-counting that results from including in manufacturing production levels both final products and all the parts, components, and materials that go into those products) shot up by 13.34 percent at an annual rate. That’s not only never happened before. It’s never come close to happening before – at least since 2005, when the relevant data series began.

To be fair, this growth stemmed from the rubberband-like effect of partial virus-related reopenings of economic activity. Specifically, it followed a record 12.47 percent nosedive between the first and second quarters. But who can reasonably doubt that the immense scale of the Trump tariffs suppressed the amount of Chinese goods that could have satisfied this renewed demand, as they had done so typically in the recent past – especially since China’s export machine recovered exceptionally quickly from the People’s Republic’s own virus outbreak and massive shutdowns?

Moreover, who can reasonably doubt that the exclusion of these imports from the U.S. market more than offset whatever price increases the tariffs created? Because however much these levies are reducing companies’ earnings and profits, every sale lost to a China-based rival – whether at home or abroad – means much less in the way of earnings and profits. 

And this strong American manufacturing growth pickup has put an end to that short-lived manufacturing jobs slowdown. From April of last year (when the CCP Virus’ economic impact peaked on a monthly basis ) through December, Labor Department data show that U.S. industry’s payrolls are up by 820,000 – much faster growth than the 37,000 increase during the same period in 2019. Of course, the incredibly abnormal sudden stop-and-start of virus-era economies not just in the United States but the world over (and in largely unsynchronized ways) sharply limits the use of all such comparisons, because they have so relatively little to do with the economic fundamentals.

At the same time, though, it’s entirely reasonable to expect U.S. manufacturing production and employment to keep expanding as post-CCP Virus normality returns. And as long as the Trump tariffs remain largely in place, the prospect of a renewed Chinese import flood will be one major headwind that domestic industry won’t have to fear.

Im-Politic: It’s Americans Last for the Courts as Well as Business on Immigration

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Biden, businesses, CCP Virus, coronavirus, COVID 19, guest workers, Im-Politic, immigrants, Immigration, Joe Biden, judges, labor shortages, lockdowns, recession, Reuters, Trump, unemployment, visas, wages, workers, Wuhan virus

So here I was about to give myself a day off from blogging today and spend most of it reading and then watching the big New Year’s Day college football games, but the news just keeps newsing. And I couldn’t forgive myself if I didn’t immediately seize on the opportunity to comment on today’s Reuters report titled “Trump extends immigration bans despite opposition from U.S. business groups.”

The piece wasn’t most remarkable for the kind of pro-globalist or Never Trump bias I often cover, or for the headline development. Everyone who’s followed the issue knows that the President has long favored and put into effect many measures aimed at curbing both legal and illegal immigration – and long before the CCP Virus and ensuing lockdowns-type government orders and consumer caution combined to create a genuine U.S. jobs depression.

Nor should anyone be especially struck by the observation that business groups are seeking to reopen American borders to green-card applicants (who will be seeking U.S. employment) and foreign guest workers (who enter the country in response to request from companies claiming labor shortages) even though, as the piece notes, 20 million Americans are currently receiving unemployment benefits.

No, what blew me away about the story were these two sentences:

“In October, a federal judge in California blocked Trump’s ban on foreign guest workers as it applied to hundreds of thousands of U.S. businesses that fought the policy in court.

“The judge found the ban would cause ‘irreparable harm’ to the businesses by interfering with their operations and leading them to lay off employees and close open positions.”

In other words, this judge supported allowing the number of workers overall available to American business to start growing again at a time when enormous numbers of domestic workers nationally have lost their jobs because enormous numbers of the businesses they worked for are being closed (many for good) by the aforementioned shutdown orders and consumer behavior changes.

Yet the judge’s stated reason for admitting these new (foreign) workers at a time when business are shedding enormous numbers of (domestic) workers is that enormous numbers of these same businesses would suffer “irreparable harm” – that is, harm for good – without the foreign workers. (See this post for an exceptionally intelligent discussion of the national business closure numbers, which so far are anything but from definitive.)

Even worse: The business lobbies that have opposed the Trump restrictions are the same groups that for months have condemned what they regard as overly sweeping lockdowns-type mandates for killing off enormous numbers of businesses, and threatening the survival of many others by sharply limiting the amount of customers they serve. And these business organizations insist that companies need more employees? Even though there’s every reason to believe that, at least through the winter, these shutdowns are much likelier to become tighter, not looser?

This isn’t to say that every business in this highly diverse economy during these highly difficult times is facing the same issues or dealing with the same labor market conditions. In fact, there can’t be any reasonable doubt that some companies are experiencing troubles finding the workers they need. Nor can there be any reasonable doubt that pandemic-related travel curbs are complicating their efforts to attract the necessary employees from other parts of the country, even if they raised wages strongly – the response identified by standard economic textbooks for ending labor shortages (even though this wage effect is overwhelmingly ignored by economists who use the same textbooks to support lenient immigration policies).

But how would new foreign workers solve this problem? They’d be subject to the same travel restrictions. And even if employers were willing to pay to bring them safely to their facilities, why couldn’t they extend the same services to any qualified domestic workers they could identify – if they bothered to look for them?

As for other businesses, chances are they favor reopening the immigration sluice gates now during a CCP Virus-induced economic slump for the same reason they favored it in normal times: They simply want to pump up the U.S. labor supply, and thereby drive down the price that labor can command.

Apparent President-elect Joe Biden ran as a champion of American workers. But he’s also taken many strongly pro-Open Borders positions. According to Reuters, although the Trump bans are “presidential proclamations that could be swiftly undone” and Biden has criticized them, the former Vice President “has not yet said whether he would immediately reverse them.”

But if he – not to mention the judge and the business groups – were really concerned about business survival, they’d all focus more on rolling back unjustified lockdown measures and securing more federal aid for struggling enterprises rather than delivering yet another immigration-related slap in the face to an already historically hammered domestic workforce.