(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.

(What’s Left of) Our Economy: New Evidence that Trump’s Tariffs Have Bolstered U.S. Manufacturers

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aluminum, CCP Virus, China, coronavirus, COVID 19, GDP, gross domestic product, inflation-adjusted growth, lockdowns, manufacturing, metals, metals tariffs, real GDP, real value-added, recession, steel, tariffs, Trade, trade war, Trump, value added, Wuhan virus, {What's Left of) Our Economy

As everyone knows, at least as of the final (for now) official third quarter growth figures just released, the entire U.S. economy remains in a severe recession thanks to the arrival of the CCP Virus and the subsequent tight curbs on business activity.

Less widely known:  A separate set of official figures released along with yesterday’s government release on third quarter gross domestic product (GDP) shows that, by the measures most closely watched (i.e, inflation-adjusted), domestic manufacturing never suffered a recession by one crucial definition – a cumulative downturn lasting at least two quarters. And can it be mere coincidence that the entire time, President Trump’s sweeping and steep tariffs on hundreds of billions of dollars worth of Chinese goods, and of steel and aluminum from most major foreign producers, have remained in place?

Below are the growth (and contraction) figures for the entire U.S. economy and for the manufacturing sector for the entire CCP Virus period so far – the first quarter through the third quarter of this year. They come from the Commerce Department’s data on four measures of output tracked by the folks who look at “GDP by Industry” and consist of gross output both pre-inflation and adjusted for price changes, and value-added (a gauge of production that tries to remove the double-counting that results from gross output’s inclusion of both inputs for products and services and the final products and services themselves) in pre-inflation and price-adjusted terms. All the non-percentage numbers are in trillions of dollars at annual rates.

                                                      1Q                2Q                3Q            1Q-3Q

v/a whole economy:                 21.5611        19.5201        21.1703    -1.81 percent

v/a manufacturing:                     2.3643          2.0537          2.3291    -1.49 percent

real v/a whole economy           19.0108        17.3025        18.5965    -2.18 percent

real v/a manufacturing:              2.1999          1.9629          2.2132   +0.60 percent

gross output whole econ          37.8268        34.2600         36.9425    -2.34 percent

gross output mfg                        6.1163          5.3334           6.0134    -1.68 percent

real g/o whole economy           34.2613        31.3989         33.4440    -2.39 percent

real g/o manufacturing               6.2038          5.6162           6.2089    +0.08 percent

Probably the most important of these results is real value-added, since its topline economy-wide numbers are identical to the inflation-adjusted GDP figures regarded as the most important measures of economic growth. And in real value-added terms, manufacturing output in the third quarter was actually slightly (0.60 percent) higher than in the first quarter. Manufacturing expansion has also taken place according to the real gross output figures, though it’s been marginal.

Also crucial to note although both pre-inflation measures show first-third quarter cumulative manufacturing downturns, they’ve been shallower in both cases than the economy-wide slumps.

It’s true that the virus and related shutdowns have more dramatically impacted the service sector when it comes to first-order effects – because so many service industries entail personal contact. But the case for the tariffs’ benefits for manufacturing looks compelling upon realizing that U.S. services companies are major customers of domestic manufacturers. So although the virus obviously crimped these markets, it seems that the tariffs preserved a good many of them by pricing out much Chinese and foreign metals competition.

One way to test this proposition, of course, would be for apparent President-elect Joe Biden to lift the levies while the pandemic keeps spreading. Unless powerful evidence comes in to the contrary, manufacturers, their employees, and indeed all Americans should be hoping this is a bet Biden won’t make.

(What’s Left of) Our Economy: The Virus Leaves U.S. Growth and Trade Figures Still Distorted After All These Months

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

The final (for now) official read for America’s economic growth in the third quarter came out this morning, and it confirmed again that both the gross domestic product (GDP) and the country’s major trade flows changed (and were distorted by) historic rates during that phase of the CCP Virus pandemic.

At the same time, the new inflation-adjusted GDP data (the measure most closely followed by serious students of the economy) and the related trade figures make clear that in these 30,000-foot macroeconomic terms, trade has been a minor part of the post-virus growth picture. (In terms of specific products, like healthcare-related goods, the story is of course different, because their availability has affected the severity of the pandemic and resulting deep economic slump, and the expected schedule for recovery.)

Not surprisingly, given the slightly faster real expansion reported by the Commerce Department this morning (33.4 percent at an annual rate, versus the previously judged 33.1 percent), and continued economic sluggishness overseas, the quarter’s after-inflation overall trade deficit came in slightly higher, too – $1.0190 trillion annualized as opposed to $1.0164 trillion.

That’s a new quarterly record by an even wider margin than reported in the previous GDP report. So is the sequential increase – 31.47 percent as opposed to 31.13 percent. Just for some perspective, the next biggest quarterly jump in the constant dollar trade gap was just 13.18 percent (between the first and second quarters of 2010).

But as noted in last month’s RealityChek GDP post, 2010 was when the U.S. economy was recovering from the Great Recession that followed the global financial crisis, and annualized growth during that second quarter was just a ninth as fast (3.69 percent) as this year’s third quarter.

The subtraction from real economic growth generated by the latest surge in the trade deficit was big in absolute terms (3.21 percentage points), increased slightly over the previously reported 3.18 percentage points), and still stands just shy of the all-time biggest trade bite (3.22 percentage points, in the third quarter of 1982). But set against 33.4 percent annualized growth, it’s clearly not very big at all.

Combined goods and services exports and imports changed to roughly the same modest degree as the overall trade deficit. The quarter-to-quarter price-adjusted export increase was revised down from 12.56 percent to 12.41 percent, and the total real import increase is now judged to be 17.87 percent, not 17.89 percent. As a result, both figures remained multi-decade worsts and bests.

Somewhat greater relative changes took place in the service trade data – which isn’t surprising, with the service sector having been hit much harder by the pandemic than goods sectors.

All the same, whereas the previous GDP report showed that after-inflation services exports edged up on quarter by 0.21 percent (from $582.1 billion annualized to $583.3 billion), this morning’s release recorded slippage – by 0.14 percent, to $581.3 billion. Consequently, they now stand at their lowest quarterly level since the third quarter of 2009 – just as that Great Recession recovery was beginning.

As for real services imports, their quarterly price-adjusted increase was revised down from 5.91 percent to 5.70 percent, and their $393.3 billion level was the lowest since the third quarter of 2006.

Unfortunately, the prospect that these CCP Virus-related distortions in economic growth and trade figures will soon come to an end still seems as remote as the prospect that the virus itself will soon be tamed – even with the beginning of mass vaccination. As a result, for the time being, tracking these numbers will be useful for getting a sense of those distortions’ scale, but the underlying health of the economy, and of its trade flows, will remain elusive.

(What’s Left of) Our Economy: New U.S. Figures Show That a Trumpian Trade Boom Could Follow Trump

Tags

aerospace, automotive, Boeing, CCP Virus, Census Bureau, China, consumer electronics, coronavirus, COVID 19, goods trade, healthcare goods, manufacturing, merchandise trade, Phase One, recession, services trade, Trade, trade deficit, travel, Wuhan virus, {What's Left of) Our Economy

As usually the case when the U.S. government’s data keepers, in their infinite wisdom, decide to issue several sets of important statistics on the same day, I prioritized the monthly jobs report in last Friday’s blogging. After all, it may be the nation’s single most closely followed economic indicator.

But that doesn’t mean that the monthly trade figures released on the same day deserved to be overlooked. In fact, they were unusually interesting for making clearer than ever how these numbers have been thoroughly distorted this year – and for the worse, in terms of America’s trade deficits – by the CCP Virus’ impact on the U.S. and global economies. The effects were especially evident in aerospace trade, which has suffered both from the virus’ decimation of much air travel around the world, and from the lingering damage inflicted by Boeing’s safety woes.

At the same time, these distortions also both point to a big silver lining for U.S. trade and especially the country’s manufacturing sector – especially if apparent President-elect Joe Biden is smart enough to keep most of President Trump’s tariffs in place. For if these trade curbs – highly concentrated on Chinese goods – remain largely on the books, not only will the pandemic’s eventual  (vaccine-induced?) end and recent steps toward returning Boeing’s troubled 737 Max model to the air boost the huge aerospace sector tremendously. In addition, domestic industry will be able to keep making progress filling the demand gap that’s clearly been left by the absence of Chinese products in the U.S. market, and capitalizing on Beijing’s commitment under the Trump Phase One trade deal to increase its imports from the United States.

As for the new monthly trade data – which cover October – one of the biggest stories concerned the revisions of September data, which dramatically changed the overall trade deficit number, and which stemmed almost entirely from astounding new services trade figures.

October’s combined goods and services trade deficit came in at $63.12 billion, according to the Census Bureau analysts who monitor the nation’s trade flows. On the surface, that represented a 1.68 percent increase over September’s total, and continued a troubling pattern of the overall trade gap continuing to widen even though the CCP Virus and associated business and consumer restrictions keep depressing U.S. economic growth dramatically.

Indeed, the October monthly total deficit was the second highest figure recorded since July, 2008’s $66.99 billion. And on a year-to-date basis, this shortfall is now 9.50 percent bigger in 2020 than in 2019.

But that September trade gap itself was revised down from the previously reported $63.86 billion – a huge 2.79 percent adjustment. And all that revision and much, much more resulted from re-estimates of the service trade numbers – where the surplus was revised up from $16.82 billion to $18.69 billion. Even given the relative difficulty of measuring any service sector economic activity, that 11.10 percent revision is nothing less than a mind-blower.

Underscoring the virus effect on all the service sub-sectors that go into economic activity, and on the travel industry in particular, the October service surplus of $18.29 billion was a 2.17 percent sequential decline, and the smallest such figure since August, 2012’s $17.08 billion. And through the first ten months of this year, the service surplus has shrunk by 15.60 percent.

The monthly and year-to-date moves in goods trade haven’t been nearly as big. This deficit did hit $81.41 billion in October (the second largest such total ever, after August’s $83.90 billion). But the monthly increase was only 1.28 percent, and year-to-date this merchandise gap has risen by a mere 1.28 percent.

Still, it’s legitimate to ask why the goods trade gap has risen at all with the economy still exiting (however rapidly in the third quarter) its deepest downturn since the Great Depression of the 1930s. It’s also legitimate to ask whether this increase despite a major (14.01 percent) drop in the year-to-date China goods deficit means that the Trump tariffs simply shifted this shortfall to other countries.

Given China’s burgeoning power and its growing aggressiveness around the world, the strategic benefits of such “trade diversion” to much less threatening countries shouldn’t be minimized. But in purely economic terms (which matter considerably), the Trump policies appear to be nothing more than a wash, and a disruptive one to corporate supply chains.

And this is where the aerospace sector comes in. From January-October, 2019 to the same period this year, the U.S. surplus in civilian aircraft, aircraft engines, and non-engine aircraft parts combined has plummeted by $43.48 billion. Had it simply remained at its 2019 levels, the huge, chronic U.S. manufacturing trade deficit – a major measure of domestic industry’s health as the Trump administration and many others, like me, see it – would be down on a year-to-date basis by five percent, rather than up by 3.22 percent.

As for the combined goods and services deficit, had the aerospace surplus not worsened, it would have increased by only 0.63 percent (to $493.21 billion), not 9.50 percent (to $536.69 billion). And if the services surplus remained the same rather than plunging by $37.26 billion, the year-to-date total trade deficit would look even better. In fact, the total trade gap actually would have shrunk during this period by 6.97 percent, to $455.95 billion.

Not that the Trump tariffs have solved all of U.S. manufacturing’s trade, or the nation’s overall trade woes. In October, industry still recorded its biggest monthly deficit ever ($110.20 billion) even though the aerospace surplus soared by nearly 36 percent sequentially. The big automotive and consumer electronics products deficits kept growing, and although detailed enough October data haven’t been posted yet, so, too, surely have been the shortfalls in protective and other pandemic-related medical equipment.

But the good October aerospace numbers indicate that this trade-crucial sector is already starting to reverse its fortunes, and as the pandemic subsides, the services trade surplus should return to normal levels as well. If a Biden administration keeps its promises to reshore crucial medical- and national security-related supply chains, the manufacturing trade balance will clearly benefit as well. And if, as he’s indicated he will, the former Vice President holds off on lifting the Trump China tariffs, and keeps the Phase One deal in force, domestic industry could be headed for salad days not only in trade terms, but on the production and employment fronts as well.

(What’s Left of) Our Economy: Why Biden’s Immigration-Enabling Goals Couldn’t be Worse Timed

Tags

asylum seekers, California, CCP Virus, coronavirus, COVID 19, Department of Labor, Eduardo Porter, illegal aliens, illegal immigration, Immigration, Jobs, Joe Biden, NAFTA, North American Free Frade Agreement, Open Borders, path to citizenship, Pew Research Center, recession, refugees, services, The New York Times, The Race to the Bottom, wages, Wuhan virus, {What's Left of) Our Economy

Apparent President-elect Joe Biden emphatically and repeatedly told the nation that he’s determined to increase the flow of immigrants to America – whether we’re talking about his promises that will greatly strengthen the immigration magnet (like creating a “roadmap to citizenship” for America’s illegal alien population, tightly curbing immigation law enforcement activities, and offering free government-funded healthcare to anyone who can manage to cross the border lawfully or not), or his promises to boost admissions of refugees, speed systems for processing applications for asylum and (legal) green card applications, and generally “to ensure that the U.S. remains open and welcoming to people from every part of the world….”

During normal recent times such pledges – and the fallout of pre-Trump efforts to keep them – had proven troublesome enough for the U.S. economy and for working class Americans in particular. Inevitably, they pumped up the supply of labor available to U.S.-based businesses, and created surpluses that enabled companies to cut wages with the greatest of ease – exactly as the laws of supply and demand predict.

During the CCP Virus pandemic and its likely economic aftermath, however, this quasi-Open Borders strategy looks positively demented, as emerging trends most recently described by New York Times economics writer Eduardo Porter should make painfully obvious.

According to Porter in a December 1 piece, “The [U.S.] labor market has recovered 12 million of the 22 million jobs lost from February to April. But many positions may not return any time soon, even when a vaccine is deployed.

“This is likely to prove especially problematic for millions of low-paid workers in service industries like retailing, hospitality, building maintenance and transportation, which may be permanently impaired or fundamentally transformed. What will janitors do if fewer people work in offices? What will waiters do if the urban restaurant ecosystem never recovers its density?”

What’s the connection with immigration policy? As it happens, the service industries the author rightly identifies as sectors apparently vulnerable to major employment downsizing are industries that historically have employed outsized shares of immigrant workers (including illegals). And along with other personal service industries, they’re kinds of sectors whose modest skill requirements would continue to offer newcomers overall their best bets for employment.

The charts below, from the Pew Research Center, show just how thoroughly dominated by both kinds of immigrants these sectors, and present similar data broken down by occupation. (The U.S. Department of Labor tracks employment according to both kinds of categories.)

Twenty years ago, in my book The Race to the Bottom, I wrote about news reports making clear that

“immigrants were flooding into California in hopes of landing jobs in labor-intensive industries such a apparel and electronics assembly that NAFTA [the North American Free Trade Agreement] had steadily been sending to Mexico — where most of the immigrants come from! In other words, the state was importing people while exporting their likeliest jobs.” 

And not surprisingly, wages throughout the southern California in particular stagnated.  

If a Biden administration proceeds with its stated immigration plans as quickly as it’s promised (with many actions scheduled for the former Vice President’s first hundred days in office), this epic blunder will wind up being repeated — but this time on a national scale.  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Making News: (Re)Unveiling a Revolutionary U.S. Tax Policy Proposal

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CCP Virus, coronavirus, COVID 19, deficits, fiscal policy, Henry George, Henry George School of Social Science, InsideSources.com, Land-Value Tax, LVT, Making News, municipal finance, recession, taxes, Wuhan virus

And now for something completely different. (Apologies to the Monty Python crew.)

As some of you may know, when I’m not blogging here at RealityChek or Tweeting like a house on fire, I’m serving as a Trustee of the Henry George School of Social Science. This economic education institution seeks to apply some of the truly revolutionary insights reached by George, a Gilded Age/Progressive Era American economist about issues of his day, that strongly resemble some of the biggest challenges of our own times – for example, the rise of economic inequality amid extraordinary wealth creation and technological progress, the replacement of so much productive activity with financial speculation, and the weakening of competition throughout American business as enormous industries grow more monopolistic.

George’s signature proposal was a “land-value tax” (LVT), which he wrote boasted great potential to penalize casino-type finance; reward productive investment and thereby foster production-based, broadly shared prosperity; and break up economically and politically dangerous concentrations of wealth.

Folks associated with the School and with “Georgism” have advocated for this proposal ever since, but we believe that the LVT creates yet another advantage that’s especially important today: Its adoption could place the finances of state and cities devastated by the CCP Virus-induced recession and collapse of tax revenues on a healthy, sustainable footing.

As a result, we’ve launched an effort to show exactly how the LVT could eliminate budget gaps in states and localities across the country, and I’m pleased to announce that the first of these offerings has just been published (as an op-ed I’ve co-authored) by the news syndicate InsideSources.com). Here’s the link.

Moreover, we’ve recently issued a policy brief containing much more data relating to New York City and New York State that you can read here. And in the coming weeks and months, we’ll be sending off locally customized versions of this piece to news organizations in dozens of financially squeezed regions, including detailed projections of exactly how much revenue entirely affordable LVTs could raise.

So keep checking in with RealityChek for info on these articles, and news of other upcoming media appearances and developments.

(What’s Left of) Our Economy: October Costs Manufacturing Some Jobs Momentum

Tags

(What's Left of) Our Economy, automotive, CCP Virus, coronavirus, COVID 19, election 2020, Employment, fabricated metal products, food products, Jobs, Joe Biden, machinery, manufacturing, metals, motor vehicle parts, NFP, non-farm jobs, non-farm payrolls, private sector jobs, recession, regulation, tariffs, taxes, Trade, transportation equipment, Trump, Wuhan virus

The manufacturing jobs picture revealed in this morning’s October official U.S. jobs report was a classic glass-half-empty/half-full story. But for the first time since the employment rebound from its CCP Virus-induced lows, the gloomier view seems to have the edge – though a modest one. The main reason: In October, the rate of cumulative manufacturing job creation fell slightly behind that of the U.S. government’s entire employment universe (so-called non-farm payrolls, or NFP), and of the private sector.

Domestic industry increased its employment level on net by 38,000 in October on a sequential basis. That figure represented a decrease from the September total – which has been revised down from 66,000 to 60,000. But it’s an improvement over August’s also downwardly revised 30,000 total.

In addition, as opposed to dominating the manufacturing jobs picture for good and ill, as it has during the pandemic recovery period, automotive jobs, rose by a mere 1,400. The downward revision in combined vehicle and parts payrolls in September, however (from 14,300 to 7,700) did account for more than all of the total downward manufacturing revision for the month.

October’s manufacturing net jobs-creation leaders were fabricated metals products (7,200), food manufacturing (6,200), primary metals (6,000), and machinery (3,900). The first two categories enjoyed their second straight month of relatively strong job improvement, while the primary metals gain amounted to an important turnaround from September’s 3,400 net employment loss.

At the same time the October machinery results – important because that sector influences so much manufacturing activity overall, and because of its close connections to non-manufacturing industries like agriculture and construction) – were much less impressive than the 12,600 employment rise of September. Worse, this figure itself was downgraded from the initially reported 13,800.

The only significant October jobs loser in manufacturing was transportation equipment. This large category – which includes automotive – shed 2,400 jobs on net. The big problem here was motor vehicle parts, where employment fell by 2,800.

October’s employment progress means that manufacturing overall has regained 742,000 (54.44 percent) of the 1.363 million jobs it lost during the worst of the CCP Virus economic slump of March and April. (Those earlier job losses represented 10.61 percent of the last pre-virus – February – manufacturing employment level.)

As of October, non-farm payrolls total had regained 12.070 million (54.47 percent) of the 22.160 million total decrease they suffered in March and April. So although by this definition, overall U.S. employment plunged by 14.53 percent during the virus low point – more proportionately than manufacturing) — the rate of its jobs rebound is now slightly faster.

Faster still has been the bounceback in private sector jobs. Non-government employment (whose status is much more revealing of the economy’s fundamentals than government employment) fell by 21.191 million in March and April combined – greater relative losses (16.34 percent) than experienced either by manufacturing or the non-farm sector. But its strong October performance mean that it’s regained 12.317 million of these position on net – an increase of 58.12 percent.

But as if the CCP Virus and its decimation of the economy haven’t created enough uncertainties for manufacturing employment (and for the economy as a whole), this week’s Election 2020 results could further muddy the waters – especially if the White House changes hands. Despite October’s jobs slowdown, industry’s employment and output have held up well, due no doubt significantly to President Trump’s tariff-centric trade policies and domestic overhauls in taxes and regulations. The Trump manufacturing record pre-virus has also been strong. Would a Biden administration reversal of these moves put U.S. manufacturing back behind the eight-ball? Or would it find new alternative growth fuels for industry?