(What’s Left of) Our Economy: China, Manufacturing, the EU, & Canada (sort of) Led the New Trade Deficit Surge

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Canada, China, EU, European Union, exports, imports, Made in Washington trade deficit, manufacturing, Mexico, NAFTA, North American Free Frade Agreement, oil, real trade deficii, recovery, services, tariffs, Trade, trade deficit, Trump, {What's Left of) Our Economy

With President Trump still threatening to slap $200 billion worth of tariffs on Chinese imports this week, this morning’s trade figures from the Census Bureau show that the U.S. goods deficit with China hit a new monthly record of $36.83 billion. The U.S. manufacturing trade shortfall reached an all-time high as well – $92.29 billion. And as talks to revamp NAFTA (the North American Free Trade Agreement) continue, America’s goods gap with Canada jumped by nearly 58 percent on month, but the merchandise shortfall with Mexico sank by more than 25 percent.

The goods gap with the European Union, meanwhile, reached record monthly heights as well ($17.59 billion). The sequential increase of 50.03 percent was the greatest since October, 2013 (58.87 percent) and was driven by the biggest monthly plunge in U.S. merchandise exports (15.72 percent) to the region since July, 2006 (16.62 percent).

America’s combined goods and services trade deficit rose at its fastest pace (9.50 percent) since March, 2015 (35.63 percent), to $50.08 billion from a downwardly revised $45.74 billion. Total monthly imports of $261.16 billion were a new record as well, and total monthly exports fell for the first time since January – to $211.08 billion. Other all-time monthly highs were recorded for services exports ($70.29 billion), services imports ($47.22 billion), goods imports ($213.94 billion), and current dollar oil exports ($15.77 billion). Pre-inflation oil imports of $20.32 billion were the highest since December, 2014 ($23.58 billion). Though not a new monthly record in July, the goods trade deficit did increase that month at its fastest pace (6.11 percent) since November, 2016 (6.76 percent).

Although these July trade figures come too early in the third quarter to calculate trade’s drag on the current economic recovery through that period, if the monthly deficits remain in this neighborhood, trade’s subtraction from cumulative growth since the expansion began would rebound after falling during the second quarter. As of the revised second quarter figures, the increase in the real total trade deficit since mid-2009 had reduced inflation-adjusted growth during this period by 11.79 percent, or $398.50 billion. That was down from the $457.20 billion drag (14.33 percent) as of the final first quarter results.

The trade drag numbers are much greater for the Made in Washington trade deficit – that portion of U.S. trade flows most heavily influenced by trade agreements and similar trade policy decisions. As a result, it omits trade in services (where liberalization efforts remain at an early stage) and in energy (which is rarely discussed in trade diplomacy as such). The final first quarter figures pegged this growth drag at 17.37 percent, or $523.88 billion worth of lost constant dollar growth. As of the revised second quarter numbers, this growth bite had shrunk to 14.88 percent, or $502.90 billion worth of lost real growth.

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

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

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

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

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

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

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

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

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

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

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

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

(What’s Left of) Our Economy: More Historically Bad Wage News for U.S. Manufacturing Workers

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inflation adjusted wages, Labor Department, manufacturing, private sector, real wages, recovery, wages, {What's Left of) Our Economy

This morning’s real wage data from the Labor Department contained a double dose of bad news for American workers – and in one case, historically bad news.

Just as with a main finding from the pre-inflation wage data released earlier this month along with the monthly Labor Department jobs report, today’s after-inflation figures showed that hourly wages for manufacturing workers fell behind those of private sector workers in general for the first time – at least on a preliminary basis – on record. (These figures for each category of workers were first released in March, 2006).

To achieve this result, price-adjusted hourly pay for private sector workers in July stayed unchanged month-on-month (at $10.76), while such pay for manufacturing workers dipped by 0.09 percent (to $10.75). Price-adjusted wages for the two groups of workers first converged in May at $10.75.

When the initial set of these real wage figures was released more than twelve years ago, constant dollar manufacturing wages exceeded constant dollar overall private sector wages by 3.19 percent.

The new Labor Department data also showed that technical real wage recessions (periods of cumulative decline lasting for two consecutive quarters or more) for both groups of workers continued through July.

In manufacturing, inflation-adjusted wages are down on net by 0.19 percent since January, 2016 – a period of more than two-and-one-half years. In the private sector generally, the real wage recession became one year old, as after-inflation hourly pay is now down 0.19 percent on net since last July.

Manufacturing’s real wage woes were also made clear in its latest year-on-year figures. Since last July, such pay is down 1.56 percent – the worst such annual performance since October, 2012’s 2.09 percent plunge. Between the previous Julys, industry’s real wages grew by 0.65 percent.

In the private sector overall, the newly reported July annual real wage decline of 0.19 percent also contrasts with its own 0.65 percent advance the year before.

During the current economic recovery, which began in mid-2009, real private sector wages are up 4.36 percent. But in the private sector, they’ve improved by only 0.28 percent during this more than nine-year stretch – less than one-fifteenth as fast.

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

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

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

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

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

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

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

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

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

2013: 2.59 percent

2014: 2.67 percent

2015: 3.31 percent

2016: 3.51 percent

2017: 3.64 percent

And here are the revised data:

2013: 3.23 percent

2014: 3.42 percent

2015: 4.17 percent

2016: 4.45 percent

2017: 4.76 percent

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

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

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

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

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

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

(What’s Left of) Our Economy: The Chamber’s “Trade Works” Campaign is Clearly Hoping that Trade Fakery Works

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exports, imports, recovery, states, tariffs, Trade, Trade Deficits, trade surpluses, Trump, U.S. Chamber of Commerce, {What's Left of) Our Economy

The U.S. Chamber of Commerce is at it again: It’s launched a public relations campaign to strengthen American support for conventional trade liberalization policies (or at least to weaken support for President Trump’s increasing resort to tariffs to overhaul these policies). Its campaign focuses on how the old trade status quo was benefiting the U.S. economy. It’s using “state-by-state analysis to argue that Trump is risking a global trade war.” And as usual, it’s pretending that national and state trade flows (and their employment effects) consist of and stem only from exports.

Also as usual – there’s an excellent reason for the Chamber to resort once again to such intellectual dishonesty. Since the nation as a whole is running a huge and rising trade deficit that has cut into the subpar economic growth generated by the current expansion, it’s practically inevitable that the great majority of the fifty states have seen worsening trade balances significantly slow their recoveries as well.

And thanks to the Commerce Department, which tracks individual states’ merchandise exports and imports, it’s easy to see just how greatly the trade losers outnumber the trade winners. (State-level data on much smaller flows of services exports and imports are not available.) 

Specifically, from the year the current recovery began (2009) through last year, 26 states have seen their merchandise trade deficits increase, two have seen such trade surpluses fall, and in five, goods surpluses have turned into deficits. So in all, trade has dragged on growth during the recovery for 33 of the 50 states.

Of the 17 states that have improved their trade performances during this period, five have seen their deficits shrink, six have generated higher surpluses, and six have turned deficits into surpluses.

These data thoroughly debunk the claim made by the Chamber’s campaign that “Trade Works. Tariffs Don’t.” So it’s clear that what this pillar of the Offshoring Lobby is actually counting on is that trade fakery works.

(What’s Left of) Our Economy: America’s Real Wage Recession Continues, and Manufacturing Pay Hits a Downbeat Milestone

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inflation-adjusted wages, manufacturing, private sector, recession, recovery, wages, {What's Left of) Our Economy

Although this morning’s data from the Labor Department showed that the inflation-adjusted wages picture brightened marginally in June, they also revealed that two underlying trends on the American compensation front remained as discouraging as ever – especially in manufacturing. Further, the statistics confirmed that real hourly pay in industry has reached a milestone that factory workers clearly won’t want to celebrate.

The two underlying trends have to do with the technical real wage recessions (two or more consecutive quarters of net decline) that private sector workers overall, and their manufacturing counterparts, continue to suffer.

For the former, constant dollar hourly pay is down on net since last July – by 0.19 percent. For manufacturing, the real wage recession began two-and-one half years ago. Since January, 2016, after -inflation hourly wages are off by 0.09 percent.

The milestone? Real hourly pay in manufacturing has lately been performing so much worse than pay in the overall private sector that the two figures have now converged for the first time since these statistics have been tracked (beginning in 2006).

In May, price-adjusted wages in manufacturing and the overall private sector both stood at $10.75 per hour in 1982-84 dollars. This morning, those preliminary May readings remained intact, and the preliminary June numbers revealed both categories of workers to be earning $10.76 per hour in real terms.

By comparison, when the last recession began, at the end of 2007, constant dollar manufacturing wages topped their overall private sector counterparts by 2.79 percent. When the current recovery began, in mid-2009, the gap had actually grown – to 3.98 percent.

But during the current expansion, real private sector wages have now improved by 4.36 percent, whereas in manufacturing, constant dollar hourly pay is up only 0.37 percent – less than a tenth as fast.

On a sequential basis, real wages in manufacturing and the overall private sector both increased in June by 0.09 percent. On an annual basis, however, real private sector wages are flat, and real manufacturing wages are down 1.10 percent.

Between the previous Junes, constant dollar private sector wages advanced by 0.84 percent, and their manufacturing counterparts climbed by 0.46 percent.

(What’s Left of) Our Economy: The Real Private Sector Keeps Regaining its Job Creation Mojo

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healthcare services, Jobs, real private sector, recovery, subsidized private sector, {What's Left of) Our Economy

Although economic cycles don’t care about human calendars, humans do. So with last Friday’s release of the preliminary U.S. jobs figures for June, at the mid-year point, it’s as good a time as any to update RealityChek‘s monitoring of one of my favorite trends: The extent to which private job creation in America is actually job creation in government-subsidized sectors, notably health care services – which belong in a separate category because their overall growth and therefore employment levels depend so heavily on political leaders’ largesse, not only market forces.

When I last checked (in a February post that examined the full-year 2017 data), the news looked pretty good. After rising strongly during the Obama administration, the subsidized private sector’s share of total employment growth fell notably during the Trump administration’s first year in office. That’s encouraging not because subsidized private sector jobs aren’t needed, but because unless everything known or believed about economics is wrong, those jobs are bound to be less productive than jobs in the “real” private sector.

The June jobs statistics show that this positive development remains intact.

To generate the best (apples-to-apples) numbers, let’s compare the relevant numbers for the first six months of each of the last five years.

In 2013, the subsidized private sector generated 11.20 percent of the net new employment gains achieved by the economy between January and June. This figure rose every year through 2016, when it reached 28.95 percent.

During the first six months of 2017, however, the subsidized private sector’s share of total job growth fell to 23.25 percent. And though June, it’s down to 18.88 percent so far in 2018.

Just as important, the prominence of real private sector job creation is up considerably during this period. This development becomes clear when comparing employment growth in these two private sectors.

For the first six months of 2013, subsidized private sector job growth (135,000) represented 10.78 percent of conventionally defined private sector job growth (1.252 million). By 2016, its share had nearly tripled – to 31.47 percent (315,000 out of 1.001 million overall private sector jobs created.

But between January and June, 2017, the subsidized private sector accounted for only 23.64 percent of the overall private sector’s job growth, and the comparable number for this year has fallen to 19.03 percent (243,000 out of 1.277 million conventionally defined private sector jobs). That’s still nearly twice as high as in 2013, but two straight years of decline portends well for the economy, all else equal.

The American employment scene is hardly devoid of major problems – notably wages whose growth has been sluggish before accounting for inflation and that have been falling when adjusted for price increases. Moreover, with the U.S. population continuing to age, healthcare services in particular are inevitably going to remain a major source of employment for the foreseeable future. Still, signs that hiring momentum is swinging back to the real private sector shouldn’t be minimized. Maybe they’re even worth a presidential tweet.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

>But this too was a fifth straight quarterly record.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(What’s Left of) Our Economy: May US Manufacturing Output Figures Could Feed Optimism or Pessimism

Tags

automotive, durable goods, Federal Reserve, Great Recession, industrial production, manufacturing, non-durable goods, recovery, {What's Left of) Our Economy

May’s Federal Reserve domestic U.S. manufacturing production figures presented a puzzling glass-half-empty-half-full picture. Overall sequential real output levels were down 0.63 percent – their worst such performance since July, 2013’s 1.06 percent decrease. Clearly playing a big role was a fire at a factory producing parts for especially popular pickup truck models, which helped depress after-inflation automotive production by 6.45 percent – its worst such performance since April, 2011’s 7.91 percent plummet.

Yet stripped of automotive’s woes, inflation-adjusted manufacturing output was still down 0.18 percent on month in May, and the month’s decline represented the third such fall-off in the last five months. Largely as a result, industry’s annual constant dollar production increase improved in May by just 1.85 percent – the slowest such rate since January’s 1.10 percent. The automotive decline helped drag down monthly production in the durable goods super-sector by 1.16 percent in price-adjusted terms – the biggest such decrease since July, 2013’s 1.42 percent. Real output in the smaller non-durable goods super-sector was off only 0.08 percent in May.

After-inflation manufacturing output is still down 3.85 percent since the start of the last recession – more than eleven years ago.

Here are the manufacturing highlights of the Federal Reserve’s release Friday on May industrial production:

>May’s Federal Reserve industrial production figures contained evidence for both optimism and pessimism about the U.S. economy and its domestic manufacturing sector.

>Optimists could reasonably blame much of the 0.63 percent sequential drop in real manufacturing output – the worst monthly decrease since July, 2013’s 1.06 percent decline – on a fire at a factory providing parts for popular U.S. pickup truck models.

>And indeed, the May overall manufacturing production swoon was led by a 6.45 percent on-month plunge in motor vehicle and parts output – the worst such performance since April, 2011’s 7.91 percent.

>But pessimists could note that even counting the automotive effect, the rest of domestic manufacturing posted a 0.18 percent dip in monthly inflation-adjusted output – the third such shrinkage in five months.

>Largely as a result, manufacturing’s annual growth rate in May was down to 1.85 percent – its weakest since January’s 1.10 percent. Between the previous Mays, real manufacturing production expanded by 1.87 percent.

>Automotive’s troubles also showed up in the results for the durable goods super-sector in which it’s found. Durable goods’ after-inflation production sank by 1.16 percent sequentially in May – its worst such performance since July, 2013’s 1.42 percent plummet.

>In addition, its 1.97 percent constant dollar May annual growth rate was durable goods’ slowest since January’s 0.94 percent. Between the previous Mays, price-adjusted durable goods production advanced by 2.18 percent.

>Inflation-adjusted output held up better in the smaller non-durables super-sector in May. Its monthly production slipped by just 0.08 percent.

>On-year in May, non-durables’ real production rose by 1.73 percent. As with durable goods, this growth rate is the slowest since January (1.28 percent), but the deceleration has been smaller. Moreover, this year’s May annual production rate for non-durables was better than that for the previous Mays (1.57 percent).

>Revisions for overall real manufacturing production were slightly negative. April’s previously 0.47 percent monthly increase was upgraded to 0.57 percent. March’s already downgraded 0.02 percent rise was downgraded to a 0.11 percent decline. And February’s downwardly revised 1.40 percent increase was bumped down again to 1.39 percent.

>Largely as a result, in price-adjusted terms, domestic manufacturing’s production is now 3.85 percent lower than at the onset of the Great Recession – more than eleven years ago, at the end of 2007.

>After-inflation durable goods output is now 0.10 percent below the levels it hit in December, 2007, and 0.13 percent less than in January, 2008 (its last actual peak).

>Despite their recent out-performance, the non-durables sector has fared much worse since the last recession hit. Its constant dollar output is down fully 8.35 percent from its previous peak, which came in July, 2007.

(What’s Left of) Our Economy: Manufacturing Labor Productivity Growth is Looking Like an Endangered Species

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Bureau of Labor Statistics, Federal Reserve, Jerome Powell, labor productivity, manufacturing, multi-factor productivity, non-farm business, productivity, recovery, {What's Left of) Our Economy

Federal Reserve Chair Jerome Powell stated yesterday that the U.S. economy is doing “very well.” Judging by the metrics that the central bank is supposed to focus on as a matter of law – inflation and the headline unemployment rate – that’s an eminently respectable claim. Based on another key measure of economic performance – labor productivity – it looks like whistling in the dark.

As known by RealityChek regulars, strong productivity growth is widely seen by economists as the best guarantor of sustainable future prosperity and rising living standards. And as also known, labor productivity is the narrower of the two such measures of economic activity tracked by the federal government.

But it’s the gauge that’s updated on the most timely basis, and the latest numbers – which came out last week – should be spurring alarm, not complacency.

These final (for now) results for the first quarter of this year both confirmed that output per person hour worked for the non-farm business sector (the broadest definition of the U.S. economy used in these studies) remains stuck in an historically slow-growth phase, and showed that labor productivity in manufacturing may be shifting into contraction.

The labor productivity performance of both these major sectors was revised down in the latest release from the Bureau of Labor Statistics (BLS). Rather than having grown by 0.70 percent on an annualized basis sequentially in the first quarter, labor productivity for non-farm businesses is now estimated to have advanced by only 0.40 percent. And in manufacturing, a 0.50 percent annualized increase is now judged to have been a 1.20 percent decrease. That’s its third such drop in the last five quarters.

A glass-half-full analysis would point out that the new non-farm business figure was better than that for the fourth quarter of last year (0.30 percent), and that the manufacturing fall-off followed a 4.20 percent fourth quarter jump.

But the new BLS report also presented manufacturing revisions going back to 2008, and they make clear that its labor productivity performance during this period has been far worse than even previously thought. (And it was already really bad.)

Let’s concentrate on how the new statistics have changed the picture for manufacturing labor productivity during the current recovery, and compare those results with those for previous recoveries – since such analyses yield the best, apples-to-apples, results.

Before the new data came out, manufacturing labor productivity during this expansion was reported to have grown by a total of 9.69 percent. That was less than a third of the rate achieved during the recovery of the early 2000s – which was also known as the Bubble Recovery that helped trigger the financial crisis and ensuing recession, and which last only six years versus. The current recovery is approaching its ninth anniversary.

And during the nearly ten-year long expansion that began in the early 1990s, manufacturing labor productivity surged even more strongly – by 45.86 percent.

The new manufacturing labor productivity growth number for the current expansion? Only 8.28 percent! That’s a downgrade of more than 14.50 percent!

Moreover, although the non-farm business labor productivity growth rate for the current recovery wasn’t revised down nearly as much – from 9.70 percent to 9.62 percent. But this figure, too, pales next to those of previous recoveries. During the bubble expansion, non-farm business labor productivity rose by a total of 16.03 percent. During the 1990s expansion, the rate was 23.25 percent.

By the way, don’t put too many hopes in the broader productivity measure – multi-factor productivity – to come to the rescue. Those numbers haven’t been much better.

Some productivity students have been arguing that it’s only a matter of time, and that recent technological advances will soon start super-charging productivity growth after a slow start just as they did in an earlier era of transformative technological change – the 1920s.

These optimists had better be right. Because if not, the only way to return American growth and living standards gains to their historic rates of improvements will be to flood the economy with credit in order to crank up spending. Feel free to scream if the date “2008” means anything to you.